Tag Archives: Summary

Case Summary: Pac Rim Cayman LLC v El Salvador

Inside of salt mine shoot on corridorOur next case summary is Pac Rim Cayman LLC v. El Salvador and the summary is prepared based on the award rendered in October 2016.

The claim was brought based on the Central America Free Trade Agreement (CAFTA) and El Salvadoran Investment Law.

The investor held an exploration permit for a largely-underground gold mining site in Eldorado and further applied for an exploitation permit.  The dispute arose from the government’s refusal to grant exploitation license, which, according to the investor, amounted to several breaches of El Salvadoran Investment Law.

Meanwhile, the state based its refusal on the failure of the investor to obtain either ownership rights to all of the surface land in the concession area, or authorisations from all relevant landowners, as required under the Mining Law.

The tribunal decided to hear the claims under El Salvadoran law, which was allowed under the ICSID Convention, after it ruled that it did not have jurisdiction under the CAFTA.

The tribunal sided with the state and disagreed with the investor’s interpretation of the Mining Law which would not require authorisations from surface-level landowners if the activity does not involve surface-level land. According to the tribunal, the mining might pose environmental risks to surface landowners. Therefore, the investor’s interpretation was disproportionate to the risks.

In conclusion, the tribunal found that the investor did not comply with the requirement under the Mining Law to be granted an exploitation permit and therefore the government did not have any obligation to grant such permit to the investor.

The investor was also ordered to pay the majority of the state’s costs in the proceedings.

See other case summaries involving the mining industry here.

 

Practical guide: information about ISDS

Books close up are on the tableIt could be difficult to get an overview of what happens in the ISDS world. This is because the international nature of this field and the fact that it lacks centralized information system. However, things are happening fast – new arbitral awards are rendered and states are concluding and terminating international investment agreements (IIAs)

We offer some practical guides to ISDS through the following sources.

 

Free services:

Italaw

The website, which has been around for a long time, publishes arbitral awards and other documents from ISDS proceedings. Researchers at the University of Victoria are managing the website. If you search for a particular ISDS dispute on the internet, it is often that Italaw comes first, which may indicate that the website has been visited a lot.

UNCTAD

The website of the United Nations Conference on Trade and Development provides user-friendly search functions for both arbitral awards and IIAs that contain ISDS as dispute settlement mechanism. In addition, it publishes reports on new updates and statistics on IIAs and ISDS.

PluriCourts Investment Treaty Arbitration Database (PITAD)

PITAD is a database project of all known ISDS cases, currently under construction by the University of Oslo. The database can be accessed via a request to the responsible researchers.  The researchers behind the project takes empirical approach and uses coded variables to classify hundreds of well-known arbitral awards.

ICSID and PCA

ICSID administers most ISDS cases and automatically publishes information about them (as long as the parties do not actively object to it). PCA, on the other hand, publishes information with the consent of the parties. Both organizations have searchable databases.

 

Service with paid subscription

Investment Arbitrator Reporter

This website publishes news and information about ISDS. IAReporter engages in ongoing investigative reporting, which leads to their reporting on many cases, awards and developments that are otherwise confidential. IAReporter also offers in-depth summaries and analysis of awards and decisions, which could be helpful for those who do not want to read the hundred-pages awards. In principle, one must pay for subscription, however IAReporter also provides free trials and discounts for those who cannot gain access otherwise.

Global Arbitration Review

This publication primarily targets legal practitioners in the arbitration field – but often publishes interesting interviews and summaries of proceedings for those interested in learning more about the practical sides of ISDS work.

Philip Morris v. Uruguay

Blogg_v34Our next case summary is Philip Morris v. Uruguay. This summary is prepared based on the publicly-available award rendered in July 2016.

The case reminds us of the one between Philip Morris and Australia. In both cases, Philip Morris claimed that their investment had lost value due to a new tobacco legislation and therefore the company is entitled to compensation.

