Digest of Icsid Awards and Decisions: 1974-2002 0199641153, 9780199641154

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DIGEST OF ICSID AWARDS AND DECISIONS 19742002

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DIGEST OF ICSID AWARDS AND DECISIONS 19742002 Richard Happ Luther, Hamburg

Noah Rubins Freshfields Bruckhaus Deringer, Paris

3

3

Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © Richard Happ and Noah Rubins, 2013 The moral rights of the authors have been asserted First Edition published in 2013 Impression: 1 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence, or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Crown copyright material is reproduced under Class Licence Number C01P0000148 with the permission of OPSI and the Queen’s Printer for Scotland British Library Cataloguing in Publication Data Data available ISBN 978–0–19–964115–4 Printed and bound in Great Britain by CPI Group (UK) Ltd, Croydon, CR0 4YY Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work.

THE AUTHORS

Richard Happ is a German-trained attorney (Rechtsanwalt), partner of Luther in Hamburg, Germany, and co-head of the firm’s arbitration practice group. He advises both German and foreign clients in national and international arbitration proceedings. He specializes in investment protection law and has advised both States and investors in arbitration cases. Frequently, he serves as arbitrator. Noah Rubins is a partner in the international arbitration and public international law groups of Freshfields Bruckhaus Deringer LLP, based in Paris, and serves as the head of Freshfields’ global CIS/Russia dispute resolution practice. US-trained, his practice focuses on commercial and investment disputes in the energy sector and arbitration in the former Soviet Union and eastern Europe.

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PREFACE

This book is at once a sequel and a prequel. In 2009, the authors published the Digest of ICSID Awards and Decisions 2003–2007. That volume was based on a series of reports published annually in the German Yearbook of International Law beginning in 2003. The introduction of the inaugural edition explained the general approach, which applies equally to this volume: to analyse and identify the legal reasoning as regards the international law issues considered decisive by a Tribunal for each case. Facts and legal positions of the parties will only be reported as far as they are considered necessary for the understanding of the Tribunal’s reasoning. Although it is not possible to prevent the summary of 80 pages’ worth of text, confined to two or three pages, from being influenced by the the author’s view, this report does not purport to evaluate the decisions. Shortly after the publication of the Digest 2003–2007, we developed the idea to complement it with a digest of ICSID decisions and awards for the preceding period, from the first Holiday Inns v Morocco decision of 1974 through 2002. Three circumstances underpinned that conception. First, the early period witnessed a slow transformation of the ICSID caseload from purely contract-based disputes to investment treaty disputes, which now dominate the institution’s docket. The understanding of how tribunals reacted to this evolution can be extremely useful in understanding arbitrators’ reasoning in later years. Second, certain of the decisions rendered in the first 25 years of ICSID activity are often cited in arbitration briefs and awards today, for example Amco Asia v Indonesia, AAPL v Sri Lanka and Azinian v Mexico. Although these decisions cannot be considered ‘precedent’ in any formal sense, in practice Tribunals frequently seek guidance in the considerations of similar situations by earlier panels, with the necessary consequence that counsel often invoke them in their submissions. Third, many of the first ICSID decisions have not been widely disseminated. Some have been published in the ICSID Reports and International Legal Materials, but cannot be accessed online. A digest for the 1974–2002 period will thus also improve access to important research sources, hopefully facilitating the work of lawyers and arbitrators. This book is divided into two parts. In Part I, we present the summaries of all awards and decisions rendered during the 1974–2002 period, except those that remain confidential and unavailable to the authors. We have chosen to include all decisions that are not purely procedural in nature, including those related to rectification and annulment. Unlike the first volume (which now should be considered the vii

Preface second, chronologically), we have also included orders and decisions dealing with requests for provisional relief. Each summary begins with a header box indicating the index number (which is used in cross-referencing and in the arbitrator index at the end of the book), the full title and ICSID case number, the date of the decision, the jurisdictional basis for the claim (treaty, contract or investment law), and the names of the arbitrators. Unpublished decisions are marked as such in the header box. Defined (and therefore capitalized) terms in the text are defined only for the purposes of each individual summary. Terms such as ‘Tribunal’, ‘Agreement’ and the like therefore refer to different things in different summaries. In particular, ‘the BIT’ is used to refer to the bilateral investment treaty that was applicable in the particular case in question. Most importantly, we have employed a system of abbreviated case names for citation and cross-citation purposes with respect to all decisions summarized in this book, and for those included in the 2003–2007 volume. The index of abbreviated citations at the beginning of the text provides the full citation for each decision and its reference number for easy location in the table of contents. Decisions not summarized in our digests are cited using full case information, for ease of reference. Part II of this book provides a brief analytical guide to the development of ICSID and investment treaty ‘jurisprudence’ during the 1974–2002 period. It identifies major trends and central points of contention, categorized by subject matter. Each of the decisions summarized in this book has been given an abbreviated name for cross-citation purposes. Where such a citation appears, it is a signal to the reader that the case can be found summarized in this volume, along with a full case citation and relevant secondary literature. We would like to express our gratitude to our colleagues Ben Love, Jan Bischoff, Tim Rauschning and Anna Bashkova, who provided indispensible and tireless support in the preparation of this book. Deepest thanks also must go to Gisela and Masha. Without their support and their understanding, it seems unlikely that this book could have been written. Richard Happ Noah Rubins May 2012

viii

CONTENTSSUMMARY

Table of Abbreviated Case Names List of Abbreviations

xvii xxv

Part I: ICSID Decisions 1974–2002

1

Part II: Development of ICSID Jurisprudence 1974–2002 A. Historical Developmemnt of the Legal Framework for the Resolution of Investment Disputes B. Procedural and Jurisdictional Issues

305

Index of Arbitrators

369

Index

373

ix

307 315

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CONTENTS

Table of Abbreviated Case Names List of Abbreviations

xvii xxv

PART I: ICSID DECISIONS 1974–2002 1. Holiday Inns SA and others v Morocco

3

2. Holiday Inns SA and others v Morocco

5

3. Holiday Inns SA and others v Morocco

9

4. Alcoa Minerals of Jamaica, Inc v Jamaica

11

5. Kaiser Bauxite Company v The Government of Jamaica

14

6. Adriano Gardella SpA v Côte d’Ivoire

16

7. Agip SpA v People’s Republic of the Congo

18

8. Guadaloupe Gas Products Corporation v Nigeria

21

9. SARL Benvenuti & Bonfant v People’s Republic of the Congo

22

10. Amco Asia Corporation and others v The Republic of Indonesia

27

11. Amco Asia Corporation and others v The Republic of Indonesia

28

12. Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais

32

13. Amco Asia Corporation and others v The Republic of Indonesia

36

14. Société Ouest-Africaine des Bétons Industriels (SOABI) v La République du Sénégal

38

15. Liberian Eastern Timber Corporation v Republic of Liberia

40

16. Amco Asia Corporation and others v The Republic of Indonesia

42

17. Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea

47

18. Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais

48

19. Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt

54

xi

Contents 20. Liberian Eastern Timber Corporation v Republic of Liberia

56

21. Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea

58

22. Amco Asia Corporation and others v The Republic of Indonesia

61

23. Liberian Eastern Timber Corporation v Republic of Liberia

67

24. Maritime International Nominees Establishment v Republic of Guinea

69

25. Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais (Resubmitted)

72

26. Société Ouest-Africaine des Bétons Industriels (SOABI) v La République du Sénégal

73

27. Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt

76

28. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission)

79

29. Mobil Oil Corporation, Mobil Petroleum Company Inc, Mobil Oil New Zealand v New Zealand

82

30. Maritime International Nominees Establishment v Republic of Guinea

84

31. Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais (Resubmitted)

87

32. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission)

88

33. Asian Agricultural Products Ltd v Republic of Sri Lanka

93

34. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission)

97

35. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission)

99

36. Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt

101

37. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission)

106

38. Vacuum Salt Products Ltd v Ghana

112

39. Vacuum Salt Products Ltd v Ghana

114

40. Scimitar Exploration Limited v Republic of Bangladesh and Bangladesh Oil, Gas and Mineral Corporation

117

41. Tradex Hellas SA (Greece) v Republic of Albania

119

xii

Contents 42. Cable Television of Nevis Ltd and Cable Television of Nevis Holdings Ltd v Federation of St Kitts and Nevis

124

43. American Manufacturing & Trading, Inc v Zaire

127

44. Fedax NV v Republic of Venezuela

132

45. Robert Azinian and others v United Mexican States

135

46. Fedax NV v Republic of Venezuela

137

47. Československa Obchodní Banka, AS v Slovak Republic

139

48. Lanco International Inc v Argentine Republic

142

49. Antoine Goetz and others v Republic of Burundi

145

50. Tradex Hellas SA (Greece) v Republic of Albania

149

51. Československa Obchodní Banka, AS v Slovak Republic

154

52. Wena Hotels Limited v Arab Republic of Egypt

159

53. Joseph Charles Lemire v Ukraine

162

54. The Loewen Group, Inc and Raymond L Loewen v United States of America

163

55. Emilio Agustín Maffezini v Kingdom of Spain

165

56. Robert Azinian, Kenneth Davitian & Ellen Baca v The United Mexican States

167

57. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited

171

58. Société d’Investigation de Recherche et d’Exploitation Minière v Burkina Faso

173

59. Emilio Agustín Maffezini v Kingdom of Spain

177

60. Compañía del Desarrollo de Santa Elena, SA v The Republic of Costa Rica

181

61. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited

185

62. Waste Management, Inc v United Mexican States

188

63. Compañía del Desarrollo de Santa Elena, SA v The Republic of Costa Rica

192

64. Olguín v Republic of Paraguay

194

65. Metalclad Corporation v The United Mexican States

197

66. Banro American Resources, Inc and Société Aurifière du Kivu et du Maniema SARL v Democratic Republic of the Congo

201

67. Joseph Charles Lemire v Ukraine

204 xiii

Contents 68. Emilio Agustín Maffezini v Kingdom of Spain

206

69. Compañia de Aguas del Aconquija, SA & Compagnie Générale des Eaux v Argentine Republic

209

70. Philippe Gruslin v Malaysia

212

71. Československa Obchodní Banka, AS v Slovak Republic

215

72. Marvin Roy Feldman Karpa v United Mexican States

218

73. Wena Hotels Limited v Arab Republic of Egypt

221

74. The Loewen Group, Inc and Raymond L Loewen v United States of America

224

75. Emilio Agustín Maffezini v Kingdom of Spain

228

76. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited

229

77. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited

232

78. Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia

234

79. ADF Group Inc v United States of America

239

80. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited

242

81. Consortium RFCC v Kingdom of Morocco

244

82. Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco

249

83. Olguín v Republic of Paraguay

252

84. Waste Management, Inc v United Mexican States (Resubmitted)

255

85. Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela

257

86. Compañía de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic

262

87. Wena Hotels Limited v Arab Republic of Egypt

264

88. Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka

267

89. Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia

272

90. Middle East Cement Shipping and Handling Co SA v Arab Republic of Egypt

274

91. Waste Management, Inc v United Mexican States (Resubmitted)

279

xiv

Contents 92. Compañía de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic

283

93. Mondev International Ltd v United States of America

286

94. SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan

291

95. Marvin Roy Feldman Karpa v United Mexican States

293

96. SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan

298

97. Compañía de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic

300

98. Marvin Roy Feldman Karpa v United Mexican States

302

PART II: DEVELOPMENT OF ICSID JURISPRUDENCE 1974–2002 A. Historical Development of the Legal Framework for the Resolution of Investment Disputes (1) International Investment Disputes as State-to-State Disputes (2) Dispute Settlement

B. Procedural and Jurisdictional Issues (1) Jurisdictional Requirements of Article 25 ICSID Convention (a) Introduction (b) Legal dispute (c) Dispute between a Contracting State and a national of another Contracting State (d) Arising directly out of an investment (e) Consent (2) Procedural Issues (a) Institution of proceedings (b) Applicable law (c) Contractual forum selection clauses (d) Res judicata/lis pendens (e) Provisional measures (f ) Costs (g) Challenge of arbitrators (h) Rectification and Supplementation (i) Annulment

xv

307 308 311 315 315 315 317 317 321 324 326 326 327 328 329 330 332 333 334 335

Contents (3) Specific Issues Related to Investment Treaties (a) Investment (b) Nationality (c) Waiting periods (d) Fork-in-the-road clauses (e) Contract claims and treaty claims

C. Substantive Issues

338 338 340 341 341 343

(f ) Interest

345 345 345 347 354 354 358 360 361 362 363 365 366 367

Index of Arbitrators

369

Index

373

(1) Investment Treaty Standards (a) State responsibility (b) Expropriation (c) Full protection and security (d) Fair and equitable treatment (e) Most-favoured-nation treatment (2) Remedies (a) Restitutio in integrum (b) Compensation (c) Value of the investment (d) Moral damages (e) Mitigation

xvi

TABLE OF ABBREVIATED CASE NAMES

Abbreviated Case Name

Full Case Name

No

AAPL Award

Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No ARB/87/3, Award, 27 June 1990 ADF Group Inc v United States of America, ICSID Case No ARB(AF)/00/1, Procedural Order No 2 Concerning the Place of Arbitration, 11 July 2001 AGIP SpA v People’s Republic of the Congo, ICSID Case No ARB/77/1, Award, 30 November 1979 Alcoa Minerals of Jamaica, Inc v Jamaica, ICSID Case No ARB/74/2, Decision on Jurisdiction, 6 July 1975 Amco Asia Corporation and others v The Republic of Indonesia, ICSID Case No ARB/81/1, Disqualification, 24 June 1982 Amco Asia Corporation and others v The Republic of Indonesia, ICSID Case No ARB/81/1, Annulment, 16 May 1986 Amco Asia Corporation and others v The Republic of Indonesia, ICSID Case No ARB/81/1, Award, 20 November 1984 Amco Asia Corporation and others v The Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Jurisdiction, 25 September 1983 Amco Asia Corporation and others v The Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Request for Provisional Measures, 9 December 1983 Amco Asia Corporation and others v The Republic of Indonesia (Resubmission), ICSID Case No ARB/81/1, Decision on Annulment (Resubmission), 17 December 1992 Amco Asia Corporation and others v The Republic of Indonesia (Resubmission), ICSID Case No ARB/81/1, Award, 5 June 1990 Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Jurisdiction, 10 May 1988

33

ADF Place of Arbitration

AGIP Award

Alcoa Jurisdiction

Amco Asia Disqualification

Amco Asia I Annulment

Amco Asia I Award

Amco Asia I Jurisdiction

Amco Asia I Provisional Measures

Amco Asia II Annulment

Amco Asia II Award

Amco Asia II Jurisdiction

xvii

79

7

4

10

22

16

11

13

37

32

28

Abbreviated Case Names Abbreviated Case Name

Full Case Name

No

Amco Asia II Rectification

Amco Asia Corporation and others v The Republic of Indonesia (Resubmission), ICSID Case No ARB/81/1, Decision on Supplemental Decisions and Rectification, 17 October 1990 Amco Asia Corporation and others v The Republic of Indonesia (Resubmission), ICSID Case No ARB/81/1, Interim Order No 1 Concerning Stay of Enforcement, 2 March 1991 American Manufacturing & Trading, Inc v Republic of Zaire, ICSID Case No ARB/93/1, Award, 21 February 1997 Atlantic Triton Company Ltd v People’s Revolutionary Republic of Guinea, ICSID Case No ARB/84/1, Award, 21 April 1986 Atlantic Triton Company Ltd v People’s Revolutionary Republic of Guinea, ICSID Case No ARB/84/1, Decision on Provisional Measures, 18 December 1984 Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela, ICSID Case No ARB/00/5, Decision on Jurisdiction, 27 September 2001 Robert Azinian, Kenneth Davitian & Ellen Baca v The United Mexican States, ICSID Case No ARB(AF)/97/2, Award, 1 November 1999 Robert Azinian and others v United Mexican States, ICSID Case No ARB(AF)/97/2, Interim Decision Concerning Respondent’s Motion for Directions, 22 January 1988 Banro American Resources, Inc and Société Aurifère du Kivu et du Maniema SARL v Democratic Republic of Congo, ICSID Case No ARB/98/7, Award, 1 September 2000 SARL Benvenuti & Bonfant v People’s Republic of the Congo, ICSID Case No ARB/77/2, Award, 8 August 1980 Cable Television of Nevis Ltd and Cable Television of Nevis Holdings Ltd v Federation of St Kitts and Nevis, ICSID Case No ARB/95/2, Award, 13 January 1997 Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Decision on Objections to Jurisdiction, 24 May 1999 Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Decision on Respondent’s Further and Partial Objection to Jurisdiction, 1 December 2000

34

Amco Asia II Stay of Enforcement

AMT Award

Atlantic Triton Award

Atlantic Triton Provisional Measures

Aucoven Jurisdiction

Azinian Award

Azinian Jurisdiction

Banro Award

Benvenuti & Bonfant Award

Cable TV Award

CSOB Jurisdiction I

CSOB Jurisdiction II

xviii

35

43

21

17

85

56

45

66

9

42

51

71

Abbreviated Case Names Abbreviated Case Name

Full Case Name

No

CSOB Procedural Order No 2

Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Procedural Order No 2, 9 September 1998 Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Procedural Order No 3, 5 November 1998

47

CSOB Procedural Order No 4

Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Procedural Order No 4, 11 January 1999

47

CSOB Procedural Order No 5

Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Procedural Order No 5, 1 March 2000

47

Fedax Award

Fedax NV v Republic of Venezuela, ICSID Case No ARB/96/3, Award, 9 March 1998

46

Fedax Jurisdiction

Fedax NV v Republic of Venezuela, ICSID Case No ARB/96/3, Decision on Objections to Jurisdiction, 11 July 1997

44

Feldman Award

Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB(AF)/99/1, Award, 16 December 2002

95

Feldman Correction

Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB(AF)/99/1, Decision on Correction and Interpretation of the Award, 13 June 2003

98

Feldman Jurisdiction

Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB(AF)/99/1, Decision on Jurisdiction, 6 December 2000

72

Gardella Award

Adriano Gardella SpA v Côte d’Ivoire, ICSID Case No ARB/74/1, Award, 29 August 1977

6

Genin Award

Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia, ICSID Case No ARB/99/2, 25 June 2001

78

Genin Rectification

Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia, ICSID Case No ARB/99/2, Decision on Claimant’s Request for Supplementary Decisions and Rectification, 4 April 2002

89

Goetz Award

Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/95/3, Award embodying the parties’ settlement agreement, 10 February 1999

49

Gruslin Award

Philippe Gruslin v Malaysia, ICSID Case No ARB/99/3, Award, 27 November 2000

70

Guadaloupe Gas Award

Guadaloupe Gas Products Corporation v Nigeria, ICSID Case No ARB/78/1,

8

CSOB Procedural Order No 3

xix

47

Abbreviated Case Names Abbreviated Case Name

Full Case Name

Holiday Inns Jurisdiciton II

Holiday Inns SA and others v Morocco, ICSID Case No ARB/72/1, Decision on Jurisdiction, 12 May 1974 Holiday Inns SA and others v Morocco, ICSID Case No ARB/72/1, Decision on Jurisdiction, 1 July 1973

3

Holiday Inns Provisional Measures

Holiday Inns SA and others v Morocco, ICSID Case No ARB/72/1, Decision on Provisional Measures, 2 July 1972

1

Kaiser Bauxite Jurisdiction

Kaiser Bauxite Company v The Government of Jamaica, ICSID Case No ARB/74/3, Decision on Jurisdiction, 6 July 1975

5

Klöckner I Annulment

Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No ARB/81/2, Decision on Annulment, 3 May 1985

18

Klöckner I Award

Klöckner Industrie-Anlagen GmbH v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No ARB/81/2, Award, 21 October 1983

12

Klöckner II Annulment

Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais (Resubmitted), ICSID Case No ARB/81/2,

31

Klöckner II Award

Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais (Resubmitted), ICSID Case No ARB/81/2, Award, 26 January 1988

25

Lanco Jurisdiction

Lanco International Inc v Argentine Republic, ICSID Case No ARB/97/6, Decision on Jurisdiction, 8 December 1998

48

Lemire I Award

Joseph Charles Lemire v Ukraine, ICSID Case No ARB(AF)/98/1, Award, 18 September 2000

67

Lemire II Award

Joseph Charles Lemire v Ukraine, ICSID Case No ARB(AF)/98/1, Award, 28 March 2011

67

Lemire Jurisdiction

Joseph Charles Lemire v Ukraine, ICSID Case No ARB(AF)/98/1, Decision on Jurisdiction, 24 September 1999

53

LETCO Award

Liberian Eastern Timber Corporation v Republic of Liberia, ICSID Case No ARB/83/2, Award, 31 March 1986

20

LETCO Jurisdiction

Liberian Eastern Timber Corporation v Republic of Liberia, ICSID Case No ARB/83/2, Decision on Jurisdiction, 24 October 1984

15

Holiday Inns Jurisdiction I

xx

No

2

Abbreviated Case Names Abbreviated Case Name

Full Case Name

No

LETCO Rectification

Liberian Eastern Timber Corporation v Republic of Liberia, ICSID Case No ARB/83/2, Decision on Rectification, 17 June 1986 The Loewen Group, Inc and Raymond L Loewen v United States of America, ICSID Case No ARB(AF)/98/3, Procedural Order, 28 September 1999 The Loewen Group, Inc and Raymond L Loewen v United States of America, ICSID Case No ARB(AF)/98/3, Decision on Jurisdiction, 9 January 2001 Emilio Agustín Maff ezini v Kingdom of Spain, ICSID Case No ARB/97/7, Award, 11 November 2000 Emilio Agustín Maff ezini v Kingdom of Spain, ICSID Case No ARB/97/7, Decision on Objections to Jurisdiction, 25 January 2000 Emilio Agustín Maff ezini v Kingdom of Spain, ICSID Case No ARB/97/7, Decision on Request for Provisional Measures, 28 October 1999 Emilio Agustín Maff ezini v Kingdom of Spain, ICSID Case No ARB/97/7, Rectification of the Award, 31 January 2001 Metalclad Corporation v The United Mexican States, ICSID Case No ARB(AF)/97/1, Award, 30 August 2000 Middle East Cement Shipping and Handling Co SA v Arab Republic of Egypt, ICSID Case No ARB/99/6, Award, 12 April 2002 Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka, ICSID Case No ARB/00/2, Award, 15 March 2002 Maritime International Nominees Establishment v Republic of Guinea, ICSID Case No ARB/84/4, Decision on Annulment, 22 December 1989 Maritime International Nominees Establishment v Republic of Guinea, ICSID Case No ARB/84/4, Award, 6 January 1988 Mobil Oil Corporation, Mobil Petroleum Company Inc, Mobil Oil New Zealand v New Zealand, ICSID Case No ARB/87/2, Decision on Liability, 4 May 1989 Mondev International Ltd v United States of America, ICSID Case No ARB(AF)/99/2, Award, 11 October 2002 Olguín v Republic of Paraguay, ICSID Case No ARB/98/5, Award, 26 July 2001

23

Loewen Confidentiality

Loewen Jurisdiction

Maff ezini Award

Maff ezini Jurisdiction

Maff ezini Provisional Measures

Maff ezini Rectification

Metalclad Award

Middle East Cement Award

Mihaly Award

MINE Annulment

MINE Award

Mobil Oil/New Zealand Liability

Mondev Award

Olguín Award

xxi

54

74

68

59

55

75

65

90

88

30

24

29

93

83

Abbreviated Case Names Abbreviated Case Name

Full Case Name

No

Olguín Jurisdiction

Olguín v Republic of Paraguay, ICSID Case No ARB/98/5, Decision on Jurisdiction, 8 August 2000 Consortium RFCC v Kingdom of Morocco, ICSID Case No ARB/00/6, Decision on Jurisdiction, 16 July 2001

64

Salini/Morocco Jurisdiction

Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco, ICSID Case No ARB/00/4, Decision on Jurisdiction, 23 July 2001

82

Santa Elena Award

Compañía del Desarrollo de Santa Elena, SA v The Republic of Costa Rica, ICSID Case No ARB/96/1, Decision on Award, 17 February 2000

60

Santa Elena Rectification

Compañía del Desarrollo de Santa Elena, SA v The Republic of Costa Rica, ICSID Case No ARB/96/1, Decision on Rectification of the Award, 8 June 2000

63

Scimitar Award

Scimitar Exploration Limited v Republic of Bangladesh and Bangladesh Oil, Gas and Mineral Corporation, ICSID Case No ARB/92/2, Award, 5 April 1994

40

SGS/Pakistan Disqualification

SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No ARB/01/13, Decision on Claimant’s Proposal to Disqualify Arbitrator, 19 December 2002

96

SGS/Pakistan Provisional Measures

SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No ARB/01/13, Procedural Order No 2 on Provisional Measures, 16 October 2002

94

SIREXM Award

Société d’Investigation de Recherche et d’Exploitation Minière v Burkina Faso, ICSID Case No ARB/97/1, 19 January 2000

58

SOABI Award

Société Ouest-Africaine des Bétons Industriels v Senegal, ICSID Case No ARB/82/1, Award, 25 February 1988

26

SOABI Jurisdiction

Société Ouest-Africaine des Bétons Industriels v Senegal, ICSID Case No ARB/82/1, Decision on Jurisdiction, 19 June 1984

14

SPP Award

Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ICSID Case No ARB/84/3, Award, 20 May 1992

36

SPP Jurisdiction I

Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ICSID Case No ARB/84/3, Decision on Jurisdiction, 27 November 1985

19

RFCC Jurisdiction

xxii

81

Abbreviated Case Names Abbreviated Case Name

Full Case Name

No

SPP Jurisdiction II

Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ICSID Case No ARB/84/3, Decision on Jurisdiction, 14 April 1988 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8, Award, 24 May 2001 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8, Award, 12 July 2001 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8, Decision on Tariff and Other Remaining Issues, 9 February 2001 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8, Decision on Preliminary Issues, 22 May 2000 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8, Decision on the Respondent’s Request for Provisional Measures, 20 December 1999 Tradex Hellas SA (Greece) v Republic of Albania, ICSID Case No ARB/94/2, Award, 29 April 1999 Tradex Hellas SA (Greece) v Republic of Albania, ICSID Case No ARB/94/2, Decision on Jurisdiction, 24 December 1996 Vacuum Salt Products Ltd v Ghana, ICSID Case No ARB/92/1, ICSID Case No ARB/92/1, Award on Jurisdiction, 16 February 1994 Vacuum Salt Products Ltd v Ghana, ICSID Case No ARB/92/1, ICSID Case No ARB/92/1, Procedural Order No 1, 3 December 1992 Vacuum Salt Products Ltd v Ghana, ICSID Case No ARB/92/1, ICSID Case No ARB/92/1, Decision on Provisional Measures, 14 June 1993 Compañía de Aguas del Aconguija, SA & Vivendi Universal v Argentine Republic (formerly Compagnie Générale des Eaux), ICSID Case No ARB/97/3, Decision on Annulment, 3 July 2002 Compañía de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic, ICSID Case No ARB/97/3, Decision on the Challenge to the President of the Committee, 3 October 2001

27

Tanesco Award

Tanesco Award

Tanesco Partial Award

Tanesco Preliminary Issues

Tanesco Provisional Measures

Tradex Award

Tradex Jurisdiction

Vacuum Salt Award

Vacuum Salt Provisional Measures I Vacuum Salt Provisional Measures II Vivendi I Annulment

Vivendi I Annulment Challenge

xxiii

77

80

76

61

57

50

41

39

38

38

92

86

Abbreviated Case Names Abbreviated Case Name

Full Case Name

No

Vivendi I Annulment Rectification

Compañía de Aguas del Aconguija, SA & Vivendi Universal v Argentine Republic, ICSID Case No ARB/97/3, Decision on Rectification, 28 May 2003 Comopañía de Aguas del Aconquija, SA & Compagnie Générale des Eaux v Argentine Republic, ICSID Case No ARB/97/3, Award, 21 November 2000 Waste Management, Inc v United Mexican States, ICSID Case No ARB(AF)/98/2, Award, 2 June 2000 Waste Management, Inc v United Mexican States (Resubmitted), ICSID Case No ARB(AF)/00/3, Decision on the Venue of Arbitration, 26 September 2001 Waste Management, Inc v United Mexican States (Resubmitted), ICSID Case No ARB(AF)/00/3, Decision on Mexico’s Preliminary Objection Concerning the Previous Proceedings 26 June 2002 Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No ARB/98/4, Decision on Application for Annulment, 5 February 2002 Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No ARB/98/4, Award, 8 December 2000 Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No ARB/98/4, Decision on Jurisdiction, 26 June 1999

97

Vivendi I Award

Waste Management I Award

Waste Management II Place of Arbitration

Waste Management II Jurisdiction

Wena Hotels Annulment

Wena Hotels Award

Wena Hotels Jurisdiction

xxiv

69

62

84

91

87

73

52

LIST OF ABBREVIATIONS

American Arbitration Association (AAA) BIT

bilateral investment treaty

BOT

‘build own transfer’

CFA

Central African franc

CIH

Crédit Immobilier et Hotelier

DCF

discounted cash flow

FCC

Federal Circuit Court

FTC

Free Trade Commission

ICJ

International Court of Justice

ICSID

International Centre for Settlement of Investment Disputes

ICC

International Chamber of Commerce

KLSE

Kuala Lumpur Stock Exchange

LIBOR

London Interbank Offered Rate

MAI

multilateral agreement on investment

MFN

most favoured nation

MINE

Maritime International Nominees Establishment

NAFTA

North American Free Trade Agreement

SAT

State Administrative Tribunal

TDI

trade defence instrument

UNCITRAL

United Nations Commission on International Trade Law

UNESCO

United Nations Educational, Scientific and Cultural Organization

xxv

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Part I ICSID DECISIONS 19742002

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1. Holiday Inns SA and others v Morocco ICSID Case No ARB/72/1 2 July 1972

Contract

Provisional Measures G Lagergren (P) P Reuter J Schultsz

Factual Background The dispute, the first ever ICSID arbitration, arose out of a joint venture agreement concerning the construction and operation of hotels in Morocco. The Claimants were Holiday Inns SA (Holiday Inns), the Swiss subsidiary of the American hotel group Holiday Inns, Inc, and Occidental Petroleum Corporation (OPC ), an American corporation. In 1966, the Moroccan government concluded a contract with the Claimants (the Basic Agreement) for the development of hotel properties. Monthly loan payments were to be provided by the Moroccan government under the Basic Agreement, to be paid by a Moroccan agency, Crédit Immobilier et Hotelier (CIH ), on the basis of separate loan agreements. In 1971, after political changes in Morocco, ministers in the new government sought to modify the Basic Agreement or to replace it with a new agreement. In May 1971, CIH stopped making loan payments. At that point, two of four hotels had been completed, with the remaining two in an advanced state of construction. After negotiations between the Claimants and the Moroccan government failed, the Claimants halted construction. In December 1971, Holiday Inns filed a request for arbitration with ICSID. In January 1972, the Moroccan authorities asked a local court to appoint a judicial administrator, who would operate the completed hotels under the name Holiday Inns. The following month, CIH requested that the local court authorize it to take steps to resume construction of the two incomplete hotels at the expense of Holiday Inns. The Claimants filed a request for provisional measures on 12 May 1972 to the

3

ICSID DECISIONS 19742002 ICSID tribunal, asking that Morocco be ordered to suspend court proceedings. On 2 July 1972, the Tribunal rendered its decision on provisional measures.

The Decision1 Little is known about the decision, as it has never been published. According to a summary of the case published by counsel for one of the parties, the Claimants argued that the Moroccan courts had no jurisdiction and that the Respondent had violated Article 26 of the Convention by filing a request for summary measures in its own courts. The Tribunal did not decide questions of jurisdiction, and declined to grant the injunctive relief sought by the Claimants. At the same time, the arbitrators reasoned that ‘the parties are under an obligation to abstain from all measures likely to prevent definitively the execution of their obligations’.2 The Tribunal recommended that both parties ‘abstain from any measure incompatible with the upholding of the contract and to make sure that the action already taken should not result in any consequences in the future which would go against such upholding’.3 Furthermore, the Tribunal recommended that the parties exchange information regarding the management of the completed hotels and the completion of two uncompleted hotels. Finally, consultations were proposed to maintain the distinctive character of a Holiday Inns hotel.

1 Holiday Inns SA and others v Morocco, ICSID Case No ARB/72/1, Decision on Provisional Measures, 2 July 1972 (Holiday Inns Provisional Measures). The Decision has not been published. The factual background and some of the Tribunal’s considerations are reported by P Lalive, ‘The First “World Bank” Arbitration (Holiday Inns v Morocco)—Some Legal Problems’ (1980) 51 British Yearbook of International Law 123, pp 125–37. All specific references to Holiday Inns Provisional Measures refer to the respective page in Lalive’s article. 2 Holiday Inns Provisional Measures, p 136. 3 Holiday Inns Provisional Measures, p 137.

4

2. Holiday Inns SA and others v Morocco ICSID Case No ARB/72/1 1 July 1973

Contract

Jurisdiction G Lagergren (P) P Reuter J Schultsz

Factual Background The dispute, the first ever ICSID arbitration, arose out of a joint venture agreement concerning the construction and operation of hotels in Morocco. In 1966, the Moroccan government decided to develop and diversify its hotel industry with the help of foreign investors. It entered into negotiations with Occidental Petroleum Corporation (OPC) and the US hotel group Holiday Inns, Inc, eventually signing a letter of intent in September 1966, followed by a so-called Basic Agreement in December 1966 (the Basic Agreement). The Basic Agreement was not signed by OPC and Holiday Inns, Inc, but by Holiday Inns SA (Holiday Inns), a Swiss subsidiary of the American company. Article 14 of the Basic Agreement provided for dispute settlement by ICSID arbitration. According to the Basic Agreement, the foreign companies were allowed to assign their rights and duties under the Basic Agreement to separate affiliated companies. On the same day, Holiday Inns, Inc and OPC signed a letter of guarantee by which they guaranteed to fulfil all current and future obligations of the signatories to the Basic Agreement. At the time the Basic Agreement was signed, the company by-laws of Holiday Inns remained unsigned, and the company was not recorded in the relevant commercial register. The by-laws were signed some weeks after the Basic Agreement. OPC

5

ICSID DECISIONS 19742002 created the subsidiary Occidental Hotels of Morocco (OHM ), which was incorporated in the United States, only after the signing of the Basic Agreement. The foreign investors incorporated a local company for each hotel (HISA Rabat, Marrakesh, Fez and Tangiers, together the HISA Companies). The monthly loan payments, which were to be provided by the Moroccan government under the Basic Agreement, were made by a Moroccan agency, Crédit Immobilier et Hotelier (CIH ), on the basis of separate loan agreements between CIH and the HISA Companies. These loan agreements contained a choice of forum clause that called for dispute resolution in Moroccan courts. After political changes in Morocco during 1971, the relevant ministers in the new Moroccan government intended substantially to change the Basic Agreement or to replace it with an entirely new agreement. In May 1971, CIH stopped making payments to the HISA Companies. At that point, two of the four hotels were completed, with the remaining two in an advanced state of construction. After negotiations with the Moroccan government, the Claimants halted construction. In December 1971, Holiday Inns filed a request for arbitration with ICSID in its own name and on behalf of six other companies, including the HISA Companies. Morocco filed a counterclaim, asserting a breach of the Claimants’ obligation to finance the project. In February 1972, CIH filed a summary request with the Regional Court of Casablanca, asking the court to entitle it to take all necessary steps to resume construction of the two incomplete hotels at the expense of Holiday Inns.4

The Decision5 Morocco first objected to the Tribunal’s jurisdiction over the four HISA companies because they were incorporated in Morocco. The Tribunal observed that since the HISA Companies were incorporated in Morocco, they did not have the nationality of another Contracting State as required by Article 25 of the ICSID Convention. Furthermore, Morocco had not specifically consented to treat the HISA Companies as foreign nationals, as envisaged in Article 25(2)(b). The Tribunal held that such an agreement normally has to be made expressly to be 4

The Claimants filed a request for provisional measures to stop these court proceedings. On 2 July 1972, the Tribunal rendered its Decision on Provisional Measures, Holiday Inns Provisional Measures, Digest I-1. 5 Holiday Inns SA and others v Morocco, ICSID Case No ARB/72/1, Decision on Jurisdiction, 1 July 1973 (Holiday Inns Jurisdiction I ). The Decision has not been published. The factual background and some of the Tribunal’s considerations are reported by Lalive, The First “World Bank” Arbitration note 1, pp 125–37. All specific references to Holiday Inns Jurisdiction I refer to the respective page in Lalive’s article.

6

Case 2: Holiday Inns Jurisdiction I effective, and that an implied agreement to this effect ‘would only be acceptable in the event that the specific circumstances would exclude any other interpretation of the intention of the parties, which is not the case here’.6 The Tribunal took the view that if the parties had intended to agree that a domestic corporation would be treated as foreign, they would have expressed themselves ‘clearly and explicitly with respect to such a derogation’ from the Convention. On this basis, the Tribunal declined jurisdiction with respect to the four HISA companies. Morocco next objected to jurisdiction over Holiday Inns itself, because neither Switzerland nor Morocco had been a contracting party to the ICSID Convention when the Basic Agreement was signed.7 Furthermore, Morocco argued that Holiday Inns did not yet exist when the Basic Agreement was signed. The Tribunal rejected these arguments, reasoning that it was possible: to subordinate the entry into force of an arbitration clause to the subsequent fulfillment of certain conditions, such as the adherence of the States concerned to the Convention, or the incorporation of the company envisaged by the agreement.8

The moment these conditions were fulfilled, the consent of the parties to arbitration became effective, and neither party could unilaterally withdraw its consent, in accordance with Article 25(1) Convention.9 The arbitrators therefore rejected Morocco’s jurisdictional argument. Nor was the Tribunal convinced by Morocco’s submission that was lacking jurisdiction with respect to Holiday Inns, Inc and OPC because they were not signatories to the Basic Agreement. The Tribunal held that the parent companies could invoke the arbitration clause ‘to the extent that they have carried out obligations contemplated by the Basic Agreement’.10 The panel also took into account the fact that the signatories to the Basic Agreement were authorized to assign rights and obligations to affiliated companies. Thus, the parties ‘obviously wanted to give the contracting companies a great amount of flexibility in the designation of the 6 Holiday Inns Jurisdiction I, para 33. See further Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Jurisdiction, 25 September 1983 (Amco Asia I Jurisdiction), Digest I-11, para 14. See generally C Schreuer et al, The ICSID Convention: A Commentary (Cambridge: Cambridge University Press, 2nd edn, 2009), Art 25 paras 775–94. 7 Morocco became a contracting party on 10 June 1967, and Switzerland ratified the following year. 8 Holiday Inns Jurisdiction I, para 20. A provision expressly to this effect can be found in many modern BITs, to cover the situation where one of the Contracting States is not a party to the ICSID Convention at the time of the treaty’s conclusion. See, e.g., Germany–Ukraine BIT (1993), Article 11(4). 9 See further Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela, ICSID Case No ARB/00/5, Decision on Jurisdiction, 27 September 2001 (Aucoven Jurisdiction), Digest I-85, para 90. 10 For an overview of the binding force of arbitration agreements as to third parties (and in particular the ‘group of companies’ doctrine), see N Blackaby, C Partasides, A Redfern and M Hunter, Redfern and Hunter on International Arbitration (New York: Oxford University Press, 5th edn, 2009), pp 99–105.

7

ICSID DECISIONS 19742002 companies which would assume responsibility’.11 On this basis, the arbitrators concluded that Holiday Inns, Inc and OPC could invoke the arbitration clause and upheld jurisdiction.11a

11

Holiday Inns Jurisdiction I, para 28. The Tribunal subsequently issued a second Decision on Jurisdiction when Morocco voiced further objections, see Holiday Inns Jurisdiction II, Digest I-2. 11a

8

3. Holiday Inns SA and others v Morocco ICSID Case No ARB/72/1 12 May 1974

Contract

Jurisdiction G Lagergren (P) P Reuter J Schultsz

Factual Background The factual background of this dispute has been described in the first Decision on Jurisdiction.12

The Decision13 After the Tribunal had confirmed its jurisdiction in its first decision of 1 July 1973, Morocco advanced the additional objection that the Tribunal had no jurisdiction to decide matters connected with the separate loan agreement until the Moroccan courts had rendered a decision in that regard. Furthermore, Morocco argued that the loan agreements in question had been concluded between CIH and the HISA Companies, which were not parties to this arbitration. Morocco also contended that it had discharged its obligations towards the Claimants under the Basic Agreement simply by ensuring the conclusion of loan agreements between CIH and the HISA Companies. The Tribunal rejected Morocco’s suggestion that jurisdiction was lacking over matters related to the loan agreements. The domestic legal transactions under the

12

Holiday Inns Jurisdiction I, Digest I-2. Holiday Inns SA and others v Morocco, ICSID Case No ARB/72/1, Decision on Jurisdiction, 12 May 1974 (Holiday Inns Jurisdiction II). The Decision has not been published. The factual background and some of the Tribunal’s considerations are reported by Lalive, ‘The First “World Bank” Arbitration’, note 1, pp 125–37. All specific references to Holiday Inns Jurisdiction II refer to the respective page in Lalive’s article. 13

9

ICSID DECISIONS 19742002 loan agreement and the investment project had to be seen as a whole. In stressing the ‘general unity of an investment operation’, the Tribunal reasoned that the investment: . . . is accomplished by a number of juridical acts of all sorts. It would not be consonant either with economic reality or with the intention of the parties to consider each of these acts in complete isolation from the others.14

The Tribunal stressed the necessity ‘to ascertain which is the act which is the basis of the investment and which entails as measures of execution the other acts which have been concluded in order to carry it out’.15 Still, the Tribunal considered it possible that certain questions ‘affecting the indirect or secondary aspects of investments’ could fall within the competence of domestic courts. Where the investment was concerned, the Moroccan courts would have to refrain from making decisions until the Tribunal had decided them or, if the Tribunal already had decided these issues, adhere to the Tribunal’s opinion: Any other solution would, or might, put in issue the responsibility of the Moroccan State and would endanger the rule that international proceedings prevail over internal proceedings.15a

The case was withdrawn on the basis of an amicable settlement before any decision on the merits had been reached. The Tribunal rendered its order of discontinuance on 17 October 1978.

14 On the general unity of an investment operation see Schreuer et al, ICSID Convention, note 6, Art 25 paras 93–105. See furter the discussion in Part II of this Digest. 15 Holiday Inns Jurisdiction II, p 159. 15a Holiday Inns Jurisdiction II, p 160. With respect to the relationship between national courts and ICSID tribunals, see Compañía de Aguas del Aconquija, SA & Companie Générale des Eaux v Argentine Republic, ICSID Case No ARB/97/3, Award, 21 November 2000 (Vivendi I Award), Digest I-69, paras 77–82; SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No ARB/01/13, Decision on Jurisdiction, 6 August 2003 (SGS/Pakistan Jurisdiction), Digest II-8, para 161; SGS Société Générale de Surveillance SA v Republic of the Philippines, ICSID Case No ARB/02/6, Decision on Jurisdiction, 29 January 2004 (SGS/Philippines Jurisdiction), Digest II-18, para 155.

10

4. Alcoa Minerals of Jamaica, Inc v Jamaica ICSID Case No ARB/74/2 6 July 1975

Contract

Jurisdiction J Trolle (P) M Kerr F Rouhani

Factual Background The dispute arose out of an agreement for the construction of an aluminium refining plant. In 1968, Alcoa Minerals of Jamaica, Inc ( Alcoa), a company incorporated in the United States, concluded an agreement with Jamaica for the construction of an aluminum refining plant (the Agreement). As consideration for the construction of the plant, Jamaica granted bauxite mining concessions to Alcoa. It also agreed to include a tax stabilization clause in the Agreement. The Agreement provided for ICSID arbitration of disputes arising thereunder. Alcoa began to build the plant and to mine bauxite as provided in the Agreement. In 1974, Jamaica adopted the Bauxite Act, which imposed substantial tax increases on Alcoa’s mining operations. Just before the Bauxite Act was adopted, Jamaica notified ICSID that, pursuant to Article 25(4) of the Convention, disputes ‘arising directly out of an investment relating to minerals or other natural resources . . . at any time arising shall not be subject to the jurisdiction of the Centre’. Alcoa filed a request for arbitration with ICSID. Jamaica did not name an arbitrator, nor did it appear in the proceeding after the Tribunal had completed its deliberations on jurisdiction.

11

ICSID DECISIONS 19742002

The Decision16 Since Jamaica had failed to present its case, the Tribunal considered its jurisdiction proprio motu as envisaged in Rule 42(4) of the Arbitration Rules.17 The Tribunal confirmed without further discussion the existence of a legal dispute as required for jurisdiction under Article 25(1) of the Convention,18 and then turned to the question of whether Alcoa had made an investment. First, the panel considered that the ordinary meaning of ‘investment’ would entail a contribution of capital. The Tribunal was convinced that: a case like the present, in which a mining company has invested substantial amounts in a foreign state in reliance upon an agreement with that State, is among those contemplated by the Convention.19

On this basis, the arbitrators found that Alcoa had made a contribution. Second, the Tribunal referred to the often-cited section of the Report of the Executive Directors of ICSID, which provides that ‘[n]o attempt was made to define the term “investment” given the essential requirement of consent by the parties’.20 Bearing in mind that the parties had agreed to ICSID arbitration as part of their contract, it could be implied that they understood their economic relationship to constitute an investment within the scope of ICSID jurisdiction. Nevertheless, the Tribunal refused to consider consent alone to be decisive, as otherwise other purely commercial contracts could be transformed into ‘investments’.21 Next, the Tribunal turned to the consent of the parties, required under Article 25(1) of the ICSID Convention. It found that the arbitration clause in the Agreement 16

Alcoa Minerals of Jamaica, Inc v Jamaica, ICSID Case No ARB/74/2, Decision on Jurisdiction, 6 July 1975 (Alcoa Jurisdiction). Unpublished, background and Tribunal’s reasoning available in J T Schmidt, ‘Arbitration under the Auspices of the International Centre for Settlement of Investment Disputes (ICSID): Implications of the Decision in Alcoa Minerals of Jamaica, Inc v Government of Jamaica’ (1976) 17 Harvard International Law Journal 90. All specific references to Alcoa Jurisdiction refer to the respective page in Schmidt’s article. 17 ICSID Arbitration Rules, Rule 42(4) (‘The Tribunal shall examine the jurisdiction of the Centre and its own competence in the dispute and, if it is satisfied, decide whether the submissions made are well-founded in fact and in law’). See further Liberian Eastern Timber Corporation v Republic of Liberia, ICSID Case No ARB/83/2, Award, 31 March 1996 (LETCO Award), Digest I-20, pp 355–6; Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/95/3, Award embodying the parties’ settlement agreement, 10 February 1999 (Goetz Award), Digest I-49, para 79; Schreuer et al, ICSID Convention, note 6, Art 41 paras 52–5, Art 45 paras 13–23. 18 Alcoa Jurisdiction, p 8. 19 Alcoa Jurisdiction, p 9. 20 ICSID, Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (18 March 1965), para 27. 21 Alcoa Jurisdiction, p 9. See further Schreuer et al, ICSID Convention, note 6, Art 25 paras 5–6; JD Mortenson, ‘The Meaning of “Investment”: ICSID’s Travaux and the Domain of International Investment Law’ (2010) 51 Harvard International Law Journal 257.

12

Case 4: Alcoa Jurisdiction satisfied the requirement of mutual written consent.22 It was less clear, however, whether the 1974 notification by Jamaica to ICSID could affect this consent. Article 25(4) of the Convention gives a Contracting State the right to inform ICSID of areas or classes of dispute that it will not submit to ICSID jurisdiction.23 However, the Tribunal held that notifications of this sort could not affect consent that had already been given in the Agreement. This view was based on the last sentence of Article 25(1) of the Convention: ‘no party may withdraw its consent unilaterally’. Therefore, the Tribunal considered Jamaica’s notification to be without effect on its jurisdiction, already established by the Agreement: In the present case the written consent was contained in the arbitration clause between the Government and Alcoa . . . This consent having been given could not be withdrawn. The notification under Article 25 only operates for the future by way of information to the Centre and potential future investors in undertakings concerning minerals and other natural resources of Jamaica.24

In confirming its jurisdiction, the Tribunal concluded that deciding otherwise ‘would very largely, if not wholly, deprive the Convention of any practical value’.25 The parties settled their dispute amicably, and the proceedings were discontinued at their request on 27 February 1977, prior to the issuance of a decision on the merits.

22

Alcoa Jurisdiction, pp 10–11. ICSID Convention, Article 25(4) (‘Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre’). 24 Alcoa Jurisdiction, pp 10–11. 25 Alcoa Jurisdiction, p 11. 23

13

5. Kaiser Bauxite Company v The Government of Jamaica ICSID Case No ARB/74/3 6 July 1975

Contract

Jurisdiction J Trolle (P) M Kerr F Rouhani

Factual Background Kaiser Bauxite Company (Kaiser Bauxite) was a company incorporated in the United States. In 1952, Kaiser Bauxite and the Government of Jamaica concluded an agreement on the operation of certain bauxite mines (the Agreement). The Agreement contained a tax stabilization clause.26 After the Convention entered into force for Jamaica in 1966, the parties amended the Agreement and included an arbitration clause providing for ICSID pursuant to Article 25(4) of the Convention, indicating arbitration. In 1974, Jamaica promulgated the Bauxite Act, imposing a significant new tax on bauxite extraction operations. At about the same time, the government filed a notification to ICSID pursuant to Article 25(4) of the Convention, indicating that all disputes involving investments relating to minerals or other natural resources would not be subject to arbitration at ICISD. Kaiser Bauxite subsequently initiated ICISD arbitration proceedings. Jamaica elected not to participate.

The Decision27 Although no jurisdictional objections were filed, the Tribunal considered it appropriate to examine its own jurisdiction proprio motu as a preliminary issue pursuant to Article 42(4) of the Convention.28 26 The decision was rendered in parallel with Alcoa Jurisdiction, by the same Tribunal and on the same day. 27 Kaiser Bauxite Company v The Government of Jamaica, ICSID Case No ARB/74/3, Decision on Jurisdiction, 6 July 1975 (Kaiser Bauxite Jurisdiction), 1 ICSID Rep 296 (1993). 28 Kaiser Bauxite Jurisdiction, para 10. See further LETCO Award, Digest I-20, para 353; Goetz Award, Digest I-49, para 79; Schreuer et al, ICSID Convention, note 6, Art 41 paras 52–5.

14

Case 5: Kaiser Bauxite Jurisdiction The Tribunal cofirmed its own jurisdiction after considering each of the elements comprising Article 25 of the Convention. First, it held that the dispute was of a ‘legal nature’, as it involved the legal rights and obligations of the Claimant under an agreement concluded with the Respondent.29 The Tribunal also found that the requirement of an ‘investment’ under Article 25(1) of the Convention was satisfied. It pointed out that, during the negotiation of the ICSID Convention, ‘no attempt was made to define the term “investment” given the essential requirement of consent by the parties’.30 Therefore, the Tribunal indicated that the consent of the parties should bear heavily on its inquiries as to jurisdiction. In the case at hand, the agreement between the parties included an ICSID arbitration clause, suggesting that the parties both believed the project to constitute an investment.31 The Tribunal found that the dispute, involving the contribution of large sums in a foreign State, would be ‘among those contemplated by the Convention’.32 The Tribunal then examined the relevance of Jamaica’s submission to ICSID pursuant to Article 25(4) of the Convention,33 and found that such a notification could not affect consent to arbitrate already given. A notification under Article 25(4) only provides information for future investors that a Contracting State is generally unwilling to give its consent to ICSID dispute settlement in certain sectors. The purpose of Article 25(4) would thus be to avoid misunderstandings in advance. But in the arbitrators’ view, such a notification could not have the legal effect of a reservation,34 i.e. it could not modify the rights and obligations of Jamaica under the ICSID Convention. The parties subsequently reached a settlement, and the Tribunal issued a note of discontinuance under Rule 44 of the Arbitration Rules without having rendered an award on the merits.

29

Kaiser Bauxite Jurisdiction, para 16. Kaiser Bauxite Jurisdiction, para 17. 31 The consent of the parties is considered by most commentators to constitute only one of many factors indicating that an investment exists. Most agree that the freedom of the parties to define what constitutes an investment under the ICSID Convention is not unlimited. Schreuer et al, ICSID Convention, note 6, Art 25 paras 122–8. 32 Kaiser Bauxite Jurisdiction, para 17. See further Alcoa Jurisdiction, Digest I-4, p 9. 33 See further Alcoa Jurisdiction, Digest I-4, pp 10–11. 34 Kaiser Bauxite Jurisdiction, para 23 (citing ICSID, Report note 20, para 31). 30

15

6. Adriano Gardella SpA v Côte d’Ivoire ICSID Case No ARB/74/1 29 August 1977

Contract

Award P Cavin (P) J M Grossen D Poncet

Factual Background The dispute concerned an agreement concluded in 1967 between Adriano Gardella SpA (Gardella), an Italian company, and Côte d’Ivoire (the Agreement). The purpose of the Agreement was the construction of a textile factory and the cultivation of hemp. A certain quantity of hemp was to be supplied to the factory, while the remaining hemp was to be sold externally. The Agreement also provided for the incorporation of a joint venture in Côte d’Ivoire for the realization of the project. During an initial phase, the feasibility of the project was to be assessed. Subsequently, the parties together formed Société Ivoirienne Agricole et Industriel du Kénaf (SIVAK ). In 1970, a supplementary agreement was concluded (the Supplementary Agreement), which provided for dispute resolution by ICSID arbitration. Further agreements were subsequently executed between the parties, outlining timetables for construction and delivery of hemp, along with various financing issues. In 1973, Gardella reported to Côte d’Ivoire that the quantity of hemp to be exported had to be reduced. Gardella proposed to market the goods locally instead. If its proposal were not accepted, Gardella warned, it would have to terminate the Agreement. In October 1973, Gardella presented invoices to SIVAK for endorsement. After four months without reply, Gardella inititated arbitration at ICSID on 26 February 1974. Gardella claimed that Côte d’Ivoire had wrongfully terminated the agreements between the parties, and sought payment of outstanding amounts as well as damages for breach of contract. Côte d’Ivoire objected to the jurisdiction of

16

Case 6: Gardella Award the Tribunal. It also filed a counterclaim, seeking damages due to Gardella’s termination of the agreement.

The Decision35 As an initial matter, Côte d’Ivoire objected to the jurisdiction of the Tribunal, contending that the claims raised by Gardella concerned SIVAK rather than Côte d’Ivoire. The Tribunal dismissed this objection, reasoning that the question whether Côte d’Ivoire was the appropriate respondent was rather a question of the merits:36 In reality, the argument raised by the respondent does not deal with the competence of the Tribunal to give a ruling on those submissions. It is rather better characterized as a dispute over an active or passive justification by the parties.37

As to the merits of the dispute, the Tribunal was unable to find a breach of contract by the Respondent under the applicable law of Côte d’Ivoire. The Tribunal concluded that Gardello had itself refused to abide by the contract, and therefore could not invoke the government’s failure to uphold obligations, or recover compensation for breach of contract. As Gardello had nevertheless been entitled to renounce the contract, the Respondent’s counterclaims were also rejected.38 As to the costs of the arbitration, the Tribunal found that neither Article 61(2) of the Convention nor the Arbitration Rules imposes any absolute rule upon arbitrators regarding the distribution of fees and expenses.39 Therefore the decision fell exclusively within the discretion of the arbitrators. In light of the circumstances of the case—but without elaborating as to which circumstances it considered important—the Tribunal found it equitable that each party bear its own costs and half of the costs of the arbitration.40

35 Adriano Gardella SpA v Côte d’Ivoire, ICSID Case No ARB/74/1, Award, 29 August 1977 (Gardella Award ). Unpublished, summary and excerpts available in 1 ICSID Rep (1993) 283 et seq. All specific references to Gardella Award are as cited in ICSID Reports. 36 A similar objection was raised by Indonesia in Amco Asia I Jurisdiction, Digest I-11, para 34. 37 Gardella Award, para 4.2. 38 Gardella Award, paras 4.7–4.9. 39 Gardella Award, para 4.12. 40 Gardella Award, para 4.12.

17

7. AGIP SpA v People’s Republic of the Congo ICSID Case No ARB/77/1 30 November 1979

Contract

Award J Trolle (P) R-J Dupuy F Rouhani

Factual Background In 1962, the Italian company AGIP SpA (AGIP) established a petroleum distribution company, AGIP (Brazzaville) AS (AGIP Brazzaville) under the laws of the People’s Republic of the Congo. AGIP held the majority of the new company’s shares, while a minority stake was owned by a Swiss company. In 1974, Congo adopted a law by which the shares of all domestic petroleum distribution companies were transferred to the State-owned company Hydro Congo. AGIP Brazzaville was to be exempted from nationalization under an earlier agreement between the parties (the Agreement) that obliged AGIP to transfer 50 per cent of the shares in AGIP Brazzaville to the government. After this share transfer, AGIP Brazzaville was to remain a privately controlled company. Pursuant to the Agreement, Congo agreed not to enact legislation that would affect the structure of AGIP Brazzaville. The State also agreed to procure oil products for public organizations through AGIP Brazzaville. According to the Agreement, disputes were to be governed by Congolese law, ‘supplemented if need be by any principles of international law’. Subsequently, AGIP transferred the shares to Congo. But Congo did not uphold its commitment on oil procurement, and AGIP Brazzaville subsequently encountered economic difficulties due to competition from Hydro Congo. In 1975, Congo nationalized AGIP Brazzaville and transferred its assets to Hydro Congo. No compensation was paid. Congo subsequently repealed a provision in the nationalization ordinance excluding the possibility of compensation, and negotiations began. AGIP then filed a request for arbitration with ICSID.

18

Case 7: AGIP Award

The Decision41 1. Jurisdiction Congo objected to the jurisdiction of the Tribunal on grounds that the dispute was not legal in nature, as required by Article 25 of the ICSID Convention.42 The Tribunal disagreed. It held that there was a legal dispute, although Congo had in principle already accepted that compensation was due. The Tribunal considered that indefinite declarations by the government about the compensation to be paid were insufficient to confirm that a dispute no longer existed.43 2. Merits Concerning the merits of the dispute, the Tribunal found that Congo had violated the Agreement in several respects.44 First, the nationalization legislation was found to contravene Congolese law.45 This finding, however, did not prevent the Tribunal from examining the ordinance in light of international law. Since Congolese law was to be ‘supplemented’ by international law according to the terms of the Agreement, the Tribunal held that recourse to international law could be ‘either to fill lacuna in Congolese law, or to make any necessary additions to it’.46 It considered that Congo’s nationalization by unilateral means was a repudiation of the stabilization clause contained in the Agreement, which reflected the common will of the parties ‘at the level of the international juridical order’.47 This provision, the Tribunal considered, would have the effect of rendering national legislation inapplicable. Therefore, the stabilization clause did not undermine legislative sovereignty: Congo retained freedom to regulate those persons with whom no stabilization agreement had been concluded.48

41 AGIP SpA v People’s Republic of the Congo, ICSID Case No ARB/77/1, Award, 30 November 1979 (AGIP Award ). 42 AGIP Award, para 38. 43 AGIP Award, paras 41–2. It is generally accepted that a dispute concerning only the amount of compensation due to the Claimant is nevertheless a legal dispute for purposes of Article 25(1) of the ICSID Convention. Schreuer et al, ICSID Convention, note 6, Art 25 para 75. See further Compañía del Desarrollo de Santa Elena, SA v The Republic of Costa Rica, ICSID Case No ARB/96/1, Decision on Award, 17 February 2000 (Santa Elena Award), Digest I-60. 44 AGIP Award, paras 48–67. 45 AGIP Award, paras 68–79. 46 AGIP Award, para 83. 47 AGIP Award, para 85. 48 AGIP Award, para 87. On stabilization clauses, see N Rubins and S Kinsella, International Investment, Political Risk and Dispute Resolution: A Practitioner’s Guide (Dobbs Ferry, NY: Oceana Publications, 2005); P Cameron, International Energy Investment Law: The Pursuit of Stability (New York: Oxford University Press, 2010).

19

ICSID DECISIONS 19742002 3. Damages The Tribunal awarded damages and interest on the basis of the governing Congolese law. Under Congolese law, AGIP could claim compensation in favour of third parties, such as the Swiss minority shareholder of AGIP Brazzaville.49 This resulted in an award of ₤202,807,838, US$333,297, and ₣968,072 for the non-recovery of commercial debts; ₣16,688,388 for payments made by AGIP in its capacity as a guarantor; ₣2.8 million as compensation for 50 per cent of the shares in AGIP Brazzaville; and ₣3 million for lost dividends and profits.50 The Tribunal awarded interest at the respective money market rates for each currency in which damages were awarded.51 The Tribunal ordered Congo to bear all costs of the proceedings, while each party had to bear its own legal costs.52

49 AGIP Award, para 93. Compare Impregilo SpA v Islamic Republic of Pakistan, ICSID Case No ARB/03/3, Decision on Jurisdiction, 22 April 2005 (Impregilo Jurisdiction), Digest II-36, para 152. On the quantification of losses to a shareholder under international law, see S Ripinsky and K Williams, Damages in International Investment Law (London: BIICL, 2008), pp 157–60. 50 AGIP Award, paras 105–19. 51 AGIP Award, paras 113–14. 52 AGIP Award, para 115.

20

8. Guadaloupe Gas Products Corporation v Nigeria ICSID Case No ARB/78/1 22 July 1980

Contract

Award I Wallenberg (P) E Lauterpacht P Sanders

This decision has been neither published nor reported.

21

9. SARL Benvenuti & Bonfant v People’s Republic of the Congo ICSID Case No ARB/77/2 8 August 1980

Contract

Award J Trolle (P) R Bystricky E Razafindralambo

Factual Background The dispute arose out of a 1973 agreement between Benvenuti & Bonfant (B&B) and the Government of the People’s Republic of the Congo to establish a joint venture to manufacture plastic bottles (the Agreement). The joint venture company, PLASCO, was to be owned 60 per cent by Congo and 40 per cent by B&B. The PLASCO company by-laws provided that the Board of Directors was to be composed of seven members, including at least four appointed by Congo. The Agreement was based on the understanding that PLASCO would fulfil the needs of certain clients on an exclusive basis, particularly SIACONGO, a State-owned enterprise. The Agreement also granted Congo the right to purchase B&B’s shares in PLASCO after five years of operations. Congo further guaranteed any financing necessary for the creation and operation of PLASCO, and granted it privileged tax status, while B&B guaranteed the commercialization of the bottles. Later in 1973, PLASCO entered into a contract with SODISCA, an Italian contractor, for the construction of two industrial plants to make plastic bottles and to bottle mineral water. Shortly after the bottling plant opened in 1975, B&B formed a company called EDICO to market the bottled water. Later that year, Congo issued a decree fixing the sales price of the bottles at levels lower than those set by PLASCO’s directors. In November 1975, Congo began to interfere substantially in PLASCO’s management and dissolved EDICO by decree. Mr Bonfant, PLASCO’s managing director, faced criminal charges and, on the advice of the Italian embassy in Brazzaville, most of the Italian staff hastily left Congo. PLASCO’s headquarters were then occupied by the Congolese military. Congo failed to respond to B&B’s complaints, and the company filed a request for arbitration in December 1977, alleging various breaches both of the Agreement and of PLASCO’S by-laws. 22

Case 9: Benvenuti & Bonfant Award

The Decision53 1. Jurisdiction Congo raised two objections to the jurisdiction of the Tribunal. First, Congo asserted that the existence of a pending suit against Mr Bonfant in the Revolutionary Court of Brazzaville should have resulted in the dismissal of the case by application of the doctrine of lis pendens. The Tribunal held that lis pendens conditions were not met because the triple identity test—requiring the same parties, the same object, and the same cause of action—had not been satisfied.54 More specifically, the case before the Tribunal was in fact between B&B and the government, while the case before the Revolutionary Court was between Mr Bonfant, in his capacity as agent of PLASCO, and the government.55 Congo’s second argument was that PLASCO’s by-laws provided that disputes between shareholders should be submitted to local courts before arbitration could be pursued. The Tribunal considered that B&B’s claims were essentially founded on alleged breaches of the Agreement, which provided for arbitration without any precondition to exhaust judicial remedies, and therefore upheld its jurisdiction to decide the parties’ dispute.56 2. Merits In the absence of any choice-of-law clause in the Agreement, the Tribunal, in accordance with Article 42(1) of the Convention, held that Congolese law and principles of international law should apply to the adjudication of the parties’ dispute. The Tribunal also confirmed its authority to rule ex aequo et bono, in accordance with the express agreement of the parties.57 B&B’s primary claim was that Congo had breached its obligations under the Agreement.58 The Tribunal first examined Congo’s alleged failure to provide ‘all possible guarantees’ for the financing of PLASCO. Although Congo had guaranteed a loan for payments to SODISCA, the Tribunal found that it had not given

53 SARL Benvenuti & Bonfant v People’s Republic of the Congo, ICSID Case No ARB/77/2, Award, 8 August 1980 (Benvenuti & Bonfant Award ). 54 Benvenuti & Bonfant Award, para 1.14. 55 Benvenuti & Bonfant Award, paras 1.13–1.14. 56 Benvenuti & Bonfant Award, paras 1.15–1.16. 57 Benvenuti & Bonfant Award, paras 4.1–4.4. 58 The Claimant also alleged that Congo had failed to pay its share of the registered capital of PLASCO. This claim was accepted by the Tribunal. Benvenuti & Bonfant Award, para 4.9. B&B also asserted that Congo had interfered with the proper functioning of PLASCO. The Tribunal adopted no decision with respect to this broad claim, considering that other more specific alleged breaches of the Agreement covered this ground, already engaging Congo’s liability. Benvenuti & Bonfant Award, paras 4.10–4.17.

23

ICSID DECISIONS 19742002 ‘all possible guarantees’.59 The Tribunal then considered the contractual obligation to grant PLASCO privileged tax status, which it concluded had never been arranged.60 The Tribunal then moved to the issue of the protectionist measures that Congo was required to implement under the Agreement. In light of its failure to ban imports of water, with the expediency of such a ban having been approved unanimously by the board of directors, the Tribunal held that the government had breached yet another of its obligations under the Agreement.61 B&B also argued that Congo had breached its undertakings by failing to force SIACONGO to pay for the bottles that PLASCO had already delivered. With the fulfi lment of SIACONGO’s needs representing ‘an essential part of the economic justification of the PLASCO project’,62 its payment default was also deemed to engage Congo’s liability.63 Next, the Tribunal considered whether Congo could be liable for ‘political’ bottle prices, set at levels lower than those fixed by the PLASCO Board of Directors, and allegedly below cost. Congo countered that when the decree was issued, PLASCO’s reported costs were considered dubious. But this argument was unconvincing for the Tribunal, which found Congo responsible for breach of the contract.64 Another issue at stake was the dissolution of EDICO by decree of the Prime Minister. The Tribunal considered it important that EDICO had been created and operated without objection from either party, and ruled that the dissolution lacked any legal justification.65 Finally, the Tribunal assessed the claim arising out of the seizure of PLASCO. The Tribunal reflected on the facts that Congo had referred to PLASCO as a State company in a January 1975 government memorandum, could not justify criminal proceedings against Mr Bonfant, had neither reacted to B&B’s requests to resume negotiations, nor answered the company’s complaints until the commencement of the arbitral proceedings. The Tribunal concluded that Congo had unlawfully expropriated B&B’s share in PLASCO, and was obligated to provide compensation under Congolese law, principles of international law, and equity.66

59 60 61 62 63 64 65 66

Benvenuti & Bonfant Award, paras 4.18–4.23. Benvenuti & Bonfant Award, paras 4.24–4.29. Benvenuti & Bonfant Award, paras 4.30–4.37. Benvenuti & Bonfant Award, para 4.40. Benvenuti & Bonfant Award, paras 4.38–4.40. Benvenuti & Bonfant Award, paras 4.41–4.46. Benvenuti & Bonfant Award, paras 4.47–4.55. Benvenuti & Bonfant Award, paras 4.56–4.65.

24

Case 9: Benvenuti & Bonfant Award 3. Damages67 According to the company by-laws, B&B was entitled to receive annual dividends from PLASCO to the extent that profits generated by the company allowed such a distribution. B&B restricted its claim for lost dividends to a five-year period, since Congo would after that time have been entitled in any event to purchase B&B’s PLASCO shares under the terms of the Agreement. The Tribunal found that during PLASCO’s first two years of existence no profits were made nor expected, eliminating any entitlement to dividends for that period. However, with regard to the following three years, the Tribunal considered that if the contract had been performed as agreed, profits would have been sufficient to pay dividends. On this basis, B&B was awarded CFA 3.3 million.68 B&B’s claim of compensation for the expropriated shares was initially based on a ‘going concern’ evaluation of PLASCO. According to the valuation, the value of the company was approximately CFA 275 million and the initial claim was for 40 per cent of this value i.e. approximately CFA 110 million.69 However, an independent expert called by the Tribunal concluded that no market price of PLASCO could be established because Congo had the power to set bottle prices and therefore, ‘to a very considerable extent’, determine the profits of the company.70 That observation led the expert to opine that the most appropriate basis to value PLASCO was the original investment expenditure. The Tribunal adopted this view and awarded B&B 40 per cent of the initial investment in PLASCO (approximately CFA 110 million).71 B&B also claimed CFA 88 million for paid-in capital and logistical expenses, and an additional CFA 60 million based on the added value that would have been generated within the first five years of PLASCO’s existence. However, the Claimant failed to prove these categories of harm to the Tribunal’s satisfaction. Compensation was restricted to the nominal registered capital of EDICO (just CFA 1 million).72 B&B also claimed an entitlement to moral damages, on the basis that it had lost work and investment opportunities in Italy, and because resumption of activity in Italy was hampered by the commitment of its capital in Congo. Further, B&B contended that it had lost credit with suppliers and banks following the events in Congo, and that its management and technical organization had suffered from the

67 The Tribunal also awarded B&B damages for loans made for the benefit of PLASCO and for the debts of SODISCA. Benvenuti & Bonfant Award, paras 4.80–4.85. 68 Benvenuti & Bonfant Award, para 4.72. 69 Benvenuti & Bonfant Award, para 4.75. 70 Benvenuti & Bonfant Award, para 4.78. 71 Benvenuti & Bonfant Award, paras 4.73–4.79. 72 Benvenuti & Bonfant Award, paras 4.86–4.94.

25

ICSID DECISIONS 19742002 loss of staff (the managers and technicians having stayed in Congo or found other jobs in Italy when PLASCO was seized). The Tribunal noted the lack of evidence presented to support these allegations, but concluded that ‘the measures of which B&B was the object and the proceedings resulting therefrom . . . have certainly disturbed B&B’s activities . . .’ .73 Based on its authority to decide on an equitable basis, the arbitrators awarded damages for intangible loss totalling CFA5 million.74 The Tribunal awarded interest of 10 percent on this portion of the award. Citing provisions of the Agreement between B&B and the government and the Articles of Association jointly established by B&B and PLASCO, the Tribunal decided that each party should bear its own legal expenses.75 It also ordered each party to pay an equal share of the arbitral costs.76 However, the Tribunal ordered the government to pay B&B US$15,000 in addition to the damages awarded, with 6 per cent annual interest on that portion of the damages award, due to the Tribunal’s finding that the government’s attitude had led to ‘serious delays as well as additional costs to B&B’ at the beginning of proceedings.77

73

Benvenuti & Bonfant Award, para 4.96. Benvenuti & Bonfant Award, paras 4.95–4.96. Moral damages were also awarded in Desert Line Projects LLC v Republic of Yemen, ICSID Case No ARB/05/17, Award, 6 Feburary 2008 (Tercier, El-Kosheri, Paulsson), para 289. Compensation for moral harm was also considered possible but denied, e.g. for lack of evidence, in Atlantic Triton Company v People’s Revolutionary Republic of Guinea, ICSID Case No ARB/84/1, Award, 21 April 1986 (Atlantic Triton Award), Digest I-21, para III.3.2; Inmaris Perestroika Sailing Maritime Services GmbH and Others v Ukraine, ICSID Case No ARB/08/8, Award, 1 March 2012 (Alexandrov, Cremades, Rubins), para 428. On moral damages in investment arbitration generally, see Ripinsky with Williams, Damages, note 49, pp 307–309. 75 Benvenuti & Bonfant Award , para 4.125. 76 Benvenuti & Bonfant Award , para 4.126. 77 Benvenuti & Bonfant Award , para 4.127. 74

26

10. Amco Asia Corporation and others v The Republic of Indonesia ICSID Case No ARB/81/1 24 June 1982

Contract

Disqualication B Goldman (P) I Foighel E W Rubin

This decision has been neither published nor reported.

27

11. Amco Asia Corporation and others v The Republic of Indonesia ICSID Case No ARB/81/1 25 September 1983

Contract

Jurisdiction B Goldman (P) I Foighel E W Rubin

Factual Background78 The Claimant, US company Amco Asia Corporation (Amco Asia) concluded an agreement in 1968 with PT Wisma, a company incorporated in Indonesia, for the construction and operation of a hotel complex for a period of 30 years (the Agreement). PT Wisma was controlled by Inkopad, a body connected with the Indonesian Army. Amco Asia had entered into the Agreement as agent and nominee for and on behalf of Pan American Development Limited (Pan American), a company incorporated in Hong Kong.

78 Th is Decision is the fi rst in a long series of decisions and awards in relation to a single dispute. The Tribunal rendered its award on the merits on 20 November 1984 ( Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Award, 20 November 1984 (Amco Asia I Award), Digest I-16). Indonesia filed a request for the annulment of the award. Subsequently, an ad hoc committee was established pursuant to Article 52(3) of the ICSID Convention, which decided to annul the award on 16 May 1986 (Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Annulment, 16 May 1986 (Amco Asia I Annulment), Digest I-22). The case was later resubmitted by the Claimant. A new Tribunal rendered a decision on jurisdiction (Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Jurisdiction (Resubmission), 10 May 1988 (Amco Asia II Jurisdiction), Digest I-28) and an award on the merits (Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Award, 5 June 1990 (Amco Asia II Award), Digest I-32) in June 1990, as well as a decision on the rectification of the award (Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Supplemental Decisions on Rectification, 17 October 1990 (Amco Asia II Rectification), Digest I-34) in October 1990. Finally, both parties requested the annulment of the second award. However, in its decision on annulment of 17 December 1992 (Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Annulment (Resubmission), 17 December 1992 (Amco Asia II Annulment), Digest I-37), the ad hoc Committee declined to annul the award, putting an end to the saga.

28

Case 11: Amco Asia I Jurisdiction According to the Agreement, the hotel complex was to be operated by a new company called PT Amco Indonesia (PT Amco). PT Amco, to which the agreement referred as ‘the business’, was to be incorporated in Indonesia and granted a 30-year investment licence. Furthermore, the Agreement provided for ICSID arbitration in the case of a dispute between ‘the business’ and Indonesia, which also authorized the operation with a 30-year investment licence. With government approval, Amco Asia later transferred part of its shares in PT Amco to Pan American. In 1969 and 1970, PT Amco entered into a Sub-Lease Agreement with Aeropacific. In 1978, a dispute arose between PT Amco and Aeropacific. As a practical necessity, Inkopad took over the management of the hotel. A few months later, PT Amco and PT Wisma concluded a new profit-sharing agreement and PT Amco resumed management of the hotel. In 1980, a dispute arose between PT Wisma and PT Amco that led to the seizure of the hotel by the Indonesian military and local police. Shortly thereafter, PT Amco’s investment licence was cancelled. PT Wisma filed a claim before the Indonesian domestic courts, which held that Amco Asia had breached the Agreement. In 1981, Amco Asia, Pan American and PT Amco together filed a request for arbitration with ICSID.

The Decision79 The Tribunal first considered Indonesia’s jurisdictional objections under Article 41(1) of the Convention. The Tribunal first noted that the Secretary had registered the dispute and therefore had considered the dispute not to be ‘manifestly outside the jurisdiction of the Centre’ as required by Article 36(3) of the Convention. Still, the Tribunal remained competent to rule on its own jurisdiction.80 The Tribunal first considered Indonesia’s objection that it had no personal jurisdiction over PT Amco, an Indonesian company. According to Article 25(2)(b) of the Convention, a juridical person having the nationality of the Contracting State party to the dispute can be treated as a national of another Contracting State if the parties to the dispute so agree due to foreign control of the entity in question. The Tribunal accepted that the Agreement contained no express clause to this effect, but considered that Article 25 did not require such a formal acknowledgement of ‘foreignness’.81 The Tribunal noted that the Agreement explicitly

79 Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Jurisdiction, 25 September 1983 (Amco Asia I Jurisdiction). 80 Amco Asia I Jurisdiction, para 8. 81 Amco Asia I Jurisdiction, para 14(ii). See further Schreuer et al, ICSID Convention, note 6, Art 25 paras 775–94.

29

ICSID DECISIONS 19742002 described PT Amco as a ‘foreign business’, that Indonesia knew PT Amco was under foreign control and that the nationality of the controlling shareholder was also known to the government.82 Indonesia had also agreed to ICSID arbitration as the means of dispute settlement envisaged by the Agreement. This was considered sufficient to imply an accord on the investor’s nationality under Article 25(2)(b) of the Convention. The Tribunal rejected Indonesia’s further argument that the true controller of Amco Asia was not PT Amco, but rather a Dutch citizen, Mr Tan, who was the majority shareholder of Pan American, which in turn controlled PT Amco. The Tribunal considered, first, that the Convention contained a classical concept of nationality, ‘based on the law under which the juridical person is incorporated, the place of incorporation and the place of the social seat’.83 No exception would apply for the nationality of an ultimate beneficiary.84 The Tribunal also found that Indonesia had been well aware of Mr Tan’s involvement and had not objected, confirming that there had been no fraud or misrepresentation.85 The Tribunal thus affirmed its jurisdiction over PT Amco. The Tribunal next considered Indonesia’s objection that there was no arbitration agreement concerning Amco Asia or Pan American.86 The Tribunal was satisfied with the existence of a written agreement between PT Amco and Indonesia. It interpreted the Agreement to include implicitly the other claimant companies as well: [t]he foreign investor was Amco Asia; PT Amco was but an instrumentality through which Amco Asia was to realize the investment.87

As a result, it would be illogical if Amco Asia were excluded from the arbitration. The Tribunal considered that Indonesia could not have understood the Agreement differently, and thus concluded that the arbitration agreement also covered Amco Asia.88 With respect to Pan American, the Tribunal noted that Amco Asia had transferred a portion of its shares in PT Amco to Pan American with the express consent of Indonesia. It further considered that Amco Asia’s right to invoke the ICSID

82

Amco Asia I Jurisdiction, para 14(iii). Amco Asia I Jurisdiction, para 14(iii). 84 The reasoning is thus similar to that of the ICJ in the Barcelona Traction case. Barcelona Traction, Light and Power Company, Limited (Belgium v Spain) (New Application: 1962), Second Phase, 1970 ICJ Reports 3, para 96. 85 Compare Plama Consortium Ltd v Republic of Bulgaria, ICSID Case No ARB/03/24, Decision on Jurisdiction, 8 February 2005 (Plama Jurisdiction), Digest II-35, paras 228–30; and Plama Consortium Limited v Bulgaria, ICSID Case No ARB/03/24, Award, 27 August 2008 (Salans, van den Berg, Veeder), paras 116–46. 86 Amco Asia I Jurisdiction , paras 24–5. 87 Amco Asia I Jurisdiction , para 24. 88 Amco Asia I Jurisdiction , paras 24–6. 83

30

Case 11: Amco Asia I Jurisdiction arbitration clause was attached to its investment—the shares—and was, in turn, transferred by its share interest to Pan American.89 The Tribunal then turned to the Respondent’s objection that PT Wisma should be the proper respondent, even though the claim had been formally directed against Indonesia.90 It rejected this position as well. Indonesia next alleged that the dispute submitted was a mere contractual dispute between PT Amco and PT Wisma, and therefore did not fall within the Centre’s subject matter jurisdiction. The Tribunal clarified that it must not attempt at this stage to examine the claim itself in any detail, but the Tribunal must only be satisfied that prima facie the claim, as stated by the claimants when initiating this arbitration, is within the jurisdictional mandate of ICSID arbitration . . . 91

While the dispute was connected with the Agreement, the Claimants repeatedly explained that they were not claiming a breach of contract. The Tribunal concluded that the claim before it was based on an alleged expropriation of an investment, a subject that was within the Tribunal’s jurisdiction. Finally, Indonesia argued that the Claimants were estopped from asserting that PT Amco and Indonesia were the same for jurisdictional purposes, because PT Amco had participated in the Jakarta court proceedings without raising this argument. The Tribunal, after analysing the principle of estoppel, considered that the argument did not relate to jurisdiction, but to admissibility and evidence. In any event, the arbitrators held that the requirements for estoppel were not satisfied in the case at hand. The Tribunal also rejected Indonesia’s related argument that PT Amco waived its right to arbitration because it had not invoked the arbitration clause in domestic proceedings against PT Wisma. The Tribunal concluded that both PT Amco and PT Wisma (but not Indonesia) were parties to the domestic proceedings, and that the litigated issues were different from those before the Tribunal in any event.92 The Tribunal affirmed its jurisdiction to hear the merits of the dispute.

89

Amco Asia I Jurisdiction, paras 27–32. Amco Asia I Jurisdiction, para 34; this formal approach was also adopted in Gardella Award, Digest I-6, para 4.2. 91 Amco Asia Jurisdiction I, Digest I-11, para 38 (emphasis in original). A similar test for the burden of proof required in the jurisdictional phase has been proposed by Judge Higgins in her separate opinion in the Oil Platforms case: see Oil Platforms Case (Islamic Republic of Iran v United States of America), Judgment, Separate Opinion of Judge Higgins, 1996 ICJ Reports 847, paras 32–4. See generally: Schreuer et al, The ICSID Convention, note 6, Art 41 paras 86–92. See further Digest II, p 332. 92 Although it did not explicitly say so, the Tribunal seems to have applied two of the generally accepted elements for application of lis pendens, the identity of parties and of legal cause. 90

31

12. Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais ICSID Case No ARB/81/2 21 October 1983

Contract

Award E Jiménez de Aréchaga (P) W Rogers D Schmidt

Factual Background This dispute arose out of several interconnected agreements concluded among the German company Klöckner Industrie-Anlagen GmbH (Klöckner), the Republic of Cameroon and a Cameroonian limited liability company, Société Camerounaise des Engrais (SOCAME ). In 1971, Klöckner submitted a feasibility study to Cameroon that proposed the construction of a fertilizer factory. Klöckner and Cameroon signed a protocol of agreement (Protocol ) on 4 December 1971. According to the Protocol, Cameroon and Klöckner agreed to create SOCAME, which was to construct and operate the fertilizer factory as well as to distribute the products. Klöckner, which would own 51 per cent of the shares in SOCAME, was responsible for the joint venture’s technical and commercial management. To that end, a separate management contract (the Management Contract) was to be concluded. The Protocol also provided for the conclusion of further contracts between the parties and contained an ICSID arbitration clause. In March 1972, the parties concluded a supply contract (the Supply Contract). The Supply Contract authorized Cameroon to assign its rights and obligations to SOCAME after its establishment. Cameroon also underoook to act as guarantor for SOCAME in respect of payments to Klöckner. In March 1973, Cameroon assigned its rights and obligations under the Supply Contract to SOCAME. In June 1973, Cameroon and SOCAME concluded an agreement establishing SOCAME (the Establishment Agreement), in which the State guaranteed the stability of legal, economic and financial conditions and codified certain fiscal 32

Case 12: Klöckner I Award concessions. SOCAME, for its part undertook to carry out exploration and to use local raw materials. The Protocol and the Supply Contract were referred to as integral parts of the Establishment Agreement. In 1973–1974, a dramatic increase in petroleum prices led to a rise in SOCAME’s raw material costs. Nevertheless, Klöckner assured Cameroon that the factory would yield profits after its completion. The factory was completed in 1976, but it did not meet the performance requirements envisaged by Klöckner. Shortly thereafter, several machines broke down and were not operational for a significant period. In April 1977, SOCAME and Klöckner signed the Management Contract contemplated in the Protocol. The Management Contract provided for ICC arbitration in the event of a dispute, with Swiss law as applicable. During a meeting in June 1977, the directors of SOCAME acknowledged production shortfalls and considered the losses associated with low prices for fertilizers. The directors decided to shut down the factory for further repairs in December 1977. Finally, a capital increase took place without the participation of Klöckner, dimishing its share in the enterprise. Meanwhile, SOCAME undertook extensive repairs of the factory in 1978. After a period of unprofitable operation, the factory was shut down by Cameroon in 1980. SOCAME and the Government refused to honour outstanding instalment payments owed to Klöckner under the Supply Contract, totalling approximately 80 per cent of the agreed purchase price. Klöckner requested arbitration and claimed the payment of the outstanding instalments under the Supply Contract. Cameroon filed a counterclaim and requested compensation for the losses incurred as a consequence of the abandonment of the project.

The Decision93 1. Jurisdiction The Tribunal first considered whether it had jurisdiction over Klöckner’s claim and the counterclaims of Cameroon and SOCAME. 93 Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No ARB/81/2, Award, 21 October 1983 (Klöckner I Award ), 2 ICSID Rep (1994) (excerpts). The Claimant later challenged the Award, which was annulled by the resulting ad hoc Committee (Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No ARB/81/12, Decision on Annulment, 3 May 1985 (Klöckner I Annulment), Digest I-18). The case was subsequently resubmitted. A newly constituted Tribunal rendered its unpublished Award on 26 January 1988 (Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des

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ICSID DECISIONS 19742002 Although Klöckner had seized the Tribunal on the basis of the ICSID arbitration clause contained in the Supply Contract, the Tribunal found that it also had jurisdiction to adjudicate counterclaims based on the Protocol, the Establishment Agreement and matters connected with the Management Contract. The Protocol and the Establishment Agreement contained ICSID arbitration clauses, while the Management Contract envisaged ICC arbitration.94 The Tribunal pointed out that the Protocol itself provided that Klöckner ‘be responsible for the technical and commercial management of [SOCAME], ensured by a management contract’.95 The Tribunal was not convinced by Klöckner’s suggestion that the insertion of an ICC arbitration clause would remove the jurisdiction of the Tribunal over matters concerning joint venture management.96 The Tribunal also found that, once the Tribunal was validly seized by a request for arbitration, the scope of the consent ratione materiae could be determined later, even in the written submissions to the Tribunal, as forum prorogatum.97 Klöckner disputed that the arbitration clause in the Establishment Agreement was an agreement between the parties of the dispute, i.e. claimant and respondent, as required by Article 46 of the Convention; rather, it was an agreement between the two respondents. The Tribunal disagreed. The Tribunal noted that on 23 June 1973, when the Establishment Agreement was signed by SOCAME and Cameroon, SOCAME was a Cameroonian company under foreign control in the sense of Article 25(2)(b) of the Convention.98 The Tribunal stressed that the insertion of an ICSID arbitration clause into the Establishment Agreement implied that the parties agreed to consider SOCAME to be an entity under foreign control. The Tribunal further noted that it was disputed whether a loss of foreign control—as in the case of SOCAME—was relevant for purposes of Article 25(2)(b) of the Convention. The Tribunal considered it inequitable to accept that Klöckner, while benefitting from the Establishment Agreement, could contest the jurisdiction of the Tribunal based on that contract.99 Although the Establishment Agreement was signed by SOCAME, it had been negotiated by Klöckner. The Protocol, the Supply Contract and the Establishment Agreement would therefore constitute an indivisible whole for the Tribunal’s purposes.100 Engrais, ICSID Case No ARB/81/2, Award (Resubmitted), 26 January 1988 (Klöckner II Award), Digest I-25). Both challenged the award, but the ad hoc Committee rejected all applications for annulment by an unpublished decision of 17 May 1990 (Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No ARB/81/2, Decision on Annulment (Resubmitted), 17 May 1990 (Klöckner II Annulment), Digest I-31). 94 Klöckner I Award , p 13. 95 Klöckner I Award , p 13. 96 Klöckner I Award , p 13. 97 Klöckner I Award , p 14. 98 Klöckner I Award , p 16. 99 Klöckner I Award , p 17. 100 Klöckner I Award , p 17.

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Case 12: Klöckner I Award 2. Merits Turning to the merits of the dispute, the Tribunal found that the civil and commercial law of Cameroon would be applicable according to Article 42 of the Convention.101 Since both the French Civil Code and English common law were applicable in Cameroon, the Tribunal had to determine which legal system was applicable in the case at hand. Since the factory was located and the agreements were concluded in the French parts of Cameroon, the Tribunal considered the French Civil Code to be applicable.102 The Tribunal then referred to a range of rather inchoate legal principles, including an expectation that each party would deal in a frank, loyal and candid manner with its contracting partner, and the principle of exceptio non adimpleti contractus. Based on these principles, the Tribunal found that Klöckner had not acted frankly and loyally towards Cameroon by failing to disclose that the profitability of the factory had become doubtful as early as 1973. Moreover, Klöckner had not properly carried out its management obligations. Accordingly, the Tribunal came to the conclusion that Klöckner could not claim the outstanding instalments under the Supply Contract. At the same time, the Tribunal found insufficient basis for the damages sought by the Respondents as part of their counterclaim.103 The Tribunal ruled that each party should bear its own legal expenses as well as half of arbitration costs.104 3. Dissenting Opinion of D Schmidt Arbitrator Schmidt dissented regarding the assessment of facts and the application of law. Schmidt did not share the view of his fellow arbitrators that Klöckner had improperly failed to disclose its profibility concerns for the factory. Furthermore, he considered the interpretation by the majority of Klöckner’s obligations to be incomplete. Arbitrator Schmidt disagreed that the ICC arbitration clause in the Management Contract would not affect the ICSID clause contained in the Protocol as far as the management obligations were concerned. Finally, he stressed—referring to the Report of the ICSID’s Executive Directors—that consent of the parties to arbitration had to be given before the Tribunal could decide the issues submitted.105

101 102 103 104 105

Klöckner I Award, p 58. Klöckner I Award, p 60. Klöckner I Award, p 76. Klöckner I Award, p 77. Klöckner I Award, p 91.

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13. Amco Asia Corporation and others v The Republic of Indonesia ICSID Case No ARB/81/1 9 December 1983

Contract

Provisional Measures B Goldman (P) I Foighel E W Rubin

Factual Background The relevant factual background has been set out in the summary of the decision on jurisdiction.106 On 27 June 1983, the Hong Kong newspaper Business Standard published on its front page an article with statements made by the controlling shareholder of Pan American, Mr Tan, who in turn controlled PT Amco, about the events concerning the hotel. The Republic of Indonesia filed a request for provisional measures on 30 September 1983, seeking to prevent Amco from ‘promoting, stimulating, or instigating the publication’ of further similar articles.

The Decision107 Indonesia asked the Tribunal to restrain the Claimants from aggravating or extending the dispute before it, in particular seeking an order that they abstain from ‘promoting, stimulating, or instigating the publication of propaganda’108 by publishing their opinions outside the arbitration proceedings. Indonesia argued that the Claimants’ involvement in the publication of the Business Standard article was contrary to good faith, incompatible with the spirit

106

Amco Asia I Jurisdiction, Digest I-11. Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Request for Provisional Measures, 9 December 1983 ( Amco Asia I Provisional Measures). 108 Amco Asia I Provisional Measures, para 1. 107

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Case 13: Amco Asia I Provisional Measures of confidentiality of international arbitral proceedings and inconsistent with the Claimants’ acceptance of ICSID arbitration since, under Article 26 of the Convention, the Claimants were prevented from taking advantage of any other remedy.109 The Tribunal rejected Indonesia’s arguments and declined to implement any provisional measures. The Tribunal was persuaded by the Claimants’ submission that Indonesia had failed to specify the rights to be preserved as required by Arbitration Rule 39(1). The arbitrators held that the rights in dispute could not be threatened by the publication of articles, even if part of a systematic press campaign.110 The Tribunal also rejected Indonesia’s ‘good faith’ argument and further concluded that the alleged promotion of a news article was obviously not the same as invoking on another legal remedy other than ICSID arbitration.111 Furthermore, the Convention and the Arbitration Rules were held not to prevent parties from revealing their case to third parties.112 The publication was not considered to be incompatible with the spirit of confidentiality. The Tribunal, however, emphasized the ‘good and fair practical rule, according to which both parties to a legal dispute should refrain, in their own interest, to do anything that could aggravate or exacerbate the same’, but did not see any symptoms of such behaviour in the case at hand.113

109 110 111 112 113

Amco Asia I Provisional Measures, para 1. Amco Asia I Provisional Measures, para 3. Amco Asia I Provisional Measures, para 3. Amco Asia I Provisional Measures, para 4. Amco Asia I Provisional Measures, para 5.

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14. Société Ouest-Africaine des Bétons Industriels (SOABI) v La République du Sénégal ICSID Case No ARB/82/1 1 August 1984

Contract

Jurisdiction A Broches (P) K Mbaye J Van Houtte

Factual Background In 1975, the Société Ouest-Africaine des Bétons Industriels (SOABI ), a Senegalese company, concluded a contract with the Republic of Senegal concerning the construction of a factory for the prefabrication of certain concrete construction components (the Contract). The Contract provided for disputes to be settled by ICSID arbitration. Senegal accepted as part of the arbitration clause that the nationality requirements of Article 25 of the Convention were satisfied.114 SOABI was owned by FLEXA, a company incorporated in Panama and predominantly owned by Belgian nationals. At that time, Panama was not a Contracting State of ICSID. SOABI initiated arbitration in 1982 due to an alleged breach of the Contract by Senegal.

The Decision115 Senegal raised two jurisdictional objections. The first objection concerned the nationality of SOABI. The Tribunal noted that the Convention did not provide rules for the determination of the nationality of a legal person. The States party to the Convention are thus free to determine as a 114 The contractual provision in question, cited at para 30 of the Decision on Jurisdiction, read as follows: ‘To this effect, the Government consents to consider satisfied the nationality requirement established under Article 25 of the said ICSID Convention.’ 115 Société Ouest Africaine des Bétons Industriels v Senegal, ICSID Case No ARB/82/1, Decision on Jurisdiction, 19 June 1984 (SOABI Jurisdiction).

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Case 14: SOABI Jurisdiction matter of their particular legislation whether such an entity enjoys its nationality. Surveying the practices of various countries, the arbitrators considered that both the place of incorporation and the seat of real business were relevant criteria for determining corporate nationality. Apart from exceptional cases, the nationality of a company’s shareholders played no role in this analysis of national law practice.116 It was undisputed that based on such rules, SOABI had Senegalese nationality. However, the Tribunal noted that the parties to the dispute had clearly agreed by contract that the company would be treated as foreign, as envisaged by Article 25(2)(b) of the Convention.117 Nevertheless, for this agreement to be effective, the persons controlling SOABI had to have the nationality of a Contracting State of the Convention at the time the parties gave their consent to arbitration.118 The Claimant contended that while FLEXA, the entity contolling SOABI, was incorporated in Panama, not a Contracting State, its economic seat was in Geneva, and Switzerland was an ICSID member at the relevant time. The Tribunal found that it did not need to decide which of these two indicia was decisive. It would not serve the purpose of the Convention if only the immediate control of an investment company was considered in determining nationality. After all, the arbitrators reasoned, an investor could exercise effective control even if indirectly participating in a company.119 Furthermore, the Tribunal took account of the host State’s consent to ICISD arbitration and agreement on nationality, both of which suggested the parties’ contemporaneous understanding that for their project, the ICSID nationality requirements were fulfillled.120 Since the requirement had to be met only at the time the parties declared their consent to ICSID arbitration, the Tribunal considered post-contractual changes to be immaterial.121 A second objection, concerning the scope of the arbitration clause, was joined to the merits in accordance with Article 41 of the Convention.122

116

SOABI Jurisdiction, para 29; compare also Amco Asia I Jurisdiction, Digest I-11, para 14(iii). SOABI Jurisdiction, para 30. 118 SOABI Jurisdiction, para 33. 119 SOABI Jurisdiction, para 37; but see further Amco Asia I Jurisdiction, Digest I-11, para 14(iii); Barcelona Traction, note 84, para 96; compare also the criticism by: Schreuer et al, ICSID Convention, note, Art 25 para 844. See further the Award in TSA Spectrum de Argentina SA v Argentine Republic, ICSID Case No ARB/05/5, Award, 19 December 2008 (Danelius, Abi-Saab, Aldonas), paras 155–61. 120 SOABI Jurisdiction, para 35. 121 SOABI Jurisdiction, para 41; however, according to Schreuer et al, ICSID Convention, note 6, Art 25 para 895, a loss of the foreign control required by Art 25(2)(b) ICSID Convention should be considered relevant and lead to a loss of jurisdiction. 122 Société Ouest Africaine des Bétons Industriels v Senegal, ICSID Case No ARB/82/1, Award, 25 February 1988 (SOABI Award), Digest I-26. 117

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15. Liberian Eastern Timber Corporation v Republic of Liberia ICSID Case No ARB/83/2 24 October

1984 Contract

Jurisdiction B M Cremades (P) J Gonçalves Pereira D A Redfern

Factual Background The dispute arose out of a concession agreement for the exploitation of timber reserves in Liberia. The Liberian Eastern Timber Corporation (LETCO) was a company incorporated in Liberia, but wholly owned by two French nationals. The concession agreement was concluded by the parties in 1970 for the duration of 20 years and provided for arbitration under the ICSID Rules (the Concession Agreement). In its annual certificates of registration, which LETCO was obliged to file with the Liberian Ministry of Commerce, it indicated its nationality as French. These certificates were countersigned by Liberian officials. From 1970, Liberia began to withdraw portions of the concession. In 1980, Liberia withdrew more than half of the concession area from the scope of the concession, arguing that the claimant had breached the Concession Agreement. In 1983, LETCO requested arbitration in its own name and in the name of its subsidiary, Letco Lumber Industry Corporation (LLIC). Liberia declined to make any submissions to the Tribunal and did not appear during the hearing. However, the Respondent initiated court proceedings in Liberia in order to annul the Concession Agreement.

The Decision123 Although the Respondent did not participate, the Tribunal nevertheless reviewed jurisdiction on its own. In its Interim Award on Jurisdiction, the Tribunal found 123 Liberian Eastern Timber Corporation v Republic of Liberia, ICSID Case No ARB/83/2, Decision on Jurisdiction, 24 October 1984 (LETCO Jurisdiction). The Interim Award has not been

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Case 15: LETCO Jurisdiction that the dispute arose ‘directly out of an investment’, and that the Concession Agreement provided for ICSID arbitration, confirming its jurisdiction on that basis.124 Furthermore, the Tribunal considered the nationality requirements of Article 25(1) of the Convention. Although LETCO was a Liberian company, the parties had agreed to treat LETCO as a national of another Contracting State under Article 25(2)(b) of the Convention. LETCO was entirely controlled by two French nationals, who owned all of the shares and dominated the company decision-making process.125 The Tribunal found that an investment agreement with a foreign-controlled juridical person that contains an ICSID arbitration clause established that there was an implied agreement on foreign nationality.126 In support of this view, the Tribunal referred to the jurisdictional decisions in Holiday Inns v Morocco127and Amco v Indonesia,128although it made clear these awards were not binding as a matter of precedent. LETCO’s annual certificates of registration, which indicated LETCO’s nationality as French, also reflected an agreement between the parties on the company’s nationality for ICSID purposes.129 Finally, the Tribunal considered it appropriate to presume that Liberia treated the company as a foreign national precisely because of foreign control, which had been established as a matter of fact.130 At the same time, the Tribunal held that it had no jurisdiction over LLIC, which had its own separate juridical personality. No arbitration agreement was concluded between LLIC and Liberia.131 However, the Tribunal did not exclude the possibility that LETCO could seek damages on the basis of its investments in LLIC.132

published, but the Tribunal summarizes certain of its conclusions in the final award, pp 349–54 (see LETCO Award, Digest I-20). 124 LETCO Jurisdiction, pp 349–50. 125 LETCO Jurisdiction, p 351. 126 LETCO Jurisdiction, pp 352–3. Compare also Schreuer et al, ICSID Convention, note 6, Art 25, paras 775–94. 127 Holiday Inns Jurisdiction I, Digest I-2, para 33. 128 Amco Asia I Jurisdiction, Digest I-11, para 14(ii). 129 LETCO Jurisdiction, p 353. 130 LETCO Jurisdiction, p 352. 131 In Amco Asia I Jurisdiction, Digest I-11, paras 24–5, the tribunal found it had jurisdiction over foreign companies Amco Asia and Pan American although an arbitration agreement had been concluded only with the local subsidiary. The arbitrators considered that the arbitration agreement would be rendered otiose if the actual investor could not invoke it. 132 LETCO Jurisdiction, p 354. Compare Amco Asia I Jurisdiction, Digest I-11, para 14(ii).

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16. Amco Asia Corporation and others v The Republic of Indonesia ICSID Case No ARB/81/1 20 November 1984

Contract

Award B Goldman (P) I Foighel E W Rubin

Factual Background The relevant factual background has been set out in detail in the summary of the decision on jurisdiction.133 A subsidiary of Amco Asia (Amco) incorporated in Indonesia, PT Amco (PT Amco), had operated a hotel in Indonesia on the basis of a contract with Indonesian company PT Wisma, which was owned and controlled by the Indonesian military. After two years of operation, PT Amco was deprived of control of the hotel with the assistance of armed forces. Some months later, its investment licence was cancelled. PT Amco was then sued in domestic Indonesian courts and lost in two instances. The award in this first phase of the dispute came after the jurisdictional decision of September 1983 and Indonesia’s unsuccessful provisional measures request of December 1983.

The Decision134 1. Merits As to the governing law, the Tribunal referred to Article 42 of the Convention and applied both Indonesian law and international law to the dispute. The claims were presented based on three grounds: (1) expropriation of the hotel by its seizure; (2) a breach of contract by revocation of the investment licence; and

133

Amco Asia I Jurisdiction, Digest I-11. Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Award, 20 November 1984 (Amco Asia I Award ). 134

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Case 16: Amco Asia I Award (3) Indonesian court decisions that rescinded the Agreement and Amco’s investment licence. The Tribunal dismissed the third ground in rather short order. It considered that the international responsibility of a State would only be incurred by acts of the State’s courts to the extent that such conduct constitutes a denial of justice. The Tribunal considered that it could find no evidence of a denial of justice in relation to the Jakarta court proceedings.135 The arbotrators then turned to the first claim, whether the seizure of the hotel constituted expropriation. They considered that an expropriation required a taking of property by the State, either for the benefit of the State or of a third person.136 At the same time, transfer was not necessarily required: Expropriation in international law also exists merely by the state withdrawing the protection of its courts from the owner expropriated, and tacitly allowing a de facto possessor to remain in possession of the thing seized . . .

The Tribunal concluded that a taking had occurred, and went on to examine whether this taking was attributable to Indonesia.137 The Tribunal rejected the Claimants’ arguments that PT Wisma and Indonesia were one and the same. Although there was a close relationship between the government and the armyowned comany, the Tribunal was not convinced that PT Wisma was an alter ego of the Indonesian State.138 It held that the acts of private companies must normally be attributed to their shareholders.139 The Tribunal also stressed the economic purpose of PT Wisma, such that its acts did not amount to an expropriation, nor were they attributable to Indonesia. Nevertheless, the Tribunal found that police and army personnel had assisted PT Wisma in an act of illegal self-help contrary to its contractual undertakings with Amco140. Such assistance could only have been justified if the internal situation or the maintenance of law and order made this absolutely necessary.141 Indonesia had an obligation to assist the Claimants in preserving the status quo until the dispute between the parties had been settled by legal process. The Tribunal identified a generally accepted rule of international law that ‘a State has a duty to protect aliens and their investment against unlawful acts committed by some of its citizens’.142 In referring to the ILC Draft Articles of State Responsibility, the arbitrators concluded

135

Amco Asia I Award , para 150. Amco Asia I Award , para 158. 137 Amco Asia I Award , para 159. 138 Amco Asia I Award , para 162. 139 Amco Asia I Award , para 163. 140 Amco Asia I Award , para 169. 141 Amco Asia I Award , para 170. 142 Amco Asia I Award , para 172. With the advent of investment treaties, such an obligation would find an expression the commonly incorporated ‘most constant protection and security’ clause. 136

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ICSID DECISIONS 19742002 that the actions of State organs, i.e. the police and, military, constituted acts attributable to Indonesia for which the State was internationally responsible.143 The Tribunal reviewed whether the decisions of the Indonesian courts had retroactively legitimized the seizure by PT Wisma.144 It noted that in considering the court proceedings between PT Wisma and PT Amco it would not depart from its decision on jurisdiction, where the Tribunal had held that the case at hand was not a dispute between private parties. It stressed: In any case, an international tribunal is not bound to follow the result of a national court . . . . If a national judgment was binding on an international tribunal such a procedure could be rendered meaningless.145

A judgment by a national court was thus just one of many factors that had to be considered by an arbitral tribunal. The Panel then turned to Amco’s second claim, i.e. that the actions attributable to Indonesia amounted to a breach of contract. While there was no formal contract between Amco and Indonesia, the Tribunal accepted Amco’s argument that the investment application and the investment licence created a relationship similar to a contract. It then analysed the licence revocation procedure, which it considered to be without proper warning and constituting a breach of Indonesian law and of the ‘general and fundamental principle of due process’.146 The discussion during the arbitral proceedings could not cure the lack of prior hearing.147 In any event, the Tribunal found nothing to suggest that Amco had materially disregarded the conditions of the investment licence.148 The Tribunal found that Indonesia was liable for the unjustified revocation of the investment licence not only under Indonesian law, but also under international law. It found that Indonesia had breached the general principle of pacta sunt servanda and Amco’s acquired rights.149 With respect to acquired rights, the Tribunal reasoned further that: by receiving the authorization to invest, Amco was bestowed with acquired rights (to realize the investment, to operate it with a reasonable expectation to make profit and to have the benefit of the incentives provided by law . . . These acquired rights could

143 It remains unclear whether the Tribunal considered the acts of the military and the police to constitute expropriation. Amco Asia I Award, para 178. 144 Amco Asia I Award , para 176. 145 Amco Asia I Award , para 177. See further Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ICSID Case No ARB/84/3, Decision on Jurisdiction, 14 April 1988 (SPP Jurisdiction II), Digest I-27, paras 120–1, in which the Tribunal refused to be bound by the findings of an ICC arbitration tribunal. 146 Amco Asia I Award , para 201. 147 Amco Asia I Award , para 202. 148 Amco Asia I Award , paras 204–42. 149 Amco Asia I Award , para 248.

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Case 16: Amco Asia I Award not be withdrawn by the Republic, except by observing the legal requisites of procedural conditions established by law, and for reasons admitted by the latter.150

2. Damages The Tribunal considered that Amco had suffered prejudice in two respects: first, it lost the possibility of exercising its right to operate the hotel (and later the actual right to do so); and secondly, when its investment licence was revoked, Amco was also deprived of the possibility to invest in other Indonesian enterprises.151 In respect of the first issue, the Tribunal examined in detail the causal link between the factual dispossession, the revocation of the licence three months later and the decisions of the Indonesian courts. It held that the Indonesian court decisions, since they did not trigger international responsibility for Indonesia, were causally irrelevant.152 In addition, the decisions were considered irrelevant because they were not binding upon the Tribunal.153 The Tribunal employed a method of calculating damages typical in breach of contract scenarios. Under Indonesian law, and in accordance with general principles of law,154 Amco was entitled to claim damnum emergens and lucrum cessans. However, the damages would be limited to direct and foreseeable loss.155 The Tribunal considered that Amco could only be compensated for the loss of the right to operate the hotel, i.e. the loss of a going concern.156 The arbitrators considered it inappropriate to compensate Amco for the loss of the general right to invest in other businesses (a right incorporated in the investment licence), since it had not established the existence of any other planned investments. The Tribunal discussed at length its decision to assess the damage to Amco as the loss of a going concern, in which the Tribunal would need: to establish the net present value of the business, based on the reasonable projection of the foreseeable net cash flow during the period considered, said net cash flow being discounted in order to take into account the assessment of the damages at the date of the prejudice, while in the normal course of events, the cash flow would have been spread on the whole period of operation of the business.157

On this basis, the Tribunal awarded damages totalling US$3.2 million. As to interest, the Tribunal noted that, under international law, it would be possible to start 150 Amco Asia I Award , para 248, citing Certain German Interest in Polish Upper Silesia (Merits) (Germany v Poland), PCIJ Series A No 7 (1926), pp 22, 44. 151 Amco Asia I Award , para 252. 152 Amco Asia I Award , para 262. 153 Amco Asia I Award , paras 262–3. 154 Amco Asia I Award , paras 266–7. See further Factory at Chorzów (Claim for Indemnity) (Merits), PCIJ Series A No 17 (1928), pp 47–8. 155 Amco Asia I Award , para 268. 156 Amco Asia I Award , para 271. 157 Amco Asia I Award , para 271.

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ICSID DECISIONS 19742002 the calculation either from the date of the wrongful conduct or the filing of the claim with the Tribunal.158 The Tribunal decided to calculate interest only from the date of the request of arbitration. 3. Costs The Tribunal ordered that each party bear its own costs and that the costs of the Tribunal be split equally.159 In making that decision, it took into account that both parties had pursued their positions in the arbitration conscientiously and efficiently, and that the actual recovery was only a fraction of the claim initially advanced (about 25 per cent).

158 159

Amco Asia I Award , para 281. Amco Asia I Award , para 291.

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17. Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea ICSID Case No ARB/84/1 18 December 1984

Contract

Decision on Provisional Measures P Sanders (P) J F Prat A J van den Berg

The decision has been neither published nor reported.

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18. Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais ICSID Case No ARB/81/2 3 May 1985

Contract

Annulment P Lalive (P) A S El-Kosheri I Seidl-Hohenveldern

Factual Background The facts underlying the dispute have already been set out in detail in the summary of the jurisdictional decision. On 21 October 1983, the first Klöckner Tribunal rendered its award in this dispute,160 dismissing the claims of Klöckner IndustrieAnlagen GmbH (Klöckner) as well as the counterclaims of the two respondents, the Republic of Cameroon and Société Camerounaise des Engrais (SOCAME ). Klöckner requested annulment of the award on the grounds that the Tribunal had manifestly exceeded its powers, seriously departed from a fundamental rule of procedure and failed to state reasons.

The Decision161 1. Manifest Excess of Powers The Committee first dealt with two contentions regarding an alleged manifest excess of powers by the Tribunal below. Klöckner first argued in this regard that the Tribunal had manifestly exceeded its powers when it assumed jurisdiction over Cameroon’s counterclaim despite the ICC arbitration clause in the Management Contract. The Committee first noted 160

Klöckner I Award, Digest I-12. Klöckner I Annulment. The case was subsequently resubmitted for adjudication to a new arbitral tribunal, with a new award rendered in 1988 (Klöckner II Award, Digest I-25). A second annulment proceeding ended in 1990 with the ad hoc Committee rejecting the annulment applications (Klöckner II Annulment, Digest I-31). 161

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Case 18: Klöckner I Annulment that an arbitral Tribunal’s lack of jurisdiction ‘necessarily comes within the scope of an excess of powers’.162 The Committee proposed a two-step approach: first, it would have to decide whether the Tribunal exceeded its jurisdiction; secondly, it would examine whether this excess of jurisdiction was ‘manifest.163 The Committee first pointed out that arbitrators have the power to determine their own jurisdiction, subject only to a review by an annulment committee under Article 52(1) of the Convention.164 The task of an annulment committee would not be to review ‘whether the contested award’s interpretation is or is not the best, or the most defensible, or even whether it is correct, but only whether the award is tainted by manifest excess of powers’.165 The Committee considered the Tribunal’s interpretation, which refused to accept derogation from an ICSID arbitration clause in the absence of a precise and unequivocal contractual provision, to be tenable.166 Thus, the Committee could not find a manifest excess of powers due to a lack of jurisdiction.167 The Committee then turned to Klöckner’s second contention that, by not applying the law chosen by the parties, the Tribunal had violated Article 42(1) of the Convention and exceeded its powers.168 The Committee first confirmed that a violation of Article 42(1) of the Convention could constitute a manifest excess of powers, as the choice-of-law provision is not merely exhortatory in nature.169 It found support for this in various rulings of international courts and tribunals, which distinguished between a mere misapplication of the law and the application of the wrong law.170 The Committee found that while the Tribunal purported to have applied the law of Cameroon and France, it had in fact referred ony to vague universal principles. The Committee considered such references to be inadmissible. Although general principles of law are part of international law—as recognized by Article 38(1)(c) of the Statute of the International Court of Justice—the principles of international law could play, according to Article 42(1) of the Convention, only a supplementary role in the absence of any choice by the parties:

162

Klöckner I Annulment, para 4. Klöckner I Annulment, paras 4, 17. 164 Klöckner I Annulment, para 17. 165 Klöckner I Annulment, para 52. 166 Klöckner I Annulment, para 52. 167 Klöckner I Annulment, paras 52, 56. This conclusion was criticized by Schreuer et al, ICSID Convention, note 6, Art 25 paras 775–94, Art 52 paras 175–90. 168 Klöckner I Annulment, para 57. 169 Klöckner I Annulment, para 58. See Schreuer et al, ICSID Convention, note 6, Art 52 paras 191–5, pointing to the travaux préparatoires and subsequent awards. 170 Klöckner I Annulment, paras 59–61; citing Orinoco Steamship Company Case [1916] Hague Court Reports 226; Arbitral Award Made by the King of Spain on 23 December 1906 (Honduras v Nicaragua), Judgment, 1960 ICJ Rep 192. 163

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ICSID DECISIONS 19742002 This gives these principles . . . a dual role, that is complementary (in the case of a ‘lacuna’ in the law of the State), or corrective, should the State’s law not conform on all points to the principles of international law.171

The Committee clarified that, whether for complementary or corrective purposes, the Tribunal may only have recourse to principles of international law after having considered and applied the relevant domestic law. The Committee then examined whether the principles applied could be considered part of French civil law. However, this task proved impossible, because the award did not refer to any particular source of French law, whether legislation, judgments or academic commentary.172 Having merely postulated the law without demonstrating its existence, the Tribunal was considered not to have applied the law applicable under Article 42(1) of the Convention. In this respect, the Committee concluded that the Tribunal had manifestly exceeded its powers. Having established the excess of powers, the Committee held that the award had to be annulled in its entirety. It considered a partial annulment to be appropriate only if the part of the award ‘affected by the excess of powers is identifiable and detachable from the rest, and if so, the remaining part . . . has an independent basis’.173 However, it noted that this was impossible in the case at hand. 2. Serious Departure from a Fundamental Rule of Procedure A second ground for annulment advanced by Klöckner was a serious departure from a fundamental rule of procedure by the Tribunal due to an absence of deliberation, to other irregularities and to a lack of impartiality. The Committee was not convinced by these assertions. First, it turned to the alleged absence of deliberation. While it agreed that the absence of deliberation could constitute a reason for annulment,174 it cautioned that such an absence would generally be difficult to prove and, in the case at hand, at least some deliberations had taken place.175 As far as other irregularities were concerned, the Committee noted only that the Claimant had failed to raise its objections promptly during the proceedings as required by Article 26 of the Arbitration Rules.176 Furthermore, the Committee rejected Klöckner’s argument that the Tribunal had failed to respect the principle of due process because it based its award on arguments that were not advanced or discussed by the parties. The Committee held that ‘[w]ithin the dispute’s “legal

171 172 173 174 175 176

Klöckner I Annulment, para 69 (emphasis in original). Klöckner I Annulment, para 71. Klöckner I Annulment, para 80. Klöckner I Annulment, para 84. Klöckner I Annulment, para 85. Klöckner I Annulment, para 88.

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Case 18: Klöckner I Annulment framework”, arbitrators must be free to rely on arguments which strike them as the best ones, even if those were not developed by the parties. . . .’177 Finally, the Committee dealt with the Tribunal’s alleged lack of impartiality. It agreed with Klöckner’s submission that impartiality was a fundamental and essential procedural requirement.178 It noted that the ‘severity and frequency of the censures of the Claimant’s conduct’ in the award could be explained by bias as Klöckner accused. However, the Panel held that none of the individual grounds advanced was sufficient ‘to establish or even to cause one to assume partiality’.179 3. Failure to State Reasons Klöckner next argued that the Tribunal’s decision was characterized by contradictory, dubious and inadequate reasoning, and had failed to deal with all of the issues submitted. After some general comments,180 the Committee held that contradicting reasons, as a general rule, could be considered as part of a failure to state reasons.181 Establishing the contradiction, however, could give rise to difficulties. In addition, the question might arise whether such a contradictory reasoning was— according to the principle ‘no annulment without grievance’—in fact, to the detriment of the party seeking the annulment and causal for the award (i.e. whether the award would in any event stand on other, consistent reasons).182 In any event, the Committee was unable to find a contradiction in the reasoning of the Tribunal, and rejected this line of argument.183 Klöckner had also submitted that the reasons offered by the Tribunal were dubious or hypothetical in nature. While Klöckner succeeded in showing many instances of hypothetical considerations by the Tribunal, it was unable to demonstrate that the award was fundamentally based on such hypotheses instead of upon established facts.184 Finally, the Committee reviewed the alleged inadequacy of reasoning provided by the Tribunal. In the Panel’s view, a ‘purely formal or apparent’ statement of reasons would be insufficient; arbitrators are required to provide ‘reasons having some substance, allowing the reader to follow the arbitral tribunal’s reasoning, on facts,

177

Klöckner I Annulment, para 91. Klöckner I Annulment, para 95. 179 Klöckner I Annulment, para 110. 180 Klöckner I Annulment, paras 115–20. The Committee noted in particular that Art 52 would require reasons ‘allowing the reader to follow the arbitral tribunal’s reasoning on facts and on law’. Klöckner I Annulment, para 119. 181 Klöckner I Annulment, para 116. 182 Klöckner I Annulment, para 116. 183 Klöckner I Annulment, para 123. 184 Klöckner I Annulment, para 126. 178

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ICSID DECISIONS 19742002 and on law’.185 Reasons must be reasonably sustainable and capable of providing a basis for the decision.186 Turning to the case at hand, the Committee noted that Klöckner seemed to disagree with the substantive reasoning of the award, but it could not find that the reasoning fell below the threshold standard. The Committee then turned to whether the Tribunal had failed to deal with every question submitted to it as required under Article 48(3) of the Convention. A failure to deal with every question could lead prima facie to an annulment according to Article 52(1)(e) of the Convention.187 It concluded that questions were different from arguments, as it was clear that arbitrators need not deal with every argument submitted to them.188 The Committee then considered the five individual complaints advanced under this heading.189 It acknowledged the absence of any discussion of several essential positions in the award that had to be considered questions. Several of the Tribunal’s conclusions were merely asserted, but not reasoned.190 The Committee also rejected the assumption that certain of Klöckner’s arguments had been rejected implicitly by the Tribunal in its reasoning concerning other questions.191 The Committee found it ‘difficult to conceive that an indirect and implicit response may be found in reasons given on another subject’.192 On this basis, the Committee found that the Tribunal had indeed failed to give reasons on every question as alleged by Klöckner, giving rise to a valid ground for annulment. 4. Other Grounds for Annulment Klöckner further criticized the award on two points without addressing a specific ground for annulment enumerated in the Convention. The Committee considered them to fall within certain of the cognizable annulment grounds: However incomplete and imprecise they may be, these arguments permit one to infer that the complaint is that the Tribunal manifestly exceeded its powers within the meaning of Article 52(1)(b) or, alternatively or subsidiarily, that the Tribunal failed to state why it thought the exception of French law could be applied as it was in the Award.193

With respect to the points that Klöckner had raised, the Committee concluded that while the award contained ‘some reasoning’, it was insufficient as it neither

185 186 187 188 189 190 191 192 193

Klöckner I Annulment, para 119. Klöckner I Annulment, paras 120, 129. Klöckner I Annulment, para 115. Klöckner I Annulment, para 131. Klöckner I Annulment, paras 133–64. Klöckner I Annulment, paras 143–4. Klöckner I Annulment, para 164. Klöckner I Annulment, para 164. Klöckner I Annulment, para 166.

52

Case 18: Klöckner I Annulment stated the legal grounds nor the rules of law that could justifiy the Tribunal’s conclusions.194 It therefore found the challenge on the basis of ‘failure to state reasons’ to be well founded. In addition, with respect to the Tribunal’s calculation of amounts due, the Committee considered the bare reference in the award to equitable estimations to be incompatible with the minimum requirements of the ICSID Convention.195 Finally, the Committee observed that it could be possible to distinguish between the finding of grounds for annulment according to Article 52(1) of the Convention and the actual declaration of annulment according to Articles 52(2) and (6) of the Convention. Nevertheless, the Committee resolved that the finding of at least one ground for annulment in Article 52(1) must, in principle, lead to total or partial annulment of the award, without any further discretion of the Committee.196 On this basis, the Committee annulled the Klöckner Award in its entirety. As to the costs, the Committee decided, on the basis of Rules 53 and 47(1)(j) of the Arbitration Rules, that each party should bear one half of the arbitration costs as well as its own legal expenses.197

194

Klöckner I Annulment, para 171. Klöckner I Annulment, para 176. But see the annulment decision in Amco Asia I Annulment, Digest I-22, paras 27–8. 196 Klöckner I Annulment, para 179. 197 Klöckner I Annulment, para 180. 195

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19. Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt ICSID Case No ARB/84/3 27 November 1985

Contract/Foreign Investment Law

Jurisdiction

E Jiménez de Aréchaga (P) M A E El Mahdi R F Pietrowski, Jr

Factual Background In 1974, Southern Pacific Properties Limited, a company incorporated in Hong Kong (SPP), the public sector Egyptian General Organization for Tourism and Hotels (EGOTH), and—apparently—the Egyptian Ministry of Tourism (Egypt) concluded two separate contracts to develop two international tourist complexes in Arab Republic of Egypt (the Heads of Agreement and the December Agreement). A joint venture company, the Egyptian Tourist Development Company (ETDC), was created to fulfil this purpose. SPP also incorporated a subsidiary, Southern Pacific Properties (Middle East) Limited (SPP(ME)) to hold SPP’s 60 per cent stake in ETDC. The project proceeded until 1978 when, prompted by parliamentary opposition, Egypt cancelled the project and placed ETDC in judicial trusteeship. SPP and SPP(ME) initiated ICC arbitration pursuant to an arbitration clause in the December Agreement, claiming as damages the value of shareholding in ETDC and lost profits. In March 1983, the ICC Tribunal awarded US$12.5 million in damages, but the Paris Court of Appeal annulled the award on jurisdictional grounds.198 SPP(ME) appealed to the Court of Cassation to have this decision overturned. While this action was pending, SPP filed a request for ICSID arbitration, seeking the same relief as in the ICC proceedings.199 The asserted basis for arbitration was 198

The December Agreement was formally signed only by EGOTH and SPP. On the last page, the Egyptian Minister of Tourism indicated his approval of the contract. The ICC tribunal accepted jurisdiction over the State as respondent and rejected jurisdiction over EGOTH. The Paris Court of Appeal held that Egypt had not been a party to the contract and was therefore not bound to arbitrate. 199 SPP was subsequently joined as Claimant alongside SPP(ME).

54

Case 19: SPP Jurisdiction I Article 8 of the Egyptian law on foreign investment (Law No 43), which described a procedure whereby investors might refer certain disputes to ICSID.

The Decision200 The Tribunal rendered a first (partial) decision on jurisdiction while the court proceedings in France were still pending. It rejected Egypt’s contention that the Claimants’ pursuit of an ICC remedy was in breach of Article 26 ICSID Convention rendering ICSID claims inadmissible. The Tribunal noted that a ‘failure to waive other remedies does not impair consent to ICSID jurisdiction’.201 It further held that while claimants might not be entitled to pursue both ICC and ICSID arbitration, there currently was not more than one enforceable award, and therefore there was no difficulty. Egypt further complex objections relating to the interpretation of Article 8 of Law No 43. The Law provided: Investment disputes in respect of the implementation of the provisions of this Law shall be settled in a manner to be agreed upon with the investor, or within the framework of the agreements in force between the Arab Republic of Egypt and the investor’s home country, or within the framework of the Convention for the Settlement of Investment Disputes between the State and the nationals of other countries to which Egypt has adhered by virtue of Law No. 90 of 1971, where such Convention applies.202

Egypt’s main objection was that Article 8 did not constitute self-executing consent to ICSID jurisdiction. Supplementary, subsequent consent of the State was necessary before ICSID arbitration under Law No 43 would be possible. The Tribunal concluded that it would be appropriate to postpone adjudication of this issue as long as the French court proceedings were pending. Should those courts find that the claimants had agreed with Egypt to ICC arbitration, Law No 43 would exclude parallel consent to ICSID arbitration. For reasons of international comity, the Tribunal therefore decided to stay the arbitration proceedings.203

200

Southern Pacific Properties(Middle East) Limited v Arab Republic of Egypt, ICSID Case No ARB/84/3, Decision on Jurisdiction, 27 November 1985 (SPP Jurisdiction I). 201 SPP Jurisdiction I, para 58. 202 The relevant part of the provision is cited in SPP Jurisdiction I, para 70. 203 The proceedings were resumed after the French Court of Cassation upheld the annulment of the ICC Award. SPP Jurisdiction II,Digest I-27.

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20. Liberian Eastern Timber Corporation v Republic of Liberia ICSID Case No ARB/83/2 31 March 1986

Contract

Award B M Cremades (P) J Gonçalves Pereira D A Redfern

Factual Background The factual background of the dispute has been included in the summary of the Decision on Jurisdiction (Digest I-15). It arose out of the withdrawal by Liberia of a concession agreement for the exploitation of timber reserves, which also provided for ICSID arbitration (Concession Agreement).

The Decision204 Although Liberia had defaulted and did not take part in the proceedings, the Tribunal examined the substantive merit of the assertions made by LETCO,205 as required by Article 45 of the Convention and Rule 42 of the Arbitration Rules. The Tribunal made clear that Liberia’s non-participation would not: . . . entitle the claimant to an award in its favour as a matter of right. The onus is still upon the claimant to establish the claim which it has put forward.206

Turning to the question of the applicable substantive law,207 the Tribunal examined Article 42 of the Convention. The Tribunal reasoned that there were indicators

204 Liberian Eastern Timber Corporation v Republic of Liberia, ICSID Case No ARB/83/2, Award, 31 March 1986 (LETCO Award ). See further LETCO Jurisdiction, Digest I-15. 205 LETCO Award, pp 355–6; compare also Kaiser Bauxite Jurisdiction, Digest I-5, para 10; Goetz Award, Digest I-49, para 79; Schreuer et al, ICSID Convention, note 6, Art 41 paras 52–5, Art 45 paras 13–19. 206 LETCO Award, p 356. 207 LETCO Award, pp 358–9.

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Case 20: LETCO Award suggesting a choice of Liberian law in the Concession Agreement. The arbitrators took note of LETCO’s argument that there had been no explicit choice of law between the parties, but considered that even in the absence of a choice by the parties, Article 42 of the Convention dictated that Liberian law would govern the dispute. International law would serve as the ‘regulator’ of national law and would become relevant only where a divergence on a particular point became apparent. In the case at hand, however, the Tribunal found that there was no conflict between Liberian law and international law.208 The Tribunal determined that Liberia had breached the Concession Agreement as a matter of Liberian law. The withdrawal of the concessions had not been part of a justified nationalization scheme, since the requirements for legal expropriation under national and international law were not met: the State had acted without a bona fide public purpose, on a discriminatory basis and wihtout offering appropriate compensation.209 Under Liberian law, LETCO was thus entitled to damages. Turning to the quantum of damages, the Tribunal referred to awards by other tribunals that had awarded lost future profits in addition to the value of the lost investment.210 As a matter of obiter dicta, it agreed with the Claimant that restitutio in integrum was not available given the specific facts at hand.211 The Tribunal calculated the quantum of compensation on the basis of Liberian law, but mentioned that under international law, LECTO would also have been entitled to compensation for both sunk costs and forgone future profits.212 Furthermore, the Tribunal included in its calculation of damages investments that LETCO had made in LLIC, pursuant to its jurisdictional findings with respect to LLIC.213 As to costs and legal expenses, the Tribunal held that according to Article 61(2) of the the Convention, LETCO was entitled to the reimbursement of all costs and expenses incurred pursuant to Rules 28 and 47 of the Arbitration Rules. The Tribunal further justified its decision to shift costs by reference to Liberia’s bad faith conduct, namely its refusal to participate and its parallel attempts to annul the Concession Agreement in Liberian courts.214 These costs, characterized by the Tribunal as ‘damages’, totalled US$654,382.

208

LETCO Award, p 358. LETCO Award, pp 366–7. 210 LETCO Award, p 371. 211 LETCO Award, pp 370–1. 212 LETCO Award, p 372. 213 LETCO Award, p 374. See further LETCO Award, p 354, summarizing jurisdictional findings with respect to LLIC. 214 LETCO Award, p 378. 209

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21. Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea ICSID Case No ARB/84/1 21 April 1986

Contract

Award P Sanders (P) J F Prat A J van den Berg

Factual Background The dispute arose out of an agreement to operate fishing vessels. Atlantic Triton Company Limited, a Norwegian company (Atlantic Triton), was informed in early 1981 that the Republic of Guinea planned to take steps to organize and exploit its fishery resources. Atlantic Triton and other consultants presented a report to Guinea outlining the proposed construction of certain commercial fishing facilities, along with the purchase of used Norwegian trawlers. Guinea subsequently bought three such vessels from Atlantic Triton. In August 1981, the parties concluded a management agreement whereby Atlantic Triton would operate and equip the three vessels on behalf of Guinea (the Management Contract), with a view to establishing a fishing industry that could support the alimentary needs of the local population. Atlantic Triton was to ensure the efficient production necessary for the profitable operation of the vessels. The Management Agreement also provided for ICSID arbitration in case of a dispute between the parties. In September 1981, it became apparent that the costs of converting the vessels would exceed the budget that had been agreed. The new figure was accepted and duly paid by Guinea. A second budget overrun was rejected by the government. The shipyard that was contracted to convert the vessels instituted Norwegian court proceedings against both Atlantic Triton and Guinea. The vessels arrived in Guinea and began operations in late 1981, but produced poor results. The reasons for the unprofitability of the operations included a shortage of fuel, insufficient infrastructure at the port of Conakry hadand the unsuitability of the vessels for the Guinean waters. The parties met and reviewed their cooperation 58

Case 21: Atlantic Triton Award in September 1982. Negotiations came to no conclusion. In April 1983, Atlantic Triton rescinded the Management Contract, contending that Guinea had failed to reimburse the second budget overrun. To preserve its alleged rights, Atlantic Triton successfully sought the arrest of the vessels in France. That court order was later vacated. Atlantic Triton initiated ICSID arbitration proceedings and claimed damages for breach of the Management Contract. Guinea advanced a counterclaim for Atlantic Triton’s breach of the Management Agreement by, inter alia, arresting the vessel.

The Decision215 The Tribunal found that Guinea had accepted liability for the second budget overrun, and therefore should reimburse that amount to Atlantic Triton (US$ 226,967). At the same time, the Tribunal recognized the very real risk that Guinea would be compelled to pay the same amount to the Norwegian shipyard, which had reserved its right to pursue Guinea on just such a claim. The arbitrators recognized that this point had not been raised by either party in the proceeding, but nevertheless took steps on an expressly ex aequo et bono basis to protect Guinea from this eventuality. The Tribunal ordered that the damages award against Guinea was conditional on Atlantic Triton furnishing a bank guarantee in Guinea’s favour, subject to call should the State be subject to a final judgment in Norwegian litigation (unless the shipyard withdrew its claim). As far as interest was concerned, the Tribunal considered a rate of 9 per cent, which was at that time the basic inter-bank interest rate in the United States, to be equitable.216 The Tribunal also awarded Atlantic Triton the management fees it sought. However, the Tribunal decided ex aequo et bono to reduce the amount due based on equitable considerations: Atlantic Triton’s negligent advice was one cause of the failure of the project.217 The Tribunal dismissed Atlantic Triton’s other claims, notably for moral damages stemming from loss of its business reputation, due to lack of evidence.218 The Tribunal also dismissed Guinea’s counterclaims. It rejected Guinea’s contention that the arrest of the vessels had breached the Management Contract. In particular, the Tribunal held that, according to Article 47 of the Convention and Rule 39 of the Arbitration Rules, an arbitration clause cannot be understood as

215 Atlantic Triton Company v People’s Revolutionary Republic of Guinea, ICSID Case No ARB/84/1, Award, 21 April 1986 (Atlantic Trition Award ). 216 Atlantic Triton Award , p 30. 217 Atlantic Triton Award , p 32. 218 Atlantic Triton Award , p 33. On moral damages, see further Benvenuti & Bonfant Award, Digest I-9, para 4.96.

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ICSID DECISIONS 19742002 conferring exclusive jurisdiction on a tribunal for ordering preliminary did not measures.219 In addition, the Tribunal did not consider the Claimant’s recourse to local remedies to have been abusive. The Tribunal held that it had no jurisdiction to adjudicate claims based on acts that took place before the signing of the Management Contract, including Atlantic Triton’s actual choice of the vessels that were to be reconstructed.220 Still other counterclaims claims were dismissed due to lack of evidence. The Tribunal decided that each party should bear its own costs and half of the costs of the arbitral Tribunal.221

219 Atlantic Triton Award , pp 35–6. After subsequent amendments, this principle is now expressly codified in Rule 39(6) of the Arbitration Rules, which reads: ‘Nothing in this Rule shall prevent the parties, provided that they have so stipulated in the agreement recording their consent, from requesting any judicial or other authority to order provisional measures, prior to or after the institution of the proceeding, for the preservation of their respective rights and interests’. 220 Atlantic Triton Award , p 39. 221 Atlantic Triton Award , p 42.

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22. Amco Asia Corporation and others v The Republic of Indonesia ICSID Case No ARB/81/1 16 May 1986

Contract

Annulment I Seidl-Hohenveldern (P) F P Feliciano A Giardina

Factual Background The relevant factual background has been set out in the summary of the initial decision on jurisdiction in this dispute.222 In its award of 20 November 1984 (the Award ),223 the Tribunal had assessed the value of Amco’s investment at US$2,472,490 in foreign equity capital. This sum was approximately one-sixth less than the amount that Amco had promised to invest when it had applied for an investment licence. This shortfall was considered immaterial by the Tribunal, which held in part on this basis that the subsequent forcible takeover of the Claimants’ hotel was illegal and that the revocation of their licence was unjustified. The Panel awarded Amco US$3,200,000 in damages. On 18 March 1985, the Republic of Indonesia filed an application for annulment of the Award.

The Decision224 Before anaysing the grounds for annulment raised by Indonesia, the ad hoc Committee considered Amco’s contention, based on Arbitration Rule 50(1)(c), that Indonesia’s petition for annulment was at least partly time-barred, since certain annulment grounds had first been raised only in a memorial submitted more than 120 days after the issuance of the Award.

222

Amco Asia I Jurisdiction, Digest I-11. Amco Asia I Award , Digest I-16. 224 Amco Asia Corporation and others v Republic of Indonesia , ICSID Case No ARB/81/1, Decision on Annulment, 16 May 1986 (Amco Asia I Annulment). 223

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ICSID DECISIONS 19742002 The Committee first clarified in this regard that the registration of an application by the Secretary-General of ICSID cannot be considered conclusive as to the fulfilment of the time limits imposed by Arbitration Rule 50(1)(c).225 As to the level of detail required to trigger the submission of an annulment application for purposes of assessing timeliness, the Committee considered that the mere recital of specific subparagraphs of Article 52(1) of the Convention would be insufficient, in the absence of more substantial explanation. However, Arbitration Rule 51(1) does not require the submission of a full memorial within 120 days, and allows for the further development of arguments in the memorial at a later point.226 In arriving at this conclusion, the Committee relied on Note B to Arbitration Rule 50, which establishes a procedure for instituting annulment proceedings that is roughly analogous to the filing and registration of a request for arbitration. The Committe regarded the arguments presented in Indonesia’s memorial as constituting no more than the development and elucidation of positions already advanced in the application for annulment, and therefore in conformity with Arbitration Rule 50(1)(c).227 The Panel also held that declining to repeat particular annulment grounds in a memorial, which had already been advanced in the initial application, could not constitute waiver or withdrawal of such grounds, because waiver must be explicit in order to be effective.228 The Committee then turned to Indonesia’s submissions. Indonesia challenged the Award contending that the Tribunal had: (1) manifestly exceeded its powers; (2) failed to state reasons; and (3) seriously departed from fundamental rules of procedure. 1. Manifest Excess of Powers With respect to an alleged manifest excess of powers, the Committee observed that its task was only to examine whether the Tribunal had in fact applied the governing law pursuant to Article 42(1) of the Convention. A failure to do so would constitute a ground for annulment under Article 52(1)(b) of the Convention, while the mere misinterpretation of the applicable law would not give rise to any basis for review.229 As to the relationship between legal regimes established by Article 42(1) of the Convention, the Committee held—relying, inter alia, on the annulment decision in Klöckner230 —that the rules of international law could apply only to fill lacunae in the applicable domestic law or to ensure harmonization with international norms

225 Amco Asia I Annulment , para 47; relying inter alia on Holiday Inns Jurisdiction I, Digest I-2, p 144 (note 2). 226 Amco Asia I Annulment , paras 46, 50. 227 Amco Asia I Annulment , para 53. 228 Amco Asia I Annulment , para 56. 229 Amco Asia I Annulment , para 23. 230 Klöckner I Annulment, Digest I-18, para 69.

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Case 22: Amco Asia I Annulment in case of conflict.231 In the Committee’s view, international law was to perform a ‘supplemental and corrective role’, with the host State’s municipal law forming the corpus of substantive legal rules.232 The Committee first discussed whether the Tribunal, by relying on ‘equitable considerations’, had decided ex aequo et bono without being authorized by the parties to do so, and hence manifestly exceeded its powers. Indonesia contended, based on the ICJ decision in North Sea Continental Shelf,233 that international law only admits the application of equitable considerations in the context of the delimitation of maritime boundaries. Referring to the Corfu Channel Case234 and the ICJ advisory opinion in Judgments of the Administrative Tribunal of the ILO,235 the Committee held that equitable principles are equally cognizable under international law in other areas, and that the Tribunal’s reasoning and resulting decision in this regard could not be seen as ex aequo et bono.236 Indonesia next argued that the Tribunal had exceeded its jurisdiction for two reasons. First, Amco’s claim concerning the acts of the army and police personnel allegedly constituted a tort and as such could not form part of a claim in an investment dispute under the Convention. The Committee rejected Indonesia’s argument, determining that international tort and investment disputes are not ‘mutually exclusive categories’.237 Indonesia also contended that the Tribunal’s jurisdiction had been subject to exhaustion of local remedies by the Claimant. The Panel rejected this argument, ruling that Indonesia had waived its right to require prior exhaustion of local remedies by accepting ICSID jurisdiction without reserving the issue, as envisaged in Article 26 of the Convention. As a result, it could not challenge the Tribunal’s jurisdiction on this ground.238 The Committee also found no excess of power by the Tribunal in respect of its findings that Indonesia had violated due process in revoking the Amco’s licence. In the Committee’s view, Indonesia was responsible for failing to protect Amco from forcible takeover by the Indonesian police and military and that Amco was to be compensated in US dollars outside Indonesian territory.239

231

Amco Asia I Annulment, paras 20–2. Amco Asia I Annulment, para 22. 233 North Sea Continental Shelf Case (Federal Republic of Germany/Netherlands; Federal Republic of Germany/Denmank), Judgment, 1969 ICJ Reports 3, para 88. 234 Corfu Channel case (United Kingdom of Great Britain and Northern Ireland v Albania), Judgment, 1949 ICJ Reports 244, p 249. 235 Judgments of the Administrative Tribunal of the ILO upon Complaints Made against Unesco, Advisory Opinion, 1956 ICJ Reports 77, p 100. 236 Amco Asia I Annulment , paras 27–8. 237 Amco Asia I Annulment , para 68. 238 Amco Asia I Annulment , para 63. 239 Amco Asia I Annulment , paras 57–60, 70–88. 232

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ICSID DECISIONS 19742002 Finally, Indonesia argued that the Tribunal had manifestly exceeded its powers when determining and calculating the capital invested by Amco in Indonesia. The Tribunal had assessed the investment at US$2,472,490 in this regard in foreign equity capital, although Amco had only registered US$399,000 with Bank Indonesia. Pursuant to the Indonesian investment law, such registration constituted an indispensable requirement for capital to be recognized as an ‘investment’. By not applying the applicable domestic law in this regard, the Committee held that the Tribunal had manifestly exceeded its powers.240 2. Failure to State Reasons Before discussing whether the Tribunal had failed to state reasons for its decision such as to justify annulment of its award, the Committee dealt with the relationship between Articles 49(2) and 52(1)(e) of the Convention. Amco contended that, before seeking annulment of an award on grounds that arbitrators failed to answer every question presented as required by Article 48(3) of the Convention, recourse must first be had to the completion and correction procedure established in Article 49(2) of the Convention. The Committee considered that Article 49(2) could only rectify unintentional or minor omissions. It could not apply to facts and arguments which, had they been considered, might have obliged the Tribunal to abandon the very basis for their award, since the decision of the Tribunal on these issues could not simply be inserted into the award envisaged as by Article 49(2).241 In the Committee’s view, such significant problems would entail the partial annulment of the award, which is only possible pursuant to Article 52 of the Convention.242 It considered Indonesia’s claims to fall into this latter category, and therefore held that a prior rectification request under Article 49(2) of the Convention was not required.243 Affirming a strict distinction between the misinterpretation of law and the application of the wrong system of law, the Committee observed that an annulment committee is not entitled to a full review of the Tribunal’s reasoning when assessing failed to state reasons.244 In order to establish the permissible scope of review, the Committee referred to the judgment of the ICJ concerning the Arbitral Award

240

Amco Asia I Annulment, paras 95, 98. Amco Asia I Annulment, paras 34–5. 242 Amco Asia I Annulment, para 35. 243 Amco Asia I Annulment, para 36. 244 This is today relatively uncontroversial. See, Maritime International Nominees Establishement v Republic of Guinea, ICSID Case No ARB/84/4, Decision on Annulment, 22 December 1989 (MINE Annulment), Digest I-30, para 4.04; Klöckner I Annulment, Digest I-18, para 52; L Reed et al, Guide to ICSID Arbitration (London: Kluwer Law International, 2nd edn, 2011), p 162. The Amco Asia I Annulment (Digest I-22) Committee was criticized for not consistently adhering to this rule in its decision. Schreuer et al, ICSID Convention, note 6, Art 52 paras 12–13. 241

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Case 22: Amco Asia I Annulment Made by the King of Spain245 and the analysis of the annulment Committee in Klöckner.246 The Panel held that an ad hoc Committee is not barred from verifying that the Tribunal gave ‘sufficiently pertinent reasons’, i.e. that there exists a reasonable connection between the reasons invoked by a tribunal and the conclusions reached.247 The Committee also declared that a tribunal’s conclusions or findings need not necessarily be prefaced with the legal provision applied because the conclusions and findings must in any event be read in their context.248 Accordingly, having established that the Tribunal had applied Indonesian law even though it had not stated the relevant rule, the Committee held that the Tribunal’s findings on the illegality of the forcible takeover could not be annulled.249 The same was held to be true concerning the Tribunal’s decision on jurisdiction, rejecting Indonesia’s exhaustion of local remedies argument.250 Indonesia also challenged the sufficiency of reason underlying the Tribunal’s conclusion on due process. The Committee concluded that, since the concept of due process was applied in Indonesian law on a case-by-case basis, the award could not be challenged ‘for having relied on a general principle without discussing specific rules defining the scope of application of such principle’.251 The Committee accepted Indonesia’s contention that the Tribunal had inadequately elaborated its reasoning for the calculation of the magnitude of Amco’s investment. On this basis as well, it annulled the relevant part of the Award.252 3. Serious Departure from a Fundamental Rule of Procedure Indonesia further contended that the Tribunal had departed from a fundamental rule of procedure by treating the parties unequally on two occasions. Indonesia’s first claim was based on the fact that the Tribunal attributed knowledge of PT Wisma to Indonesia, despite refusing to attribute PT Wisma’s forcible takeover of the hotel to Indonesia. Based on this assessment, the Tribunal concluded that PT Amco had not received the warning required under Indonesian law before its licence was revoked. The Committee determined these evaluations to be covered by the Tribunal’s discretionary authority under Arbitration Rule 34.253 It also

245

Arbitral Award Made by the King of Spain, note 160. Klöckner I Annulment, Digest I-18. 247 Amco Asia I Annulment, para 43; relying on Klöckner I Annulment, Digest I-18, paras 120, 129; and Arbitral Award Made by the King of Spain, note 170, p 216. 248 Amco Asia I Annulment, paras 25, 58. 249 Amco Asia I Annulment, paras 58–9. 250 Amco Asia I Annulment, para 63. 251 Amco Asia I Annulment, para 78. 252 Amco Asia I Annulment, para 98. 253 Amco Asia I Annulment, para 88. 246

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ICSID DECISIONS 19742002 rejected Indonesia’s second claim, that Amco had been systematically favoured in the weighing of evidence in respect of the calculation of its investment.254 While referring to partial annulment throughout its decision, the Committee ultimately annulled the Award as a whole, preserving only the Tribunal’s findings on the illegality of the forcible takeover of the hotel. The Committee considered nearcomplete annulment to be unavoidable because significant portions of the Award (e.g. the illegality of the revocation of the licence and the damages awarded)255 had been based on the Tribunal’s finding (specifically annulled) that Amco had invested sufficient capital. Noting that both parties showed equal diligence in assisting the panel during the proceeding, the ad hoc Committee ruled that the arbitration costs should be divided and that each side should bear its own legal expenses. Just over a year after the Committee’s decision, on 12 June 1987, Amco filed a request with ICSID for resubmission of the dispute to arbitration.256

254 255 256

Amco Asia I Annulment, para 91. Amco Asia I Annulment, paras 105–6. Amco Asia II Jurisdiction, Digest I-28; Amco Asia II Award, Digest I-32.

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23. Liberian Eastern Timber Corporation v Republic of Liberia ICSID Case No ARB/83/2 17 June 1986

Contract

Decision on Rectification B M Cremades (P) J Gonçalves Pereira D A Redfern

Factual Background The factual background of the dispute is set out in the summary of the LETCO Award.257 On 12 May 1986, LETCO submitted to ICSID a request for rectification of the award pursuant to Rule 49 of the ICSID Arbitration Rules. The request concerned the calculation of the legal fees and of costs of the arbitration that had been awarded to LETCO. In the award, the Tribunal had calculated the reimbursable legal fees on the basis of LETCO’s preliminary estimate. After the closure of the proceedings, LETCO expended an additional sum on arbitration expenses at the request of ICSID. LETCO requested the correction of the Award to reflect this development.

257

LETCO Award, Digest I-20.

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ICSID DECISIONS 19742002

The Decision258 The Tribunal corrected the Award as requested , adding the subsequent payment to ICSID to the due amount awarded to LETCO.259

258 Liberian Eastern Timber Corporation v Republic of Liberia , ICSID Case No ARB/83/2, Decision on Rectification, 17 June 1986 (LETCO Rectification). 259 Schreuer et al, ICSID Convention , note 6, Art 49 paras 44–5, express doubt that rectification pursuant to Art 49(2) ICSID Convention was the proper basis for considering factual changes after the closure of the proceedings, as there was no ‘clerical, arithmetical or similar error’. These commentators deem Art 51 ICSID Convention to be a more appropriate legal foundation. The scope of application of Art 49(2) ICSID Convention was discussed thoroughly in Compañía de Aguas des Aconquija, SA & Vivendi Universal v Argentine Republic (formerly Compagnie Générale des Eaux), ICSID Case No ARB/97/3, Decision on Rectification, 3 July 2002 (Vivendi I Annulment Rectification), Digest I-97, paras 15–20.

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24. Maritime International Nominees Establishment v Republic of Guinea ICSID Case No ARB/84/4 6 January 1988

Contract

Award D E Zubrod (P) J Berg D J Sharpe

Factual Background In 1971, Maritime International Nominees Establishment (MINE) entered into a 30-year agreement with Guinea (the MINE Agreement),260 which established a locally incorporated joint venture shipping company, Société Guinéenne de Transports Maritimes (SOTRAMAR), to meet Guinea’s freight needs for bauxite. SOTRAMAR’s principal officers and management were Guinean. For various reasons, no freight contracts were concluded. MINE contended that it had negotiated the contracts, but that Guinea withheld its consent which was indispensable since the government was the controlling shareholder of SOTRAMAR. At the end of 1973, the ultimate buyers of the mineral began to ship bauxite pursuant to their own arrangements. In 1974, without MINE’s knowledge, Guinea entered an agreement with a third party (Afrobulk) to cover its bauxite freight needs. MINE claimed that because Guinea had refused to take necessary action, SOTRAMAR had been unable to function as a viable company, and that the government breached the MINE Agreement by signing the contract with Afrobulk. On 20 January 1978, MINE filed a petition in the United States District Court to compel Guinea to arbitrate the dispute under the rules of the American Arbitration Association (AAA).261 Arbitration proceedings subsequently began before an AAA

260 261

The Contract was signed by the Inter Maritime Bank, acting as agent of MINE. This petition was brought pursuant to Section 4 of the United States Arbitration Act.

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ICSID DECISIONS 19742002 panel. Guinea did not participate. In June 1980, an award against Guinea was rendered (AAA Award ). In May 1984, MINE submitted a request for arbitration to ICSID. While the ICSID proceedings were pending, MINE commenced enforcement actions in Switzerland and Belgium in relation to the AAA Award, seeking to attack Guinea’s assets there. In June 1985, on grounds that ICSID had exclusive jurisdiction over the dispute pursuant to Article 26 of the Convention, Guinea requested an order that all MINE enforcement proceedings be stopped. In December 1985, in a decision on provisional measures, the Tribunal found that MINE’s actions to enforce the AAA Award contravened Article 26 of the Convention, and that MINE should therefore withdraw pending actions in national courts.262

The Decision263 The Tribunal held that Guinea had breached its obligations under the MINE Agreement by, inter alia, denying MINE the authority it needed to conclude freight contracts and contracts with charter parties. In addition, by failing regularly to convene SOTRAMAR board meetings, Guinea had prevented SOTRAMAR from functioning properly, and this constituted an additional breach of the MINE Agreement.264 The Tribunal next considered whether, by entering into the contract with Afrobulk, Guinea had violated the MINE Agreement.265 Guinea negotiated the Afrobulk agreement without involving MINE, and the company was therefore unaware of the competing arrangement until after it had been put in place.266 The arbitrators found Guinea to have acted in bad faith and to have breached the MINE Agreement.267 As compensation for breach of contract, MINE claimed lost profits on its share of the net profits that SOTRAMAR would have made as a viable company. MINE presented two theories of damages.268 First, MINE claimed that Guinea had breached the MINE Agreement as early as 1972, when it refused to take the necessary steps for SOTRAMAR to establish long-term freight contracts and to start building a fleet of vessels. It claimed to have lost the profits from this hypothetical

262 Article 26 provides that ‘Consent of the parties to arbitration under this Convention shall, unless otherwise stated be deemed consent to such arbitration to the exclusion of any other remedy . . . ’. 263 Maritime International Nominees Establishment v Republic of Guinea, ICSID Case No ARB/84/4, Award, 6 January 1988 (MINE Award ), 4 ICSID Rep 61 (1997). 264 MINE Award, pp 70–1. 265 MINE Award, p 73. 266 MINE Award, p 66. 267 MINE Award, p 73. 268 MINE Award, pp 73–6.

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Case 24: MINE Award business. In the alternative, MINE contended that Guinea had breached the MINE Agreement only in 1974, when it concluded the Afrobulk Agreement. On this assessment, MINE’s losses should be based on the profit derived from Afrobulk’s business. The Tribunal observed that since SOTRAMAR had never made a profit, it was impossible to calculate damages on that basis without engaging in impermissible speculation. In the Tribunal’s view, neither methodology presented by MINE could be accepted. Lost profits could not be calculated on the basis of hypothetical long-term contracts, and evidence showed that overseas customers would not have accepted the posited terms.269 The Tribunal found that MINE could not have concluded contracts on terms identical to the Afrobulk Agreement.270 The Tribunal ultimately calculated damages on the basis of 50 cents per ton, the amount that Guinea agreed to pay Afrobulk for carrying bauxite, considering that this activity should have been SOTRAMAR’s prerogative. The Tribunal awarded MINE an amount equal to 35 per cent of SOTRAMAR’s net profits from this hypothetical business over a period of ten years.271 The Tribunal denied Guinea’s counterclaim for reimbursement of the legal fees and expenses incurred in relation to the AAA Award. At the same time, the Tribunal awarded Guinea about two-thirds (US$210,000 of the US$311,309.87 claimed) for legal expenses incurred as a result of MINE’s actions in Europe to attack Guinea’s foreign-held assets. The Tribunal considered that MINE’s actions could be partly justified by the fact that Guinea had not responded to MINE’s early attempts to initiate arbitration and by the fact that MINE believed in good faith that the AAA Award was valid.272

269

MINE Award, p 76. MINE Award, p 76. 271 This period considered to be a reasonnable period as the Convention, although signed for 30 years, contained provisions for early termination: MINE Award, p 76. 272 MINE Award, p 77. 270

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25. Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais (Resubmitted) ICSID Case No ARB/81/2 26 January 1988

Contract

Award C F Salans (P) J Castaneda J A Cremades

The decision has been neither published nor reported.

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26. Société Ouest-Africaine des Bétons Industriels (SOABI) v La République du Sénégal ICSID Case No ARB/82/1 25 February 1988

Contract

Award A Broches (P) K Mbaye J Van Houtte

Factual Background In 1975, Naikida, a company incorporated in Panama (Nakida), won a tender for the construction of 15,000 public housing units in Senegal. Local law obliged Naikida to incorporate a Senegalese company, the Société Ouest-Africaine des Bétons Industriels (SOABI ). Subsequently, SOABI and Senegal concluded a contract for the construction of the public housing units (the Housing Contract). It was agreed in the Housing Contract that the purpose of SOABI was to establish a factory for the prefabrication of concrete construction elements and to build the housing units. In order to implement the Housing Contract, SOABI and Senegal also entered into a contract concerning the construction of the prefabricated industrial concrete plant (the Establishment Contract). This agreement contained an arbitration clause providing for ICSID arbitration of disputes. SOABI initiated arbitration in 1982, alleging breach of contract by Senegal. On 19 June 1984, the Tribunal rendered a preliminary decision on a jurisdictional objections raised by Senegal.273 A second objection was joined to the merits.

273

SOABI Jurisdiction, Digest I-14.

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The Decision274 1. Jurisdiction First, Senegal raised the jurisdictional objection that the arbitration clause could only extend to disputes arising out of the Establishment Contract and not to claims based upon the Housing Contract. The Tribunal noted that there was no rule that consent to arbitration had to be interpreted narrowly as a consequence of sovereignty.275 Rather, the parties’ agreement to arbitrate should always be interpreted in good faith, to implement their actual intention. The Tribunal found that the different contracts were inextricably linked. The duties of SOABI under the Housing Contract were specified in the Establishment Contract.276 As a result, Senegal could also have relied on the Establishment Contract arbitration clause if SOABI had not fulfilled its obligations under the Housing Contract. The Tribunal took guidance from the ICJ’s ruling in Nicaragua v United States,277 holding that the interconnectedness of the two contracts would be undiminished even if the roles of claimant and respondent had been reversed.278 Finally, the Tribunal refused to interpret the scope of the term ‘investment’ in the ICSID Convention according to national law, which is subject to amendments by the State.279 2. Merits After having confirmed jurisdiction to hear the merits of the dispute, the Tribunal examined the claim in light of the applicable Senegalese law. The Tribunal rejected the government’s affirmative defence that SOABI had breached its obligation to set housing prices at a reasonable rate. Construing the project-related obligation in light of the good faith principle, the Tribunal also held that SOABI had sufficient finances to complete the project, contrary to Senegal’s allegation. The government was on this basis held to be liable for unilaterally terminating the contract with SOABI without justification. The Tribunal awarded compensation to SOABI for the harm that had resulted from the termination, including operating expenses

274

Société Ouest Africaine des Bétons Industriels v Senegal, ICSID Case No ARB/82/1, Award, 25 February 1988 (SOABI Award ). 275 SOABI Award, paras 4.09–4.10. 276 SOABI Award, para 4.21. Concerning the unity of investment operations, see Holiday Inns Jurisdiction II, Digest I-3; see Lalive, ‘The First “World Bank” Arbitration’, note 1, p 159; Klöckner I Award, Digest I-12, p 17. 277 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v United States of America), Jurisdiction, Judgement, 1984 ICJ Reports 392, p 465. 278 SOABI Award, para 4.34. 279 SOABI Award, para 4.38.

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Case 26: SOABI Award and capital expenditures in the amount of about CFA553 million and lost profits totalling CFA150 million. It was agreed that any further expenses to be incurred by SOABI to reimburse architects in the future would also be subject to indemnification by Senegal. With regard to costs, the Tribunal took into account that the claims of SOABI were only partially accpeted, and decided that each party should bear its own costs and share the costs of the Tribunal equally. However, the costs of an expert appointed by the Tribunal were to be borne exclusively by SOABI, because this was a ‘promotional expense’ that SOABI had undertaken at its own risk.279a

279a

SOABI Award, para 9.24.

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27. Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt ICSID Case No ARB/84/3 14 April 1988

Contract/Foreign Investment Law

Jurisdiction

E Jiménez de Aréchaga (P) M A E El Mahdi R F Pietrowski, Jr

Factual background The factual background has been described in the summary for the first Decision on Jurisdiction. In that Decision, the Tribunal decided to stay the ICSID proceedings pending the outcome of French court proceedings regarding the annulment of parallel ICC proceedings.

The Decision280 1. Majority Decision On 6 January 1987, the French Court of Cassation ruled finally that Egypt had not consented to ICC arbitration. SPP and SPP(ME) subsequently sought to resume the ICSID proceedings. The Tribunal was asked to find that Law No 43 constituted consent to ICSID jurisdiction, and to incorporate as its own the ICC tribunal’s factual findings. Egypt countered that Law No 43 permitted submission to ICSID arbitration only where consent to ICSID jurisdiction had been provided by Egypt separately. Since Egypt had not offered its separate consent, it argued, the Tribunal lacked jurisdiction.

280 Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ICSID Case No ARB/84/3, Decision on Jurisdiction, 14 April 1988 (SPP Jurisdiction II ).

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Case 27: SPP Jurisdiction II Before analysing the legal effect of Law No 43, the arbitrators dealt with three preliminary points, taking into account relevant ICJ judgments and arbitral decisions. First, as to the applicable law, the Tribunal applied Egyptian law principles of statutory interpretation, as well as certain rules of treaty interpretation and principles applicable to unilateral declarations at international law.281 Second, the arbitrators recognized that an international tribunal cannot exercise jurisdiction over a sovereign State absent express governmental consent, but that instruments allegedly embodying such consent should be interpreted ‘neither restrictively nor expansively, but rather objectively and in good faith’.282 Third, as affirmed in Article 41(1) of the Convention, the Tribunal was to be the judge of its own competence, and although it would give due consideration to French court decisions, no conclusions could be reasonably inferred from them as to the effect of Law No 43.283 The Tribunal then turned to the text of Law No 43. It found that the Convention provided only that consent must be ‘in writing’, but prescribed no particular form. Moreover, the Convention’s drafting history specifically envisaged that consent could be given through national investment legislation.284 According to its ordinary meaning, Law No 43 established a mandatory, hierarchic sequence of dispute resolution procedures: Those methods begin with the most specific—an agreement between the parties as to how the dispute shall be settled—and proceed to more general bilateral treaties between the investor’s State and Egypt, and then finally to the most general method of dispute settlement—the multilateral Washington Convention. A specific agreement between the parties to a dispute would naturally take precedence with respect to a bilateral treaty between the investor’s State and Egypt, while such a bilateral treaty would in turn prevail with respect to a multilateral treaty such as the Washington Convention. Art 8 thus reflects the maxim generalia specialibus non derogant. . . .285

Egypt next contended that Article 8 required that separate specific consent to arbitration be given before disputes could be submitted to ICSID. According to Egypt, this followed from the wording in the statute, which stipulated that disputes would be resolved in accordance with ICSID Convention ‘where it applies’. The Tribunal did not accept this argument. It noted that, in contrast to Article 8, Egypt had explicitly required separate consent in other parts of Law No 43. Moreover, imposing a separate consent would destroy the internal logic of Article 8: an additional agreement to submit disputes to ICSID would place the dispute within the first alternative of Article 8, and the last option would never come into play. Such an

281 282 283 284 285

SPP Jurisdiction II, paras 60–1. SPP Jurisdiction II, paras 62–3. SPP Jurisdiction II, paras 60, 64–8. SPP Jurisdiction II, paras 70, 101. SPP Jurisdiction II, para 47.

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ICSID DECISIONS 19742002 interpretation would render Article 8 partially meaningless and therefore must be rejected.286 The Tribunal also rejected Egypt’s argument that Article 8 did not specify whether consent was given for conciliation or arbitration, and therefore was invalid.287 Under Article 25 of the ICSID Convention, no such stipulation was necessary. The Tribunal therefore concluded that Article 8 constituted Egypt’s express consent in writing within the meaning of Article 25 of the ICSID Convention. Since no other dispute settlement mechanism had been agreed (the Court of Cassation assation having confirmed that Egypt was not a party to the ICC arbitration agreement), and there was no applicable bilateral treaty in force, Law No 43 established Egypt’s consent to ICSID jurisdiction.288 The other jurisdictional requirements set out in Article 25 of the Convention had also been met. As the dispute clearly was a legal one arising out of an investment, and the parties were a Contracting State and a national of another Contracting State, the Panel concluded that Article 8 of Law No 43 conferred jurisdiction on the Centre.289 The Tribunal then turned to the potential res judicata effect of prior arbitral proceedings. The arbitrators considered that it would be an abdication of their factfinding function (as codified in Arbitration Rule 47) to adopt the factual findings of the ICC tribunal. Such deference would be particularly inappropriate given that the prior tribunal’s award had been effectively nullified by the French Court of Cassation as an excess of that tribunal’s powers.290 2. Dissenting Opinion of Dr El Mahdi In a dissenting opinion, Dr El Mahdi argued, inter alia, that Egypt had not given its clear, unequivocal written consent to a particular dispute-settlement method. He considered that the Tribunal’s conclusion that Egypt had offered to submit to ICSID arbitration was an ‘unfounded speculation’ based on an erroneous translation of Law No 43.291

286

SPP Jurisdiction II, paras 56, 57. SPP Jurisdiction II, paras 73 et seq. It is to be noted that Art 25 ICSID Convention also does not contain a respective requirement of specific consent to either arbitration or conciliation. 288 SPP Jurisdiction II, paras 72–90, 116, 117. 289 SPP Jurisdiction II, paras 101, 117. Since the UK, a Contracting State, was then responsible for Hong Kong’s international relations, application of the ICSID Convention extended to Hong Kong, and Claimants qualified as ‘nationals of another Contracting State’. SPP Jurisdiction II, para 54; but compare SPP Jurisdiction II, Dissenting Opinion of Dr El Mahdi, Second Part, para 3. 290 SPP Jurisdiction II, paras 120–1. 291 SPP Jurisdiction II, Dissenting Opinion of Dr El Mahdi, First Part, paras 9–31. Egypt subsequently amended Article 8 of Law No 43 to make clear that it did not consent to arbitration by operation of the legislation alone. 287

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28. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission) ICSID Case No ARB/81/1 10 May 1988

Contract

Jurisdiction R Higgins (P) P Magid M Lalonde

Factual Background The relevant factual background has been set out in the summary of the initial decision on jurisdiction in this dispute.292 A first arbitral trubunal rendered its award on 20 November 1984.293 This award was subsequently annulled almost in its entirety by an ad hoc Committee on 16 May 1986.294 On 12 May 1987, Amco filed a request for resubmission of the dispute to arbitration pursuant to Article 52(6) of the Convention. Indonesia submitted counterclaims on 12 June 1987, including claims for recovery of corporate taxes not paid by PT Amco, the locally incorporated subsidiary of Amco Asia.

The Decision295 The Tribunal addressed whether: (1) the fi ndings of the first Tribunal were res judicata; (2) it had jurisdiction ratione personae ; (3) it had jurisdiction over Indonesia’s tax fraud claim; and (4) Indonesia, as the respondent in the original proceedings, could bring new claims against PT Amco in the resubmitted case.

292

Amco Asia I Jurisdiction, Digest I-11. Amco Asia I Award , Digest I-16. 294 Amco Asia I Annulment, Digest I-22. 295 Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Jurisdiction (Resubmission), 10 May 1988 (Amco Asia II Jurisdiction). 293

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ICSID DECISIONS 19742002 The Tribunal started by addressing some general questions of res judicata. It affirmed, as a general matter, that the principle of res judicata was a general principle of law and that nullification may be either total or partial.296 The arbitrators next clarified that a tribunal adjudicating a resubmitted case after a partial annulment decision ‘must treat the unannulled parts of the original award as binding on the parties’, i.e. as res judicata.297 Res judicata also existed with respect to issues decided in the first award that had not been challenged before the May 1986 annulment committee. However, the res judicata effect only applies to the original tribunal’s conclusions, not to every incidental or procedural ruling.298 As Indonesia had accepted the materiality of the shortfall in the investment and had not asked the First Tribunal to make any corresponding determinations, the Tribunal concluded that res judicata did not apply to this issue.299 The Tribunal then turned to consider Indonesia’s contention that the reasoning of the Committee, as an integral part of the annulment decision, was equally to be considered as res judicata. The Tribunal referred to the Orinoco Steamship Company Case300 and the Pious Fund Case301 but did not find the reasoning in either decision to be entirely persuasive. However, the arbitrators endorsed the observation of the Orinoco panel ‘that a right, question, or fact distinctly put in issue and distinctly determined by a court of competent jurisdiction’ is res judicata.302 Moreover, according to Pious Fund, ‘all parts of the judgment enlighten and mutually supplement each other and . . . serve to render precise the meaning and the bearing of the dispositif . . . and to determine the points upon which there is res judicata’.303 At the same time, the arbitrators considered that the Pious Fund dictum would only apply where the dispositif of an award is unclear.304 As the Tribunal was unable to deduce a clear rule on this issue from general international law, it turned to the framework of the Convention for guidance. It emphasized that the drafting history of the Convention contemplated the absence of an appeals procedure. If a tribunal were bound by ‘integral reasoning’ of an ad hoc Committee, that would place the Committee in the position of an appeals court. On this basis, the Tribunal rejected Indonesia’s contention that res judicata also extended to the reasoning of ad hoc committees.305

296

Amco Asia II Jurisdiction, para 26. Amco Asia II Jurisdiction, para 21. 298 Amco Asia II Jurisdiction, para 73. 299 Amco Asia II Jurisdiction, para 60. 300 Orinoco Steamship Co Case, note 170. 301 Pious Fund Case [1916] Hague Court Reports 1. 302 Amco Asia II Jurisdiction, para 30. 303 Amco Asia II Jurisdiction, para 32. 304 Amco Asia II Jurisdiction, para 32. The Tribunal also understood Judge Anzilotti’s dictum in the Chorzów Factory Case in the same sense: Interpretation of Judgments Nos 7 and 8 (The Chorzów Factory), Dissenting Opinion by M Anzilotti, PCIJ Series A No 13 (1928), p 24. 305 Amco Asia II Jurisdiction, para 44. 297

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Case 28: Amco Asia II Jurisdiction Indonesia objected to the Tribunal’s jurisdiction ratione personae because Amco Asia Corporation (Amco) had been dissolved shortly after the award in the first arbitration was issued. However, pursuant to the laws of Delaware under which Amco was incorporated, a company remains in existence for the purposes of any proceedings brought against it either prior to the dissolution or within three years after dissolution. Indonesia accepted that the dissolution of a company was governed by the laws of the place of incorporation but contended that the legal effects of such dissolution were to be conditioned by the primary law applicable pursuant to Article 42(1) of the Convention—Indonesian law.306 The Tribunal considered that the law of the State of incorporation should determine whether a dissolved company continued to exist as a legal entity. Accordingly, the Tribunal confirmed its jurisdiction ratione personae.307 Indonesia raised counterclaims for recovery of corporate taxes not paid by PT Amco, the locally incorporated subsidiary of Amco Asia. The Tribunal found that Indonesia was entitled to raise such ‘new’ claims in the resubmission proceedings, since arguments on related questions of tax fraud had been exchanged in the initial arbitration.308 It also concluded that the tax claim fell within its jurisdiction ratione materiae pursuant to Article 25(1) of the Convention.309 In this regard, Amco contended that the claim was not ‘a legal dispute arising directly out of an investment’. According to the Tribunal, a party must ‘distinguish between (1) rights and obligations that are applicable to a legal or natural person within the reach of a host State’s jurisdiction, as a matter of general law; and (2) rights and obligations that are applicable to an investor as a consequence of an investment agreement entered into with that host State’.310 Only disputes relating to the latter fall under Article 25(1) of the Convention.311 As the obligation not to engage in tax fraud was not an explicit term of the investment agreement, it was considered a matter of general law in Indonesia and hence fell outside the competence of the Tribunal.312 As a result, the Tribunal declined jurisdiction over Indonesia’s tax fraud claim.313

306 307 308 309 310 311 312 313

Amco Asia II Jurisdiction, para 102. Amco Asia II Jurisdiction, paras 104–5, 109. Amco Asia II Jurisdiction, para 120. Amco Asia II Jurisdiction, para 120. Amco Asia II Jurisdiction, para 125. Amco Asia II Jurisdiction, para 125. Amco Asia II Jurisdiction, para 127. Amco Asia II Jurisdiction, para 136.

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29. Mobil Oil Corporation, Mobil Petroleum Company Inc, Mobil Oil New Zealand v New Zealand ICSID Case No ARB/87/2 4 May 1989

Contract

Liability G Speight (P) M Brunt S Charles

Factual Background The dispute concerned the calculation of gasoline prices on the basis of a participation agreement (Agreement) between Mobil Oil New Zealand Ltd (Mobil ) and New Zealand. In the late 1970s, an oil crisis led to a worldwide increase of fuel prices. In 1982, Mobil and New Zealand agreed on the construction of a synthetic gasoline manufacturing plant at Plymouth, New Zealand. The plant was to be owned by the New Zealand Synthetic Fuel Co Ltd (NZSFC ). New Zealand held 75 per cent and Mobil 25 per cent of the shares in NZSFC. According to the Agreement, New Zealand became the owner of the gasoline produced, while Mobil was a designated purchaser for certain quantities of gasoline at stipulated prices. The Agreement also included a ‘most favored purchaser clause’, whereby Mobil could claim a refund from New Zealand when sales were made to third parties at prices lower than those agreed for Mobil (MFP Clause). The Agreement also contained an ICSID arbitration clause. In 1985, the plant started commercial operations. In 1986, New Zealand adopted the 1986 Commerce Act (the Act), the aim of which was promoting competition and setting up regulatory controls in the domestic gasoline market. The Act provided that contracts that have the purpose or the effect of lessening competition in a market were unenforceable. Subsequently, New Zealand informed Mobil that the Agreement had become unenforceable as a consequence of the Act. The parties exchanged their views and disagreed about the validity of the relevant sections,

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Case 29: Mobil Oil/New Zealand Liability of the Agreement, as well as with respect to the correct calculation of applicable purchase prices pursuant to the MFP Clause. In April 1987, Mobil requested ICSID arbitration, claiming that New Zealand had breached its obligations under the Agreement. New Zealand commenced proceedings in the High Court of New Zealand and sought an injunction prohibiting Mobil from proceeding with ICSID arbitration. Based, inter alia, on Articles 26 and 41 of the Convention, the High Court suspended the domestic proceedings until the Tribunal had determined its own jurisdiction.314

The Decision315 The Tribunal’s jurisdiction was not disputed between the parties.316 As to the merits, the Tribunal rendered its award solely on the basis of the law of New Zealand. It considered it ‘unnecessary . . . to deal with the difficult questions of international law’.317 Specifically, the arbitrators found no evidence demonstrating that the MFP Clause in fact lessened competition in a relevant market. On this basis, New Zealand was held to have improperly disregarded the clause in calculating prices over an eight-month period, and to have breached the Agreement. Later, the parties reached a settlement. The Tribunal recognized this settlement in a procedural order and discontinued proceedings on 26 November 1990.

314

Attorney-General v Mobil Oil NZ Ltd (High Court of Wellington) 1 July 1987. Mobil Oil Corporation and others v New Zealand , ICSID Case No ARB/87/2, Decision on Liability, 4 May 1989 (Mobile Oil/New Zealand Liability). 316 Mobil Oil/New Zealand Liability, para 2.9. 317 Mobil Oil/New Zealand Liability, para 7. 315

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30. Maritime International Nominees Establishment v Republic of Guinea ICSID Case No ARB/84/4 22 December 1989

Contract

Annulment S Sucharitkul (P) K Mbaye A Broches

Factual Background The relevant factual background has been set out in the summary of the award in this dispute.318 The Tribunal’s January 1988 ruling held Guinea liable for breach of the MINE Agreement, awarding damages to MINE that represented the lost profits in SOTRAMAR for a ten-year period after the breach.319 Two months later, Guinea sought partial annulment of the Award (i.e. only regarding MINE’s claims but not Guinea’s counterclaims) pursuant to Article 52 of the the Convention. Guinea requested that the Committee stay enforcement of the Award pending the Committee’s decision on annulment. The Committee granted the stay, which remained in force until its decision.320

The Decision321 The Committee looked separately at the two aspects of the decision attacked by Guinea: the determination of Guinea’s breach of contract and the determination of damages.

318

MINE Award, Digest I-24. MINE Award, Digest I-24, pp 75–6. 320 The Tribunal’s ‘Interim Order I’ of 12 August 1988 is attached to the award as Annex II. 321 Maritime International Nominees Establishment v Republic of Guinea, ICSID Case No ARB/84/4, Decision on Annulment, 22 December 1989 (MINE Annulment), 4 ICSID Rep 79 (1997). 319

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Case 30: MINE Annulment With regard to the determination of breach of contract, Guinea first contended that the Tribunal had failed to apply ‘any law, much less the correct law’, and that the Award therefore constituted a manifest excess of the arbitrators’ authority pursuant to Article 52(1)(b) of the Convention.322 The Committee analysed the wording of the grounds for annulment. It considered that an ‘excess of powers’ of this sort had to be assessed with reference to Article 42(1) of the Convention, which obligates the tribunal to decide the dispute in accordance with the rules of law as agreed by the parties. Disregard of those rules of law is to be distinguished from an erroneous application of the applicable rules; the latter cannot constitute an excess of powers.323 The Committee considered that the Tribunal had erred in referring to Article 1134 of the French Civil Code (which imposed a duty of good faith that Guinea was found to have breached) when it should have relied upon Article 1134 of the Union Civil Code which was the legislation applicable in Guinea. Nevertheless, this could not be considered a manifest excess of powers, because Articles 1134 of both Codes were identical in content. The Tribunal had thus in fact applied Guinean law in accordance with the MINE Agreement. On this basis, the Committee rejected the first ground for annulment.324 Nor did the Committee accept Guinea’s further argument that the Tribunal had failed to state reasons for some of its conclusions and had neglected to address some of the Respondent’s contentions. The Committee reviewed the reasoning and found some of the conclusions obvious. The Committee considered that the Tribunal did not need to address certain others, as it had already rejected similar related arguments. As a result, the panel concluded that the Tribunal had not failed to state the reasons on which its decision was based.325 With respect to the damages portion of the Award, Guinea raised three different grounds for annulment: failure to state reasons, manifest excess of powers and serious departure from a fundamental rule of procedure.326 The Committee found two instances in which the Tribunal had failed to give reasons. First, Guinea had invoked a contractual clause which would have limited future damages to one year (the tribunal had awarded damages over a ten-year period). The Committee concluded that the Tribunal had rejected that argument, but could find no reasoning justifying that decision.327 The second instance where the Tribunal had failed to state reasons concerned the damages calculation itself.

322 323 324 325 326 327

MINE Annulment, para 2.05. MINE Annulment, para 5.04. MINE Annulment, paras 6.38–6.43. MINE Annulment, paras 6.44–6.56. See the discussion in MINE Annulment, paras 6.59–6.107. MINE Annulment, paras 6.98–6.101.

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ICSID DECISIONS 19742002 The Tribunal had rejected the damage calculations by both MINE and Guinea, and then undertook its own assessment of loss. As the Committee noted: Having concluded that theories ‘Y’ and ‘Z’ were unsusable because of their speculative charcter, the Tribunal could not, without contradicting itself, adopt a ‘damages theory’ which disregarded the real situation and relies on hypotheses which the Tribunal itself had rejected as a basis of the calculation of damages . . . . [T]he requirement that the Award must state the reasons on which it is based is in particular not satisfied by contradictory reasons.328

Having established a failure to state reasons with respect to contradictory damage calculations, the Committee considered it unnecessary to deal with the other alleged grounds for annulment. The Committee also nullified the portion of the award dealing with costs, which it considered to be closely linked to the flawed part of the decision on quantum of compensation.329 With respect to costs, the Committee ruled that each party should bear its own expenses and that each party was to bear an equal share of the fees and expenses of the members of the Committee and the charges of ICSID.

328 329

MINE Annulment, para 6.107. MINE Annulment, paras 6.109–6.112.

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31. Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais (Resubmitted) ICSID Case No ARB/81/2 17 May 1990

Contract

Annulment S Sucharitkul (P) A Giardina K Mbaye

Factual Background The decision has neither been published nor reported.