The case against Australia was dismissed at an early stage, when the tribunal held that Philip Morris unlawfully took advantage of a subsidiary in order to get access to ISDS. Therefore, the tribunal did not examine the main issue of the case, which was the tobacco legislation itself. Meanwhile, the dispute with Uruguay went all the way to the assessment of the measure in dispute, and the majority of the tribunal found that the Uruguayan tobacco legislation did not violate the bilateral investment treaty between Switzerland and Uruguay (BIT).

Philip Morris based its arguments on two main parts of the Uruguayan legislation: first was the decision by the country’s Ministry of Health that bans selling different types of presentations of the same brand of cigarettes (it is not allowed to sell a product that is ”light”, ”menthol” or ”gold”). The second is a presidential decision which requires that the images of health warning on cigarette package increase from 50% to 80%.

The company argued that these measures violated several provisions in the BIT, including a violation of its intellectual property rights.

In the 300-page award, the tribunal asserted that intellectual property rights are indeed protected by the BIT – however it did not find that the state violated the agreement as the company failed to prove that it had suffered a level of damage required to find violation. Further, according to the tribunal, the state has a large policy space to implement reforms aiming to protect legitimate interest – and therefore this type of measure cannot be considered an expropriation or a breach of the fair and equitable treatment standard of protection as long as they are made on rational grounds and in good faith. It found that Uruguay had a genuine interest in protecting public health – and that the government adopted the reforms in a serious and well-motivated manner.

Another argument by Philip Morris was that it was denied a fair trial in the Uruguayan courts, where the company had first tried to appeal the tobacco measures. The company claimed that two different instances of court system in the country had ruled contrary to each other. In this case, even though the Supreme Court sided with the company, an administrative court chose ignore the Supreme Court and rejected the company’s appeal. The tribunal agreed that this was strange but at the same time viewed that this fact was not enough to consider that Philip Morris had been denied a fair trial.

Because Philip Morris’ claims were dismissed on its entirety, the company was ordered to pay the entire cost of the dispute, as well as 70% of Uruguay’s legal fees.

ICSID Statistics: Increased Diversity of Arbitrators

National flags of different countryThe ICSID Secretariat has recently published its latest case statistics where it reports that up to 30 June 2016, the number of overall ISDS cases has reached 570 cases.

Overall, most respondent states are countries in Eastern Europe, Central Asia and South America.

Investors involved in overall ICSID cases mostly come from the service industry, where information and communication, finance, service and trade, transportation and tourisms sector together make up 29% of claimants.

As for outcome of the cases, States are successful in the majority of cases. ICSID reports that tribunals have declined jurisdiction in 26% of cases, dismissed all claims in 27% of cases and upheld claims in partial or in full in 46% of cases.

The report also covers cases initiated and completed in ICSID Fiscal Year 2016, which is the period of 1 July 2015 –30 June 2016. In this period, most cases involved investors in power and energy industry, followed by the service sector.

There is an apparent increase in diversity of arbitrators in terms of nationality during the Fiscal Year 2016. During this period, arbitrators, conciliators and ad hoc committee members from South America, Central America and the Carribean, Middle East and North America, Sub-Saharan America, South & East Asia and the Pacific, Eastern Europe and Central Asia made up 39% of cases. This represents a significant improvement compared to just 24% in the previous fiscal year.

Mesa Power Group LLC v. Canada

Array of wind power station at the sunsetOur next case summary is Mesa Power Group LLC v. Government of Canada, an arbitration under Chapter 11 of NAFTA. This summary is prepared based on the publicly available award rendered on 31 March 2016.

The claimant in this case was Mesa Power Group LLC (“Mesa”), a U.S. corporation that oversees and develops renewable energy projects, notably in the wind sector. Mesa’s claims centered on the Government of Ontario’s Feed-in Tariff program (the “FIT Program”), enacted to promote the generation and consumption of renewable energy in the province. Under this program, generators of renewable energy could apply for a 20 or 40-year power purchase agreement (a “FIT Contract”) that would guarantee a certain price per kWh for electricity delivered into the Ontario electricity system. Participants in the FIT Program had to satisfy a certain domestic-content requirement, meaning that the 25-50% of the equipment used must be made in Canada. Mesa filed six applications under the FIT Program, but was not awarded any FIT contracts.