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32. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission) ICSID Case No ARB/81/1 5 June 1990

Contract

Award R Higgins (P) P Magid M Lalonde

Factual Background The relevant factual background has been set out in the summary of the initial decision on jurisdiction in this dispute.330 The first award was annulled on 16 May 1986.331 Amco resubmitted the dispute to arbitration on 12 June 1987 pursuant to Article 52(6) of the Convention. The decision on jurisdiction in the resubmission proceedings was rendered on 10 May 1988.332

The Decision333 1. Merits First, the Tribunal reaffirmed the annulment Committee’s reasoning with respect to Article 42(1) of the Convention: . . . [i]f there are no relevant host-state laws on a particular matter, a search must be made for the relevant international laws. And, where there are applicable host state laws, they must be checked against international law, which will prevail in case of conflict.334

330

Amco Asia I Jurisdiction, Digest I-11. Amco Asia I Annulment, Digest I-22. 332 Amco Asia II Jurisdiction, Digest I-28. 333 Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Award, 5 June 1990 (Amco Asia II Award ). 334 Amco Asia II Award, para 40. 331

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Case 32: Amco Asia II Award The Tribunal affirmed that while the illegality of the forcible takeover was res judicata, the precise prejudice suffered was not.335 To assess the amount of damages due to Amco, it was necessary to determine exactly what rights had been lost. The Tribunal held that Amco lost its right to management and control of the hotel but retained its right to a share of the profits, codified in the 1978 Profit Sharing Agreement.336 The arbitrators observed that since Amco retained its right to a share of the profits, and in the absence of any fee being due as compensation for management services, the loss of management rights could only cause direct damage to Amco if the level of profit reached under the new management were less than what it had been under the management of Amco.337 From the evidence before it, the Tribunal could not establish that the profitability of the hotel had been higher under the management of Amco. They further held that Amco’s Control of the daily cash flow was fiduciary in nature and hence did not warrant compensation.338 While no financial loss due to the loss of the right to management could be established, the Tribunal awarded Amco US$10,000 for the general disturbances and burdens caused by the forcible takeover.339 Because the findings of the First Tribunal on the unlawfulness of the revocation of the licence had been annulled by the Committee, the Tribunal considered again whether the revocation had been indeed unlawful. Amco contended that the violation of due process in the revocation per se (i.e. irrespective of the substantive lawfulness of the decision) entitled it to compensation. Indonesia maintained that damages could only be claimed if a lack of due process led to an unlawful substantive decision. After considering the award in Fabiani,340 where it was held that damages can be recovered if an unjust procedure causes the loss, the Tribunal nevertheless rejected Amco’s contention that an unjust procedure alone entitles the aggrieved party to damages.341 A similar conclusion to Fabiani was made in the de Sabla case,342 where procedure and substance were found to be inextricably intertwined.343 The Tribunal considered judgments by the

335

Amco Asia II Award, para 46. Amco Asia II Award, paras 58, 165. 337 Amco Asia II Award, paras 51, 59. 338 Amco Asia II Award, paras 60–1. 339 Amco Asia II Award, paras 63, 166. 340 Antoine Fabiani Case (France v Venezuela) (1905) 10 RIAA 83. 341 Amco Asia II Award, paras 122, 141. See also Factory at Chorzów (Claim for Indemnity) (Merits), note 144, p 30; Elettronica Sicula SpA (ELSI) (United States of America v Italy), Judgment, 1989 ICJ Reports 15, para 101; Administrative Decision No II (United States of America v Germany) (1923) 7 RIAA 23, pp 29–30. For a detailed analysis see J Paulsson, Denial of Justice in International Law (New York: Cambridge University Press, 2005), pp 218–25. 342 Marguerite de Joly de Sabla (United States v Panama) (1933) 6 RIAA VI, 358. 343 Amco Asia II Award, para 129. 336

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ICSID DECISIONS 19742002 European Court of Human Rights344 to be inconclusive, because they were based upon the specific requirements of Article 50 of the ECHR.345 Ultimately, the Tribunal concluded that, under international law, damages for procedural irregularities can only be awarded if they constitute a denial of justice,346 citing Idler,347 Chattin348 and Walter Fletcher Smith.349 Relying on the McCurdy case,350 the Tribunal noted that procedural irregularities and denial of justice must be distinguished and that not every procedural irregularity amounts to a denial of justice.351 Yet, a denial of justice can result from a combination of irregularities that viewed individually do not rise to that level.352 In the Tribunal’s view, procedural unlawfulness and denial of justice can be adequately distinguished by applying the distinction between arbitrariness in international and municipal law enunciated by the ICJ in the ELSI case.353 This approach considers arbitrariness in international law to mean ‘not so much something opposed to a rule of law, as something opposed to the rule of law’.354 This standard equates to ‘a willful disregard of due process of law; an act which shocks, or at least surprises, a sense of judicial propriety’.355 Contrary to the Chattin decision, the Tribunal determined that international law contains no rule that only acts by the judiciary can constitute a denial of justice.356 Applying its findings of law to the case at hand, the Tribunal concluded that, in view of the facts, the ‘whole approach to the issue of revocation of the license was tainted by bad faith’357 and thus constituted a denial of justice.358 Hence, it held the revocation to be unlawful, irrespective of any possible substantive grounds for the decision.359

344 The cases put before the Tribunal were Sramek v Austria (App No 8790/79) Series A No 13 (1984); Golder v United Kingdom (App No 4451/70) Series A No 18 (1975); Engel and others v Netherlands (App No 5100/71) Series A No 22 (1976). 345 Amco Asia II Award, para 127. 346 Amco Asia II Award, para 136. See further Robert Azinian, Kenneth Davitian & Ellen Baca v The United Mexican States, ICSID Case No ARB(AF)/97/2, Award, 1 November 1999 (Azinian Award), Digest I-56, para 99; Mondev International Ltd v United States of America, ICSID Case No ARB(AF)/99/2, Award, 11 October 2002 (Mondev Award), Digest I-93, para 126. 347 Jacob Idler (US v Venezuela) (1898) 4 Moore’s International Arbitration 3491. 348 B E Chattin (United States v United Mexican States) (1928) 22 AJIL 667. 349 Walter Fletcher Smith Claim (Cuba v United States) (1929) 2 RIAA 913. 350 Walter JN McCurdy (United States v United Mexican States) (1929) 4 RIAA 418. 351 Amco Asia II Award, para 124. 352 Amco Asia II Award, para 136. 353 Elettronica Sicula, note 341. 354 Amco Asia II Award, para 136. 355 Amco Asia II Award, para 137. 356 Amco Asia II Award, para 137. See further Paulsson, Denial of Justice, note 341, pp 44–53. 357 Amco Asia II Award, para 98. 358 Amco Asia II Award, para 137. 359 Amco Asia II Award, para 139.

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Case 32: Amco Asia II Award Amco sought damages based on the concept of unjust enrichment, which it considered to be a rule of international law. The Tribunal considered any enrichment of PT Wisma to be too indeterminate to be identified as an unjust enrichment of the State.360 Accordingly, it refrained from making any findings as to the existence of an unjust enrichment principle at international law. 2. Damages Before assessing the amount of damages, the Tribunal considered the scope of compensation with regard to causality, foreseeability and recovery of future profits. It rejected Indonesia’s argument that causality had not been established, because it would have revoked the licence in any event due to Amco’s shortcomings. The relevant test was whether the acts of the relevant Indonesian authority were unlawful and caused damage to Amco.361 The Tribunal held that only causation and the possibility of damages had to be foreseeable, not the precise quantum of the loss.362 Regarding the recoverability of future profits, the Tribunal only had to consider the situation of an unlawful taking. It concluded that not only the damage actually sustained (damnum emergens), but also future profits (lucrum cessans) were recoverable.363 On the question of what profits could be recovered, the Tribunal held, citing the Shufeld Claim364 and the May Case,365 that non-speculative profits under a contract are subject to compensation.366 Contrary to Indonesia’s argument, future profits could also be awarded for the period following the Tribunal’s award until intended expiry of the contract.367 Indonesia also contended that the valuation of damage should be based only on events and factors known in 1980, when the events took place. But in accordance with the oft-cited Chorzów Factory Case,368 the Tribunal determined that damages should restore the Claimant to the position it would have been but for Indonesia’s breaches.369 Therefore, other events of a general nature, i.e. not necessarily stemming from the illegality in question, may be considered in the valuation process.370

360

Amco Asia II Award, para 156. Amco Asia II Award, para 174. 362 Amco Asia II Award, para 175. 363 Amco Asia II Award, para 178. 364 Shufeldt Case (Guatemala v USA) (1930) 2 RIAA 1079. 365 The May Case (Guatemala v United States) (1900) 15 RIAA 47. 366 Amco Asia II Award, para 178. 367 Amco Asia II Award, para 179. 368 Factory at Chorzów (Claim for Indemnity) (Merits), PCIJ Series A No 17 (1928) note 144. 369 Amco Asia II Award, paras 184–5; relying inter alia on INA Corporation v Islamic Republic of Iran (1985) 8 Iran–US CTR 373. 370 Amco Asia II Award, paras 186–7. 361

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ICSID DECISIONS 19742002 The Tribunal rejected net book value as an appropriate technique for valuation371 and decided to base its assessment of damages for the period 1980–1989 on known data for the relevant factors (using hindsight for inflation, exchange rates, etc.),372 while relying on the discounted cash flow method for the years 1990 to 1999.373 In its assessment, the Tribunal did not take into account the state of the hotel market because it was not demonstrated to have a substantial impact on profit levels.374 The Tribunal did not explicitly state whether it considered the duty to mitigate losses, which was accepted by the parties, to be part of international law. It held, however, that it would have been virtually impossible for Amco to find interested purchasers for its right to a share of profits. As a result, there was no failure on the part of Amco to mitigate.375 The final amount of damages awarded to Amco for all matters under consideration by the Tribunal was US$2,696,330.376 This amount was reduced by US$128,363.80, representing Amco’s share of the costs of the annulment proceedings (including interest since 1986) which Amco had not yet paid to Indonesia.377 The Tribunal decided that each party should bear its own costs, with the costs of the Tribunal to be shared equally between them.378 Subsequently, it considered whether this determination should be adjusted based on Amco’s contention that it had incurred avoidable costs since it was deprived of its own files by PT Wisma, for which Indonesia was allegedly responsible. The Tribunal observed that an investor could be expected to maintain its files or copies thereof outside the host country 379 and, moreover, it was unable to assess what additional costs Amco had actually incurred. Therefore, the arbitrators made no adjustments to the decision on costs.380

371

Amco Asia II Award, paras 193–5. Amco Asia II Award, para 196. 373 Amco Asia II Award, para 196. 374 Amco Asia II Award, para 236. 375 Amco Asia II Award, para 168. 376 Amco Asia II Award, para 284. 377 Amco Asia II Award, para 295. 378 Amco Asia II Award, para 286. 379 Amco Asia II Award, para 290; similarly, Amco Asia I Annulment, Digest I-22, para 90: ‘a reasonable and prudent foreign non-resident investor may be expected in the ordinary cause of business to keep copies of such documents outside the host state’. 380 Amco Asia II Award, paras 290–1. On 3 October 1990, both Indonesia and Amco submitted an Application for annulment. Amco Asia II Annulment, Digest I-37. 372

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33. Asian Agricultural Products Ltd v Republic of Sri Lanka ICSID Case No ARB/87/3 27 June 1990

Sri Lanka–UK BIT

Award A S El-Kosheri (P) B Goldman S K B Asante

Factual Background In the course of counter-insurgency operations by the Sri Lankan government against the Tamil Tigers on 28 January 1987, the main shrimp-producing facility of Serendib Seafoods Ltd (Serendib), a Sri Lankan company, was destroyed. In addition, 21 members of Serendib’s staff were killed. As a result, Serendib ceased to operate as a going concern. Asian Agricultural Products Ltd (AAPL), a company incorporated in Hong Kong, owned a significant equity stake in Serendib, subsequently initiated arbitration against Sri Lanka under the Sri Lanka–UK BIT, which at that time extended to Hong Kong (the BIT ), following an unsuccessful attempt at reaching an amicable settlement. The claim was registered by ICSID on 9 July 1987.

The Decision381 This was the first ICSID case in which a BIT formed the basis for the State party’s consent to arbitration. Sri Lanka did not dispute jurisdiction.

381 Asian Agricultural Products Ltd (AAPL) v Republic of Sri Lanka, ICSID Case No ARB/87/3, Award, 27 June 1990 (AAPL Award ). For commentary on the decision, see N Ziadé, ‘Some Recent Decisions in ICSID Cases’, 6 ICSID Review—FILJ 514 (1991).

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ICSID DECISIONS 19742002 1. Merits As the parties had not previously designated the law applicable to the dispute, and no agreement had been reached in this respect, the Tribunal considered that ‘the choice-of-law process would normally materialize after the emergence of the dispute, by observing and construing the conduct of the Parties throughout the arbitration proceedings’.382 The Tribunal concluded that, in the course of argument, the parties had agreed that the BIT was the ‘primary source of applicable legal rules’ in the dispute, to be supplemented as required by the relevant international or domestic rules.383 AAPL advanced two main arguments. First, Sri Lanka had failed in its obligation to provide ‘full protection and security’ to foreign investments. AAPL argued that the use of the two terms ‘enjoy’ and ‘full’ in Article 2(2) of the BIT created a ‘strict liability’ which provided foreign investors with ‘insurance’ against any risk in any circumstance.384 In the alternative, the same guarantee would result from the operation of the most-favoured nation (MFN) clause. The Tribunal considered arbitral decisions and similar provisions in other investment agreements to conclude that AAPL’s position was unsupported in practice and that, despite: the addition of words like ‘constant’ or ‘full’ to strengthen the required standard of ‘protection and security’ . . . , the nature of both the obligation and ensuing responsibility remain unchanged, since the added words ‘constant’ or ‘full’ are by themselves not sufficient to establish that the Parties intended to transform their mutual obligation into a ‘strict liability.385

AAPL’s second argument was that Sri Lanka had breached the BIT provision in relation to compensation for investment losses sustained in civil disturbances.386 The Tribunal first recalled the principles of interpretation applicable to treaties and the established international law rules of evidence.387 On a proper interpretation of Article 4(2) of the BIT, AAPL had failed to meet the required burden of proof. While the destruction of the shrimp farm had occurred in the course of hostilities,

382

AAPL Award, paras 19–20. AAPL Award, paras 20–4. This reasoning has been the object of criticism: see Dissenting Opinion in AAPL Award; Schreuer et al, ICSID Convention, note 6, Art 42 paras 70–6. 384 AAPL Award, para 45; see further paras 26 and 54. 385 AAPL Award, para 50; see further para 48. See as well the discussion in Part II of this digest, section C(1)(c). 386 AAPL Award, paras 27 and 55. 387 AAPL Award, paras 55–6. See Ziadé, ‘Some Recent Decisions’, note 387, paras 40 and 56. 383

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Case 33: AAPL Award it had not been proven that Sri Lankan forces had caused the destruction outside a combat situation, in a situation where the destruction was not necessary.388 The Tribunal then noted that Article 4(1) of the BIT contains a default rule for all situations not covered by the special rule in Article 4(2) of the BIT. Article 4(1) imposed most-favoured-nation treatment to all ‘losses suffered’ in situations of hostility, and that in this context a claimant need only prove a loss in the relevant circumstances. Although Article 4(1) of the BIT did not specify any remedy, the Tribunal found that its MFN terms, combined with the full protection standard provided in Article 2(2) of the BIT, operated as a renvoi to the ‘“due diligence” obligation under the minimum standard of customary international law’, for which compensation rules and standards had been previously developed.389 On the facts, the Tribunal found that Sri Lanka should have taken steps short of violence to extract rebel elements from the farm’s staff. This would have minimized the risks of killing and destruction of property during the counter-insurgency operation that took place. It followed that through ‘inaction and omission’, Sri Lanka had failed to provide ‘full protection and security’ as required under Article 2(2) of the BIT and was therefore in breach of its obligation of due diligence, pursuant to the renvoi in Article 4(1) of the BIT.390 2. Damages Regarding damages, the Tribunal considered that the Claimant could only demand compensation for losses in its investment, which was the shareholding in Serendib. There being no market for Serendib stock, the Tribunal awarded to AAPL an amount equivalent to 48 per cent of the book value of the tangible assets of Serendib (which had been destroyed).391 The Tribunal rejected AAPL’s claims for lost future profits and goodwill, considering that Serendib could not be considered to be a ‘going concern’.392 The Tribunal also applied 10 per cent annual interest (not compounded), accruing from the day after submission of the request for arbitration until payment.393

388 AAPL Award , paras 57–64. The Tribunal remarked that ‘the term “combat action” has to be understood according to its natural and fair meaning as commonly used under the prevailing circumstances, i.e. within the context of guerrilla warfare which characterizes the modern civil wars conducted by insurgents’ (para 61). 389 AAPL Award , paras 66–7 (emphasis omitted). Th is ‘due diligence’ obligation is analysed in further detail at paras 72–8. 390 AAPL Award , para 85(B); see further paras 65, 67 and 78 et seq. 391 AAPL Award , para 98. 392 AAPL Award , paras 101–7. 393 AAPL Award , para 115.

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ICSID DECISIONS 19742002 Regarding costs, the Tribunal decided that the Respondent had to bear its own costs, one third of the Claimants’ costs, and 60 per cent of the costs of the arbitration.394

Dissenting Opinion The arbitrator appointed by Sri Lanka, Dr Samuel KB Assante, issued a dissenting opinion that departed from the majority view and declined to find Sri Lanka liable for the loss of the factory. In Dr Assante’s view, the Tribunal had misapplied Article 42(1) of the Convention: the parties had not agreed as to the applicable law and the majority had disregarded Sri Lankan law, which was not immaterial to the outcome of the dispute.395 He also considered that the Tribunal had misapplied customary international law, erring in its interpretation of the BIT in three ways: a) the UK had intended Articles 2, 4 and 5 of the BIT to incorporate established principles of customary international law; b) the specific rules of Article 4 of the BIT relating to investment losses suffered during civil disturbances prevailed over the general property protection provisions in Article 2(2) of the BIT; and c) the most-favoured-nation term of Article 4(1) of the BIT did not effect a renvoi, i.e. Article 4(1) of the BIT was not a substantive source of liability.396 Dr Assante also considered that the Tribunal had failed to appreciate that the existence of conditions of civil war ‘did not admit of reliance on the type of leisurely police precautionary measures envisaged by the Tribunal’.397 Finally, Dr Assante noted conclusions on causation and quantum with which he disagreed.398

394 395 396 397 398

AAPL Award, para 116. AAPL Award, Dissenting Opinion of Dr Assante, pp 631–2. AAPL Award, Dissenting Opinion of Dr Assante, pp 635–7. AAPL Award, Dissenting Opinion of Dr Assante, pp 652–3. AAPL Award, Dissenting Opinion of Dr Assante, pp 653–5.

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34. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission) ICSID Case No ARB/81/1 17 October 1990

Contract

Supplemental Decisions and Rectification R Higgins (P) P Magid M Lalonde

Factual Background The relevant factual background has been set out in the summary of the initial decision on jurisdiction in this dispute.399 On 6 August 1990, Amco submitted a request for supplemental decisions and rectifications concerning the 1990 award (Second Award ),400 based on Article 49(2) of the Convention.

The Decision401 Amco asserted that the Tribunal had failed to decide certain questions relating to the assessment of damages in the Second Award, most significantly with respect to: (1) the rate of currency exchange for the damages award; (2) the 1978 Profit Sharing Agreement; (3) the depreciation of a lease; and (4) the net cash flow. On these questions, Amco requested the rectification of errors in the Second Award. The Tribunal rejected Amco’s arguments in respect of all the pleaded issues, except for the depreciation of the lease, entered into by PT Amco and Aeropacific, a partnership of airline operators.402 In its Second Award, the Tribunal had determined

399

Amco Asia I Jurisdiction, Digest I-11. Amco Asia II Award, Digest I-32. 401 Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Supplemental Decisions and Rectification, 17 October 1990 ( Amco Asia II Rectification). 402 The full description of Aeropacific’s lease arrangement with PT Amco is described in Amco Asia I Award, Digest I-16, paras 53–78. 400

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ICSID DECISIONS 19742002 that the capital assets of the hotel carried on the books of Aeropacific and transferred to Amco under the Amco/Aeropacific settlement agreement should be deducted from gross income before arriving at the net income to be shared between Amco and PT Wisma under the 1978 Profit Sharing Agreement.403 While it had provided reasons for its view, the Tribunal conceded that a simple clerical error had been made in the reporting of the depreciated figures, and rectified the relevant table in the Second Award.404

403

Amco Asia II Award, paras 221–2. This supplemental decision and rectification was later annulled on 17 December 1992. Amco Asia II Annulment, Digest I-37. 404

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35. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission) ICSID Case No ARB/81/1 2 March 1991

Contract

Stay of Enforcement S Sucharitkul (P) A A Fatouros D Schindler

Factual Background The relevant factual background has been set out in the summary of the initial decision on jurisdiction in this dispute.405 Indonesia submitted applications for annulment406 of the award of 5 June 1990 (the Second Award )407 and the supplemental award of 17 October 1990 (the Supplemental Award )408 on 3 October 1990 and 14 February 1991 respectively. Each of these applications contained a request for a provisional stay of enforcement pursuant to Article 52(5) of the Convention.

The Decision409 The Committee first briefly touched on the effect of a stay of enforcement. It pointed out that by granting a stay of enforcement, ‘the obligation [under Article 53(1) of the Convention] of the party against whom the Award was rendered to abide and comply with the terms of the Award is pro tanto suspended’.410 As a necessary corollary, the obligations of the Contracting States under Article 54(1) to recognize as binding and enforce the pecuniary obligations imposed by the awards would also be suspended.411 405

Amco Asia I Jurisdiction, Digest I–11. Amco Asia II Annulment, Digest I–34. 407 Amco Asia II Award, Digest I–32. 408 Amco Asia II Rectification, Digest I-34. 409 Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Interim Order No 1 Concerning Stay of Enforcement, 2 March 1991 (Amco Asia II Stay of Enforcement). 410 Amco Asia II Stay of Enforcement, para 10. 411 Amco Asia II Stay of Enforcement, para 11. 406

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ICSID DECISIONS 19742002 The Committee accepted Indonesia’s argument that it ran a serious risk of not being able to recoup the money paid to Amco if Indonesia were successfully to annul the Second Award. The stay of enforcement was, however, granted on condition ‘that an irrevocable and unconditional bank guarantee from a reputable European bank on terms and provisions approved by the President of the Committee’ was to be furnished by Indonesia.412

412

Amco Asia II Stay of Enforcement, para 19.

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36. Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt ICSID Case No ARB/84/3 20 May 1992

Contract

Award E Jiménez de Aréchaga M A E El Mahdi R F Pietrowski

Factual Background The relevant factual background has been set out in the summary of two decisions on jurisdiction in this dispute.413

The Decision414 1. Merits The Tribunal first considered that there was no agreement of the parties regarding applicable law. Pursuant to Article 42 of the ICSID Convention, Egyptian law thus was applicable unless its application would violate international law or recourse to international law had to be made in order to fill lacunae in the Egyptian law.415 The Tribunal rejected Egypt’s argument that the Claimant could not rely on certain official acts as forming the basis of its investment. While the Tribunal acknowledged that pursuant to Egyptian law these acts might indeed be null and void due to to their illegality under Egyptian law, they ‘were cloaked with the mantle of Government authority communicated as such to foreign investors who relied on

413

SPP Jurisdiction I, Digest I-19; SPP Jurisdiction II, Digest I-27. Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ICSID Case No ARB/84/3, Award, 20 May 1992 (SPP Award ). 415 SPP Award, para 84. 414

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ICSID DECISIONS 19742002 them in making their investment’.416 The Tribunal emphasized that these acts, which implicated the highest executive authority of the government, were binding despite their illegality.417 It furthermore held that Egypt could not evade international responsibility for the conduct of its officials based on their having been ultra vires because international law on State responsibility also attributes unauthorized acts of government officials to the State to which the officials belong.418 The Respondent contended that the cancellation of the 1974 Agreements had been made necessary by the entry into force of the UNESCO World Heritage Convention in 1975. According to the Tribunal, the relevant moment was not the entry into force of the UNESCO Convention but when the pyramids were included in the World Heritage List in 1979.419 Only thereafter would activities by the Claimants have been unlawful due to the protected status of the site.420 The cancellation of the project, however, had already taken place in 1978 and therefore could not be justified based on the site’s status under the UNESCO Convention. The Tribunal nonetheless considered the cancellation to be lawful, because the protection of antiquities on a State’s own territory is ‘an unquestionable attribute of sovereignty’.421 Still, in the Tribunal’s view, the cancellation of the project amounted to an expropriation and thus had to be compensated.422 Contrary to the Respondent’s contention, the Tribunal held that contractional rights, and not only property rights, can be expropriated and that an expropriation of contractual rights can occur even in the absence of total deprivation.423 The Tribunal held that no adequate compensation was ever offered to the Claimants, because no cash payment was offered: ETDC was only to be credited with an investment of US$1,500,000 in a new project in which EGOTH would have a majority interest.424 Finally, the Tribunal rejected the Respondent’s argument that, on the grounds of the Egyptian law doctrine of mutability of administrative contracts, the Claimants were obliged to accept an alternative site as a modification of the contract. It

416 SPP Award, para 82. This statement appears to foreshadow the subsequently developed concept of legitimate expectations. 417 SPP Award, para 83. 418 SPP Award, para 85. See further ILC Articles on the Responsibility of States for Internationally Wrongful Acts, adopted by the UN General Assembly, UN Doc A/RES/56/83, 28 January 2002, Article 7: ‘The conduct of an organ of a State or of a person or entity empowered to exercise elements of the governmental authority shall be considered an act of the State under international law if the organ, person or entity acts in that capacity, even if it exceeds its authority or contravenes instructions.’ 419 SPP Award, para 154. 420 SPP Award, para 154. 421 SPP Award, para 158. 422 SPP Award, para 159. 423 SPP Award, paras 163–6. The Tribunal relied inter alia on Certain German Interests in Polish Upper Silesia, PCIJ, Series A, No 7, 1926, p 44. 424 SPP Award, para 162.

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Case 36: SPP Award considered a change of site as proposed by the Respondent to be more than a mere variation of the Claimants’ obligations under the contract, but rather a fundamental change.425 2. Damages Contrary to the Claimants’ suggestion, the Tribunal considered the Discounted Cash Flow (DCF) method to be inappropriate for determining fair compensation ‘because the project was not in existence for a sufficient period of time to generate the necessary data for a meaningful DCF calculation. . . . The project was in its infancy and there is little history on which to base projected revenues.’426 In referring to the Amoco case, the Tribunal held that no reparation could be awarded for speculative and uncertain damage.427 Furthermore, only those profits that are legitimate could be awarded.428 This would not have been the case for profits generated after the inclusion of the pyramids in the World Heritage List in 1979, because, at that time, the Claimants’ activities would have been in conflict with the UNESCO Convention. Hence such profits were non-compensable.429 Thus, the Tribunal calculated fair compensation for the value of the Claimants’ investment in ETDC on the basis of out-of-pocket expenses430 plus compensation for loss of the opportunity to make a commercial success of the project.431 The Tribunal also ordered the reimbursement of some legal expenses that were incurred during the ICC arbitration. However, this was only possible insofar as they were incurred for work that was also relevant and useful to the ICSID proceedings.432 Since Egyptian law was applicable, and international law does not prescribe a rate of interest, the Tribunal calculated interest on the basis of Egyptian law.433 As far as loans that the Claimants had granted to ETDC were concerned, the Tribunal awarded interest on the basis of the agreed rate of interest. Although the dispute did not concern a breach of the loan agreement, ETDC had been prevented from repaying the loan and the agreed interest.434 With respect to Egypt’s arguments on mitigation, the Tribunal decided that such an obligation did not require SPP and SPP(ME) to accept an unsuitable

425

SPP Award, para 178. SPP Award, para 188. See the discussion in Part II of this Digest, section C(2)(b), and in Digest II, pp 367 et seq. 427 SPP Award , para 189. 428 SPP Award , para 190. 429 SPP Award , para 191. 430 SPP Award , para 198. 431 SPP Award , paras 212–18. 432 SPP Award , paras 208–11. 433 SPP Award , para 222. 434 SPP Award , para 230. 426

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ICSID DECISIONS 19742002 alternative site more than 5km away from the pyramids. 435 With respect to the mitigating factors in its calculation of damages, the Tribunal had already taken into account the reclassification of the land on the discontinued project site and the fact that SPP and SPP(ME) should have been aware of such a risk of heritage listing with UNESCO on the relevant project site. 436 The remainder of the mitigating factors raised by Egypt were rejected by the Tribunal. 437 The Claimants were awarded the sum of US$27,661,000.438

Dissenting Opinion439 Arbitrator El Mahdi issued a 93-page dissenting opinion. He not only dissented from the evaluation of facts and law, but expressly disagreed broadly: [T]he diversions cover altogether the perception of the facts of the present dispute and the evaluation of the whole relationship that tied the Claimants and the Respondent, as well as, necessarily and as a result, the identification and the application of the appropriate rule of law.

El Mahdi considered Law No 43, based on which the Tribunal assumed jurisdiction, to be inapplicable. In his view, an investor needed to be registered by the General Investment Authority in order to rely on the law, and the Claimants had never registered. 440 Even if the law were applicable, however, El Mahdi considered this to be an insufficient legal basis for the jurisdiction of the Tribunal. In El Mahdi’s view, Article 8 of Law No 43 did not offer a choice of procedural rules, but merely offered various possibilities for later agreement.441 With respect to the law applicable to the merits, El Mahdi considered that there was an agreement of the parties—the Claimants relied on Law No 43, and Law No 43 referred to Egyptian law.442 Arbitrator El Mahdi also dissented from the damages calculation. He voiced doubts that the Claimants had in fact misplaced the documentary evidence to prove their development costs, as they contended,443 and considered that the Claimants generally had been in a hazardous financial situation:

435

SPP Award, paras 172, 252. SPP Award, para 250. 437 SPP Award, paras 245–53. 438 SPP Award, para 257. 439 The Dissenting Opinion of Dr El Mahdi, 8 ICSID Rev—FILJ 400 (1993). All specific references to the Dissenting Opinion refer to the respective page in the ICSID Rev—FILJ. 440 SPP Award, Dissenting Opinion, pp 477–8. 441 SPP Award, Dissenting Opinion, pp 481. 442 SPP Award, Dissenting Opinion, pp 486. 443 SPP Award, Dissenting Opinion, pp 489. 436

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Case 36: SPP Award The capital of SPP (ME) to be recalled amounts to about 200 US$ (two hundred), and their contribution in the capital of ETDC, up to the date of the termination of the project, amounted to US$1,310,000, however the needed investment capital for the implementation of the project was estimated to be of 550,000,000 US dollars.

El Mahdi therefore considered it inapposite to award any damages on lost chances to make profits.444

444

SPP Award, Dissenting Opinion, pp 493.

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37. Amco Asia Corporation and others v The Republic of Indonesia (Resubmission) ICSID Case No ARB/81/1 17 December 1992

Contract

Annulment S Sucharitkul (P) A A Fatouros D Schindler

Factual Background The relevant factual background has been set out in the summary of the initial decision on jurisdiction in this dispute.445 The first award was rendered on 20 November 1984 (the First Award )446 but was later annulled as a whole, with few exceptions, on 16 May 1986.447 The case was resubmitted for adjudication by Amco on 15 January 1987. The award in the resubmitted case (the Second Award ) was rendered on 5 June 1990448 and subsequently rectified on 17 October 1990 (the Supplemental Award ).449 Indonesia and Amco both applied for annulment of the Second Award on 3 October 1990. On 14 February 1991, Indonesia also filed an application for annulment of the Supplemental Award.

The Decision450 The Committee made a number of preliminary observations before considering both parties’ arguments for annulment of the Second Award and Indonesia’s arguments for annulment of the Supplemental Award.

445

Amco Asia I Jurisdiction, Digest I-11. Amco Asia I Award , Digest I-16. 447 Amco Asia I Annulment, Digest I-22. 448 Amco Asia II Award, Digest I-32. 449 Amco Asia II Rectification, Digest I-34. 450 Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Annulment (Resubmission), 17 December 1992 ( Amco Asia II Annulment). 446

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Case 37: Amco Asia II Annulment The Committee first confirmed that the Convention confined the available remedies to those itemized in Articles 49–52 of the Convention, which do not include the possibility of reviewing the merits of an award.451 As a result, the annulment process under the Convention is to be strictly distinguished from an appellate procedure,452 a point repeatedly stressed by the Committee in its decision. The Committee further observed that the grounds for annulment are not necessarily to be interpreted liberally or restrictively, but rather according to their object and purpose.453 However, the qualifications included in the description of the grounds of annulment, such as ‘manifest’, ‘serious’, and ‘fundamental’, indicated that not just any excess of power or departure from a rule of procedure will be sufficient to trigger nullification.454 Moreover, the panel opined, even if a ground for annulment is established, annulment of the Award is not automatic. An annulment committee retains a ‘measure of discretion’ in its decision.455 But an annulment committee may only refuse to exercise its discretion ‘if and when annulment is clearly not needed to remedy procedural injustice and annulment would unwarrantably erode the binding force and finality of ICSID awards’.456 The scope within which a committee is empowered to annul an award depends on the parties’ applications. An application for annulment of an award as a whole also permits the possibility of a partial annulment. If a party requests only a partial annulment, however, other parts of the award may only be annulled if this clearly follows, by necessary implication, from the application.457 The Committee further stipulated that, while the parties to an annulment procedure could agree to withdraw their applications to annul, they could not annul, by consensus, those parts of the award which both seek to eliminate.458 1. Annulment of the Second Award Indonesia first contended that the Second Tribunal had manifestly exceeded its power when it decided that the procedural defects in revoking Amco’s licence had been, in and of themselves, sufficient to render the revocation unlawful. Indonesia argued that this issue was res judicata between the parties as a result of the First Award.

451 452 453 454 455 456 457 458

Amco Asia II Annulment, para 1.14. Amco Asia II Annulment, paras 1.17–1.18. Amco Asia II Annulment, para 1.17. Amco Asia II Annulment, para 1.18. Amco Asia II Annulment, para 1.20. Amco Asia II Annulment, para 1.20. Amco Asia II Annulment, para 1.19. Amco Asia II Annulment, para 1.16.

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ICSID DECISIONS 19742002 In the proceedings to annul the First Award, the First Committee had declined to nullify the First Tribunal’s findings with respect to the lawfulness of the licence revocation, because the First Award appeared also to be based upon substantive defects in the revocation, despite dicta suggesting that procedural defects alone were sufficient to render it improper. The Second Tribunal, in its decision on jurisdiction, thus had to decide whether the res judicata effect also applied to the interpretation of the First Award by the First Committee. Contrary to the First Committee’s interpretation, it found that procedural defects alone had been sufficient to render the revocation of the licence unlawful. Ultimately, the Committee held that the Second Tribunal had not violated the principle of res judicata, because the interpretation of the First Committee was not binding on the Second Tribunal. According to the Committee, an annulment committee merely: has the power to annul an Award but may not revise or amend it. To recognize binding effect to an interpretation of part of an Award by a Committee, even an interpretation on the basis of which the Committee decided not to annul that part, would be equivalent of granting the Committee the power to amend.459

Accordingly, the Committee found that the Second Tribunal had not manifestly exceeded its power by establishing the unlawfulness of the revocation by reference to procedural defects alone. Indonesia also contended that the Second Tribunal had manifestly exceeded its powers by failing to apply the applicable law. The Committee recalled that a distinction must be drawn between a mere misapplication of the applicable law and the application of an inappropriate system of law, with only the latter constituting a ground for annulment.460 However, the Panel pointed out that a mere misapplication could form the basis for annulment if it is ‘of such a nature or degree as to constitute objectively (regardless of the Tribunal’s actual or presumed intentions) its effective non-application’.461 The Committee held that the Second Tribunal had not manifestly disregarded Indonesian law. The Second Tribunal had considered Indonesian law but found only sketchy authority on the issue. The Committee did not consider it appropriate for a committee to make its own determinations on the law of the host State. In its opinion, it was sufficient that the Second Tribunal’s conclusions were ‘not so clearly in disregard of Indonesian law as to suggest that the Tribunal has failed to apply that law’.462 The Committee also found that, while the Second Tribunal might have overstated the role of international law by considering it ‘fully

459 460 461 462

Amco Asia II Annulment, para 7.15. Amco Asia II Annulment, para 7.19. Amco Asia II Annulment, para 7.19. Amco Asia II Annulment, para 7.21.

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Case 37: Amco Asia II Annulment applicable’ and conclusive in cases of conflict with national law, the actual treatment of the applicable law was ‘well within the provisions of Article 42(1)’ of the ICSID Convention.463 The Committee also rejected Indonesia’s submission on the introduction of new evidence, finding that while the admission of new evidence in a resubmission proceeding with respect to a res judicata issue would amount to an excess of power, the admission of new evidence with respect to other issues did not constitute such a defect.464 Lastly, the Committee addressed Indonesia’s arguments on the failure to state reasons as a ground for annulling the Second Award. It held that there was no justification for requiring that the reasons given by a tribunal to be ‘sufficiently pertinent’ in light of the clear and unambiguous text of Article 52(1)(e) of the Convention.465 It also accepted that ‘not every gap or ambiguity in a judgment constitutes a failure to state reasons’, and that a tribunal need not explain every statement or conclusion included in an award.466 A ground for annulment is established ‘where no reasons at all are given or where the reasons given are inconsistent or so weak as to be frivolous’.467 Such a failure was, however, not deemed to be present. For its part, Amco asked the Committee to consider whether the Second Tribunal had manifestly exceeded its powers by disregarding the res judicata effect of the First Award when it re-examined the nature of the prejudice suffered by Amco due to the police and military actions. The Second Committee agreed that the reconsideration of issues that had not been annulled by the First Committee amounts to a manifest excess of power.468 The Second Tribunal interpreted the First Annulment decision to extend to the nature of the prejudice suffered by Amco. But an annulment committee ‘is not entitled to decide which one of several possible interpretations of an annulment decision, among which the Tribunal could choose, was preferable’.469 For the Committee, it followed that a manifest excess of power is only possible if the interpretation by a Tribunal ‘was manifestly outside bona fide interpretation’,470 and this had not been established in the case at hand. The Committee employed the same reasoning to the Second Tribunal’s conclusion that the annulment also

463

Amco Asia II Annulment, para 7.26. Amco Asia II Annulment, paras 7.52–7.53. 465 Amco Asia II Annulment, para 7.55. 466 Amco Asia II Annulment, paras 7.56–7.57. 467 Amco Asia II Annulment, para 7.56. See further Klöckner I Annulment, paras 116–20. 468 Amco Asia II Annulment, para 8.07. 469 Amco Asia II Annulment, para 8.08. The Committee relied in this respect on Arbitral Award of 31 July 1989 (Guinea-Bissau v Senegal), Judgment, 1991 ICJ Reports 53, para 47. 470 Amco Asia II Annulment, para 8.07. 464

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ICSID DECISIONS 19742002 covered the quantification of damages.471 Amco argued that the quantification had not been annulled because Indonesia had not so requested, but the Committee considered that Indonesia had done so implicitly when challenging the decision on liability that formed the basis for damages.472 Another argument that Amco presented concerned the calculation of damages by the Second Tribunal. When calculating the future profits lost by Amco, the Second Tribunal used a different date for the conversion from Indonesian rupiah to US dollars than the date on which the damages occurred. Although the finding of the relevant date was res judicata, the Committee did not consider this to be a ground for annulment: The rule that damages are to be paid at the exchange rate of the date the damage occurred is intended to prevent devaluation of the amount of compensation, . . . owing to the fact that the [currency of the state where the damage occurred] depreciates at a higher rate than does the currency in which the indemnity is to be paid. The rule in question is not intended to imply, however, that the indemnity for lost income of future years is to be paid at a higher exchange rate than the rate of the year in which the income is earned.473

Accordingly, the Committee declined to conclude that the Second Tribunal acted in excess of its powers. 2. Annulment of the Supplemental Award Indonesia, in a separate application, also requested the annulment of the Supplemental Award. The Committee, citing MINE v Guinea Annulment,474 considered the equal treatment of the parties to be a fundamental rule of procedure. If a tribunal takes a decision on the request of a party without giving the other an opportunity to respond, this rule has been violated. Referring again to MINE v Guinea,475 the Committee stated that, for a ‘serious’ departure to occur, the prejudice ‘must be substantial and be such as to deprive a party of a benefit or protection which the rule was intended to provide’.476 In the case at hand, the Second Tribunal had not invited Indonesia to comment on Amco’s rectification request, which led to the issuance of the Supplemental Award. By disregarding Arbitration Rule 49(4) and not recognizing Indonesia’s reservation to present arguments on the substance of Amco’s request, the Second Tribunal had seriously departed from the rule of equality in

471 472 473 474 475 476

Amco Asia II Annulment, para 8.12. Amco Asia II Annulment, para 8.14. Amco Asia II Annulment, para 8.16. MINE Annulment, Digest I-30, para 5.06. Amco Asia II Annulment, para 5.05. Amco Asia II Annulment, para 9.09.

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Case 37: Amco Asia II Annulment presentation of arguments.477 Neither the seriousness of the departure nor the fundamental character of the rule was diminished by the fact that the outcome of the application seemed apparent.478 The matter was furthermore not considered de minimis.479 As a result, the Committee annulled the Supplemental Award for a serious departure of a fundamental rule of procedure.480

477 478 479 480

Amco Asia II Annulment, para 9.10. Amco Asia II Annulment, paras 9.08, 9.10. Amco Asia II Annulment, para 9.10. Amco Asia II Annulment, operative part, para B.

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38. Vacuum Salt Products Ltd v Ghana ICSID Case No ARB/92/1 14 June 1993

Contract

Provisional Measures R Jennings (P) C Brower K Hussain

Factual Background In 1974 and 1988, lease agreements for a salt production and mining facility were concluded between Vacuum Salt Products Ltd (Vacuum Salt), a Ghanaian company, and the government of Ghana. The 1988 Lease Agreement granted Vacuum Salt a leasehold of thirty years. On 24 April 1992, the Ghanaian Government announced that it had decided to re-aquire the leasehold from Vacuum Salt and to force Vacuum Salt to sell all of its moveable property. Subsequently, on 28 May 1992, the Claimant filed a request for arbitration with ICSID, alleging that Ghana had repudiated the Lease Agreement without justification, expropriating its property and contractual rights. On 22 October 1992, Vacuum Salt sought provisional measures of protection in relation to the Ghanaian (Provisional Defence Council) Law 287, which had cancelled the Lease Agreement and purporting to direct the company to national courts for compensation (in contravention of the arbitration clause in the contract). Vacuum Salt requested the Tribunal to order Ghana to terminate all parallel legal proceedings relating to the subject matter of the ICSID arbitration—and in particular the procedure that Vacuum Salt was required to undertake in accordance with Law 287. On the following day, the Claimant filed, under protest and without waiving the Tribunal’s jurisdiction, a court claim for compensation pursuant to Law 287.

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Case 38: Vacuum Salt Provisional Measures The Tribunal disposed of Vacuum Salt’s Request for Provisional Measures in its Decision No 1 of 3 December 1992 because the Claimant had accepted Ghana’s voluntary undertakings.481 These undertakings included ‘to negotiate with duly authorized representatives’ of Vacuum Salt in relation to the cancellation of its lease and the acquisition of certain related assets, and to defer formal proceedings under Law 287 pending arbitration or a negotiated solution. Subsequent negotiations between the parties resulted in the adoption of a final draft for Handing Over Notes of the moveable assets of Vacuum Salt on 23 February 1993. On 17 March 1993, the Ghanaian Government invited Vacuum Salt to a ‘final plenary meeting on the Handing Over Notes’ for 24 March 1993. This invitation was rejected by the Claimant, since it had not yet been possible to present the draft to its Board of Directors. On 23 March 1993, Vacuum Salt reinstated and renewed its Request for Provisional Measures with respect to Law 287, arguing that the Government’s invitation of 17 March 1992 violated the ‘letter and spirit’ of the Tribunal’s earlier decision. The Tribunal rendered its decision on the Request for Provisional Measures on 14 June 1993.

The Decision482 The Tribunal first clarified that Law 287 only concerned the cancellation of the leasehold and corresponding compensation, but did not address moveable property.483 Therefore, Decision No 1, which related to Law 287, could not ‘be read as having excluded negotiations regarding the sale of the moveable assets’.484 The parties’ agreement implemented by the first provisional measures decision could only be seen as violated if the negotiation included an element of compulsion. While the Tribunal considered it possible that the Claimant had perceived the ‘invitation . . . to formalize the Agreement’ as including an element of duress, it was unable to establish improper pressure as an objective fact, because the Respondent had not insisted following the Claimant’s rejection of the meeting on 24 March 1993.485 The Tribunal therefore saw no need to order provisional measures.

481

Vacuum Salt Products Ltd v Ghana, ICSID Case No ARB/92/1, Procedural Order No 1, 3 December 1992 (Vacuum Salt Provisional Measures I ). 482 Vacuum Salt Products Ltd v Ghana, ICSID Case No ARB/92/1, Decision on Provisional Measures, 14 June 1993 (Vacuum Salt Provisional Measures II ). 483 Vacuum Salt Provisional Measures II, p 327. 484 Vacuum Salt Provisional Measures II, p 327. 485 Vacuum Salt Provisional Measures II, pp 327–8.

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39. Vacuum Salt Products Ltd v Ghana ICSID Case No ARB/92/1 16 February 1994

Contract

Award R Jennings (P) C Brower K Hussain

Factual Background The relevant factual background has been set out in the summary of the provisional measures decision in this dispute.486

The Decision487 Ghana made three principal objections to jurisdiction. First, Ghana agreed that Vacuum Salt was not a foreign national for purposes of Article 25 of the Convention. Second, it contended that the Request for arbitration had not been duly authorized on behalf of the Claimant. Finally, Ghana argued that Vacuum Salt had waived its right to ICSID arbitration by agreeing to a different procedure in the Lease Agreement. Pursuant to Article 25(1) of the Convention, ICSID jurisdiction extends to ‘any legal dispute arising directly out of an investment’ between a Contracting State and a national of another Contracting State. According to the Tribunal, there was jurisdiction, prima facie, under Article 25(1) of the Convention, since Ghana was a State party to the Convention and the dispute arose out of an ‘investment’. Furthermore, the lease agreement between the parties contained their written consent to submit disputes to ICSID arbitration.

486

Vacuum Salt Provisional Measures II, Digest I-38. Vacuum Salt Products Ltd v Ghana, ICSID Case No ARB/92/1, Award on Jurisdiction, 16 February 1994 (Vacuum Salt Award ). For commentary on the decision, see (1994) 9 ICSID Rev— FILJ 72; (1994) 9 Int’ l Arb Rep 4 (Sec B); (1995) 20 YB Com Arb 11. 487

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Case 39: Vacuum Salt Award Ghana’s primary jurisdictional objection was that Vacuum Salt—a Ghanaian company—should not be treated as a foreign corporation for the purposes of Article 25(2)(b) of the Convention. Under this Article, a ‘national of another Contracting State’ is defined to include juridical persons that have the nationality of the host State party but are treated as foreign by agreement of the parties as a result of foreign control. The Tribunal first considered whether there was such an agreement regarding Vacuum Salt, and if so, whether that agreement was based upon ‘foreign control’ within the meaning of Article 25(2)(b) of the Convention. The Tribunal noted that the parties had not referred to Article 25(2)(b) of the Convention in their Lease Agreement, nor had they made any reference to ‘foreign control’. The Tribunal noted that in past ICSID cases, tribunals had concluded that the very inclusion of an ICSID arbitration clause in an agreement may in itself suggest that the parties share an understanding as to the foreign control of a domestically incorporated investment company.488 But the Tribunal held that the present case was distinguishable from other cases where foreign control had been presumed due to foreign majority shareholding in the relevant investment company. In this case, the Tribunal had to determine whether or not ‘foreign control’ actually existed as a matter of fact on the date of the consent, because any agreement to treat Vacuum Salt as a foreign national would be insufficient to support ICSID jurisdiction.489 The Tribunal found that a Greek national who resided in Ghana owned 20 per cent of Vacuum Salt’s issued shares, while three Ghanaian national banks held 10 per cent each. The remaining 50 per cent were held by small-scale investors. The Greek national was therefore obliged either to join with the bank shareholders or with the private shareholders in order to block any action. The Tribunal observed that ‘foreign control’ within the meaning of Article 25(2)(b) of the Convention does not require or imply a particular percentage of share ownership; the concept of control must be viewed in its own particular context.490 The smaller the percentage of voting shares, the more one must look to other elements bearing on the issue. The Tribunal observed that the Greek national was a founder of the company and had also served as its technical director for a number of years. Nonetheless, the Tribunal determined that the Greek national could not decisively influence critical decisions of Vacuum Salt.491

488 See for example, Amco Asia I Award , Digest I-16, para 14(iii); Klöckner I Award, Digest I-12, p 16; LETCO Award, Digest I-20, pp 352–3 . 489 ICSID, Report note 20, para 25 (‘While consent of the parties is an essential prerequisite for the jurisdiction of the Centre, consent alone will not suffice to bring a dispute within its jurisdiction. In keeping with the purpose of the Convention, the jurisdiction of the Centre is further limited by reference to the nature of the dispute and the parties thereto.’). 490 Vacuum Salt Award, para 43. 491 Vacuum Salt Award, para 53.

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ICSID DECISIONS 19742002 Therefore, the requirements of the second clause of Article 25(2)(b) of the Convention were not satisfied, and the Tribunal concluded that Vacuum Salt could not be regarded as a national of an ICSID Contracting State other than Ghana.492 The Tribunal stated that to hold otherwise would permit disputing parties to use the Convention for purposes other than that for which it was intended. On this basis, the arbitrators considered it unnecessary to address Ghana’s other jurisdictional objections, and dismissed the case for lack of jurisdiction. The Tribunal further ruled, without explanation, that each side should bear its own arbitration expenses and half of the arbitrator and administrative fees.

492

Vacuum Salt Award, para 54.

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40. Scimitar Exploration Limited v Republic of Bangladesh and Bangladesh Oil, Gas and Mineral Corporation ICSID Case No ARB/92/2 4 May 1994

Award K Highet (P) I Brownlie E C Chiasson

Factual Background Scimitar Exploration Limited (Scimitar) was a British Virgin Islands company. The background of the dispute with Bangladesh is unclear and is not restated in the award. In October 1992, Scimitar submitted a request for arbitration to ICSID against Bangladesh and the Bangladesh Oil, Gas and Mineral Corporation. The request was signed by an individual purporting to act as ‘Secretary of the Company’ and submitted on Scimitar’s behalf by a Canadian law firm. No resolution of Scimitar’s board of directors was submitted. The request was registered by ICSID.493 A board resolution confirming that the request for arbitration had been submitted with proper corporate authorization was submitted to the Tribunal only later, after the Respondents raised a jurisdictional objection. Shortly thereafter, however, Scimitar changed ownership, and all officers and counsel resigned. Scimitar’s new counsel conceded that the Respondents’ objections had been correct and that the Claimant would no longer rely on the board resolution submitted.

493

The ICSID Institutional Rules in the version valid fom 1984 to 2002 did not require as part of the Request for Arbitration documentary evidence that a claimant is a corporation has taken all necessary internal measures to authorize the request. This requirement has been codified Institutional Rule 2 (1)(f) since 2003.

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ICSID DECISIONS 19742002

The Decision494 The Tribunal dismissed the claim brought by Scimitar. It held that the proceedings had been instituted by someone without proper authority (a fact admitted by Scimitar’s new counsel) and that the Claimant had brought no evidence suggesting that this defect had been cured. The Tribunal awarded US$94,157.39 to the Respondents to cover the costs that they had incurred in the arbitration proceedings. The Claimant did not object to the claim for costs.

494

Scimitar Exploration Limited v Republic of Bangladesh and Bangladesh Oil, Gas and Mineral Corporation, ICSID Case No ARB/92/2, Award, 5 April 1994 (Scimitar Award ).

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41. Tradex Hellas SA (Greece) v Republic of Albania ICSID Case No ARB/94/2 24 December 1996

Foreign Investment Law Greece–Albania BIT

Jurisdiction K-H Böckstiegel (P) F Fielding A Giardina

Factual Background The dispute arose out of a joint venture (the 1992 JV ) established in 1992 between Tradex Hellas SA (Tradex), a Greek company, and TB Torovitsa, an Albanian State-owned company (Torovitsa), with ownership of 67 per cent and 33 per cent, respectively. The object of the joint venture was the commercial and agricultural development of farm land held by Torovitsa, including cultivation of plants, stock raising and further processing of products obtained. Tradex supplied capital and began to operate the farms. A dispute arose after a series of allegedly expropriatory acts by Albania, including the taking of the most fertile part of the farm land by Albanian villagers, thefts of crop, cattle and supplies and the seizure and occupation of the farm in December 1992. Tradex complained that despite its requests for intervention from the Albanian authorities, it was forced finally to hand over the disputed part of farm land together with cattle, cultivations and supplies. The 1992 JV was eventually dissolved. The request for arbitration by Tradex was filed on 2 November 1994.

The Decision495 Albania challenged the Tribunal’s jurisdiction on several grounds, asserting in essence that it had not given consent to ICSID arbitration as required by Article 25 (1) of the

495

Tradex Hellas SA (Greece) v Republic of Albania, ICSID Case No ARB/94/2, Decision on Jurisdiction, 24 December 1996 (Tradex Jurisdiction), 5 ICSID Rep 47 (2002).

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ICSID DECISIONS 19742002 Convention in Albanian Law No 7764 of 2 November 1993 (the Investment Law). It also objected to jurisdiction pursuant to the Greece–Albania BIT (the BIT ). The Tribunal first considered whether the BIT could provide a basis for its jurisdiction. Since the BIT had entered into force on 4 January 1995496 and the request for arbitration by Tradex was received by ICSID only on 2 November 1994, the Tribunal rejected jurisdiction based on the BIT. The Tribunal held that the later entry into force of the BIT could not remedy the absence of jurisdiction at the time of filing of the request for arbitration. The Tribunal recalled that both national and international procedural law required jurisdiction to be established at the time of filing the claim. Although this principle could arguably be modified by the text of the BIT (which, in its Article 8, provided for its applicability to investments made prior to its entry into force), the Tribunal considered that this provision still required that the claim be filed after the BIT enters into force. In reaching this conclusion, the Tribunal relied on the analysis of the wording of other provisions of the BIT (e.g. ‘“shall” not be expropriated’ and ‘“shall” be submitted’) as demonstrative of the intention of parties to ‘only submit to ICSID jurisdiction regarding alleged expropriation and requests for arbitration occurring in the future, even if they concerned investments made earlier’.497 Albania next contested the Tribunal’s jurisdiction on the basis that the dispute had arisen between the two parties to the 1992 JV, without any evidence of Albania’s involvement in Tradex’s difficulties. The Tribunal accepted that any claim against Torovitsa arising from the 1992 JV would be outside its jurisdiction: the acts complained of would only be covered by the Tribunal’s jurisdiction insofar as Tradex claimed that acts or omissions by Albania constituted an expropriation of its investment.498 Albania also argued that Tradex did not qualify as a ‘foreign investor’ under the Investment Law, upon which Tradex relied for ICSID jurisdiction, because by the time the Investment Law entered into force, the 1992 JV had already been dissolved. The Tribunal rejected this position based on its construction of the Investment Law, which defined ‘foreign investor’ as ‘any legal person that is incorporated or constituted under the law of a foreign country that . . . has made an investment under the laws regarding the period of time from 31 July 1990 and further on’.499 The Tribunal held that Tradex qualified under this definition and noted in particular that the wording of the Investment Law did not require the investment to exist at the time the Investment Law entered into force.500

496 497 498 499 500

Tradex Jurisdiction, p 179. Tradex Jurisdiction, p 179. Tradex Jurisdiction, p 181. Tradex Jurisdiction, p 181. Tradex Jurisdiction, p 182.

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Case 41: Tradex Jurisdiction Albania also claimed that Tradex had failed to make a good faith effort to settle the dispute amicably before turning to ICSID arbitration, as required under the Investment Law. The Tribunal did not accept this argument. Although the Tribunal accepted that the wording of the Investment Law allowed varying interpretations of the jurisdictional requirement of amicable settlement, Tradex established its good faith efforts to settle the dispute amicably. Between October 1992 and February 1993, Tradex had sent five letters to the Albanian Ministry of Agriculture describing difficulties and external disruptions encountered at the farm and asking for assistance, but no answer or reaction from the Albanian authorities was ever received. According to the Tribunal, these letters showed sufficient good faith effort of Tradex to achieve amicable settlement.501 Albania also contended that the Investment Law required the dispute to be related to expropriation and that Tradex had failed to provide even prima facie evidence of expropriation. According to the Tribunal, the examination of this issue for the purpose of establishing jurisdiction would be closely related to the merits, and thus it joined this objection to the merits of the dispute for later adjudication.502 The most substantial jurisdictional challenge examined by the Tribunal related to Albania’s consent to arbitration under Article 25 of the Convention, which Tradex claimed had been given in the Investment Law. Since the Investment Law became effective as of January 1994, Albania argued, this consent could not be applied retroactively to cover the dispute with Tradex. Having stated that the discussion on ‘retroactivity’ of national and international legal instruments was not entirely relevant, the Tribunal considered that the essential issue was whether the Investment Law could form the basis of the Tribunal’s jurisdiction in the dispute with Tradex. The Tribunal first recalled the established principle that Contracting States could validly give their consent under Article 25 of the Convention unilaterally in their national legislation.503 It then dealt with the temporal applicability of the Investment Law, focusing first on the interpretation of the term ‘dispute arises’ in Article 8. In contrast with the BIT, the Tribunal held that, for the Investment Law, the moment of filing of the request for arbitration was not determinative.504 The Tribunal concluded that the dispute had arisen when Tradex communicated its complaints to Albania. This occurred before the Investment Law entered into force.505

501 502 503 504 505

Tradex Jurisdiction, p 184. See the discussion in Part II of this Digest, section B(3)(c). Tradex Jurisdiction, p 185. Tradex Jurisdiction, p 187. See further SPP Jurisdiction II, Digest I-27. Tradex Jurisdiction, p 188. Tradex Jurisdiction, p 188.

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ICSID DECISIONS 19742002 The Tribunal subsequently turned to the wording of Article 8 of the Investment Law. In its view, the phrase ‘if the dispute arises’ in the Investment Law should not be interpreted as a temporal but rather as a conditional element, an interpretation supported by the practice of arbitration clauses.506 The Investment Law itself, therefore, did not require that the dispute arise after its entry into force. The Tribunal further examined Albanian investment protection laws which preceded the Investment Law. This inquiry led the Tribunal to conclude that the intention of Albania was to subject all investments previously protected by the preceding laws to the Investment Law.507 According to the Tribunal, this protection should be both substantive and procedural, extending ICSID jurisdiction established under Article 8 of the Investment Law also to earlier investments and disputes. The Tribunal was more inclined to accept this conclusion because the application of identical protection ‘would save both the investor and Albania the need to engage two procedures and tribunals possibly regarding the same investment should one dispute start before and another start after the entry into force of the Investment Law’.508 The interpretation of a different provision of the Investment Law also supported the Tribunal’s conclusion that the intention of the legislator was to avoid multiplicity of proceedings: Article 9 abrogated all conflicting legislative instruments, including the preceding investment protection law, which provided for UNCITRAL arbitration. It seemed more plausible to the Tribunal that the jurisdiction of ICSID established by the Article 8 of the Investment Law should extend to disputes that started before its entry into force rather than to accept the possibility of parallel ICSID and UNCITRAL proceedings regarding the same investment.509 In addition, the Tribunal stated that the applicability of more advanced and efficient dispute settlement mechanisms set up by the Investment Law was consistent with the evolution of Albanian investment protection laws more generally, which aimed to achieve a constant improvement in the protections offered to foreign investments. The Tribunal emphasized that its jurisdiction, depended chiefly on the parties’ consent, existence of such consent must be established before any procedural rules are applied. Thus, it refused to discuss further Albania’s retroactivity argument, since, according to the Tribunal, the main issue was whether the submission to ICSID arbitration in the Investment Law ‘covered the alleged earlier expropriations in this case, irrespective of whether this should be considered a “retroactive” application or not’.510 The Tribunal was also unconvinced by Albania’s assertion that submission

506 507 508 509 510

Tradex Jurisdiction, p 189. Tradex Jurisdiction, p 189. Tradex Jurisdiction, p 191. Tradex Jurisdiction, p 192. Tradex Jurisdiction, p 194.

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Case 41: Tradex Jurisdiction to arbitration must be presumed to cover only future disputes unless otherwise provided. The Tribunal pointed out that submissions to international arbitration concern both future disputes and disputes already in existence. Moreover, numerous national systems have traditionally believed that consent to arbitration can validly be expressed only with respect to disputes already in existence. Based on Albania’s expressions of commitment to foreign investment, the Tribunal considered it more appropriate to interpret the Investment Law in favour of investment protection in case of doubt. Further, the Tribunal also pointed out that, should its jurisdiction not be established in that case, Albania could not contend in future proceedings that the offer of UNCITRAL arbitration under the Investment Law was unavailable to Tradex. The Tribunal also noted that upholding its jurisdiction would save both parties the considerable efforts and costs that would be needed in a new procedure under the UNCITRAL Rules.511 On this basis, the Tribunal upheld its jurisdiction in the dispute.

511

Tradex Jurisdiction, p 195.

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42. Cable Television of Nevis Ltd and Cable Television of Nevis Holdings Ltd v Federation of St Kitts and Nevis ICSID Case No ARB/95/2 13 January 1997

Contract

Award W Davis (P) A Maynard R McKay

Factual Background On 18 September 1986, the Nevis Island Administration (NIA), a constituent element of the Federation of St Kitts and Nevis (the Federation), entered into an agreement with Cable Television of Nevis Ltd and Cable Television of Nevis Holdings Ltd (collectively Cable TV ) granting Cable TV the exclusive right to provide basic and premium services on the island of Nevis (the Agreement). Pursuant to the Agreement, Cable TV was entitled to increase rates for basic and premium cable television services. Premium rates were not to be controlled by the Federation after the first year, and basic rates could be increased in proportion to Cable TV’s costs. Cable TV repeatedly submitted information to the Federation justifying an increase of both rates. The Federation denied Cable TV any increase. The Agreement provided that ‘any disputes relating to this agreement, its performance or non-performance shall be referred to arbitration’. On 25 October 1995, Cable TV filed a request for arbitration to ICSID in reliance on this provision. Meanwhile, the Federation obtained from the High Court of Nevis an ex parte order preventing Cable TV from raising its rates before completion of the ICSID arbitration.

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Case 42: Cable TV Award

The Decision512 The Federation raised several challenges to ICSID jurisdiction. The first challenge was based on the fact that NIA, the contracting party to the Agreement, was a constituent subdivision or agency of the Federation but had not been designated as such to ICSID by the Federation.513 The Tribunal relied on the Federation’s Constitution to establish whether NIA possessed juridical personality, and noted that NIA had been given wide powers in Nevis, especially in Nevis’s administrative management, supporting the view that NIA was a separate person.514 The Tribunal further noted that under the Agreement, the Government of Nevis, and not the Government of the Federation, granted to Cable TV the right to perform the functions of a cable television company on Nevis.515 The Tribunal thus inferred that Cable TV intended to deal with the Government of Nevis and that it would be inappropriate to substitute of the Federation for the Government of Nevis as a party, merely on the ground that when the Agreement was entered into, the Government of Nevis signed on behalf of the Federation and not on its own behalf.516 Therefore, the Tribunal concluded that the Federation was not the proper party.517 Having decided that the Federation was not a proper party, the Tribunal turned to the requirements of Article 25(1) of the Convention to determine whether NIA could be a proper party to the dispute. Pursuant to the Convention, ICSID has no jurisdiction in matters brought against an entity other than a Contracting State unless the entity has been designated to ICSID by the Contracting State as a constituent subdivision or agency of the Contracting State. The Tribunal noted that NIA, a constituent subdivision or agency of the Federation, had not been designated as such to ICSID.518 The second issue related to the position put forth by Cable TV that the Federation’s consent could be construed from the institution of proceedings by the Attorney-General of St Kitts and Nevis against Cable TV in a domestic court of the Federation.519 The purpose of the domestic court proceedings was to obtain an injunction to restrain Cable TV from raising its rates prior to the resolution of the

512 Cable Television of Nevis Ltd and Cable Television of Nevis Holdings Ltd v Federation of St Kitts and Nevis, ICSID Case No ARB/95/2, Award, 13 January 1997 (Cable TV Award ). 513 Cable TV Award , paras 2.01–2.33. 514 Cable TV Award , paras 2.03–2.08. 515 Cable TV Award , paras 2.16–2.17. 516 Cable TV Award , paras 2.17–2.22. 517 Cable TV Award , paras 4.01–5.24. 518 Cable TV Award , paras 2.28–2.33. 519 Cable TV Award , paras 4.01–4.173.

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ICSID DECISIONS 19742002 dispute through ICSID arbitration.520 The Tribunal held that the references in the court documentation to the ICSID clause in the agreement were merely statements of fact and did not amount to consent by any person to ICSID jurisdiction.521 The Federation further submitted that Cable Television of Nevis Ltd was not in existence at the time it purported to enter into the Agreement on which it relied for its request of arbitration and that, consequently, in respect of Article 25 of the Convention, the company did not consent to ICSID arbitration.522 The Tribunal, relying on former ICSID cases, noted that the Convention allows parties to subordinate the entry into force of an arbitration clause to the subsequent fulfilment of certain conditions, such as the adherence of the State to the Convention or the incorporation of the company envisaged by the agreement. In the present case, they had failed to do so, as the provision governing the entry into force of the Agreement only envisaged the execution by all parties, without reference to their date of incorporation.523 Therefore, the Tribunal concluded that the operating company Cable Television of Nevis Ltd had failed to establish its consent to ICSID jurisdiction.524 Finally, the Federation contended that Cable Television of Nevis Holding Ltd was not a proper party to the dispute for the purposes of the Convention since it was an offshore company which, under Federation’s law, is prohibited from carrying on business within Nevis.525 The Tribunal held that Cable Television of Nevis Ltd could be a proper party to ICSID proceedings if the jurisdictional hurdle in relation to such proceedings were overcome, which in the present dispute was not the case. The Tribunal decided that it lacked jurisdiction and therefore dismissed the case. With respect to costs, the Tribunal ruled that each side should bear its own expenses, noting only the ‘complexity and unusual nature of the issues raised’ in reaching this conclusion.

520 521 522 523 524 525

Cable TV Award, paras 4.04–4.10. Cable TV Award, paras 4.14–4.17. Cable TV Award, paras 6.01–6.34. Cable TV Award, paras 6.16–6.17 and 6.33–6.34. Cable TV Award, para 6.34. Cable TV Award, paras 7.01–7.02.

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43. American Manufacturing & Trading, Inc v Zaire ICSID Case No ARB/93/1 21 February 1997

United States–Zaire BIT

Award S Sucharitkul (P) H Golsong K Mbaye

Factual Background American Manufacturing and Trading Corporation (AMT ), a company incorporated in the United States and majority-owned by American nationals, held a 94 per cent share in Société Industrielle Zaïroise (SINZA), a Zairean company engaged in the production and sale of dry cell and automotive batteries, as well as in the importation and resale of consumer goods and foodstuffs. In 1991, soldiers of the Zairean armed forces destroyed property located in the battery production complex, broke into SINZA’s commercial facilities, and destroyed or stole many finished goods and raw materials. The complex was reopened in 1992 but destroyed for a second time in 1993. AMT initiated arbitration proceedings against the Republic of Zaire on 25 January 1993 under the United States–Zaire BIT (the BIT ). AMT claimed that Zaire had violated its obligation of protection and failed to compensate AMT for property damage and losses caused by elements of Zaire’s armed forces in the amount of US$14.3 million.

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ICSID DECISIONS 19742002

The Decision526 1. Jurisdiction Zaire’s primary jurisdictional objection was that AMT lacked capacity to act in the name of SINZA,527 because it had made no investment in SINZA’s name. According to Zaire’s position, AMT could not acquire standing to sue by its mere participation as a shareholder in SINZA. Zaire considered the dispute as one between itself and a Zairean national company, and accordingly outside the jurisdictional scope of the ICSID Convention.528 In determining its jurisdiction under Article 25 of the Convention, the Tribunal first noted that the existence of a ‘legal dispute arising directly out of an investment’ was undisputed.529 Concerning the nationality requirement, the Tribunal concluded that the dispute had been brought by a juridical person of US nationality, and that SINZA should be considered an ‘investment’ of AMT attracting the protections afforded under the BIT.530 In respect of the written consent required to establish jurisdiction under Article 25 of the ICSID Convention, the Tribunal found that Zaire’s consent was codified in the BIT,531 while AMT had consented by initiating ICSID arbitration.532 Zaire’s next objection was that AMT had failed to observe the pre-arbitration procedures mandated by Article VIII of the BIT, which included diplomatic consultations.533 The Tribunal concluded that these provisions did not apply to investor–State disputes, but only to disputes between the signatory States. In the Tribunal’s view, AMT had in any event made serious attempts to negotiate before initiating arbitration, and this was all that was required under Article VII of the BIT (covering investor–State disputes). The Tribunal quickly dismissed several additional jurisdictional challenges raised,534 most of which were on closer examination actually issues of liability.535 526

American Manufacturing & Trading, Inc v Republic of Zaire, ICSID Case No ARB/93/1, Award, 21 February 1997 (AMT Award ). 527 AMT Award , para 3.09. 528 AMT Award , para 4.05. 529 AMT Award , para 5.06. 530 AMT Award , para 5.15. Th is appears to be accepted by most subsequent tribunals, see Azurix Corp v Argentine Republic, ICSID Case No ARB/01/12, Decision on Jurisdiction, 8 December 2003 (Azurix Jurisdiction), Digest II-13, para 73; CMS Gas Transmission Company v Argentine Republic, ICSID Case No ARB/01/08, Decision on Jurisdiction, 17 July 2003 (CMS Jurisdiction), Digest II-7, para 68; Siemens AG v Argentine Republic, ICSID Case No ARB/02/8, Decision on Jurisdiction, 3 August 2004 (Siemens Jurisdiction), Digest II-28, paras 140–4. For more details and further references see Digest II, pp 333–4. 531 AMT Award , paras 5.20–5.23. 532 AMT Award , para 5.23. 533 AMT Award , paras 5.26–5.28. 534 AMT Award , paras 5.24–5.46. 535 AMT Award , paras 5.29–5.32 and 5.34–5.37.

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Case 43: AMT Award 2. Merits The key issue to be decided by the Tribunal in relation to the merits of the dispute was whether Zaire was required to compensate AMT for the destruction of SINZA’s property, despite the fact that other victims of lootings in Zaire during the early 1990s had also been denied compensation for similar losses. In this regard, Article IV(1)(b) of the BIT, dealing with compensation in situations of civil unrest, obliges a State only to refrain from discriminating against investors of the relevant foreign nationality when paying compensation for damages due to riots or acts of violence. The Tribunal noted that AMT’s claim was not based on Article IV(1)(b) of the BIT, but rather upon an alleged failure to provide protection and security as required by Article II(4). The Tribunal found this to be an objective standard, requiring the State to act with ‘vigilance’ to protect qualifying investments from harm.536 It rejected Zaire’s position that liability could not arise because its conduct had been non-discriminatory.537 The arbitrators considered comparative treatment to be irrelevant,538 and held that Article IV(1)(b) of the BIT did not affect other treatment standards. ‘Vigilance’ was held to mean that the State must take all reasonable measures necessary to ensure the full protection of the covered investments.539 Having reviewed the facts, the Tribunal considered it unnecessary to determine whether this provision constituted an obligation of result or a mere obligation of efforts. Zaire had in any event ‘breached its obligation by taking no measure whatever that would serve to ensure the protection and security of the investment in question’.540 It therefore concluded that Zaire had manifestly failed to comply with the applicable standard of care.541 The Tribunal’s reasoning as to Zaire’s liability under Article IV(1)(b) of the BIT542 remains unclear. Although, on its face, this provision primarily addresses non-equal treatment in the payment of compensation, the Tribunal derived from the text a duty

536

AMT Award, para 6.06. AMT Award, para 6.10. 538 AMT Award , para 6.10. 539 AMT Award , para 6.05. 540 AMT Award , para 6.08. 541 AMT Award , para 6.10. 542 Article IV (1)(b) of the BIT reads: ‘Nationals or companies of either Party whose investments in the territory of the other Party suffer . . . damages due to revolution, state of national emergency, revolt, insurrection, riot or act of violence in the territory of such other Party, shall be accorded treatment no less favorable than that which such other Party accords to its own nationals or companies or to nationals or companies of any third country, whichever is the most favorable treatment, when making restitution, indemnification, compensation or any other settlement with respect to such damages.’ 537

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ICSID DECISIONS 19742002 to prevent the occurrence of events such as riots and acts of violence.543 Due to this obligation to prevent acts of looting, the arbitrators considered the identity of the perpetrator to be of no importance, and held Zaire responsible for failing to act.544 3. Damages The Tribunal expressly rejected Zaire’s argument that AMT was entitled to no compensation because other affected companies had not been compensated after the looting incidents.545 The Tribunal considered that under international law the injured party is to be restored to the situation it would have occupied had the wrongful acts never occurred.546 In order to determine the correct method for calculating the compensation to be paid, the Tribunal first assessed whether the damage suffered by AMT resulted from destruction outside combat situations. Pursuant to Article IV(2)(b) of the BIT, such losses would have been calculated based on the fair market value of the investment. The arbitrators concluded, however, that the destruction of AMT’s property was not due to Zairian forces or authorities, but rather to Zairian soldiers acting outside their official capacity and the instructions of their superior officers.547 The Tribunal nonetheless ruled that the actual market value of the properties destroyed should be the method of assessment.548 Contrary to AMT’s argument, the arbitrators decided that such an assessment should be based not on the normal circumstances in an ideal country but should account for the realities of the ongoing political situation in Zaire, especially when determining lost profits and interest.549 The Tribunal expressly stated that the award in part would be based on equitable principles.550 The Tribunal appointed an independent expert to evaluate the damage suffered by SINZA in the period between 1991 and 1993, resulting in an assessment of 543 AMT Award , para 6.14. It seems to deduce this obligation from the fact that Article IV(1)(b) of the BIT contemplates compensation for such acts. Moreover, it appears that the Tribunal understood this provision to establish an obligation to compensate (cf para 6.24). This secondary obligation to compensate seems in the arbitrators’ view to imply a primary responsibility to prevent such acts, although on its face the provision addresses only non-discrimination. 544 AMT Award , paras 6.13–6.14. 545 AMT Award , paras 6.23–6.24. 546 AMT Award , para 6.21. 547 AMT Award , paras 7.08–7.11. A state is liable for ultra vires acts of its organs, including the armed forces, but only if they act in their oficial capacity, see para 1 of the commentary to Article 7 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts, Yearbook of the International Law Commission, 2001, Vol II, Part Two. 548 AMT Award , para 7.13. 549 AMT Award , paras 7.13–7.15. 550 AMT Award , para 7.16.

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Case 43: AMT Award US$4.5 million.551 AMT contested the amount, and the Tribunal, in the exercise of its ‘discretionary power to determine the quantum of compensation’,552 ultimately awarded US$9 million, without explaining why the final damages amount was nearly double the figure advanced by the Tribunal’s expert. The arbitrators ordered the parties to share equally the costs of the proceedings, and to bear their own legal expenses.

Concurring Opinions Mr Golsong disagreed with the majority regarding the responsibility of Zaire for the AMT’s losses. He considered the responsibility of Zaire to be clearly established under the provision of Article IV(2) of the BIT rather than Articles II(4) (general principles of law) and IV(1) of the BIT (most-favoured-nation clause).553 He concluded that the tribunal should not have adopted such a narrow interpretation of the word ‘forces’ since it was decisive that the Zairean soldiers acted by using the ‘powers or measures appropriate to their official character’.554 In a separate concurring opinion, Mr Mbaye disagreed with the amount of damages awarded to AMT, arguing that it should not have exceeded US$4 million.

551

AMT Award, para 7.19. AMT Award, para 7.21. 553 AMT Award, Opinion of Mr Golsong, para 1. Article IV(2) of the BIT states: ‘In the event that such damages result from (a) a requisitioning of property by the other Party’s forces or authorities, or (b) destruction of property by the other Party’s forces or authorities which was not caused in combat action, the national or company shall be accorded restitution or compensation in accordance with Article III.’ 554 In this regard, Mr Golsong cited two main cases, the arbitral decision of the France/Mexico Claims Commission in the matter of Estate of Jean-Baptiste Caire v United States (1929, Reports of International Arbitral Awards, Vol V, pp 516 et seq) and the USA/Mexican Claims Commission in the Youman case (1929, Reports of International Arbitral Awards, Vol IV, p 110 at 116), see AMT Award, Opinion of Mr Golsong, para 14. 552

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44. Fedax NV v Republic of Venezuela ICSID Case No ARB/96/3 11 July 1997

Netherlands–Venezuela BIT

Jurisdiction F Orrego Vicuña M Heth R Owen

Factual Background In 1988, Venezuela entered into a contract (the Contract) with a Venezuelan company, Industrias Metalurgicas Van Dam CA (Industrias). Venezuela later issued promissory notes to Industrias in acknowledgement of the debt that had accrued under the Contract. Fedax NV, a company incorporated in the Netherlands Antilles (Fedax), became the beneficiary of the Venezuelan debt instruments by assignment from Industrias. When Fedax presented the notes for payment at the maturity date, Venezuela refused to honour them. On 17 June 1996, Fedax submitted a request to ICSID for arbitration against Venezuela, invoking the Netherlands–Venezuela BIT. Venezuela objected to the jurisdiction of the Tribunal.

The Decision555 The Tribunal first considered whether there was a ‘legal dispute’ between the parties under Article 25(1) of the Convention. It affirmed that the nature of the dispute was legal, because the case concerned ‘the different views of the parties on questions of legal rights and obligations in connection with the existence of an investment’.556 After noting that Venezuela had not contested jurisdiction ratione

555 Fedax NV v Republic of Venezuela , ICSID Case No ARB/96/3, Decisions on Objections to Jurisdiction, 11 July 1997 (Fedax Jurisdiction). 556 Fedax Jurisdiction , para 16.

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Case 44: Fedax Jurisdiction personae, the arbitrators proceeded to examine Venezuela’s objections as to subject matter jurisdiction. Venezuela’s primary jurisdictional objection was that Fedax could not be considered to have made an ‘investment’ as required by Article 25(1) of the Convention, because it had acquired the promissory notes by way of subsequent endorsement, rather than direct involvement in the Contract or in the issuance of the notes.557 Venezuela contended that a ‘foreign investment’ should be defined as a ‘long term transfer of financial resources—ie, capital flow—from one country to another (the recipient of the investment) in order to acquire interests in a corporation, a transaction which normally entails certain risks to the potential investor’.558 Venezuela argued that Fedax’s acquisition of the notes could not satisfy this definition. Similarly, Venezuela argued that the transaction also failed to qualify as a portfolio investment, because the instruments had not been acquired on a Venezuelan stock exchange.559 Venezuela maintained that jurisdiction could not lie because Fedax had made no investment at all in the territory of Venezuela, having acquired the notes abroad.560 The Tribunal first examined the meaning of the term ‘investment’ under the Convention. It confirmed that a broad approach to the term was warranted.561 The Tribunal emphasized that legal disputes ‘arising directly out of an investment’ did not suggest a restriction of jurisdiction to directly held investments: the word ‘directly’ relates to the dispute, rather than to the investment.562 In light of the broad scope of Article 25(1) of the Convention and with reference to a number of earlier ICSID awards, the Tribunal confirmed that loans qualified as an investment within ICSID’s jurisdiction, as did the acquisition of bonds.563 On this basis, the purchase of the debt instruments by Fedax was considered an ‘investment’ under the Convention.564 The Tribunal then turned to determine whether an ‘investment’ also existed according to the relevant provisions of the Netherlands–Venezuela BIT. The Tribunal

557

Fedax Jurisdiction, para 18. Fedax Jurisdiction, para 19. 559 Fedax Jurisdiction, para 19. 560 Fedax Jurisdiction, para 41. 561 Fedax Jurisdiction, para 22. 562 Fedax Jurisdiction, para 24. 563 Fedax Jurisdiction, paras 26, 29; citing Holiday Inns Jurisdiction I, Digest I-2 (affirming jurisdiction over loan contracts originating in agreements separate from the investment); Amco Asia I Jurisdiction, Digest I-11 (affirming jurisdiction in respect of an international tort related to a lack of police protection). See further Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Decision on Jurisdiction, 24 May 1999 (CSOB Jurisdiction I), Digest I-51. 564 Fedax Jurisdiction, para 29. See further Abaclat and others v Argentina, ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011, para 387. 558

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ICSID DECISIONS 19742002 found that the BIT definition of ‘investment’ demonstrated the signatories’ intent to adopt a broad meaning, in particular noting the inclusion of ‘claims to money’ in the non-exhaustive definition.565 Having analysed Article 5 of the BIT, under which the contracting parties guarantee the transfer of payment related to an investment, including the transfer of interests (Article 5(a)) and funds for the reimbursement of loans (Article 5(d)), the Tribunal concluded that the definition of ‘investment’ included loans and related credit transactions.566 Finally, the Tribunal considered the specific circumstances surrounding the Venezuelan promissory notes. As the notes were denominated in US dollars, the Tribunal was able to deduce an intention for international circulation at the time of issue, with Venezuela seeking from the outset to make the notes accessible to foreign entities.567 The Tribunal reasoned that international financial transactions often do not involve the physical transfer of funds to the territory of the beneficiary. At the same time, it was relevant that the funds initially made available had been utilized by the intended debtor. This was indeed the case: Venezuela had enjoyed the benefit of the initial capital since the debt instruments were first issued.568 On this basis, the Tribunal rejected Venezuela’s territoriality objection. Consequently, the Tribunal confirmed its own jurisdiction to hear the merits of the dispute.

565

Fedax Jurisdiction, para 34. Fedax Jurisdiction, para 37. 567 Fedax Jurisdiction , para 39. 568 Fedax Jurisdiction , para 41. See further CSOB Jurisdiction I, Digest I-51; C Baltag, Territoriality under the ICSID Convention, TDM Provisional 2007. 566

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45. Robert Azinian and others v United Mexican States ICSID Case No ARB(AF)/97/2 22 January 1998

NAFTA

Jurisdiction J Paulsson (P) B R Civiletti C von Wobeser

Factual Background The relevant factual background has been set out in the summary of Tribunal’s Award in this dispute.569 During the first session of the Tribunal, Mexico questioned the Claimants’ standing. The Tribunal indicated that this matter should be resolved before consideration of the merits. It was agreed that Mexico would submit a written motion challenging the Claimants’ standing to which the Claimants could reply. Mexico argued that there were three entities bearing the same name that were allegedly affected by Mexico’s conduct, some of which were not owned by the Claimants. Furthermore, Mexico queried whether these companies were properly incorporated in Mexico.570

The Decision571 The Tribunal considered the issues raised by Mexico to be complex and potentially limiting the competence of the Tribunal.572 It found it unlikely, however, that

569

Azinian Award, Digest I-56. The summary contained in the Decision is not entirely clear as to whether Mexico objected to jurisdiction, requesting a separate ruling, and whether the Tribunal requested further briefs before it would decide on a bifurcation. However, this seems to be a tenable interpretation of what the Tribunal did. 571 Robert Azinian and others v United Mexican States, ICSID Case No ARB(AF)/97/2, Interim Decision Concerning Respondent’s Motion for Directions, 22 January 1998 (Azinian Jurisdiction). 572 Azinian Jurisdiction , para 34. 570

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ICSID DECISIONS 19742002 they altogether eliminated the need to consider the merits. The Tribunal therefore directed the parties to proceed with the Claimants’ memorial.573 In addition, it gave some directions as to facts it might consider relevant during the next stage of the proceedings.

573 Azinian Jurisdiction , para 40. Essentially, the Tribunal seems to have joined the objections to the merits pursuant to ICSID Additional Facility Arbitration Rule 46(4) (version 1978).

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46. Fedax NV v Republic of Venezuela ICSID Case No ARB/96/3 9 March 1998

Netherlands–Venezuela BIT

Award F Orrego Vicuña M Heth R Owen

Factual Background The relevant factual background has been set out in the summary of the decision on jurisdiction in this dispute.574 In its decision of 11 July 1997, the Tribunal rejected Venezuela’s objections and confirmed its jurisdiction to hear the merits.

The Decision575 By the time the Tribunal issued its Award, the parties had reached a partial settlement of the dispute, to which the Tribunal made reference, and it was unnecessary for the Tribunal to consider matters of substance under the BIT. The Tribunal outlined the parameters of the partial settlement between the parties. As of the date of the Award, Venezuela had not paid the principal of each of the six promissory notes, regular interest from 7 May 1994 on five of the promissory notes and penal interest from the dates of maturity on all six notes.576 The Tribunal recognized that Venezuela had agreed to the payment of the capital and interest of the promissory notes. It also affirmed that Venezuela would pay Fedax in US dollars and that the accrued interest would be paid until the date of

574

Fedax Jurisdiction, Digest I-44. Fedax NV v Republic of Venezuela, ICSID Case No ARB/96/3, Award, 9 March 1998 (Fedax Award ). 576 Fedax Award , para 26. 575

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ICSID DECISIONS 19742002 payment of the principal.577 The arbitrators declared their satisfaction with the amount of the principal, established at US$598,950. Furthermore, they agreed with the calculation of regular and penal interest proposed by the parties.578 The Tribunal then examined two issues that had not been agreed by the parties: the date of payment and the question of payment of Fedax’s expenses and legal costs. It considered that the appropriate date of payment was 7 May 1998, as this was when the six-month period of interest would be completed.579 The Tribunal then decided that each of the parties should bear an equal share of the institutional charges. Accordingly, Venezuela should reimburse Fedax the amount of US$50,150, representing half of the cost of proceedings, for which advance payments had been made by Fedax.580 Finally, the Tribunal decided that each party should bear the entirety of its own expenses and legal fees.581

577 578 579 580 581

Fedax Award, para 27. Fedax Award, paras 31–2. Fedax Award, para 33. Fedax Award, para 34. Fedax Award, para 35.

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47. Československa Obchodni Banka, AS v Slovak Republic ICSID Case No ARB/97/4 9 September 1998 5 November 1998 11 January 1999 1 March 2000

Czech Republic-Slovak Republic BIT

Provisional Measures T Buergenthal (P) P Bernardini A Bucher

Factual Background The relevant factual background is set out in the summary of Tribunal’s Award582 and first Decision on Jurisdiction in this dispute.583 Československa Obchodní Banka AS (CSOB) filed its request for arbitration with ICSID on 18 April 1997. CSOB then requested provisional measures on 4 September 1998, seeking the suspension of the bankruptcy proceedings pending at that time against Slovenska inkasi spol sro (Slovak Collection Company) in the Bratislava Regional Court. CSOB argued that the court hearing, which was scheduled for 10 September 1998, would affect ‘issues that form the core of the dispute on the merits’ to be considered by the Tribunal, namely the existence and extent of CSOB’s claims against the Slovak Collection Company as well as the collection company’s reimbursement claims against Slovakia.

The Decision584 On 9 September 1998, the Tribunal rejected CSOB’s request for interim restraining measures on the grounds that it had no reason to assume the Bratislava

582 Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Award, 29 December 2004 (CSOB Award), Digest II-32. The president, Thomas Buergenthal, resigned after he was elected a judge at the International Court of Justice. 583 CSOB Jurisdiction I, Digest I-51. 584 Č eskoslovenska Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Procedural Order No 2, 9 September 1998 (CSOB Procedural Order No 2).

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ICSID DECISIONS 19742002 Regional Court would refuse to suspend the proceedings after being informed about the arbitration.585 Furthermore, the Tribunal reserved its decision on provisional measures until it was able to consider the parties’ written observations. The Tribunal referred to Rule 39(4) of the Arbitration Rules, which provides that the Tribunal ‘shall only recommend provisional measures, or modify or revoke its recommendations, after giving each party an opportunity of presenting its observations’. The Tribunal therefore invited the parties to submit their written observations and set time limits. On 10 September 1998, the Bratislava Regional Court deferred the hearing until 3 December and considered CSOB’s request to suspend the bankruptcy proceedings. Subsequently, after Procedural Order No 2 had been issued, the Tribunal received written observations by all parties. CSOB renewed its request for provial measures and interim restraining measures. In its Procedural Order No 3 of 5 November 1998, the Tribunal denied CSOB’s request for emergency measures and deferred further consideration of the request for provisional measures until the Bratislava Regionalourt had issued a decision on the suspension of the bankruptcy proceedings.586 In its reasoning, the Tribunal nevertheless rejected the assertion made by Slovakia that provisional measures under Article 47 of the Convention could only be granted in cases of absolute necessity. Rather, the Tribunal found that it would only be necessary to show that the requested measures were necessary for preserving the respective rights of the parties. The Tribunal held that Article 26 of the Convention provides that ICSID arbitration constitutes the exclusive remedy for the parties’ dispute. The Tribunal nonetheless had no reason to assume that the Bratislava Regional Court would deal with the claims at stake in the arbitration proceedings. Therefore, it was not necessary for the Tribunal to adopt measures that might preserve the parties’ right under Article 26. On 5 November 1998, the same day the Tribunal issued Procedural order No 3, the Bratislava Regional Court denied CSOB’s request for suspension of the bankruptcy proceedings. CSOB appe this decision to the Supreme Court of the Slovak Republic. This pending appeal was had not yet been heard at the time the Tribunal rendered Procedural Order No 4 on 11 January 1999.587 In that order, the Tribunal

585 For a comparable case see SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No ARB/01/13, Procedural Order No 2 on Provisional Measures, 16 October 2002 (SGS/Pakistan Provisional Measures), Digest I-94. 586 Č eskoslovenska Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Procedural Order No 3, 5 November 1998 (CSOB Procedural Order No 3). After the Bratislava Regional Court had denied CSOB’s request to suspend the bankruptcy proceedings, the Tribunal issued its procedural order No 4. 587 Č eskoslovenska Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Procedural Order No 4, 11 January 1999 (CSOB Procedural Order No 4 ).

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Case 47: CSOB Procedural Orders issued a recommendation that the bankruptcy proceedings be suspended to the extent they include determinations relevant to the arbitration. In its ruling of 23 September 1999, the Slovak Supreme Court affirmed the Bratislava Regional Court’s decision. It reasoned that the bankruptcy proceedings concerned different legal entities, and as a result, would not prejudice the ICSID proceedings. In a Procedural Order issued on 1 March 2000, the Tribunal essentially repeated its reasoning and decision made in Procedural Order No 4.588

588 Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Procedural Order No 5, 1 March 2000 (CSOB Procedural Order No 5 ).

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48. Lanco International Inc v Argentine Republic ICSID Case No ARB/97/6 8 December 1998

United States–Argentina BIT

Jurisdiction B M Cremades (P) G Aguilar Alvarez L Olavo Baptista

Factual Background In the early 1990s, Argentina started a national and international bid process for the concession of port terminals at Puerto Nuevo, Buenos Aires. On 6 June 1994, a concession agreement (the Agreement) was concluded between the Ministry of Economy and Public Works and Services (the Ministry) and the consortium Terminales Portuarias Argentinas SA (TPA), through which TPA was awarded Puerto Nuevo’s Terminal No 3. Among the companies forming the consortium was Lanco International Inc (Lanco),589 a company incorporated and operating in the United States and an equity holder in TPA. Lanco and the other TPA shareholders also signed the Agreement in their own right as awardees and guarantors of TPA’s obligations. In October 1997, Lanco filed a request for arbitration with ICSID against Argentina. Lanco sought compensation for damages due to alleged breaches by Argentina of its obligations arising under the Argentina–United States BIT (the BIT ). Argentina raised several jurisdictional objections. It contended that any dispute under the Agreement must be submitted to the Federal Contentious-Administrative Tribunals of Buenos Aires. In addition, Argentina argued that Lanco, as a mere shareholder of TPA, could not be considered a party to the Agreement and therefore lacked standing.

589 At the time of the signing of the Concession Agreement, Lanco was known as Mi-Jack Products Inc.

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Case 48: Lanco Jurisdiction

The Decision590 The Tribunal first examined whether Lanco’s involvement in Argentina qualified as an ‘investment’ under the BIT. It noted that the BIT defined ‘investment’ very broadly, and of particular relevance to the dispute, an investment in capital stock did not require a controlling share to qualify as such. This led the Tribunal to conclude that Lanco, despite holding a mere 18.3 per cent of TPA’s capital stock, could be considered an investor under the BIT. The Tribunal also highlighted the fact that Lanco had signed the Agreement in its capacity as awardee and guarantor of TPA’s obligations. The Tribunal recalled that the initial bid conditions provided for joint and several liability of each co-bidder. According to the Tribunal, Lanco was a guarantor for TPA and would assume liability towards Argentina in case of the TPA’s default, a commitment that confirmed Lanco’s right to be a party ‘in its own name and right’ to the Concession Agreement.591 On these grounds, and despite the lack of an express reference to potential foreign investors,592 the Tribunal concluded that the Agreement concerned an ‘investment’ in the sense envisaged by the BIT. The Tribunal next turned to the question of whether Lanco had met the requirements to submit the dispute to ICSID. In this discussion, a particular point of friction between the parties was the reference to ‘any applicable, previously agreed dispute settlement procedure’593 as one of the options for dispute settlement set out in the BIT.594 Partly concurring with Lanco, the Tribunal held that the term ‘previously’ refers to a moment before the dispute arises, thereby dismissing Argentina’s contention that ‘previously agreed’ dispute settlements meant settlements agreed upon prior to the entry into force of the BIT.595 The Tribunal, however, agreed that the relevant provision in the Agreement could not be considered a ‘previously 590

Lanco International Inc v Argentine Republic, ICSID Case No ARB/97/6, Decision on Jurisdiction, 8 December 1998 (Lanco Jurisdiction). 591 Lanco Jurisdiction, para 16. 592 The Tribunal nonetheless pointed out that the Concession Agreement referred to the Bid Conditions, which, in turn, provide for the possibility of foreign bidders. 593 Argentina–USA BIT, Article VII (b). 594 The BIT also listed the recourse to the local courts as one of the options, upon which the Tribunal remarked that ‘recourse to the courts [are] in any event . . . available to natural and legal persons by virtue of the basic principle of the right to effective judicial protection’, Lanco Jurisdiction, para 31. 595 Argentina further contended that any agreements concluded after the entry into force of the BIT should not be subsumed by the BIT’s dispute resolution clause, but should rather be binding on the parties. The impetus for Argentina’s argument was its contention that the Agreement was concluded after the BIT’s entry into force. Referring to Article 24(1) of the Vienna Convention on the Law of Treatises, the Tribunal, however, clarified that the BIT’s entry into force occurred after the conclusion of the Agreement. The Tribunal further criticized Argentina’s reasoning, adding that the BIT’s dispute resolution clause cannot be considered the appropriate place to determine the treaty’s scope of application.

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ICSID DECISIONS 19742002 agreed’ dispute settlement procedure, ‘since administrative jurisdiction cannot be selected by mutual agreement’.596 Noting that, in any event, the investor had not submitted the dispute to any such previously agreed dispute resolution procedure, but rather submitted the dispute to ICSID after a required six-month waiting period, the Tribunal next tackled the issue of the parties’ consent to ICSID arbitration. Argentina argued that the Agreement represented a ‘stipulation to the contrary’ in the sense of Article 26 of the Convention.597 The Tribunal, however, rejected Argentina’s argument on the basis that Article 26 of the Convention is a ‘rule of judicial abstention of local courts’,598 establishing a presumption that arbitration is the parties’ exclusive forum for dispute settlement. Consequently, the Tribunal held that any stipulation to the contrary would not replace consent to ICSID arbitration per se, but would merely eliminate the presumption as to exclusivity of the dispute settlement.599 Noting that Argentina had not satisfactorily demonstrated a stipulation to the contrary (in the sense of the first sentence in Article 26 of the Convention) or a requirement for the exhaustion of local remedies (in the sense of the second sentence in Article 26),600 the Tribunal concluded that Argentina had given its valid consent to ICSID arbitration. Finally, the Tribunal observed that all remaining jurisdictional requirements were met, namely: (i) the existence of a written form of consent of the two parties;601 (ii) the qualification of Lanco as a company of a Contracting State (ensuring personal jurisdiction);602 and (iii) the legal nature of Lanco’s claims (ensuring subject matter jurisdiction). Accordingly, the Tribunal confirmed its jurisdiction to hear the merits of the dispute.

596

Lanco Jurisdiction, para 26. ICSID Convention, Article 26 (‘Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.’). 598 Lanco Jurisdiction, para 40. 599 To support its reading of Article 26, the Tribunal cited MINE Award, Digest I-24, and Mobil Oil/New Zealand Liability, Digest I-29. 600 The Tribunal stressed that the Argentina–USA BIT marks a radical change in Argentina’s foreign investment regime, in that it is the first treaty concluded by Argentina which does not impose any intricate preconditions (such as the exhaustion of the local courts system) on the investor wishing to submit the dispute to international arbitration. 601 Consent given by Lanco in a letter and in its request for arbitration, and by Argentina in its open offer to arbitrate disputes, contained in the BIT’s dispute resolution clause (the Tribunal cites AMT Award, Digest I-43, paras 7.17–5.23, as a prior example of consent given in a BIT’s dispute resolution clause). 602 Citing SOABI Jurisdiction, Digest I-14, para 29, the Tribunal’s criterion for establishing an investor company’s nationality was the principal place of business or the place of incorporation. 597

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49. Antoine Goetz and others v Republic of Burundi ICSID Case No ARB/95/3 10 February 1999

Belgium–Burundi BIT

Award P Weil (P) M Bedjaoui J-D Bredin

Factual Background The dispute arose out of a 1992 law by which the Republic of Burundi (Burundi) instituted a ‘free zone regime’ allowing businesses with ‘non-traditional sector activities’ established in Burundi to benefit from customs and fiscal exemptions and other facilitative legal measures (the 1992 Law). According to an accompanying ministerial order, the companies contemplated under the 1992 Law included those working with minerals on the condition that the minerals underwent a ‘conversion’ process approved by Burundi. In order to obtain the benefit of the regime under the 1992 Law, a company had first to obtain a ‘free zone certificate’ from the relevant minister on the advice of a consultative commission (Certificate). In February 1992, Affinage des Métaux (AM), a company controlled by five Belgian investors including Antoine Goetz, obtained such a Certificate from Burundi. On the basis of the benefits afforded by the Certificate, AM began a series of investment projects in Burundi. On 9 July 1993, Burundi informed AM that differences of opinion had arisen within the Burundian administration as to the proper scope of the 1992 Law, and that it could continue to benefit from the free zone regime only if it deposited a sum equivalent to the duties it would have to pay if the Certificate were cancelled. Following a completion of studies on the matter, Burundi informed AM in August 1993 that its Certificate was suspended. In January 1994, the same government minister informed AM that the Certificate had, in fact, been reinstated. However, after an intervention by the Prime Minister, AM was informed that its Certificate had been revoked pursuant to a ministerial order dated 29 May 1995 (the 1995 Order).

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ICSID DECISIONS 19742002 Following AM’s unsuccessful attempts to resolve the matter via an amicable settlement and through diplomatics the six shareholders of AM lodged a request for arbitration with ICSID based on the Belgium/Luxembourg–Burundi BIT (the BIT ). The Claimants sought the annulment of the 1995 Order or, alternatively, an award of damages. The first hearing of the Tribunal was held in the absence of the Respondent on 1 December 1997. The Tribunal, pursuant to Article 45 of the Convention and Rule 42 of the Arbitration Rules, decided it could examine its jurisdiction in the dispute and consider fully the arguments against Burundi despite its failure to appear.

The Decision603 1. Jurisdiction The Tribunal first considered its jurisdiction under Article 42 of the Arbitration Rules in the absence of Burundi from the proceedings.604 In preliminary observations, the Tribunal considered the extent to which the BIT, which came into force on 13 September 1993, was applicable to the present case. The 1995 Order was issued after the BIT came into force, but all other material events—the incorporation of the AM, along with its initial request and receipt of the Certificate—all occurred before the BIT entered into force. The Tribunal found that the crux of the dispute was the legality of the 1995 Order, which should be assessed with respect to the relevant legal rules in force at the time it occurred. As a result, the Tribunal considered the BIT to be applicable to in the dispute.605 As regards the nature of the dispute, the issue of legality surrounding the 1995 Order was deemed to ‘clearly’ fall within the scope of Article 25 of the Convention requiring ‘legal disputes . . . which relate directly to an investment’.606 With no dispute regarding the nationality or jus standi of the Claimants,607 the Tribunal confirmed its jurisdiction and proceeded to the merits. While the Tribunal confirmed that it had jurisdiction to hear the claim relating to the legality of the 1995 Order, it declined jurisdiction over another claim seeking reimbursement of taxes and duties paid by the AM during the suspension of the

603 Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/95/3, Award embodying the parties’ settlement agreement, 10 February 1999 (Goetz Award ). 604 Goetz Award , paras 77–9. 605 Goetz Award , paras 71–2. 606 Goetz Award , para 83. 607 Goetz Award , para 89 citing AGIP Award , Digest I-7, and previously cited AAPL Award , Digest I-33 and AMT Award, Digest I-43.

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Case 49: Goetz Award Certificate.608 The only reasoning offered for this refusal was that the tax claims were ‘not in consequence capable of being decided on’. 2. Merits The Tribunal first considered the applicable law. Referring to Article 42 of the Convention and basing its analysis on Article 8(5) of the BIT, it determined the applicable law to be a combination of international law and Burundian law.609 It further noted that the BIT obliged the Tribunal to examine the legal situation created after the 1995 Order in the context of both systems of law, as opposed to establishing a priori a hierarchy between the two systems. In the event of a conflict between them, the provisions more favourable to the investors were to be applied.610 The Tribunal observed that, contrary to the argument advanced by the Claimants, the contested decision could be analysed as a simple abrogation or revocation of the Certificate. While the Claimants cited the French theory relating to withdrawal of administrative acts, the Tribunal found that it was irrelevant in this case.611 The Claimants further characterized the 1995 Order as lacking any legal basis in the 1992 Law, instead appearing as a regulatory attack on a right validly acquired by the Claimants under the 1992 Law. The Tribunal held, however, that the Claimants had no standing right to the maintenance of the 1992 Law, and Burundi had not exceeded its powers by issuing the 1995 Order. Indeed, the Tribunal noted that there is no legal right to the maintenance of a regulation, and that the regulatory authority can, at any time, modify or abrogate domestic legislation.612 The Tribunal turned to the Claimants’ additional contentions regarding the legality of the contested decision. The Claimants alleged that the decision constituted an individual decision disguised as a regulatory measure, tainted by several intrinsic illegalities.613 The Tribunal held, however, after examining the 1995 Order, that the revocation decision was not contrary to Burundian law. The Tribunal further concluded that, as regards Burundian law, the liability of Burundi to the Claimants was not engaged—either on the grounds of fault614 or on grounds of 608

Goetz Award, para 93. Goetz Award, para 95. 610 Goetz Award, para 99. 611 Goetz Award, para 102. 612 Goetz Award, para 107. 613 Goetz Award, paras 108–14 (the Claimants arguing that, by virtue of the principle of parallelism of forms, the decision putting an end to the ceritificate should have been preceded by the same formalities as the decision by which the certificate had been granted). 614 Goetz Award, para 117. Noting that ‘a legal administrative decision cannot be regarded as entailing that the party making it is at fault and is therefore not capable of making the State liable on the grounds of fault’. 609

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ICSID DECISIONS 19742002 strict liability of a public body—since the case concerned legitimate changes in governmental policy concerning the economy.615 The Tribunal then turned to the legitimacy and legal consequences of the 1995 Order in relation Burundi’s obligations under international law,616 specifically under Article 4 of the BIT on expropriatory measures.617 The Tribunal found that the 1995 Order could be regarded as a ‘measure having similar effect’ to a measure depriving or restricting property within the meaning of the BIT.618 Accordingly, the Tribunal observed that such a measure could be legal under international law only if certain conditions were fulfilled.619 In particular, the BIT required adequate and effective compensation for expropriation. While the Tribunal declined to rule that the 1995 Order was contrary to the other limits on expropriation of the BIT, Burundi would be required to, within a reasonable time,620 give an adequate and effective indemnity for the expropriation or return the benefit of the Certificate to the Claimants in order to bring its actions into conformity with international law.621 The Tribunal also confirmed Burundi’s ongoing duty to ensure the constant protection and security of Belgian investments on its territory.622 The Tribunal finally invited the parties to make submissions as to the amount and form of reparation that Burundi owed the Claimants. Subsequently, the parties reached an amicable agreement, which the Tribunal embodied in its Award, dealing with unresolved issues of costs623 and a special convention regarding the functioning of AM.

615

Goetz Award, paras 100–19. Goetz Award, paras 120–33. 617 Goetz Award , para 124. 618 Goetz Award , para 124. 619 Goetz Award , paras 125–8 for the list of the conditions. 620 The Tribunal specified a period of four months following the Respondent’s notification of the present decision, Goetz Award, para 137. 621 Goetz Award , para 130. 622 Goetz Award , para 133. 623 The parties agreed the State of Burundi would reimburse the duties and taxes and other payments taken by the State in the form of a guarantee and payments from the Company during a specific period. 616

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50. Tradex Hellas SA (Greece) v Republic of Albania ICSID Case No ARB/94/2 29 April 1999

Foreign Investment Law

Award K-H Böckstiegel (P) F Fielding A Giardina

1. Factual Background The relevant factual background has been set out in the summary of the decision on jurisdiction in this dispute.624 Albania challenged the jurisdiction of the Tribunal claiming that its consent to ICSID arbitration did not apply to the dispute. The Tribunal rejected all of Albania’s jurisdictional objections, except one relating to expropriation, which was joined to the merits.625

2. The Decision626 The Tribunal initially focused on the issues of applicable law and rules of evidence. Since it previously found that the Investment Law was the sole jurisdictional basis for the dispute, the merits of the claim could only be examined with respect to the Investment Law. The Tribunal also recalled a general principle of both international law and almost all national laws that it is the claimant who bears the burden of proof to establish its assertions under the applicable substantive provisions. In line with Rule 34(1) of the Arbitration Rules, the Tribunal’s responsibility was to assess the probative value of submitted evidence. Although objections of the parties to the admissibility of specific evidence (e.g. unsworn affidavits, documents allegedly forged by Albania, witnesses under pressure) were dismissed, the Tribunal stated that these objections would be taken into account in the process of 624

Tradex Jurisdiction, Digest I-41. Tradex Jurisdiction, Digest I-41, p 196. 626 Tradex Hellas SA (Greece) v Republic of Albania , ICSID Case No ARB/94/2, Award, 29 April 1999 (Tradex Award ). 625

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ICSID DECISIONS 19742002 evaluating evidence.627 The Tribunal recalled applicable principles of international law in support of its findings.628 After clarifying these procedural issues, the Tribunal turned to the claims advanced by Tradex. The requirement of a ‘foreign investment’ was not identical to the jurisdictional condition of a ‘foreign investor’ dealt with in the decision on jurisdiction,629 but constituted a separate precondition for the expropriation claim. The Tribunal recalled that since the 1992 JV was a separate legal entity, only Tradex’s contribution, as opposed to the investments of the 1992 JV, could be covered by the Investment Law. The Tribunal further noted that the definition of ‘foreign investment’ in the Investment Law was broad,630 in line with the wide interpretation of the terms ‘property’ or ‘investment’ in the practice of international tribunals dealing with expropriation.631 In light of the broad wording, the Tribunal also found that the origin of capital of the foreign investment was irrelevant for the application of the Investment Law.632 Regarding the factual proof of the investment allegedly made by Tradex, the in-kind contributions of equipment by Tradex were undisputed. Still, the Tribunal found that Tradex had not discharged its burden of proof as regards its alleged pecuniary investment since no documents or witness statements had confirmed any actual payments to the 1992 JV.633 Accordingly, only the in-kind contribution by Tradex (from which the value of equipment returned after dissolution of the 1992 JV was deducted) could constitute the allegedly expropriated investment.634 The Tribunal then turned to whether Tradex’s acquired legal rights qualifying as ‘foreign investment’ under the 1993 Law were capable of being expropriated. The Tribunal made clear that the rights to farm land, by themselves, could not be considered a right belonging to Tradex,635 since it was the 1992 JV, as a separate legal entity, that held the right to use the land. Accordingly, the alleged expropriation of this farm land could not be a basis for Tradex’s expropriation claim.636 However, 627

Tradex Award, para 83 Tradex Award, para 84; citing AAPL Award, Digest I-33, para 56. 629 Tradex Jurisdiction, Digest I-41, pp 181–2. 630 Tradex Award, para 105. Article 1(3) of the Investment Law contains a non-exhaustive list of qualifying investments that refers to ‘every kind of investment’. See further N Rubins, ‘The Notion of “Inverstment” in International Investment Arbitration’, in R Horn (ed.), Arbitrating Foreign Investment Disputes (The Netherlands: Kluwer Law International, 2004), p 283. 631 Tradex Award, para 106. See Fedax Jurisdiction, Digest I-44; Fedax Award, Digest I-46. 632 Tradex Award, para 111. 633 Tradex Award, para 123. 634 Tradex Award, para 124. 635 The corresponding definition was found in Art 1(3) of the Investment Law: ‘moveable and immoveable, tangible and intangible property and any other property rights’. Tradex Award, para 127. 636 Tradex Award, para 127. 628

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Case 50: Tradex Award if the expropriated farm land affected the value of Tradex’s share in the 1992 JV, this could amount to an indirect expropriation, since Tradex’s share in the 1992 JV clearly constituted a ‘foreign investment’ under the Investment Law. In addition, the Tribunal noted that a finding of illegal expropriation would also depend on the interpretation of a specific provision in the founding documents of the 1992 JV, which arguably subjected both parties to the future application of Albanian land law,637 in particular, to future privatization of the land.638 According to the Tribunal, if this proved to be the case, then taking of the land in conformity with the relevant Albanian law might not constitute expropriation. The Tribunal then turned to the jurisdictional objection relating to expropriation that had been joined to the merits as part of the jurisdictional decison.639 According to the Tribunal, the definition of ‘expropriation’ in the Investment Law was broad, covering both direct and indirect measures, subject to the additional condition that the measure be attributable to the State.640 The Tribunal systematically analysed the individual decisions and other measures contested by Tradex, examining in every case whether each act could be considered an expropriatory act attributable to Albania. With respect to various Albanian administrative decisions of 1992, the Tribunal considered that these constituted part of the general legal background for future privatizations and were not specifically targeted at the farm land operated by the 1992 JV. Moreover, it was material that none of these decisions affected title, the right to use or the factual possibility of using the farm land.641 In particular, the Tribunal held that a decision of 17 October 1992, which authorized the future privatization of land to be selected by a government agency, was not expropriatory with respect to the farm land in dispute.642 The Tribunal also rejected Tradex’s argument that a public address by the Albanian president in October 1992 could constitute expropriation. The speech emphasized that Albania would carry out privatizations with respect to agricultural enterprises, but was not a legislative or executive act and did not change the legal situation with respect to land privatization.643 With respect to the alleged occupation of the farm land by villagers, the Tribunal concluded that witness statements and other evidence submitted by Tradex were

637 The relevant article in the 1992 JV founding documents read as follows: ‘The joint venture shall respect the supplementary needs which will be created for the land.’ See Tradex Award, para 129. 638 Tradex Award , para 130. 639 Tradex Jurisdiction , Digest I-41, p 196. 640 Tradex Award , paras 135–6. 641 Tradex Award , paras 139 and 144. 642 Tradex Award , para 153 (‘There is no indication in the text of the Decision that land of Torovitsa Joint Venture will be selected for such privatization’). 643 Tradex Award , para 156.

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ICSID DECISIONS 19742002 insufficient to prove the actual occupation of land or attribution of occupations to Albania in individual instances. In particular, the Tribunal was not convinced on the evidence before it that Albania authorized, encouraged or failed to act in respect of the land seizures.644 According to the Tribunal, even if the alleged intrusions had in fact been encouraged by one of the administrative decisions on future privatization of land or by the Albanian presidential address, this would not constitute a sufficient basis for attribution to Albania. In support of its conclusion, the Tribunal referred to Amco Asia v Indonesia, where a more direct involvement of the State was nevertheless considered insufficient to fulfil the criteria for State attribution.645 Tradex also complained that the dissolution of the 1992 JV was expropriatory. Since expropriation was defined as a ‘compulsory transfer of property rights’,646 the Tribunal held that dissolution could only amount to expropriation if it was coerced, which was not the case: Tradex itself had signed the dissolution agreement.647 According to the Tribunal, the mere fact that the reasons for dissolution of the 1992 JV included the ‘take-over of the lands of the farm by inhabitants of the region with permission of the State’648 was not sufficient for Tradex to discharge its burden of proof with respect to expropriation and attribution.649 Nor did the Tribunal recognize other measures of land distribution as expropriatory, primarily because available evidence showed that these measures took place after the 1992 JV had been dissolved.650 Having concluded that none of the individual measures constituted expropriation attributable to Albania, the Tribunal examined whether the combination of all the measures could nonetheless qualify as a progressive expropriation. As the Tribunal stated, such a conclusion would only be justified if Tradex had ‘less of an investment’651 at the time of the 1992 JV dissolution than it had at the beginning of its investment. Having previously found that Tradex failed to show that its rights had been diminished by individual contested measures or that such measures were attributable to Albania, the Tribunal held that there was no evidence in support of a finding of creeping expropriation by Albania. Although the Tribunal accepted that the 1992 JV had encountered difficulties and had not actually used all of the land toward the end of its existence, Tradex had not proven that these difficulties

644

Tradex Award, paras 146–7, 164, 169, 175. Tradex Award, para 165; citing Amco Asia I Award , Digest I-16, paras 153–78. 646 Tradex Award , para 177, citing Amoco v Iran, Iran–US Claims Tribunal Reports 15 (1997), para 135. 647 Tradex Award, para 179. 648 Tradex Award, para 180. 649 Tradex Award, para 183. 650 Tradex Award, paras 186 and 190. 651 Tradex Award, para 198. 645

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Case 50: Tradex Award were caused by expropriatory measures of Albania. The requirement of causation, as articulated by international tribunals, was thus not fulfilled.652 Since Tradex failed to prove that expropriation had taken place within the meaning of the Investment Law, the Tribunal concluded that it lacked jurisdiction and that Tradex was not entitled to compensation.

652

Tradex Award, para 200, citing Elettronica Sicula, note 341, para 119 and Otis Case, Iran–US Claims Tribunal, 84 ILR, section 47.

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51. Československa Obchodní Banka, AS v Slovak Republic ICSID Case No ARB/97/4 24 May 1999

Czech Republic–Slovak Republic BIT

Jurisdiction

Contract T Buergenthal (P) P Bernardini A Bucher

Factual Background On 19 December 1993, Československa Obchodní Banka (CSOB), a commercial bank organized under Czech law, concluded an ‘Agreement on the Basic Principles of a Financial Consolidation of Ceskoslovenska Obchodni Banka, A.S.’ (the Consolidation Agreement) with the Ministry of Finance of the Slovak Republic and the Ministry of Finance of the Czech Republic. The Consolidation Agreement was designed to facilitate the privatization of CSOB, which had formerly been owned by the unified government of Czechoslovakia, and its operation in the Czech and Slovak Republics after their separation. The contract provided for the assignment by CSOB of certain nonperforming loan portfolio receivables to two ‘Collection Companies’, one to be established by the Czech Republic, the other by the Slovak Republic. Pursuant to Article 3 of the Consolidation Agreement, CSOB and the Slovak Collection Company concluded a ‘Loan Agreement on the Refi nancing of Assigned Receivables’ (the Loan Agreement) enabling the Slovak Collection Company to acquire the assigned receivables. Section 7 of the Loan Agreement, entitled ‘Security’, provided that repayment under the Loan Agreement was guaranteed by Slovakia. Later, the company incurred losses, and Slovakia refused to make good the resulting shortfall to CSOB. CSOB’s request for arbitration was registered at ICSID on 25 April 1997.

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Case 51: CSOB Jurisdiction I

The Decision653 Slovakia raised several objections to the jurisdiction of the Tribunal. First, it argued that CSOB was merely an agent of the Czech Republic and therefore did not meet the personal jurisdiction requirements of Article 25(1) of the ICSID Convention. The Tribunal first noted that the concept of ‘national’ in the ICSID Convention was not intended to be limited to privately owned companies, but could also embrace companies owned, wholly or in part, by governments.654 For jurisdictional purposes, a government-owned corporation should be disqualified only if it was discharging an essentially governmental function;655 State ownership or control alone would not disqualify a company from filing a claim.656 While CSOB was promoting Czech government policy when it entered into various agreements related to the collection of receivables, its activity was commercial rather than governmental.657 Slovakia next asserted that CSOB’s assignment of receivables to the Czech Ministry of Finance made the Czech Republic into the real party in interest in the dispute.658 The Tribunal disagreed, noting that the date on which arbitration proceedings are initiated is decisive when assessing a claimant’s status as the owner of the disputed claim or investment. In the Tribunal’s view, the sale of the investment or the assignment of the claim at a later point in time cannot affect the claimant’s standing to sue.659 Slovakia’s third objection was based upon an alleged lack of consent to arbitration in writing, as required under Article 25(1) of the ICSID Convention. It argued that the Czech Republic–Slovakia BIT had never entered into force, and that mere publication in the Slovak Official Gazette could not validate consent under Slovak law.660 In this regard, the Tribunal examined three separate bases for consent that CSOB had invoked.661 With respect to the BIT, the Tribunal considered the uncertainties relating to the treaty’s entry into force to be too significant to establish the parties’ consent to ICSID arbitration.662 The Slovak Ministry of Foreign Affairs’ notification of the 653 Československa Obchodní Banka, AS v The Slovak Republic, ICSID Case No ARB/97/4, Decision on Objections to Jurisdiction, 24 May 1999 (CSOB Jurisdiction I ). 654 CSOB Jurisdiction I, para 16. 655 CSOB Jurisdiction I, paras 17–18; A Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States’ (1927) 136 Recueil des Cours 331, pp 354–5. 656 CSOB Jurisdiction I, paras 18–20. 657 CSOB Jurisdiction I, paras 20–7. 658 CSOB Jurisdiction I, para 10. 659 CSOB Jurisdiction I, paras 28–32. 660 CSOB Jurisdiction I, para 11. 661 CSOB Jurisdiction I, paras 33–59. 662 CSOB Jurisdiction I, paras 37–43.

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ICSID DECISIONS 19742002 entry into force of the BIT, published in the Official Gazette, was likewise found to be insufficient to prove Slovakia’s intention to be bound by the treaty.663 Finally, the arbitrators focused upon the interrelation between the Consolidation Agreement and the BIT, noting that Article 7 of the Consolidation Agreement, by its express terms, was governed by ‘the laws of Czech Republic and the Treaty on the Promotion and Reciprocal Protection of Investments between the Czech Republic and the Slovak Republic’. After studying the drafting history of the Consolidation Agreement, the Tribunal concluded that, by referring to the BIT the parties had intended to incorporate the arbitration clause of the BIT by reference, consenting to international arbitration of disputes arising out of the Consolidation Agreement.664 This was a sufficient basis to support the Tribunal’s jurisdiction. Slovakia’s next objection was that, in any event, arbitral jurisdiction could only be upheld if the parties ‘jointly’ invoked the BIT’s arbitration provision. The Tribunal concluded that such an interpretation would allow respondents to block the dispute resolution process at will, leaving investors without the protection afforded by international arbitration. The Tribunal held that such a result would conflict with the main objective of BITs.665 The Tribunal next addressed the objection that the dispute was not a ‘legal dispute arising directly out of an investment’ as required by Article 25(1) of the ICSID Convention.666 First, the arbitrators were satisfied that the claim was legal in nature: while investment disputes often exhibit political elements and involve State action, this does not deprive them of legal character, so long as they concern legal rights and obligations.667 The Tribunal noted that ‘investment’ is a concept to be interpreted broadly, because the drafters of the ICSID Convention imposed no restriction on its meaning. Nor had Slovakia limited the scope of ICSID jurisdiction by declaration under Article 25(4) of the Convention. The Respondent thus submitted to the full scope of ICSID subject matter jurisdiction.668 The Tribunal noted that the parties’ specific consent to ICSID jurisdiction in their contract created a strong presumption that they considered their transaction to be an ‘investment’ within the meaning of the ICSID Convention,669 although this consideration could not be determinative.670

663 664 665 666 667 668 669 670

CSOB Jurisdiction I, paras 44–8. CSOB Jurisdiction I, paras 49–59. CSOB Jurisdiction I, paras 57–9. CSOB Jurisdiction I, paras 60–91. CSOB Jurisdiction I, para 61. CSOB Jurisdiction I, paras 63–5. CSOB Jurisdiction I, para 66. CSOB Jurisdiction I, para 68. See further the discussion in Part II of this Digest, section B(1)(d).

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Case 51: CSOB Jurisdiction I The Slovak Republic next challenged the fact that CSOB’s loan was an investment, and contended that the dispute did not arise directly out of the Loan Agreement but rather was concerned with the purported obligation of the Slovak Republic to cover the losses of the Slovak Collection Company.671 The Tribunal held that the Centre has jurisdiction over claims arising directly out of investment, and that the term directly should not be interpreted restrictively. CSOB’s claim should not fall outside the Centre’s jurisdiction merely because it is based on an obligation of the Slovak Republic which, standing alone, would not qualify as an investment.672 The Tribunal concluded that the dispute was closely connected to, and arose directly out of, the Loan Agreement. In doing so, it noted that (i) the loan was basically designed to secure the refinancing of the Collection Company up to an amount corresponding to the payment by the Company of the value of the receivables assigned by CSOB on the basis of the schedule of payment, and (ii) the purpose of the Slovak Republic’s obligation to cover the loss of the Slovak Collection Company was therefore to allow the Company to meet its obligation towards CSOB under the schedule of payments based on the Loan Agreement.673 Slovakia also took the position that loans did not qualify as ‘investments’ under Article 25(1) of the ICSID Convention or under Article 1 of the BIT. It further contended that the loan in the present case was not an investment because it did not involve a transfer of resources in the territory of the Slovak Republic.674 The Tribunal reasoned that a broad notion of investment, which must be followed under Article 25(1) of the Convention, was opposed to the conclusion that a transaction was not an investment merely because, as a matter of law, it was a loan. Relying on prior ICSID tribunals that had assumed jurisdiction over claims based on loan agreements, the arbitrators concluded that loans fall equally within the broad definition of investment found in the BIT.675 The Tribunal further noted that a transaction could qualify as an investment even in the absence of a physical transfer of funds.676 In the present case, the Tribunal found that the Loan Agreement could not be disassociated from all other transactions involving the restructuring of CSOB, and that the Slovak Republic’s undertaking and the CSOB loan formed an integrated whole in the process defined in the Consolidation Agreement.677 The Tribunal concluded 671

CSOB Jurisdiction I, para 70. CSOB Jurisdiction I, paras 72–4. See further Holiday Inns Jurisdiction II, Digest I-3; Klöckner I Award, Digest I-12; Inmaris v Ukraine, note 100, paras 92–3. 673 CSOB Jurisdiction I, para 75. 674 CSOB Jurisdiction I, para 76. 675 CSOB Jurisdiction I, paras 22, 29 and 76–7. 676 CSOB Jurisdiction I, para 78. See further Fedax Jurisdiction, Digest I-44. 677 CSOB Jurisdiction I, paras 78–82. 672

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ICSID DECISIONS 19742002 that the basic feature of the Consolidation Agreement was not the financial consolidation of CSOB as such, but the development of the role and activities of CSOB in both Republics. Therefore, the loan, as part of a global transaction, satisfied the requirements for a qualifying investment under the Convention.678 Finally, the Slovak Republic argued that the Centre lacked jurisdiction because CSOB failed to qualify as an investor despite the definition of investment in Article 1 of the BIT.679 The Tribunal concluded that the ultimate goal of the Consolidation Agreement was to expand CSOB’s activity in both Slovakia and the Czech Republic. This undertaking involved a significant contribution by CSOB to the economic development of Slovakia, and qualified CSOB as an ‘investor’ and the entire process as an ‘investment’ in Slovakia under the ICSID Convention.680 The Tribunal concluded that CSOB’s claim and the related loan facility were closely connected to the development of CSOB’s banking activity in Slovakia. On this basis, the claim was found to arise out of an investment within the meaning of the Convention and the BIT.681 The Tribunal upheld its jurisdiction, rejecting all of Slovakia’s objections.682

678 679 680 681 682

CSOB Jurisdiction I, para 83. CSOB Jurisdiction I, para 84. CSOB Jurisdiction I, paras 88–90. CSOB Jurisdiction I, para 91. CSOB Jurisdiction I, para 92.

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52. Wena Hotels Limited v Arab Republic of Egypt ICSID Case No ARB/98/4 29 June 1999

Egypt–UK BIT

Jurisdiction M Leigh (P) I Fadlallah D Wallace, Jr

Factual Background The dispute arose out of long-term agreements to lease and develop two hotels in Luxor and Cairo in Egypt (the Agreements), concluded between a UK company, Wena Hotels Limited (Wena), and the State-owned corporation Egyptian Hotels Company (EHC ). Serious disagreements soon arose concerning each side’s obligations (regarding rent payments and the condition of the hotels, respectively). In April 1991, large crowds protested at the site of the hotels, allegedly organized by EHC, which then forcibly evicted Wena’s staff and guests and repossessed the two hotels. In 1992, the Chief Prosecutor of Egypt ruled that the seizures had been illegal and, following significant delays, the hotels were returned to Wena’s control. However, the properties had by then been vandalized and, just before their return, Wena was also denied permanent operating licences based on alleged safety violations. In 1993, Wena initiated two parallel domestic arbitrations against EHC for breach of the two Agreements. Both tribunals awarded damages to Wena, although the Luxor Hotel award was later nullified by the Cairo Court of Appeal. According to the awards Wena was to surrender control of the hotels to EHC. It was consequently evicted from the hotels in 1995 and 1997. Wena sought arbitration at ICSID on 10 July 1998 under the UK–Egypt BIT, seeking compensation under the treaty, Egyptian law and international law for the expropriation and failure to protect its investments.

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The Decision683 Egypt raised two objections to the Tribunal’s jurisdiction.684 First, it argued that Wena should be treated as Egyptian rather than foreign, because the majority of its shares were owned by an Egyptian national. Second, Egypt contended that Wena’s dispute was with EHC, and not with Egypt—and therefore that the dispute was contractual in nature. The Tribunal first confirmed the general basis for its jurisdiction in Article 8(1) of the BIT. It pointed out that the first sentence of Article 8(1) of the BIT contains the State’s general consent to investor–State arbitration. The second sentence of this provision refers directly to Article 25(2)(b) of the Convention, providing that a company of a contracting party in which nationals or companies of another contracting party hold a majority stake is to be treated as a company of that other contracting party.685 Egypt contended that this provision should exclude from jurisdiction ratione personae any UK company owned by Egyptian nationals.686 In the absence of any evidence of intent in the drafting of the BIT, the Tribunal accepted Wena’s view that the second sentence of Article 8(1) of the BIT was intended, together with Article 25(2)(b) of the Convention, to ‘expand jurisdiction’ in the ‘rather common situation’ in which an operating company is required by the host State to be locally incorporated, while maintaining foreign control.687 The facts necessary for Article 25(2)(b)’s application were not present in Wena’s case, since it was a UK company claiming in its own right not a local company claiming on the basis of foreign control. As to the second jurisdictional objection, Wena argued that, in addition to its dispute with EHC for violating the contracts (which had been the subject of domestic arbitration), it had a separate dispute with Egypt for expropriating its investment 683

Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No ARB/98/4, Decision on Jurisdiction, 29 June 1999 (Wena Hotels Jurisdiction), 41 ILM 881 (2002). 684 Egypt initially raised two additional objections: (1) that Wena had not made an investment in Egypt; and (2) that Wena had failed to comply with the three-month pre-arbitration waiting period. Both of these objections were withdrawn during oral argument. Wena Hotels Jurisdiction, p 886. In this context, the Tribunal also briefly discussed the term ‘investment’ in Article 25(1) of the ICSID Convention. Wena Hotels Jurisdiction, pp 889–90. 685 Wena Hotels Jurisdiction, pp 888–89. 686 Wena Hotels Jurisdiction, p 887. This issue gained greater prominence during the period after 2002, see Tokios Tokelés v Ukraine, ICSID Case No, Jurisdiction, 29 April 2004, Digest II-21 (Tokios Jurisdiction) and Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18, Award, 26 July 2007, Digest II-82 (Tokios Award). 687 Wena Hotels Jurisdiction, pp 888–9; see further GR Delaume, ‘ICSID Arbitration: Practical Considerations’ (1984) 1 J Int Arb 101, pp 112–13; C Schreuer, ‘Commentary on the ICSID Convention: Article 25’ (1997) 12 ICSID Rev—FILJ 60, pp 93–4; R Dolzer and M Stevens, Bilateral Investment Treaties (The Hague: Martinus Nijhoff Publishers, 1995), p 142; R Dolzer and C Schreuer, Principles of International Investment Law (New York: Oxford University Press, 2008), pp 52–3.

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Case 52: Wena Hotels Jurisdiction without prompt, adequate, and effective compensation. The Tribunal held that Wena had presented a prima facie case under the BIT, which was sufficient basis to uphold jurisdiction under the BIT and the Convention.688 It concluded that any further determination belonged to the merits stage, where Wena would bear the burden of proving Egypt’s responsibility for alleged breaches of the BIT and international law.689

688 Wena Hotels Jurisdiction, pp 890–1; see further the discussion of the ‘Oil Platforms’ test at Digest II, p 332; Amco Asia I Jurisdiction, Digest I-11, para 38. 689 Wena Hotels Jurisdiction, p 891.

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53. Joseph Charles Lemire v Ukraine ICSID Case No ARB(AF)/98/1 24 September 1999

United States–Ukraine BIT

Jurisdiction E Lauterpacht (P) J Paulsson J Voss

Factual Background The decision has been neither published nor reported.

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54. The Loewen Group, Inc and Raymond L Loewen v United States of America ICSID Case No ARB/83/2 28 September 1999

NAFTA

Confidentiality Sir A Mason (P) L Y Fortier A J Mikva

Factual Background The factual background of the dispute is set out in the summary of the Decision on Jurisdiction.690

The Decision691 During preliminary submissions, the United States requested that all filings be treated as open and available to the public. Loewen opposed this position, insisting that such documents should only be publicly available at the conclusion of the case. In a decision of 28 September 1999, the Tribunal found that the rules limiting public disclosure were ‘opposed this position, insisting t’, but that they were directed to the parties as well. Referring to Rule 44(2) of the Additional Facility Rules (which regulated that the minutes of the hearing could be published only with a consent of the parties) and the Award in Metalclad v Mexico,692 the Tribunal denied the request of the United States, insofar it would have caused the Tribunal or the Secretariat to make all filings in the case available to the public—contrary to the Rules.

690

Loewen Jurisdiction, Digest I-70. The Loewen Group, Inc and Raymond L Loewen v United States of America, ICSID Case No ARB(AF)/98/3, Procedural Order, 28 September 1999 (Loewen Confidentiality). This order as such is unpublished and reproduced in excerpts in the Loewen Jurisdiction, Digest I-70. 692 Metalclad Award, Digest I-61. 691

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ICSID DECISIONS 19742002 However, the Tribunal rejected Loewen’s submission that the parties were under a general obligation of confidentiality in the proceedings. The Tribunal stated that, in the absence of an express provision, neither the Convention nor the Arbitration Rules or Regulations imposed such an obligation in an arbitration under NAFTA. In the name of facilitation of confidentiality in the proceedings,693 the Tribunal only went so far as to request that the parties limit public discussion to what was considered necessary.694 On 10 January 2000, the United States released materials relating to the arbitration. These materials included the minutes of an 18 May 1999 hearing before the Tribunal and the audio recording of the hearing. It became clear that the United States interpreted the decision on confidentiality as leaving the parties free to make disclosures as they saw fit. By contrast, Loewen interpreted the decision as imposing a restriction on the right of the parties themselves to release information. On 14 February 2000, Loewen sought clarification of the Tribunal’s decision. In June 2000, the Tribunal affirmed Loewen interpretation. It stated that the Tribunal as well as the parties were prohibited from publishing the minutes of a hearing, a full record of the hearing, or any order made by the Tribunal. Still, the Tribunal stated that it could not affect or qualify any statutory-imposed obligation of disclosure to which any party to the arbitration might be subject.

693

Loewen Jurisdiction, Digest I-70, para 26. See further Amco Asia I Provisional Measures, Digest I-12. In that case, the Tribunal refused to enjoin the Claimants from disseminating information concerning the dispute to the press. 694

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55. Emilio Agustín Maffezini v Kingdom of Spain ICSID Case No ARB/97/7 28 October 1999

Argentine–Spain BIT

Provisional Measures F Orrego Vicuña (P) T Buergenthal M Wolf

Factual Background The relevant factual background is set out in the summary of the Tribunal’s decision on jurisdiction.695 Spain filed a request for provisional measures on 3 July 1998, asking the Tribunal to order Maffezini to post a guarantee of the expected costs to be incurred by Spain in the proceedings. Spain argued that Maffezini’s claim lacked any merit and that therefore he would ultimately be compelled to reimburse Spain for the costs it would incur in the proceedings.696

The Decision697 Before discussing the issues at stake, the Tribunal first noted that there was no precedent for the requested measures. Even so, the lack of precedent did not limit the Tribunal’s competence to order provisional measures.698 The Tribunal noted that Article 47 of the Convention, along with Rule 39(1) of the Arbitration Rules,

695 Emilio Agustín Maff ezini v Kingdom of Spain, ICSID Case No ARB/97/7, Decision on Objections to Jurisdiction, 25 January 2000 (Maff ezini Jurisdiction), Digest I-59. 696 On the issue of security for costs, see N Rubins, ‘In God We Trust, All Others Pay Cash: Security for Costs in International Commercial Arbitration’ (2000) 11 Am Rev Int’ l Arb 307. 697 Emilio Agustín Maff ezini v Kingdom of Spain, ICSID Case No ARB/97/7, Decision on Request for Provisional Measures, 28 October 1999 (Maff ezini Provisional Measures). 698 Maff ezini Provisional Measures, para 5.

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ICSID DECISIONS 19742002 imbues the Tribunal with the power to recommend provisional measures. Although these provisions refer to a ‘recommendation’, the Tribunal made clear that such a recommendation had the binding force of an order.699 Turning to Spain’s request, the Tribunal noted that Rule 39(1) of the Arbitration Rules speaks of the conservation of ‘rights’, implying that these rights must exist at the time of the request. In other words, these rights ‘must not be hypothetical, nor . . . ones to be created in the future’.700 The purpose of provisional measures is to preserve the status quo based on existing rights.701 The Tribunal determined that the claim for reimbursement of costs raised by Spain was contingent on the outcome of the arbitration. The Tribunal declined to prejudge the outcome of arbitration by imposing a guarantee against an outcome anticipated by one of the parties. Furthermore, the Tribunal held that a preliminary measure must relate to the subject matter of the case.702 The subject matter of Spain’s request concerned the issuance of a security, a request altogether separate from the subject matter of the dispute before the Tribunal. Accordingly, the Tribunal dismissed Spain’s request for provisional measures.

699 700 701 702

Maff ezini Provisional Measures, para 9. Maff ezini Provisional Measures, para 13. Maff ezini Provisional Measures, para 14. Maff ezini Provisional Measures, paras 21, 23.

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56. Robert Azinian, Kenneth Davitian & Ellen Baca v The United Mexican States ICSID Case No ARB(AF)/97/2 1 November 1999

NAFTA

Award J Paulsson (P) B R Civiletti C von Wobeser

Factual Background Robert Azinian and Ellen Baca, citizens of the United States, were the principal shareholders of Desechos Solidos de Naucalpan SA de CV (DESONA), a company incorporated in Mexico. The dispute arose out of a concession agreement granted in 1993 to DESONA by the city council of Naucalpan de Juarez, Mexico (the Ayuntamiento) for the provision of solid waste transport and processing services and the construction of landfill gas power generation plants (the Agreement). In the tender for the Agreement, one of DESONA’s directors falsely represented that DESONA had the financial and technical backing of an impressive US-based consortium and had over 40 years’ experience in waste management services. In early 1994, the Ayuntamiento notified DESONA that it would annul the Agreement because DESONA was unable to fulfil its obligations, citing, in particular, the lack of sufficient transport trucks. DESONA appealed to the State Administrative Tribunal (SAT ) but the Agreement was nonetheless annulled by the Ayuntamiento. This nullification was subsequently upheld by the two levels of appeal courts. The Federal Circuit Court (FCC ), as final first instance, upheld the prior decisions and ruled in favour of the Ayuntamiento. On 10 March 1997, the Claimants filed their request for arbitration with ICSID under Chapter Eleven of the North American Free Trade Agreement (NAFTA). The Claimants alleged violations of Articles 1110 (Expropriation and Compensation) and 1105 (Minimum Standard of Treatment) of NAFTA, claiming in excess of US$11 million.

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The Decision703 The Claimants alleged that the Ayuntamiento’s annulment of the Agreement amounted to the ‘direct expropriation of DESONA’s contractual rights’ and ‘the indirect expropriation of DESONA itself’.704 In addition, the Claimants alleged that in breach of Article 1105(1) of NAFTA, Mexico had contravened international law in not providing the required minimum standard of treatment to DESONA.705 The Tribunal, however, noted that the Claimants’ position under Article 1105(1) was not argued in great detail and considered it covered by the expropriation arguments.706 As the decision was to be the first award on the merits under NAFTA Chapter 11, the Tribunal considered it appropriate to start with general principles. It noted that jurisdiction under NAFTA must be founded on an alleged violation of section A, Chapter 11 of treaty (obligations with respect to investments).707 It concluded as a corollary that NAFTA does not allow investors to seek international arbitration for mere contractual breaches.708 On this basis, the arbitrators refused to consider the validity of the Ayuntamiento’s decision to annul the Agreement, and whether the decisions of the three Mexican courts were persuasive, unless the Claimants could point to a violation of treaty obligation that was attributable to Mexico.709 The central question for the Tribunal was whether the annulment of the Agreement could constitute an act of expropriation, violating NAFTA article 1110.710 The Tribunal clearly considered the Claimants’ arguments on this point insufficient: Labelling is, however, no substitute for analysis. The words ‘confiscatory’, ‘destroy contractual rights as an asset’, or ‘repudiation’ may serve as a way to describe breaches which are to be treated as extraordinary, and therefore as acts of expropriation, but they certainly do not indicate on what basis the critical distinction between expropriation and an ordinary breach of contract is to be made. The egregiousness of any breach is in the eye of the beholder—and that is not satisfactory for present purposes.711

703 Robert Azinian, Kenneth Davitian & Ellen Baca v The United Mexican States, ICSID Case No ARB (AF)/97/2, Award, 1 November 1999 (Azinian Award ). For commentary on the decision, see A A Escobar, ‘Introductory Note to Robert Azinian and Others v The United Mexican States’ (1999) 14(2) ICSID Review–FILJ 535 704 Azinian Award, para 88. 705 Azinian Award, para 85. 706 Azinian Award, para 92. 707 Azinian Award, para 82. 708 Azinian Award, para 87. 709 Azinian Award, para 84. 710 Azinian Award, para 91. 711 Azinian Award, para 90.

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Case 56: Azinian Award In this regard, the Tribunal noted that the Agreement was, according to its terms, subject to Mexican law and to the jurisdiction of the Mexican courts. Furthermore, the Ayuntamiento’s decision to terminate the Agreement had been upheld by three levels of Mexican courts: From this perspective, the problem may be put quite simply. The Ayuntamiento believed it had grounds for holding the Concession Contract to be invalid under Mexican law governing public service concessions. At DESONA’s initiative, these grounds were tested by three levels of Mexican courts, and in each case were found to be extant. How can it be said that Mexico breached NAFTA when the Ayuntamiento of Naucalpan purported to declare the invalidity of a Concession Contract which by its terms was subject to Mexican law, and to the jurisdiction of the Mexican courts, and the courts of Mexico then agreed with the Ayuntamiento’s determination? Further, the Claimants have neither contended nor proved that the Mexican legal standards for the annulment of concessions violate Mexico’s Chapter Eleven obligations; nor that the Mexican law governing such annulments is expropriatory.

The arbitrators considered that although the national courts had approved the Ayuntamiento’s conduct, the Tribunal could still rule on the compliance of Mexico with its NAFTA obligations, to the extent that the court decisions themselves constituted a treaty violation.712 The Tribunal explained that judicial action would be attributable to Mexico and violate NAFTA if it reflected ‘either a denial of justice, or a pretence of form to achieve an internally unlawful end’.713 The Tribunal articulated four grounds upon which a denial of justice can be established as a matter of international law: (1) a refusal to entertain a suit; (2) undue delay; (3) seriously inadequate administration of justice; and (4) a clear and malicious misapplication of the law.714 The Claimants had not raised a claim of denial of justice, however: The Arbitral Tribunal finds that this circumstance is fatal to the claim, and makes it unnecessary to consider issues relating to performance of the Concession Contract. For if there is no complaint against a determination by a competent court that a contract governed by Mexican law was invalid under Mexican law, there is by definition no contract to be expropriated.

The Tribunal nevertheless explained by way of obiter dicta that the rulings of the Mexican courts did not give rise to a denial of justice. In particular, the Tribunal held that the judgments could not be said to have been issued in bad faith, based in part on the evidence that DESONA had misrepresented its capacity to perform the Agreement during the tender process.715

712 713 714 715

Azinian Award, para 99. Azinian Award, para 99. Azinian Award, para 100; see further Amco Asia I Award, Digest I-16, para 150. Azinian Award, paras 104–19.

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ICSID DECISIONS 19742002 Having concluded that there had been no denial of justice and that the evidence supported the Mexican courts’ factual conclusions, the Tribunal rejected the claim. For a number of reasons, the Tribunal declined to shift costs to the unsuccessful Claimants. First, the Tribunal considered the NAFTA mechanism to be novel, and that therefore it could be difficult to assess the strength of claims ex ante. Second, the Tribunal praised the efficient and professional presentation of the Claimant’s case. Third, Mexico had wasted resources by the erroneous focus of its pleadings. Finally, the only wrongdoers in the case appeared to be DESONA’s managers, who had misrepresented the company’s capacity to perform the Agreement. As the Tribunal noted, however, the directors of DESONA were outside the jurisdiction of the Tribunal and would be unaffected by an award of costs. Each party was therefore ordered to bear its own expenses and to bear the administrative costs in equal shares.

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57. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited ICSID Case No ARB/98/8 20 December 1999

Contract

Provisional Measures C Brower A Rogers K Rokison

Factual Background In 1995, Tanzania Electric Supply Company Limited (Tanesco), a State-owned enterprise of Tanzania, signed a series of agreements with Independent Power Tanzania Ltd (IPTL), a private Tanzanian company owned primarily by Malaysian interests, for the construction of an electric power plant in Tanzania. The main contract, the Power Purchase Agreement (PPA), provided that IPTL would build a plant according to particular specifications and that Tanesco would purchase the electricity subsequently produced. The PPA also established a formula for determining the price that Tanesco would pay for the output of the new plant (the production tariff ) and for its available capacity (capacity tariffs). The PPA contained an ICSID arbitration clause which specified that IPTL was to be considered a foreign entity for purposes of Article 25(2)(b) of the Convention. Tanzania also designated Tanesco as a State agency subject to arbitration pursuant Article 25(1) of the Convention. In late 1998, a dispute arose between Tanesco and IPTL in response to growing political pressure within Tanzania to abandon the IPTL-managed project and instead to engage a Canadian consortium to construct a different kind of power plant. By that time, the IPTL facility was nearing completion, and commercial operations were about to commence. Tanesco informed IPTL that it was in default of the PPA for having installed turbines that Tanesco alleged were materially different from those contemplated under the PPA, and the parties failed to agree on the electricity tariff to be used. Tanesco then requested arbitration in November 1998, complaining that IPTL had installed the the wrong turbines in the plant and

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ICSID DECISIONS 19742002 inflated the tariff rate through irresponsible expenditures. A month later, Tanesco informed IPTL that it was terminating the PPA. IPTL petitioned a Tanzanian court for an injunction to force Tanesco to continue observing the PPA and to pay arrears on the electricity capacity tariff. Tanesco argued that the court should stay its proceedings until the ICSID arbitration was concluded, while IPTL insisted that Tanesco had waived its right to arbitrate. The High Court found for IPTL, awarded the relief requested, and allowed for Tanesco’s appeal. When the Tribunal convened for the first time in June 1999, Tanesco sought provisional relief that would stay IPTL’s action before the Tanzanian court. IPTL ultimately agreed to delay execution of its court judgment, but sought identical relief measures (i.e. commercial launch of the power plant, lump sum of arrears on capacity payments and capacity payments going forward) from the Tribunal in a request for provisional measures.

The Decision716 The Tribunal began by examining Article 47 of the Convention and Rule 39 of the Arbitration Rules. It found that these provisions together implied that interim measures permitted under the Convention were merely conservatory measures, which ‘prevent the erosion of rights pending final resolution of the dispute’.717 Although the Tribunal found that interim relief could be issued to protect contractual rights, it distinguished between the protection and the enforcement of those rights.718 Referring to Atlantic Triton,719 the Tribunal clarified that provisional measures could not be issued to give security for the claim. With regard to the case at hand, it was considered that the relief sought was not a maintenance of the status quo, but specific performance of the PPA. Although the Tribunal did not exclude definitively the possibility that provisional measures might require the performance of an agreement, it made clear that this could not be the case if the only right to be preserved is the right to enjoy the benefits of the agreement in question.720 In addition, the Tribunal considered that IPTL had failed to demonstrate an urgent need for the relief requested.721 For these reasons, the arbitrators dismissed the request for provisional measures. 716

Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8, Decision on the Respondent’s Request for Provisional Measures, 20 December 1999 (Tanesco Provisional Measures). 717 Tanesco Provisional Measures, para 12. 718 Tanesco Provisional Measures, para 13. 719 Atlantic Triton Provisional Measures, Digest I-17. 720 Tanesco Provisional Measures, para 16. 721 Tanesco Provisional Measures, para 18.

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58. Société d’Investigation de Recherche et d’Exploitation Minière v Burkina Faso ICSID Case No ARB/97/1 19 January 2000

Contract

Award A A Fatouros (P) S Agbayissah P Tercier

Factual Background The dispute arose after Burkina Faso terminated a joint venture agreement (the Agreement) concluded in 1991 with Société d’Ingénierie et de Réalisations à l’Exportation (SIREX ), a company incorporated in France, regarding gold mining operations in Burkina Faso. The joint venture established under the Agreement was Compagnie d’Exploitation de Mines d’Or au Burkina (CEMOB), of which Burkina Faso initially held 30 per cent and SIREX 70 per cent. SIREX established the Claimant, Société d’Investigation de Recherche et d’Exploitation Minière (SIREXM ), in February 1991. The principal shareholders of SIREXM were Mr D, the owner of SIREX (40 per cent), Mrs X (40 per cent) and Mr H (19.8 per cent). SIREX itself only held 0.04 per cent of the shares. On 26 November 1991, two days before the establishment of CEMOB, SIREX transferred all its rights and obligations under the Agreement to SIREXM. On 19 August 1996, Burkina Faso, claiming that this transfer violated the constitution of CEMOB, placed SIREXM in receivership and, in September, passed a law terminating the Agreement. At the same time, Burkina Faso also filed charges for breach of confidence and treason against Mr H, a public official in the Burkinabe Ministry of Mines, who was involved in the conclusion of the Agreement and later became a shareholder of SIREXM and served as CEMOB’s Vice-President and General Director. On 9 January 1997, SIREXM filed a request for arbitration with ICSID. Burkina Faso raised objections to the jurisdiction of the Tribunal that were joined to the merits of the dispute. 173

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The Decision722 1. Jurisdiction The Respondent alleged that SIREXM could not invoke the ICSID arbitration clause in the Agreement because the transfer of rights and obligations under the Agreement from SIREX to SIREXM was not permitted by the Agreement and thus void. The Tribunal held that it was a firmly established principle that a tribunal is competent to determine the validity of a contract on which the claims before it are based.723 According to the Tribunal, this principle applies not only if the nullity of the contract is alleged, but also if the validity of the transfer of rights under this contract is challenged.724 The Tribunal considered this conclusion particularly justified where, as in the present case, the invalidity of the contract and the transfer were based on the same facts. It also considered that it would not serve the parties’ interests if it declined jurisidiction, since both parties claimed some form of compensation.725 2. Merits The Tribunal addressed the Respondent’s contentions as to the invalidity of the Agreement and determined whether it was possible to declare the agreement null and void, even though it had already been terminated by the Respondent. The Tribunal examined the grounds for nullity of the Agreement advanced by Burkina Faso, namely fraudulent misrepresentation and incompatibility with public order, and considered both to be fulfilled. It declared the Agreement to be void due to fraudulent misrepresentation in accordance with Article 1116 of the French Civil Code.726 SIREX, when negotiating the Agreement, had concealed in bad faith a manifest conflict of interest, i.e. that one of the principal shareholders of the company to whom the rights and obligations under the Agreement were to be transferred was a public official in the Ministry of Mines. The Tribunal did not accept the Claimant’s argument that the Respondent should itself have investigated the shareholders of SIREXM, because Burkina Faso believed in good faith that no conflict of interest was present.727 Concerning the Respondent’s second

722

Société d’Investigation de Recherche et d’Exploitation Minière v Burkina Faso, ICSID Case No ARB/97/1, 19 January 2000 (SIREXM Award ). 723 SIREXM Award, para 4.13. On the separability of the arbitration clause see Blackaby et al, Redfern and Hunter on International Arbitration, note 10, paras 2.89–2.100. 724 SIREXM Award, para 4.13. 725 SIREXM Award, paras 4.14–4.15. 726 SIREXM Award, paras 5.26–5.34. 727 SIREXM Award, para 5.13.

174

Case 58: SIREXM Award argument, the Tribunal held that, due to the financial advantages obtained by Mr H because of his position as shareholder, the case involved elements of corruption. It therefore considered the Agreement to be void for violation of public order.728 The Tribunal also rejected the Claimant’s contention that the Tribunal was unable to declare the Agreement void as it had already been terminated by the Respondent. According to the Tribunal, it is a general principle of civil law that a party is not prevented from invoking the nullity of a contract after it has terminated it, irrespective of whether the nullity is absolute or relative, or whether the party was aware of the nullity at the moment of termination.729 3. Damages Concerning the claims for compensation raised by both parties, the Tribunal stated that where an agreement is vacated for fraudulent misrepresentation or violation of public order, each party must return to the other the benefit it has received as a result of the agreement.730 It therefore awarded Burkina Faso all of CEMOB’s assets, including the mining sites in their current state.731 Concening the capital contributions made by SIREXM to CEMOB, the Tribunal first considered whether according to the rule nemo auditur propriam turpitudinem suam allegans (no party should benefit from its own wrongdoing), SIREXM should be denied compensation. It considered the rule inapplicable to the present case because the rule applied only to immoral agreements.732 It therefore ordered the Respondent to reimburse the Claimant all capital invested in CEMOB.733 The majority of the Tribunal additionally awarded SIREXM US$448,529, which SIREXM had lent to CEMOB with the approval of the two of Burkina Faso’s representatives on the board of directors.734 All other claims raised by SIREXM based on contracts with CEMOB were rejected because of Mr H’s double function as Director-General of CEMOB and shareholder of CEMOB.735 All other claims based on contract and the enrichment of the investor were dismissed.

728 SIREXM Award, para 5.41. See further World Duty Free Co Ltd v Republic of Kenya, ICSID Case No ARB/00/7, Award, 4 October 2006 (World Duty Free Award), Digest II-66. See generally on corruption, H Raeschke-Kessler with D Gottwald, ‘Corruption’, in P Muchlinski et al (eds), The Oxford Handbook of International Investment Law (New York: Oxford University Press, 2008), pp 584–616. 729 SIREXM Award, para 5.43. 730 SIREXM Award, para 6.09. 731 SIREXM Award, para 6.12. The exact contribution of Burkina Faso to CEMOB was unclear, but it included at least the mining sites. 732 SIREXM Award, para 6.19. 733 SIREXM Award, para 6.25. 734 SIREXM Award, para 6.30. 735 SIREXM Award, paras 6.28–6.29.

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ICSID DECISIONS 19742002 The Tribunal refused to award compensation to SIREXM in relation to the development of the mining sites because such a decision would be equivalent to compensating a party responsible for misrepresentation.736 The Tribunal also rejected Burkina Faso’s claims for compensation for bad management, since it considered that the annulment of the Agreement and the opportunity to concede the mines once again to a different investor were sufficient to compensate for the damage.737 4. Costs The Tribunal decided that the parties to the dispute should share the arbitration fees equally. Furthermore, each party was to bear its own legal expenses.738

736 737 738

SIREXM Award, para 6.33. SIREXM Award, para 6.33. SIREXM Award, paras 7.03–7.04.

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59. Emilio Agustín Maffezini v Kingdom of Spain ICSID Case No ARB/97/7 25 January 2000

Argentina–Spain BIT

Jurisdiction F Orrego Vicuña (P) T Buergenthal M Wolf

Factual Background Beginning in 1989, Mr Emilio Agustín Maffezini, an Argentine national (Maff ezini), invested in the production of various chemical products in Spain through a corporation named Emilio A Maffezini SA (EAMSA). EAMSA was incorporated under Spanish law and its capital was divided between Maffezini, the majority holder, and Sociedad para el Desarollo Industrial de Galicia (SODIGA). SODIGA was an entity created by Spain for the promotion of the regional industrial development of the autonomous region of Galicia. EAMSA experienced financial difficulties and stopped activity in 1992. In June 1994, Maffezini made an offer to SODIGA whereby outstanding EAMSA debt owed to SODIGA would be cancelled in exchange for EAMSA’s assets. SODIGA stated that it was willing to accept the offer if Maffezini would add 2 million Spanish pesetas, but later indicated, that it would accept the initial offer. Maffezini did not reply, and filed a request for arbitration with ICSID in July 1997, arguing that the acts and omissions of SODIGA had negatively affected his investment.

177

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The Decision739 Spain first challenged the jurisdiction of the Tribunal on the ground that Maffezini failed to exhaust domestic remedies before commencing the ICSID proceedings, as required by the Argentina–Spain BIT. The Tribunal first noted that Spain had not conditioned its consent to ICSID arbitration on the exhaustion of domestic remedies. It then interpreted the wording of the BIT in light of the interpretative principles of Article 31 of the Vienna Convention, observing that the BIT serves two functions. First, it allows either party to seek redress from the appropriate domestic courts, and second, it ensures that a party accessing the domestic courts will not be prevented from going to international arbitration.740 The Tribunal also noted that other provisions relied on by Spain were merely intended to give the contracting parties’ respective national courts the opportunity to resolve the dispute before it could be taken to international arbitration.741 The Tribunal concluded that it would have lacked jurisdiction if Maffezini solely relied on the BIT for his claims; however, it was also necessary to consider Maffezini’s claims based on the Chile– Spain BIT by operation of the Argentina–Spain BIT’s MFN clause. Maffezini relied on the MFN clause of the BIT to apply a more favourably worded provision of the Chile–Spain BIT that allows an investor to submit a dispute to arbitration after a 6-month negotiation period rather than after a submitting the dispute to local courts for 18 months as required in the directly applicable treaty. Maffezini argued that Chilean investors were therefore treated more favourably than Argentine investors in Spain. Spain argued that the MFN clause could only be understood as applying to substantive matters or material aspects of the treatment granted to the investor, not procedural or jurisdictional issues, and that the Claimant would have to prove that the submission of the dispute to Spanish courts would be less favourable to the investor than its submission to ICSID arbitration. The Tribunal recalled that the application of MFN clauses had been addressed by various international courts and tribunals,742 and concluded that: 739

Emilio Agustín Maff ezini v Kingdom of Spain, ICSID Case No ARB/97/7, Decision on Objections to Jurisdiction, 25 January 2000 (Maff ezini Jurisdiction). For a commentary of the decision see F Orrego Vicuña, ‘Bilateral Investment Treaties and the Most-Favored-Nation Clause: Implications for Arbitration in the Light of a Recent ICSID Case’ (2002) ASA Special Series No 19, pp 133–44. 740 Maff ezini Jurisdiction, para 33. 741 Maff ezini Jurisdiction, para 35. 742 Anglo-Iranian Oil Co case (United Kingdom v Iran), Jurisdiction, Judgment, 1952 ICJ Reports 93; Rights of Nationals of the United States of America in Morocco (France v United States of America), Judgment, 1952 ICJ Reports 176; Ambatielos case (Greece v United Kingdom), Merits: Obligation to Arbitrate, Judgment, 1953 ICJ Reports 10; The Ambatielos Claim (Greece v United Kingdom) 6 March 1956, 12 RIAA 83; AAPL Award, Digest I-33.

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Case 59: Maff ezini Jurisdiction if a third party treaty contains provisions for the settlement of disputes that are more favorable to the protection of the investor’s right and interest than those in the basic treaty, such provisions may be extended to the beneficiary of the MFN clause as they are fully compatible with the ejusdem generis principle.743

After analysing the wording of the clause and the practice of Spain concerning MFN clauses, the Tribunal concluded that the MFN clause applied to dispute resolution provisions, even if it did not expressly so provide. Consequently, Maffezini was accorded the right to submit the dispute to arbitration without first accessing the Spanish courts.744 The next objection to jurisdiction was that Maffezini was not an investor within the meaning of Article 25(1) of the Convention. Maffezini contended that the BIT defined the term ‘investment’ broadly and that his action was filed in his personal capacity as a foreign investor in the Spanish company EAMSA.745 The Tribunal indicated that Article 25(1) of the Convention had to be read together with the BIT, which indicated that ‘capital investments’ were covered investments and that individuals such as Maffezini were generally entitled to claim the protection of the BIT.746 Spain also argued that SODIGA was a private commercial corporation rather than an entity under its control, and that, consequently, its acts and omissions could not be attributed to Spain.747 Noting that neither the term ‘national of another Contracting State’ nor the term ‘Contracting State’ is defined in the Convention, the Tribunal concluded that the issue of whether an entity is to be considered an organ of the State is a question of fact and law that must be determined under the applicable principles of international law.748 The Tribunal applied the structural test of State attribution, considering factors of capital ownership and whether SODIGA performed activities of a public nature, and concluded that SODIGA was to be considered prima facie a State entity acting on behalf of Spain.749 Finally, Spain challenged the jurisdiction of the Tribunal on the ground that the dispute had arisen before the BIT’s entry into force on 28 September 1992, as well as before the entry into force of the Chile–Spain BIT on 29 March 1994.750 743

Maff ezini Jurisdiction, para 56. Maff ezini Jurisdiction, para 64. Whether MFN clauses apply to jurisdictional or procedural benefits remains controversial. See discussion in Digest II, pp 364–5; Rosinvest Co UK Ltd v Russian Federation, SCC Case No V/079/2005, Award on Jurisdiction, 1 October 1997, para 139; ICS Inspection and Control Services v Argentina, UNCITRAL, PCA Case No 2010-9, Award on Jurisdiction, 10 February 2012, para 317. 745 Maff ezini Jurisdiction, para 66. 746 Maff ezini Jurisdiction, paras 67–8. 747 Maff ezini Jurisdiction, para 73. 748 Maff ezini Jurisdiction, para 82. 749 Maff ezini Jurisdiction, para 89. 750 Argentina–Spain BIT, Article II(2) (‘However, this agreement shall not apply to disputes or claims originating before its entry into force’). 744

179

ICSID DECISIONS 19742002 The Tribunal indicated that the critical date was indeed the entry into force of the BIT. The Tribunal recalled that the ICJ defined the term dispute as ‘a disagreement on a point of law or fact, a conflict of legal views or interests between the parties’,751 and proceeded to analyse the facts of the case in order to define at what time the dispute had emerged between the parties. The Tribunal concluded that, although the facts and events took place from 1989 to 1992, the dispute arose no earlier than 1994, when the conflict of legal views became clear. The dispute was therefore found to have arisen after the entry into force of both BITs, and could be adjudicated by the Tribunal.752

751 752

East Timor (Portugal v Australia), Judgment, 1995 ICJ Reports 90, para 22. Maff ezini Jurisdiction, para 98.

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60. Compañía del Desarrollo de Santa Elena, SA v The Republic of Costa Rica ICSID Case No ARB/96/1 17 February 2000

Ad Hoc Arbitration Agreement

Award L Y Fortier (P) E Lauterpacht P Weil

Factual Background Compañía del Desarrollo de Santa Elena, SA, which was incorporated in Costa Rica, was formed in 1970 for the purpose of purchasing real estate for use as a tourist resort and residential community. The majority of its shareholders were citizens of the United States. In 1978, the Costa Rica issued a decree for the expropriation of the Santa Elena development land (the Decree). The Decree provided that the expropriation was primarily for environmental motives. Costa Rica had agreed, in accordance with an appraisal by one of its agencies, to pay the Claimant compensation of approximately US$1,900,000 for the expropriation. Although the Claimant did not contest the expropriation, it disputed the amount of compensation, claiming US$6,400,000 in accordance with an appraisal it had commissioned shortly before the Decree. The following 17 years were marked by intermittent inactivity and intensive legal proceedings between the parties before the courts of Costa Rica, during which several appraisals were made. In 1994, a US law, known as the ‘Helms Amendment’, prohibited US foreign aid to a country that had expropriated property of a US citizen or a corporation at least 50 per cent owned by US citizens. The law was applicable where the country in question has not consented to submit the dispute to arbitration. This law was invoked against Costa Rica in the United States, delaying a US$175 million loan until it consented to submit the Santa Elena dispute to arbitration. Shortly afterwards, Costa Rica and the Claimant consented to submit their dispute to ICSID arbitration.

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The Decision753 The Tribunal started by considering the applicable law.754 The Respondent had asserted that the parties implicitly agreed to apply international law in their arbitration agreement, which referred to the Helms Amendment. The Tribunal noted that although Article 42(1) ICSID Convention did not require that an agreement be in writing or expressly stated, but that the Tribunal must determine that such an agreement is clear to find that it was implied in the agreement.755 After reviewing the evidence, the Tribunal concluded there was no clear agreement that the dispute would be decided solely in accordance with international law. The Tribunal considered the Respondent’s reference to the Helms Amendment insufficient to conclude that the parties had agreed to apply international law. Absent an agreement of the parties, the Tribunal chose to apply both Costa Rican law and international law. It noted that Costa Rican law was generally consistent with international law. It was not disputed between the parties that the Respondent had to pay full compensation based on the fair market value of the property expropriated. There was, however, a dispute concerning the date of expropriation and the actual valuation of the property. The Tribunal started its analysis by noting that an expropriation for environmental reasons was no different from any other expropriation: While an expropriation or taking for environmental reasons may be classified as a taking for a public purpose, and thus may be legitimate, the fact that the Property was taken for this reason does not affect either the nature or the measure of the compensation to be paid for the taking. That is, the purpose of protecting the environment for which the Property was taken does not alter the legal character of the taking for which adequate compensation must be paid. The international source of the obligation to protect the environment makes no difference.756

With respect to the date of valuation, the Tribunal considered that an expropriation may occur over a period of time and consist of several small steps. Each progressive step may not constitute a taking until the measures have deprived the owner of normal control of the property. It held that: [a] decree which heralds a process of administrative and judicial consideration of the issue in a manner that effectively freezes or blights the possibility for the owner to reasonably exploit the economic potential of the property . . . can . . . properly be indentified as the actual act of taking.757

753 Compa ñí a del Desarrollo de Santa Elena, SA v Th e Republic of Costa Rica , ICSID Case No ARB/96/1, Decision on Award, 17 February 2000 (Santa Elena Award ). 754 Santa Elena Award , paras 60–7. 755 Santa Elena Award , para 63. 756 Santa Elena Award , para 71. 757 Santa Elena Award , para 76.

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Case 60: Santa Elena Award The Tribunal further considered that expropriation of property occurred once ‘the effect of the measures taken by the State has been to deprive the owner of title, possession or access to the benefit and economic use of his property’.758 The Tribunal found that, although the Decree was only the first step in a process of transferring the Claimant’s property to the Government, it could not reasonably be maintained that the Decree expressed no more than an ‘intention’ to expropriate. Rather, the Decree marked the date of expropriation since the property could not, thereafter, be used for the development purposes for which it was originally acquired (and which, at that time, were not excluded) nor did it possess any significant resale value.759

In determining the fair market value of the property on the date of expropriation, the Tribunal proceeded by means of a process of approximation based on the appraisals that had been carried out by the parties in 1978. It awarded the Claimant US$4,150,000. With regard to interest, the Tribunal rejected the Respondent’s argument that only simple interest was due. It held that although there was a tendency in international jurisprudence to award only simple interest, the respective decisions principally concerned cases of injury or breach of contract. The same considerations did not apply to cases relating to the valuation of property or property rights; in such cases, compound interest should not be excluded. The Tribunal then reviewed international arbitral decisions and scholarly writings arguing in favour of compound interest.760 It concluded that compound interest was in particular due where it formed necessary part of compensation: In particular, where an owner of property has at some earlier time lost the value of his asset but has not received the monetary equivalent that then became due to him, the amount of compensation should reflect, at least in part, the additional sum that his money would have earned, had it, and the income generated by it, been reinvested each year at generally prevailing rates of interest. It is not the purpose of compound interest to attribute blame to, or to punish, anybody for the delay in the payment made to the expropriated owner; it is a mechanism to ensure that the compensation awarded the Claimant is appropriate in the circumstances.761

758 Santa Elena Award, para 77, citing inter alia Tippetts, Abbett, McCarthy, Stratton v TAMSAFFA, Award No 141-7-2 (22 June 1984), reprinted in 6 Iran–US Cl Trib Rep 219, 226 (1986). 759 Santa Elena Award, para 81. The Tribunal cited a US Senate Staff Report relating to the expropriations: ‘this odd situation has caused the owners of the land to lose a great deal of money because they are not allowed to develop the property as a profit-making, eco-tourism project, yet they are required to pay for the maintenance of the property . . . ’, Santa Elena Award, para 82. 760 Santa Elena Award, para 98, citing Fabiani’s case, Moore’s Digest of International Law 4878– 915 (1905); Aff aire des Chemins de Fer Zeltweg-Wolfsberg, UNRIAA, vol 3, 1795, at 1808 (1934); Kuwait v Aminoil , 66 ILR 518, 613 (1982). 761 Santa Elena Award, para 104.

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ICSID DECISIONS 19742002 The Tribunal took the view that an award of simple interest would not have been justified, given that since 1978—i.e. for almost twenty-two years—the Claimant was unable either to use or to sell the property. With respect to costs, the Tribunal decided that each party should bear its own expenses and should bear the costs of the proceeding in equal shares. The Tribunal ordered Costa Rica to pay compensation in an amount of US$16 milion into a trust account maintained by the Claimant’s lawyers. Upon receipt of the compensation by the respective bank, both parties were to do everything necessary to register Costa Rica as owner of the property. Once that was done, the bank was to release the amount held in trust to the Claimant.

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61. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited ICSID Case No ARB/98/8 22 May 2000

Contract

Decision on Preliminary Issues C Brower A Rogers K Rokison

Factual Background The relevant factual background has been set out in the summary of Tribunal’s decision on provisional measures.762 Following that decision and upon the Tribunal’s proposal, the parties submitted several issues to the Tribunal to be decided on a preliminary basis.

The Decision763 Tanesco first contended that the PPA never became binding, because the Government of the Republic of Tanzania never gave its approval, which should be regarded as a breach of a condition precedent. According to the Respondent, this condition precedent is neither an express nor an implied term of the PPA. Tanesco argued that this condition should be inferred from the pre-contractual relationships between the parties, before the signature of the PPA.764 After reviewing correspondence exchanged between the parties as well as documents related to a meeting organized before the signature of the PPA, the Tribunal found no ground to conclude that the PPA should be declared void based on

762

Tanesco Provisional Measures, Digest I-57. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8, Decision on Preliminary Issues, 22 May, 2000 (Tanesco Preliminary Issues). 764 Tanesco Preliminary Issues, paras 14–15. 763

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ICSID DECISIONS 19742002 the alleged non-fulfilment of a condition precedent,765 because it found that the Republic of Tanzania had in fact authorized Tanesco to enter into the PPA.766 Tanesco further contended that Addendum No 1 provided for a tariff adjustment mechanism based on changes in the ‘assumptions’ upon which the initial tariff had been based.767 The Government of Tanzania asserted that the term ‘assumption’ was unclear and that, consequently, the adjustment mechanism was null and void. Moreover, the Government argued that since this provision was an integral part of the PPA, the entire agreement was null and void.768 The Tribunal considered several alternative interpretations of the term ‘assumption’, including the possibility that the uncertainty of the term might render Addendum No 1 ineffective. But the Tribunal eventually decided that ‘a tribunal should strive to give some meaning to every provision in a contract—especially one which has been specifically negotiated and agreed, as was Addendum No. 1’.769 The Tribunal concluded that it made no sense to annul part of adjustment mechanism, nor to annul the whole Addendum, and that the term ‘assumption’ should be construed as all the ‘assumptions underlying the PPA’, including those contained in correspondence exchanged between the parties’ representatives.770 Although the parties never expressed the exact tariff adjustment mechanism that they intended to apply, the Tribunal took the view that ‘adjustment made must be such as would be appropriate and reasonable to take account of the changes’.771 Secondly, Tanesco asserted that it was entitled to terminate the PPA by delivering a notice of default pursuant to the PPA, based on the fact that IPTL installed medium speed generators instead of the slow speed generators envisaged in the PPA.772 The Tribunal looked to the terms of the PPA, rather than the default regime for contract termination under the applicable law, to determine whether such a modification in the technical specifications should be construed as a material breach or modification of the PPA.773 After examining the technical specifications of slow and medium speed generators, the Tribunal concluded that the use of medium speed generators was not a material modification of the contract, as the modification had no adverse consequences on contractual performance.774

765 766 767 768 769 770 771 772 773 774 775

Tanesco Preliminary Issues, paras 16–29. Tanesco Preliminary Issues, paras 30–1. Tanesco Preliminary Issues, paras 32–3. Tanesco Preliminary Issues, paras 32–6. Tanesco Preliminary Measures, paras 38–42. Tanesco Preliminary Measures, paras 43–52. Tanesco Preliminary Measures, paras 48–9. Tanesco Preliminary Measures, paras 53–4. Tanesco Preliminary Measures, para 55. Tanesco Preliminary Measures, paras 56–72. Tanesco Preliminary Measures, para 73.

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Case 61: Tanesco Preliminary Issues The Tribunal further concluded that Tanesco, ‘through its own acts and omissions’, agreed to the use of medium speed generators.775 The Tribunal reviewed the course of dealing between the two parties—which includes the PPA, their meetings, pre-contractual documents and correspondence—and was satisfied that Tanesco effectively consented to the installation of medium speed generators, disposing of any claim that IPTL had breached the PPA by installing them.776 Having decided that Tanesco agreed to the changes in the generators, the Tribunal saw no need to decide IPTL’s estoppel argument.777 Still, the Tribunal assessed whether the doctrine of estoppel, along with the doctrines of waiver and election, were matters of procedure (and thus governed by the law of the seat of arbitration) or matters of substance (and therefore governed by the applicable law).778 The Tribunal took the view that promissory estoppel should be considered as a matter of substance rather than procedure, because it is capable of creating substantive rights.779 The last contention raised by Tanesco focused on the tariff adjustment. The Tribunal decided that it was too early to render a decision on that point and referred the parties to the next stage of the proceedings.780 That said, the Tribunal decided that it should apply a test of reasonableness and prudence to examining any costs incurred by IPTL which led to the tariff adjustments adjustment.781

776 777 778 779 780 781

Tanesco Preliminary Measures, paras 74–96. Tanesco Preliminary Measures, paras 97 and 108. Tanesco Preliminary Measures, paras 97–8. Tanesco Preliminary Measures, para 98. Tanesco Preliminary Measures, paras 109–10. Tanesco Preliminary Measures, paras 111 and 113–18.

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62. Waste Management, Inc v United Mexican States ICSID Case No ARB(AF)/98/2 2 June 2000

NAFTA

Award B M Cremades (P) K Highet E Siqueiros

Factual Background Acaverde SA (Acaverde), a wholly owned Mexican subsidiary of the American corporation Waste Management Inc (Waste Management), entered into a concession agreement with the city of Acapulco de Juárez (Acapulco) for the provision of waste management services (the Agreement). Banco Nacional de Obras y Servicios Publicos (Banobras) had agreed to provide a line of credit for monthly payments due to Acaverde in case Acapulco experienced payment difficulties. Acapulco failed to make certain payments, and Banobras refused to honour the guarantee. Acaverde initiated proceedings in the local courts in Mexico to address the situation. On 22 July 1998, Waste Management filed a notice of arbitration to the ICSID Secretariat pursuant to the Additional Facility Rules. Waste Management sought damages against Mexico for an alleged breach of NAFTA. The notice was later followed by a waiver of Waste Management’s right to initiate or continue any other dispute settlement proceedings. Two months later, ICSID asked Waste Management to clarify the waiver statement and to serve a notice of intent to arbitrate a claim under NAFTA Rules. Following the service of such a notice in June 1998, Waste Management re-filed a notice of arbitration with the ICSID Secretariat in September 1998, accompanied with a waiver, which stated in relevant part: Without derogating from the waiver required by NAFTA Article 1121, Claimants here set forth their understanding that the above waiver does not apply to any dispute settlement proceedings involving allegations that Respondent has violated duties imposed by sources of law other than Chapter Eleven of NAFTA, including the municipal law of Mexico.

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Case 62: Waste Management I Award Following a subsequent clarification on the part of Waste Management regarding its waiver, the ICSID Secretariat registered the notice in November 1998.

The Decision782 The Tribunal then dealt with the conditions precedent to submission of a claim to arbitration.783 It concluded that the fulfilment of the waiver of domestic claims requirement of NAFTA Article 1121 constitutes ipso facto consent to arbitration. The Tribunal then dealt with Mexico’s objection that the waiver had not been provided in accordance with Article 1121 because there were a number of pending cases in Mexico initiated by Acaverde. Mexico stressed that Waste Management’s waiver failed to comply with both the formal and material requirements of Article 1121. Specifically, Mexico asserted that those pending proceedings dealt with measures which had been alleged to be NAFTA breaches, such as Acapulco’s alleged refusal to pay Acaverde for its services and Banobras’s alleged refusal to pay for the same amounts, as guarantor of Acapulco. Waste Management, for its part, argued that those cases would in no way be prejudicial to Mexico nor create duplicate proceedings.784 The Tribunal held that Waste Management had complied with the formal notice requirements because it had provided a waiver in writing, delivered it to the other party, and included it in the notice of arbitration. Any notarization, the Tribunal added, would be unnecessary.785 With respect to the material requirements of the waiver, the Tribunal analysed whether the legal proceedings in Mexico were related to the same measures invoked in the NAFTA proceedings. According to the Tribunal, the violation of the content of a NAFTA provision might well be actionable under Mexican law, leading potentially to duplicate proceedings.786 In this case, the Tribunal held that the local proceedings referred to measures that were also invoked in the NAFTA proceedings as treaty breaches Non-payment by Acapulco and Banobras (Acapulco’s guarantor) were the object of both judicial and arbitral proceedings.787 Moreover, the Tribunal concluded, Waste Management did not intend to abandon the domestic proceedings, as evidenced by its conduct and clarifications of the waiver.788 Having found the waiver of the right to pursue local remedies to be inadequate to satisfy Article 1121,

782 Waste Management v United Mexican States, ICSID Case No ARB(AF)/98/2, Award, 2 June 2000 (Waste Management I Award ). 783 Waste Management I Award, paras 8–13, 16–17. 784 Waste Management I Award, para 6. 785 Waste Management I Award, para 23. 786 Waste Management I Award, para 28. 787 Waste Management I Award, para 27. 788 Waste Management I Award, paras 30–1.

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ICSID DECISIONS 19742002 the Tribunal denied jurisdiction and ordered Waste Management to pay the costs of the proceedings.

Dissenting Opinion Arbitrator Highet dissented from the decision of the majority, contending that Waste Management’s caveats did not nullify the waiver, so long as it did not have any negative effect on the substance of the waiver. Waste Management, Highet added, was right in distinguishing between legal obligations under Mexican law and legal obligations under NAFTA.789 Highet then opined that a ‘measure’ under Article 1121 (such as ‘creeping’ expropriation) may include local components (such as Acapulco’s and Banobras’s failure to pay), which alone do not fall within the purview of Article 1121.790 In addition, Highet pointed out that the domestic proceedings were not ‘with respect to the measures’ and did not primarily concern the alleged breaches of NAFTA.791 In any event, the arbitrator wrote, Waste Management’s conduct in pursuing the Mexican legal proceedings did not render the waiver ineffective, because such conduct related to a different legal activity with different causes of action: local commercial claims in Mexico versus international treaty claims before the Tribunal.792 Furthermore, Highet argued that the Tribunal erred in not deferring the determination of jurisdiction to the merits phase as the determination required an analysis of the complaints filed in Mexico.793 According to Highet, Article 1121 of NAFTA did not require the Claimant to withdraw claims, as evidenced by Mexico’s decision not to use Waste Management’s waiver in the local proceedings.794 This was also supported by the fact that Annex 1120(1) dealt identically with the matter of duplicate proceedings in that it precluded an investor from maintaining a legal action in Mexican courts. Mexico’s failure to invoke this provision clearly showed, Highet suggested, that the local claims were different from the NAFTA claims.795 In any event, Highet opined that Waste Management’s pursuit of the local components of a NAFTA claim would have had no negative effect because, had it succeeded, the NAFTA claim would have been reduced accordingly in magnitude. On the other hand, had it failed, the NAFTA claim would still have been reduced

789 790 791 792 793 794 795

Waste Management I Award, Dissenting Opinion of K Highet, para 8. Waste Management I Award, paras 13, 17. Waste Management I Award, paras 24–5. Waste Management I Award, para 28. Waste Management I Award, para 30. Waste Management I Award, paras 34–5. Waste Management I Award, paras 38–9, 47–8.

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Case 62: Waste Management I Award by way of application of res judicata.796 Additionally, even if Waste Management’s waiver had been defective, the Tribunal should have allowed it to cure any defect by discontinuing all local proceedings within a grace period.797 Lastly, Hightet noted that the Tribunal wrongly dealt with the waiver as a matter of jurisdiction instead of admissibility. Had there been a domestic proceeding related to a portion of the claim brought before the Tribunal, only that portion would have been inadmissible and the rest could have been adjudicated.798

796 797 798

Waste Management I Award, para 51. Waste Management I Award, paras 53–5. Waste Management I Award, para 61.

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63. Compañía del Desarrollo de Santa Elena, SA v The Republic of Costa Rica ICSID Case No ARB/96/1 8 June 2000

Ad Hoc Agreement

Rectification L Y Fortier (P) E Lauterpacht P Weil

Factual Background The relevant factual background has been set out in the summary of Tribunal’s award in this dispute,799 which was rendered on 17 February 2000. On 30 March 2000, CDSE submitted a request for rectification of the Award.