Mesa filed for arbitration under NAFTA Chapter 11, claiming that the government had acted in an arbitrary and discriminatory manner in awarding FIT contracts. Specifically, Mesa argued that the program’s domestic-content requirement was impermissible under NAFTA, that the awarding of FIT contracts was irregular and resulted in discrimination against Mesa, and that the government’s changes to the FIT program after applications had been received amounted to arbitrary and unfair treatment. Mesa sought more than CAD 650 million in damages.

Responding to Mesa’s claims, Canada argued the acts of the Ontario Power Authority were not covered by the obligations in Chapter 11 of NAFTA; and that even if the acts were covered, Article 1108 excludes procurement programs from protection under the principles of National Treatment and Most-Favored-Nation (“MFN”) Treatment. Finally, Canada maintained that Mesa had not been treated less favorably than other Canadian or U.S. investors.

In its award, rendered on 31 March 2016, the arbitral found that the claims did properly fall within Chapter 11 of NAFTA, but that the FIT program had not constituted a breach of Canada’s obligations under that treaty. Specifically, the tribunal agreed with the respondent state that, under Article 1108, procurement programs are excluded from Chapter 11’s National Treatment and MFN clauses. The tribunal further concluded that Canada’s conduct in implementing the FIT Program had not breached the “fair and equitable treatment” standard of Article 1105.

The tribunal noted that “at least some criticism” could be levelled at the government’s policy choices and actions with respect to its renewable energy programs. The tribunal concluded, however, that “judged in all the circumstances, this is not criticism that reaches the threshold of a violation of Canada’s international obligations.” Mesa’s claims were thus dismissed in their entirety, and Mesa was ordered to bear the costs of the arbitration, including a portion of Canada’s cost of legal representation.

Case Summary No. 6

Image of blurred store for backgroundOur sixth example of an ISDS case is Franck Charles Arif v. Moldova, a case filed with the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C. The summary is based on the facts as described in the award rendered in April 2013.

The claimant, Mr. Franck Arif, a French national, was the sole owner of a company that had won a state tender to operate a series of duty-free stores at five locations along the Romanian border. The company had also secured the exclusive right to operate a duty-free store at the country’s main airport. In filing for arbitration, Mr. Arif argued that the success of his investments had been obstructed by a series of government delays, unnecessary inspections, and domestic judicial decisions that invalidated both the tender for the border-stores and the lease agreement for the airport store. Mr. Arif argued that the Moldovan state’s actions had violated several provisions of the bilateral investment treaty (BIT) between France and Moldova.

The arbitral tribunal rejected most of the claimant’s claims (e.g. expropriation, denial of justice, discrimination), but granted one of his claims based on the fair and equitable treatment standard set forth in the BIT. In short, the tribunal found that the state’s actions had frustrated the investor’s legitimate expectation of a secure legal framework in which to operate the airport store. For this breach, the investor was awarded USD 2.8 million in damages, significantly less than the USD 44 million he had requested. The tribunal also gave Moldova the option of further reducing the damages owed to Mr. Arif by offering restitution instead—in effect allowing him to re-open the store at issue.

Mr. Franck Arif also sued Moldova at the European Court of Human Rights in Strasbourg, on the grounds that the Moldovan government’s actions breached the European Convention on Human Rights. Disputes before European Court last many years; no verdict has yet been reached in the case filed by Mr. Arif.

Case Summary No. 3

To better explain the principles underlying ISDS, we are introducing a series of case summaries here at the blog.

Our third case is Marion Unglaube v. Republic of Costa Rica and the award was rendered in May 2012. This summary is prepared based on the facts as described in the award.

The investor had several plots of land in the Pacific Coast of Costa Rica. In 1991, Costa Rica announced that it intended to create a national park around the area where the investor’s property was located, for protection of leatherback turtles. To this end, the government informed its intent to expropriate certain private properties.