The Decision800 As requested by CDSE and in the absence of an objection from Costa Rica, a clerical error in paragraph 27 of the Award was corrected by deletion of the words ‘not’ and ‘any’ in the second sentence of that paragraph. As requested by CDSE and in the absence of an objection from Costa Rica, the name of ‘Mr Landauer’ in the fifth line of the last subparagraph of paragraph 45 of the Award was changed to ‘Mr Beauchamp’. CDSE argued that paragraph 61(iii) of the Award ‘ . . . misstates CDSE’s position on the relationship of Costa Rican law to international law’, and requested that that paragraph ‘ . . . be changed to reflect CDSE’s actual position on this issue’.801 Costa Rica denied that the paragraph in question required rectification, and submitted that the Tribunal’s reasoning could not in any event be revised in the context of a rectification request under Article 49 of the Convention. 799

Santa Elena Award, Digest I-60. Compañía del Desarrollo de Santa Elena, SA v The Republic of Costa Rica, ICSID Case No ARB/96/1, Decision on Rectification of the Award, 8 June 2000 (Santa Elena Rectification). 801 Santa Elena Rectification, para 9. 800

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Case 63: Santa Elena Rectification The Tribunal found that no rectification of paragraph 61(iii) of the Award was required, as CDSE failed to distinguish—as the Award explicitly does—two related issues: (1) the question of whether Costa Rican or international law applies to the dispute; and (2) the specific rules and principles of the applicable law that determine the compensation owed to the Claimant. Accordingly, the Tribunal found that the Award adequately summarized the Claimant’s positon on the law applicable to issues of damages.802 The Tribunal held that each party should bear its own costs and share equally the costs of the arbitration.

802

Santa Elena Rectification, paras 13–15.

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64. Olguín v Republic of Paraguay ICSID Case No ARB/98/5 8 August 2000

Peru–Paraguay BIT

Jurisdiction R Oreamuno Blanco (P) F Rezek E Mayora Alvarado

Factual Background The Claimant, Mr Eudoro Armando Olguín, a dual national of Peru and the United States, deposited US$1,254,500 in a Paraguayan private financial institution called La Mercantil SA de Finanzas (La Mercantil ). In exchange for the deposited sums, he received investment instruments (TDIs). The arrangements with La Mercantil had been prepared by Mr Olselli Pagliaro, who at that time held a position at the Central Bank of Paraguay. He communicated with the Claimant on non-letterhead stationery and provided him inter alia with the Central Bank of Paraguay’s Official Report on La Mercantil. With the aforementioned funds, Mr Olguín intended to finance the construction of a corn products plant in Paraguay, whose owner was a company called Super Snacks del Paraguay SA, incorporated in 1994 by Mr Olselli Pagliaro and Mr Rovira Barchello, the general manager of La Mercantil. Amidst the Paraguayan financial crisis in 1995, the financial institution suspended its operations and ceased honouring payments due pursuant to the TDIs. After numerous unsuccessful attempts to recover the funds he had deposited, on 27 October 1997, Mr Olguín filed a request for ICSID arbitration against the Republic of Paraguay based on Article 8 of the Peru–Paraguay bilateral investment treaty. The Claimant alleged that Paraguay had breached certain substantive provisions of the BIT in its deficient oversight of the financial institution, including by treating him in a discriminatory fashion and by expropriating his investment.

194

Case 64: Olguín Jurisdiction

The Decision803 Paraguay submitted four objections to the jurisdiction of the Tribunal. First, it argued that it simply had not consented in writing to the jurisdiction of ICSID, as Article 25 of the ICSID Convention requires. The Tribunal considered that Article 8 of the BIT clearly provides that a national of one Contracting State could, after a period of settlement negotiations with the other Contracting State, refer the dispute to international arbitration at ICSID. The Tribunal referred to a number of cases in support of the principle that the existence of such a clause in a BIT is sufficient to constitute the written consent mandated by Article 25(1) of the ICSID Convention.804 Paraguay’s second objection, related to the nature of the Claimant’s investment, was twofold: that the Claimant’s ‘speculative financial investment’ fell outside the BIT definition of assets to be protected; and that the investment had not received prior government authorization. Without explanation, the Tribunal determined that the Claimant’s investment fell squarely within the definition of investment found in the BIT.805 The Tribunal also ruled that the BIT contained no rule requiring that an investment be authorized by the host State in order to receive BIT protection.806 The Tribunal concluded that any other alleged defects in the Claimant’s investment would be a matter related to the merits of the dispute, which could not be adjudicated during the jurisdictional phase of the arbitration. Paraguay’s third objection to the Tribunal’s jurisdiction was that, under Paraguayan domestic law, the State could only be secondarily liable for Mr Olguín’s losses, even if the claim were successful. The Respondent argued that the Claimant would have first to seek recourse against the government officials responsible for the insufficient supervision of the finanancial institutions before being entitled to recover compensation from the State. The Tribunal declined to analyse the impact of this purported rule of subsidiary liability under Paraguayan law, considering that any decision on this point would be inappropriate during the jurisdictional phase of the proceedings.807 Paraguay’s fourth and final objection was that the Claimant had already brought a claim in Paraguayan courts, and that arbitration was therefore precluded by a ‘fork-in-the-road’ clause found in Article 8(3) of the BIT. The Tribunal determined 803 Mr Eudoro Armando Olguín v Republic of Paraguay, ICSID Case No ARB/98/5, Decision on Jurisdiction, 8 August 2000 (Olguín Jurisdiction). 804 Olguín Jurisdiction, paras 26–7, citing AAPL Award, Digest I-33; Tradex Jurisdiction, Digest I-41, para D.1; AMT Award, Digest I-43, paras 5.20 and 5.23; and CSOB Jurisdiction I, Digest I-51, paras 37–8. 805 Olguín Jurisdiction, para 28. 806 Olguín Jurisdiction, para 28. 807 Olguín Jurisdiction, para 29.

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ICSID DECISIONS 19742002 that Mr Olguín’s claims in local courts were related to bankruptcy and liquidation. These rather particular actions were found to be different in nature from investment treaty claims against Paraguay. On this basis, it was found that the ‘fork-inthe-road’ clause did not bar Mr Olguín’s claims.808 On this basis, the Tribunal ruled that the arbitration proceedings should continue to address the merits of the claims presented.809

808 Olguín Jurisdiction , para 30. See further Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia, ICSID Case No ARB/99/2, Award, 25 June 2001 (Genin Award), Digest I-78, paras 321–35. 809 Olguín v Republic of Paraguay, ICSID Case No ARB/98/5, Award, 26 July 2001 (Olguín Award), Digest I-83.

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65. Metalclad Corporation v The United Mexican States ICSID Case No ARB(AF)/97/1 30 August 2000

NAFTA

Award E Lauterpacht (P) B Civiletti J L Siqueiros

Factual Background In 1992, Metalclad Corporation (Metalclad ), a company incorporated in the United States, acquired the Mexican company Confinamiento Tecnico de Residuos Industriales SA de CV (Coterin), with a view to developing and operating a hazardous waste transfer station and landfill in the municipality of Guadalcazar (the Municipality). Coterin obtained a conditional land use permit for the same site from the Mexican state of San Luís Potosí (SLP). Metalclad had assurances, both on the federal and municipal level, that all the permits necessary for the landfill had been issued, except for a federal permit for the project. It was also assured that Mexico would obtain support for the landfill from Guadalcazar and SLP. The federal permit was subsequently issued, but shortly thereafter the governor of SLP began to denounce the project. Metalclad tried to negotiate with SLP in 1993 and, believing it had secured SLP’s support, began construction. In October 1994, however, the Municipality ordered the cessation of all building activities at the site, contending that Metalclad had not obtained a building permit from the Municipality. Metalclad claimed that federal officials had represented earlier that Metalclad had already obtained all necessary permits and that the Municipality had no basis for denying a construction permit. Nevertheless, Metalclad went through the formality of applying for the building permit with the Municipality in order to improve relations. After completing construction in March 1995 and a range of environmental studies and further

197

ICSID DECISIONS 19742002 negotiations, the Municipality denied Metalclad’s application for the construction permit in December 1995, and obtained an injunction barring Metalclad from conducting any hazardous waste landfill operations. Metalclad filed a claim under Chapter Eleven of the North American Free Trade Agreement in January 1997, alleging that Mexico violated the fair and equitable treatment and expropriation provisions of NAFTA. While the claim was pending, and three days prior to leaving his office, the governor of SLP declared the landfill site a natural area for the protection of rare cacti (the Ecological Decree).

The Decision810 1. Jurisdiction Mexico argued that the Tribunal had no jurisdiction with regard to the Ecological Decree because it was enacted after the filing of the notice of arbitration.811 Metalclad argued that the Tribunal had jurisdiction because: (a) an inability to rely on post-notice of arbitration acts would deprive Metalclad of redress; (b) this would be consistent with NAFTA’s stated aim of an effective dispute resolution system, as it would be impractical for Metalclad to start a new NAFTA proceeding; and (c) adjudicating the Ecological Decree would be consistent with a tribunal’s broad jurisdiction under Rule 48 of the Additional Facility Rules.812 The Tribunal accepted Metalclad’s contention that Rule 48 of Additional Facility Rules permits the amendment of the claim based on facts subsequent to the filing of the claim. As Mexico would suffer no prejudice as a result, the Tribunal asserted jurisdiction over the Ecological Decree.813 2. Merits As a general matter, Mexico did not rule out the possibility that it might bear international responsibility for the acts of its State organs.814 Regarding fair and equitable treatment, Metalclad argued that it had been led to believe that federal permits would suffice for the construction and operation of the landfill.815 Mexico, on the other hand, contended that Metalclad was, or should have been, aware that acquiring municipal licences was a prerequisite for the successful launch of the investment project.816 The Tribunal held that the Municipality’s denial of the 810

Metalclad Corporation v The United Mexican States, ICSID Case No ARB(AF)/97/1, Award, 30 August 2000 (Metalclad Award ). 811 Metalclad Award , para 64. 812 Metalclad Award , para 65. 813 Metalclad Award , paras 66–7, 69. 814 Metalclad Award , para 73. 815 Metalclad Award , paras 80, 85. 816 Metalclad Award , paras 41, 85.

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Case 65: Metalclad Award permit, together with Metalclad’s reasonable reliance on the representations of Mexican officials and the absence of a clear rule as to the necessity of a municipal construction licence, amounted to a failure to ensure a transparent and predictable framework for Metalclad’s investment.817 As a result, Mexico was found to have violated the fair and equitable treatment provision of NAFTA.818 Mexico’s actions were also found to constitute expropriation, which the Tribunal reasoned could include any ‘covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property even if not necessarily to the obvious benefit of the host State’.819 Mexico had permitted, or at least tolerated, the Municipality’s conduct and thus participated or acquiesced in the denial of Metalclad’s right to operate the project, despite the fact that the activity had been fully approved and endorsed by the Mexican federal government.820 Those actions, together with the representations made by its officials, amounted to an indirect expropriation.821 The Tribunal further held that the Ecological Decree had effectively barred the operation of the landfill forever, confirming that an act tantamount to expropriation had occurred.822 3. Damages Metalclad proposed that its compensation should be calculated either by using a discounted cash flow analysis in order to establish the fair market value of its investment, or alternatively, by calculating the actual investment costs incurred in connection with the landfill project.823 Mexico opposed the discounted cash flow method and advocated a ‘market capitalization’ calculation or a ‘direct investment value’ method.824 The Tribunal agreed with Mexico’s argument on the discounted cash flow method because the landfill had never become operational, rendering any prediction of future profits unacceptably speculative.825 Instead, it favoured the ‘actual investment’ calculation without considering any lost profits .826 In calculating the actual investment, the Tribunal took into consideration Metalclad’s tax returns and audit reports, but excluded any expenses incurred prior to Metalclad’s

817

Metalclad Award, paras 86, 88–9, 97–9. Metalclad Award, paras 100–1. This ruling was later annulled by the British Columbia Supreme Court, which was the court of first instance at the place of arbitration. In that decision, Judge Tysoe ruled, inter alia, that transparency had not been established to be part of the substantive obligations of NAFTA Article 1105. 819 Metalclad Award , para 103. 820 Metalclad Award , paras 104. 821 Metalclad Award , paras 106–7. 822 Metalclad Award , paras 109, 111. 823 Metalclad Award , para 114. 824 Metalclad Award , paras 116–17. 825 Metalclad Award , para 121. 826 Metalclad Award , para 122. 818

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ICSID DECISIONS 19742002 acquiring Coterin.827 Metalclad suggested that it also be awarded damages for the negative impact that the events had on its other businesses, an argument the Tribunal rejected.828 Ultimately, the Tribunal awarded Metalclad US$16.7 million, plus interest, accruing from the Municipality’s denial of permit until 45 days after the issuance of the Award.829

827 828 829

Metalclad Award, paras 124–7. Metalclad Award, para 115. Metalclad Award, paras 128, 131.

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66. Banro American Resources, Inc and Société Aurifière du Kivu et du Maniema SARL v Democratic Republic of the Congo ICSID Case No ARB/98/7 1 September 2000

Contract

Award P Weil (P) CH Geach A Diagne

Factual Background The Democratic Republic of Congo (DRC ) entered into a mining convention (the First Agreement) with Société Minière et Industrielle du Kivu, SARL (SOMINKI ), a locally incorporated subsidiary of a Canadian company, Banro Resource Corporation (Banro Resource).830 When the First Agreement was due to expire, SOMINKI and the DRC entered into a new convention (the Second Agreement), transferring the existing mining concessions to the Société Aurif ère et Industrielle du Kivu et du Maniema SARL (SAKIMA), another locally incorporated subsidiary of Banro Resource. The Second Agreement contained an ICSID arbitration clause. In July 1998, the DRC repealed the decrees that had approved the Second Agreement and the creation of SAKIMA, citing irregularities in the dissolution of SOMINKI and the creation of SAKIMA. In August 1998, Banro Resource transferred its shares in SAKIMA to Banro American Resources, Inc, a wholly owned subsidiary of Banro Resource that was incorporated in the United States (Banro American). Banro American subsequently instituted ICSID proceedings against the DRC on 27 August 1998, alleging expropriation of SAKIMA’s assets in violation of the Second Agreement.

830

The published excerpts of the award provide no details of the substance of the dispute.

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ICSID DECISIONS 19742002

The Decision831 The main jurisdictional issue examined by the Tribunal was the nationality requirement in Article 25 of the Convention.832 The Tribunal noted that the Convention stipulates two critical dates with respect to the nationality of the investor. First, on the request’s registration date, the host State and the investor’s home State must both be parties to the Convention. Secondly, on the date that the last of the parties in dispute gave its consent to arbitration, the claimant must have the nationality of a Contracting State.833 The obstacle faced by the Claimants was that although Banro American, as a company incorporated in the United States, possessed the nationality of a Contracting State, its parent company, Banro Resource, was incorporated in Canada, and therefore did not possess the nationality of a Contracting State. The Tribunal considered two alternative approaches to nationality. On the first approach, Banro American would satisfy the registration date requirement, as the United States, Banro American’s country of incorporation, was a party to the Convention at the relevant time. But even according to this view, the Claimant would fall foul of the condition pertaining to the parties’ nationality on the date of consent, since consent to arbitration was given in the First Agreement, concluded by Banro Resource, to which neither Banro American nor its subsidiary SAKIMA were parties.834 The Tribunal also held that ‘[i]n order to consider the right of access to ICSID arbitration, available under Article 35, as “extended” or “transferred” to Banro American by applying other provisions of the Mining Convention, it would still be necessary that such right existed first for the benefit of the entity Banro Resource’.835 This was not the case, since Banro Resource was a Canadian company that never had jus standi before an ICSID tribunal, so the right of access to ICSID could not have been extended or transferred to Banro American, because it never existed. On this point, the arbitrators noted that, although they were ‘aware of the general principle of interpretation whereby a text ought to be interpreted in the manner 831 Banro American Resources, Inc and Société Aurifière du Kivu et du Maniema SARL v Th e Democratic Republic of Congo, ICSID Case No ARB/98/7, Award, 1 September 2000 (Banro Award ). The full text of the Award has not been published, but some extracts have been made available under Rule 48(4) of the Arbitration Rules, which permits ICSID to publish excerpts of the legal rules applied by the Tribunal: ‘Introductory Note to Banro American Resources, Inc and Société Aurifière du Kivu et du Maniema SARL v The Democratic Republic of Congo’ 17 ICSID Rev—FILJ 1 (2002). All references to Banro Award refer to the respective paragraphs in the ICSID Review. 832 Banro Award , para 26. 833 Banro Award , para 1. 834 Banro Award , paras 3–4. 835 Banro Award , para 5.

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Case 66: Banro Award that gives it effect’, 836 this principle of interpretation could not lead the Tribunal to attribute a meaning contrary to a provision’s clear and explicit terms. Under the alternative approach to nationality, Banro Resource might be considered the actual Claimant by piercing the corporate veil with respect to Banro American. The Tribunal found that in this scenario, ‘the condition pertaining to the consent of the parties’837 would be met, as the First Agreement contained the consent of both parties. Even if this condition were met, however, ICSID would still not have jurisdiction because Banro Resource was a Canadian company and, as such, did not possess the nationality of a Contracting State. Thus, as in the first scenario, the arbitration clause ‘would be null and void and deprived of its object and purpose’.838 The Tribunal acknowledged that ICSID tribunals were often willing to refrain from a formalistic assessment of their jurisdiction, particularly when a group of companies or transfer of shares was involved.839 Still, for the Tribunal this case was entirely different because a question of international law, rather than a question of private law governing the relationship among companies of the same group, was at issue.840 The Tribunal took into consideration the fact that under Article 27 of the Convention, the State parties relinquish the possibility of exercising diplomatic protection over their nationals, whereas non-party States are not under any such obligation. The Tribunal also considered the fact that Canada had actually afforded diplomatic protection to Banro Resource, holding that the Banro Group should not be: free to submit to the Democratic Republic of the Congo both diplomatic intervention on the part of the Canadian Government, availing itself of the nationality of its parent company, Banro Resource, and an arbitration proceeding before an ICSID tribunal by availing itself of the American nationality of one of its subsidiaries, Banro American.841

The Tribunal therefore declined jurisdiction, because it could not allow the nationality requirements imposed by the Convention to be neutralized by strategic investors seeking both ICSID arbitration and traditional diplomatic protection, depending on the nationality of the company in a group.842

836 837 838 839 840 841 842

Banro Award, paras 3–4. Banro Award, paras 3–4. Banro Award, para 8. Banro Award, para 10. Banro Award, para 14. Banro Award, para 23. Banro Award, para 24.

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67. Joseph Charles Lemire v Ukraine ICSID Case No ARB(AF)/98/1 18 September 2000

United States–Ukraine BIT

Award E Lauterpacht (P) J Paulsson J Voss

Factual Background In 1997, Mr Joseph Charles Lemire, a national of the United States (Lemire), filed a notice for arbitration under the ICSID Additional Facility Rules. The claim alleged a breach of the USA–Ukraine BIT (the BIT ) by Ukraine, which was at that time not a party to the Convention. On 24 September 1999, the Tribunal issued its Decision on Jurisdiction, joining Ukraine’s jurisdictional objections to the merits. 843 Upon request of the parties, the Tribunal suspended the proceedings in order to allow the parties to seek amicable settlement. In 2000, the parties concluded an agreement for the final settlement of all claims. In accordance with Rule 50 of the Arbitration (Additional Facility) Rules, the parties requested that the Tribunal record the settlement in the form of an award.

843 The decision was not publicly available at the time of writing. Joseph Charles Lemire v Ukraine, ICSID Case No ARB(AF)/98/1, Decision on Jurisdiction, 24 September 1999 (Lemire Jurisdiction), Digest I-53.

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Case 67: Lemire Award

The Decision844 The Tribunal ordered that the settlement be recorded as an award on agreed terms. The Tribunal followed the parties’ agreement regarding costs and ordered that each party bear its own legal expenses and an equal share of the arbitration costs.

844 Joseph Charles Lemire v Ukraine, ICSID Case No ARB(AF)/98/1, Award, 18 September 2000 (Lemire I Award ). Despite the settlement, the dispute flared again subsequently. A newly constituted tribunal rendered its award on 28 March 2011, in Joseph Charles Lemire v Ukraine, ICSID Case No ARB/06/18, Award, 28 March 2011 (Ferná ndez-Armesto, Paulsson, Voss) (Lemire II Award).

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68. Emilio Agustín Maffezini v Kingdom of Spain ICSID Case No ARB/97/7 13 November 2000

Argentina–Spain BIT

Award F Orrego Vicuña (P) T Buergenthal M Wolf

Factual Background The relevant factual background has been set out in the summary of the Tribunal’s jurisdictional decision, 845 which was rendered on 25 January 2000. The Tribunal unanimously confirmed jurisdiction to hear the merits of the dispute.

The Decision846 1. Merits During the jurisdictional stage, the Tribunal had reserved the issue of State attribution until the merits decision.847 In examining this question, the Tribunal indicated that it had to rely on a functional test in order to establish if the acts and omissions of SODIGA, an entity owned by the Spanish government, were essentially commercial by nature, as commercial acts cannot be attributed to the State.848 The Tribunal noted that at the time EAMSA was established, SODIGA was in a transitional phase towards becoming a market-oriented entity. It concluded that each act and omission of SODIGA about which Maffezini complained had to be examined separately to determine whether Spain was acting at its sovereign

845

Maff ezini Jurisdiction, Digest I-59. Emilio Agustín Maff ezini v Kingdom of Spain, ICSID Case No ARB/97/7, Award, 11 November 2000 (Maff ezini Award ). 847 Maff ezini Jurisdiction, Digest I-59, para 89; Maff ezini Award, para 51. 848 Maff ezini Award, para 52. 846

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Case 68: Maff ezini Award capacity or whether it was acting in a purely commercial manner at arm’s length.849 The Tribunal addressed five main issues in this regard. First, Maffezini alleged that the investment had failed because SODIGA provided faulty advice regarding the cost of the project. The Tribunal recalled that the feasibility study commissioned by SODIGA had been made solely for internal use and could not serve as a substitute for the study that Maffezini had obtained from a private consultant. The Tribunal also noted that SODIGA’s membership on the board of EAMSA was consistent with normal business arrangements, and that the subsidies granted to EAMSA were granted by the local authority of Galicia and not by SODIGA. From this perspective, the Tribunal found that SODIGA was acting as a private entity and could not be considered responsible for the losses suffered by EAMSA.850 Secondly, according to Mr Maffezini, SODIGA insisted on going ahead with the investment before the EIA study had been completed, leading to additional costs and ultimately to the suspension of the project. The Tribunal underlined that European and Spanish regulations applying to hazardous activities require an EIA study to assess environmental impact. It concluded that in light of the evidence submitted, there was no doubt that Maffezini had been informed of these requirements and that therefore SODIGA had done nothing more than insist on the strict observance of the applicable laws. The Tribunal also recalled that the BIT called for compliance with national law.851 Thirdly, Mr Maffezini contended that 30 million Spanish pesetas had been transferred from his personal account as a loan to EAMSA without his consent. He also complained about irregularities in the management of his accounts by Spanish banks, and was of the opinion that these acts engaged the responsibility of the Spanish Central Bank. The Tribunal declined to hold the Spanish Central Bank liable, however, reasoning that this institution is a supervising authority for general financial and monetary operations of private banks and not for their relations with customers.852 The question of the amount transferred from Maffezini’s account to EAMSA was examined in detail by the Tribunal. When EAMSA experienced financial difficulties in 1991, Maffezini agreed on the principle of a transfer of funds from his private account to EAMSA, and gave his approval for the transfer when requested by SODIGA. But no agreement was signed concerning the terms and conditions under which this transfer would be carried out. In February 2002, SODIGA

849 850 851 852

Maff ezini Award, para 57. Maff ezini Award, para 63. Maff ezini Award, para 71. Maff ezini Award, para 81.

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ICSID DECISIONS 19742002 ordered the transfer without consulting Maffezini. In light of the factual elements submitted to the Tribunal, it found that SODIGA, in ordering the transfer and thus the increase of the investment, was acting as a State agency and not as a commercial entity.853 The Tribunal concluded that the acts of SODIGA concerning the loan were to be attributed to the public function of SODIGA and engaged the responsibility of Spain purusant to Article 3(2) of the BIT, which established an obligation to protect the investment. In addition, the lack of transparency in the transaction was considered incompatible with the obligations of Spain under Article 4(1) of the BIT to accord fair and equitable treatment.854 The arbitrators next considered whether the claims were barred by a prior settlement. In June 1994, Mr Maffezini’s attorney made an offer to SODIGA entailing the cancellation of all Maffezini’s obligations in exchange for the assets of EAMSA. SODIGA made a counter-offer, which Maffezini refused, requesting an additional 2 million Spanish pesetas. In 1996, SODIGA’s president wrote a letter to Maffezini stating that he was prepared to settle on terms similar to the 1994 proposition. Maffezini did not reply. Spain contended that SODIGA had accepted the 1994 offer, and that Maffezini was bound. After examining the relevant Spanish law in relation to the wording of the SODIGA letter, the Tribunal decided that no contract had been concluded, because none of the offers had been unconditionally accepted. In any event, an acceptance of the offer some two years later could not be considered timely.855 Finally, Spain argued that claims for compensatory damages against the State were subject to a one-year statute of limitations. The Tribunal stated that even if such a limitation period existed under Spanish law, it would not apply to claims under the Convention.856 2. Damages The Tribunal observed that the parties had not disputed the claimed amount of 30 million Spanish pesetas. The arbitrators considered that interest should accrue at the LIBOR rate from 4 February 1992 until the date of the Award. The total amount to be paid by Spain to Mr Maffezini within 60 days of the Award was calculated to be 57,641,265.28 Spanish pesetas. Regarding costs, the Tribunal decided that each party should bear the entirety of its own expenses and legal fees.

853 854 855 856

Maff ezini Award, para 79. Maff ezini Award, para 83. Maff ezini Award, para 90. Maff ezini Award, para 93.

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69. Compañía de Aguas del Aconquija, SA & Compagnie Générale des Eaux v Argentine Republic ICSID Case No ARB/97/3 21 November 2000

Argentina–France BIT

Award F Rezek (P) T Buergenthal P D Trooboff

Factual Background The dispute arose out of a concession contract concluded in 1995 (the Contract) between Compagnie Générale des Eaux, a French company, its Argentine affiliate Compañía de Aguas del Aconquija, SA and the Argentine province of Tucumán. The Contract concerned the operation of water and sewage systems in the province of Tucumán. The Contract also contained a choice of forum clause, which provided for the jurisdiction of the Administrative Tribunals of Tucumán. Early on in the performance of the Contract disputes arose, with the Claimants facing serious difficulties that resulted from an insufficient existing infrastructure and inadequate tariffs. Those disputes became the subject of considerable publicity and controversy. In 1996, the Claimants notified Argentina of threats from the governor of Tucumán to rescind the Contract. The Argentine government tried to assist in the renegotiation of the Contract, but to no avail. In August 1997, the Contract was terminated. By this time, a request for arbitration had already been submitted to ICSID. After the request had been registered, the parties suspended the proceedings several times. Only after the Contract had been terminated, did the case proceed with the constitution of the Tribunal.

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ICSID DECISIONS 19742002

The Decision857 1. Jurisdiction Argentina objected to the jurisdiction of the Tribunal on several grounds. Argentina first contended that no dispute existed between the Claimants and itself, since it was not a party to the Contract. The Tribunal pointed out that the Claimants sought to attribute Tucumán’s acts in respect of the Contract to Argentina under international law, allegedly giving rise to a breach of the Argentina–France BIT. For purposes of jurisdiction, this disagreement would suffice to find a ‘dispute’ between Claimants and Argentina.858 The fact that Argentina had not made a declaration concerning sub-entities (such as Tucumán) according to Article 25(1) or (3) of the Convention was immaterial. These provisions would only concern the standing of sub-entities, i.e. their rights to act in their own capacity as claimant or respondent.859 However, Argentina, and not Tucumán, was Respondent. The Tribunal rejected Argentina’s further objection that the choice of forum clause in the Contract was exclusive and deprived the Tribunal of jurisdiction. The Tribunal cited the decision in Lanco860 and found that, in the case at hand, the Claimants based their claims on a breach of the BIT, presenting more than a mere contractual grievance.861 2. Merits The Claimant advanced four categories of acts allegedly in breach of the BIT. The Tribunal started by analysing these acts for their attributability to Argentina and their relationship to performance under the Contract.862 It concluded that all acts alleged to be in breach of the BIT were intrinsically connected to the performance of the Contract. The Tribunal then turned to interpreting the Contract, a task that had been reserved for the administrative courts of Tucumán by virtue of the forum selection clause.863 The Tribunal pointed out that:

857 Compania de Aguas del Aconquija, SA & Compagnie Générale des Eaux v Argentine Republic, ICSID Case No ARB/97/3, Award, 21 November 2000 (Vivendi I Award ). The award was subsequently annulled, see Compañía de Aguas del Aconquija, SA & Compagnie Générale des Eaux v Argentine Republic, ICSID Case No ARB/97/3, Annulment, 3 July 2002 (Vivendi I Annulment), Digest I-92. 858 Vivendi I Award, paras 49–52. 859 Vivendi I Award, para 51. 860 Lanco Jurisdiction, Digest I-48. 861 Vivendi I Award, para 51. 862 Vivendi I Award, paras 62–77. 863 Vivendi I Award, para 79.

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Case 69: Vivendi I Award because of the crucial connection in this case between the term of the Concession Contract and these alleged violations of the BIT, the [Respondent] cannot be held liable unless and until Claimants have, as [the forum selection clause] requires, asserted their rights in proceedings before the contentious administrative courts . . . and have been denied their rights, either procedurally or substantively.864

As the Claimants had yet to seek relief from the Argentine courts as contemplated in the Contract, the arbitrators reasoned, there could be no denial of justice, nor could the BIT have been breached on this basis. The Tribunal then went on to analyse the allegation that Argentina had acted in bad faith by insufficiently supporting the negotiation between the Claimants and Tucumán. It considered the record to be insufficient to find such a breach, and these claims were dismissed. Regarding costs, the Tribunal made use of its discretionary power under the Convention and, relying on the decision in Azinian v Mexico, 865 declined to order the Claimants to bear the costs and reimburse Argentina. In its view, the dispute had involved novel and unresolved legal issues, and counsel for both parties had worked in an efficient and professional manner. Therefore, each party was ordered to bear its own costs and to share equally the costs of the proceedings.866

864 865 866

Vivendi I Award, para 78. Azinian Award, Digest I-56. Vivendi I Award, paras 93–6.

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70. Philippe Gruslin v Malaysia ICSID Case No ARB/99/3 27 November 2000

Belgium/Luxembourg–Malaysia BIT

Award G Griffith (S)

Factual Background In January 1996, Philippe Gruslin, a Belgian national, invested US$2.3 million in securities listed on the Kuala Lumpur Stock Exchange. The investment was made through an entity called the Emerging Asian Markets Equity Citiportfolio managed by Citiportfolio SA, a company incorporated in Luxembourg (the Management Company). Subsequently, Gruslin suffered losses and requested ICSID arbitration on 16 March 1999, claiming compensation for losses resulting from exchange controls that Malaysia had imposed in September 1998, pursuant to a treaty between Belgium and Malaysia

The Decision867 Malaysia argued that to qualify for protection under the BIT, an investment must be located within Malaysia’s territory. It also contended that Gruslin had not made an ‘investment’ in Malaysia qualifying for protection under the Agreement, because he was not the owner of the securities in question868 Malaysia raised a further objection maintaining that the investment did not satisfy the ‘approved project’ requirement established by the BIT.869 First, the Tribunal examined Malaysia’s argument that the Agreement applied only to investments made by a national of Belgium or Luxembourg ‘in the territory

867 Philippe Gruslin v Malaysia, ICSID Case No ARB/99/3, Award, 27 November 2000 (Gruslin Award ). 868 Gruslin Award, para 10.3. 869 Gruslin Award, para 10.6.

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Case 70: Gruslin Award of Malaysia’.870 The Tribunal found that the defi nition of ‘investment’ was to be determined by the terms of the BIT and not the Convention, as this was the basis for Malaysia’s consent to arbitration.871 Gruslin asserted that because the words ‘in the territory’ were joined to the noun ‘investment’ in some provisions of the BIT and not in others, the word ‘investment’ was to be read with no territorial requirement unless expressly stated.872 After examining the various provisions of the Agreement, the Tribunal established that ‘the concept of investment [was] to be read as confined to the same defined subject matter of investments by nationals of one contracting party in the territory of the other’.873 As a result, it concluded that the Agreement required that investments be made in the territory of Malaysia to enjoy protection.874 The Tribunal then examined the issue of whether securities traded on the Kuala Lumpur Stock Exchange were an investment in the territory of Malaysia. Malaysia contended that Gruslin had no severable individual property rights that he could pursue by individual action.875 Gruslin argued that the right to exercise this cause of action was to be analysed in accordance with Luxembourg law.876 In addition, Gruslin contended that if the Management Company was the owner of the investment, the Luxembourg Civil Code enabled him to be subrogated and to exercise rights in his own name.877 The parties agreed that this question was to be detined by the laws of Luxembourg.878 Nonetheless, they requested the Tribunal to examine the ‘approved project’ issue before reaching a conclusion on this question as the ‘approved project’ issue would be a sufficient ground to dismiss the claim.879 Malaysia emphasized that only investments made in an approved project were covered by the Agreement. It contended that the investment involved in this case did not fall within the defi nition of ‘approved project’.880 Gruslin asserted that the notion of approved project was incompatible with Article 25(1) of the Convention.881 Gruslin also maintained that Malaysia’s juris-dictional objection was inadmissible under Rule 27 of the Arbitration Rules. In addition, Gruslin claimed that Malaysia was estopped from referring to the notion of ‘approved project’, and that his shares in Malaysian companies listed on the Kuala Lumpur Stock Exchange complied with the BIT.882 870 871 872 873 874 875 876 877 878 879 880 881 882

Gruslin Award, para 13.2. Gruslin Award, para 13.6. Gruslin Award, para 13.7. Gruslin Award, para 13.9. Gruslin Award, para 13.12. Gruslin Award, para 14.2. Gruslin Award, para 14.3. Gruslin Award, para 14.4. Gruslin Award, para 15.7. Gruslin Award, para 16.1. Gruslin Award, para 17.1. Gruslin Award, para 17.2. Gruslin Award, para 20.4.

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ICSID DECISIONS 19742002 The Tribunal found that ‘the requisite consent under Article 25(1) of the Convention was the consent constituted by the terms of the Agreement itself ’.883 It underscored that the formal requirement for consent by a State was not to be derived as an inference drawn from the terms of a State’s memorial advancing an objection based on the absence of such con-sent.884 In addition, the Tribunal found that there was no waiver under Rule 27 of the Arbitration Rules that prevented Malaysia from raising the ‘approved project’ issue.885 The Tribunal then examined the assertion that Malaysia was estopped from denying its consent under the Agreement due to its failure to express an objec-tion to the initial notifi cation of the claim.886 Referring to the defi nition of estoppel as enunciated by the International Court of Justice in El Salvador v Honduras, the Tribunal found that estoppel required a statement by one party and reliance upon it by the other party to his detriment or to the advantage of the party making it.887 The Tribunal found that Gruslin had not established his detriment in reliance upon Malaysia’s failure to plead the issue earlier.888 The Tribunal finally considered the scope of application of the BIT and found that it was to be read ‘as attaching to any asset coming within the term investment’.889 In addition, after examining diplomatic correspondence and the Kuala Lumpur Stock Exchange listing requirements, the Tribunal concluded that an investment by a national of the Belgium–Luxembourg Union in shares of listed companies was not an ‘approved project’ as envisaged by the Agreement.890 The Tribunal upheld the objections by Malaysia and found that the dispute did not fall within its jurisdiction. The arbitrators then decided that each party should pay its own expenses in the arbitration and half of the institutional fees.

883 884 885 886 887 888 889 890

Gruslin Award, para 18.4. Gruslin Award, para 18.4. Gruslin Award, para 19.7. Gruslin Award, para 20.1. Gruslin Award, para 20.2. Gruslin Award, para 20.4. Gruslin Award, para 22.1. Gruslin Award, para 25.6.

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71. Československa Obchodní Banka, AS v Slovak Republic ICSID Case No ARB/97/4 1 December 2000

Czech Republic–Slovakia BIT Contract

Jurisdiction

T Buergenthal (P) P Bernardini A Bucher

Factual Background Československa Obchodni Banka (CSOB), a commercial bank organized under Czech law, claimed that Slovakia had breached an agreement made on 19 December 1993 that envisaged the privatization of CSOB and its operations in the Czech Republic and Slovakia after their separation (the Consolidation Agreement). The Consolidation Agreement contemplated the assignment by CSOB of non-performing loans to two ‘collection companies’, one Czech and one Slovak. Thereafter, CSOB and the newly created Slovenska inkasni spol sro (SI) concluded a loan agreement effective 31 December 1993 (the Loan Agreement or, together with other contracts, CSOB/SI Agreements). The Loan Agreement stipulated that, pursuant to the Consolidation Agreement, ‘the repayment of the loan including interest thereon is secured by an obligation of the Slovak Republic’. CSOB later alleged that Slovakia had violated the Consolidation Agreement by failing to cover losses incurred by SI. CSOB’s request for arbitration was registered with ICSID on 25 April 1997. The Tribunal was deemed constituted, and the proceedings began on 20 August 1997. The Tribunal rendered its first decision on jurisdiction on 24 May 1999, 891 in which the arbitrators decided that the dispute was within the jurisdiction of ICSID and the competence of the Tribunal.

891

CSOB Jurisdiction I, Digest I-51.

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ICSID DECISIONS 19742002 The Slovak Republic filed a Further and Partial Objection to Jurisdiction on 23 December 1999, after the Claimant had filed its Memorial on the Merits. The Respondent alleged that these claims were outside the jurisdiction of the Tribunal as delineated in the first Decision on Jurisdiction. In particular, Slovakia contended that the claims related to issues arising out of agreements other than the Consolidation Agreement, and that such disputes were not subject to any arbitration clause.

The Decision892 As an initial matter, the Tribunal outlined the jurisdictional determination it had made in CSOB Jurisdiction I. The reference to the BIT in the Consolidation Agreement had been found to constitute an incorporation of the treaty’s dispute resolution clause by reference.893 The arbitrators emphasized that this conclusion imposed restraint on the Tribunal with respect to the types of disputes that the parties intended to submit to arbitration.894 On this basis, the parties’ agreement to arbitrate could not be extended beyond the Consolidation Agreement. In this respect, national courts show considerable restraint in extending the reach of an arbitration agreement to non-signatories.895 The Tribunal rejected the Claimant’s argument that the absence of an arbitration clause from other, related agreements meant that the signatories intended the Consolidation Agreement arbitration clause to apply to disputes arising out of them as well. The arbitrators observed that this practice could reflect an intention to resolve disputes through competent national courts. The principle of effectiveness and finality of jurisdiction, which the Claimant had advanced in support of its broad reading of arbitral jurisdiction, could not override the cardinal importance of party consent to arbitration. On this basis, the Tribunal declined to adjudicate issues arising out of the CSOB/SI Agreements.896 The Tribunal confirmed its prior jurisdictional decision that its competence extended to issues arising out of the Consolidation Agreement, and only to those issues. The arbitrators concluded that their jurisdiction was exclusive, such that Slovakian national courts should be barred from adjudicating disputes arising out

892 Č eskoslovenska Obchodn í Banka AS v Th e Slovak Republic, ICSID Case No ARB/97/4, Decision on Respondent’s Further and Partial Objection to Jurisdiction, 1 December 2000 (CSOB Jurisdiction II ). 893 CSOB Jurisdiction II, paras 22–6. 894 CSOB Jurisdiction II, para 27. 895 CSOB Jurisdiction II, paras 28–9. 896 CSOB Jurisdiction II, paras 30–1.

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Case 71: CSOB Jurisdiction II of the Consolidation Agreement. They further noted that the ICSID Convention does not require an ICSID tribunal to accord binding effect to national court decisions.897 The Tribunal noted, however, that in order to establish whether the Respondent had breached the Consolidation Agreement, it might be necessary to analyse the rights and obligations set forth in other agreements. It then decided to continue proceedings on the merits.898

897 898

CSOB Jurisdiction II, para 35. CSOB Jurisdiction II, para 36.

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72. Marvin Roy Feldman Karpa v United Mexican States ICSID Case No ARB(AF)/99/1 6 December 2000

NAFTA

Jurisdiction K Kerameus (P) J Covarrubias Bravo D A Gantz

Factual Background The dispute concerned the application of certain tax laws by Mexico to the export of tobacco products by Corporacion de Exportaciones Mexicanas, SA de CV (CEMSA). CEMSA was a company organized under the laws of Mexico and owned and controlled by Mr Marvin Roy Feldman Karpa, a citizen of the United States. CEMSA was involved in the export of cigarettes purchased in Mexico since 1990. In 1990–1991, the export of cigarettes by CEMSA was subject to a zero per cent excise tax, and the company received rebates from the Mexican authorities in the amount of taxes initially paid. In 1991, legislation was adopted that made CEMSA ineligible for such rebates. As a result, CEMSA’s business shut down. In 1992, the law was changed again, reverting to the system in force in 1990, and CEMSA’s business resumed. In 1993, Mexican authorities shut down CEMSA’s business for a second time due to a failure to submit invoices as required by tax law. Pursuant to a court ruling in its favour, CEMSA’s business resumed. Between 1993–1995 CEMSA received the rebates again. In 1997, the law was amended to bar rebates to cigarette resellers such as CEMSA. In 1998, the Mexican tax authorities demanded that CEMSA repay the rebates it had received in 1996–1997. Mr Feldman Karpa delivered a notice of intent to submit the claim to arbitration on 16 February 1998. The notice of arbitration was received by the ICSID Secretary-General on 30 April 1999.

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Case 72: Feldman Jurisdiction

The Decision899 Mexico first argued that the Claimant did not have standing to bring its claim under NAFTA because he was a permanent resident of Mexico. The Tribunal recalled that, ‘under general international law, citizenship rather than residence or any other geographic affiliation is the main connecting factor between a state and an individual’.900 Problems of dominant or effective nationality would only be applicable should the claimant enjoy more than one citizenship. The Tribunal considered the Nottebohm case to be irrelevant for the case at hand, because it concerned the conferral of citizenship under irregular circumstances without a substantial bond between the national and the country. Mr Feldman Karpa had acquired his citizenship under normal circumstances, and only subsequently lost connections to his home country. The Tribunal rejected the Respondent’s further contention that Article 201 of NAFTA, which defines ‘national’ as ‘a natural person who is a citizen or permanent resident of a Party’, makes permanent residence tantamount to nationality for all purposes. With regard to Article 1117(1) of NAFTA, the Tribunal reasoned that the concept of ‘national’ would only become relevant with respect to a State party other than the one in which the investment is made.901 Thus, permanent residents would be treated like nationals in a given State party only if that State is different from the State where the investment is made.902 This understanding was also confirmed by the purpose of NAFTA, which supports the enlargement of the circle of investors to be protected beyond nationals of another State party to include permanent residents as well.903 The Tribunal therefore concluded that Mr Feldman Karpa was not denied protection of NAFTA due to permanent residence in Mexico.904 Second, Mexico argued that some of the claims raised were time-barred by Article 1117(2) of NAFTA. According to this provision, an investor cannot ‘make a claim’ if more than three years have elapsed from the date on which the harm became known. The Tribunal held that ‘making a claim’ should be interpreted in light of Article 1137(1) of NAFTA as filing the request for arbitration rather than filing the notice of intent to submit the claim to arbitration. Thus, only the launching of the arbitration could interrupt the running of the limitation period.905 899 Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB(AF)/99/1, Decision on Jurisdiction, 6 December 2000 (Feldman Jurisdiction). 900 Feldman Jurisdiction, para 30. 901 Feldman Jurisdiction, para 34. 902 Feldman Jurisdiction, para 34. 903 Feldman Jurisdiction, para 35. 904 Feldman Jurisdiction, para 36. 905 Feldman Jurisdiction, para 44.

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ICSID DECISIONS 19742002 The Tribunal noted that the six-month cooling-off period provided in Article 1120(1) of NAFTA would have to be subtracted from the limitation period. Thus, the unencumbered limitation period was deemed to constitute thirty months.906 Since the notice of arbitration was received by the ICSID Secretary-General on 30 April 1999, the Tribunal therefore held that the cut-off date of the three-year limitation period was 30 April 1996.907 However, there had been an agreement between the parties to suspend the running of the limitation period. Furthermore, the Respondent gave assurances that estopped it from invoking the limitation period. Neverthless, the Tribunal joined these issues to the examination of the merits, because they would require a substantial analysis of the facts.908 The Tribunal also had to consider whether the Claimant, who had announced a claim based on alleged discrimination in violation of NAFTA Article 1102 in its notice of intent, but made no reference to that article in the request for arbitration, could now submit claims based on NAFTA Article 1102. In this regard, the Tribunal noted that under Article 48 of the ICSID Additional Facility Rules an ancillary claim should be within the scope of the arbitration agreement of the parties and should be presented no later than in the Reply submission.909 The Tribunal found that both requirements had been met, and thus the ancillary claim was admissible.910 The Tribunal also addressed Mexico’s ratione temporis objection with respect to the arising out of measures adopted by Mexico prior to NAFTA’s entry into force. The Tribunal noted that it did not have jurisdiction to decide upon claims alleging a violation of general international law or domestic Mexican law.911 It thus held that it had no jurisdiction over claims arising out of activity predating NAFTA’s entry into force, even if such activity is otherwise identical to its post-NAFTA continuation.912

906 907 908 909 910 911 912

Feldman Jurisdiction, para 46. Feldman Jurisdiction, para 47. Feldman Jurisdiction, para 49 Feldman Jurisdiction, para 57. Feldman Jurisdiction, para 58–9. Feldman Jurisdiction, para 61. Feldman Jurisdiction, para 62.

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73. Wena Hotels Limited v Arab Republic of Egypt ICSID Case No ARB/98/4 8 December 2000

Egypt–UK BIT

Award M Leigh (P) I Fadlallah D Wallace, Jr

Factual Background The relevant factual background has been set out in the summary of Tribunal’s Decision on Jurisdiction in this dispute.913

The Decision914 1. Merits As an initial matter, the Tribunal noted the parties’ agreement that the BIT constituted the primary source of law applicable to the dispute.915 In the absence of any special agreement between the parties, and in accordance with Article 42(1) of the ICSID Convention, it would also have reference to Egyptian law (as the ‘law of the Contracting State party to the dispute’) and international law.916 Turning to Wena’s first substantive claim, the Tribunal considered whether Egypt had failed to accord Wena’s investments ‘fair and equitable treatment’ and ‘full protection and security’,917 as Article 2(2) of the BIT required.918 According to the 913

Wena Hotels Jurisdiction, Digest I-52. Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No ARB/98/4, Award, 8 December 2000 (Wena Hotels Award ). 915 Wena Hotels Award, para 78. 916 Wena Hotels Award, para 79. The Tribunal did not establish any hierarchy between these two secondary sources of law. 917 In treating the two standards together, the Tribunal seemed to suggest that they are more or less equivalent. See A Reinisch, Standards of Investment Protection (New York: Oxford University Press, 2008), pp 4, 119. 918 Wena Hotels Award, para 84, citing AMT Award, Digest I-43, para 28. 914

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ICSID DECISIONS 19742002 Tribunal, the standard incumbent upon Egypt under Article 2(2) of the BIT was one of ‘vigilance’ to ensure full protection of Wena’s investments.919 In this respect, although it was clear that Egypt had not participated directly in attacks on the hotels in question, it did fail to prevent the seizures by EHC despite the evidence showing that Egypt was aware of EHC’s intentions before the attacks took place. Moreover, given its effective control of EHC, Egypt was also in a position to direct EHC to restore the hotels promptly to Wena in normal operating condition, which it failed to do. After the hotels were eventually returned to Wena more than a year after they were seized, the Tribunal was also persuaded by the fact that Egypt had neglected to impose sanctions on EHC following the events at issue.920 The Tribunal also held Egypt liable for unlawful expropriation under Article 5 of the BIT and international law.921 The Tribunal took guidance from the comments of the tribunal in Amco Asia v Indonesia, noting that a key element of expropriation under international law was the transfer of ownership from the investor to another party by the expropriating State.922 By allowing EHC, which it effectively controlled, to seize the hotels illegally without offering compensation, Egypt had deprived Wena of its ‘fundamental rights of ownership’.923 While the Tribunal did not elaborate on this deprivation of Wena’s rights, especially in light of the fact that Wena was only operating and managing the hotels under the Agreements, it simply stated that it had ‘no difficulty’ finding that EHC’s actions were expropriatory and constituted more than an ‘ephemeral interference’.924 Egypt had presented two affirmative defences. First, it argued that Wena’s claims were time-barred, based upon the Egyptian statutory prescription period of three years. The Tribunal dismissed this position, because Egypt had been given ample notice of Wena’s claims.925 Moreover, international norms were found to prevail over conflicting rules of domestic law (in accordance with Article 42(1) of the ICSID Convention), and therefore any strict application of a prescription period would be overridden by the principle of international law that international claims are unaffected by national statutes of limitations.926 Egypt’s second defence was that Wena had procured the lease contracts by corruption. Here, the Tribunal

919

Citing AMT Award, Digest I-43, para 21. Wena Hotels Award, paras 85–95. 921 Wena Hotels Award , paras 96–7. Although the exact ‘terminology’ was not yet settled, the Tribunal considered that the ‘fundamental principles’ on expropriation were well established under international law (citing Amco Asia I Award , Digest I-16, para 158). 922 Amco Asia I Award , Digest I-16, para 158. 923 Wena Hotels Award , paras 98–100, citing Tippets, Abbett, McCarthy, Stratton v Tams-Aff a Consenting Engineers of Iran et al 6 Iran–US CTR 219, 225. 924 Wena Hotels Award , para 99. 925 Wena Hotels Award , paras 104–6. 926 Wena Hotels Award , paras 107–9. 920

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Case 73: Wena Hotels Award concluded that Egypt had failed to meet its evidentiary burden, and dismissed the objection.927 2. Damages In assessing compensation due to Wena for Egypt’s treaty breaches, the Tribunal applied the standard of ‘prompt, adequate, and effective’ compensation codified in Article 5 of the BIT. It considered the discounted cash flow method too speculative to be used in the circumstances at hand, given, inter alia, the brevity of the period in which Wena’s investments had been in operation. The Tribunal instead applied the ‘actual investments’ method, totalling the sums that Wena paid in furtherance of the hotel project.928 Wena claimed that the overall investment expenditure was US$8,819,446.93, but the Tribunal discounted this figure by US$322,000 to account for certain elements of double-counting and by US$435,570.38 to accommodate the amount already received by Wena under an earlier contractual arbitration award. The Tribunal also declined to award damages for lost profits and lost opportunities given the great disparity in the requested amount (£45.7 million) and Wena’s stated investment in the two hotels (US$8,819,446.93).929 To update the resulting sum to the date of the award, the arbitrators awarded interest at a rate of 9 per cent compounded quarterly, to restore the investor to the position it would have occupied in the absence of Egypt’s treaty breaches.930 In the view of the Tribunal, compound interest awards were ‘generally appropriate in most modern commercial arbitrations’.931 The Tribunal also ordered Egypt to reimburse Wena for the expenses incurred in the merits phase of the arbitration.932 Recalling that Wena’s claim for costs had been rejected in its earlier decision on jurisdiction, the Tribunal limited Wena’s recovery of costs to those incurred in presenting the merits phase.

927

Wena Hotels Award, para 117. Wena Hotels Award, paras 123–5, citing e.g. Metalclad Award, Digest I-65, paras 119–20; AMT Award, Digest I-43, para 28. 929 Wena Hotels Award, para 124. 930 Wena Hotels Award, para 129, citing Metalclad Award, Digest I-65, para 128. 931 Wena Hotels Award, para 129. 932 Wena Hotels Award, para 130. 928

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74. The Loewen Group, Inc and Raymond L Loewen v United States of America ICSID Case No ARB(AF)/98/3 5 January 2001

NAFTA

Jurisdiction Sir A Mason (P) L Y Fortier A J Mikva

Factual Background The dispute arose after a Canadian corporation, the Loewen Group, Inc, and Raymond L Loewen (together, Loewen Group) sought to appeal a judgment awarded by the state courts of Mississippi. The Loewen Group, a funeral insurance provider, had been involved in a commercial dispute based on three contracts with a funeral home owned by a local Mississippi family (Contracts). The Contracts concerned the exchange of two funeral homes for a funeral insurance company owned by Loewen, each in the State of Mississippi. The Loewen Group alleged that during the course of a seven-week-long trial, a Mississippi judge permitted irrelevant and prejudicial statements to be made regarding nationality, racial identity and economic status. According to the Loewen Group, the judge then refused to instruct the jury to disregard these factors when making its decision. Loewen Group was found liable for breach of the Contracts and was ordered to pay US$500 million in damages, mostly punitive. The Loewen Group then sought to appeal this verdict. However, Mississippi law required an appealing party to provide a bond of 125 per cent of the amount of the judgment in order to stay its execution, unless the party can demonstrate ‘good cause’ for reducing or altogether eliminating this bond. The Mississippi Supreme Court rejected the Loewen Group’s request to reduce the bond, and gave seven days to either post US$625 million or face execution of the judgment. According to the Loewen Group, this effectively foreclosed their appeal rights. The parties settled the claim for US$175 million on the day before execution against the assets of the Loewen Group was to commence.

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Case 74: Loewen Jurisdiction Asserting that the settlement had been made under duress, the Loewen Group commenced proceedings under NAFTA to seek compensation for damages inflicted as a result of the judge’s conduct and the fallout from the Mississippi state court decisions. The Tribunal was constituted on 17 March 1999.

The Decision933 The Tribunal first noted that no distinction between the concepts of competence and jurisdiction was to be drawn from the parties’ submissions. It further noted that Rule 46 of the ICSID Additional Facility Rules provides only for objections to competence and not to jurisdiction. Nonetheless, according to the Tribunal, Article 46 was to be applied as extending to objections concerning jurisdiction, as well as those concerning the constitution and composition of the Tribunal. The United States objected that the Loewen Group’s claim was not arbitrable because judgments made by domestic courts in purely private disputes were not ‘measures adopted or maintained by a party’ as contemplated by NAFTA.934 In the Tribunal’s view, the word ‘measures’ in Chapter 11 of NAFTA, under the ‘true interpretation’ of the term,935 does not exclude judicial acts. In order to arrive at this conclusion, the Tribunal looked to the definition of ‘measure’ in Article 201 of NAFTA, which states that a measure includes ‘any law, regulation, procedure, requirement or practice’. The Tribunal found that the breadth of the definition was ‘inconsistent with the notion that judicial action is an exclusion from the generality of the expression “measures”’.936 According to the Tribunal, each of the words ‘law’, ‘procedure’, ‘requirement’ and ‘practice’ as found in the definition were capable of capturing the relevant aspects of judicial action. The Tribunal also found that other NAFTA provisions are consistent with the notion that judicial action is encompassed by the term ‘measures’. The Tribunal then turned to the specific question of whether judicial actions in litigation between private parties are measures regulated by NAFTA.937 The Tribunal began by highlighting the fact that the context and purpose of Chapter 11 of NAFTA supports a liberal interpretation of the words ‘measures adopted or maintained by a Party’. In the view of the Tribunal, this interpretation should be one that ‘provides protection and security for the foreign investor and its investment’.938

933 Th e Loewen Group, Inc and Raymond L Loewen v United States of America , ICSID Case No ARB(AF)/98/3, Decision on Jurisdiction, 9 January 2001 (Loewen Jurisdiction). For commentary, see E Gaillard, La jurisprudence du CIRDI (Paris: Editions A Pedone, 2004), pp 647–67. 934 Loewen Jurisdiction , para 60. 935 Loewen Jurisdiction , para 49. 936 Loewen Jurisdiction , para 40. 937 Loewen Jurisdiction , para 53. 938 Loewen Jurisdiction , para 53.

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ICSID DECISIONS 19742002 The Tribunal concluded that there was no support for the United States’ position that judgments of domestic courts in purely private disputes were excluded from ‘measures adopted or maintained by a Party’.939 With regard to the specific facts of the dispute, the Tribunal held that the Mississippi judgments were ‘requirements’ within the meaning of the definition of ‘measure’ in Article 201 of NAFTA. The Tribunal further supported its conclusion by dismissing the argument that the words ‘adopted or maintained’ in Article 1101 of NAFTA limited Chapter 11 to actions involving ratification by a government; the notion that this limitation somehow accorded with the Act of State doctrine was similarly unavailing. The Tribunal then reinforced its conclusion by stating that the ‘full protection and security’ assured by Article 1105 of NAFTA must ‘extend to the protection of foreign investors from private parties when they act through the judicial organs of the State’. The United States next contended that the contested measures could not be said to constitute final acts of the United States judicial system, and thus could not possibly give rise to a breach of Chapter 11 of NAFTA. Although the Tribunal ultimately concluded that the assessment of this objection should be deferred to the merits phase, it proceeded with a preliminary consideration of the arguments on the issue. The United States argued that in accordance with customary international law, State responsibility could only be said to arise when there has been a final action by the State’s judicial system as a whole. The United States drew a distinction between a substantive international claim to challenge a judicial action on the one hand, and international law’s procedural requirement of exhaustion of local remedies on the other. According to the United States, nothing in Chapter 11 could be said to derogate from the substantive rule of international law regarding a NAFTA claim based on the challenge of a judicial action. In the view of the United States, the words ‘adopted or maintained’ in Article 1101 of NAFTA incorporated the substantive rule, with the result that the finality of the contested judicial action was required. The Loewen Group countered by arguing that Article 1121(1)(b) of NAFTA merely requires an arbitral claimant to waive its local remedies. According to the Loewen Group, NAFTA contains no requirement to exhaust local remedies; as the substantive principle of finality alleged by the United States was no different from the local remedies rule, it too could not be said to be required by Article 1121(1)(b) of NAFTA. 939 Loewen Jurisdiction, para 54. The Tribunal further stated: ‘An adequate mechanism for the settlement of disputes as contemplated by Chapter Eleven must extend to disputes, whether public or private, so long as the State Party is responsible for the judicial act which constitutes the “measure” complained of, and that act constitutes a breach of a NAFTA obligation, as for example a discriminatory precedential judicial decision.’

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Case 74: Loewen Jurisdiction The Tribunal came to the conclusion that the rule of judicial finality was in fact no different from the local remedies rule. In the view of the Tribunal, the local remedies rule in its modern-day, current form subsumes State responsibility for a breach of an international obligation. The Tribunal nonetheless concluded that this ground of objection should be joined to the merits phase of the arbitration. In so concluding, it indicated several discrete points that would be further pursued at that stage.940 The United States also argued that a private agreement to settle a matter out of court is not a government ‘measure’ within the scope of Chapter 11 of NAFTA, that the judge’s alleged failure to protect against the xenophobic, racial and class-based references could not be a ‘measure’ because Loewen never objected to such references during the trial. The Tribunal refrained from addressing these issues, holding that each should be dealt with at the merits phase. The Tribunal ultimately dismissed the United States’ first objection to competence and jurisdiction and joined other jurisdictional objections to the merits phase.

940

Loewen Jurisdiction, para 74.

227

75. Emilio Agustín Maffezini v Kingdom of Spain ICSID Case No ARB/97/7 31 January 2001

Argentina–Spain BIT

Rectification F Orrego Vicuña (P) T Buergenthal M Wolf

Factual Background The relevant factual background has been set out in the summary of Tribunal’s decision on jurisdiction.941 On 13 November 2000, the Tribunal rendered its Award on the merits.942 Spain submitted a request for rectification of the Award according to Article 49(2) of the Convention, complaining that the award referred to employees of the State-owned entity SODIGA as ‘officials’. In its memorial and submissions, however, Spain had never referred to the employees of SODIGA in this way.

The Decision943 The Tribunal found that the request concerned a ‘material error’944 and ordered the rectification of the award as requested. Each party was ordered to bear its own costs.

941

Maff ezini Jurisdiction, Digest I-59. Maff ezini Award, Digest I-68. 943 Emilio Agustín Maff ezini v Kingdom of Spain , ICSID Case No ARB/97/7, Rectification of the Award, 31 January 2001 (Maff ezini Rectification). 944 Maff ezini Rectification , para 18. Article 49(2) of the ICSID Convention uses the word ‘clerical error’. 942

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76. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited ICSID Case No ARB/98/8 9 February 2001

Contract

Partial Award C Brower A Rogers K Rokison

Factual Background The relevant factual background has been set out in the summary of the Tribunal’s decision on provisional measures.945 In a preliminary award,946 the Tribunal ruled on several issues but decided that the issues of the tariff adjustment and allegations of bribery raised by Tanesco should be dealt with in a further award. The Tribunal had already stated that, as a matter of principle, it would apply a test of reasonableness and prudence to the costs incurred by IPTL that should be into the tariff adjustment.947

The Decision948 Tanesco contended that the PPA was either void (or voidable) on the basis of alleged bribes by IPTL to officials of the Government of Tanzania or Tanesco.949 The Tribunal dismissed the claim for lack of evidence and held that, in any event, there were only alleged attempts at bribery that had been rejected by the individuals concerned, and that there was no suggestion that such attempts would have favoured IPTL’s cause.950

945

Tanesco Provisional Measures, Digest I-57. Tanesco Preliminary Issues, Digest I-61. 947 Tanesco Preliminary Issues, Digest I-61, paras 111 and 113–18. 948 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8, Decision on Tariff and Other Remaining Issues, 9 February 2001 (Tanesco Partial Award). 949 Tanesco Partial Award , paras 35 et seq and 54. 950 Tanesco Partial Award, paras 53 and 55–6. 946

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ICSID DECISIONS 19742002 Tanesco further alleged that IPTL had failed to perform a condition precedent to the commercial operation of the PPA: the procurement of an independent engineering certificate stating that the power plant conformed to the description in the PPA.951 The Tribunal decided that the condition of certification in the PPA was satisfied, since the certificate had previously been accepted by Tanesco and materially complied with the terms of the PPA.952 Tanesco also argued that, under Addendum No 1, the commercial operations could not commence until the tariff had been adjusted, while IPTL contended that the tariff could be adjusted retroactively.953 The Tribunal held that the tariff adjustment was a condition precedent and that it could not be inferred from the contractual provisions that the parties had intended to rely on an interim tariff to be adjusted retroactively.954 Each party accused the other of bad faith in their negotiations towards a tariff adjustment pursuant to Addendum No 1.955 The Tribunal concluded that the parties had an implied obligation under the PPA to negotiate in good faith in order to agree on an adjustment in a timely manner.956 After pointing out that none of the parties’ respective attitudes during the negotiations was fully justified, the Tribunal held that the progress of the negotiations had undoubtedly been hindered by the fact that IPTL had not provided Tanesco with the documentation necessary to assess the reasonableness and prudence of the project costs incurred by IPTL, on which basis the tariff was to be adjusted.957 The Tribunal accordingly concluded that IPTL had thereby failed to negotiate in good faith.958 Tanesco further contended that some of the costs incurred by IPTL were not for the purpose of the project nor supported by any documentation, and that IPTL did not act in a reasonable and prudent fashion with respect to costs incurred for the project. As a consequence, Tanesco claimed a downward adjustment of the tariff.959 The Tribunal held that the burden was on IPTL to establish that it had actually incurred the costs that it alleged it had incurred, while the burden was on Tanesco to establish that these costs were not incurred reasonably or prudently.960 Accordingly, the Tribunal reduced the tariff payable by Tanesco to the extent that 951 952 953 954 955 956 957 958 959 960

Tanesco Partial Award, para 58. Tanesco Partial Award, paras 58–61. Tanesco Partial Award, paras 63–4. Tanesco Partial Award, paras 65–7. Tanesco Partial Award, para 68. Tanesco Partial Award, para 68. Tanesco Partial Award, para 69. Tanesco Partial Award, para 69. Tanesco Partial Award, paras 76–157. Tanesco Partial Award, para 77.

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Case 76: Tanesco Partial Award IPTL could not prove the costs it claimed to have concurred,961 or where Tanesco demonstrated that the costs had not been incurred reasonably or prudently.962 For the purpose of constructing the power plant, IPTL had entered into an outsourcing contract, the price of which was included in the tariff to be paid by Tanesco. Tanesco contended that the outsourcing contract had been fraudulently awarded,963 and that, in any event, IPTL did not award the outsourcing contract reasonably and prudently.964 The Tribunal rejected Tanesco’s allegation of conspiracy in the absence of any supporting evidence.965 The Tribunal further explained that, in any event, the motive of IPTL did not matter and that, if it was to decide that IPTL had awarded the outsourcing contract unreasonably, the tariff would have to be adjusted to put Tanesco in the financial position it would have occupied if IPTL had acted reasonably and prudently.966 The Tribunal found that the proposal of the chosen bidder was clearly inferior to that of its competitor. The Tribunal therefore concluded that IPTL did not act reasonably in selecting the contractor, and decided that, as part of the tariff adjustment, the contract price should be reduced accordingly.967 IPTL contended that Tanesco should be estopped from questioning the reasonableness or prudence of the costs it had incurred because it never raised the issue before the arbitration.968 The Tribunal rejected IPTL’s estoppel argument on the ground that Tanesco did not possess the knowledge necessary to assess the reasonableness and prudence of IPTL’s conduct at the material time, judging its earlier silence and preventing any estoppel from arising. The Tribunal further noted that concerns about the cost of the project and reasonableness of IPTL’s expenditures had in fact been raised and discussed.969 With regard to the tariff adjustment, the Tribunal allowed the parties, upon their request, to reach an agreement and to revert to the Tribunal if necessary.970 Since the parties stressed their intention to commence commercial operations, the Tribunal ordered the parties to cooperate in doing so.971 961 962 963 964 965 966 967 968 969 970 971

Tanesco Partial Award, paras 105–10 and 121–5. Tanesco Partial Award , paras 103–19. Tanesco Partial Award, paras 72–5. Tanesco Partial Award, paras 90–102. Tanesco Partial Award, para 74. Tanesco Partial Award, para 75. Tanesco Partial Award, paras 90–102. Tanesco Partial Award, para 158. Tanesco Partial Award, paras 160 and 162–3. Tanesco Partial Award, para 166. Tanesco Partial Award, paras 167–8.

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77. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited ICSID Case No ARB/98/8 24 May 2001

Contract

Award C Brower A Rogers K Rokison

Factual Background The relevant factual background has been set out in the summary of Tribunal’s decision on provisional measures.972 In its Decision of 9 February 2001, the Tribunal decided on adjustments to be made to the tariff payable by Tanesco. While the Tribunal afforded the parties the opportunity to reach an agreement on the final tariff, it authorized them to return to the tribunal if they could not agree on the tariff adjustment or if they wished their agreement to be codified in an agreed award. The Tribunal had further ordered the parties to co-operate in taking steps for the commencement of commercial operation.973

The Decision974 Tanesco raised a number of questions in relation to the calculation of the tariff, while IPTL requested that the Tribunal order a date for the commencement of commercial operations.975 The parties also asked the Tribunal to incorporate into an award a formal stipulation concerning the agreement between the parties on an aspect of the tariff relating to the costs of gas conversion.976 The parties had also agreed on two issues raised by Tanesco in relation to the adjustment of the 972

Tanesco Provisional Measures, Digest I-57. Tanesco Partial Award, Digest I-76, paras 166–8. 974 Tanesco Award , para 10. 975 Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8 Decision on All Further Remaining Issues, 24 May 2001 (Tanesco Award). 976 Tanesco Award , paras 3, 5 and 7. 973

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Case 77: Tanesco Award tariff concerning financing and agency fees, as well as insurance, and the Tribunal invited them to incorporate their agreement into the Decision.977 In the first part of the Decision, the Tribunal set out the terms of the agreement between the parties on the adjustment of the tariff concerning the cost of gas conversion, financing and agency fees and insurance.978 Tanesco contended that the construction contingency reserve which had been agreed between the parties should not be taken into account at all in the calculation of the tariff.979 The Tribunal held that it was unable to determine whether extra work would be required on the plant before the commencement of commercial operations or whether it would be funded out of the reserve, since the parties disagreed on that point.980 The Tribunal concluded that the contingency reserve would have to be taken into account in the calculation of the tariff, which would have to be adjusted upon release of the reserve, which the Tribunal decided would occur at the date when commercial operations commenced, unless extra work was to be funded out of the reserve.981 Tanesco then claimed an adjustment of the tariff in relation to the fraction of the project costs which was to be funded by IPTL as part of its equity contribution.982 While IPTL argued that this point should have been raised as part of the dispute on the tariff calculation dealt with by the Tribunal in prior decision, Tanesco replied that it could not have made this claim before that decision.983 The Tribunal rejected the claim on the ground that Tanesco could have raised the point as a principle, even though it might not have been able to quantify the adjustment it sought, and that the Tribunal had not intended to allow the parties to raise wholly new points after prior decision.984 Finally, IPTL requested that the Tribunal set a fixed date for the commencement of commercial operations. But the Tribunal acknowledged that, after this Decision, final adjustments would still have to be made to the parties’ financial model before incorporating it into the final award, and that further problems could occur during commissioning and testing of the plant which would then require additional work.985 The Tribunal therefore rejected IPTL’s request and invited the parties once again to co-operate to achieve the commencement of commercial operations as soon as possible.986 977 978 979 980 981 982 983 984 985 986

Tanesco Award, para 8. Tanesco Award, para 11. Tanesco Award, para 14. Tanesco Award, para 19. Tanesco Award, para 20. Tanesco Award, para 22. Tanesco Award, paras 23–4. Tanesco Award, para 24. Tanesco Award, paras 31–2. Tanesco Award, para 33.

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78. Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia ICSID Case No ARB/99/2 25 June 2001

United States–Estonia BIT

Award L Y Fortier (P) M Heth A van den Berg

Factual Background In August 1994, Estonian Innovation Bank (EIB), a financial institution owned and managed by US national Alex Genin and various companies, including Eastern Credit (a US company) and AS Baltoil (an Estonian company owned by Eastern Credit), purchased a branch of an Estonian bank (the ‘Koidu branch’) at an auction organized by the central bank of Estonia. Just a month later, EIB uncovered discrepancies in the branch’s balance sheet. EIB sought compensation in Estonian courts from the Bank of Estonia for losses allegedly resulting from these discrepancies. The Bank of Estonia and EIB discussed allowing the losses to be amortized over five years. But in October 1996, the Bank of Estonia required EIB to write off its losses related to the acquisition. In March 1997, the Bank of Estonia required EIB and its shareholders to apply for qualified holding permits in order to continue holding stock. The Claimants complied but challenged the order in local administrative court. In September 1997, the Bank of Estonia voted to revoke EIB’s banking licence. EIB filed a challenge in court. In 1998, while this challenge was still pending, one of EIB’s minority shareholders successfully petitioned the court to liquidate the bank’s assets on grounds that the licence had been revoked. In October 1999, EIB’s challenge to the revocation of its licence was dismissed. Later that year, the Claimants initiated arbitration against Estonia under the United States–Estonia bilateral investment treaty.

234

Case 78: Genin Award

The Decision987 1. Jurisdiction The Tribunal started its analysis by pointing out that its jurisdiction covered the Claimants’ ownership interest in EIB. It considered it extremly doubtful that jurisdiction would have existed if the case had been limited to the purchase of the Estonian bank and the losses generated by that acquisition. Furthermore, it noted that Eastern Credit’s acquisition of part of EIB’s claims resulting from the losses of the bank did not constitute an ‘investment’ protected by the BIT.988 The Tribunal then rejected Estonia’s objections to jurisdiction. Estonia relied on the fork-in-the-road clause in Article VI(2) of the BIT and argued that the claims initiated by EIB in Estonia and by Eastern Credit in the United States constituted a choice of forum under that provision. In Estonia’s view, all of the Claimants were one group, and the submission of a dispute by one member to local courts should have effect for all members of the group. The Tribunal held that the lawsuits in Estonia relating to the purchase of the branch bank and the revocation of EIB’s licence were different from the Claimants’ cause of action in the arbitration.989 Nor was a lawsuit filed by Eastern Credit in the United States related to the core issue of EIB’s licence revocation.990 The Tribunal did not give detailed reasons for its holding, but relied on the different parties involved and concerned (such as creditors and borrowers of EIB) in the related proceedings, and the different relief sought (damages versus restoration of the licence).991 2. Merits The Tribunal grouped the issues to be determined into three major categories: (i) claims related to EIB’s purchase of the Koidu branch and the losses arising therefrom (‘Transgressions’ 1–3); (ii) claims relating to the revocation of EIB’s licence (‘Transgressions’ 4–7);992 and (iii) claims concerning alleged harassment (‘Transgression’ 8).993 987 Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v Th e Republic of Estonia , ICSID Case No ARB/99/2, 25 June 2001 (Genin Award ). 988 Genin Award , para 319. The reasons are not entirely clear, as the Tribunal simply referred to ‘many of the reasons set out by Estonia in its Counter-Memorial’. 989 Genin Award , para 331. 990 Genin Award , para 334. 991 The Tribunal did not analyse the ‘triple identity test’ in any detail, see Digest I, pp 329–30. 992 The Tribunal specifically suggested that the matters related to the sale of the Koidu branch encompassed only what the Claimants refer to as Transgressions 1 and 2. The Tribunal suggested that the second issue—matters related to the revocation of EIB’s Licence—encompassed Transgressions 3–7. However, the subject matter of the alleged third Transgression, the proposed amortization/write-off plan, was directly addressed by the Tribunal reviewing the sale of the Koidu branch. 993 Genin Award , para 313.

235

ICSID DECISIONS 19742002 The Tribunal rejected the Claimants’ argument that the distribution by the Bank of Estonia of a misleading balance sheet for the branch bank prior to auction violated the fair and equitable treatment standard of the USA–Estonia BIT.994 The Tribunal found that the Bank of Estonia’s involvement in the misrepresentation had not been proven. While the panel chastized the Bank of Estonia for lack of attention to bidders’ risks at auction,995 it concluded that the Claimants had acted ‘unprofessionally’ and ‘carelessly’, noting that they had carried out insufficient due dilligence and failed to insist on warranties from the seller. According to the arbitrators, EIB ‘should have known’ that the bank they were about to buy ‘was on the verge of bankruptcy’.996 With no attribution established, the claim of inequitable treatment was dismissed. The Tribunal also rejected the argument that Estonia had failed to abide by an alleged 1996 settlement agreement, thereby violating the fair and equitable treatment standard.997 The Tribunal was unconvinced that the 1996 agreement could be binding, in part referring to the relevant document’s heading: ‘Tentative Agreement’. Nor could it find adequate evidence that the Respondent intended to be bound.998 On this basis, the second claim was dismissed. The Claimants then alleged that the Bank of Estonia had forced EIB into an undercapitalized position by changing the rules as to how the branch bank losses had to be recorded.999 They argued that the Bank of Estonia intentionally sought to engineer a shortfall in EIB’s capital levels to justify the revocation of the bank’s licence, in violation of the BIT’s guarantee of fair and equitable treatment, the prohibition against arbitrary or discriminatory measures and the prohibition against the imposition of formal requirements impairing substantive rights. Estonia argued in defence that EIB had long struggled to meet minimum capitalization requirements for Estonian financial institutions. As early as 1995, EIB had been warned that its insolvency indicator was below the relevant threshold.1000 The Tribunal noted that it had received no convincing explanation as to why Estonia had initially considered permitting extended amortization of the branch bank losses, or why the Bank of Estonia later reversed course. Ultimately, the arbitrators did not consider the change of position to be a violation of the treaty. ‘[B]oth the decision to allow gradual amortization and its reversal were regulatory rulings, and the [central bank’s] demand to . . . [write off ] the losses at once was not . . . unreasonable according to accepted accounting practices.’1001

994

Genin Award, paras 66–70. See Genin Award, footnote 79. 996 Genin Award, para 345. 997 Genin Award, paras 72–6. 998 Genin Award, para 346. 999 Genin Award, para 77. 1000 Genin Award, para 130. 1001 Genin Award, para 347. 995

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Case 78: Genin Award The Tribunal then turned to various claims concerning acts of the Bank of Estonia which the Tribunal considered to be ‘part and parcel’ of the claim relating to the revocation of the banking permit. The first act concerned Bank’s 1997 edict requiring EIB shareholders to apply for ‘qualified holding permits’. Since the relevant shareholders either already held relevant permits or owned less than 10 per cent of EIB shares, the Claimants alleged that the government order breached provisions on fair and equitable treatment and prohibiting disciminatory or arbitrary interference with licences and permits. Estonia countered that prior permits had been based on false financial information.1002 The Tribunal held that while the Bank’s request was ‘exceptionally formalistic’, the decision as such was not unsound given the Claimants’ business conduct. The Tribunal referred, inter alia, to unclear business addresses of the EIB’s shareholders and a refusal to provide clear and reliable data to the Bank of Estonia.1003 On this basis, the arbitrators rejected the claim.1004 The Claimants further alleged that the Bank of Estonia’s requests for detailed shareholder information—such as balance sheets—based on unpublished regulations was a breach of a BIT provision requiring that all laws, regulations, and administrative practices affecting investments be published.1005 Estonia contended that information requests about EIB’s largest shareholders came during an audit, and that the Estonian banking authorities eventually discovered serious banking law violations and patterns of misleading reporting.1006 The Tribunal considered that the Bank of Estonia had been ‘fully authorized’ to demand such information, and criticized the Claimants for not being more cooperative.1007 The claim was therefore dismissed. Arriving at the Claimants’ core claim, the Tribunal held ‘[n]ot without some hesitation’ that the procedure leading to the revocation of EIB’s banking licence did not amount to a denial of justice. The Tribunal closely considered whether the central bank had afforded the Claimants due process, and noted the lack of notice that EIB had been given that its licence was in danger of revocation.1008 The arbitrators considered that the decision was based upon ‘serious and entirely reasonable misgivings’ regarding EIB’s management, operations, investments and soundness as a financial institution.1009 While these practices were found to be contrary to generally accepted banking and

1002 1003 1004 1005 1006 1007 1008 1009

Genin Award, paras 111–12. Genin Award, para 352. Genin Award, para 353. Genin Award, para 88. Genin Award, para 104. Genin Award, paras 355–7. Genin Award, para 358. Genin Award, para 361.

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ICSID DECISIONS 19742002 regulatory practice, they did conform to Estonian law, and in the arbitrators’ view did not constitute a denial of due process.1010 The Tribunal also found that Estonia had accorded the Claimants fair and equitable treatment, which it understood as an international minimum standard.1011 While the Tribunal noted that the exact content of that obligation might be unclear, it held that in light of the ample grounds for the Bank of Estonia’s actions, the standard of protection had not been violated. It also concluded that Estonia’s actions were neither discriminatory nor arbitrary (which it understood as ‘bad faith, a willful disregard of due process of law or an extreme insufficiency of action1002.1012 Finally, the Claimants contended that a criminal investigation initiated against Mr Genin and Eastern Credit had been launched to intimidate them. EIB representatives were also threatened with deportation from the country. This harassment was allegedly in violation of several provisions of the BIT.1013 The Tribunal was unpersuaded that these allegations, if true, could form the basis for a valid BIT claim.1014 But in any event, the Claimants had not proven that harassment had occurred, and therefore the claim was dismissed. In considering whether to award costs, the arbitrators took the opportunity to ‘decry Mr Genin’s failure to cooperate with the Estonian banking authorities’, describing his actions as broad-based ‘concealment’ that continued through the arbitration process.1015 They also criticized Estonia for the ‘awkward manner by which the Bank of Estonia revoked EIB’s license’.1016 The Tribunal was of the opinion that such conduct by either party standing alone might have resulted in an award of costs against the offending party. However, since both sides had acted inappropriately, the panel declined to allocate costs or expenses.

1010

Genin Award, para 364. Genin Award, para 367. 1012 Genin Award , para 370. 1013 Genin Award , para 97. 1014 Genin Award , para 374. The Claimant sweepingly referred to Art II 3(a) and (b) of the BIT, which imposed an obligation of fair and equitable treatment, full protection and security, treatment not less than required by international law and the prohibition of arbitrary or discriminatory measures. 1015 Genin Award , para 380. 1016 Genin Award , para 381. 1011

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79. ADF Group Inc v United States of America ICSID Case No ARB(AF)/00/1 11 July 2001

NAFTA

Procedural Order F P Feliciano (P) C B Lamm A de Mestral

Factual Background The dispute arose in relation to the construction of a highway construction project in the United States (the Springfield Project). The Springfield Interchange was a heavily used and accident-prone highway junction, located in northern Virginia, approximately 20 km south of Washington DC. The Springfield Project entailed the construction of a series of lanes, ramps and bridges to increase safety and efficiency. For the financing of the project, the state of Virginia received funding assistance from the federal government. Virginia awarded the contract for the main phases of the project to Shirley Contracting Corporation (Shirley), which in turn subcontracted certain elements of the work. The supply of structural steel necessary for carrying out the project was subcontracted to ADF International, Inc (ADF USA), the US subsidiary of Canadian company ADF Group, Inc (ADF ). The subcontract incorporated certain provisions of the main contract between Virginia and Shirley, which in turn incorporated certain US statutory provisions. One of these statutes required that all steel used in highway construction projects involving federal financial assistance be processed at facilities located in the United States (the Buy America Clause). ADF USA planned to carry out certain fabrication work on US-produced steel in ADF’s Canadian factory.1017 To this end, it applied for a waiver of the Buy America Clause. Although it had a factory in Florida, that factory would not have been able

1017 ‘Fabrication’ is a stage in the production of steel goods, referring to the building of machines, structures, or process equipment by cutting, shaping and assembling components made from raw materials.

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ICSID DECISIONS 19742002 to perform the necessary work. Virginia ultimately denied this application in July 1999, and ADF USA was compelled to subcontract most of the work to other US manufacturers, leading to a massive increase in expenses. On 29 February 2000, ADF filed a Notice of Intention to Submit a Claim to Arbitration pursuant to Article 1119 of NAFTA, triggering the mandatory 90-day pre-arbitration negotiation period. On 22 July 2000, ADF submitted its claim to ICSID for adjudication by arbitration pursuant to the Additional Facility Rules.1018 The parties could not agree on the location of the place of arbitration. ADF requested that the Tribunal designate Montreal, Canada as the place of arbitration, while the United States favoured Washington DC. This issue was put before the Tribunal for adjudication.

The Decision1019 First, the Tribunal noted that NAFTA Article 1130 only requires that the seat of arbitration be in a State that is a contracting party of the New York Convention.1020 Furthermore, Article 1130 refers to the Arbitration (Additional Facility) Rules and the UNCITRAL Rules. Article 20 of the Additional Facility Rules imposes no further requirements concerning the choice of the arbitral seat. By comparison, Article 16 of the UNCITRAL Rules provides only that that the place of arbitration be determined ‘having regard to the circumstances’.1021 The Tribunal then examined the UNCITRAL Notes on Organizing Arbitral Proceedings and offered five observations related to the place of arbitration.1022 First, the Tribunal found that the procedural laws of both places proposed by the parties were equally suitable. The Tribunal was not persuaded by ADF’s suggestion that the arbitration laws of the United States lacked clarity and thus would multiply the post-award litigation concerning the recognition and enforcement, or the setting aside, of awards. 1018 The Additional Facility was created in 1978 and allows for the submission of disputes if either the home State of the investor or the Respondent State is not a party to the ICSID Convention. In this case, the dispute was submitted to the Additional Facility because Canada was not a party to the ICSID Convention. Canada signed the ICSID Convention in December 2006. As of December 2012, ratification was pending and considered to be imminent. 1019 ADF Group Inc v United States of America, ICSID Case No ARB(AF)/00/1, Procedural Order No 2 Concerning the Place of Arbitration, 11 July 2001 (ADF Place of Arbitration). 1020 The Tribunal did not discuss the effects the Panama Convention would have on the recognition and enforcement under the 1958 New York Convention. Compare Waste Management, Inc v United Mexican States (Resubmitted), ICSID Case No ARB(AF)/00/3, Decision on the Venue of the Arbitration, 26 September 2011 (Waste Management II Place of Arbitration), Digest I-84, para 18. 1021 Now Article 18(1) of the 2010 UNCITRAL Rules. 1022 ADF Place of Arbitration, para 8.

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Case 79: ADF Place of Arbitration Second, the Tribunal confirmed that both countries were parties to the New York Convention.1023 Thus, there would be no difference as regards the recognition and enforcement of the award. Third, the Tribunal considered the convenience of both places to the parties,1024 which was ultimately deemed to be equal, bearing in mind the places of residence of the arbitrators and the necessity of travelling. However, ICSID facilities would make Washington more convenient for the conduct of arbitration. Fourth, the Tribunal considered that the subject matter of the dispute, i.e. the issues in dispute, arose out of measures taken by the United States. To the extent that these claims could be regarded as having a location, the Tribunal considered that this was Washington DC. Finally, the Tribunal briefly considered that ICSID was a neutral forum, and as it was physically located in Washington DC (at the headquarters of the World Bank), this could be regarded as a neutral place of arbitration.1025

1023 1024 1025

ADF Place of Arbitration, para 17. ADF Place of Arbitration, para 18. ADF Place of Arbitration, para 21.

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80. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited ICSID Case No ARB/98/8 12 July 2001

Contract

Award C Brower A Rogers K Rokison

Factual Background The relevant factual background has been set out in the summary of the Tribunal’s decision on provisional measures.1026 In April 2000, Tanesco requested document production concerning certain gifts and payments that IPTL personnel allegedly made to Tanzanian government officials. The Tribunal declined the request largely because, until then, Tanesco had not alleged corruption as a defence to the enforcement of the PPA. In May 2000, Tanesco renewed the request, this time formally pleading that it had the right to rescind the PPA because it had been procured through corruption. Tanesco insisted that this new defence qualified as an ‘ancillary claim’ as provided in Rule 40 of the Arbitration Rules, and could therefore be interposed even at this late point in the proceedings. In June 2000, the Tribunal agreed that the corruption claim should be permitted, and that both parties should produce all related documents.

The Decision1027 The parties had agreed on certain questions concerning matters of construction in the PPA and had even reached a preliminary consensus on the legal matters in dispute.1028 Further questions on the interpretation of the PPA were decided in the

1026

Tanesco Provisional Measures, Digest I-57. Tanzania Electric Supply Company Limited v Independent Power Tanzania Limited, ICSID Case No ARB/98/8, Award, 12 July 2001 (Tanesco Award ). 1028 Tanesco Preliminary Issues, Digest I-61. 1027

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Case 80: Tanesco Award Tribunal’s ‘decision on tariff and other remaining issues’1029 and its ‘decision on all further remaining issues’.1030 These decisions were referred to in the Award, which also contained a determination of costs. The Tribunal ruled that each party was to bear its own costs and share the costs of the arbitration equally.1031

1029 1030 1031

Tanesco Partial Award, Digest I-76. Tanesco Award, Digest I-80. Tanesco Award, para 55.

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81. Consortium RFCC v Kingdom of Morocco ICSID Case No ARB/00/6 16 July 2001

Italy–Morocco BIT

Jurisdiction R Briner (P) B M Cremades I Fadlallah

Factual Background The dispute arose out of a contract for the construction of a highway between Rabat and Fez (the Contract), which was concluded between Consortium RFCC, a consortium of Italian companies (RFCC ) and Société Nationale des Autoroutes du Maroc, a company incorporated in Morocco (ADM ). Eighty-nine per cent of ADM’s shares were owned either by the Kingdom of Morocco (Morocco) or Moroccan State entities. In August 1994, ADM launched an international tender for the Contract. Although the highway was put into service in 1998, the work was not entirely completed by then. The following year, RFCC refused to sign the final breakdown of costs, insisting that it had not been paid in full for work performed under the Contract. In 1999, RFCC offered reasons to the Chief-Engineer of ADM as to why it refused to sign the breakdown of costs. As a consequence, several meetings took place with the Minister for Construction. On 6 June 2000, RFCC filed a request for arbitration with ICSID, claiming violations of the Italy–Morocco BIT.

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Case 81: RFCC Jurisdiction

The Decision1032 Morocco raised several objections to the jurisdiction of the Tribunal. First, it argued that the request for arbitration was premature. It contended that RFCC had not respected its obligation to make attempts to settle the dispute amicably as provided by Article 8(1) of the BIT, because its complaints had been directed towards the government bodies. In addition, Morocco argued that the Tribunal had no in personam or subject matter jurisdiction. The Tribunal considered that RFCC had undertaken proper attempts to settle the dispute amicably as required by Article 8(1) of the BIT and had directed its complaints to the correct parties. Furthermore, the Tribunal clarified that there were no strict requirements concerning attempts to settle a dispute amicably. It refused to impose strict rules for an amicable settlement on the parties; rather, it was content to assess whether the parties undertook steps that were appropriate to settle the dispute.1033 The Tribunal concluded that the 1999 correspondence was such an appropriate step. As a result, the six-month cooling-off period stipulated in Article 8(2) of the BIT had elapsed, and arbitration could properly commence. The Tribunal then turned its attention to Morocco’s jurisdictional objections. It rejected Morocco’s argument that RFCC was prevented from requesting arbitration as it had already opted for dispute settlement before the domestic Moroccan administrative courts. The relevant provision of the BIT offered investors the choice to settle the dispute by submitting it either: (a) to the courts of the host State; (b) to UNCITRAL arbitration; or (c) to ICSID arbitration. Morocco argued that since the applicable Moroccan provisions for public tenders provided for dispute settlement in the Moroccan courts, RFCC had already exercised its choice.1034 The Tribunal first noted that, according to Article 25(1) of the Convention, the consent of the parties to arbitrate is always required. Referring to AAPL v Sri Lanka,1035 the Tribunal pointed out that it is possible for a State to express consent in a treaty by way of a standing unilateral offer to submit a dispute to arbitration. The investor accepts this offer by filing a Request for Arbitration.1036 As it was not possible freely to choose the jurisdiction of the administrative courts, ICSID arbitration would prevail over litigation in the domestic courts as a matter of party autonomy. 1032 Consortium RFCC v Kingdom of Morocco, ICSID Case No ARB/00/6, Decision on Jurisdiction, 16 July 2001 (RFCC Jurisdiction). 1033 RFCC Jurisdiction, para 22. For other cases imposing requirements on pre-arbitration settlement procedures, see Limited Liablity Company Amto v Ukraine, SCC Arbitration No 080/2005, Final Award, 26 March 2008 (Cremades, Runeland, Soderlund), para 57; Generation Ukraine Inc v Ukraine, ICSID Case No ARB/00/9, Award, 16 September 2003 (Generation Ukraine Award), Digest II-9, paras 14.4–14.5. 1034 RFCC Jurisdiction, para 29. 1035 AAPL Award, Digest I-33. 1036 RFCC Jurisdiction, para 31.

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ICSID DECISIONS 19742002 Second, Morocco contended that the Tribunal lacked personal jurisdiction because ADM was not a State entity. The Tribunal first noted that it not was necessary to rule on this issue because the claims were directed against Morocco and not ADM. However, since the parties had discussed this question extensively, the Tribunal felt the need to make a determination.1037 It noted there was no definition of the term ‘Contracting State’ in the Convention or the applicable BIT. Article 25(1) of the Convention would not be helpful as ADM was not a ‘constituent subdivision or agency of a contracting State designated to the Centre by that State’.1038 The Tribunal also made general observations on when an entity could be considered a State entity: In general, a company is considered a State entity if it is a commercial company dominated or predominantly controlled by the State or by public institutions, whether it has legal personality or not.1039

In order to determine whether an entity is controlled by the State, the Tribunal referred to the award in Maffezini v Spain,1040 and more generally the principles of State responsibility. Under the law of State responsibility, two criteria would be decisive: (i) a structural criterion, i.e. structure and shareholding; and (ii) a functional criterion, contingent on the purpose of the entity. Turning to the facts of the case, the Tribunal considered that 89 per cent of ADM’s shares were either directly or indirectly owned by Morocco.1041 Moreover, ADM’s purpose was the construction of infrastructure and thus public in nature.1042 Accordingly, for the purposes of the ICSID proceedings, the Tribunal considered ADM a State entity that was acting on behalf of Morocco.1043 The Tribunal then turned to assess whether it had subject matter jurisdiction. Referring to the award in Fedax v Venezuela,1044 the Tribunal clarified that it had to determine whether the dispute concerned an investment in the sense of the BIT as well as in the sense of the ICSID Convention.1045 As to the BIT, the Contract at hand constituted both a claim to money and ‘an economic right conferred by contract’.1046 The Tribunal saw this as sufficient to constitute an ‘investment’ as defined by the BIT. The Tribunal rejected Morocco’s argument that the stipulation in the BIT, according to which the investment had to be made in compliance

1037

RFCC Jurisdiction, para 34. RFCC Jurisdiction, para 35. 1039 RFCC Jurisdiction, para 35. 1040 Maff ezini Jurisdiction, Digest I-59, paras 76–89. 1041 RFCC Jurisdiction, para 36. 1042 RFCC Jurisdiction, para 37. 1043 RFCC Jurisdiction, para 40. 1044 Fedax Jurisdiction, Digest I-44. 1045 RFCC Jurisdiction, para 51. This two-tier investment definition has found resonance in subsequent awards and academic writing. 1046 RFCC Jurisdiction, para 53. 1038

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Case 81: RFCC Jurisdiction with the laws of the host State, incorporated the definition of the term ‘investment’ contained in the Moroccan investment law.1047 According to the Tribunal, this provision only concerned the legality of the investment, rendering Moroccan law conceptions of investment irrelevant.1048 The Tribunal noted that, when the Convention was drafted, a definition of ‘investment’ was deliberately omitted.1049 Nevertheless, the Tribunal rejected the proposition that the definition of the term was left to the discretion of the parties.1050 Rather, the Tribunal found that an ‘investment’ was capable of objective definition under certain criteria: The doctrine considers generally that ‘investment’ entails a contribution, a certain duration of the transaction and a participation in the risks of the project. . . . A reading of the Preamble to the Convention allows the addition of the criterion of contribution to the economic development of the host State.1051

The Tribunal stressed that these criteria are interdependent and should be assessed globally.1052 Turning to the objective requirements, the Tribunal held that the Contract represented a significant financial value and, with a duration of 20 months, the minimum time requirement (between two and five years) was also satisfied.1053 Finally, the construction of a highway also served the development of the host State.1054 Accordingly, the Tribunal concluded that an ‘investment’ existed as contemplated by Article 25(1) of the Convention. Finally, the Tribunal turned to the subject matter of the claims. Article 8 of the BIT envisaged ICSID arbitration for all disputes, including disputes ‘related to the amount of compensation due in case of expropriation, nationalization or similar measures’.1055 The Tribunal reasoned that this provision, although it refers to expropriations, cannot be interpreted in such a way as to generally exclude disputes arising out of contracts.1056 However, in the case of contractual disputes, Article 8 of the BIT would confer jurisdiction only where the Contract bound Morocco to its terms. If a non-qualifying State entity was party to the Contract, the dispute would 1047

RFCC Jurisdiction, para 54. The issue of ‘investments made in accordance with the law’ was discussed considerably in later awards. See C Knahr, ‘Investments “in accordance with host state law”’ (2007) 4(5) TDM available at . 1049 RFCC Jurisdiction, para 59. 1050 RFCC Jurisdiction, para 60. 1051 RFCC Jurisdiction, para 60. 1052 See further Malaysian Historical Salvors, SDN, BHD v Malaysia, ICSID Case No ARB/05/10, Decision on the Application for Annulment, 16 April 2009 (Schwebel, Shahabuddeen, Tomka), paras 77–80; Schreuer et al, ICSID Convention, note 6, Art 25 paras 171–4. 1053 RFCC Jurisdiction, para 62. 1054 RFCC Jurisdiction, para 65. 1055 RFCC Jurisdiction, para 67. 1056 RFCC Jurisdiction, para 67. 1048

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ICSID DECISIONS 19742002 not be covered by the arbitration clause, insofar as the dispute was merely contractual.1057 However, where the breach of Contract implicated Morocco in terms of liability, this could also give rise to a claim based on a breach of the BIT, thereby conferring jurisdiction on an ICSID tribunal.1058 In this respect, the Tribunal concluded that it had jurisdiction only over claims arising out of the Contract between RFCC and ADM that also constituted a violation of the BIT.1059

1057 It is unclear whether the Tribunal did not consider that the contract might be ‘attributed’ to the State or whether it considered this to be not possible. 1058 RFCC Jurisdiction , para 69. See further Compaña de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic (formerly Compagnie Générale des Eaux), ICSID Case No ARB/97/3, Decision on Annulment, 3 July 2002 (Vivendi I Annulment), Digest I-92. 1059 After confi rming its jurisdiction, the Tribunal proceeded to the merits of the dispute. The Award was rendered on 22 December 2003. Consortium RFCC v Kingdom of Morocco, ICSID Case No ARB/00/6, Award, 22 December 2003 (RFCC Award), Digest II-15. RFCC later challenged the Award, but the ad hoc Committee declined RFCC’s request to annul the Award; see Consortium RFCC v Kingdom of Morocco, ICSID Case No ARB/00/6, Decision on Annulment, 18 January 2006 (RFCC Annulment), Digest II-48.

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82. Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco ICSID Case No ARB/00/4 23 July 2001

Morocco–Italy BIT

Jurisdiction R Briner (P) B M Cremades I Fadlallah

Factual Background Salini Costruttori SpA and Italstrade SpA, two Italian companies, entered an agreement (the Agreement) with the Société Nationale des Autoroutes du Maroc (ADM ) to construct a highway segment in Morocco. ADM, a Moroccan limited liability company, was the concession rights-holder for the construction and operation of highways in Morocco. The dispute arose from the draft final accounts, following late completion of the project. Salini disagreed with the accounts and requested amendments from ADM. Having been unsuccessful in its negotiations, the Claimants filed a request for arbitration with ICSID pursuant to the Morocco– Italy BIT.

The Decision1060 Morocco objected to the Tribunal’s jurisdiction on three grounds. First, Morocco argued that the Claimants had failed to satisfy the pre-arbitration amicable settlement requirements of the BIT, because their correspondence with the government was insufficiently detailed. The Tribunal disagreed, based on its view that ‘the attempt to reach an amicable settlement should essentially include

1060 Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco, ICSID Case No ARB/00/4, Decision on Jurisdiction, 23 July 2001 (Salini/Morocco Jurisdiction). The ICSID Secretariat had recommended the consolidation of this case with RFCC v Morocco, as both cases were based on the Morocco–Italy BIT and presented similar factual and legal backgrounds. Although in the end the cases were not consolidated, the same arbitrators were chosen. See RFCC Jurisdiction, Digest I-81.

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ICSID DECISIONS 19742002 the existence of grounds for complaint and the desire to resolve these matters out-of court. It need not be complete or detailed’.1061 The Tribunal dealt next with Morocco’s objection that the Claimants had waived their right to ICSID arbitration by concluding the Agreement, which incorporated terms submitting the resolution of disputes to the jurisdiction of the Moroccan administrative courts.1062 The Tribunal decided first that both parties had validly consented to ICSID jurisdiction. Secondly, the Tribunal found that the Claimants’ submission to the jurisdiction of the administrative courts had not been by choice and could not, therefore, constitute an exercise of party autonomy. It followed that the parties’ valid consent to ICSID jurisdiction would prevail.1063 The Tribunal then turned to consider the scope of its jurisdiction. Morocco argued that the Tribunal lacked jurisdiction rationae personae because ADM was a private entity, not a State entity. The Tribunal noted that the claims were directed against the State and were founded on alleged violations of the BIT. It was therefore unnecessary to decide whether ADM was a State entity.1064 The Tribunal nonetheless went on to find that ADM was in fact a State entity, both structurally and functionally, as this was potentially relevant to later stages of the case. As for the Tribunal’s ratione materiae jurisdiction, the Tribunal had to decide: (a) whether there was a ‘protected investment’ that came within the parties’ consent to arbitration; and (b) whether the Tribunal’s jurisdiction was limited to breaches of the BIT only or extended to contractual breaches as well.1065 On the first point, the Tribunal had to determine first whether there was an ‘investment’ under the BIT.1066 This definition was distinct from assessing ‘the validity of the investment’.1067 Here, the BIT definition of ‘investment’ covered ‘all categories of assets invested . . . in accordance with the laws and regulations of the [host State]’.1068 The arbitrators were of the view that this language raised questions of validity and sought ‘to prevent the Bilateral Treaty from protecting investments that should not be protected, particularly because they would be illegal’.1069 The

1061 Salini/Morocco Jurisdiction, para 20. See further Bayindir Insaat Turizm Ticaret ve Sanayi AS v Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Decision on Jurisdiction, 14 November 2005 (Bayindir Jurisdiction), Digest II-46, paras 88–103. 1062 Salini/Morocco Jurisdiction, paras 25–6. 1063 Salini/Morocco Jurisdiction, para 27. See further Vivendi, Digest I-92, paras 102–115. 1064 Salini/Morocco Jurisdiction, para 30. 1065 Salini/Morocco Jurisdiction, paras 36–42. 1066 Salini/Morocco Jurisdiction, paras 43–4. See further Fedax Jurisdiction, Digest I-44, paras 21, 31. 1067 Salini/Morocco Jurisdiction, para 46. 1068 Article 1 of the BIT and Salini/Morocco Jurisdiction, para 37. 1069 Salini/Morocco Jurisdiction, para 46, cited with approval in Bayindir Jurisdiction, Digest II-46, para 109, and Inceysa Award , Digest II-61, para 187 (note the difference in translation, which refers to ‘legality’ instead of ‘validity’).

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Case 82: Salini/Morocco Jurisdiction Tribunal then determined that there was a valid ‘investment’ within the meaning of the BIT. Turning to the definition of ‘investment’ under Article 25 of the Convention, the Tribunal formulated a multi-factor test, under which an investment infers ‘contributions, a certain duration of performance of the contract and a participation in the risks of the transaction’1070 as well as ‘contribution to the economic development of the host State of the investment’.1071 The Tribunal recognized that ‘these various elements may be interdependent. . . . As a result, [they] should be assessed globally even if, for the sake of reasoning, the Tribunal considers them individually.’1072 In applying its criteria characterizing the investment, the Tribunal observed that contributions may be made ‘in money, in kind, and in industry’ and that ‘the minimum length of time upheld by the doctrine . . . is from 2 to 5 years’.1073 It did not matter that ‘risks were freely taken’ and the construction of infrastructure was prima facie considered as contributing to the economic development of host States.1074 On the facts, the Claimants had made an ‘investment’ for the purposes of the Convention. Lastly, the Tribunal decided that, on its terms, the offer to arbitrate in the BIT was very general: it extended to ‘violations of the Bilateral Treaty and any breach of a contract that binds the State directly’.1075 Where an entity other than the State is a named party, however, and ‘where the State has organised a sector of activity through a distinct legal entity, be it a State entity, it does not necessarily follow that the State has accepted a priori that the jurisdiction offer . . . should bind it with respect to contractual breaches committed by this entity’.1076 The Tribunal concluded that it had jurisdiction over the Claimants’ claims, as formulated, but only to the extent that the underlying breaches of contract simultaneously consituted a violation of the BIT.

1070 Salini/Morocco Jurisdiction, para 52, citing E Gaillard, ‘Chroniques des sentences arbitrales’ (1999) 126 JDI 273, 292. 1071 Salini/Morocco Jurisdiction, para 52. See generally Dugan et al, Investor–State Arbitration (New York: Oxford University Press, 2008), pp 260–76. 1072 Salini/Morocco Jurisdiction, para 52. 1073 D Carreau, Th Flory, P Juillard, Droit International Economique (Paris: LGDJ, 3rd edn, 1990), pp 558–78; C Schreuer, ‘Commentary on the ICSID Convention’ (1996) 11 ICSID Review—FILJ 2, pp 318–493. On the question of the required duration of the investment, compare Saipem SpA v The People’s Republic of Bangladesh, ICSID Case No ARB/05/07, Award, 30 June 2009 (KaufmannKohler, Schreuer, Otton). 1074 Salini/Morocco Jurisdiction, paras 53–7. 1075 Salini/Morocco Jurisdiction, para 61. 1076 Salini/Morocco Jurisdiction, para 60.

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83. Olguín v Republic of Paraguay ICSID Case No ARB/98/5 26 July 2001

Peru-Paraguay BIT

Award R Oreamuno Blanco (P) F Rezek E Mayora Alvarado

Factual Background The Claimant, Mr Eudoro Armando Olguín, a dual national of Peru and the United States, deposited US$1,254,500 in a Paraguayan private financial institution called La Mercantil SA de Finanzas (La Mercantil ). In exchange for the deposited sums, he received investment instruments (TDIs). The arrangements with La Mercantil had been prepared by Mr Olselli Pagliaro, who at that time held a position at the Central Bank of Paraguay. He communicated with the Claimant on non-letterhead stationery and provided him with the Central Bank of Paraguay’s Official Report on La Mercantil. With the aforementioned funds, Mr Olguín intended to finance the construction of a corn products plant in Paraguay, whose owner was a company called Super Snacks de Paraguay SA, incorporated in 1994 by Mr Olselli Pagliaro and Mr Rovira Barchello, the general manager of La Mercantil. Amidst the Paraguayan financial crisis in 1995, the financial institution suspended its operations and ceased honouring payments due under the TDIs. After numerous unsuccessful attempts to recover the funds he had deposited, on 27 October 1997, Mr Olguín filed a request for ICSID arbitration against the Republic of Paraguay based on Article 8 of the Peru–Paraguay BIT. The Claimant alleged that Paraguay had breached certain substantive provisions of the BIT in its deficient oversight of the financial institution, including by treating him in a discriminatory fashion and by expropriating his investment. Mr Olguín claimed compensation for the unpaid portion of his TDIs, the applicable adjustment for the devaluation of the Paraguayan currency, the damages incurred due to the missing payments, interest and the costs of the arbitration proceedings.

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Case 83: Olguín Award

The Decision1077 As a preliminary matter, the Tribunal addressed Paraguay’s contention that Mr Olguín could not benefit from the rights accorded to Peruvian nationals under the Peru–Paraguay BIT because his registered address was in the United States and, under Peruvian law, a dual national’s registered address governs the exercise of any specific rights he may have.1078 The Tribunal rejected the idea that provisons of domestic law, such as the one referred to by Paraguay, have any relevance in determining the nationality of a dual national on the international plane. It first briefly discussed the system of diplomatic protection of dual nationals, holding that under international law the right to diplomatic protection could only be challenged in the absence of a ‘genuine link’1079 between the individual and the protecting State—but certainly not based on the domestic law of the protecting State.1080 With a view to the central objective of the ICSID Convention to provide individuals with an effective right of action, the Tribunal held that, within the ICSID system, provisons of internal law are even less relevant.1081 Since there was no dispute that Mr Olguín was a dual national and that both his nationalities were effective, it held that he could not be deprived of protection under the BIT.1082 The Tribunal next examined the four separate causes of action advanced by the Claimant under the BIT. The arbitartors unable to accept Mr Olguín’s first argument, that the signature of the Bank Examiner of the Republic of Paraguay, an official of the central bank, on the TDIs constituted an endorsement or a guarantee establishing Paraguay’s liability to pay any outstanding amounts due.1083 The Bank Examiner’s signature was considered to be merely an act of registration of the TDIs.1084 Paraguay’s liability based on the signature could only be established if an explicit rule of internal law so provided, which was not demonstrated.1085 1077

Eudoro A Olguín v Republic of Paraguay, ICSID Case No ARB/98/5, Award, 26 July 2001 (Olguín Award). 1078 The Tribunal discussed this issue in the Award despite the fact that it relates to jurisdiction. 1079 See on this notion Nottebohm Case (Liechtenstein v Guatemala), Second Phase, Judgment, 1955 ICJ Reports 4, p 23: ‘The character thus recognized on the international level as pertaining to nationality is in no way inconsistent with the fact that international law leaves it to each State to lay down the rules governing the grant of its own nationality. The reason for this is that the diversity of demographic conditions has thus far made it impossible for any general agreement to be reached on the rules relating to nationality, although the latter by its very nature affects international relations. It has been considered that the best way of making such rules accord with the varying demographic conditions in different countries is to leave the fixing of such rules to the competence of each State. On the other hand, a State cannot claim that the rules it has thus laid down are entitled to recognition by another State unless it has acted in conformity with this general aim of making the legal bond of nationality accord with the individual’s genuine connection with the State which assumes the defence of its citizens by means of protection as against other States.’ 1080 Olguín Award, para 62. 1081 Olguín Award, para 63. 1082 Olguín Award, para 61. 1083 Olguín Award, para 61. 1084 Olguín Award, para 65(a). 1085 Olguín Award, para 65(a).

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ICSID DECISIONS 19742002 Second, on the issue of discrimination in violation of the national treatment and most-favoured-nation clauses found in Article 4(2) of the BIT, the Tribunal held that there was insufficient evidence to establish that Mr Olguín had been treated less favourably than Paraguayan creditors or foreign creditors of other nationalities.1086 Third, the Tribunal did not consider Paraguay’s liability to be engaged by its alleged negligence in supervising the activities of the issuing bank, which had led to the suspension of the financial institution’s operations. The Tribunal confirmed certain shortcomings in the Paraguayan legal system and recognized the malfunctioning of various State agencies.1087 However, the arbitrators ultimately determined that Mr Olguín had been aware of this, and thus assumed the risk of mismanagement by making a ‘speculative’ and imprudent investment.1088 Moreover, the Tribunal noted that the BIT did not provide an investor with a cause of action where it suffered losses as a result of ‘gross omissions’ of a host State.1089 The Tribunal also rejected the Claimant’s fourth argument that the failure to control and supervise La Mercantil by the Paraguayan authorities amounted to an indirect expropriation, without citing any authority for its understanding of expropriation. The Tribunal considered that omissions cannot constitute expropriation, as they do not amount to a taking or appropriation of assets by the State.1090 The arbitrators concluded that such a taking, which furthermore had to be carried out intentionally,1091 was a necessary element in finding that an expropriation had taken place.1092 Having reviewed all of Mr Olguín’s claims, the Tribunal rejected them in their entirety. The Tribunal nevertheless adopted a measured approach with respect to the allocation of arbitration costs and legal fees. Given that Paraguay had advanced a range of unsuccessful arguments during the jurisdictional phase, and in light of the government’s repeated failure to meet deadlines, thereby needlessly prolonging the proceedings, the Tribunal ordered the parties to share equally the administrative costs of the case and to bear their own legal costs.1093 1086

Olguín Award, para 65(c). Olguín Award, paras 69–70. 1088 Olguín Award, paras 65(b), 73 and 75. 1089 Olguín Award, paras 68–74. See further AAPL Award, Digest I-33, para 53. But see AMT Award, Digest I-43, paras 6.11. 1090 Olguín Award, paras 84. Similarly AMT Award, Digest I-43, paras 7.09–7.11; Tradex Award, Digest I-50, para 147. But see CME Czech Republic BV (The Netherlands) v Czech Republic, UNCITRAL, Partial Award, 13 September 2001, para 591, where the Tribunal did not distinguish between acts and omissions. 1091 Olguín Award, para 84. Some later tribunals widely regarded such intent not to be required: Tecmed Award , Digest II-4, para 116; Siemens Award, Digest II-72, para 270; Azurix Award, Digest II-58, para 309; Vivendi II Award, Digest II-86, para 7.5.20. 1092 Olguín Award, paras 83–4. In view of some other tribunals it is not necessary that the expropriation must be to the benefit of the host State. See Metalclad Award, Digest I-65, para 103; Tecmed Award, Digest II-4, para 113. 1093 Olguín Award, para 85. 1087

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84. Waste Management, Inc v United Mexican States (Resubmitted) ICSID Case No ARB(AF)/00/3 26 September 2001

NAFTA

Procedural Order J Crawford (P) G Aguilar Alvarez B R Civiletti

Factual Background The facts underlying the dispute are described in the summary of the first Waste Management tribunal’s Award.1094 The decision concerned the resubmitted dispute between Waste Management, Inc (Waste Management) and Mexico. In the previous proceedings, the Tribunal declined jurisdiction to hear the dispute, because Waste Management had failed to waive local remedies according to Article 1121 of NAFTA. After having made an unequivocal waiver, Waste Management reinitiated ICSID proceedings. The parties disagreed on the proper venue of the arbitration. While Waste Management preferred Washington DC, Mexico argued in favour of Canada as a neutral place for arbitration, since Waste Management was incorporated in the United States.

The Decision1095 The Tribunal first noted that it based its decision on NAFTA Article 1130 and Article 20 of the Additional Facility Rules. As a matter of pure convenience, Washington DC was an appropriate place for the arbitration, as the ICSID

1094

See Waste Management I Award, Digest I-62. Waste Management, Inc v United Mexican States (Resubmitted), ICSID Case No ARB(AF)/00/3, Decision on the Venue of the Arbitration, 26 September 2001 (Waste Management II Place of Arbitration). 1095

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ICSID DECISIONS 19742002 facilities were available and the parties were represented by lawyers with offices in Washington DC.1096 The Tribunal then considered whether using Canada as the place of arbitration posed any problem, since Canada was only a party to the New York Convention and not a party to the 1975 Inter-American Convention on International Commercial Arbitration (the Panama Convention). In particular, the Tribunal was asked to determine whether this could impact the adequacy of laws applicable to the enforcement of the award. The Tribunal observed that courts in the United States would primarily have to apply the Panama Convention instead of the New York Convention when enforcing the award.1097 However, there was little difference between the two Conventions as far as recognition and enforcement was concerned.1098 While the Tribunal accepted Mexico’s argument that (unlike Canada) the United States had yet to produce case law on the standard of review for NAFTA awards,1099 the Tribunal was not convinced that the approach taken by a United States court would be inappropriate. Finally, the Tribunal ruled that stipulating Washington DC as the seat of arbitration would raise no problems as to neutrality, for: there is as yet no indication that NAFTA arbitrators are likely to suffer attacks on their integrity, or their nerves, from sitting in one of the States parties as compared with another.1100

As far as the courts were concerned, the Tribunal noted that the judiciary was a separate and independent branch. State governments might try to intervene in proceedings, but it was up to the courts to assess and review the relevance of that intervention. While evidence of courts habitually deferring to executive pronouncements would be highly relevant to the choice of a seat, the Tribunal considered that no such evidence existed, and ruled that Washington DC should be the place of arbitration.1101

1096

Waste Management II Place of Arbitration, para 13. NAFTA Article 1130 requires that unless ‘the disputing parties agree otherwise, a Tribunal shall hold an arbitration in the territory of a Party that is a party to the New York Convention’. 1098 Waste Management II Place of Arbitration, para 18. 1099 Waste Management II Place of Arbitration, para 19. 1100 Waste Management II Place of Arbitration, para 20. In the Tribunal’s view, there was no rule agreed on by the contracting parties of NAFTA that an arbitration should not take place in a State party to the dispute. 1101 Waste Management II Place of Arbitration, para 22. 1097

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85. Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela ICSID Case No ARB/00/5 27 September 2001

Contract

Jurisdiction G Kaufmann-Kohler (P) K-H Böckstiegel B M Cremades

Factual Background In 1996, a consortium consisting of ICA, a Mexican engineering and construction company, and Baninsa, a Venezuelan investment bank, was awarded the concession for the construction and operation of a highway system in Venezuela. The consortium incorporated Autopista Concesionada de Venezuela, CA (Aucoven) in Venezuela to serve as the concessionaire. Initially, ICA owned 99 per cent of Aucoven’s shares, while Baninsa held the remaining equity stake. On 23 December 1996, Aucoven and Venezuela concluded a concession agreement, according to which the main source of income for Aucoven would be the collection of tolls on the highway over a 30-year period (the Agreement). In order to finance the project, the parties agreed to increase the toll levels gradually. The Agreement provided for dispute resolution by ad hoc arbitration under the UNCITRAL Rules. However, ICSID arbitration was also envisaged in a separate clause, in the event that ICA or Baninsa became a national of an ICSID Contracting State. The Agreement also stipulated that any transfer of Aucoven’s shares required the prior authorization of Venezuela. ICA Holdings, the parent company of ICA, had incorporated Icatech in the United States in 1989. In April 1997, at the start of operations, Aucoven requested Venezuela’s authorization, as contemplated by the Agreement, to transfer 75 per cent of its shares to Icatech. The request contained information on Icatech and its place of incorporation. After ICA had provided a guarantee as required by Venezuela, the transfer was authorized in June 1998. The transfer took place on 28 August 1998.

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ICSID DECISIONS 19742002 Due to public protests, Venezuela refused to increase the toll levels as provided by the Agreement. As a consequence, the further funding of the project failed, and Aucoven terminated the Agreement. Mexican officials tried to negotiate a solution to dispute between Aucoven and Venezuela, but these negotiations failed. Aucoven filed a request for arbitration with ICSID, which was subsequently registered. Venezuela objected to the jurisdiction of the Tribunal.

The Decision1102 Venezuela argued that Aucoven was a locally incorporated company and that consent to treat Aucoven as a foreign company was never provided by Venezuela, as envisaged in Article 25(2)(b) of the Convention. The Tribunal first established that the conditional ICSID clause would be triggered if shares were transferred within the ICA group and the receiving company was a national of a Contracting State.1103 Referring to the award in Holiday Inns,1104 the Tribunal pronounced that such a conditional consent was compatible with Article 25 of the Convention.1105 Under such a conditional clause, the consent to arbitration would become valid if and when all the conditions were met. As a result, this consent to arbitration became effective on 28 August 1998, when the shares of Aucoven were transferred to Icatech, a US corporation. The Tribunal then turned to the further requirements of Article 25 of the Convention. It stressed that although consent of the parties was a cornerstone for jurisdiction under Article 25 of the Convention, that provision also stipulated other objective requirements for jurisdiction, specifically the existence of a ‘legal dispute’, an ‘investment’ and, in the case of a locally incorporated investment company, ‘foreign control’.1106 Although these criteria are objective, the parties’ consent is still of great importance: In reliance on the consensual nature of the Convention, [the drafters] preferred giving the parties the greatest latitude to define these terms themselves, provided that the criteria agreed upon by the parties are reasonable and not totally inconsistent with the purposes of the Convention.1107

1102 Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela, ICSID Case No ARB/00/5, Decision on Jurisdiction, 27 September 2001 (Aucoven Jurisdiction). 1103 Aucoven Jurisdiction, paras 83–8. 1104 Holiday Inns Jurisdiction I, Digest I-2, p 668. 1105 Aucoven Jurisdiction, para 90. 1106 Aucoven Jurisdiction, para 96. 1107 Aucoven Jurisdiction, para 97. Ten years after this decision, tribunals try to balance the role of the parties’ intent and the requirements established in Art 25(1) ICSID Convention.

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Case 85: Aucoven Jurisdiction Accordingly, the Tribunal found no reason to disregard the parties’ conditional choice of ICSID arbitration, as long as the requirements in the Agreement were not deprived of their objective significance.1108 The Tribunal was satisfied that both a ‘legal dispute’ and an ‘investment’ were clearly present.1109 It then turned to the question of whether the parties had agreed, according to Article 25(2)(b) of the Convention, to treat Aucoven as a foreign national because of its foreign control. First, the Tribunal explained that Article 25(2)(b) of the Convention constituted an exception to the general rule that nationals cannot initiate ICSID proceedings against their own State.1110 This exception is justified by the fact that an investor might be required by host State laws to operate through local subsidiaries. The Tribunal held that there was no specific requirement of form imposed on an agreement as to foreign control under Article 25(2)(b) of the Convention.1111 It further noted that there was no definition of the term ‘nationality’.1112 In general, there were several possible approaches to determine the nationality of a corporation under international law, but the most widely favoured approach would consider the place of incorporation alone.1113 The place of central administration or the effective seat would also be possible reference points for determining nationality. The Tribunal noted that previous ICSID tribunals, like the tribunal in SOABI,1114 preferred to determine the nationality of claimant corporations on the basis of the place of incorporation. Citing adacemic works on the subject, the Tribunal concluded that any reasonable criterion should be admitted to determine a corporation’s nationality.1115 Turning to the question of foreign control, the Tribunal noted that this term was not defined by the Convention. It recalled the discussion by the tribunals in Amco Asia1116 and SOABI1117 on the appropriate inquiry into the corporate structure of the claimant corporation in order to determine whether the effective control of the company was foreign.1118 The Tribunal rejected Venezuela’s argument that only ‘effective control’ or ‘ultimate control’ should be considered; this interpretation lacked support in the wording or the travaux préparatoires of the Convention.1119 Rather, the drafters intended to give the parties discretion to determine foreign 1108

Aucoven Jurisdiction, para 99. Aucoven Jurisdiction, paras 100–1. 1110 Aucoven Jurisdiction, para 102. 1111 On whether an express agreement is required, see Holiday Inns Jurisdiction I, Digest I-2, para 33, and Amco Asia I Jurisdiction , Digest I-11, para 14(ii). 1112 Aucoven Jurisdiction, paras 105–6. 1113 Aucoven Jurisdiction, para 107. 1114 SOABI Jurisdiction, Digest I-14. 1115 Aucoven Jurisdiction, para 109. 1116 Amco Asia I Jurisdiction, Digest I-11, para 14(iii). 1117 SOABI Jurisdiction, Digest I-14, para 37. 1118 Aucoven Jurisdiction, para 111. 1119 Aucoven Jurisdiction, para 112; but see, e.g., TSA Spectrum de Argentina SA v The Argentine Republic, ICSID Case No ARB/05/5, Award, 19 December 2008 (Danielus, Abi-Saab, Aldonas), para 153, in which the Tribunal considers ultimate control to be decisive. 1109

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ICSID DECISIONS 19742002 control. With the concept of foreign control read as a broad and flexible criterion, a range of general indicia could be considered, including shareholding, voting rights and the existence of trusts or nominees.1120 As a result, the Tribunal limited its own task to determining whether the parties exercised their autonomy in determining foreign control in a reasonable manner.1121 The Tribunal found that the parties had considered direct shareholding to be decisive, and were unconcerned with additional criteria ‘such as nationality of the directors [or] effective or ultimate control’.1122 The Tribunal agreed with Venezuela that, in economic terms, ICA Holding remained under the ultimate control of Aucoven. It also accepted that economic criteria often better reflect the reality of nationality than legal criteria. However, the parties expressly chose direct shareholding as the sole criterion. This criterion was not unreasonable as ‘[d]irect shareholding confers voting right, and, therefore, the possibility to participate in the decision-making of the company’.1123 On this basis, the Tribunal considered itself barred from considering other criteria. The Tribunal separately reviewed whether Icatech was merely a corporation of convenience.1124 It considered Icatech to be more than a mere shell because, inter alia, it was incorporated in the United States, ‘which is not considered a tax or regulatory heaven’.1125 Furthermore, the Tribunal could not find Aucoven’s conduct to be misleading. Aucoven had informed Venezuela about the intended transfer to Icatech, on the basis of which Venezuela made its own assessment of the situation.1126 Finally, the Tribunal turned its attention to Venezuela’s objection that Mexico had exercised diplomatic protection in contravention of Article 27 of the Convention. The Tribunal dismissed this objection. First, Mexico was not a Contracting State to the Convention and was not bound by Article 27. Second, the Tribunal considered Mexico’s intervention to be an attempt to settle the dispute amicably and, on the Tribunal’s view, ‘attempts to settle a dispute do not constitute prohibited diplomatic protection in the sense of Article 10041127 Finally, it held that a denial of jurisdiction would not be an available remedy if Article 27 of the Convention were violated.1128 1120

Aucoven Jurisdiction, para 113. Aucoven Jurisdiction, para 116. 1122 Aucoven Jurisdiction , para 117. 1123 Aucoven Jurisdiction , paras 119–21. 1124 The Tribunal seems to have inferred a requirement that the controlling entity be one of substance. Compare R Happ, ‘The “Foreign Nationality”-Requirement and the “Exhaustion of Local Remedies” in Recent ICSID Jurisprudence’, in R Hofmann and CJ Tams (eds), The International Convention on the Settlement of Investment Disputes (ICSID)—Taking Stock after 40 Years (Baden-Baden: Nomos, 2007) 103, pp 112–14. 1125 Aucoven Jurisdiction , para 123. 1126 Aucoven Jurisdiction , para 132. 1127 Aucoven Jurisdiction , para 138. 1128 Aucoven Jurisdiction , para 140. 1121

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Case 85: Aucoven Jurisdiction On the basis of the foregoing reasoning, the Tribunal concluded that it had jurisdiction to hear the merits. It stressed that its ruling on foreign control should not be considered a general statement, but concerned the Agreement between the parties in the current case only.1129 It reserved the decision on the costs for the final award.1130

1129 1130

Aucoven Jurisdiction, paras 141–2. The award was rendered on 23 September 2003: Aucoven Award, Digest II-10.

261

86. Compañía de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic ICSID Case No ARB/97/3 3 October 2001

Argentina–France BIT

Challenge of President J Crawford J C Fernández Rozas

Factual Background On 21 November 2000, the Tribunal rendered its award, dismissing the claims of Compañía de Aguas del Aconquija, SA and Compagnie Générale des Eaux, now Vivendi Universal (the Claimants).1131 The Claimants requested the annulment of the award. After the Ad Hoc Committee had been composed, the Claimants challenged the President of the Committee. He had disclosed that one of his partners had on instructions by US counsel advised the Compagnie Générale des Eaux on certain matters of tax law of Quebec.

The Decision1132 The Committee first reviewed whether it had the competence to decide on a disqualification proposal. It noted that the Arbitration Rules (which provided in Rule 53 for an application mutatis mutandis to annulment proceedings) seemed to deviate from Article 52(4) ICSID Convention, which did not mention the application of challenge rules. The Committee reviewed the travaux préparatoires, concluded

1131

See Vivendi I Award, Digest I-69. Compania de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic, ICSID Case ARB/97/3, Decision on the Challenge to the President of the Committee, 3 October 2001 (Vivendi I Annulment Challenge). 1132

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Case 86: Vivendi I Annulment Challenge that the omission was unintentional and that the rules on challenge of arbitrators were indeed applicable mutatis mutandis to members of ad hoc Committees.1133 The Committee then turned to the question of disqualification. It considered that the term ‘manifest lack of qualities’ (Article 57 ICSID Convention) did not set a lower standard than, for example, the IBA Rules. Rather, the Committee considered, manifest related to the standard of proof of bias: ‘That is to say, the circumstances actually established (and not merely supposed or inferred) must negate or place in clear doubt the appearance of impartiality.’1134 The Committee referred to an unpublished decision in Amco Asia v Indonesia. Where a direct relationship existed between the arbitrator and a party after the dispute had arisen, the arbitrator would be disqualified unless in de minimis cases. Whether the matter was related to the case at hand or not, could not be relevant.1135 In addition, the Tribunal referred the Zhinvali case and held that the existence of ‘occasional, purely social, contacts’ was innocuous.1136 The Committee examined further scholarly writings on arbitration and considered that even a business relation between the arbitrator and the party not necessarily justifies a challenge.1137 Reviewing the facts, the Committee noted that the President had immediately disclosed the work done by his partner, that he had not been personally involved, that the work was completely unrelated to the case at hand and would soon come to an end.1138 In addition, the fees which still would be charged were minimal and would justify an exception under the de minimis rule. It concluded that ‘the mere existence of some professional relationship with a party’ would not constitute an automatic basis for disqualification. Rather, all the circumstances would need to be considered. In the case at hand, such consideration led the Committee to conclude that the independence was not impaired. The proposal for disqualification was dismissed.

1133

Vivendi I Annulment Challenge, paras 5–13. Vivendi I Annulment Challenge, paras 20, 26. 1135 Vivendi I Annulment Challenge, paras 21–2. 1136 Vivendi I Annulment Challenge, para 23. 1137 Vivendi I Annulment Challenge, para 24. The Committee seemed to rely on an ICC case according to which it would not justify disqualification if the President of the Tribunal and counsel for one of the parties belonged to the same law firm. A similar factual matrix (but with barristers of the same set) has later appeared in investment treaty cases, cf the decisions in Hrvatska Elektroprivreda, d.d. v Republic of Slovenia, ICSID Case No ARB/05/24, Tribunal’s Ruling regarding the participation of David Mildon QC in further stages of the proceedings, 6 May 2008 and The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Decision of the Tribunal on the Participation of a Counsel, 14 January 2010. 1138 Vivendi I Annulment Challenge, para 26–7. 1134

263

87. Wena Hotels Limited v Arab Republic of Egypt ICSID Case No ARB/98/4 5 February 2002

Egypt–UK BIT

Annulment K D Kerameus (P) A Bucher F Orrego Vicuña

Factual Background The relevant factual background has been set out in the summary of the decision on jurisdiction in this dispute.1139 On 8 December 2000, the Tribunal issued its Award,1140 accepting Wena’s claims that Egypt had expropriated its property without compensation and failed to accord its investments ‘fair and equitable treatment’ and ‘full protection and security’. On 19 January 2001, Egypt filed for annulment of the Award under Article 52 of the Convention.

The Decision1141 Egypt based its request on subsections (b), (d) and (e) of Article 52(1) of the Convention, claiming that the Tribunal had manifestly exceeded its powers, seriously departed from a fundamental rule of procedure and failed to state the reasons on which the Award was based. The Committee emphasized at the outset that the standard of review envisaged by Article 52 of the Convention did not equate to a merits appeal.1142 1139

Wena Hotels Jurisdiction, Digest I-48. Wena Hotels Award, Digest I-73. 1141 Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No ARB/98/4, Decision on Application for Annulment, 5 February 2002 (Wena Hotels Annulment). 1142 Wena Hotels Annulment, para 18, citing Klöckner I Annulment, Digest I-18, paras 3, 83; Amco Asia I Annulment, Digest I-22, para 23; MINE Annulment, Digest I-30, para 4.04; see further CDC Annulment, Digest II-42, paras 32, 35. 1140

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Case 87: Wena Hotels Annulment First, Egypt contended that the Tribunal manifestly exceeded its powers by: (1) failing to apply Egyptian law as part of the applicable law; and (2) allowing Wena to assert claims of investors who were not entitled to protection under the BIT. While the Committee dismissed two of Egypt’s specific complaints regarding a failure to apply Egyptian law as irrelevant, it looked closely at whether the Tribunal had wrongly resorted to international law principles of interest when it should have applied Egyptian law in the determination of interest on the award. The Committee noted that to qualify as ‘manifest’, an excess of power must be ‘self-evident’ rather than the ‘product of elaborate interpretations one way or the other’.1143 On this view, the Tribunal had the discretion to choose among various plausible alternatives for such issues as the calculation of interest.1144 Egypt complained that the Tribunal should have applied Egyptian law in preference to international law when it decided to award compound interest to Wena because the BIT was silent on this issue. The Committee pointed out that the BIT required ‘prompt, adequate and effective compensation’ amounting to the pre-expropriation ‘market value of the investment’. This standard implied a determination of interest that ensures that compensation is not ‘eroded by the passage of time or by the diminution in the market value’.1145 On this basis, the Committee found no excess of power in relation to award of interest.1146 Egypt’s second complaint with respect to manifest excess of powers concerned Wena’s ability to assert claims on behalf of other investors. The Committee dismissed this claim in a single paragraph in its decision, finding that this was an evidential issue concerning the origin of the invested sums that the Tribunal included as part of Wena’s damages in its Award. The Committee also noted that ‘ICSID practice has been quite flexible’ with respect to origins of capital.1147 The Committee then turned to Egypt’s contention that the Tribunal had departed from a fundamental rule of procedure, primarily in its assessment of damages and interest.1148 The Committee considered more generally that for such alleged departures to qualify as ‘serious’ under Article 52(1)(d) of the Convention, the Tribunal would need to have reached a result ‘substantially different’ from that which it would have adopted had the rule in question been observed.1149 While Egypt complained about Wena’s lack of evidence for losses sustained by its investment, the Committee highlighted the Tribunal’s discretionary power to assess the probative

1143 1144 1145 1146 1147 1148 1149

Wena Hotels Annulment, para 25. Wena Hotels Annulment, paras 25, 53. Wena Hotels Annulment, paras 51–3. Wena Hotels Annulment, para 55. Wena Hotels Annulment, para 54. Wena Hotels Annulment, para 74. Wena Hotels Annulment, para 58, citing MINE Annulment, Digest I-30, para 5.05.

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ICSID DECISIONS 19742002 value of evidence under Arbitration Rule 3410051150 The Committee also was not convinced that the Tribunal failed to consider the submissions of the parties on the issue of interest. Rather, with the parties taking broad and undetermined positions on interest in their memorials, both parties should have been aware that the Tribunal could award compound interest if it chose to refer to international law principles. Ultimately, Egypt had failed properly to identify a fundamental procedural rule that was violated by the Tribunal or to demonstrate the impact that the observance of such rules would have had on the Award.1151 Therefore, the Committee dismissed this basis for annulment. Egypt’s third complaint concerned the Tribunal’s failure to state reasons, as required by Article 48(3) of the Convention.1152 Egypt argued that the Tribunal failed to state proper reasons for its decsions on damages and interest, along with its failure to address every question raised for determination. The Committee stressed that the standard of review did not allow it to reconsider the appropriateness or adequacy of the reasons underlying the decision.1153 It was thus conscious of the fact that, of all the annulment grounds, evaluating the sufficiency of the Tribunal’s reasoning carried the greatest risk of blurring the line between annulment and appeal.1154 The Committee examined various specific complaints raised by Egypt, including the determination of the quantum of compensation and the interest rate, in respect of which the Tribunal was accorded a ‘large margin of discretion’.1155 The Committee concluded that the Tribunal had been sufficiently clear, both implicitly and explicitly, in stating reasons.1156 Therefore, the final annulment ground invoked by Egypt was rejected. On the issue of costs, considering the important arguments raised by both parties, the parties were ordered to bear their own litigation costs in respect of the annulment proceedings, while sharing equally the Tribunal’s costs.

1150

Wena Hotels Annulment, para 65. Wena Hotels Annulment, paras 60–3, 71–3. 1152 The Committee distinguished between the requirement to state reasons and the remedy in ICSID Article 49(2) on the duty to deal with every question submitted. Wena Hotels Annulment, para 100. 1153 Wena Hotels Annulment, para 79; see further MINE Annulment, Digest I-30, paras 5.08– 5.09; Klöckner I Annulment, Digest I-18, para 120; Amco Asia I Annulment, Digest I-22, para 43. 1154 See Wena Hotels Annulment, paras 77–83; see further C Schreuer, ‘ICSID Annulment Revisited’ (2003) 30 LIEI 103–12. 1155 Wena Hotels Annulment, paras 91, 96. In particular, the Committee stated that the notion of ‘prompt, adequate and effective compensation confers to the Tribunal a certain margin of discretion’, and, likewise, that tribunals ‘usually dispose of a large margin of discretion when fi xing interest’ and usually give only ‘very limited reasons’ for such decision. Wena Hotels Annulment, paras 91, 94–7. 1156 Wena Hotels Annulment, paras 86, 93, 110, 111. 1151

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88. Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka ICSID Case No ARB/00/2 15 March 2002

United States–Sri Lanka BIT

Award S Sucharitkul (P) A Rogers D Suratgar

Factual Background The dispute arose out of activities undertaken by Mihaly International Corporation (Mihaly USA), a utility supply investment company established under the laws of the United States, along with its Canadian partner, Mihaly International Corporation (Mihaly Canada), regarding the construction of an electricity generating facility in Sri Lanka. After a call for expressions of interest on a ‘Build-Own-Transfer’ basis, Mihaly was issued a letter of intent by Sri Lanka, dated 15 February 1993, which conferred exclusive rights for a specific six-month period, with a view to reaching an agreement on the project. On this basis, Mihaly began to incur expenses in preparation for the project. Further negotiations led to the conclusion of additional documents including a letter of agreement of 22 September 1993 (subject to contract), and a letter of extension of 20 July 1994 (together, the Letters). All three Letters stated that they did ‘not constitute an obligation binding upon any party’, although Sri Lanka was to work in good faith towards a final agreement.1157 Negotiations proved unsuccessful and no contract was ultimately concluded between the parties. On 29 July 1999, Mihaly filed a request for arbitration with ICSID invoking the provisions of the United States–Sri Lanka BIT. Sri Lanka objected to the personal and subject matter jurisdiction of ICSID and the Tribunal. 1157 The Letter of Intent stated, inter alia: ‘however, the Government shall use its best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary or proper or advisable . . . to consummate the transactions contemplated hereby as promptly as practicable’.

267

ICSID DECISIONS 19742002

The Decision1158 The Tribunal first considered the objection to jurisdiction ratione personae. Sri Lanka argued that the nationality requirement under Article 25(2) of the Convention was not satisfied. It alleged that the Claimant’s true nationality was Canadian, and Canada was not party to the Convention. Sri Lanka rejected Mihaly USA’s contention that it had standing before the Tribunal, both by reason of its partnership with Mihaly Canada and on the theory of assignment. Under this theory, Mihaly USA was the assignee of all the rights, interests and claims of Mihaly Canada, and could only be authorized to bring a claim based upon rights and interests that Mihaly Canada had against Sri Lanka. The Tribunal recalled that the nationality requirement for a claim before an ICSID tribunal must be satisfied before an ICSID proceeding can be initiated or even registered,1159 noting as an undisputable fact that the designated Claimant in this case was Mihaly USA and not the Mihaly bi-national partnership between the two Mihaly companies.1160 It noted therefore that the existence of an international partnership between Mihaly USA and Mihaly Canada could neither add to nor substract from the capacity of Mihaly USA to fi le a claim against Sri Lanka before the Tribunal.1161 Furthermore, the Tribunal noted that neither Canada nor Mihaly Canada could bring a claim under the Convention through the process of assignment to Mihaly USA—even with the consent of Sri Lanka—on the doctrine of nemo dat quod non habet or nemo potiorem potest transfere quam ipse habet (no one could transfer a better title than that which he really has).1162 It further reasoned that allowing such an assignment to operate in favour of Mihaly Canada would defeat the object and purpose of the Convention, the sanctity of the privity of international agreements and the strict limitation on the rights and obligations of non-parties.1163 The arbitrators emphasized that: [a] claim under the ICSID Convention . . . is not a readily assignable chose in action as shares in the stock-exchange market or other types of negotiable instruments.1164

Thus, if Mihaly Canada’s claim could not be perfected ‘under the guise of its assignment to the US claimant’,1165 Mihaly USA was entitled to file a claim in 1158 Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka , ICSID Case No ARB/00/2, Award, 15 March 2002 (Mihaly Award ). 1159 Mihaly Award , para 20. 1160 Mihaly Award , para 22. 1161 Mihaly Award, para 22. 1162 Mihaly Award , para 24. 1163 Mihaly Award , para 23, recalling the principle of pacta tertiis nec nocent nec prosunt embodied Arts 34, 35 and 36 of the Vienna Convention on the Law of Treaties. 1164 Mihaly Award , para 24. 1165 Mihaly Award , para 24.

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Case 88: Mihaly Award its own name in respect of the rights and interests it may subsequently be able to establish.1166 The Tribunal added that it did not preclude Mihaly Canada from pursuing its claims before an otherwise competent forum1167 or a State party to the Convention from expressly consenting to include, under ICSID protection, an investment contract it concludes with an international consortium. After finding that Mihaly USA had standing before the Tribunal, it next addressed the issue of jurisdiction ratione materiae. The Claimant contended that expenditures during the development phase should be included within the term ‘investment’ of Article 25(1) of the Convention, while Sri Lanka argued that its explicit consent to receive or admit the investment in question was necessary to adopt such a broad interpretation.1168 Mihaly USA cited the Letters as evidence of an agreement, authorization and approval on the part of Sri Lanka to invest. It posited the date of the first letter of intent, being 15 February 1993, as the date from which its interest was transformed into an ‘investment’.1169 Sri Lanka argued that none of these documents created a contractual obligation for the building, ownership and operation of the project, and the grant of exclusivity did not mature into a final contract. Mihaly further argued that consent to jurisdiction could be founded on the BIT because there had been an alleged breach of a right conferred or created by the BIT with respect to an ‘investment’.1170 The Tribunal noted that since Sri Lanka had raised preliminary objections to jurisdiction, the existence of consent to jurisdiction must be closely examined.1171 It further considered that, in the absence of a generally accepted definition of ‘investment’ for the purpose of the Convention, it must take guidance from past international decsions. The Tribunal decided to assess the meaning of ‘investment’ for this purpose as a question of law.1172 It concluded in regard to the Letters that none contained any obligation binding either Mihaly USA or Sri Lanka. Rather, they were not to be treated as signifying acceptance by Sri Lanka of an investment within the sense of the Convention.1173 The Tribunal added that Mihaly USA had provided no evidence of an investment as described in the BIT, resulting in the request for ICSID arbitration being premature.1174 It noted that, although Mihaly 1166

Mihaly Award, para 26. Mihaly Award, para 25, citing Klöckner I Award, Digest I-12, where all three Klöckner Corporations were named as co-claimants, and AMT Award, Digest I-43, in which a US company could not and did not attempt to recover more than the shares represented by its US shareholders. 1168 Mihaly Award, paras 35–6. 1169 Mihaly Award, para 37. 1170 Mihaly Award, para 53. 1171 Mihaly Award, para 56. 1172 Mihaly Award, para 58. 1173 Mihaly Award, para 59. 1174 Mihaly Award, para 61. 1167

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ICSID DECISIONS 19742002 had incurred considerable expenditures, developing countries like Sri Lanka could not be expected to assume that pre-investment expenditures could be automatically considered as ‘investment’ expenditures without legally binding consent to the implementation of the project.1175 The Tribunal noted that in other circumstances, similar expenditures may perhaps be described as an ‘investment’.1176 It also found that an obligation to conduct negotiations in good faith had arisen from the requirement of proper conduct in relation to negotiation for an investment, but that such obligations were not arbitrable.1177 On this basis, the Tribunal sustained Sri Lanka’s objections to ratione materiae jurisidicton, and dismissed Mihaly’s claims.. It further decided the costs of the proceedings would be shared by the parties in equal portion and that each party shall bear its own costs.1178

Concurring Opinion Arbitrator David Suratgar registered his regret that the Tribunal had not called for evidence of international legal and utility precedents and practice to determine whether development costs constituted ‘investments’. Suratgar suggested that the Tribunal could have considered evidence from the World Bank and the International Finance Corporation, as well as from insurance agencies such as the Multilateral Investment Guarantee Agency and the Overseas Private Investment Corporation.1179 Further, Suratgar mentioned that, while relying on the lack of consent to such treatment of development costs in the Letters, the Tribunal should have sought the position of the parties and called for further evidence as to the specific meaning and scope of the exculpatory language to which it referred. Suratgar added that Mihaly USA could have met the requirements of the ‘investment’ test under the Convention1180 and the BIT, had it demonstrated that the expenditures were incurred by a Sri Lankan company in which it had a share. In that event, the

1175

Mihaly Award, para 60. Mihaly Award, para 49. 1177 Mihaly Award, para 51. 1178 Mihaly Award, para 62. 1179 Mihaly Award, Concurring Opinion of Mr David Suratgar, para 6, citing the World Bank’s Discussion Paper of September 1999, Submission and Evaluation of proposals for Private Power Generation Projects in Developing Countries, p 14, where it appears that investment insurance can be obtained for development costs and Project Capital Costs (said to comprise all project development and construction costs) are included with respect to the correct make-up of proper Capacity Payments. 1180 Article 25(1) of the ICSID Convention. 1176

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Case 88: Mihaly Award Tribunal would have had to accept that jurisdiction existed ratione materiae. Such a shareholding by Mihaly USA did not, however, exist in the present case. Suratgar also suggested making the protection mechanism developed in the Convention available to private foreign investors who encounter significant precontract costs in BOT projects, as the expenditures incurred by successful bidders do produce ‘economic value’.1181

1181

Article 1 of the USA–Sri Lanka BIT.

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89. Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia ICSID Case No ARB/99/2 4 April 2002

United States–Estonia BIT

Supplementary Decisions and Rectification L Y Fortier M Heth A J van den Berg

Factual Background In March 1999, an American citizen, Alex Genin, and two companies he controlled, Eastern Credit Limited, Inc (Eastern Credit), and AS Baltoil, an Estonian company wholly owned by Eastern Credit (Baltoil), initiated arbitration against Estonia. The dispute concerned the cancellation by the Central Bank of Estonia (CIB) of an operating licence held by Innovative Bank (EIB), an Estonian financial institution in which the Claimants were shareholders. On 25 June 2001, the Tribunal rendered its award, dismissing all claims on the merits.1182 The Claimants subsequently submitted a request for supplementary decisions and rectification of the award in accordance with Article 49(2) of the Convention, complaining that the Tribunal had failed to discuss three provisions of the applicable BIT that Estonia had allegedly violated: (1) limitations on expropriation; (2) the guarantee of free transfer of investments and capital; and (3) the prohibition against the imposition of formalities that impair substantive rights. The Claimants also sought rectification of a paragraph of the Award referring to the ‘highly questionable’ prudence of EIB.

1182

Genin Award, Digest I-78.

272

Case 89: Genin Rectification

The Decision1183 The Tribunal first considered the request for ‘supplemental decisions’ in relation to the allegedly missing BIT provisions. The Tribunal found that the Claimants had themselves failed to address these issues beyond mere invocation in the concluding paragraphs of certain sections of their pre-hearing submissions.1184 According to the Tribunal, all of the questions raised by the Claimants related to the alleged lack of fairness and due process involved in CIB’s decision to revoke EIB’s licence. These issues were addressed in detail in the Award, where the Tribunal had concluded that ‘none of the impugned conduct’ amounted to ‘a violation of any provision of the BIT’. As for the requested rectification, the Tribunal briefly pointed out that the relevant paragraph relating to EIB’s questionable investments reflected the Tribunal’s evaluation of the evidence adduced by both parties, and was sufficiently clear and comprehensive as to require no rectification.1185

1183 Alex Genin, Eastern Credit Limited, Inc and AS Baltoil v The Republic of Estonia, ICSID Case No ARB/99/2, Decision on Claimant’s Request for Supplementary Decisions and Rectification, 4 April 2002 (Genin Rectification). 1184 Genin Rectification, para 11. 1185 Genin Rectification, para 17.

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90. Middle East Cement Shipping and Handling Co SA v Arab Republic of Egypt ICSID Case No ARB/99/6 12 April 2002

Greece–Egypt BIT

Award K-H Böckstiegel (P) P Bernardini D Wallace, Jr

Factual Background By an Egyptian government decree issued on 19 January 1983, Middle East Cement Shipping and Handling Co SA (Middle East Cement)—a Greek company, which had established a branch in Suez, Egypt—was granted a licence to import, stock and distribute cement within Egypt for the public and private sector (the Licence). Pursuant to Article 9 of the Licence, its duration was not to exceed ten years. In May 1989, approximately four years before the Licence’s expiry date, Egypt issued another decree (the Decree), which prohibited the public or private import of Grey Portland cement. According to Middle East Cement, the Decree effectively revoked the Licence, preventing the company from performing its core activities. Egypt also allegedly prevented the re-export of Middle East Cement’s assets, in particular the vessel Poseidon 8. While the Decree was eventually revoked in 1992, the dispute involving the asset re-export continued for years, culminating in 1999 in the administrative seizure and auction sale of the Poseidon. Middle East Cement filed a Request for Arbitration against Egypt with ICSID, under the Greece– Egypt BIT, which was registered on 19 November 1999.

274

Case 90: Middle East Cement Award

The Decision1186 1. Merits The Tribunal first considered whether Middle East Cement had waived its right to arbitrate claims relating to the Poseidon in light of the BIT’s ‘fork-in-the-road’ clause, because it had asked the Egyptian courts to nullify the auction of the vessel. The arbitrators considered that this relief ‘was not and could not be “concerning” Egypt’s obligations under the BIT’,1187 and therefore that Middle East Cement’s claims relating to the vessel were not barred by the clause in question. The Tribunal then considered claims arising out of the ‘De Facto Revocation of the Licence’.1188 After noting that the licence constituted a protected investment under the BIT, which included any ‘business concessions conferred by law or under contract’1189 in its definition of ‘investment’, and reiterating that the Claimant qualified as an investor under the BIT, as had been decided on the award on jurisdiction, the Tribunal turned to the question of whether the Decree’s ban on cement imports constituted expropriation. On this point, Egypt contended that the Decree had been issued just four months before the end of the Licence, and therefore could have had only a limited impact on Middle East Cement’s investment. The Tribunal took the Respondent at its word, finding that it had conceded that, even if it was just for a period of four months, a ‘taking’1190 did take place. The Tribunal therefore held that the Decree had effectively deprived the Claimant of the use and benefit of its investment, thus having an effect tantamount to expropriation for which Egypt was liable to pay compensation With respect to the Poseidon, the Tribunal first examined whether it constituted a protected investment under the BIT, since Egypt argued that the Poseidon was not an investment under Egyptian law because it was not owned by Middle East Cement itself but by its Greek parent company. The Tribunal noted that the Egyptian authorities and courts had described the Poseidon as being owned by the Claimant in several official communications and documents, and therefore the Respondent was estopped from disputing the vessel’s ownership under the BIT. Additionally, the Tribunal noted that the BIT’s definition of investment included both ‘movable and immovable property’ and ‘goods that under a leasing agreement are placed at the disposal of a lessee in the territory of a Contracting Party’,1191 and 1186 Middle East Cement Shipping and Handling Co SA v Arab Republic of Egypt, ICSID Case No ARB/99/6, Award, 12 April 2002 (Middle East Cement Award ). 1187 Middle East Cement Award, para 71. 1188 Middle East Cement Award, para 71. 1189 Middle East Cement Award, para 100. 1190 Middle East Cement Award, para 100. 1191 Middle East Cement Award, paras 135–6.

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ICSID DECISIONS 19742002 that the Poseidon fell within both categories, so it could qualify as the Claimant’s investment. The Respondent further argued that the Claimant had failed to register the Poseidon and, not being registered, the vessel could not be regarded as an investment made in accordance with the host State’s laws and regulations (as required by the BIT). The Tribunal concluded that the Poseidon did not require registration under Article 14 of the Egyptian Executive Regulations of the Investment Law because the Poseidon was part of a Free Zone project. Next, the Tribunal turned to the qualification of the seizure and the auction of the Poseidon. According to the Tribunal, seizures and auctions ordered by national courts do not usually qualify as an expropriation, so long as they proceed ‘under due process of law’.1192 Applying this test, the Tribunal found that Egypt had failed to notify Middle East Cement of the vessel’s seizure and auction,1193 and that this was unsatisfactory. More specifically, the Tribunal determined that in light of the BIT’s fair and equitable treatment clause, ‘a matter as important as the seizure and auctioning of a ship of the Claimant should have been notified by a direct communication’.1194 The Tribunal concluded that Egypt’s seizure and auction of the Poseidon constituted measures tantamount to expropriation, entitling Middle East Cement to compensation. 2. Damages Central to the calculation of damages was the duration of the Licence. Egypt argued that the effect of the Decree could not have been more than four months’ reduction of the Licence term. The Tribunal found that the Licence would not have expired until 18 January 1993, because Article 9 provided that ‘[t]he period of this license is the period of supply of the quantities which may be contracted for with the Egyptian Cement Sale Office on condition that the duration of the project does not exceed ten years.’ According to the Tribunal, that article did not limit the period of the Licence to the duration of the contracts in place with Egypt, did not exclude that further quantities ‘may be contracted’ with Egypt for up to 10 years until the time limit had been reached and did not limit the Claimant’s ability to contract with the private sector for an indefinite period of time. On this basis, the Tribunal determined that the Decree had shortened the term of the Licence by three years and eight months. The Tribunal considered that the quantification of damages depended in part on the contracts that Middle East Cement would have concluded in the absence of the Decree, and the profits that would have been earned pursuant to these agreements. 1192 1193 1194

Middle East Cement Award, para 139. Middle East Cement Award, para 143. Middle East Cement Award, para 143.

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Case 90: Middle East Cement Award Middle East Cement had submitted as evidence three contracts, two with Petra Navigation and International Trading Co, Ltd (the Petra Contracts) and a cement supply agreement between the Ministry of Housing and Utilities of Egypt on behalf of the Egyptian Cement Office and a Greek company called Halkis Cement International SA (the Halkis Agreement). The Tribunal held that lost profits for the Petra Contracts should be calculated based on the minimum monthly quantities guaranteed by Petra, rather than on Middle East Cement’s production capacity. The Tribunal took account of the fact that the first Petra Contract had not been affected by the Decree, and excluded any related claims on that basis. Meanwhile, the Halkis Agreement was included in the calculation of the damages, even though Middle East Cement was not a party, because: (i) its performance required the use of Middle East Cement’s branch; (ii) Middle East Cement had provided a guarantee in favour of the Seller; and (iii) Middle East Cement had purchased cement for resale to the Ministry of Housing and Utilities under the contract. The Tribunal also noted that ‘[t]he License being the “expropriated” investment, its earning capacity during the remainder of its life may well come into consideration for assessing its “market value” under the BIT.’1195 However, Middle East Cement had not provided any specific examples of contracts lost or forgone, and the Tribunal dismissed the claim of more general lost future profits for lack of evidence. With respect to the valuation of the Poseidon, the Claimant argued that the vessel’s full value was at least US$5 million, and that its scrap value without the value of the cranes and equipment was US$864,500, while the Respondent considered that it should be valued based on the price paid by the winning bidder of the auction (301,000 Egyptian pounds). The Tribunal dismissed the Respondent’s valuation, relying, among other factors, on the finding that the auction procedure had not been conducted under ‘due process of law’.1196 Using its discrestionary powers regarding the evaluation of evidence (ICSID Rule 34), the Tribunal held that even if it were possible, it would not seek an expert opinion to determine the value of the Poseidon at the time of the auction because it would be ‘too time consuming and costly’.1197 The Tribunal then proceeded to make a valuation based upon the evidence available in the file, and held that the Poseidon’s market value was to be an average between the price paid at the auction (which Egypt had suggested as the vessel’s price) and the scrap value of the vessel as put forward by Middle East Cement.1198

1195

Middle East Cement Award, para 127. Middle East Cement Award, para 150. 1197 Middle East Cement Award , para 150. 1198 The other elements being various negotiation documents related to the sale of the Poseidon. See Middle East Cement Award, para 148. 1196

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ICSID DECISIONS 19742002 All other claims were rejected by the Tribunal for Middle East Cement’s lack of evidence. The Tribunal declined to reduce damages to reflect Middle East Cement’s alleged failure to mitigate harm. The Tribunal acknowledged that mitigation can be considered ‘part of the General Principles of Law which, in turn, are part of the rules of international law which are applicable to this dispute according to Article 42 of the ICSID Convention’.1199 At the same time, the BIT contained no reference imposing such an obligation on the injured investor. The Tribunal dismissed the Respondent’s arguments that the Claimant could have continued the supply of cement insofar as it was not prohibited by Decree No 195, and that it could have resumed its activities after the lifting of the ban in 1992, mitigating its damages, for lack of sufficient evidence, because ‘the Respondent has the burden of proof for the facts establishing such a duty and the failure of Claimant to carry it out’.1200 On the question of interest, the Tribunal noted that an established principle of international law dictates the accrual of compound as opposed to simple interest, as an integral part of compensation.1201 In light of the BIT’s requirement that compensation should be ‘adequate and effective’,1202 the Tribunal awarded compound interest. Finally, the Tribunal decided on the costs of the arbitration, holding that in view of the partial success of claims by each party, the arbitration costs should be borne in equal portions by each party.

1199

Middle East Cement Award, para 167. Middle East Cement Award, para 170. 1201 Wena Hotels Award , Digest I-73, para 130; Metalclad Award , Digest I-65, para 128; Santa Elena Award, Digest I-60, paras 103–5 . 1202 Middle East Cement Award , para 175. 1200

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91. Waste Management, Inc v United Mexican States (Resubmitted) ICSID Case No ARB(AF)/00/3 26 June 2002

NAFTA

Jurisdiction J Crawford (P) E Magallón Gómez B R Civiletti

Factual Background The relevant factual background has been set out in the summary of the first Waste Management tribunal’sAward.1203 After a preliminary decision to conduct the proceedings in Washington DC, the reconstituted Tribunal rendered a decision on 26 June 2002, in which it considered a range of issues arising from the resubmission with respect to the previous proceedings.

The Decision1204 The Tribunal first considered whether Waste Management was prevented by the first unsuccessful proceedings from bringing a further claim with respect to the same dispute. The Tribunal found that the tribunal in the first arbitration (First Tribunal ) had not made any determinations as to the consequences of a decision for subsequent proceedings. The Tribunal found that several ambiguous statements by the dissenting arbitrator in his opinion attached to the First Award could not be considered relevant.1205 Since there were no determinations by the majority of the First

1203

Waste Management I Award, Digest I-62. Waste Management, Inc v United Mexican States (Resubmitted), ICSID Case No ARB(AF)/ 00/3, Decision on Mexico’s Preliminary Objection Concerning the Previous Proceedings, 26 June 2002 (Waste Management II Jurisdiction). 1205 Waste Management II Jurisdiction, para 23. 1204

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ICSID DECISIONS 19742002 Tribunal, the Tribunal was content that there was no need to rule on whether determinations by the First Tribunal could bind the Tribunal.1206 The Tribunal then turned to Mexico’s three main arguments. Mexico first contended that NAFTA Article 1121 allowed only one attempt to initiate arbitration. The Tribunal noted that this position was not reflected in the wording of NAFTA or its travaux préparatoires.1207 Also, it remarked that in Methanex,1208 the United States made clear that resubmission with a revised waiver was contemplated under NAFTA. The Tribunal then considered that NAFTA did not contain an express ‘fork-in-the-road’ clause.1209 Rather, under NAFTA Article 1121, an investor would be free to seek legal protection before domestic courts and then to submit the dispute to arbitration, as long as the requirement of a waiver is met when the request is filed.1210 Opposing this conclusion as to flexibility was the fact that the waiver is definitive in its effect irrespective of the outcome of the arbitration.1211 Once a dispute has been submitted to arbitration, domestic proceedings would be definitively barred. The dismissal of a NAFTA claim thus would be final for a claimant.1212 The Tribunal then turned to the question of when a claim can be considered ‘submitted’ pursuant to NAFTA Article 11211213 The Tribunal advanced three reasons for concluding that it was insufficient to show merely that a notice of intent was submitted, but that the notice of intent needed to be able to ‘attract the jurisdiction’ of a tribunal. First, the Tribunal held that the wording of NAFTA Article 1121 clearly made waiver a condition precedent to the submission of a claim.1214 Second, it observed that the purpose of the arbitration procedures in NAFTA Chapter 11 was to create effective procedures for the resolution of disputes.1215 An investor who initially waived local remedies but then discovered that there was no tribunal having jurisdiction at the international level would be without any legal protection, a situation

1206

Waste Management II Jurisdiction, para 24. Waste Management II Jurisdiction, para 27. 1208 See Methanex Corporation v United States of America , UNCITRAL, Memorial on Jurisdiction and Admissibility of Respondent United States of America, 13 November 2000, p 77, cited at Waste Management II Jurisdiction, para 28. 1209 Waste Management II Jurisdiction , para 29. 1210 Waste Management II Jurisdiction , para 30. 1211 Waste Management II Jurisdiction , para 31. 1212 Waste Management II Jurisdiction , para 31. 1213 Waste Management II Jurisdiction , para 32. 1214 Waste Management II Jurisdiction , para 33 (emphasis added). 1215 NAFTA Article 102(1)(e). 1207

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Case 91: Waste Management II Jurisdiction that NAFTA sought to avoid.1216 Third, the Tribunal reasoned that in the context of international litigation, the withdrawal of a party does not amount to a waiver of its underlying rights, and [n]either does a claim which fails for want of jurisdiction prejudice underlying rights: if the jurisdictional flaw can be corrected, there is in principle no objection to the claimant State recommencing its action.1217

Mexico’s second argument was based on res judicata—the dismissal of Waste Management’s claims by the First Tribunal, it argued, was res judicata with respect to the resubmitted claims. The Tribunal carefully reviewed several rulings of international courts and tribunals before determining that the principle of res judicata was indeed a general principle of law within the meaning of Article 38(1)(c) of the Statute of the International Court of Justice.1218 But the Tribunal clarified: in general, the dismissal of a claim by an international tribunal on grounds of lack of jurisdiction does not constitute a decision on the merits and does not preclude a later claim before a tribunal which has jurisdiction.1219

The Tribunal also referred to similar rulings of national courts1220 and, while it accepted that res judicata could be applicable to ICSID arbitrations as a matter of principle, there were no facts before the Tribunal to warrant affording the First Award res judicata effect.1221 Lastly, Mexico contended that submitting a claim to domestic courts and later before an international tribunal was an abuse of process, in response to which the Tribunal should make use of its inherent power to prevent such abuse. The Tribunal considered it unnecessary to decide whether a NAFTA tribunal has the inherent power to dismiss a claim because of an abuse of process.1222 The Tribunal referred to the abuse of process arguments raised in the ICJ decision in Phosphate Lands,1223 where the ICJ was satisfied that the claim in that case was properly submitted in the framework of the remedies open to the Claimant.

1216

Waste Management II Jurisdiction, para 35. Waste Management II Jurisdiction, para 36; citing Barcelona Traction, Light and Power Company, Limited (Belgium v Spain), Preliminary Objections, Judgment, 1964 ICJ Reports 6, p 26. 1218 Waste Management II Jurisdiction, para 39. 1219 Waste Management II Jurisdiction, para 43. See further B Cheng, General Principles of Law as Applied by International Court and Tribunals (London: Stevens, 1953), pp 337–8. 1220 Waste Management II Jurisdiction, paras 44–5. 1221 Waste Management II Jurisdiction, para 45. Cf the comparable discussion in Amco Asia II Jurisdiction, Digest I-28, on the scope of the annulment decision. 1222 Waste Management II Jurisdiction, para 49. 1223 Certain Phosphate Lands in Nauru (Nauru v Australia), Preliminary Objections, Judgment, 1992 ICJ Reports 240, para 38. 1217

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ICSID DECISIONS 19742002 Similarly, the Tribunal concluded that Waste Management had resubmitted its claim ‘properly’1224 and found no evidence that the resubmission was anything but bona fide.1225 After dismissing Mexico’s three arguments with respect to the prior proceedings, the Tribunal reserved the allocation of costs for a later decision.1226

1224

Waste Management II Jurisdiction, para 49. Waste Management II Jurisdiction, para 50. For recent examples where tribunals dismissed claims as being filed mala fides, see Phoenix Action, Ltd v The Czech Republic, ICSID Case No ARB/06/5, Award, 15 April 2009 (Stern, Bucher, Ferná ndez-Armesto), paras 106–13; Cementownia ‘Nowa Huta’ SA v Republic of Turkey, ICSID Case No ARB(AF)/06/2, Award, 17 September 2009 (Tercier, Lalonde, Thomas), paras 153–9; Europe Cement Investment & Trade SA v Republic of Turkey, ICSID Case No ARB(AF)/07/2, Award, 13 August 2009 (McRae, Lew, L évy), paras 171–5; Saba Fakes v Republic of Turkey, ICSID Case No ARB/07/20, Award, 14 July 2010 (Gaillard, van Houtte, L évy), paras 147–9. In Libananco Holdings Co Limited v Republic of Turkey, ICSID Case No ARB/06/8, Award, 2 September 2011 (Hwang, Á lvarez, Berman), para 126, issues of bad faith were discussed, but the Tribunal chose not to rule on them. 1226 The award was rendered on 30 April 2004, and Waste Management’s claim was dismissed. See Waste Management II Award , Digest II-22. 1225

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92. Compañía de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic ICSID Case No ARB/97/3 3 July 2002

Argentina–France BIT

Annulment L Y Fortier J Crawford J C Fernández Rozas

Factual Background The relevant factual background has been set out in the summary of the Tribunal’s award in this dispute,1227 where Vivendi’s claims were dismissed. After an unsuccessful application to disqualify the President of the Committee on 3 October 210071228 the annulment decision was delivered to the parties on 3 July 2002.

The Decision1229 The Committee opened with general remarks on the BIT and the role of the annulment procedure under the ICSID Convention.1230 The BIT’s fork-in-the-road clause, which had troubled the Tribunal, applied to all ‘disputes relating to investments’. Thus, if the Claimants had sued the province of Tucumán for breach of the Contract before the Tucumán courts, this choice would have been final under

1227

Vivendi I Award, Digest I-69. Vivendi I Annulment Challenge, Digest I-86. 1229 Compa ñí a de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic (formerly Compagnie Générale des Eaux), ICSID Case No ARB/97/3, Decision on Annulment, 3 July 2002 (Vivendi I Annulment). The case was subsequently resubmitted. The second Tribunal rendered its Decision on Jurisdiction on 14 November 2005 (Digest II-47) and its Award on 20 August 2007 (Digest II-86). The Award was again (unsuccessfully) challenged in Compañía de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic, ICSID Case No ARB/97/3, Decision on Annulment, 10 August 2010 (El-Kosheri, Jacovides, Dalhuisen). 1230 Vivendi I Annulment, paras 44–70. 1228

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ICSID DECISIONS 19742002 the BIT insofar as that claim was coextensive with a claim under the BIT.1231 Concerning the role of the annulment procedure, the Committee stressed that it must guard against the annulment of awards for trivial cause. Vivendi claimed that the Tribunal had failed to state reasons under Article 52(1)(e) of the Convention. The Committee considered that only the failure to state any reasons could lead to an annulment of the award, not the ‘failure to state correct or convincing reasons’, as the Committee would not perform the role of a court of appeal.1232 It was to apply a two-step approach to assessing the justification for annulment: first, the failure to state reasons must leave the decision on a particular point essentially lacking in any expressed rationale; and second, that point must itself be necessary to the tribunal’s decision.1233

If the reasons given by the Tribunal were found to be contradictory, an annulment would only be justified if the reasons genuinely contradicted, not if they merely reflected the balancing of contradicting considerations in the process of reaching a decision.1234 The Committee also observed generally that it had discretion in deciding whether, and to which extent, to annul the award.1235 Counterclaims for annulment raised by a party that did not request annulment were inadmissible. Still, a Committee would be allowed to consider arguments presented by the party opposing annulment in determining the extent of annulment. Ultimately, however, it was only for the Committee, and not the requesting party, to determine the extent of annulment. Turning to Vivendi’s arguments, the Committee rejected the contention that the Tribunal had seriously departed from a fundamental rule of procedure. The Committee held that the Claimants had sufficient opportunity to state their case on the merits during the course of the proceedings. The Tribunal, it noted, had even explicitly voiced its concerns as to the relationship between the BIT and the exclusive jurisdiction clause in the Contract, and while the decision may have surprised the Claimants, it did not amount to a ground for annulment.1236 Still, the Committee held that the Tribunal had manifestly exceeded its powers because it did not exercise the jurisdiction it possessed.1237 The Committee 1231 Vivendi I Annulment, para 55. This seems to contradict the holdings of other tribunals, which found that the submission of a dispute to local courts cannot trigger a fork-in-the-road clause as the ‘disputes’ submitted to courts and arbitration tribunals would be different. 1232 Vivendi I Annulment, para 64. 1233 Vivendi I Annulment, para 65. 1234 Vivendi I Annulment, para 65. 1235 Vivendi I Annulment, paras 66–9. 1236 Vivendi I Annulment, para 84. 1237 Vivendi I Annulment, para 86.

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Case 92: Vivendi I Annulment clarified that a ‘manifest excess of powers’ could arise where a failure to exercise jurisdiction was capable of affecting the final decision. Moreover, a Committee is not required to deal with every argument made by the parties for the Tribunal’s benefit, but must address only those that are ‘capable of leading to the conclusion reached by the Tribunal’.1238 In its analysis, the Committee then differentiated between the ‘federal claims’ (i.e. that Argentina’s own conduct was in breach of the BIT) and the ‘Tucumán claims’ (i.e. that the conduct of Tucumán under the Contract amounted to a breach of the BIT). While there was no apparent failure to exercise jurisdiction in the dismissal of the ‘federal claims’,1239 the dismissal of the ‘Tucumán claims’, on the ground that the Tribunal could not review the Contract, constituted a ‘manifest excess of power’. In reaching this conclusion, the Committee distinguished between the applicable law in general contract claims (the law of the contract) and claims made pursuant to a BIT (international law).1240 Where the Tribunal was asked to consider Vivendi’s claims arising from the treatment of an investment protected by the BIT, the existence of a choice of forum clause in the Contract ‘cannot operate as a bar to the application of the treaty standard’.1241 At most, the contractual jurisdictional clause could be relevant in determining the content and scope of a treaty breach, but it could not form the basis for dismissing Vivendi’s claim under the BIT ‘on the ground that it could or should have been dealt with by a national court’.1242 In effect, the Committee considered that the Tribunal failed to make its determination in the ‘Tucumán claims’ on the basis of the applicable BIT standards and international law, but rather focused on a municipal law agreement between the parties, for which there could be no jurisdiction vested in the Tribunal under the Convention or the BIT. In failing to decide whether the conduct in question amounted to a breach of the BIT, the Tribunal had ‘exceeded’ its powers by failing to decide the Tucumán claims on the basis of the correct applicable law. Accordingly, the Committee annulled the Award insofar as it concerned the Tucumán claims.1243 Given the importance of the arguments submitted, the Committee decided that each party should bear its own expenses and the two parties should share equally the expenses incurred by ICSID, including the costs and fees of the Committee.1244

1238 1239 1240 1241 1242 1243 1244

Vivendi I Annulment, para 87. Vivendi I Annulment, paras 89–92. Vivendi I Annulment, para 96. Vivendi I Annulment, para 101. Vivendi I Annulment, para 102. Vivendi I Annulment, para 116. Vivendi I Annulment, para 118.

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93. Mondev International Ltd v United States of America ICSID Case No ARB(AF)/99/2 11 October 2002

NAFTA

Award Sir N Stephen (P) J Crawford S M Schwebel

Factual Background The dispute arose out of a commercial real estate development contract concluded in December 1978 between the City of Boston (the City), the Boston Redevelopment Authority (BRA) and Lafayette Place Associates (LPA), a Massachusetts limited partnership owned by the Canadian corporation Mondev International Ltd (Mondev). The tripartite agreement provided for the construction of commercial buildings in downtown Boston. Part of the project was the Hayward Parcel, a City-owned plot of land that had been partially occupied by a municipal garage. Construction of this part of the project was contingent upon the City’s decision to remove the Hayward garage and build an underground car park. Once the decision to this effect had been adopted by the City, LPA would then have a three-year option to purchase the Hayward Parcel. By further amendment to the tripartite agreement, the last date for closure under LPA’s option was 1 January 1989. Various delays ensued, and LPA did not exercise the option within the required time period. In February 1991, the mortgagor foreclosed on the property, leaving LPA with no right over the project. In March 1992, LPA brought proceedings in State court against the City and BRA for breach of contract. A Massachusetts jury decided in LPA’s favour against both the City and BRA. But no verdict was entered against BRA, because the court recognized its statutory immunity from suit for intentional torts. Both the City and LPA appealed. In 1998, the highest court of Massachussetts, the Supreme Judicial Court (SJC ), affirmed the trial judge’s decision in respect of BRA but upheld the City’s appeal. LPA petitioned for rehearing before the SJC on both claims, and sought review before the United States Supreme Court in respect of its breach of contract claim against the City. Each of these petitions was denied. LPA thus lost 286

Case 93: Mondev Award both its claims—against the City on the merits and against the BRA on grounds of immunity. On 1 September 1999, Mondev submitted a claim against the United States under Article 1116 of NAFTA for losses caused to its interest in LPA arising from the court decisions, from Massachusetts law and from the acts of the City and BRA. In particular, it alleged violations of national treatment, fair and equitable treatment, and the prohibition against expropriation without compensation.

The Decision1245 1. Jurisdiction The United States raised several objections to jurisdiction and admissibility. First, except for the Massachusetts court decisions, all of the acts of which Mondev complained had occurred before NAFTA’s entry into force on 1 January 1994. The Tribunal accepted that a wrongful act that continues beyond a treaty’s entry into force may be actionable.1246 But the arbitrators distinguished between an act of continuing character and an act that, while already completed, continues to cause loss or damage over an extended period of time.1247 To affirm jurisdiction ratione temporis, the State’s action must continue after the relevant international obligation prohibiting that action has entered into force. Considering the facts of the case, the Tribunal found that the only acts that could constitute a breach of NAFTA were the post-1994 decisions of US courts, and not the pre-1994 acts which those decisions addressed. The Tribunal affirmed its jurisdiction on this limited basis only. This excluded all claims except the allegation of unfair and inequitable treatment under Article 1105(1), since Mondev’s other claims (expropriation under Article 1110 and discrimination per Article 1102) related solely to pre-1994 events.1248 The United States raised three further objections to jurisdiction and admissibility: that Mondev had not properly brought its claim under Article 1117 NAFTA; that the claims were in any event time-barred (Articles 1116(2) and 1117(2)); and that Mondev did not own the claim since, with the foreclosure of the mortgage, Mondev had lost all rights to the project. The Articles 1116–1117 argument refers to a peculiarity of NAFTA: claims can be brought either by an investor in its own name (Article 1116) or on behalf of

1245 Mondev International Ltd v United States of America, ICSID Case No ARB(AF)/99/2, Award, 11 October 2002 (Mondev Award ). 1246 Mondev Award, para 58. 1247 Mondev Award, para 58. 1248 Mondev Award, para 75.

287

ICSID DECISIONS 19742002 an enterprise which it controls (Article 1117). If the claim is brought on behalf of the enterprise, both investor and enterprise must waive the right to pursue local remedies (NAFTA Article 1121(2)), and damages are paid to the local enterprise (NAFTA Article 1135(2)). Failure to submit a waiver can lead to a dismissal of the claim.1249 The Tribunal carefully analysed the structure of the investment and concluded that Mondev had properly brought the claim under Article 1116. The Tribunal further considered that the three-year time-bar within which the claim must be brought was no obstacle to Mondev’s claim. It had already dismissed all claims save the claim based upon court decisions, and Mondev had filed that claim within the three-year limitations period.1250 The Tribunal finally turned to the objection that Mondev, due to the foreclosure, did not own the claim it had presented. It rejected this objection on two grounds: first, it considered that the foreclosure likely did not affect rights arising from tort, as alleged in the proceedings. The arbitrators noted in this regard that once an investment exists, it remains protected by NAFTA even if it later fails or ceases to operate (as was the case for Mondev, due to foreclosure).1251 2. Merits The Tribunal’s decision on the merits focused primarily upon the effect of the Free Trade Commission’s 2001 interpretation of NAFTA Article 110081252 as well as the notion of denial of justice. At issue was whether the FTC’s interpretation amounted to an impermissible amendment of NAFTA Article 1105. According to the Tribunal, the standard of treatment under Article 1105(1) is to be understood by reference to the normal sources of international law determining the minimum standard of treatment of foreign investors. The FTC’s interpretation could not be an ‘amendment’ to the treaty text, but only a clarification—first, confirming that Article 1105 refers to the standard prevailing under customary

1249

See, e.g., Waste Management I Award, Digest I-62. Mondev Award, para 87. 1251 Mondev Award, para 91. 1252 On 31 July 2001, the NAFTA Free Trade Commission (FTC) adopted the Notes of Interpretation of Certain Chapter 11 Provisions ‘in order to clarify and reaffirm the meaning of certain of its provisions’, available at . In section B it gave the following interpretation of NAFTA Article 1105(1): 1250

‘1. Article 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party. 2. The concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens. 3. A determination that there has been a breach of another provision of the NAFTA, or of a separate international agreement, does not establish that there has been a breach of Article 1105(1).’

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Case 93: Mondev Award international law, and second, specifying that this reference is to currently existing elements of customary international law.1253 Examining the content of customary international law, the Tribunal distinguished the provisions of bilateral investment treaties and NAFTA from older authorities such the Neer case, often cited in the context of treatment of aliens. In Neer, the standard was described as follows: the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.1254

While Neer concerned the State’s duty to protect aliens’ physical integrity from private parties within its territory, investment treaties cover the treatment of foreign investment by the State itself. Therefore the protection afforded by the fair and equitable treatment standard in investment treaties is not confined to outrageous misconduct as under the older ‘Neer standard’. The Tribunal was of the opinion that hundreds of investment treaties, which almost uniformly ensure fair and equitable treatment of foreign investments isolated from any customary standard, have influenced the evolution of customary law governing the treatment of foreign investment: [T]here can be no doubt that, by interpreting Article 1105(1) to prescribe the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party under NAFTA, the term ‘customary international law’ refers to customary international law as it stood no earlier than the time at which NAFTA came into force. It is not limited to the international law of the 19th century or even of the first half of the 20th century, although decisions from that period remain relevant. In holding that Article 1105(1) refers to customary international law, the FTC interpretations incorporate current international law, whose content is shaped by the conclusion of more than two thousand bilateral investment treaties and many treaties of friendship and commerce.1255

The Tribunal then examined the SJC decisions in light of the ‘evolutionary potential’ of NAFTA Article 1105(1). The Tribunal categorically rejected acting as court of appeal, but affirmed that in principle a court decision can be clearly improper and discreditable, such that it is unfair and inequitable, and therefore actionable under international law. Considering this balance, the Tribunal found nothing in the court’s decision or the prior procedure ‘to shock or surprise even a delicate judicial sensibility’ according to current standards.1256 Even if, as Mondev alleged, 1253

Mondev Award, paras 121–2. L F H Neer and Pauline Neer (USA) v United Mexican States, Mexico–US General Claims Comission, Award of 15 October 1926, IV UNRIAA 60–6. 1255 Mondev Award, para 125. 1256 Mondev Award, para 133. 1254

289

ICSID DECISIONS 19742002 the court had departed from its jurisprudence and applied a new rule of law, the Tribunal found that the decision in question fell well within the interstitial scope of law-making exercised by common-law judges. Nor was there any contravention of the principle of non-retroactivity in the judicial decisions.1257 From the procedural point of view, except in extreme cases, the application of local procedural rules about such matters as remand, or decisions as to the functions of juries vis-àvis appellate courts, could not violate NAFTA standards as otherwise a Tribunal would be transformed into a court of appeal. The Tribunal finally examined whether the immunity of the BRA public authorities from suit in respect of wrongful conduct affecting an investment violated NAFTA Article 1105. After also analysing and discussing jurisprudence from the European Court of Human Rights, the Tribunal distinguished between the granting of immunity from suit (in local courts) and the effect of immunity in NAFTA proceedings. It concluded that a State might have good grounds to grant immunity from suit. It noted that such immunity could not protect a State in NAFTA arbitration, if the conduct covered by immunity was itself in breach of NAFTA. It thus concluded that the granting of immunity to BRA was not in breach of NAFTA Article 11009.1258 For these reasons, the Tribunal dismissed Mondev’s claims in their entirety. The Tribunal declined to make an order of costs. It noted that the USA had not won on all points, that the issues were uncertain and complex, and that it had some sympathy for Mondev’s claims, as there seemed to have been a (pre-1994 and thus non-actionable) campaign against Mondev with respect to the project.1259

1257 In coming to this conclusion, the Tribunal seems to have oriented itself on the jurisprudence of the European Court of Human Rights in respect of Art 7 of the European Convention on Human Rights, to which it refers in para 138. Since Art 7 refers to criminal law cases, the Tribunal held that: ‘If there is any analogy at all, it is much fainter in civil cases.’ 1258 Mondev Award, paras 153–4. 1259 Mondev Award, para 159.