The investor did not dispute the government’s objectives to protect the environment.

However, when the government finally moved to expropriate the investor’s land in 2003, the investor did not receive any compensation for this action.

From the outset, the Tribunal in the ensuing arbitration asserted that it was not empowered to question the authority of the Costa Rican government to expropriate land – an authority which has long been established and recognized by international law.

The tribunal noted however that while there can be no question concerning the right of the government of Costa Rica to expropriate property for a bona fide public purpose, expropriation must be compensated.

The tribunal went on to say that if compensation had been properly provided for and paid by the government, Costa Rica’s legal position would have been incontestable and this dispute might never have occurred.  Finally, the tribunal ordered Costa Rica to pay compensation to the investor for the expropriation.

Case Summary No. 2

Our second case is World Duty Free Company Limited (“WDF”) v Republic of Kenya and the award was rendered in October 2006. This summary is prepared based on the facts as described in the award.

The dispute arose out of an agreement where between WDF, an Isle of Man company, and the Kenya Airports Authority, acting on behalf of the Government of Kenya for the construction, maintenance and operation of duty-free complexes at Nairobi and Mombasa International Airports (1989 Agreement).

WDF brought a claim to the ICSID, claiming expropriation of its property and a breach of the 1989 Agreement.

WDF submits that from the outset, to be able to do business with the government of Kenya, the CEO and shareholder of WDF was required to make a “personal donation” to the then President of Kenya. This donation amounted to USD 2 million.

WDF further claims that the Government of Kenya instigated to take over the control, shares and assets of WDF. The High Court of Kenya placed it in receivership. The CEO was subsequently arrested, held, and deported to the United Arab Emirates.

The Tribunal ruled that the 1989 Agreement was procured by a bribe, without which no contract would have been concluded between the parties. WDF retained the free choice whether or not to invest in Kenya and whether or not to conclude the Agreement, but WDF chose, freely, to pay the bribe. The bribe is contrary to international public policy of most, if not all, States and also to public policy under English and Kenyan law.

Thus, the Tribunal dismissed the claims on the ground that contracts obtained by corruption cannot be upheld.

 

Case Summary No. 1

In a series of blog posts, we will provide summaries of ISDS cases. The summaries are based on the facts as described in the award.

Our first case is Wena Hotels Ltd v. Arab Republic of Egypt and the final award was rendered in 2000.

The dispute arose out of two long-term agreements between Wena Hotels Limited (“Wena”), a British investor to lease, operate and manage two hotels in Egypt, and the Egyptian Hotels Company (“EHC”). EHC was wholly-owned by the Egyptian government. Shortly after the signing of the agreement, Wena alleged the condition of the hotels to be far below that agreed in the lease. Wena therefore withheld part of the rent under the terms of the lease.

Due to this non-payment, EHC threatened to repossess the hotels through force. Wena informed the Egyptian Minister of Tourism about this situation however there was no solution. One night witnesses reported that more than one hundred EHC personnel stormed the two hotels, threatened and physically attacked the hotels’ employees and guests. They were also reported to having removed a number of belongings of the hotels.

The Chief Prosecutor of Egypt ruled that seizures of the hotels were illegal and that Wena was entitled to repossess the hotels. The hotels were subsequently returned but in a vandalized condition.

Wena brought an ISDS claim against Egypt under the ICSID Convention, claiming violation of investment protection in the UK-Egypt investment treaty.

The tribunal found a breach of the investment treaty since, according to the tribunal, there was substantial evidence that Egyptian authorities were aware of EHC’s intentions to seize the hotels but took no action to prevent the seizures. After the seizures, Egypt took no action to immediately restore Wena’s control over the hotels.

The tribunal also found that an expropriation had taken place since Egypt allowed EHC to seize the hotels, to possess them illegally for nearly a year and to return the hotels stripped much of their furniture and fixtures. In the opinion of the tribunal, Egypt did not provide a fair, prompt and adequate compensation to Wena for the expropriation.