290

94. SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan ICSID Case No ARB/01/13 16 October 2002

Switzerland–Pakistan BIT

Provisional Measures F P Feliciano (P) A Faurès J C Thomas

Factual Background The dispute arose out of a 1994 contract between SGS Société Générale de Surveillance SA (SGS ) and Pakistan for inspection services (the Contract). The Contract contained a dispute resolution clause providing for the resolution of disputes by arbitration in Pakistan. Differences later arose, with allegations of breach on both sides. On September 2000, Pakistan initiated domestic arbitration in accordance with the Contract. On 10 October 2001, SGS commenced ICSID arbitration under the Switzerland– Pakistan BIT, and applied to an Islamabad court for a stay of the local arbitration pending resolution of Pakistan’s jurisdictional objections at ICSID. This application was rejected, and the court’s decision was affirmed by the Court of Appeal and Supreme Court. The Supreme Court further enjoined SGS from pursuing the ICSID arbitration. On 7 May 2002, SGS requested provisional measures from the ICSID tribunal, seeking: (i) stay of court proceedings and withdrawal of Pakistan’s anti-suit injunction; (ii) stay of the local arbitration pending the ICSID tribunal’s adjudication of jurisdictional issues; and (iii) an order that Pakistan refrain from aggravating the dispute. Pakistan argued that local arbitration was the proper forum to hear the dispute, because SGS’s claims were contractual in nature and the parties had agreed to submit such claims to Pakistani arbitration.

291

ICSID DECISIONS 19742002

The Decision1260 The Tribunal first considered SGS’s request for a stay of proceedings in the Pakistani courts and the withdrawal of Pakistan’s anti-suit injunction against the ICSID arbitration. The Tribunal accepted Pakistan’s position that it could not stay the court proceedings, since they had ended and there was no basis to revisit the resulting judgment. At the same time, the Tribunal noted that the Supreme Court’s anti-suit judgment could not bind the Tribunal as a matter of international law. Prima facie, SGS had the right to access international adjudication under the ICSID Convention.1261 The Tribunal therefore ruled that Pakistan should ensure that no action would be taken to enforce an order of contempt against SGS for pursuing the ICSID arbitration. The Tribunal then turned to SGS’s request that the local arbitration in Pakistan be stayed pending the assessment of ICSID jurisdiction. SGS took the position that Pakistan could not be prejudiced by such relief, because it was entitled to file a counterclaim in the ICSID proceeding. Pakistan responded that its claims could only be based on the parties’ contract, and therefore must be brought to the contractual forum. In the Tribunal’s view, the request for a stay of local arbitration was intertwined with jurisdictional issues to be argued by the parties at a later stage. Careful to avoid prejudging the Respondent’s objections to jurisdiction, the Tribunal recommended that the local arbitration be suspended. The panel reasoned in this regard that ‘it would be wasteful of resources for two proceedings relating to the same or substantially the same matter to unfold separately while the jurisdiction of one tribunal awaits determination’.1262 With respect to the Claimant’s request that Pakistan be directed to refrain from taking actions that might aggravate the dispute, the Tribunal considered that it already had addressed those issues in the first and second request. It also noted that no party had taken any such measures.1263 The Tribunal thus recommended that Pakistan not take any steps to initiate a complaint for contempt of court. It further recommended that the Islamabad-based arbitration be stayed until the Tribunal had decided about its jurisdiction.

1260

SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No ARB/01/13, Procedural Order No 2 on Provisional Measures, 16 October 2002 (SGS/Pakistan Provisional Measures). 1261 SGS/Pakistan Provisional Measures, pp 299–300. 1262 SGS/Pakistan Provisional Measures, p 304. 1263 SGS/Pakistan Provisional Measures, p 305.

292

95. Marvin Roy Feldman Karpa v United Mexican States ICSID Case No ARB(AF)/99/1 16 December 2002

NAFTA

Award K D Konstantinos (P) J Covarrubias Bravo D A Gantz

Factual Background Corporacion de Exportaciones Mexicanas, SA de CV (CEMSA), a Mexican company owned and controlled by Marvin Roy Feldman Karpa, an American national (Feldman), was involved in the export of Mexican cigarettes. During the first two years of this activity, the export of cigarettes was free from excise tax, and CEMSA received rebates from the Mexican authorities to offset any taxes initially paid. In 1991, legislation was adopted that made CEMSA ineligible for tax rebates. As a result, CEMSA closed its business. The following year, the regulations were repealed and CEMSA’s business resumed. In 1993, the Mexican authorities shut CEMSA’s business for tax violations. CEMSA resumed its activity only after a court ruling in its favour, and the company began receiving tax rebates again. In 1997, the law was amended to bar rebates to cigarette resellers like CEMSA, and the Mexican tax authorities demanded that CEMSA repay the rebates it had received. On 30 April 1999, Mr Feldman submitted a request for arbitration to ICSID pursuant to NAFTA and the Additional Facility Rules. On 6 December 2000, the Tribunal issued a decision, affirming its jurisdiction to hear claims in the dispute that were not subject to time-bar restrictions.1264

1264

Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB(AF)/99/1, Interim Decision on Preliminary Jurisdictional Issues, 6 December 2000.

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ICSID DECISIONS 19742002

The Decision1265 The Tribunal first had to deal with two jurisdictional issues that it had joined to the examination of the merits in the decision on jurisdiction:1266 whether the parties’ agreement had suspended the limitations period under NAFTA, and whether Mexico was estopped from invoking the limitation period because it had assured Feldman that exports would be permitted and rebates paid. The Tribunal ruled that the tolling of the limitation period was unwarranted, because NAFTA Article 1117(2) establishes an absolute and rigid three-year period within which claims must be brought, with no provision for suspension of the period.1267 In the view of the arbitrators, a suspension of the limitation period, if it were at all possible, required exceptional circumstances, e.g. ‘a long, uniform, consistent and effective behavior of the competent State organs which would recognize the existence, and possibly also the amount, of the claim’.1268 The Tribunal concluded that the various assurances of middle- and high-ranking officials were insufficient to estop the Respondent from relying on NAFTA’s limitation period.1269 The Tribunal next addressed the parties’ arguments on the exhaustion of local remedies. Mexico argued that the question of Feldman’s entitlement to receive rebates was still pending before Mexican courts and that the Tribunal would thus only be compentent to rule on a claim alleging a denial of justice once local remedies had been exhausted.1270 The Tribunal, however, ruled that the Claimant had waived all relevant claims pursuant to NAFTA Article 1121(2)(b) and (3) and therefore was not required to exhaust local remedies.1271 Furthermore, it observed that it was competent to rule on Feldman’s claim despite the pending proceedings before national courts, because the fork-in-the-road provison of Annex 1120.1 of NAFTA is relevant only when NAFTA claims have been brought before local courts. Since Feldman’s proceedings in Mexico only concerned claims under national law, they could not constitute an obstacle to NAFTA arbitration.1272 The arbitrators therefore concluded that they could determine whether Mexican law as determined by the competent authorities and courts is consistent with requirements of NAFTA 1265 Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB(AF)/99/1, Award, 16 December 2002 (Feldman Award ). See further G Alvarez-Avila, ‘Introductory Note to Marvin Roy Feldman Karpa v United Mexican States (Case No. ARB(AF)/99/1)’, 18 ICSID Rev—FILJ 466 (2003). 1266 Feldman Award , para 49. 1267 Feldman Award , para 58. The Tribunal posited that even under general principles of law such suspension would only be possible in exceptional circumstances (e.g. acts of God or if the debtor maliciously prevented the right holder from instituting proceedings) which were not pleaded by the Claimant. 1268 Feldman Award , para 63. 1269 Feldman Award , para 63. 1270 Feldman Award , para 69. 1271 Feldman Award , paras 71, 76–7. 1272 Feldman Award , para 75.

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Case 95: Feldman Award and international law.1273 The fact that national courts had not yet determined all issues was deemed irrelevant because otherwise arbitral proceedings could be prevented by delaying local court proceedings.1274 On the merits, Feldman’s primary contention was that the actions of the Mexican authorities constituted indirect or ‘creeping’ expropriation of his investment subject to compensation under NAFTA Article 1110. Feldman argued that Mexico had eliminated CEMSA’s cigarette export business by manipulating applicable regulations, and by denying tax rebates that were due.1275 The Tribunal noted that the determination of when regulatory action becomes compensable under NAFTA Article 1110 is fact-specific.1276 It recognized that governments may drive companies out of business in many different ways, but also affirmed governments’ need to act ‘in the broader public interest’.1277 As a result of this balance, customary law recognizes that the effects of certain regulations need not be compensated.1278 The Tribunal noted the restatement rule that ‘non-discriminatory, bona fide general taxation’ should not result in State responsibility for expropriation.1279 In the present case, while the tax authorities had acted in a ‘less than reasonable manner’, the arbitrators considered that the treatment of Feldman was not so seriously irregular as to constitute a violation of NAFTA Article 110101280 Further, the Tribunal held that Mexico was not obliged, under international law, to allow Feldman to carry out grey market cigarette exports;1281 nor did Mexican law assure any right to export cigarettes.1282 The Tribunal also remarked that while transparency had been lacking in the Mexican tax authorities’ conduct, a lack of transparency alone would not necessarily give rise to a NAFTA violation.1283 Finally, the arbitrators considered relevant—but not dispositive—the fact that Feldman continued to control CEMSA’s export business, and that other goods could still be exported with accompanying tax rebates.1284 Based on these considerations, the Tribunal found that no expropriation had taken place.1285

1273

Feldman Award, para 78. Feldman Award, para 78. 1275 Feldman Award , para 91. 1276 Feldman Award , para 102. 1277 Feldman Award , para 103. 1278 Feldman Award , paras 103–5. 1279 Feldman Award , para 106. 1280 Feldman Award , para 113. 1281 Feldman Award , paras 115–16. 1282 Feldman Award , paras 111, 117–31. 1283 Feldman Award , para 133. 1284 Feldman Award , paras 111, 142. 1285 The Tribunal noted that its decision on expropriation was consistent with the decisions of other NAFTA tribunals interpreting Art 1110, citing Metalclad Award, Digest I-65; Azinian Award, Digest I-56; SD Myers, Inc v Government of Canada, UNCITRAL, First Partial Award, 13 November 2000 (Hunter, Schwartz, Rae); Pope & Talbot Inc v Government of Canda, UNCITRAL, Interim Award, 26 June 2000 (Lord Dervaird, Greenberg, Belman), paras 143–53. 1274

295

ICSID DECISIONS 19742002 The Tribunal briefly commented on a possible claim of expropriation based on denial of justice. It considered that judicial action will constitute a violation of NAFTA Article 1110 only if a court decision has been ‘disavowed at the international level’.1286 This can happen if the court decision is itself a violation of NAFTA, if the relevant courts have declined to adjudicate claims, or if there is a ‘clear and malicious misapplication of the law’.1287 The Tribunal next turned to Feldman’s claim that Mexico had breached the national treatment obligation in NAFTA Article 1102. Feldman argued that Mexico had treated CEMSA less favourably than domestic resellers of cigarettes, who had not been denied any tax rebates. Mexico countered that discrimination was only actionable if unrelated foreign and domestic investors are treated differently, whereas CEMSA and the domestic companies that had benefited from tax rebates were ‘effectively part of the same corporate group, even thought there was no common ownership of shares’.1288 It also argued that there had been no discrimination on the facts of the case. The Tribunal established that CEMSA had been denied tax rebates at a time when domestic companies in like circumstances were receiving them.1289 This prima facie constituted discrimination, shifting the burden of proof to Mexico.1290 The Tribunal found that Mexico had introduced no credible evidence to refute the presumption of discrimination, e.g. by showing that there was no differential treatment.1291 The Tribunal held that, in proving discrimination, it is unnecessary to show an explicit distinction based upon the investor’s nationality.1292 Less favourable treatment in fact is sufficient.1293 Where a foreign entity has been treated less favourably, a presumption arises that this has resulted from the investor’s nationality.1294 Having established a violation of the prohibition against discrimination, the Tribunal considered the compensation to be awarded. The panel rejected the request for compensation based upon CEMSA’s ‘going concern’ value, reasoning that this would be appropriate only if expropriation had been established. The Tribunal also 1286

Feldman Award, para 139, citing Azinian Award, Digest I-56, para 97. Feldman Award, para 139, citing Azinian Award, Digest I-56, paras 102–3. 1288 Feldman Award , para 158. Mexico claimed that the two companies were not competitors in the market because they had granted each other favourable terms on loaned money and sold goods to each other. 1289 Feldman Award , para 173. 1290 Feldman Award , para 177, citing US Measures Aff ecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, 23 May 1997, p 14; AAPL Award, Digest I-33, para 56. 1291 Feldman Award , paras 177–8. 1292 Feldman Award , paras 181–3. 1293 Feldman Award , para 181. 1294 Feldman Award , para 181. See further Pope & Talbot Inc v Government of Canada , UNCITRAL, Award on the Merits of Phase 2, 10 April 2001 (Lord Dervaird, Greenberg, Belman), paras 78, 79. 1287

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Case 95: Feldman Award declined to award lost profits given the absence of adequate proof that CEMSA would have been profitable. Feldman was awarded damages equal only to the tax rebates that should have been received, just 5 per cent of the claims presented. The Tribunal held that each party should pay half of the arbitration costs and that each side should bear its own legal fees and costs incurred in connection with the arbitration.

Dissenting Opinion Arbitrator Jorge Covarrubias Bravo dissented with respect to the finding related to national treatment. He disagreed with the majority’s assessment based on the facts of the case that discrimination had taken place. According to Covarrubias, the burden of proof as to discrimination should have remained with Feldman. Covarrubias also disagreed with the majority on the question of how de facto discrimination should be established. In his view, one or two occurrences are insufficient to prove a claim of discrimination under NAFTA Article 1102. Instead, ‘composite acts involving a set of conducts of a State evincing a systematic practice’ must be proven before the Respondent can incur international liability.1295

1295

Feldman Award, Dissenting Opinion of Covarrubias Bravo, p 15. Mexico subsequently sought to set aside the award before the courts of Ontario (Ottawa having been the place of arbitration) on the grounds of violations of due process and public policy. The courts refused to set aside the award, citing the need to maintain a high level of deference to arbitral awards. Judgment, Ontario Supreme Court, 3 December 2003; Judgment, Court of Appeal for Ontario, 11 January 2005, at . For a commentary on the annulment proceedings see T Weiler, ‘Feldman and Deference’ (2004) 3 TDM available at .

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96. SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan ICSID Case No ARB/01/13 19 December 2002

Switzerland–Pakistan BIT

Disqualification F P Feliciano (P) A Faurès J C Thomas

Factual Background The dispute arose out of a 1994 contract between Société Générale de Surveillance SA (SGS) and Pakistan for inspection services. The contract contained an arbitration clause providing for the resolution of disputes by arbitration in Pakistan. Disputes later arose, with allegations of breach on both sides. In September 2000, Pakistan initiated local arbitration in accordance with the contract. On 10 October 2001, SGS commenced ICSID arbitration under the Switzerland–Pakistan BIT, On 22 November 2001, SGS submitted a request to disqualify J Christopher Thomas, the arbitrator appointed by Pakistan, pursuant to Article 57 of the ICSID Convention. SGS based its request on the fact that Mr Jan Paulsson, counsel to Pakistan in the matter at hand, had been appointed President of the arbitral tribunal in another ICSID case (GAMI v Mexico) in which Mr Thomas represented the Respondent. SGS argued that Mr Thomas had played a role in Mr Paulsson’s appointment after Mr Thomas was named in the present case. Moreover, Mr Thomas’s firm maintained an ongoing representation of Mexico (although in consideration of his appointment as arbitrator in SGS v Pakistan, he volunteered not to appear before the GAMI tribunal), and he had assisted Mexico’s primary counsel in Azinian v Mexico. In that case, the Tribunal, chaired by Mr Paulsson, rendered an award in favour of Mr Thomas’s client. SGS contended that Mr Thomas could feel indebted to Mr Paulsson in connection with the Azinian award, or might generally favour Mr Paulsson’s client in light of their relationship in connection with the GAMI case.

298

Case 96: SGS/Pakistan Disqualification

The Decision1296 The two remaining arbitrators, Judge Feliciano and Mr Faurès, first examined the standard under Article 57. They identified its two constituent elements: (a) a fact or facts; that (b) ‘indicat[e] a manifest lack of the qualities required’ by Article 14(1) of the ICSID Convention.1297 The arbitrators reasoned that the relevant facts must be proven before an arbitrator may be disqualified. Mere speculation or inference is insufficient. The second constituent element requires inference, but the arbitrators clarified that this inference could not be based in turn on inference. The clear inference resulting from the facts must be that the arbitrator challenged cannot be relied upon to exercise independent judgment, ‘or that a readily apparent and reasonable doubt as to that person’s reliability for independent judgment has arisen’.1298 In this case, the two deciding arbitrators did not consider the facts presented by SGS to support the inference that Mr Thomas lacked the qualities required of him by Article 14 of the ICSID Convention. In particular, they stressed that the overlap of people and functions in the field of international commercial arbitration, for example, between counsel and arbitrators, was common. The arbitrators concluded that this phenomenon was generally accepted to be insufficient in itself for disqualification. The deciding arbitrators disagreed with the Claimant’s allegation of a relationship of dependency between Mr Thomas and Mr Paulsson. To the extent SGS claimed that the two men had an understanding (either express or implicit) influencing Mr Thomas’s views on the Tribunal, this would have to be proven for disqualification to follow. The factual record was insufficient to conclude that any such agreement existed. On this basis, the arbitrators dismissed the Claimant’s request for disqualification.

1296 SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan , ICSID Case No ARB/01/13, Decision on Claimant’s Proposal to Disqualify Arbitrator, 19 December 2002 (SGS/ Pakistan Disqualification), 8 ICSID Report 398 (2005). 1297 SGS/Pakistan Disqualification , pp 401–2. 1298 SGS/Pakistan Disqualification , p 402.

299

97. Compañía de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic ICSID Case No ARB/97/3 28 May 2003

Argentina–France BIT

Rectification L Y Fortier J Crawford J C Fernández Rozas

Factual Background On 3 July 2002, the ad hoc Committee rendered its decision on the annulment of the Award.1299 The Respondent requested a supplementary decision and the rectification of the award, arguing that the Committee had erred in several respects.

The Decision1300 The Committee first clarified the nature and purpose of the rectification procedure. It stated that the procedure is not an instrument of appealing or otherwise revising the merits of a decision.1301 The Committee then turned to the request for rectification. It examined its own reasoning and held that its material and substantive findings sufficiently discussed the Respondent’s objection, although they ‘admittedly do not expressly refute [Respondent’s] entire legal argument’.1302

1299

Vivendi I Annulment, Digest I-92. See further Vivendi I Award, Digest I-69. Compania de Aguas del Aconquija, SA & Vivendi Universal v Argentine Republic, ICSID Case No ARB/97/3, Decision on Rectification, 28 May 2003 (Vivendi I Annulment Rectification). 1301 Vivendi I Annulment Rectification, para 11. 1302 Vivendi I Annulment Rectification, para 17. See further the decisions in Amco Asia II Rectification, Digest I-34, and Klöckner I Annulment, Digest I-18. 1300

300

Case 97: Vivendi I Annulment Rectification Argentina contended that the Committee should correct a range of allegedly erroneous conclusions and omissions, including its description of the parties’ positions and its decision (or lack thereof) on a point of jurisdiction. The Committee clarified that the rectification of an award would be dependent on two factual conditions: ‘First, a clerical, arithmetical or similar error in an award or decision must be found to exist. Second, the requested rectification must concern an aspect of the impugned award or decision that is purely accessory to its merits.’1303 It held that the rectification procedure is not an admissible means to revise substantive findings of the tribunal or committee in question. On the basis of this standard, the Committee examined the Respondent’s contentions and rejected them. For its cost decision, the Committee took into account that most of Argentina’s requests were not only unfounded, but also inappropriate. Therefore, while it ordered that each party bear its own costs, it ordered Argentina to pay for the fees and expenses of the Committee.1304

1303 1304

Vivendi I Annulment Rectification, para 25. Vivendi I Annulment Rectification, paras 43–4.

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98. Marvin Roy Feldman Karpa v United Mexican States ICSID Case No ARB(AF)/99/1 13 June 2003

NAFTA

Correction and Interpretation K Kerameus (P) J Covarrubias Bravo D A Gantz

Factual Background On 16 December 2002, the Tribunal rendered its award on the merits.1305 The Tribunal decided in favour of the Claimant and found that the Respondent had breached, inter alia, its national treatment obligations.1306 The Respondent requested the award’s interpretation and correction according to Articles 56, 57 and 58 of the ICSID Additional Facility Rules.1307

The Decision1308 The Respondent requested that the Tribunal interpret its award, holding that certain evidence was not produced, and to consider the application of NAFTA Article 2105 in connection with its findings. NAFTA Article 2105 imposes certain restrictions on the disclosure of information by a contracting party, including disclosure contrary to the party’s laws on the protection of privacy or financial affairs.1309 In its request, the Respondent listed several such laws that could have been relevant 1305

Feldman Award, Digest I-95. The Tribunal had concluded that the Claimant had been discriminated against by the authorities. The Respondent had not rebutted the assertions that domestic enterprises were treated better than Claimant. 1307 The request is available at . 1308 Marvin Roy Feldman Karpa v United Mexican States, ICSID Case No ARB(AF)/99/1, Decision on the Correction and Interpretation of the Award, 13 June 2003 (Feldman Correction). 1309 Article 2105 NAFTA reads as follows: Nothing in this Agreement shall be construed to require a Party to furnish or allow access to information the disclosure of which would impede law enforcement or would be contrary to the Party’s law protecting personal privacy or the financial affairs and accounts of individual customers of financial institutions.’ 1306

302

Case 98: Feldman Correction in the case at hand by restricting the Respondent’s ability to disclose certain tax information. The Tribunal rejected the Respondent’s Request for interpretation. It argued that the Respondent effectively sought a new decision instead of an interpretation.1310 The Tribunal further observed that the Respondent never raised this argument during the proceedings. But the Tribunal decided to grant the request for correction. In its award, the Tribunal had awarded damages to the Claimant. Since the claim was undisputedly raised under NAFTA Article 11171311 by the Claimant on behalf of the enterprise CEMSA, however, the damages were to be paid to CEMSA under NAFTA Article 1135.1312 Regarding the costs, the Tribunal decided that the Respondent should bear threequarters of the Tribunal’s charges because the Respondent did not prevail on the issue over the interpretation of the award, which required two submissions, while the second issue concerning the correction of the award was non-contentious.1313

1310

Feldman Correction, paras 10–11. According to Article 1117 NAFTA an investor can submit a claim on behalf of an enterprise of another party if the investor owns or controls the enterprise. In such a case, the compensation has to be awarded to the enterprise itself, compare Art 1135(2) NAFTA. 1312 Feldman Correction, paras 12–13. 1313 Feldman Correction, para 15. 1311

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Part II

DEVELOPMENT OF ICSID JURISPRUDENCE 19742002

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THE DEVELOPMENT OF ICSID JURISPRUDENCE FROM 20032007 The purpose of this part of the book is to guide the reader through the nearly one hundred ICSID decisions and awards rendered in the 1974–2002 period and summarized in Part I. The sections in this part identify certain lines of relatively consistent reasoning that can be traced through the Tribunals’ decisions over the period covered in this book. This undertaking is designed to enable the reader to assess the current relevance and relative importance of the decisions in question, and to understand the broad development of ICSID practice during this period. The authors do not here intend to offer a detailed commentary or treatise on international investment law.1 The purely descriptive summary set out below does not reflect the opinion of the authors as to what the law actually is, might be, or how it should be understood except where otherwise stated. To give the reader a better understanding of the potential relevance of the developments covered, Part II begins with a description of the historical background and legal framework of investment disputes and their resolution (section A), and then analyses awards and decisions relating to procedural issues (section B), substantive issues (section C) and remedies (section D).

A. Historical Development of the Legal Framework for the Resolution of Investment Disputes The substantive and procedural legal framework for the adjudication of investment disputes has undergone a remarkable transformation over the past two centuries. The relevance of the creation of ICSID, as well as the evolution of the Centre’s caseload from contract disputes to treaty disputes during the period under review, is best understood in light of this prior development. 1 Those interested in in-depth analysis of particular legal issues are advised to consult C McLachlan et al, International Investment Arbitration: Substantive Principles (New York: Oxford University Press, 2007); R Dolzer and C Schreuer, Principles of International Investment Law (New York: Oxford University Press, 2008) or C Dugan et al, Investment Treaty Arbitration (New York: Oxford University Press, 2008); JW Salacuse, The Law of Investment Treaties (New York: Oxford University Press, 2010); C Schreuer et al, The ICSID Convention: A Commentary (Cambridge: Cambridge University Press, 2nd edn, 2009).

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ICSID Jurisprudence 1974–2002 (1) International Investment Disputes as State-to-State Disputes Disputes between States and foreign investors have a long history in public international law. The root of these differences often lay in the confiscation or destruction of alien property during military actions and revolts. As early as 1796, US Secretary of State Adams was of the opinion that no principle of international law was better established than the protection of foreign property.2 While Adams’ view may not have reflected the position of customary international law at that time, by the mid-nineteenth century it had become generally accepted that the property of foreigners benefited from international protection. In particular, developed countries demanded a certain international minimum standard of treatment for their nationals abroad and for their property. This standard was already promoted as an objective one, applicable irrespective of how the host State treated its own nationals.3 The concept of an objective minimum standard of treatment was vigorously opposed by many developing countries, especially in Latin America, which advocated a subjective rule of merely equal treatment of foreigners. This Latin American view eventually came to be referred to as the ‘Calvo Doctrine’, in recognition of the eminent Argentine law professor who was one of its most avid promoters.4 The character of investment disputes changed in the early twentieth century. This was due to a significant increase in foreign direct investment in the developing world, and the simultaneous rise of nationalism and Communism. The advent of 2 R Dolzer, ‘New Foundations of the Law of Expropriation of Alien Property’ (1981) 75 AJIL 553, p 558 (1981) (‘There is no principle of the law of nations more firmly established than that which entitles the property of strangers within the jurisdiction of another country in friendship with their own to the protection of its sovereign by all efforts in his power. This common rule of intercourse between all civilized nations has, between the United States and Spain, the further and solemn sanction of an express stipulation by treaty.’). 3 In 1910, Elihu Root wrote: ‘There is a standard of justice, very simple, very fundamental, and of such general acceptance by all civilized countries as to form a part of the international law of the world. The condition upon which any country is entitled to measure the justice due from it to an alien by the justice which it accords to its own citizens is that its system of law and administration shall conform to this general standard. If any country’s system of law and administration does not conform to this standard, although the people of the country may be compelled to live under it, no other country can be compelled to accept it as furnishing a satisfactory measure of treatment to its citizens.’ Cited in L Henkin et al, International Law: Cases and Materials (St Paul: West Publishing, 3rd edn, 1993), p 680. 4 The Calvo Doctrine was for many decades applied as both a substantive and a procedural principle. As a substantive rule, it stood for the sufficiency of equal treatment as between foreigners and nationals, even if such treatment was objectively inferior to international standards. As a procedural rule, the Calvo Doctrine posits that diplomatic protection has limited application in relation to expropriation, and that affected aliens must rather seek recourse within the local judicial system for harm caused by the host state. It is doubtful whether the Calvo Doctrine ever became part of customary international law. However, by the early twentieth century, Latin American governments began to impose so-called ‘Calvo clauses’ in contracts signed with foreign investors, by which they purported to waive their rights to diplomatic protection. See generally D Shea, The Calvo Clause (Minneapolis: University of Minnesota Press, 1955). The effectiveness of such clauses has been much debated. See North American Dredging Company of Texas v Mexico, 31 March 1926, VI UNRIAA 26.

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A. Historical Development of the Legal Framework these political ideologies resulted in expropriation on a broad scale in many countries around the world. These measures put considerable strain on the accepted rule of full compensation in case of expropriation. Faced with claims for full compensation by a multitude of foreign property holders, nationalizing States came to consider such demands as an infringement of their sovereignty, and often refused to pay any compensation at all. The clash between differing perceptions of international law was reflected in a 1938 dispute between Mexico and the United States relating to compensation for the expropriation of agricultural land owned by US citizens. When the United States demanded full compensation for the assets taken, the Mexican Minister of Foreign Affairs refused. Relying on the Calvo Doctrine, he argued that no rule of international law obliged Mexico to pay compensation for nationalization: My Government maintains, on the contrary, that there is in international law no rule universally accepted in theory nor carried out in practice which makes obligatory the payment of immediate compensation nor even for deferred compensation, for expropriations of a general and impersonal character like those which Mexico has carried out for the redistribution of the land.5

In his response, US Secretary of State Cordell Hull summarized the American position with respect to States’ responsibility to provide compensation for expropriated property: The Government of the United States merely adverts to a self-evident fact when it notes that the applicable and recognized authorities on international law support its declaration that, under every rule of law and equity, no government is entitled to expropriate private property, for whatever purpose, without provision for prompt, adequate and effective payment therefor.6

This standard of compensation, which has become widely known as the ‘Hull formula’, reflected not only the American view of international law, but also the position of European countries prior to World War II.7 The US–Mexican dispute was a harbinger of a multitude of investment disputes that were to arise in the post-war period, when an increasing number of newly independent former colonies challenged the Hull formula and the international ‘minimum standard of treatment’. Confronted with long-term concessions held by foreign investors (often nationals of their former colonial masters), a wave of nationalizations followed, carried out largely under the ideological banner of ‘permanent sovereignty over natural resources’. Politically, this conflict was joined in the United Nations General Assembly, focusing to a large extent on the standard of compensation to be paid by a State for the foreign-owned property that it nationalizes. In this regard, non-aligned and developing States championed the adoption in 1974 of UN 5

Cited in Henkin et al, note 3, p 681. Cited in Henkin et al, note 3, p 681. 7 Dolzer, note 2, 558; DM Norton, ‘A Law of the Future or a Law of the Past? Modern Tribunals and the International Law of Expropriation’ (1991) 85 AJIL 474, p 475. 6

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ICSID Jurisprudence 1974–2002 General Assembly Resolution 3281, known as the Charter of Economic Rights and Duties of States, which called for ‘appropriate’ rather than ‘adequate’ or ‘full’ compensation.8 Today, the importance of customary international law for the protection of foreign investments has diminished, due to the proliferation of bilateral and multilateral investment treaties concluded since the 1950s.9 The uncertain legal and political situation during decolonization provided the impetus for capital-exporting countries to create specialized treaties for the protection of investments. From the newly independent States’ perspective, such international instruments were an important tool to secure a steady flow of foreign capital to replace the subsidized capital infusions of the colonial period. The first bilateral investment protection treaty was concluded in 1959 between the Federal Republic of Germany and Pakistan, and other countries followed suit throughout the 1960s. The first BITs were concluded exclusively between the capital-exporting States of the Northern hemisphere and the developing countries of the Southern hemisphere. It is only since the beginning of the 1990s that developing States and transition economies began to negotiate BITs among themselves. Although most BITs contain similar provisions, no global investment treaty has yet been concluded.10 Until the early 1990s, the only negotiations that led to the successful conclusion of multilateral treaties related to instruments lacking investment protection provisions, such as the 1965 ICSID Convention or the 1985 MIGA convention.11 Negotiations towards a true multilateral agreement on investment (later known as the ‘MAI’), conducted under OECD auspices, began in 1995, but collapsed three years later.12 Notable exceptions to the

8 Charter of Economic Rights and Duties of States, UNGA Res 3281 (XXIX), 17 December 1974. On the legal concepts underlying Resolution 3281, see I Brownlie, ‘Legal Status of Natural Resources in International Law’ (1979) 162 Recueil des Cours 245. See further BH Weston, ‘The Charter of Economic Rights and Duties of States and the Deprivation of Foreign-Owned Wealth’ (1981) 75 AJIL 437; SK Chatterjee, ‘The Charter of Economic Rights and Duties of States’ (1991) 40 ICLQ 669; AA Akinsanya, ‘The United Nations Charter of Economic Rights and Duties of States: International Protection of Economic Independence of Third World Countries’ (1980) 36 Revue Égyptienne de Droit International 51. 9 On the topic of bilateral investment treaties, see generally R Dolzer and M Stevens, Bilateral Investment Treaties (The Hague: Martinus Nijhoff Publishers, 1995); FA Mann, ‘British Treaties for the Promotion and Protection of Investments’, in FA Mann (ed), Further Studies in International Law (Oxford: Oxford University Press, 1990), pp 234–251; G Sacerdoti, ‘Bilateral Treaties and Multilateral Instruments on Foreign Investment Protection’ (1997) 269 Recueil des Cours 251. 10 See Dolzer and Stevens, Bilateral Investment Treaties, note 9, and UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (Switzerland: United Nations Publication, 2007), which gives a survey of the different provisions. 11 Early attempts to negotiate multilateral conventions for the protection of foreign investments were the Abs-Shawcross Draft Convention on Investments Abroad and the OECD Draft Convention on the Protection of Foreign Property (1968) 7 ILM 117. 12 OECD, Multilateral Agreement on Investment, Draft Consolidated Text, 22 April 1998, available at . The MAI negotiations are described in A Böhmer, ‘The Struggle for a Multilateral Agreement on Investment: An Assessment of the Negotiation Process in the OECD’ (1998) 41 German Yearbook of International Law 267.

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A. Historical Development of the Legal Framework general dearth of multilateral investment protection instruments are the North American Free Trade Agreement and the Energy Charter Treaty. Both are limited in geographic scope, and both regulate other economic activities (most notably trade in goods) in addition to foreign direct investment.13 For the first ten years following the adoption of the German–Pakistani bilateral investment treaty, no such treaties included investor–State arbitration provisions. For the following twenty years, these treaties remained a footnote of diplomatic practice, apparently unknown to most companies and practising lawyers. As a result, investment treaties began to play a role in ICSID decisions only very late in the period under review. Until the mid 1990s, the majority of cases at ICSID were initiated on the basis of arbitration clauses contained in State contracts. International law played a role in these disputes primarily as part of applicable law through Article 42 of the ICSID Convention. Only with the rise of investment treaties as a basis for ICSID jurisdiction, did ICSID tribunals begin directly to apply international law to a wide range of substantive issues.14 (2) Dispute Settlement Under customary international law, a foreign investor who suffers harm as a result of a host State’s conduct was normally limited in the first instance to recourse within the municipal judicial system of the offending State. Once these local remedies had been exhausted to no avail, the remaining option at customary law was for the investor to ask his home government to intervene in the dispute, providing diplomatic protection. The home State could then espouse the investor’s claim (although it was under no legal obligation to do so)15 and pursue it via negotiation, arbitration (if consent to such a procedure existed or could be procured) or even (prior to the adoption of the UN Charter in 1945) by force.16 Any dispute based on the alleged breach 13 An excellent overview of various multilateral agreements containing provisions on the protection of foreign investment can be found in UNCTAD, Investment Provisions in Economic Integration Agreements (Switzerland: United Nations Publication, 2006). 14 The first award in a dispute brought under a bilateral investment treaty was Asian Agricultural Products Ltd v Republic of Sri Lanka (AAPL Award), Digest I-33. 15 This right of the state to diplomatic protection of its nationals has been summarized by the PCIJ: ‘It is an elementary principle of international law that a state is entitled to protect its subjects, when injured by acts committed by another state, from which they have been unable to obtain redress though the ordinary channels. By taking up the case of one of its nationals and by resorting to diplomatic action or international judicial proceedings, a state is in reality asserting its own rights—its right to ensure, in the person of its subjects, respect for the rules of international law.’ PCIJ, The Mavrommatis Palestine Concessions (Greece v United Kingdom), Merits, Judgment, 26 March 1925, Series A No 2, pp 4, 12. 16 The British government was particularly strident in protecting its citizens. In 1821 during the war between Spain and its former colonies, Spanish privateers seized a British merchantman. When the Spanish government offered no compensation, in 1823 a squadron was ordered to Puerto Rico to confront the governor and recover the vessel. When in 1874, a local colonel in Honduras looted property of a British railway construction company, the British battleship Niobe bombarded the colonel’s fortress until he capitulated and handed over his loot. L James, Rise and Fall of the British Empire (New York: St Martin’s Press, 1996), pp 173–7.

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ICSID Jurisprudence 1974–2002 of international law was considered a dispute exclusively between the host State and the foreign investor’s home State. Diplomatic espousal gave rise to relatively few arbitrated disputes involving foreign investment, with a few notorious exceptions, such as Mavrommatis Concessions17 (1924), Oscar Chinn18 (1934), Nottebohm19 (1955), Barcelona Traction20 (1972) and Elettronica Sicula21 (1989). From the investor’s point of view, diplomatic protection presented significant drawbacks as a mechanism for obtaining effective remedies for wrongful State action. In addition to strict requirements with respect to nationality and the exhaustion of local remedies, the foreign investor had neither a right to receive diplomatic protection from his home government,22 nor a direct claim to receive any compensation ultimately paid.23 These uncertainties did little to reduce political risk. In order to avoid the necessity to seek recourse in the host State’s courts, investors early on sought to include arbitration clauses in agreements with foreign governments. As a result, disputes in the oil sector after World War II, in particular expropriations, led to several arbitration cases between foreign oil companies and Arab States, most notably Saudi Arabi v Aramco24 and the well-known disputes between Libya and BP, Liamco and TOPCO.25 Despite the growing number of disputes resolved by arbitration tribunals, international commercial arbitration was in some ways ill-adapted to such conflicts. The lack of any specialized international legal framework sparked recurring legal controversies with respect to applicable law,26 the

17

The Mavrommatis Palestine Concessions, note 15, p 4. Oscar Chinn Case (Belgium v United Kingdom), Judgment, 12 December 1934, PCIJ Series A/B No 63, p 4. 19 Nottebohm Case (Liechtenstein v Guatemala), Second Phase, Judgment, 6 April 1955, 1955 ICJ Reports 4. 20 Barcelona Traction, Light and Power Company, Limited (Belgium v Spain), Second Phase, Judgment, 5 February 1970, 1970 ICJ Reports 3. 21 Case concerning Elettronica Sicula SpA (ELSI) (United States v Italy), Judgment, 20 July 1989, ICJ Reports 1989, 4 ff. 22 ‘The State must be considered the sole judge to decide whether its protection will be granted, to what extent it will be granted and when it will cease. . . . It retains in this respect a discretionary power the exercise of which may be determined by considerations of a political or other nature, unrelated to the case.’ Barcelona Traction, note 20, 44. 23 W Geck, ‘Diplomatic Protection’, in R Bernhardt (ed), Encyclopedia of Public International Law (EPIL), Vol. I (Amsterdam: North-Holland Publishing, 1992), 1045, p 1058; P Muchlinski, Multinational Enterprises and the Law (Oxford: Blackwell Publishers, 1995), p 535. 24 Saudi Arabia v Arabian American Oil Company, 27 ILR 47 (1963). 25 Libyan American Oil Corporation v Government of the Libyan Arab Republic, 62 ILR 140 (1982); British Petroleum Exploration Company (Libya) v Government of the Libyan Arab Republic, 53 ILR 279 (1979); Texaco Overseas Petroleum Company and California Asiatic Oil Company v the Government of the Libyan Arab Republic, 53 ILR 389 (1979). These cases have been thoroughly analysed in C Greenwood, ‘State Contracts in International Law—The Libyan Oil Arbitrations’ (1982) 53 British Yearbook of International Law 27. 26 The issue of applicable law may have been the most controversial issue in investor–State arbitration outside the treaty context. To avoid subjecting state contracts to the whim of the host state, foreign companies often sought to ‘freeze’ national law through stabilization clauses, or through a contractual choice of public international law, or ‘general principles of law’. With respect to 18

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A. Historical Development of the Legal Framework enforcement of awards and sovereign immunity 27 and the issue of whether the State was a party to the agreement at all.28 These were some of the reasons why the General Counsel of the World Bank, Mr Aaron Broches, proposed in 1961 the creation of a specialized international centre for the settlement of investment disputes. This idea was taken up by the Executive Directors of the World Bank, and a draft convention was prepared, discussed and negotiated until 1965. The final draft text of what became the ICSID Convention was approved on 18 March 1965.29 Its preamble clearly spells out the keystone notion of the instrument: The Contracting States Considering the need for international cooperation for economic development, and the role of private international investment therein; Bearing in mind the possibility that from time to time disputes may arise in connection with such investment between Contracting States and nationals of other Contracting States; Recognizing that while such disputes would usually be subject to national legal processes, international methods of settlement may be appropriate in certain cases; Attaching particular importance to the availability of facilities for international conciliation or arbitration to which Contracting States and nationals of other Contracting States may submit such disputes if they so desire; Desiring to establish such facilities under the auspices of the International Bank for Reconstruction and Development; Recognizing that mutual consent by the parties to submit such disputes to conciliation or to arbitration through such facilities constitutes a binding agreement which

stabilization clauses, see generally H Merkt, Investitionsschutz durch Stabilisierungsklauseln (Heidelberg: Verlag Recht und Wirtschaft, 1990); T Wälde and G Ngi, ‘Stabilizing International Investment Commitments: International Law vs. Contract Interpretation’ (1996) 31 Texas Journal of International Law 216. On the internationalization of contracts, see FA Mann, ‘The Theoretical Approach towards the Law Governing Contracts between States and Aliens’, in Mann (ed), note 9, 264–9; SJ Toope, Mixed International Arbitration (Cambridge: Cambridge University Press, 1990); E Paasivirta, Participation of States in International Contracts (Helsinki: Lakimiesliiton Kustannus, Finnish Lawyer’s Publishing Company, 1990); U Kischel, State Contracts (Stuttgart: Boorberg Verlag, 1992); M Sornarajah, The Settlement of Foreign Investment Disputes (The Hague: Kluwer Law International, 2000), pp 223–78. 27 See, e.g., C Schreuer, State Immunity: Some Recent Developments (Cambridge: Grotius Publications, 1988); H Fox, ‘Sovereign Immunity and Arbitration’, in JDM Lew (ed), Contemporary Problems in International Arbitration ( London: Martinus Nijhoff Publishers, 1987), p 323; AJ van den Berg, ‘The New York Arbitration Convention and State Immunity’, in K-H Böckstiegel (ed), Acts of State and Arbitration (Köln: Heymanns, 1997), p 41. 28 See for contemporary literature: K-H Böckstiegel, Der Staat als Vertragspartner ausländischer Privatunternehmen (Köln: Athenäum Verlag, 1971); E Gaillard and J Savage (eds), Fouchard, Gaillard and Goldman on International Commercial Arbitration (The Hague: Kluwer Law International, 1999), paras 508–10. 29 Convention on the Settlement of Investment Disputes between States and Nationals of other States, 18 March 1965, entered into force 14 October 1966, 575 UNTS 159, 4 ILM 524 (1965).

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ICSID Jurisprudence 1974–2002 requires in particular that due consideration be given to any recommendation of conciliators, and that any arbitral award be complied with; and Declaring that no Contracting State shall by the mere fact of its ratification, acceptance or approval of this Convention and without its consent be deemed to be under any obligation to submit any particular dispute to conciliation or arbitration, Have agreed as follows:

By at once excluding recourse to diplomatic protection by the investor’s home State and regulating questions of applicable law and enforcement of awards, ICSID was tailor-made for settling investment disputes in a neutral forum. The ICSID Convention provided a framework for Investor–State arbitration, and specially tailored arbitration rules for proceedings, but expressly did not impose arbitration upon States that had not separately consented to such a process. When the ICSID Convention was drafted, it was envisaged that such consent would be found in investment contracts, which could be negotiated to include a specific ICSID arbitration clause. Most of the decisions and awards covered in this book fall into this category. The possibility of ICSID arbitration between States and foreign investors was significantly broadened with the advent of investment protection treaties that provided the signatory States’ blanket advance consent to arbitration with respect to qualifying disputes, even in the absence of any similar undertaking in a State contract. Similar consent provisions also began to be included in national laws regulating foreign investment in some developing countries.29a Today, most of the 3,000 or so bilateral investment treaties in force,30 as well as multilateral investment treaties such as NAFTA and the ECT, include arbitration provisions that allow qualifying investors to bring claims directly against a signatory State before an international arbitral tribunal, where the respondent State has violated the substantive protections of the relevant treaty. Many of these instruments envisage arbitration at ICSID, although references to other procedural rules, such as UNCITRAL, the Stockholm Chamber of Commerce and the International Chamber of Commerce, are also common. This book covers the transition of ICSID jurisprudence from purely contract-based arbitrations to treaty-based arbitrations, which dominate the Centre’s caseload today. ICSID experienced a considerable increase in its docket over the decade after that transition. While the number of new arbitration proceedings under ICSID auspices averaged only one or two per year between 1965 and 1997, about twenty new cases have been submitted in each year since 2001. Most of these new arbitrations are based upon the provisions of BITs. With 147 member States and 158 signatories, the ICSID Convention is thus of considerable importance in the field of international investment law.31 29a See, e.g., Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt (SPP Award), Digest I-36. 30 UNCTAD entertains a list with the full text of approx. 1,800 treaties online at . 31 As per 13 November 2012; see (search via Member States>List of Contracting States).

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B. Procedural and Jurisdictional Issues In this section, we review the development of procedural and jurisdictional issues in ICSID arbitration. As investment treaty-based cases arose only relatively late (starting 1990),32 we begin with (1) the jurisdictional requirements imposed by Article 25 of the ICSID Convention, and then consider (2) other jurisdictional and procedural issues. Investment treaty-related issues will be discussed last. (1) Jurisdictional Requirements of Article 25 ICSID Convention (a) Introduction A Claimant who submits a claim to ICSID must clear several jurisdictional hurdles imposed by Article 25 of the ICSID Convention. Article 25(1)–(2), upon which arbitral tribunals have focused in practice, read as follows: (1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally. (2) ‘National of another Contracting State’ means: (a) any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute; and (b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.

During the negotiation of the ICSID Convention, a central topic of discussion and debate was the importance of the parties’ consent in determining whether the requirements of Article 25(1) ICSID Convention would be fulfilled in any particular case. One group of delegates considered it unnecessary to establish precise definitions for such key terms as ‘investment’ and ‘nationality’, given the necessity of consent by the State party: the government could withhold its consent if it concluded that a particular project or investor should not be subject to ICSID jurisdiction. Others favoured that the definitions be as detailed as possible.33 This discussion, which could 32 33

See AAPL Award, Digest I-33. See the summary in Schreuer et al, ICSID Convention, note 1, Art 25 paras 1–8.

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ICSID Jurisprudence 1974–2002 not be fully resolved, is still reflected in the Report of the Executive Directors of the World Bank on the Convention: 25. While consent of the parties is an essential prerequisite for the jurisdiction of the Centre, consent alone will not suffice to bring a dispute within its jurisdiction. In keeping with the purpose of the Convention, the jurisdiction of the Centre is further limited by reference to the nature of the dispute and the parties thereto. ... 27. No attempt was made to define the term “investment” given the essential requirement of consent by the parties, and the mechanism through which Contracting States can make known in advance, if they so desire, the classes of disputes which they would or would not consider submitting to the Centre (Article 25(4)).34

In the period under review, tribunals were often faced with the question as to the weight that should be accorded to an agreement of the parties that, e.g. an ‘investment’ exists, or that a company is controlled by foreign nationals and should therefore be considered a national of another Contracting State for ICSID purposes. In practice, most tribunals have concurred that ICSID jurisdictional requirements are objective in nature.35 At the same time, the majority view is that the parties’ agreement to arbitrate (whether contained in a contract or a treaty) carries significant weight, and that jurisdiction should be affirmed with respect to the full scope of that agreement—unless this would be inconsistent with the object and purpose of the Convention.36 The extent to which the parties’ agreement is relevant for purposes of Article 25 of the ICSID Convention remains unsettled.37 This issue has gained renewed prominence in recent years in relation to cases submitted on the basis of investment treaties. Because the ICSID Convention leaves ‘investment’ undefined while investment treaties normally include an extensive definition, many have argued that any asset or transaction that qualifies as an investment under the applicable investment treaty should also be considered an ‘investment’ as required to establish jurisdiction under Article 25(1) of the ICSID Convention.38 However, the general view of tribunals appears to remain that the jurisdictional requirements—including

34 Report of the Executive Directors of the International Bank for Reconstruction and Development on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 18 March 1965, available at pp 35 et seq. 35 Salini Jurisdiction, Digest I-82, para 52; Malaysian Historical Salvors, SDN, BHD v Malaysia, ICSID Case No ARB/05/10, Award, 17 May 2007 (MHS Award), Digest II-76, para 68; Joy Mining Machinery Ltd v Arab Republic of Egypt, ICSID Case No ARB/03/11, Award, 6 August 2004 ( Joy Mining Award), Digest II-29, para 50; Saipem SpA v People’s Republic of Bangladesh, ICSID Case No ARB/05/7, Decision on Jurisdiction, 21 March 2007 (Saipem Jurisdiction), Digest II-75, para 99; Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No ARB/05/22, Award, 24 July 2008 (Hanotiau, Born, Landau) (Biwater Gauff Award), para 310. 36 Aucoven Jurisdiction, Digest I-85, para 99. 37 Schreuer et al, ICSID Convention, note 1, Art 25 paras 129–47. 38 CSOB Jurisdiction I, Digest I-51, paras 22, 29, 76–7.

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B. Procedural and Jurisdictional Issues the existence of an ‘investment’—of the ICSID Convention are objective and independent of the will of the parties.39 (b) Legal dispute According to Article 25 of the ICSID Convention, only ‘legal disputes’ are subject to ICSID adjudication. In their report on the Convention, the directors of the World Bank defined this concept broadly: The expression ‘legal dispute’ has been used to make clear that while conflicts of rights are within the jurisdiction of the Centre, mere conflicts of interests are not. The dispute must concern the existence or scope of a legal right or obligation, or the nature or extent of the reparation to be made for breach of a legal obligation.40

In the period under review, the issue was not particularly problematic. The main decision in which a tribunal addressed the question of ‘legal disputes’ at length was AGIP v Congo, in which the arbitrators held that a dispute pertaining to the amount of compensation due to the Claimant was sufficiently ‘legal’ to pass the jurisdictional test.41 The Tribunal in CSOB clarified that political elements do not deprive the dispute of its legal character as long as it concerns legal rights and obligations.42 (c) Dispute between a Contracting State and a national of another Contracting State Any dispute submitted to ICSID must be between a Contracting State to the ICSID Convention and a national of another Contracting State. Tribunals in the period under review were split on the question as to the relevant time when this condition had to be fulfilled. In SOABI and CSOB it was considered sufficient that the nationality requirement was fulfilled at the time of consent to arbitration and

39 See, inter alia, Joy Mining Award, Digest II-29, para 58; Pantechniki SA Contractors & Engineers v Albania, ICSID Case No ARB/07/21, Award, 11 September 2007 (Paulsson sole arbitator) (Pantechniki Award), paras 46, 48; Romak SA v Uzbekistan, PCA Case No AA280, Award, 26 November 2009 (Mantilla-Serrano, Rubins, Molfessis) (Romak Award), para 207 (the Tribunal interpreted a BIT in the light of Art 25 ICSID Convention). For a discussion of the different approaches, see JD Mortenson, ‘The Meaning of “Investment”: ICSID’s Traveaux and the Domain of International Investment Law’ (2010) 51(1) Harvard International Law Journal 257. 40 Report of the Executive Directors, note 34, para 26. 41 AGIP Award, Digest I-7, para 42; see further Santa Elena Award, Digest I-60, para 56. The issue of ‘legal disputes’ became part of a routine objection advanced by Argentina in the string of disputes that arose after the 2001–2002 economic crisis. In nearly every one of more than thirty arbitration proceedings commenced under investment treaties challenging the government’s emergency measures, Argentina argued that the disputes were not ‘legal’ in nature, because they arose out of a policy decision by the state as to how best it should react to economic crisis. None of these objections was successful. A good example for the reactions by tribunals is the CMS case, where the Tribunal held: ‘[BITs] cannot prevent a country from pursuing its own economic choices. The choices are not under the Centre’s jurisdiction and ICSID tribunals cannot pass judgment on whether such policies are right or wrong. Judgment can only be made in respect of whether the rights of investors have been violated.’ CMS Gas Transmission Company v Argentine Republic, ICSID Case No ARB/01/8, Decision on Jurisdiction, 17 July 2003 (CMS Jurisdiction), Digest II-7, para 29. 42 CSOB Jurisdiction I, Digest I-51, para 61.

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ICSID Jurisprudence 1974–2002 that later changes were irrelevant.43 The tribunals in Antoine Goetz and Banro, however, considered that the investor still had to have the nationality of a Contracting State when the dispute was registered.44 Where the economic transaction underlying the dispute consists of a contract between the investor and a State agency or State-owned company, respondent States have occasionally argued that the dispute did not satisfy this jurisdictional requirement, because the contract was not with the State itself (the ‘Contracting Party’). The first case to address this issue was Tradex v Albania,45 while the first relevant investment treaty dispute was Salini v Morocco.46 These and other tribunals have generally rejected this sort of argument, holding that for jurisdictional purposes the Claimant’s designation of the respondent is controlling.47 In CSOB, the Claimant was a State-owned company. The Tribunal rejected the Respondent’s argument that the Claimant could not be considered to fall under Article 25 of the ICSID Convention. It held that a ‘national’ in terms of said provision could also be a State-owned company, unless it carried out an essentially governmental function.48 Neither did a later transfer of the investment to the Czech Republic affect the Tribunal’s jurisdiction as it considered the relevant date to be the date of the initiation of the arbitration proceedings.49 A more contentious issue in this area relates to Article 25(2)(b) of the ICSID Convention, which establishes the definition of corporate ‘nationals’ who have access to ICSID arbitration: any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the

43 SOABI Jurisdiction, Digest I-14, para 41; CSOB Jurisdiction I, Digest I-51, paras 28–32. But see Schreuer et al, ICSID Convention, note 1, Art 25 paras 679–87, 752–9. 44 Goetz Award, Digest I-49, para 84; Banro Award, Digest I-66, para 1. See further D Waguih Elie George Siag and Clorinda Vecchi v Arab Republic of Egypt, ICSID Case No ARB/05/15, Decision on Jurisdiction, 11 April 2007 (Siag Jurisdiction), Digest II-74, para 206. According to Compañía de Aguas del Aconquija SA & Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/97/3, Decision on Jurisdiction, 14 November 2005 (Vivendi II Jurisdiction), Digest II-47, para 65, the date of consent is relevant but later development are not completely irrelevant. 45 Tradex Jurisdiction, Digest I-41, pp 180–1. 46 Salini/Morocco Jurisdiction, Digest I-82, para 30. 47 Salini/Morocco Jurisdiction, Digest I-82, para 30; Tradex Jurisdiction, Digest I-41, pp 180–1 Vivendi I Award, Digest I-69, paras 49–52; RFCC Jurisdiction, Digest I-81, para 34; Jan de Nul NV and Dredging International NV v Arab Republic of Egypt, ICSID Case No ARB/04/13, Decision on Jurisdiction, 16 June 2006 (Jan de Nul Jurisdiction), Digest II-56, para 86; Gustav F W Hamester GmbH & Co KG v Republic of Ghana, ICSID Case No ARB/07/24, Award, 18 June 2010 (Stern, Cremades, Landau) (Hamester Award), para 144. 48 CSOB Jurisdiction I, Digest I-51, paras 16–18. See further the—diametrically opposed—discussion under which circumstances the conduct of a state-owned company can be attributed to the State, see section C(1)(a). 49 CSOB Jurisdiction I, Digest I-51, paras 28–32. See further above at the beginning of this section.

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B. Procedural and Jurisdictional Issues nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.

This provision takes into account that under the laws of many States, foreign businesses are compelled to operate their investments through a local subsidiary.50 Often it is this entity that then signs a contract with the State- or a government-owned entity. Absent Article 25(2)(b) of the ICSID Convention, the local subsidiary would be unable to gain access to ICSID, as it would be considered a national of the respondent State. Article 25(2)(b) provides that the government can agree to treat a foreign-controlled, locally incorporated company as having the nationality of its controlling shareholders. As noted, this article was initially most relevant in contract disputes, because jurisdiction depended upon the contract signatory (often a locally incorporated, foreign-owned company) being treated as foreign for these purposes. While the Holiday Inns Tribunal considered that an agreement under Article 25(2)(b) should be explicit,51 subsequent tribunals concluded that such an agreement can also be implied. In the first Amco Asia decision on jurisdiction, the Tribunal considered that mention in the parties’ contract of the private party as a ‘foreign business’, together with the fact of having included an ICSID arbitration clause, was sufficient to establish a valid agreement on nationality for purposes of Article 25(2)(b).52 Similar decisions were rendered by other tribunals.53 Tribunals were divided during the relevant period as to whether the conclusion of an ICSID arbitration agreement is sufficient to absolve the locally incorporated claimant of the need to provide further evidence that it was under foreign control. While the Tribunals in Klöckner I and LETCO upheld this view,54 the Vacuum Salt Tribunal considered that the arbitration clause standing alone was not enough;55 the claimant needed separately to demonstrate foreign control. ‘Control’ for purposes of Article 25(2)(b) has been understood by the Vacuum Salt Tribunal to mean the power to influence critical decisions of the company, with the percentage of foreign shareholders’ stake being only one indication of such influence. The smaller the shareholding, the more other factors become relevant.56 50 Schreuer et al, ICSID Convention note 1, Art 25 para 760. This purpose was mentioned by Aaron Broches, then General Counsel of the World Bank, during the negotiations, see A Broches, History of the ICSID Convention, Vol. II-2 (Washington, DC: ICSID, 1968), p 868. 51 Holiday Inns Jurisdiction I, Digest I-2, para 33. 52 Amco Asia I Jurisdiction, Digest I-11, para 14(ii). 53 See Aucoven Jurisdiction, Digest I-85, para 105; Klöckner I Award, Digest I-12, p 16; LETCO Award, Digest I-20, pp 352–3. 54 Klöckner I Award, Digest I-12, p 16; LETCO Award, Digest I-20, pp 351–3. 55 Vacuum Salt Award, Digest I-39, para 38; TSA Spectrum de Argentina SA v Argentine Republic, ICSID Case No ARB/05/5, Award, 19 December 2008 (Danelius, Abi-Saab, Aldonas), para 156. This might have been due to the specific facts of the case, however. 56 Vacuum Salt Award, Digest I-39, para 43; see further Aguas del Tunari SA v Republic of Bolivia, ICSID Case No ARB/02/3, Decision on Jurisdiction, 21 October 2005 (Aguas del Tunari Jurisdiction), Digest II-44, Declaration of José Luis Alberro-Semerena, para 38.

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ICSID Jurisprudence 1974–2002 Another tribunal considered that, given the absence of any definition of ‘control’ in the ICSID Convention, the parties are free to select criteria for determining control in their contract—a tribunal need only review the criteria for reasonableness.57 In Cable TV of Nevis, the Tribunal lacked evidence about the nature of the shareholders of the Claimant companies. In order to establish whether the companies in question were controlled by nationals of another contracting Party for the purposes of Article 25(2)(b) of the ICSID Convention, the Panel relied on provisions of the underlying agreement, which provided for the convertibility of local currency into US currency, the recruitment of foreign nationals to work for the companies, and customs and duty exemptions to the companies and their expatriate staff.58 It is not uncommon that an investment is made by a company which is part of a chain of companies located in various countries. Since some of these countries may be party to the ICSID Convention and others not, the level of ‘control’ required under Article 25(2)(b) is an issue which was raised in proceedings. In Amco Asia, the Respondent objected that the Claimant was ultimately controlled by a company that was not a national of an ICSID Contracting State. The Tribunal chose to focus only on the first level of control, concluding that Article 25(2)(b) only applied to companies having the nationality of the host State. Hence the nationality of the controlling company, pursuant to the traditional rule of international law, was to be determined by its place of incorporation—and not by the nationality of its shareholders.59 By contrast, in SOABI v Senegal only the second level of the corporate chain was a company of a Contracting State. The Tribunal considered this to be sufficient for jurisdictional purposes, because the second-tier parent company exercised effective control and, moreover, the Senegalese government, in the so-called treaty on business establishment, had accepted that the nationality requirement of Article 25(2)(b) would be fulfilled.60 Looking primarily at the first level of ownership for purposes of determining foreign control has led to disputes where the ‘controlling’ entity is a mailbox company or shell, a holding entity—in some instances created precisely for the purpose of establishing ICSID jurisdiction.61 The ICSID Convention does not explicitly prevent arbitration of investment disputes involving such companies as the controlling entity for purposes of Article 25(2)(b). In Aucoven, the Tribunal considered 57

Aucoven Jurisdiction, Digest I-85, paras 114–16. Cable TV Award, Digest I-42, para 5.18. 59 Amco Asia I Jurisdiction, Digest I-11, para 14(ii). Similarly, in Barcelona Traction, note 20, paras 70, 90, the ICJ argued that control, under international law, was only a relevant criterion for establishing the nationality of a company if the parties had so agreed by treaty (reaffirmed in Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo), Preliminary Objections, 2007 ICJ Reports 582, paras 86–90). 60 SOABI Jurisdiction, Digest I-14, paras 30, 37. 61 To prevent ‘treaty shopping’ in the area of double taxation treaties, many states, including Germany (§ 50d III Einkommenssteuergesetz [German Income Tax Act]), have enacted ‘denial of benefits’ provisions in their internal legislation that exclude the application of a taxation treaty to mailbox companies. The scope of these provisions is similar to the denial of benefits clauses found in many investment protection treaties, such as the Energy Charter Treaty. 58

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B. Procedural and Jurisdictional Issues whether the foreign controlling entity was a mailbox company, but found that it was not—concluding on this basis that foreign control was established.62 In a number of cases, both during the period reviewed in this book and subsequently, respondent States sought to invoke Article 25(2)(b) to deny jurisdiction to foreign companies controlled (either immediately or ultimately) by host State nationals. This was one of the objections raised in Wena Hotels, where the Claimant company was incorporated in the United Kingdom, but was owned by an Egyptian citizen. Egypt contended that the control provision contained in Article 25 of the ICSID Convention requires all claimant companies to be controlled by foreign nationals. The Tribunal held that Article 25(2)(b) was designed to expand jurisdiction, not to restrict it.63 On this basis, the Tribunal affirmed its jurisdiction.64 It should be noted that this problem arose with increasing frequency after 2003.65 (d) Arising directly out of an investment Article 25 of the ICSID Convention also requires that a dispute ‘aris[e] directly’ out of an ‘investment’ in order to be the subject of arbitral jurisdiction.66 Many investments are based upon complex, cross-border financing structures, with agreements linking various project companies in relation to the investment. The very first ICSID award, Holiday Inns v Morocco, already established important principles in relation to the ‘arising directly’ requirement, which formed the basis for later decisions. The Tribunal there reasoned that the ‘unity of the investment operation’ (consisting in that case of several contracts) should be considered in its entirety when determining whether a dispute arose directly out of an investment.67 A similar decision was reached, inter alia, by the Klöckner I Tribunal, endorsed by the Fedax68 Tribunal and much later in ADC v Hungary and Inmaris v Ukraine.69 62

Aucoven Jurisdiction, Digest I-85, paras 123–6. Wena Hotels Jurisdiction, Digest I-52, pp 888–9. 64 Wena Hotels Jurisdiction, Digest I-52, p 889. 65 See Tokios Tokelés v Ukraine, ICSID Case No ARB/02/18, Decision on Jurisdiction, 29 April 2004 (Tokios Jurisdiction), Digest II-21, paras 21–7, and the explanation in Digest II, pp 342–5; Schreuer et al, ICSID Convention, note 1, Art 25 para 105. See further TSA Spectrum v Argentina, note 55, paras 152–3, 160, 162. 66 For an extensive discussion of the different approaches to determine the meaning of ‘investment’ see Mortenson, note 39, 257. 67 Holiday Inns Jurisdiction II, Digest I-2; see P Lalive, ‘The First “World Bank” Arbitration (Holiday Inns v Morocco)—Some Legal Problems’ (1980) 51 British Yearbook of International Law 123, p 159. This now seems to be established law. On the general unity of an investment operation, see Schreuer et al, ICSID Convention, note 1, Art 25 paras 93–105. 68 Klöckner I Award, Digest I-12, p 17; Fedax Jurisdiction, Digest I-44, paras 25–7. See further SOABI Award, Digest I-26, para 4.21; CSOB Jurisdiction I, Digest I-51, paras 72–5, 83. 69 ADC Affiliate Ltd and ADC & ADMC Management Ltd v Republic of Hungary, ICSID Case No ARB/03/16, Award, 2 October 2006 (ADC Award), Digest II-64, para 325; Inmaris Perestroika Sailing Maritime Services GmbH and Others v Ukraine, ICSID Case No ARB/08/8, Decision on Jurisdiction, 8 March 2010 (Alexandrov, Cremades, Rubins) (Inmaris Jurisdiction), para 92. See further Enron Corporation and Ponderosa Assets, LP v Argentine Republic, ICSID Case No ARB/01/3, Decision on Jurisdiction, 14 January 2004 (Enron Jurisdiction I), Digest II-17, para 70; Saipem Jurisdiction, Digest II-75, para 110; CSOB Jurisdiction I, Digest I-51, paras 66, 68. 63

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ICSID Jurisprudence 1974–2002 The drafters of the ICSID Convention included no specific definition of ‘investment’, and the meaning of the word has engendered an enormous amount of debate and discussion, reflected in a wide range of ICSID decisions. Early tribunals, examining purely contract-based disputes, held that the inclusion of an ICSID arbitration clause evidences the parties’ consensus that the transaction in question involved an investment—even where they did not specifically so stipulate in the agreement.70 As a general rule, arbitrators have accorded the disputing parties broad discretion to define ‘investment’ in their agreement for the purposes of their relationship and consent to arbitration. At the same time, most tribunals have accepted that the ICSID Convention establishes certain unchangeable (or ‘objective’) boundaries to jurisdiction, preventing the parties from defining investment in a manner wholly at odds with the Convention drafters’ intent.71 In SOABI, the Tribunal rejected a definition contained in a national law as irrelevant because of the State’s power to change it.72 Within the context of investment treaty arbitration, tribunals have generally upheld the same principle. While the definition of ‘investment’ contained in an applicable BIT becomes part of the agreement to arbitrate, and delimits the host State’s consent to dispute resolution procedures, the satisfaction of this definition does not necessarily mean that an investment exists within the meaning of the ICSID Convention. Likewise, most commentators agree that the concept of ‘investment’ as an ICSID jurisdictional requirement is distinct from the subjective definition of ‘investment’ contained in investment treaties.73 From the very earliest decisions, tribunals have sought to determine whether the project that had given rise to the dispute before them was an investment in the common understanding of the term.74 The Tribunal in Fedax v Venezuela provided an early multi-factor test in this regard that would later evolve into the most common approach to the problem. It listed five features of a typical investment:75 The basic features of an investment have been described as involving a certain duration, a certain regularity of profit and return, assumption of risk, a substantial commitment and a significance for the host State’s development.76

70 Kaiser Bauxite Jurisdiction, Digest I-5, para 17; see further CSOB Jurisdiction I, Digest I-51, paras 66–7. 71 Alcoa Jurisdiction, Digest I-4, p 207; Kaiser Bauxite Jurisdiction, Digest I-5, para 17. 72 SOABI Award, Digest I-26, para 4.38. 73 See MHS Award, Digest II-76, para 55; Dolzer and Schreuer, note 1, 62. 74 Alcoa Jurisdiction, Digest I-4, p 207; Kaiser Bauxite Jurisdiction, Digest I-5, para 17. 75 See R Happ and J Bischoff, Chapter 6.II.1–2 in Bungenberg et al (eds), International Investment Law (2013 forthcoming). 76 Fedax Jurisdiction, Digest I-44, para 43, citing the first edition of C Schreuer, ‘Commentary on the ICSID Convention' (1996) 11 ICSID Review—Foreign Investment Law Journal 316, p 372.

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B. Procedural and Jurisdictional Issues The Tribunals in RFCC v Morocco77 and Salini v Morocco78 also used these criteria. The Tribunal in Salini v Morocco, which rendered what would become the bestknown decision in this area, held: The doctrine generally considers that investment infers: contributions, certain duration of performance of the contract and a participation in the risks of the transaction. . . . In reading the Convention’s Preamble, one may add the contribution to the economic development of the host State of the investment as an additional condition. In reality, these various elements may be interdependent. Thus, the risks of the transaction may depend on the contributions and the duration of performance of the contract. As a result, these various criteria should be assessed globally even if, for the sake of reasoning, the Tribunal considers them individually here.79

This approach has become known as the Salini test.80 According to this analysis, a project can qualify as an investment for ICSID Convention purposes if it displays a combination of features such as extended duration,81 a substantial commitment of capital, 82 risk (beyond mere payment risk), regular profits and a contribution to the development of the host State.83 This so-called Salini test was soon adopted by a number of other tribunals.84 In the period subsequent to that covered in this book, some arbitrators came to view these particular factors as absolute requirements for the establishment of ICSID jurisdiction. After the decision in MHS v Malaysia, several tribunals reconsidered the Salini criteria. It is now more broadly accepted that the Salini criteria do not define investment under the ICSID Convention in any clear-cut fashion.85 Article 25 further limits jurisdiction to disputes that arise directly out of an investment. Tribunals have early on held that the criterion of directness relates to the dispute, but not to the investment.86 For a dispute to arise ‘directly’ out of an 77

RFCC Jurisdiction, Digest I-82, paras 59–60. Salini/Morocco Jurisdiction, Digest I-82, para 52. 79 Salini/Morocco Jurisdiction, Digest I-82, para 52. 80 Contrast the recent decision in Biwater Gauff Award, note 35, paras 310–13. 81 According to some recent decisions, two years is the minimum duration of a project that can be qualified as an investment: Jan de Nul Jurisdiction, Digest II-56, paras 93–5; Saipem Jurisdiction, Digest II-75, para 101. See further MHS Award, Digest II-76, para 110–11, where the duration criterion was not regarded as fulfilled, even though the project lasted for four years, since it should have been concluded in 18 months. 82 This criterion was not satisfied in Joy Mining Award, Digest II-29, para 55, and MHS Award, Digest II-76, para 109. 83 See Patrick Mitchell v Democratic Republic of the Congo, ICSID Case No ARB/99/7, Decision on Annulment, 1 November 2006 (Mitchell Annulment), Digest II-69, para 32; MHS Award, Digest II-76, paras 125–146. Cf CSOB Jurisdiction I, Digest I-51, paras 88–90. The contribution to development is a feature identified by the Tribunal in Salini/Morocco Jurisdiction, Digest I-82, para 52 (‘in reading the Convention’s preamble, one may add the contribution to the economic development of the host state as an additional condition’). For a critical analysis of these criteria, see JD Mortenson, note 39, 297–301. 84 RFCC Jurisdiction, Digest I-81, para 60. 85 Schreuer et al, ICSID Convention, note 1, Art 25 para 153. 86 See, e.g., Fedax Jurisdiction, Digest I-44, para 24. See further CSOB Jurisdiction I, Digest I-51, paras 71–2; Enron Jurisdiction I, Digest II-17, paras 58–60; Enron Corporation and Ponderosa Assets, 78

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ICSID Jurisprudence 1974–2002 investment, it has been considered that the investment need not be physically present in the territory. In Fedax v Venezuela, the investor had bought promissory notes from a third party, but not from Venezuela directly. The Tribunal rejected the objection from Venezuela that this was no eligible ‘investment’.87 It noted: ‘It is a standard feature of many international financial transactions that the funds involved are not physically transferred to the territory of the beneficiary, but are made available to suppliers or other entities. . . . The important question is whether the funds made available are utilized by the beneficiary of the credit, as in the case of the Republic of Venezuela, so as to finance its various governmental needs.’88 (e) Consent In addition to the other prerequisites described above, for arbitral jurisdiction to exist, both parties must have consented in writing to submit their dispute to ICSID. In the period under review, some tribunals ruled that when establishing whether a party had consented to ICSID jurisdiction, the respective clauses were not to be interpreted restrictively or expansively but objectively and in good faith pursuant to the principles of statutory interpretation or rules on treaty interpretation instruments.89 According to the terms of Article 25 of the Convention, this consent can only be effective if the investor is a national of a Contracting State to the ICSID Convention and the respondent State is a Contracting State.90 In several cases before ICSID during the relevant period, tribunals considered contracts containing ICSID arbitration clauses that were concluded when one or both of the States concerned had not yet ratified the ICSID Convention, but did so before the dispute arose. The tribunals considered that conditional consent, subject to the ICSID Convention entering into force for both States, was not explicitly ruled out by the Convention text, and therefore could be effective.91

LP v Argentine Republic, ICSID Case No ARB/01/3, Decision on Jurisdiction, 2 August 2004 (Enron Jurisdiction II), Digest II-27, para 22; Continental Casualty Company v Argentine Republic, ICSID Case No ARB/03/9, Decision on Jurisdiction, 22 February 2006 (Continental Casualty Jurisdiction), Digest II-50, para 40; Siemens AG v Argentine Republic, ICSID Case No ARB/02/8, Decision on Jurisdiction, 3 August 2004 (Siemens Jurisdiction), Digest II-28, para 150. 87 Fedax Jurisdiction, Digest I-44, para 19. 88 Fedax Jurisdiction, Digest I-44, para 41. Cf CSOB Jurisdiction I, Digest I-51, para 78. See further the discussion in Abaclat and others v Argentina, Case No ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011 (Tercier, Abi-Saab, van den Berg), paras 343–87. 89 SPP Jurisdiction II, Digest I-27, paras 60–3; SOABI Award, Digest I-26, paras 4.09–4.10. 90 Where one or both relevant States is not a Contracting Party, disputes can be submitted to arbitration under the aegis of the ICSID Additional Facility. 91 Holiday Inns Jurisdiction I, Digest I-2, para 20; Amco Asia I Jurisdiction, Digest I-11, paras 10, 25; Aucoven Jurisdiction, Digest I-85, paras 90–1; Cable TV Award, Digest I-42, paras 2.18, 4.09, 5.24; but compare Banro Award, Digest I-66, paras 4–5. Many investment treaties expressly incorporate conditional consent. For example, in German BITs, ICSID arbitration is often envisaged provided that both Contracting States are parties to the ICSID Convention, with UNCITRAL proceedings foreseen in the contrary situation.

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B. Procedural and Jurisdictional Issues As explained earlier, the drafters of the ICSID Convention contemplated the existence of an arbitration clause embodying the consent to ICSID arbitration of all parties to the dispute (including the State). During the period under review, most cases were instituted precisely on the basis of contractual arbitration clauses, where the question of consent was normally rather clear. However, tribunals relatively soon accepted that the State party to a dispute may also offer its consent to arbitration in a national law92 or a bilateral or multilateral investment treaty—‘perfected’ by the claimant-investor’s consent by initiation of arbitration.93 The various possibilities of non-contractual consent gave rise to a dramatic increase in the ICSID caseload during the 1990s and 2000s. Pursuant to the latest statistics, treaties form the jurisdictional basis in 74 per cent of ICSID cases.94 When examining arbitration clauses in national laws and investment treaties, tribunals have carefully reviewed the extent to which the State had actually provided consent to arbitrate, rather than simply allowing for the possibility of submitting disputes to ICSID, with consent to follow in a separate document on a case-by-case basis.95 This was a central issue in SPP v Egypt, in which the Tribunal interpreted disputed language in the Egyptian foreign investment law as consent to ICSID arbitration, rather than as an agreement to agree.96 The construction of such legislative texts remains a current—and contentious—issue today.97 In CSOB, the Tribunal was faced with a bilateral investment treaty the entry into force of which could not be clearly established. It declared that the mere notification of the entry into force in the Official Gazette was not sufficient, but that the parties had incorporated the arbitration clause of the bilateral treaty by reference in the separate agreement underlying the dispute.98 Once provided, the State’s consent cannot be withdrawn retroactively.99 With respect to contractual disputes, it has been considered that an ICSID arbitration clause—and the consent that it contains—is attached to the investment and therefore can be transferred with the assignment of part of the investment (e.g. the shares) to a third party.100 92 See, e.g., Tradex Jurisdiction, Digest I-41, p 195; SPP Jurisdiction II, Digest I-27, para 116; Zhinvali Development Ltd v Georgia, ICSID Case No ARB/00/1, Award, 24 January 2003 (Zhinvali Award), Digest II-2, paras 335 et seq. 93 AMT Award, Digest I-43, paras 5.20–5.21; Goetz Award, Digest I-49, para 81; AAPL Award, Digest I-33, para 18; Olguín Jurisdiction, Digest I-64, para 26. Cf CSOB Jurisdiction I, Digest I-51, para 78. 94 The ICSID Caseload—Statistics (Issue 2012-1), available at , p 10. 95 For a detailed review of jurisprudence in this regard, see Schreuer et al, ICSID Convention, note 1, Art 25 paras 395–440. 96 SPP Jurisdiction II, Digest I-27, paras 89–101. 97 See Mobil Oil and others v Venezuela, ICSID Case No ARB/07/21, Decision on Jurisdiction, 10 June 2010, paras 72–141; Cemex Caracas et al v Venezuela, ICSID Case No ARB/08/15, Decision on Jurisdiction, 30 December 2010, paras 67–139. 98 CSOB Jurisdiction I, Digest I-51, paras 44–59. 99 Alcoa Jurisdiction, Digest I-4, p 208; Kaiser Bauxite Jurisdiction, Digest I-5, paras 22–5. 100 Amco Asia I Jurisdiction, Digest I-11, para 32.

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ICSID Jurisprudence 1974–2002 Some tribunals have considered that the scope of consent provided by a State through a contractual arbitration clause may extend to parent companies involved in the project, even if such companies are not signatories.101 This thinking appears to harmonize with the ‘group of companies’ doctrine in international commercial arbitration, which has since fallen into some disuse and even disrepute in most legal systems.102 The limited contractual disputes adjudicated at ICSID during the post-2002 period have not resulted in any similar decisions. (2) Procedural Issues (a) Institution of proceedings The institution of proceedings is governed by the ICSID Institution Rules. Where the claimant is a corporation, it might occasionally be contested that the individuals who launched the arbitration on behalf of the company had the requisite authority to do so. In Scimitar v Bangladesh, the Tribunal concluded that the person who signed the power of authority in favour of the lawyers who filed the Claimant’s request for arbitration had not been properly authorized under the applicable company law. The request for arbitration was deemed invalid on this basis, and the claim was dismissed.103 The ICSID Institution Rules were subsequently amended to require that the claimant submit proof that any corporate claimant ‘has taken all necessary internal actions to authorize the request’.104 The second Tribunal in Amco Asia was confronted with the question whether it had jurisdiction ratione personae because Amco Asia had been dissolved shortly after the Award of the first Tribunal.105 The Tribunal ruled that the dissolution of a company as well as its effects were governed by the law of the State of incorporation which in the case of Amco Asia provided that a dissolved company was to be treated as legally existing for the purposes of any court actions.106 The same Tribunal also had to determine whether claims not raised as such could be introduced in resubmission proceedings. This possibility was rejected based on the fact that Article 52(6) of the ICSID Convention and Arbitration Rule 40 referred to a ‘dispute’ that was resubmitted which was interpreted to mean the previously existing dispute.107 101 Holiday Inns Jurisdiction I, Digest I-2, para 28; Amco Asia I Jurisdiction, Digest I-11, para 24. For a more restrictive interpretation, see Banro Award, Digest I-66, para 12. 102 See N Rubins, ‘Group of Companies Doctrine and the New York Convention’ in E Gaillard and D Di Pietro (eds), Enforcement of Arbitration Agreements and International Arbitral Awards— The New York Convention in Practice (London: Cameron May, 2008), p 449; N Blackaby and C Partasides, Redfern and Hunter on International Arbitration (New York: Oxford University Press, 5th edn, 2009), pp 99–105. 103 Scimitar Award, Digest I-40, para 29. 104 ICSID Institution Rules, Rule 2(1)(f ). 105 See further Loewen Award, Digest II-5, paras 220–40, where the claims underlying the NAFTA proceedings were transferred to Nafcanco, a company formed in the course of the reorganization of the Claimant under the US Bankruptcy Code. 106 Amco Asia II Jurisdiction, Digest I-28, paras 104–5, 109. 107 Amco Asia II Jurisdiction, Digest I-28, paras 132–4.

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B. Procedural and Jurisdictional Issues In SIREXM, the Tribunal’s jurisdiction was challenged based on the nullity of the contract on which the claim is based and the invalidity of the subsequent transfer of these rights. It held that it was an established principle that a tribunal was competent to determine the validity of the contract and transfer whose nullity is alleged.108 In Mondev, the United States contested the Tribunal’s jurisdiction ratione temporis because acts complained of by the Claimant had occurred before the entry into force of NAFTA. The Tribunal distinguished between a continuing wrongful act and an act which merely continued to cause damage after the entry into force of the applicable treaty and declared that only the former could serve as a basis for claims under NAFTA.109 (b) Applicable law Article 42(1) of the ICSID Convention establishes the law applicable in ICSID arbitration: The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.

The text of Article 42 thus appears to provide that international law is controlling only where the parties have not agreed on any governing law. As most contracts include a choice-of-law clause, this interpretation would appear to render international law inapplicable in the majority of contractual ICSID cases. Professor Schreuer succinctly summarized the conundrum posed by this plain text reading, which would seem to compel arbitrators: ‘to uphold discriminatory and arbitrary action by the host State, breaches of its undertakings which are evidently in bad faith or amount to a denial of justice as long as they conform to the applicable domestic law, which is most likely going to be that of the host State.’110 During the period under review, tribunals frequently struggled with this issue.111 The first Klöckner award was annulled in part precisely because the first-instance Tribunal had failed to identify and apply any national law before resorting to international law.112 Some subsequent tribunals have avoided this problem by evading any clear statement about applicable law, or by determining that the parties had made no express election in this regard.113 Many tribunals found that international law was 108

SIREXM Award, Digest I-58, para 4.13. Mondev Award, Digest I-93, paras 57–8; see further Digest II, p 338–9. 110 Schreuer et al, ICSID Convention, note 1, Art 42 para 112. 111 Klöckner I Annulment, Digest I-18, paras 58–9; SPP Award, Digest I-36, para 80; LETCO Award, Digest I-20, paras 358–9. 112 Klöckner I Annulment, Digest I-18, paras 58–9. 113 See Santa Elena Award, Digest I-60, paras 63–4, where the Tribunal, pursuant to Article 42(1) second sentence of the ICSID Convention applied national law as it could not establish an express or implied consent. 109

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ICSID Jurisprudence 1974–2002 to fill lacunae in national law and ensure precedence of international law in case of conflict with national law.114 In Letco v Liberia, the Tribunal considered that the parties’ contract contained no express choice of law, but avoided parsing Article 42 of the ICSID Convention by concluding that Liberian law and international law were in harmony on the relevant issues.115 With the transition from contract to treaty as the basis for ICSID jurisdiction, the problem of applicable law has gradually receded from arbitral decisions. Tribunals examining treaty disputes have had little difficulty finding that the treaty itself forms the primary source of applicable law in such cases.116 Some of these treaties contain an express choice-of-law clause (which becomes part of the arbitration agreement when the investor filed his claim),117 while in other instances the narrow scope of the treaty’s dispute settlement clause makes clear that only breaches of the treaty are subject to jurisdiction in any event.118 (c) Contractual forum selection clauses In many ICSID disputes, the investor and the State have concluded a contract relating to the disputed project or transaction. Sometimes the dispute involves several different contracts, only one of which incorporates an ICSID arbitration clause. Where there is a conflict in the selection of dispute resolution procedures in different contracts, the question has arisen whether the investor is able freely to elect ICSID arbitration, ignoring the contrary stipulations in related agreements.119 Tribunals dealt with this by way of contract interpretation. The Holiday Inns Tribunal employed the concept of ‘unity of investment’ and considered that the 114 Amco Asia I Annulment, Digest I-22, paras 20–2; Amco Asia II Award, Digest I-32, para 40. In SPP Award, Digest I-36, paras 80, 160–72, the Tribunal took the view that international law could apply only where the host State’s law was silent, but then applied international law in a central finding, that contractual rights can be expropriated. 115 LETCO Award, Digest I-20. paras 358–9. 116 AAPL Award, Digest I-33, paras 20–4; Wena Hotels Jurisdiction, Digest I-52, para 34. See furtherWena Hotels Award, Digest I-73, para 79, where the Tribunal further declared that the national law of the contracting state and international law would serve as subsidiary sources. In Goetz Award, Digest I-49, paras 95, 99, interpreting an express choice-of-law clause in the applicable BIT, the tribunal rejected any a hierarchy between national and international law, holding that in case of conflict, the law more favourable to the investor would prevail. 117 Goetz Award, Digest I-49, para 94; Siemens AG v Argentine Republic, ICSID Case No ARB/02/8, Award, 6 February 2007 (Siemens Award), Digest II-72, para 76; Middle East Cement Award, Digest I-90, paras 86–7; CME Czech Republic v The Czech Republic, Final Award, 14 March 2003 (Kühn, Schwebel, Brownlie), para 396. E Gaillard, ‘The Extent of Review of the Applicable Law in Investment Treaty Arbitration’, in E Gaillard and Y Banifatemi (eds), Annulment of ICSID Awards (New York: Juris Publishing, 2004), paras 223, 227–48. 118 MTD Equity Sdn Bhd And MTD Chile SA v Republic of Chile, ICSID Case No ARB/01/7, Award, 25 May 2004 (MTD Award), Digest II-24, para 87; Československa Obchodní Banka, AS v Slovak Republic, ICSID Case No ARB/97/4, Award, 29 December 2004 (CSOB Award), Digest II-32, para 63; ADC Award, Digest II-64, para 290. But see LG&E Energy Corp, LG&E Capital Corp and LG&E International Inc v Argentine Republic, ICSID Case No ARB/02/1, Decision on Liability, 3 October 2006 (LG&E Liability), Digest II-65, para 99; Klöckner I Award, Digest I-12, paras 85, 93. 119 See Klöckner I Award, Digest I-12, section III.

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B. Procedural and Jurisdictional Issues ICSID arbitration clause was valid for fundamental questions, while the local court clauses in some of the component clauses applied only for the ‘indirect or secondary aspects of the investment’.120 Similarly, the Tribunal in Klöckner v Cameroon interpreted a framework agreement between the parties (containing an ICSID arbitration clause) in such a way allowing it to decide certain claims while simultaneously denying jurisdiction over a special agreement containing an ICC arbitration clause. Later, this debate would intensify, with investors seeking the protection of investment treaties—and ICSID arbitration—in relation to projects governed by contracts that included local litigation or arbitration clauses. We describe this in the sections on treaty and contract claims and fork-in-the-road clauses. The issue gained most prominence in the period 2003-2007, described in Digest II. (d) Res judicata/lis pendens Several tribunals were faced with the related additional problem of concurrent jurisdiction in ongoing or prior parallel proceedings, and the application of the doctrines of lis pendens and res judicata. When a respondent State contends that an ICSID proceeding should be stayed or dismissed, or an issue decided on a summary basis, on grounds of lis pendens and res judicata, tribunals have consistently determined that the relevant ‘triple identity’ test is whether both proceedings before international courts or Tribunals121 (i) involve the same parties, (ii) concern the same object (the remedies sought) and (iii) the same grounds (the legal basis).122 In the period under review, several ICSID tribunals applied the triple identity test to limit the effect of national court proceedings123 and contractual arbitration awards124 on their freedom to rule on the claims presented to them. The second Amco Tribunal expounded extensively on the principle of res judicata since it had to determine to which aspects of the Amco Tribunal’s partially annuled award the principle applied. It held that the res judicata effect applied to the unannulled parts of the original decision and those findings of the first Tribunal which had not been challenged in the annulment proceedings.125 According to the Tribunal, the scope of this general principle of law was limited to findings, i.e. legal determinations, as opposed to incidental or procedural rulings or statements on unchallenged facts.126 Most importantly, the arbitrators posited that the res judicata 120

Holiday Inns Jurisdiction II, Digest I-2, see Lalive, note 67, 159. This is generally considered a requirement, see further Amco Asia I Award, Digest I-16, para 177, but see below the discussion on fork-in-the road clauses and the question whether disputes submitted before national courts can be the same as submitted to investment treaty tribunals. 122 See, e.g., August Reinisch, ‘The Use and Limits of Res Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute Settlement Outcomes’ (2004) 3 The Law and Practice of International Courts and Tribunals 37. See further Benvenuti & Bonfant Award, Digest I-9, para 1.14. 123 Amco Asia I Award, Digest I-16, para 177; Holiday Inns Jurisdiction II, Digest I-2, para 134. 124 SPP Jurisdiction I, Digest I-19, paras 120–1. 125 Amco Asia II Jurisdiction, Digest I-28, paras 21, 73. 126 Amco Asia II Jurisdiction, Digest I-28, paras 26, 60, 73. 121

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ICSID Jurisprudence 1974–2002 effect did not extend to the reasoning of an annulment Committee as this would place the Committee in the position of a court of appeal which was not envisaged by the ICSID Convention.127 In Waste Management v Mexico II, a claim had been dismissed for lack of a valid waiver of local remedies as required under NAFTA Article 1121.128 Mexico argued that the resubmitted NAFTA claim was barred by res judicata, since the case already had been dismissed. The Tribunal held that ‘in general, the dismissal of a clam by an international tribunal does not constitute a decision on the merits and does not preclude a later claim before a tribunal which has jurisdiction’.129 The prior dismissal for lack of jurisdiction therefore did not prevent Waste Management from correcting its faulty waiver and resubmitting its claim. In SPP, the Claimants had also initiated a parallel ICC arbitration. The Tribunal considered that this could lead to SPP’s claim being inadmissible due to violation of Article 26 of the ICSID Convention, and accordingly stayed proceedings in the ICSID arbitration until the jurisdiction of the ICC Tribunal had been established.130 (e) Provisional measures Article 47 of the ICSID Convention envisages the occasional need of parties to ICSID arbitration to protect their rights pending the outcome of the proceeding through interim measures: Except as the parties otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of either party.

The initial 1968 version of the ICSID Arbitration Rules further provided: (1) At any time during the proceeding a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal. The request shall specify the rights to be preserved, the measures the recommendation of which is requested, and the circumstances that require such measures. (2) The Tribunal shall give priority to the consideration of a request made pursuant to paragraph (1). (3) The Tribunal may also recommend provisional measures on its own initiative or recommend measures other than those specified in a request. It may at any time modify or revoke its recommendations. 127 Amco Asia II Jurisdiction, Digest I-28, para 44; see further Wena Hotels Annulment, Digest I-87, para 18; Vivendi I Annulment, Digest I-92, para 119. C Schreuer, 'From ICSID Annulment to Appeal, Half Way Down the Slippery Slope' (2011) 10 The Law and Practice of International Courts and Tribunals 211–25. 128 Waste Management I Award, Digest I-62, para 31. 129 Waste Management II Jurisdiction, Digest I-91, para 43. See further SPP Jurisdiction II, Digest I-27, paras 120–1. 130 SPP Jurisdiction I, Digest I-19, paras 61, 86–7. See further SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No ARB/01/13, Decision on Jurisdiction, 6 August 2003 (SGS/Pakistan Jurisdiction), Digest II-8, para 188.

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B. Procedural and Jurisdictional Issues (4) The Tribunal shall only recommend provisional measures, or modify or revoke its recommendations, after giving each party an opportunity of presenting its observations.

The wording of Article 47(1) indicates that an ICSID tribunal—unlike arbitral tribunals acting pursuant to other procedural rules—can only recommend provisional measures, and lacks the authority to issue a binding order. It has been suggested that this was a decision consciously adopted by the Convention’s drafters.131 Tribunals quite early established the rather uniform view that this was a distinction without a difference, however. In the words of the Maffezini Tribunal, the interim ‘recommendations’ of ICSID arbitrators should be considered binding upon the parties: 9. While there is a semantic difference between the word ‘recommend’ as used in Rule 39 and the word ‘order’ as used elsewhere in the Rules to describe the Tribunal’s ability to require a party to take a certain action, the difference is more apparent than real. It should be noted that the Spanish text of that Rule uses also the word ‘dictación’. The Tribunal does not believe that the parties to the Convention meant to create a substantial difference in the effect of these two words. The Tribunal’s authority to rule on provisional measures is no less binding than that of a final award. Accordingly, for the purposes of this Order, the Tribunal deems the word ‘recommend’ to be of equivalent value as the word ‘order.’132

More recent tribunals have invoked this holding in attributing mandatory force to their recommendations.133 Provisional measures are generally issued to preserve rights of the parties. The Tribunal in Maffezini clarified that these rights had to exist at the time of the request.134 In Amco Asia, Indonesia wanted to prevent Amco from stimulating the publication of newspaper articles about the facts of the case. The Tribunal rejected the request because no rights could be violated by a mere newspaper article.135 It is noteworthy that several early interim relief decisions focused upon the exclusivity of ICSID proceedings. In Holiday Inns, the first ICSID case, the issue arose as to relationship between the competence of ICSID tribunals and that of national courts. Morocco had turned

131

Schreuer et al, ICSID Convention, note 1, Art 47 paras 15–18. Maffezini Provisional Measures, Digest I-68, para 9. 133 Tokios Tokelės v Ukraine, ICSID Case No ARB/02/18, Procedural Order No 1, 1 July 2003, para 4; Occidental Petroleum Corporation and Occidental Exploration and Production Company v Republic of Ecuador, ICSID Case ARB/06/11, Decision on Provisional Measures, 17 August 2007, para 58; see further Quiborax SA and others v Bolivia, ICSID Case No ARB/06/2, Decision on Provisional Measures, 26 February 2010, para 108 (affirming the tribunal’s authority to ‘order’ provisional measures). 134 Maffezini Provisional Measures, Digest I-68, para 13. The tribunal had to decide about an order for security for costs. 135 Amco Asia I Provisional Measures, Digest I-13, para 3. 132

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ICSID Jurisprudence 1974–2002 to its domestic courts with the request to issue interim measures. The Claimant and Respondent disputed whether the exclusive character of ICSID arbitration (see Article 26 ICSID Convention) also excluded resort to national courts. From the little that is known about the case, the Tribunal did not address this issue in its decision,136 Not long after, the Atlantic Triton Tribunal held that an ICSID arbitration clause did not bar an application to local courts for provisional measures.137 However, the modification of Rule 39 of the ICSID Rules clarified that parties must agree on the competence of local courts to issue provisional measures.138 Tribunals have also held that provisional measures, being an extraordinary measure,139 could only be ordered in cases of ‘urgent need’ for the relief sought.140 The measures recommended by ICSID tribunals during the period under review included the stay of local court and contractual arbitration proceedings.141 Tribunals denied requests for security for costs, on grounds that there was considered to be no right subject to protection, and because such an order would risk prejudging the merits of the dispute.142 The Tanesco Tribunal considered the performance of an agreement as a measure not contemplated by Rule 39.143 It therefore argued that in such a case, the mere demonstration that an investor would suffer no harm if he were ordered to perform the agreement was not a sufficient ground to grant the other party’s request.144 (f) Costs Neither the ICSID Convention nor the ICSID Arbitration Rules prescribe how a tribunal should allocate the costs of arbitration proceedings between the parties. 136

See Holiday Inns Provisional Measures, Digest I-1, para 136. Atlantic Triton Award, Digest I-21, para IV.2.6. 138 Rule 39(6) reads: ‘Nothing in this Rule shall prevent the parties, provided that they have so stipulated in the agreement recording their consent, from requesting any judicial or other authority to order provisional measures, prior to or after the institution of the proceeding, for the preservation of their respective rights and interests.’ 139 Maffezini Provisional Measures, Digest I-55, para 10. 140 Compare Tanesco Provisional Measures, Digest I-57, para 18. For more details, see Burlington Resources Inc and others v Republic of Ecuador, ICSID Case No ARB/08/5, Procedural Order No 1 concerning Provisional Measures, 29 June 2009 (Kaufmann-Kohler, Stern, Vicuña), para 51. 141 CSOB Procedural Order No 4, Digest I-47, operative clause 1; SGS/Pakistan Provisional Measures, Digest I-94, p 304. 142 Maffezini Provisional Measures, Digest I-55, paras 14–18; see further RSM Production Corporation et al v Government of Grenada, ICSID Case No ARB/10/6, Tribunal’s Decision on Respondent’s Application for Security for Costs, 14 October 2010 (Rowley, Nottingham, Tercier) (rejecting application for security for costs); Hamester Award, note 47, para 17; Libananco Holdings Co Limited v Republic of Turkey, ICSID Case No ARB/06/8, Decision on Preliminary Issues, 23 June 2008 (Hwang, Alvarez, Berman), paras 57 and 59. See N Rubins, ‘In God We Trust, All Others Pay Cash: Security for Costs in International Commercial Arbitration’ 11 Am Rev Int’l Arb 307 (2000). 143 Tanesco Provisional Measures, Digest I-57, para 16. The Tanesco Tribunal did not rule out the possibility that provisional measures could include specific performance. However, where the sole right to be preserved is the right to enjoy the benefits of the relevant agreement and no other rights of the requesting party are affected, performance of an agreement was considered outside the scope of Rule 39. 144 Tanesco Provisional Measures, Digest I-57, para 17. 137

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B. Procedural and Jurisdictional Issues Article 61(2) of the ICSID Convention merely states that the tribunal ‘shall decide how and by whom those expenses, the fees and expenses of the members of the Tribunal and the charges for the use of the facilities of the Centre shall be paid’. ICSID Arbitration Rule 47(1)(j) even leaves open whether a decision on the allocation of costs should be included in an ICSID award.145 ICSID tribunals affirmed their discretion to allocate costs early on.146 In exercising this discretion, ICSID arbitrators considered a number of factors that, for the period under the review, most commonly led to the equal sharing of arbitrator and administrative fees, and to no shifting of legal or other expenses.147 Some tribunals considered that costs should not be shifted where neither side can be said to have prevailed completely.148 Even where one party has been roundly defeated, some tribunals declined to allocate costs against it, citing novel legal issues or the efficient presentation of the case.149 For two early tribunals, bad faith or procedural misconduct justified the complete shifting of costs to the losing party.150 In Amco Asia II, the investor requested the costs to be adjusted because he had incurred avoidable costs since he was deprived of his files by the Respondent. The Tribunal rejected this argument, pointing out that a prudent investor would have kept copies outside the host State.151 (g) Challenge of arbitrators Arbitrators were only rarely challenged during the period under review. Because ICSID arbitration was still relatively uncommon, some of the problems that would later give rise to party complaints about a lack of impartiality, such as multiple appointments, had not yet come to be manifested.

145 This seems to be a conflict between Convention and Rules, and the Convention should prevail. However, in practice, this will seldom be relevant. Where a tribunal makes no decision on costs, it in effect decides that each party bears its own costs and that the costs of the tribunal are shared to equal parts. The reason is that ICSID will usually ask both parties to deposit 50 per cent of the costs when proceedings are initiated. 146 Gardella Award, Digest I-6, para 4.12. 147 But see AGIP Award, Digest I-7, para 115, where the Tribunal only shifted the costs of the proceedings to one party, leaving the legal costs with each party. See further SOABI Award, Digest I-26, para 12.05 (f ). 148 Amco Asia I Award, Digest I-16, para 291; SOABI Award, Digest I-26, section XII. 149 Azinian Award, Digest I-56, para 126. In Wena Hotels Award, Digest I-73, para 130, the Tribunal also awarded the Claimants its costs incurred in the merits phase of the proceedings. 150 LETCO Award, Digest I-20, para 378; Olguín Award, Digest I-87, para 85. In Genin Award, Digest I-78, paras 382–3, the Tribunal came to the same conclusion, but refrained from allocating costs as both parties had acted inappropriately. See further Scimitar Award, Digest I-40, para 32, where the Claimant had to bear all costs because the proceedings had been instituted by someone from Scimitar without the proper authority. 151 Amco Asia II Award, Digest I-32, para 290; Amco Asia I Annulment, Digest I-22, para 90; but see Mohammad Ammar Al-Bahloul v Republic of Tajikistan, SCC Arbitration No 064/2008, Final Award, 8 June 2010 (Hertzfeld, Happ, Zykin), para 118. For a detailed analysis of this issue see SW Schill, ‘Arbitration Risk and Effective Compliance: Cost-Shifting in Investment Treaty Arbitration’ (2006) 7 Journal of World Investment & Trade 653–98.

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ICSID Jurisprudence 1974–2002 In one of the later cases under review, Vivendi I Annulment, Argentina raised a challenge based on certain professional contacts between an arbitrator’s law firm and the Claimant.152 The two remaining arbitrators considered that as a matter of principle, such professional contacts would justify a disqualification, except in de minimis cases.153 They did not consider Mr Fortier’s independence impaired and thus did have to address the de minimis exception. In SGS v Pakistan, the Claimant challenged the arbitrator who had been appointed by the Respondent, Christopher Thomas, on the ground that the Respondent’s co-counsel, Jan Paulsson, had been President of a tribunal in another arbitration which Mr Thomas appeared and prevailed. The SGS Tribunal held that such overlap of roles was not unusual and was insufficient to justify disqualification.154 (h) Rectification and Supplementation Under ICSID Arbitration Rule 49 (as currently numbered), within 45 days of the rendering of an award, a party may file a request for a supplementary decision or rectification of the award to the Secretary General. Only the tribunal in its original constitution can decide such a request.155 The request must be specific and provide reasons. A lodging fee, currently set at US$10,000, must also be paid.156 This provision is only applicable to awards, and not to decisions, because it presupposes that the tribunal has terminated its activity and therefore cannot otherwise supplement or correct its prior findings.157 In the period under review, tribunals clarified the scope of application of a rectification request, in particular in relation to annulment procedures. According to the consistent view of these panels, rectification may only correct clerical, arithmetical or similar technical errors, and must be purely accessory to the merits.158 Similarly, tribunals have held that requests for supplementation must relate to questions which the tribunal overlooked and which are of an accessory nature to the reasoning of the award. Requests for supplementation which would require the tribunal to change the reasoning of the award would be inadmissible. In such cases,

152 This circumstance was subsequently described as ‘waivable’ in the 2004 IBA Guidelines on Conflicts of Interest in International Arbitration, Art 2.3. 153 Vivendi I Annulment Challenge, Digest I-86, paras 25–7. The arbitrators did not consider Mr Fortier’s independence impaired. 154 SGS/Pakistan Disqualification, Digest I-96, 8 ICSID Rep 398, pp 404–5. 155 As the request for rectification must be filed within 45 days after the award is rendered, it is highly unlikely that one of the members should be incapacitated from taking part, e.g. because of death. Should that happen, it is not entirely clear whether this constitutes a vacancy pursuant to Arbitration Rule 10 or whether Arbitration Rule 51(3) may be applied mutatis mutandis. 156 See ICSID Administrative and Financial Regulations, Article 16; ICSID Schedule of Fees. 157 Schreuer et al, ICSID Convention, note 1, Art 49 para 31. 158 Vivendi I Annulment Rectification, Digest I-97, para 25; Cf Santa Elena Rectification, Digest I-63, paras 7–15; Amco Asia II Rectification, Digest I-34, p 369.

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B. Procedural and Jurisdictional Issues a ground for annulment pursuant to Article 51 (1) ICSID Convention might exist and annulment requests are the proper remedy.159 (i) Annulment Unlike commercial arbitration awards, ICSID awards cannot be challenged in national courts. The ICSID Convention establishes in Article 52 a self-contained and limited system of redress against flawed arbitration awards. This does not include the possibility of reviewing the merits of the award, but is limited to the five grounds enumerated in Article 52 of the ICSID Convention:160 (a) (b) (c) (d) (e)

the Tribunal was not properly constituted; the Tribunal has manifestly exceeded its powers; there was corruption on the part of a member of the Tribunal; there has been a serious departure from a fundamental rule of procedure; or the award has failed to state the reasons on which it is based.

Any application must be made within 120 days after the award has been rendered—except that when annulment is requested on the ground of corruption, such an application must be made within 120 days after discovery of the corruption and, in any event, within three years after the award was rendered.161 ICSID then will appoint a three-member ad hoc committee from its panel of arbitrators. The parties have no direct influence over the selection of the members of the committee.162 It was early on considered that annulment committees retain some discretion to uphold an award. This discretion may, however, only be exercised if an annulment ‘is clearly not needed to remedy procedural injustice and annulment would unwarrantably erode the binding force and finality of ICSID awards’.163 Several committees during the relevant period held that a manifest excess of powers, in order to support an annulment application, must be self-evident—and not merely the product of interpretation.164 Hence it was assessed that a tribunal could choose between plausible interpretations of a legal rule.165 In Amco Asia II, this was considered to apply also to the interpretation of a previous annulment decision which offered various possible meanings. It posited that a manifest excess of 159 This has been best explained in Amco Asia I Annulment, Digest I-22, para 34–6. See further Schreuer et al, ICSID Convention, note 1, Art 49 paras 68–77, surveying the practice of tribunals. Compare Klöckner I Annulment, Digest I-18, para 115; MINE Annulment, Digest I-30, para 5.13. 160 Amco Asia II Annulment, Digest I-37, para 1.14. 161 Art 52(2) of the ICSID Convention. 162 Art 52(3) of the ICSID Convention. 163 Amco Asia II Annulment, Digest I-37, para 1.20; see further MINE Annulment, Digest I-30, para 4.09; Schreuer et al, ICSID Convention, note 1, Art 52 paras 478–85. 164 Wena Hotels Annulment, Digest I-87, para 25; Amco Asia I Annulment, Digest I-22, para 23. See further Hussein Nuaman Soufraki v United Arab Emirates, ICSID Case No ARB/02/7, Decision on Annulment, 5 June 2007 (Soufraki Annulment), Digest II-77, para 40; Rumeli Telekom and others v Kazakhstan, ICSID Case No ARB/05/16, Decision of the ad hoc Committee, 25 March 2010 (Hanotiau, Boyd, Lalonde), para 96. 165 Wena Hotels Annulment, Digest I-87, paras 25 and 53.

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ICSID Jurisprudence 1974–2002 power was only given where the interpretation ‘was manifestly outside bona fide interpretation’.166 Both a lack of jurisdiction167 and the failure to exercise jurisdiction when it exists168 can constitute an excess of power. A particular tricky issue with which the early committees had to deal was the issue of errors in the application of the law because only the non-application of applicable law pursuant to Article 42 of the ICSID Convention169 constitutes a ground for annulment.170 A mere misapplication of the law was considered to amount to a ground for annulment only if it objectively constitutes the effective non-application of the law.171 In Klöckner I, the Tribunal had to apply French law. It had based its decision on general principles of law and did not really state its legal sources. The annulment Committee held that the Tribunal had failed to apply the proper law, not merely misapplied the law, and thus manifestly exceeded its powers.172 In reaching that result, the decision suggests that one should look not to form but to substance. In MINE, the application of Article 1134 of the French Civil Code instead of the identical Article 1134 of the Guinean Civil code was not considered a manifest excess of power.173 The decisions under review shed limited light on departure from a fundamental rule of procedure as a ground for annulment. In view of the second Amco Asia Committee, a departure is ‘serious’ when the prejudice is ‘substantial’ and ‘such as to deprive a party of a benefit or protection which the rule was intended to provide’.174 In the first Klöckner I Annulment decision, the ad hoc Committee confirmed that the absence of any deliberation between the members of the Tribunal prior to rendering an award constitutes such a procedural defect, but it held that the Claimant had not demonstrated how the Committee could determine whether the condition was met in that case.175 In Wena Hotels Annulment, the ad hoc Committee determined that for annulment to be justified, the procedural flaw in question must have been material, leading the tribunal to a result different from that which it would have reached had the procedural rule been observed.176 According to the second Committee in Amco 166

Amco Asia II Annulment, Digest I-37, para 8.07. Klöckner Annulment I, Digest I-18, para 4. A lack of jurisdiction can be present where a tribunal decides ex aequo et bono without being authorized thereto by the parties or when exercising jurisdiction even though the local remedies rule has not been complied with (see Amco Asia I Annulment, Digest I-22, paras 27–8, 63). 168 Vivendi I Annulment, Digest I-92, para 72. 169 See subsection (b) above. 170 Amco Asia II Annulment, Digest I-37, para 7.19. 171 Amco Asia II Annulment, Digest I-37, para 7.19. See further Schreuer et al, ICSID Convention, note 1, Art 25 paras 223–4. 172 Klöckner I Annulment, Digest I-18, para 60; MINE Annulment, Digest I-30, para 5.04; Amco Asia I Annulment, Digest I-22, paras 95, 98. 173 MINE Annulment, Digest I-30, paras 6.38–6.43. 174 Amco Asia II Annulment, Digest I-37, para 9.09, citing MINE Annulment, Digest I-30, para 5.05. 175 Klöckner I Annulment, Digest I-18, para 84. 176 Wena Hotels Annulment, Digest I-87, para 58; compare MINE Annulment, Digest I-30, para 5.05. Compare Schreuer et al, ICSID Convention, note 1, Art 52 para 287. 167

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B. Procedural and Jurisdictional Issues Asia, the failure to fix time limits to allow Indonesia to respond to Amco’s request for rectification amounted to a serious departure from a fundamental rule of procedure because it violated the principle of equality of the parties.177 The failure to state reasons supporting the award was an increasingly common ground invoked in annulment petitions over the relevant period. There was general consensus among the ad hoc committees that this ground is not to be understood in a strictly formal sense, as awards will always include reasons. Rather, it is understood that the reasons stated in the award must permit the reader to follow the tribunal’s reasoning and support the decision taken.178 According to some panels, contradictory reasoning can justify annulment,179 but the failure to state reasons must leave the decision devoid of foundation.180 At the same time, it was consistently affirmed that an annulment committee may not assess the correctness of a tribunal’s reasoning, as this would transform the annulment process into an impermissible substantive review181 It has also been alleged that a tribunal’s reasons can be fatally inadequate if they are not exhaustive. Article 48(3) of the ICSID Convention provides: ‘The award shall deal with every question submitted to the Tribunal, and shall state the reasons upon which it is based.’ Early ad hoc committees discussed whether each argument that the parties raised constituted a ‘question’ to be covered by the tribunal’s reasoning. Most panels adopted a moderate approach to this issue. The annulment Committee in Klöckner I held that arguments are not necessarily ‘questions’, and that tribunals can therefore be selective in how they address the parties’ contentions.182 The annulment Committee in Vivendi I focused on consistency, ruling that the tribunal does not need to dispose of every argument raised, so long as all of the reasoning included in the award supports the result.183 Since this understanding today seems widely accepted, it seems worthwhile to be reproduced in full: [I]t is well accepted both in the cases and the literature that Article 52(1)(e) concerns a failure to state any reasons with respect to all or part of an award, not the failure to state correct or convincing reasons. It bears reiterating that an ad hoc committee is not a court of appeal. Provided that the reasons given by a tribunal 177 Amco Asia II Annulment, Digest I-37, para 9.10. See further MINE Annulment, Digest I-30, para 5.06, where the Committee established that the equal treatment of the parties was a fundamental rule of procedure which was violated if one party was not given the opportunity to respond to the other. 178 MINE Annulment, Digest I-30, para 5.09. 179 Klöckner I Annulment, Digest I-18, para 116; MINE Annulment, Digest I-30, para 6.107. 180 Vivendi I Annulment, Digest I-92, para 65. 181 Wena Hotels Annulment, Digest I-87, para 79; MINE Annulment, Digest I-30, para 5.08; compare Klöckner I Annulment, Digest I-18, para 120; Amco Asia I Annulment, Digest I-22, para 43; and Vivendi I Annulment, Digest I-92, para 64. 182 Klöckner I Annulment, Digest I-18, para 131. But see MINE Annulment, Digest I-30, para 5.11, which seems a bit unclear on this point. 183 Vivendi I Annulment, Digest I-92, para 87. See further Amco Asia I Annulment, Digest I-22, para 43; Klöckner I Annulment, Digest I-18, para 120 requiring ‘sufficiently pertinent reasons’,

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ICSID Jurisprudence 1974–2002 can be followed and relate to the issues that were before the tribunal, their correctness is beside the point in terms of Article 52(1)(e). Moreover, reasons may be stated succinctly or at length, and different legal traditions differ in their modes of expressing reasons. Tribunals must be allowed a degree of discretion as to the way in which they express their reasoning. In the Committee’s view, annulment under Article 52(1)(e) should only occur in a clear case. This entails two conditions: first, the failure to state reasons must leave the decision on a particular point essentially lacking in any expressed rationale; and second, that point must itself be necessary to the tribunal’s decision. It is frequently said that contradictory reasons cancel each other out, and indeed, if reasons are genuinely contradictory so they might. However, tribunals must often struggle to balance conflicting considerations, and an ad hoc committee should be careful not to discern contradiction when what is actually expressed in a tribunal’s reasons could more truly be said to be but a reflection of such conflicting considerations.184

The first annulment Committee in Amco Asia considered whether, prior to instituting annulment proceedings for the failure to state reasons, the party had to request that the award be supplemented pursuant to Article 49(2) of the ICSID Convention. The Committee rejected that contention, arguing that supplementation was only possible where reasons could be added to the decision reached without altering the meaning, while annulment was required where the neglected reasons might have obliged the Tribunal to reach a different result.185 (3) Specific Issues Related to Investment Treaties The dispute-settlement clause of an applicable investment treaty necessarily circumscribes the jurisdiction of any arbitration tribunal constituted pursuant to the treaty. This treaty provision contains the State’s consent to submit a defined category of disputes (jurisdiction ratione materiae) with qualifying Claimants (jurisdiction ratione personae) to arbitration. Consent in writing as required by Article 25 of the ICSID Convention exists when a qualifying investor provides its written consent to the State, often through submitting a qualifying dispute to ICSID arbitration. During the period under review, investors had only begun to file investment treaty claims. Although these claims produced little jurisprudence in the relevant period, the decisions generated important groundwork for subsequent tribunals. (a) Investment Investment protection treaties protect only investments, as defined by their drafters. The claimant in a treaty-based ICSID arbitration will therefore inevitably be i.e. that there is a reasonable connection between the reasons invoked and the conclusions reached. This standard was rejected by Amco Asia II Annulment, Digest I-37, para 7.55. According to the latter, a reason for annulment was given ‘where no reasons at all are given or where the reasons given are inconsistent or so weak as to be frivolous’ (para 7.56). 184 Vivendi I Annulment, Digest I-92, paras 64–5 (footnote omitted; emphasis in the original). 185 Amco Asia I Annulment, Digest I-22, paras 34–5. Cf also subsection (h) above.

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B. Procedural and Jurisdictional Issues called upon to establish that the dispute submitted to arbitration in fact relates to an ‘investment’ that he or she owns (or controls, depending on the language of the applicable treaty). As noted above, the definition of ‘investment’ for purposes of Article 25 of the ICSID Convention is not necessarily the same as that used in the applicable treaty.186 Nor is there complete uniformity in the language used to define ‘investment’ in various investment treaties.187 A review of the cases over the relevant period reveals tribunals struggling with a wide variety of ‘investments’ and challenging legal issues related to that definition. In Lanco v Argentina, the Claimant held a minority equity stake of just 18 per cent in the company that signed a concession agreement. The arbitrators held that a minority participation qualified as an investment protected under the relevant BIT, which specifically listed shares in companies in a non-exhaustive list of protected investment types.188 This in turn led the Lanco Tribunal to conclude that shareholders have an independent right of claim, in an apparent departure from the much-cited (and maligned) Barcelona Traction decision of the ICJ.189 The Lanco Tribunal’s view in this regard was subsequently confirmed in many decisions, and is today widely accepted.190 The Tribunal in Fedax v Venezuela confirmed that promissory notes constituted protected investments within the meaning of the Netherlands–Venezuela BIT.191 It 186

CF Dugan et al, Investor State Arbitration (New York: Oxford University Press, 2008), p 259. N Rubins, ‘The Notion of “Investment” in International Investment Arbitration’, in N Horn and S Kröll (eds), Arbitrating Foreign Investment Disputes (The Hague: Kluwer, 2004), pp 283 et seq. 188 The award also contains a very interesting argumentation by the Tribunal relating to the BIT’s requirement that an investment dispute exists, and that such investment dispute needed to arise out of, inter alia, an investment agreement. The tribunal argued that since Lanco had signed the concession agreement as a guarantor, and since Lanco was an investor, from Lanco’s perspective it was an investment agreement as required by Art VII of the BIT. See Lanco Jurisdiction, Digest I-48, para 16. 189 According to the ICJ, due to the separate legal personality of the company, claims by shareholders in a company can only be brought in relation to violations of their direct rights with respect to the company, but not for financial losses caused by measures taken against the company, see Barcelona Traction, note 20, paras 41–7 and Diallo, note 59 above, paras 63–4. However, in the two cases before the ICJ, there were no treaties between the parties guaranteeing protection to investments. Where such a treaty was present, protection of shareholders was also accepted by the ICJ, see ELSI, note 21, 15. 190 See Enron Jurisdiction II, Digest II-27, para 48; Azurix Corp v Argentine Republic, ICSID Case No ARB/01/12, Decision on Jurisdiction, 8 December 2003 (Azurix Jurisdiction), Digest II-13, para 72. See further EC Schlemmer, ‘Investment, Investor, Nationality, and Shareholders’ in P Muchlinski et al (eds), The Oxford Handbook of International Investment Law (New York: Oxford University Press, 2008), 49, pp 81–6; S A Alexandrov, ‘The “Baby-Boom” of Treaty-Based Arbitrations and the Jurisdiction of ICSID Tribunals: Shareholders as “Investors” and Jurisdiction Ratione Temporis’, 4 The Law and Practice of International Courts and Tribunals 19 (2005). 191 Fedax Jurisdiction, Digest I-44, para 32. The Tribunal additionally considered whether the promissory notes constituted an investment in terms of the ICSID Convention, see Fedax Jurisdiction, Digest I-44, para 29. This ‘double barrel’ test was also applied by RFCC Jurisdiction, Digest I-81, para 51 and Salini/Morocco Jurisdiction, Digest I-82, para 44. See further the discussion in Abaclat and others (Case formerly known as Giovanna a Beccara and others) v Argentine Republic, ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011 (Tercier, Abi-Saab, van den Berg), paras 376–80. 187

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ICSID Jurisprudence 1974–2002 further confirmed that the protected status of bonds held by the Claimant was unaffected by the fact that they had been purchased second-hand, such that no capital had passed from the Claimant to the State.192 The arbitrators ruled that ‘investments’ need not be transferred physically into the host State’s territory—so long as the funds used to acquire the asset are made available there.193 This holding has been adopted by a number of tribunals.194 Most recently, the decision on jurisdiction in Abaclat v Argentina appears to follow rather closely the reasoning in Fedax.195 During this period, several tribunals examined road concessions, and held that these contracts constitute investments both under the ICSID Convention and under investment treaties (as claims to money having economic value).196 Other disputes concerned water concessions197 and waste removal concessions.198 This brief overview is not exhaustive, and readers are encouraged to review in-depth the first part of this Digest. (b) Nationality Very few decisions during the pre-2003 period dealt with issues of nationality issues outside the context of Article 25 of the ICSID Convention. In Olguín v Paraguy, the Tribunal was concerned with a case of a Peru/US dual national who claimed violations of investment protections provided under the Peru–Paraguay BIT. The Tribunal allowed Mr Olguín to rely on the BIT, considering both his Peruvian and American nationalities to be ‘effective’ for the purpose of treaty coverage. The arbitrators noted that municipal laws establishing a single effective nationality were irrelevant, because under international law the ‘effective tie’199 to the home country is the only relevant criterion.200 192

Fedax Jurisdiction, Digest I-44, paras 39–40. Fedax Jurisdiction, Digest I-44, para 41. 194 CSOB Jurisdiction I, Digest I-51, para 78; SGS Société Générale de Surveillance SA v Republic of the Philippines, ICSID Case No ARB/02/6, Decision on Jurisdiction, 29 January 2004 (SGS/ Philippines Jurisdiction), Digest II-18, para 110; Inmaris Jurisdiction, note 69, para 123. See further CME Czech Republic BV v Czech Republic, UNCITRAL, Partial Award, 13 September 2001 (Kühn, Schwebel, Hándl) (CME Partial Award), para 418; Romak Award, note 39, para 237. 195 Abaclat Jurisdiction, note 191, para 376. 196 Salini/Morocco Jurisdiction, Digest I-82, para 45; RFCC Jurisdiction, Digest I-81, para 53. The latter described the contract as a ‘claim to money having economic value’ and ‘an economic right conferred by contract’. 197 Vivendi I Award, Digest I-69, para 45. The protection of Vivendi’s concession was not challenged by Argentina because the BIT explicitly included concessions in its definition of protected investments. 198 In Metalclad and Waste Management I, the Tribunals did not identify clearly whether it considered the waste concession or the enterprise the relevant investment. Cf Metalclad Award, Digest I-65, paras 3, 35, 74; Waste Management I Award, Digest I-62, para 11. 199 Compare on this notion Nottebohm Case, note 18, p 23: ‘[I]nternational law leaves it to each State to lay down the rules governing the grant of its own nationality. . . . On the other hand, a State cannot claim that the rules it has thus laid down are entitled to recognition by another State unless it has acted in conformity with this general aim of making the legal bond of nationality accord with the individual’s genuine connection with the State which assumes the defence of its citizens by means of protection as against other States.’ 200 Olguín Award, Digest I-83, paras 61–2: ‘What is important in this case in order to determine whether the Claimant has access to the arbitral jurisdiction based on the BIT, is only whether he has 193

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B. Procedural and Jurisdictional Issues (c) Waiting periods Most investment protection treaties require that the disputing parties seek to achieve an amicable resolution of their dispute prior to initiating arbitration. The most common dispute-resolution provisions in investment treaties call for a negotiation period of three or six months. This period is normally set in motion by a formal written notice of the dispute, which the investor sends to the respondent State. When investment disputes are referred to arbitration, the question has often arisen as to whether the investor complied with pre-arbitration negotiation requirements. In the period under review, the tribunals that dealt explicitly with this issue held that good faith efforts to reach a settlement were sufficient to satisfy the pre-arbitration notice and negotiation requirement in investment treaties.201 The investor is obliged to address his complaint and invitation to negotiate to the competent individuals within the government, and if he is unaware of the proper responsible office, he should address several officials.202 With respect to the substance of a notice of investment dispute, the Salini v Morocco Tribunal held that the document need not be particularly detailed or exhaustive, but should include the basis for the investor’s complaint and the expression of a desire to reach an amicable solution.203 (d) Fork-in-the-road clauses Some investment treaties contain clauses that impose a distinct procedural choice upon the aggrieved investor: to submit his dispute to local courts, or to an international arbitral tribunal. These clauses have come to be known as ‘fork-in-the-road’ provisions. As the name suggests, the choice, once triggered, appears from the text Peruvian nationality and if that nationality is effective. There is no doubt on this point. There was no dispute regarding the fact that Mr Olguín has dual nationality, and that both are effective. . . . To this Tribunal, the effectiveness of his Peruvian nationality is enough to determine that he cannot be excluded from the provisions for protection under the BIT. In the case of a dual national’s diplomatic protection, either of his mother countries has the capacity to act on his behalf against a third country . . . . The third nation, the hypothetical author of the unlawful act that caused damage to the foreign individual, would only be authorized, under international law, in this precise field, to deny the legitimacy of such diplomatic protection in the absence of a tie of effective nationality between the individual and the protecting nation. . . .’ 201 Tradex Jurisdiction, Digest I-41, paras 183–4; RFCC Jurisdiction, Digest I-81, para 22. 202 RFCC Jurisdiction, Digest I-81, para 22. The non-ICSID award of Petrobart v Kazakhstan is quite illustrative. The investor had sent three letters to the Prime Minister of Kazakhstan. Kazakhstan objected that the investor knew that the dispute was handled by specific persons in the government, and sending the letters to the Prime Minister was not in good faith. The Tribunal was not convinced by that argument; see Petrobart Limited v Kyrgyz Republic, SCC Case No V(126/2003), Arbitral Award, 29 March 2005 (Danelius, Bring, Smets), p 73. 203 Salini/Morocco Jurisdiction, Digest I-82, para 20; RFCC Jurisdiction, Digest I-81, para 24. See further African Holding Company and others v Democratic Republic of the Congo, ICSID Case No ARB/05/21, Decision on Jurisdiction and Admissibility, 29 July 2008 (Vicuña, de Witt Wijnen, Grisay), para 107; Limited Liability Company Amto v Ukraine, SCC Arbitration No 080/2005, Final Award, 26 March 2008 (Cremades, Runeland, Soderlund), para 57.

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ICSID Jurisprudence 1974–2002 to be final, with no opportunity to take the other path should the investor’s first choice of forum lead to an unfavourable result.204 In the period under review, three Tribunals were faced with jurisdictional objections based upon the contention that the investor had agreed in the contract underlying the investment to the exclusive jurisdiction of local courts, and by doing so had elected local courts for purposes of an applicable fork-in-the-road clause.205 All three Tribunals rejected this position. These Tribunals reasoned that where the adoption of a procedural venue is involuntary, it cannot be considered a selection by the investor, and therefore cannot trigger the fork-in-the-road provision. Such an involuntary ‘choice’ has taken place where, as in RFCC v Morocco, the investor cannot practically ‘opt out’ of the jurisdiction of national administrative courts.206 Tribunals also considered for the first time an issue that would later attract significant attention during the 2003–2007 period: whether a dispute that had been submitted to local courts was the same as that submitted to arbitration, such that a prior election of forum had been made. The principles that were applied in this regard seem somewhat similar to the ‘triple identity test’ described above in relation to lis pendens/res judicata.207 In Genin v Estonia, the Claimants were two of three shareholders of the Estonian Innovation Bank (‘EIB’). The dispute arose, inter alia, out of the withdrawal of the banking licence of EIB. EIB had initiated litigation in the Estonian courts aimed at a judicial restoration of its revoked licence. In parallel, the Claimants had initiated investment arbitration claiming for damages. The Tribunal considered that not only the parties, but also the causes of action were different. The ‘dispute’ to which the fork-in-the-road clause referred, the Tribunal considered, had not been submitted to Estonian courts.208 In Olguín, the Tribunal ruled that it was not barred from exercising jurisdiction by the fork-in-the-road clause contained in the BIT due to the bankruptcy and liquidation proceedings initiated by the Claimant in local courts because they were different in nature from investment treaty claims.209 204 For more details on fork in the road clauses see C Schreuer, ‘Travelling the BIT Route. Of Waiting periods, Umbrella Clauses and Fork in the Road’ (2004) 5 Journal of World Investment & Trade 231; A Sheppard, J Warner and F Ortino (eds), ‘Editorial Note—The Relationship between Local Courts and Investment Treaty Arbitration' (2005) Transnational Dispute Management 27; N Rubins and S Kinsella, International Investment, Political Risk and Dispute Resolution (Dobbs Ferry, NY: Oceana Publications, 2005) 275; M Polkinghorne, ‘Investor–State Dispute Resolution under the Energy Charter Treaty: Which Fork? Which Road?’ (April 2004) Mealey’s International Arbitration Reports 13. 205 RFCC Jurisdiction, Digest I-81, para 29; Salini/Morocco Jurisdiction, Digest I-82, para 25; see further Lanco Jurisdiction, Digest I-48, paras 21–8; Cf Vivendi I Annulment, Digest I-92, paras 77–80. 206 RFCC Jurisdiction, Digest I-81 para 31; see further Salini/Morocco Jurisdiction, Digest I-82, para 27; Lanco Jurisdiction, Digest I-48, para 26; compare Vivendi I Annulment, Digest I-92, paras 77–80. 207 See section (2)(d). 208 Genin Award, Digest I-78, paras 331–4. 209 Olguín Jurisdiction, Digest I-64, paras 321–35. See further Genin Award, Digest I-78, paras 331–4; and Middle East Cement Award, Digest I-90, para 71.

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B. Procedural and Jurisdictional Issues A similar view was adopted in an obiter dicta by the first Vivendi Tribunal. It held that: [the] submission of claims against Tucumán to the contentious administrative tribunals of Tucumán for breaches of the contract, as Article 16.4 required, would not, contrary to Claimants’ position, have been the kind of choice by Claimants of legal action in national jurisdictions (i.e., courts) against the Argentine Republic that constitutes the ‘fork in the road’ under Article 8 of the BIT, thereby foreclosing future claims under the ICSID Convention.210

Similar views have been adopted by a considerable number of subsequent tribunals.211 However, at least one tribunal seems not to have focused on the legal cause of action, but on the question whether issues at hand were similar or at least comparable. In Waste Management v Mexico, the Tribunal assessed whether the Claimant had properly waived its right to pursue in local courts ‘any proceedings with respect to the measure of the Disputing Party’ at issue in arbitration, pursuant to the NAFTA clause akin to a fork-in-the-road clause. The majority of the panel considered that the measures at the heart of local proceedings and at issue in the NAFTA proceedings were the same, triggering the provision in question.212 The Tribunal therefore rejected the Claimant’s attempt to distinguish between Mexico’s obligations under Mexican law and its obligations under NAFTA. Arbitrator Highet, in his dissenting opinion, pointed to the different legal standards applicable in the two proceedings. The non-payment of invoices, which was the object of the local proceedings ‘measures’, constituted only one possible component of the NAFTA claims (which also included expropriation). In short, he viewed the domestic and international proceedings to be based on different causes of action, and therefore to be with regard to different measures.213 Fork-in-the-road clauses have been more extensively discussed in the subsequent periods of ICSID jurisprudence, as cases were increasingly submitted on the basis of investment treaties.214 (e) Contract claims and treaty claims The differentiation between contract claims and treaty claims has become a central issue in the legal reasoning of investment treaty tribunals. The distinction between claims arising out of a breach of a State contract and claims that such a breach of contract has violated investment treaty protections can be traced to the decisions in 210

See Vivendi I Award, Digest I-69, para 55. See the discussion in Digest II, pp 347–8. 212 Waste Management I Award, Digest I-62, para 27. See further Pantechniki Award, note 39, where the Tribunal seemed to have adopted a similar view. The case and the legal background are described by G Wegen and L Markert, ‘Food for Thought on Fork-in-the-Road—A Clause Awakens from its Hibernation’, 2010 Austrian Yearbook of International Arbitration, 269. 213 See further the reasoning of the ad hoc Committee in Vivendi I Annulment, Digest I-92, para 55. See further the discussion in the next section. 214 See the discussion in Digest II, pp 347 et seq. 211

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ICSID Jurisprudence 1974–2002 Vivendi I Award 215 and Vivendi I Annulment.216 The ad hoc Committee in the latter case considered the Claimant’s petition to annul an award in which the Tribunal had declined jurisdiction because it concluded that a contractual forum-selection clause prevented the adjudication of treaty claims in relation to the contract. The Committee disagreed with the initial panel’s assessment, reasoning that in accordance with international law: whether there has been a breach of the BIT and whether there has been a breach of contract are different questions. Each of these claims will be determined by reference to its own proper or applicable law—in the case of the BIT, by international law; in the case of the Concession Contract, by the proper [national] law of the contract.217

It further held that: In a case where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal will give effect to any valid choice of forum clause in the contract. . . . On the other hand, where ‘the fundamental basis of the claim’ is a treaty laying down an independent standard by which the conduct of the parties is to be judged, the existence of an exclusive jurisdiction clause in a contract between the Claimant and the respondent state or one of its subdivisions cannot operate as a bar to the application of the treaty standard. At most, it might be relevant—as municipal law will often be relevant—in assessing whether there has been a breach of the treaty. In the Committee’s view, it is not open to an ICSID tribunal having jurisdiction under a BIT in respect of a claim based upon a substantive provision of that BIT, to dismiss the claim on the ground that it could or should have been dealt with by a national court. In such a case, the inquiry which the ICSID tribunal is required to undertake is one governed by the ICSID Convention, by the BIT and by applicable international law. Such an inquiry is neither in principle determined, nor precluded, by any issue of municipal law, including any municipal law agreement of the parties.

On this basis, the Vivendi I annulment Committee held that a contractual forumselection clause did not deprive the ICSID Tribunal of jurisdiction over treaty claims arising out of alleged breach of the contract in question. The dominant view today appears to adhere to the same line of reasoning, distinguishing most treaty claims from contract complaints.218 215

Vivendi I Award, Digest I-69, paras 77–82. Vivendi I Annulment, Digest I-92, para 96. 217 Vivendi I Annulment, Digest I-92, para 96. 218 See the extensive discussion in Bayindir Insaat Turizm Ticaret ve Sanayi AS v Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Decision on Jurisdiction, 14 November 2005 (Bayindir Jurisdiction), Digest II-46, paras 139 et seq, and in Impregilo SpA v Islamic Republic of Pakistan, ICSID Case No ARB/03/3, Decision on Jurisdiction, 22 April 2005 (Impregilo Jurisdiction), Digest II-36, paras 186–291; McLachlan et al, note 1, ss 4.64 et seq; J Crawford, ‘Treaty and Contract in Investment Arbitration’ (2009) 6(1) Transnational Dispute Management, available at ; MD Nolan and EG Baldwin, ‘The Treatment of Contract-Related Claims in Treaty Based Arbitration’ (2006) 3(5) Transnational Dispute Management, available at . 216

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C. Substantive Issues

C. Substantive Issues As noted earlier, in the period under review most ICSID cases were initiated on the basis of contractual arbitration clauses, rather than investment treaties or legislation. The merits of most disputes were therefore mainly resolved in accordance with the proper law of the applicable contracts, with relatively few general principles enunciated. In keeping with the purpose of this book, the survey of substantive issues that follows concentrates on international law issues. (1) Investment Treaty Standards Investment protection treaties contain a wide range of substantive provisions. However, some of these clauses are seldom invoked in ICSID arbitration. A review of the awards and decisions reveals that four provisions played a role in the period under review: (i) expropriation, (ii) fair and equitable treatment, (iii) protection and security and (iv) most-favoured-nation treatment. (a) State responsibility A central prerequisite for establishing the breach of a treaty is that the disputed action is attributable to the State. This issue is governed by principles of State responsibility that have developed over more than a century of international adjudication. Attribution of conduct to the State is generally unproblematic where an organ of the State acted.219 In such cases, the international law on state responsibility also attributes acts in contravention of authority or orders to the State.220 Therefore, even if an act is null and void pursuant to national law, the international responsibility of the State can be engaged.221 The Tribunal in SPP therefore concluded that where such acts were ‘cloaked with the mantel of Government authority’ investors were entitled to rely on them.222 According to the Tribunal in AMT, the attribution of ultra vires act of State organs only applies where a state organ acts in its official capacity (as opposed to acts carried out as an individual).223 Attribution to a State is less straightforward where conduct complained of was undertaken by a State-owned enterprise. In such circumstances, the question inevitably arises whether the company’s actions can give rise to liability for its shareholder or owner, the State. 219 Articles on the Responsibility of States for Internationally Wrongful Acts, adopted by the UN General Assembly, UN Doc A/RES/56/83, 28 January 2002 (ILC Articles on State Responsibility), Art 4. Cf Amco Asia I Award, Digest I-16, para 178. 220 SPP Award, Digest I-36, para 85. This has also been postulated by Art 7 of the ILC Articles on the Responsibility of States for Internationally Wrongful Acts, adopted by the UN General Assembly, UN Doc A/RES/56/83, 28 January 2002. 221 SPP Award, Digest I-36, para 83. 222 SPP Award, Digest I-36, para 82. See further the discussion on legitimate expectations in subsection (d) below. 223 AMT Award, Digest I-43, paras 7.08–7.11.

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ICSID Jurisprudence 1974–2002 In its jurisdictional decision, the Tribunal in Maff ezini v Spain applied a twostep test—first structural, then functional—to determine whether the company SODIGA was a ‘State entity’, such that its conduct could be attributed to the State: . . . a finding that the entity is owned by the State, directly or indirectly, gives rise to a rebuttable presumption that it is a State entity. The same result will obtain if an entity is controlled by the State, directly or indirectly. A similar presumption arises if an entity’s purpose or objectives is the carrying out of functions which are governmental in nature or which are otherwise normally reserved to the State, or which by their nature are not usually carried out by private businesses or individuals. . . . The relevance of these standards is clearer when there is a direct State operation and control, such as by a section or division of a Ministry, but less so when the State chooses to act through a private sector mechanism, such as a corporation (sociedad anonima) or some other corporate structure. . . . Because of the many forms that State enterprises may take and thus shape the manners of State action, the structural test by itself may not always be a conclusive determination whether an entity is an organ of the State or whether its acts may be attributed to the State. An additional test has been developed, a functional test, which looks to the functions of or role to be performed by the entity. 224

In a subsequent award on the merits, the Maff ezini Tribunal applied the two-step attribution test, and concluded: In dealing with these questions, the Tribunal must again rely on the functional test, that is, it must establish whether specific acts or omissions are essentially commercial rather than governmental in nature or, conversely, whether their nature is essentially governmental rather than commercial. Commercial acts cannot be attributed to the Spanish State, while governmental acts should be so attributed.225

This same rule was applied in RFCC v Morocco, and apparently has gained broad acceptance.226 In RFCC v Morocco, the purpose of the State enterprise ADM was to build and maintain highways for the State. The Tribunal considered that to be an essential governmental task (‘Il est ansi clair que le but social d’ADM poursuit la réalisation de tâches de nature étatique’).227

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Maffezini Jurisdiction, Digest I-59, paras 77–9. Maffezini Award, Digest I-68, para 52. 226 RFCC Jurisdiction, Digest I-81, para 35; Salini/Morocco Jurisdiction, Digest I-82, paras 31–3. See further Nykomb Synergetics Technology Holding AB v The Republic of Latvia, SCC Arbitration No 118/2001, Award, 16 December 2003 (Haug, Schütze, Gernandt), s 4.2; Consortium Groupement LESI–DIPENTA v People’s Democratic Republic of Algeria, ICSID Case No ARB/03/8, Award, 10 January 2005 (LESI Award), Digest II-33, para II.19. In Wena Hotels Award, Digest I-73, paras 85–94, the Tribunal based the responsibility of the Egyptian State on its ability to effectively control the State-owned enterprise. 227 RFCC Jurisdiction, Digest I-81, para 35. 225

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C. Substantive Issues (b) Expropriation It is generally accepted that a State has the right to expropriate the property of foreigners, provided that the expropriation serves a public purpose, occurs in the due process of law, is non-discriminatory and is accompanied by payment of compensation.228 At the same time, nearly all investment treaties include a provision limiting the State’s freedom to expropriate along these lines. Specific texts vary in wording, in particular with respect to the amount of compensation due, which may be ‘fair’, ‘adequate’, ‘full’ or some other measure. A typical expropriation clause provides: Investments by investors of either Contracting State may not directly or indirectly be expropriated, nationalized or subjected to any other measure the effects of which would be tantamount to expropriation or nationalization in the territory of the other Contracting State except for the public benefit and against compensation. Such compensation must be equivalent to the value of the expropriated investment immediately before the date on which the actual or threatened expropriation, nationalization or other measure became publicly known.229

Where a BIT uses this differentiation, both direct and indirect expropriations are equally actionable under investment protection treaties. Direct expropriation deprives the investor of title in property.230 Where expropriation is indirect, the challenge for arbitrators is to determine whether the State’s conduct in fact rises to the level of a taking (‘tantamount to expropriation’), or rather remains at a lower level of interference. It seems to be generally accepted by Tribunals and commentators that the most important criterion in establishing liability for indirect expropriation is the effect of State measures upon the property in question. If the effect of the government measures is equivalent to direct expropriation, then a taking of the property has occurred. Other considerations, in particular the host State’s intention to expropriate or the justification for its actions, have been found to play only a subsidiary role, if any.231 Considerable debate has centred around the precise level of State interference that qualifies government measures as indirect expropriation. In the period under review, two apparently diverging lines of thinking were established. A first line of thinking is based on the interim award in the Pope & Talbot 228

This is the standard generally applied in bi- or multilateral investment treaties. German Model BIT (2008), Art 4(2). 230 ‘Expropriation’ refers to the taking of the property of a particular owner or class of owners, while ‘nationalization’ tends to refer to expropriation on a larger scale, for the realization of broadbased political agendas. This distinction has played little role in the decisions of ICSID tribunals. On expropriation and nationalization, see I Foighel, Nationalization and Compensation (London: Stevens, 1964); G White, Nationalization of Foreign Property (London: Stevens, 1964). 231 See Técnicas Medioambientales TECMED, SA v United Mexican States, ICSID Case No ARB(AF)/00/2, Award, 25 February 2003 (Tecmed Award), Digest II-4, para 116; Compañía de Aguas del Aconquija SA & Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/97/3, Award, 30 August 2007 (Vivendi II Award), Digest II-86, para 7.5.20; Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc v United Mexican States, ICSID Case No ARB/04/6, Award, 21 November 2007 (ADM Award), Digest II-95, para 240; Dolzer and Schreuer, note 1, pp 101–4; McLachlan et al, note 1, paras 8.91–8.103. 229

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ICSID Jurisprudence 1974–2002 arbitration, which was conducted according to the UNCITRAL rules under NAFTA. That Tribunal rejected an indirect expropriation claim on the basis that: . . . the Investor remains in control of the Investment, it directs the day-to-day operations of the Investment, and no officers or employees of the Investment have been detained by virtue of the Regime. Canada does not supervise the work of the officers or employees of the Investment, does not take any of the proceeds of company sales (apart from taxation), does not interfere with management or shareholders’ activities, does not prevent the Investment from paying dividends to its shareholders, does not interfere with the appointment of directors or management and does not take any other actions ousting the Investor from full ownership and control of the Investment.232

A second line of thinking focuses exclusively upon the diminution in value of the investment. The holding of the Tribunal in Metalclad v Mexico appropriately summarizes this approach: 103. Thus, expropriation under NAFTA includes not only open, deliberate and acknowledged takings of property, such as outright seizure or formal or obligatory transfer of title in favour of the host State, but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property even if not necessarily to the obvious benefit of the host State.233

Subsequently, a number of tribunals followed each line of thinking.234 As we have set out in the second volume of this Digest, close review reveals that the two approaches to indirect expropriation are not mutually exclusive. The general reasoning in the successive period seems to have been that a measure is ‘equivalent’ to expropriation if the investor is deprived of rights of ownership and/or is deprived of the value of its investment.235 In the period under review, tribunals adjudicated a variety of claims of indirect expropriation. The decisions suggest that occupying the premises of the investor and forcing him to vacate might amount to an indirect expropriation, 236 as could depriving the investor of the protection of the courts such that the de facto possessor of property is permitted to remain to the detriment of its owner.237 Another common issue related to expropriation arises when State measures affect only part of an investment project. The decisions under review, as well as prior decisions in other fora, suggest that conduct that directly impacts only one company or 232 Pope & Talbot Inc v The Government of Canada, UNCITRAL, Interim Award, 26 June 2000 (Lord Dervaird, Greenberg, Belman), para 100. 233 Metalclad Award, Digest I-65, para 103. 234 See Digest II, pp 349–51. 235 See Digest II, p 350. 236 Benvenuti & Bonfant Award, Digest I-9, paras 4.58–4.62; see further Wena Hotels Award, Digest I-73, para 99, and the non-ICSID award in Franz Sedelmayer v The Russian Federation, SCC Arbitration, Award, 7 July 1998 (Magnusson, Wachler, Zykin), s 2.3.4. 237 Amco Asia I Award, Digest I-16, para 158. But see Amco Asia I Annulment, Digest I-22, paras 105–6 (annulling Amco Asia I Award, Digest I-16).

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C. Substantive Issues one contract (out of several involved) can have an expropriatory effect on broader economic activity, where the investor demonstrates unity of the investment.238 The ‘unity of investment operation’ concept was outlined by the PCIJ in the Chorzów Factory case. There, a nitrate plant belonging to a German company was expropriated by the Polish State. Another company, Bayerische, operated the factory and received royalties from Chorzów for the use of its patents. The PCIJ came to the following conclusion: The question is whether, by taking possession of the Chorzów factory . . . , Poland has unlawfully expropriated the contractual rights of that Company . . . it is clear that the rights of the Bayerische to the exploitation of the factory and to the remuneration fi xed by the contract for the management of the exploitation and for the use of its patents, licences, experiments, etc. have been directly prejudiced by the taking over of the factory by Poland.239

In its judgment on indemnity, the PCIJ stressed the economic unity of this undertaking: The economic unity of the Chorzow undertaking, pointed out by the Court in its Judgment No. 6, is shown above all in the fact that the interests possessed by the two Companies in the undertaking are interdependent and complementary; . . . The whole damage suffered by the one or the other Company as the result of dispossession, in so far as it concerns the cessation of the working and the loss of profit which would have accrued, is determined by the value of the undertaking as such . . . 240

This principle of economic unity or ‘unity of investment’ has been applied by ICSID tribunals primarily with regard to the jurisdictional requirement of Article 25 of the ICSID Convention that the dispute arise directly out of an investment.241 Nevertheless, tribunals have also considered the concept in relation to the alleged expropriation of contractual rights as a result of State action directed at other aspects of economic activity. In SPP v Egypt, the Tribunal held: The Respondent’s cancellation of the project had the effect of taking certain important rights and interests of the Claimants. What was expropriated was not the land nor the right of usufruct, but the rights that SPP(ME), as a shareholder of ETDC, derived from EGOTH’s right of usufruct, which had been ‘irrevocably’ transferred to ETDC by the State. Clearly, those rights and interests were of a contractual rather than in rem nature. However, there is considerable authority for the proposition that contract rights are entitled to the protection of international law and that the taking of such rights involves an obligation to make compensation therefor. . . . 238

SPP Award, Digest I-36, paras 164–5; see further Certain German Interests in Polish Upper Silesia (Germany v Poland) (Merits), Judgment No 7, 25 May 1926, PCIJ Series A No 7, at 44; Inmaris Perestroika Sailing Maritime Services GmbH and others v Ukraine, ICSID Case No ARB/08/8, Award, 1 March 2012 (Alexandrov, Cremades, Rubins) (Inmaris Award), paras 300–1. 239 Certain German Interests in Polish Upper Silesia (Germany v Poland), note 238, para 136. 240 The Factory at Chorzów (Claim for Indemnity) (The Merits) Germany v Poland, Judgment No 13, 13 September 1928, PCIJ Series A No 17, 49. 241 See above the discussion at B(2)(d). See further Holiday Inns Jurisdiction I, Digest I-2, as described in Lalive, note 67, 159.

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ICSID Jurisprudence 1974–2002 Moreover, it has long been recognized that contractual rights may be indirectly expropriated. In the judgment of the Permanent Court of International Justice concerning Certain German Interests in Polish Upper Silesia, the Court ruled that, by taking possession of a factory, Poland had also ‘expropriated the contractual rights’ of the operating company. (PCIJ, Series A, No 7, 1926, at p 44.)242

Expropriation is usually carried out by a direct State act. Some arbitrators have expressed doubt as to whether omissions (failures to act) can constitute expropriation. For example, in AMT v Zaire, destruction of property by renegade soldiers was not considered to be expropriation,243 although the Tribunal did find that the State’s failure to act appropriately to prevent harm resulted in a breach of the treaty obligation to provide full protection and security.244 In one case, the occupation of land by local residents was considered to be too attenuated to constitute expropriation, unless it could be proven that the State had encouraged them to act or had failed to respond to requests to take action.245 Where the State interferes only temporarily with the investment, the question can arise whether the temporary interference amounts to an expropriation. According to a number of decisions, for such temporary State action to amount to indirect expropriation the effect on the investment must not only be equivalent to an expropriation, but may also not be ‘merely ephemeral’.246 What is ephemeral appears to depend on the facts of the case at hand and is well illustrated by two cases: in Middle Eastern Cement, a ban on the import of cement was considered equivalent to the expropriation of a licence to engage in that activity. There, the Tribunal, relying on the Respondent’s acknowledgement that it had ‘taken’ the licence, considered that a deprivation of the ability to do business for four months to be sufficient to constitute expropriation of the licence.247 Similarly, in Wena Hotels, the investor was deprived of two leased hotels for more than one year. When they were given 242

SPP Award, Digest I-36, paras 164–5. The possibility of expropriation through an omission was expressly rejected in Olguín Award, Digest I-83, paras 7.09–7.11. 244 AMT Award, Digest I-43, paras 6.10, 7.09–7.11. 245 Tradex Award, Digest I-50, para 147. In Olguín Award, Digest I-83, paras 68–75, the Tribunal, having established ‘gross omissions’ by Paraguay, held that there were no rules in the applicable BIT that granted Olguín protection in such cases since the BIT did not comprise the standard of ‘full protection and security’. It however did contain a guarantee to ‘fair and equitable treatment’. The Tribunal’s decision might have been influenced by the fact that it considered ‘prudence would have prompted a foreign investor . . . to be much more conservative in his investments’. See further AAPL Award, Digest I-33, where the Government failed to protect the foreign investment against destruction in the course of military operations. 246 Wena Hotels Award, Digest I-73, para 98, citing Tippetts, Abbett, McCarthy, Stratton v TAMSAFFA Consultant Engineers of Iran and others, 6 IRAN–US CTR 219 at 225 (‘While assumption of control over property by a government does not automatically and immediately justify a conclusion that the property has been taken by the government, thus requiring compensation under international law, such a conclusion is warranted whenever events demonstrate that the owner was deprived of fundamental rights of ownership and it appears that this deprivation is not merely ephemeral.’). 247 Middle East Cement Award, Digest I-90, para 107, which reads: ‘As also Respondent concedes that, at least for a period of 4 months, Claimant was deprived, by the Decree, of rights it had been granted under the License, there is no dispute between the Parties that, in principle, a taking did 243

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C. Substantive Issues back, they had been stripped of much of their furniture. The government revoked the operating licence for one hotel before giving the hotel back, and for the other hotels only temporary permits were issued. The arbitrators concluded that this had resulted in the expropriation of the leasing contract.248 As a recent award thus suggests these results were due to the respective tribunals’ conclusions (revealed in their damages calculations) that the deprivations were in fact permanent (from a value perspective).249 Particularly in cases of creeping expropriation, it can sometimes be difficult to determine the exact date of the expropriation. In Santa Elena, where government and investor negotiated for nearly 17 years about the proper amount of compensation, the Tribunal declared that an expropriation occurred once ‘the effect of the measure taken by the state has been to deprive the owner of title, possession or access to the benefit and economic use of his property’.250 One controversial issue is whether a measure introduced by the State to regulate certain aspects of public affairs (e.g. the protection of public health or the environment) can constitute expropriation, if the regulation has the effect of depriving the investor of the value of his property.251 Some commentators have expressed the opinion that under customary international law, regulatory measures that are generally applicable, non-discriminatory, and which pursue a legitimate public interest are non-compensable.252 Some investment tribunals appear to have endorsed this approach.253 take place. . . . As a matter of fact, the investor is deprived by such measures [the effect of which is tantamount to expropriation] of parts of the value of his investment. This is the case here, and, therefore, it is the Tribunal’s view that such a taking amounted to an expropriation within the meaning of Art 4 of the BIT and that, accordingly, Respondent is liable to pay compensation therefor. In order to determine the amount of such compensation, the Tribunal has to determine the “market value” of the investment affected.’ 248 Wena Hotels Award, Digest I-73, para 99. 249 Cargill, Incorporated v United Mexican States, ICSID Case No ARB(AF)/05/2, Award, 18 September 2009 (Pryles, Caron, McRae), para 376. 250 Santa Elena Award, Digest I-60, para 77; WM Reisman and RD Sloane, ‘Indirect Expropriation and Its Valuation in the BIT Generation’ (2004) 74 The British Yearbook of International Law 115. 251 See C Yannaca-Small, Indirect Expropriation and the Right to Regulate in International Investment Law (OECD, 2004), available at ; JJ Coe and N Rubins, 'Regulartory Expropriation and the Tecmed Case: Context and Contributions' in T Weiler (ed.), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London: Cameron May, 2005) 597; C Yannaca-Small, ‘Indirect Expropriation and the Right of Governments to Regulate’, in C Ribeiro, Investment Arbitration and the Energy Charter Treaty (Huntington, NY: JurisNet, 2006), p 159. 252 American Law Institute, Restatement of the Law Third, the Foreign Relations of the United States, vol 1 (Washington, DC: American Law Institute Publishers, 1987), s 712(1); L WallaceBruce, ‘Global Investments and Environmental Protection’ (2002) 49 Netherlands International Law Review 195, 213; T Wälde, A Kolo, ‘Environmental Regulation, Investment Protection and “Regulatory Taking” in International Law’ (2001) 50 International and Comparative Law Quarterly 811, 827. 253 Feldman Award, Digest I-95, paras 103–106, citing inter alia the American Law Institute, note 252, Section 712. In Middle East Cement Award, Digest I-90, para 139, the Tribunal declared

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ICSID Jurisprudence 1974–2002 However, many tribunals have refused to accept that regulatory measures are excluded from the scope of expropriation provisions in investment protection treaties.254 The conflict between the protection of foreign investors and States’ legitimate need to regulate various areas of public life was aptly summarized by the Tribunal in Feldman Karpa v Mexico: [T]he ways in which governmental authorities may force a company out of business, or significantly reduce the economic benefits of its business, are many. In the past, confiscatory taxation, denial of access to infrastructure or necessary raw materials, imposition of unreasonable regulatory regimes, among others, have been considered to be expropriatory actions. At the same time, governments must be free to act in the broader public interest through protection of the environment, new or modified tax regimes, the granting or withdrawal of government subsidies, reductions or increases in tariff levels, imposition of zoning restrictions and the like. Reasonable governmental regulation of this type cannot be achieved if any business that is adversely affected may seek compensation, and it is safe to say that customary international law recognizes this.255

In SPP, the Tribunal considered whether the cancellation of a building project near a site which shortly after the cancellation was recognized as a World Heritage could be justified. While it rejected protection of the site under the World Heritage Convention (at the relevant time the site had not yet enjoyed the status under that convention).256 The Tribunal accepted that the protection of antiquities on a Sate’s territory was justified.257 However, this did not relieve the state of its duty to pay compensation.258 It is generally accepted that contractual rights can be expropriated.259 However, a logical problem arises if a contract governed by the law of the respondent State is annulled by the courts of that State. According to one view, if the contract is annulled in accordance with its proper law, then it is as if it never existed—and that seizures and auctions usually did not amount to expropriation but limited this finding to acts carried out in due process. See further Saluka Investments BV (the Netherlands) v Czech Republic, UNCITRAL, Partial Award, 17 March 2006 (Watts, Fortier, Behrens) (Saluka Partial Award), para 255; Methanex Corporation v United States of America, UNCITRAL, Partial Award, 7 August 2002 (Veeder, Rowley, Reisman), Ch IV D p 4. 254 Santa Elena Award, Digest I-60, para 72; Feldman Award, Digest I-95, para 110; ADC Award, Digest II-64, para 423; Azurix Corp v Argentine Republic, ICSID Case No ARB/01/12, Award, 14 July 2006 (Azurix Award), Digest II-58, paras 311–12; Pope & Talbot, note 232, para 99; LG&E Liability, Digest II-65, para 195; Fireman’s Fund Insurance Company v United Mexican States, ICSID Case No ARB(AF)/02/1, Award, 17 July 2006 (Fireman’s Fund Award), Digest II-59, para 176(j); Vivendi II Award, Digest II-86, para 7.5.20. 255 Feldman Award, Digest I-95, paras 163–6, but compare Feldman Award, para 110. 256 SPP Award, Digest I-36, para 154. 257 SPP Award, Digest I-36, para 158. 258 SPP Award, Digest I-36, para 159. 259 Norwegian Shipowners’ Claims (Norway v USA), Permanent Court of Arbitration, Award, 13 October 1922, 1 RIAA 307; Certain German interests in Polish Upper Silesia, note 238, 44; Methanex Corporation v United States of America, NAFTA Arbitral Tribunal, Final Award on Jurisdiction and Merits, 3 August 2005 (Veeder, Rowley, Reisman), at IV D para 17; A Newcombe and L Paradell, Law and Practice of Investment Treaties (The Netherlands: Wolters Kluwer Law & Business, 2009), p 352.

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C. Substantive Issues therefore cannot be expropriated. The Tribunal in Azinian and others v Mexico was faced with such a situation, where three instances of national courts had confirmed the nullity of the disputed contract. The arbitrators concluded: From this perspective, the problem may be put quite simply. The Ayuntamiento believed it had grounds for holding the Concession Contract to be invalid under Mexican law governing public service concessions. At DESONA’s initiative, these grounds were tested by three levels of Mexican courts, and in each case were found to be extant. How can it be said that Mexico breached NAFTA when the Ayuntamiento of Naucalpan purported to declare the invalidity of a Concession Contract which by its terms was subject to Mexican law, and to the jurisdiction of the Mexican courts, and the courts of Mexico then agreed with the Ayuntamiento’s determination? Further, the Claimants have neither contended nor proved that the Mexican legal standards for the annulment of concessions violate Mexico’s Chapter Eleven obligations; nor that the Mexican law governing such annulments is expropriatory.260

The Tribunal concluded that, while not bound by the Mexican court proceedings, it could not act as an appellate court. To find a breach of treaty, it concluded, the Claimant would have to demonstrate that the court proceedings themselves violated the applicable treaty (e.g. due to a substantive or procedural denial of justice).261 This approach seems to be reflected in some other ICSID decisions, which suggest that certain forms of State conduct cannot constitute indirect expropriation unless the investor has unsuccessfully sought redress in local courts before turning to arbitration. Under this view, local remedies do not form a procedural prerequisite for filing a claim (as would have been the case under customary international law for the espousal of claims), but rather a substantive element of a successful claim.262 In Feldman Karpa v Mexico, the Claimant complained of the elimination of a tax rebate on exported cigarettes, which he insisted had resulted in the expropriation of his investment. The arbitral Tribunal inter alia considered whether an expropriation could also be caused by a denial of justice. It held that this required that the judicial decision itself violated an applicable treatment standard, the competent courts had declined jurisdiction, or there was a clear and malicious misapplication of the law.263 In rejecting Feldman’s expropriation claim, the Tribunal took account of the availability of court review of the relevant administrative actions.264 This discussion is continued in the second volume of this Digest, as a number of decisions addressing alleged State breaches of contractual obligations appeared during the 2003–2007 period.265 260

Azinian Award, Digest I-56, para 96. Azinian Award, Digest I-56, para 99. 262 See, e.g., C Dugan et al, Investor–State Arbitration (New York: Oxford University Press, 2008), p 469. 263 Feldman Award, Digest I-95, paras 97, 102, 103. 264 Feldman Award, Digest I-95, para 140. 265 See Digest II, pp 348–54. 261

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ICSID Jurisprudence 1974–2002 (c) Full protection and security One of the key State obligations under an investment treaty is to grant the investor and its investment some level of protection and security. The wording of protection clauses varies, with the most common phrasings calling for ‘most constant’ and ‘full’ protection and security. During the period under review, the very first decisions applying the protection obligations were issued. Tribunals expressed the understanding that such a provision entailed an obligation of vigilance, i.e. to ensure physical protection from attacks by lawbreakers, insurgents, or rioters who seek to harm the foreign investor’s property or person.266 In this regard, tribunals have generally considered this obligation to be one of due diligence, and not strict liability. According to this view, the State must take all steps that are reasonable in the circumstances to protect the investor and his property.267 States were thus also held liable for omissions.268 Later tribunals have confirmed this approach.269 Recently, however, some tribunals have explicitly ruled that this protection should extend beyond mere physical safety to encompass legal protection of contractual and other rights.270 (d) Fair and equitable treatment The ‘fair and equitable treatment’ standard is one of the most discussed and debated concepts in investment treaty arbitration.271 It is generally accepted that the purpose of the fair and equitable treatment clause is ‘to provide a basic and general standard which is detached from the host state’s domestic law’.272 Clauses guaranteeing fair and equitable treatment are found in nearly all contemporary bilateral and multilateral investment treaties, the language having first appeared in the 1948 Havana Charter.273 However, the exact content of the obligation remains undefined and contentious. 266 Compare the elaborate discussion in AAPL Award, Digest I-33, paras 73–7; see further Wena Hotels Award, Digest I-73, para 84; Saluka Partial Award, note 253, para 483. 267 AAPL Award, Digest I-33, para 77; AMT Award, Digest I-43, para 6.05. 268 AMT Award, Digest I-43, para 6.06. Cf Wena Hotels Award, Digest I-73, para 84. See further the discussion in subsection (b) on expropriation. 269 Tecmed Award, Digest II-4, para 177; Parkerings-Compagniet AS v Republic of Lithuania, ICSID Case No ARB/05/8, Award, 11 September 2007 (Parkerings Award), Digest II-89, para 357. 270 See Digest II, pp 359–60. See further the non-ICSID cases of CME Partial Award, note 194, para 613, and Saluka Partial Award, note 253, para 484. Compare J W Salacuse, The Law of Investment Treaties (New York: Oxford University Press, 2010), pp 213–14; A Newcombe and L Paradell, Law and Practice of Investment Treaties: Standards of Treatment (The Netherlands: Kluwer Law International, 2009), pp 311–14. 271 For an analysis of the standard, see C Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’, 6 Journal of World Investment & Trade 357–86 (2005); C Yannaca-Small, note 251; S Vascianne, ‘The Fair and Equitable Treatment Standard in International Investment Law and Practice’ (1999) 70 British Yearbook of International Law 99; Rubins and Kinsella, note 204, 212–16; Dolzer and Schreuer, note 1, 119–48; McLachlan et al, note 1, paras 7.76–7.140. 272 Dolzer and Stevens, note 9, 58. 273 On the early phase of the development of the fair and equitable treatment standard, see Vascianne, note 271, 107–19 (1999). See further Digest II, pp 354–8.

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C. Substantive Issues In the period under review, we find the first attempts of tribunals to deal with interpretative questions that remain of major relevance today: the issue of transparency and legitimate expectations, denial of justice and—a peculiarity of the NAFTA tribunals—whether the obligation of fair and equitable treatment is equivalent to the customary international minimum standard. A significant early development in relation to fair and equitable treatment was the evolution of an apparent obligation to protect foreign investors’ legitimate expectations. This has come to be seen in some quarters as the ‘dominant’ element of the standard.274 One seminal decision in this regard was Tecmed v Mexico, in which the Tribunal reasoned that fair and equitable treatment ‘requires the Contracting Parties to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment’.275 The Tribunal continued: The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices or directives, to be able to plan its investment and comply with such regulations.276

In the period under review, tribunals already started to consider and apply elements of this standard of legitimate expectations. In SPP v Egypt, the Tribunal considered that the investor had been treated unfairly because it was entitled to rely on statements by Egyptian officials that were later contradicted by State conduct: It is possible that under Egyptian law certain acts of Egyptian officials, including even Presidential Decree No. 475, may be considered legally nonexistent or null and void or susceptible to invalidation. However, these acts were cloaked with the mantle of Governmental authority and communicated as such to foreign investors who relied on them in making their investments. Whether legal under Egyptian law or not, the acts in question were the acts of Egyptian authorities, including the highest executive authority of the Government. These acts, which are now alleged to have been in violation of the Egyptian municipal legal system, created expectations protected by established principles of international law.277

274 LG&E Liability, Digest II-65, para 125. See further McLachlan et al, note 1, paras 7.108– 7.113; Dolzer and Schreuer, note 1, pp 133–40. 275 Tecmed Award, Digest II-4, para 154. 276 Tecmed Award, Digest II-4, para 154. Some observers and tribunals have criticized this view as overly broad. See, e.g., Zachary Douglas, ‘Nothing if Not Critical for Investment Treaty Arbitration’: Occidental, Eureko and Methanex (2006) 22(1) Arbitration International 27; MTD Equity Sdn Bhd and MTD Chile SA v Republic of Chile, ICSID Case No ARB/01/7, Decision on Annulment, 21 March 2007 (MTD Annulment), Digest II-73, para 67; Biwater Gauff Award, note 35, para 600. 277 SPP Award, Digest I-36, paras 82–3.

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ICSID Jurisprudence 1974–2002 The State’s obligation to act transparently in relation to foreign investors was also discussed in Metalclad v Mexico and in Maff ezini v Spain. In Metalclad, the absence of a clear requirement of a municipal construction permit, coupled with the procedural and substantive deficiencies by which the investor’s permit was denied, led the Tribunal to conclude that Mexico had failed to ensure a transparent and predictable framework for business planning and investments, triggering liability under the fair and equitable treatment standard.278 In Maff ezini, the State enterprise SODIGA had ordered the transfer of funds from the investor’s private account to the account of the joint venture company. While Mr Maffezini had given general consent three months before the transfer, that had been in the expectation that a loan agreement would be concluded. No such agreement was concluded, however, and no one informed the investor about the transfer. The Tribunal considered this to be in breach of the fair and equitable treatment standard for lack of transparency.279 A further important aspect of the obligation of fair and equitable treatment is the prohibition against denial of justice. In the period under review, the award in Robert Azinian and others v Mexico provided important guidance in this regard. The Tribunal considered whether Mexican court proceedings might amount to a breach of treaty, and concluded: A denial of justice could be pleaded if the relevant courts refuse to entertain a suit, if they subject it to undue delay, or if they administer justice in a seriously inadequate way. There is no evidence, or even argument, that any such defects can be ascribed to the Mexican proceedings in this case. There is a fourth type of denial of justice, namely the clear and malicious misapplication of the law. This type of wrong doubtless overlaps with the notion of ‘pretence of form’ to mask a violation of international law.280

In Mondev, the Tribunal discussed whether the granting of immunity against suit for a governmental entity could be a denial of justice. It contemplated that there could be situations (e.g. immunity for battery or assault by public officials) where the granting of immunity could amount to a denial of justice. However, it held that in the case before the Tribunal there could be legitimate reasons to provide immunity to regulatory authority dealing with commercial redevelopment plans.281 The Tribunal also discussed further aspects of the concept of denial of justice,282 as

278 Metalclad Award, Digest I-65, paras 88–9, 97–9. It is to be noted that the award was subsequently annulled by the British Columbia Supreme Court, see United Mexican States v Metalclad Corporation, 2 May 2001, 2001 BCSC 664. 279 Maffezini Award, Digest I-68, para 83. 280 Azinian Award, Digest I-56, paras 102–3. 281 Mondev Award, Digest I-93, paras 151–3. The full discussion on immunity is contained in paras 139–56. 282 Mondev Award, Digest I-93, paras 126–56.

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C. Substantive Issues did the Tribunals in Amco Asia II,283 Alex Genin v Estonia,284 Feldman Karpa v Mexico 285 and Loewen v United States.286 One initial point of discussion in particular among tribunals acting on the basis of the North American Free Trade Agreement has been whether the concept of fair and equitable treatment reflects the international minimum standard mandated by customary international law for the treatment of aliens.287 The international minimum standard of treatment was first explored in depth in the jurisprudence of international claims commissions established in the early twentieth century. These cases, decided primarily in accordance with customary international law, prescribed a fairly high threshold for State liability. For example, in the Neer Claim, it was observed that ‘the treatment of an alien, in order to constitute an international delinquency should amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency’.288 In the investment treaty era, exploration of the minimum standard of treatment was led by some of the first tribunals constituted under NAFTA. Article 1105 of NAFTA, which includes the obligation to accord fair and equitable treatment, bears the heading ‘Minimum Standard of Treatment’, and also refers generally to treatment in accordance with international law.289 In any event, these early decisions were based on NAFTA’s unusual formulation, and appear to be of limited relevance for tribunals acting on the basis of other treaties.290 After NAFTA’s Free Trade Commission issued a binding interpretation in 2001 equating fair and equitable treatment under Article 1105 with the customary law international minimum standard, the discussion became still less relevant.291 In any event, as noted, many tribunals (led by the Mondev Tribunal) considered that in light of the development of customary international law on protection of aliens, the fairness standard need not be frozen in the days of Neer : . . . it is unconvincing to confine the meaning of ‘fair and equitable treatment’ and ‘full protection and security’ of foreign investments to what those terms—had 283

Amco Asia II Award, Digest I-32, paras 122–39. Genin Award, Digest I-78, para 357–73. 285 Feldman Award, Digest I-95, paras 138–40. 286 The Loewen Group, Inc and Raymond L Loewen v United States of America, ICSID Case No ARB(AF)/98/3, Award, 26 June 2003 (Loewen Award), Digest II-5, paras 54, 119, 129–37. 287 See Mondev Award, Digest I-93, para 125; Dolzer and Schreuer, note 1, pp 124–28; I Laird, ‘Recent Developments in NAFTA Art 1105’, in T Weiler (ed.), NAFTA Investment Law and Arbitration (Ardsley, NY: Transnational Publishers, 2004), p 49. 288 LFH Neer and Pauline Neer v Mexico, US–Mexico General Claims Commission, Award of 15 October 1926, 4 RIAA 60 (1927). Compare J Paulsson and G Petrochilos, ‘Neer-Ly Misled?’ (2007) 22(2) ICSID Review – Foreign Investment Law Journal 242. 289 NAFTA Art 1105(1) (‘[e]ach Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security’). 290 See Dolzer and Schreuer, note 1, p 126. 291 NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions, 31 July 2001. 284

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ICSID Jurisprudence 1974–2002 they been current at the time—might have meant in the 1920s when applied to the physical security of an alien. To the modern eye, what is unfair or inequitable need not equate with the outrageous or the egregious.292

In the period under review, the Tribunal in Alex Genin already took into account the investor’s conduct, when determining a breach of the fair and equitable treatment standard.293 The Claimants had alleged a violation of the fair and equitable treatment standard due to certain discrepancies in the balance sheets of a bank they had acquired in an auction from the Bank of Estonia. The Tribunal acknowledged that the Bank of Estonia had not given sufficient attention to possible risks for bidders but did not find the Respondent liable because the Claimants had not carried out the appropriate due diligence when acquiring the bank.294 (e) Most-favoured-nation treatment Nearly all modern investment treaties contain a most-favoured-nation (MFN) clause. This provision prohibits the State from discriminating against nationals or corporations of the other Contracting State in favour of third-party nationals.295 In addition to the direct prohibition against legislative or regulatory measures disfavouring qualified investors on the basis of nationality, it is generally accepted that in certain circumstances an MFN clause can permit an investor to invoke certain more favourable provisions found in investment treaties that the host State has concluded with third States. The extent of this right of ‘import’ treaty clauses remains subject to extensive debate. During the period under review, tribunals discussed in particular whether an investor may invoke the MFN clause of an applicable investment treaty to gain access to the dispute settlement provisions of another treaty. The catalyst for this discussion was the jurisdictional decision in Maff ezini v Spain. There, the Claimant was an 292 Mondev Award, Digest I-93, para 116; also cited in ADF Group Inc v United States of America, ICSID Case No ARB(AF)/00/1, Award, 9 January 2003 (ADF Award), Digest II-1, para 180. Compare Waste Management, Inc v United Mexican States, ICSID Case No ARB(AF)00/3, Award, 30 April 2004 (Waste Management II Award), Digest II-22, paras 92–9; International Thunderbird Gaming Corp v United Mexican States, UNCITRAL, Award, 26 January 2006 (Ariosa, Wälde, van den Berg), para 194; Azurix Award, Digest II-58, paras 365–72; Siemens Award, Digest II-72, paras 293–300. 293 See further Maffezini Award, Digest I-68, para 64. This approach was followed in the subsequent period by MCI Power Group, LC and New Turbine, Inc v Republic of Ecuador, ICSID Case No ARB/03/6, Award, 31 July 2007 (MCI Award), Digest II-84, para 303. Later also in Biwater Gauff Award, note 35, para 601; Joseph C Lemire v Ukraine, ICSID Case No ARB/06/18, Decision on Jurisdiction and Liability, 21 January 2010, para 285; Total SA v Argentine Republic, ICSID Case No ARB/04/01, Decision on Liability, 27 December 2010, para 124. In MTD Award, Digest II-24, paras 242–3, the conduct was taken into account when calculating damages. See further Olguín Award, Digest I-83, paras 65(b), 73 and 75, where, however, it is unclear which treatment standard is discussed. 294 Genin Award, Digest I-78, para 345. 295 For an overview of most-favoured-nation treatment, see M-F Houde, Most-Favoured-Nation Treatment in International Investment Law (OECD, 2004), available at ; E Ustor, ‘First Report on the Most-Favoured Nation Clause’

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C. Substantive Issues Argentine national who based his claim on the Argentina–Spain BIT. The applicable treaty imposed a requirement that the dispute be submitted to Spanish courts for 18 months prior to arbitration. The Claimant had not observed this precondition. The Tribunal found that Spain had concluded subsequent BITs with countries other than Argentina that contained no pre-arbitration litigation requirement, and held that Mr Maffezini could ‘import’ the more favourable treaties’ dispute resolution clauses by operation of the MFN clause in the Argentina–Spain BIT. On this basis, the investor’s claims were permitted to advance to the merits.296 The Tribunal added the caveat that MFN clauses should not be used in this fashion to circumvent the Contracting States’ fundamental public policy considerations.297 The Maff ezini decision was based upon a broadly formulated MFN clause: In all matters subject to this Agreement, this treatment shall not be less favorable than that extended by each Party to the investments made in its territory by investors of a third country.298

Subsequently, some tribunals followed the reasoning in Maff ezini,299 while others rejected the idea that the MFN clause can apply to jurisdictional issues.300 Most of the tribunals dealing with procedural issues301 considered the invocation of third-party BIT arbitration clauses imposing less onerous procedural requirements than the directly applicable treaty. In Gas Natural, Suez and InterAgua and Suez and Vivendi, the Tribunals based their positive conclusion on MFN clauses (1969) 2 Yearbook of the International Law Commission 157; S Vesel, ‘Clearing a Path through a Tangled Jurisprudence: Most-Favored-Nation Clauses and Dispute Settlement Provisions in Bilateral Investment Treaties’ (2007) 32 Yale Journal of International Law 125; N Rubins, ‘Chapter 10: MFN Clauses, Procedural Rights, and the Return of the Treaty Text’, in T Weiler (ed.), Investment Treaty Arbitration and International Law, Vol. 1 (Huntington, NY: JurisNet, 2008), p 213. 296 Maffezini Jurisdiction, Digest I-59, para 64. 297 Maffezini Jurisdiction, Digest I-59, para 62. 298 Maffezini Jurisdiction, Digest I-59, para 38. 299 Siemens Jurisdiction, Digest II-28, para 103; Gas Natural SDG, SA v Argentine Republic, ICSID Case No ARB/03/10, Decision on Jurisdiction, 17 June 2005 (Gas Natural Jurisdiction), Digest II-41, para 31; Suez, Sociedad General de Aguas de Barcelona SA and Interagua Servicios Integrales de Agua SA v Argentine Republic, ICSID Case No ARB/03/17, Decision on Jurisdiction, 16 May 2006 (Suez I Jurisdiction), Digest II-54, para 66; Suez, Sociedad General de Aguas de Barcelona SA and Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/03/19, Decision on Jurisdiction, 3 August 2006 (Suez II Jurisdiction), Digest II-62, para 68; RosInvestCo UK Ltd v The Russian Federation, SCC Case No Arb V079/2005, Award on Jurisdiction, 1 October 2007 (Böckstiegel, Lord Steyn, Berman), para 139. 300 Plama Consortium Ltd v Republic of Bulgaria, ICSID Case No ARB/03/24, Decision on Jurisdiction, 8 February 2005 (Plama Jurisdiction), Digest II-35, paras 184, 227; Salini Costruttori SpA and Italstrade SpA v Hashemite Kingdom of Jordan, ICSID Case No ARB/02/13, Decision on Jurisdiction, 15 November 2004 (Salini/Jordan Jurisdiction), Digest II-31, para 119; Telenor Mobile Communications AS v Republic of Hungary, ICSID Case No ARB/04/15, Award, 13 September 2006 (Telenor Award), Digest II-63, paras 90–1; Renta 4 SVSA and others v The Russian Federation, SCC Case No 24/2007, Award on Preliminary Objections, 20 March 2009 (Brower, Landau, Paulsson), para 119; ICS Inspection and Control Services Limited v Republic of Argentina, UNCITRAL, PCA Case No 2010-9, Award on Jurisdiction, 10 February 2012 (Dupuy, Torres Bernárdez, Lalonde), para 317. 301 RosInvestCo Jurisdiction, note 299.

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ICSID Jurisprudence 1974–2002 that expressly applied to ‘all matters’ covered by the respective agreement, as was the case in Maff ezini.302 Some tribunals considered it relevant that the object and purpose of investment treaties is to grant investors comprehensive protection to encourage investments,303 or took into account the subsequent practice of the State parties304 concluding BITs with other countries.305 In the cases where tribunals declined to follow Maff ezini, the investor sought to achieve substantially more by invoking the MFN clause. Most commonly, the goal was to expand the scope of an arbitration clause in the treaty that was limited to violations of certain protection standards (most commonly, expropriation).306 Most requests to import the more expansive jurisdictional clauses of other investment treaties were rejected,307 often based upon the ICJ’s ruling that a State’s consent to jurisdiction must be ‘either explicit or clearly to be deduced from the relevant conduct’ of the State.308 In view of the express limitation of arbitral jurisdiction to certain violations of the treaty, these tribunals declined to accept jurisdiction with respect to other claims. Recently, however, some tribunals also refused to adopt the Maffezini-approach, holding that the MFN clause was not to be expanded.308a (2) Remedies What remedies an ICSID tribunal may grant very much depends on the applicable law and legal basis of the claim. For the purposes of this book, the holdings and considerations of contract-based tribunals usually are of little interest. In contract cases, the applicable domestic law determines the available remedies, but not international law. Also, the law will be different from one case to another. This section focuses on remedies granted by tribunals under public international law or where tribunals’ holdings are of general interest, e.g. relating to valuation principles or the determination of interest. 302 Maffezini Jurisdiction, Digest I-59, para 38; Gas Natural Jurisdiction, Digest II-41, para 30; Suez I Jurisdiction, Digest II-54, paras 55–6, 63; Suez II Jurisdiction, Digest II-62, paras 55, 58, 61, 65. 303 Siemens Jurisdiction, Digest II-28, para 81; Gas Natural Jurisdiction, Digest II-41, para 29. 304 While this is generally a relevant consideration when interpreting treaties (per Art 31(3)(b) of the Vienna Convention on the Law of Treaties), the RosInvestCo Tribunal correctly pointed out that ‘state practice’ is only pertinent when the practice is established between the same states and with respect to the same treaty under consideration, RosInvestCo Jurisdiction, note 299, para 38. 305 See Maffezini Jurisdiction, Digest I-59, paras 58–61; Suez II Jurisdiction, Digest II-62, para 58. 306 See, e.g., Vladimir Berschader and Moïse Berschander v The Russian Federation, SCC Case No 080/2004, Award, 21 April 2006 (Sjövall, Lebedev, Weiler), paras 206–8; RosInvestCo Jurisdiction, note 299. 307 Plama Jurisdiction, Digest II-35, paras 198, 204, 209. But see RosInvestCo Jurisdiction, note 299, para 130, which argues that because jurisdictional clauses form a ‘highly relevant part of the corresponding protection for the investor’ guaranteed in BITs, MFN clauses should also be applicable to them. 308 Certain Questions of Mutual Assistance in Criminal Matters (Djibuti v France), Judgment, ICJ Reports 2008, p 177, para 62. 308a See, e.g., Daimler Financial Services AG v Argentine Republic, ICSID Case No ARB/05/1, Award, 22 August 2012 (Dupey, Brower, Janeiro).

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C. Substantive Issues Pursuant to the PCIJ’s judgment in Chorzów Factory, the central principle with respect to compensation due for an act contrary to international law is that: reparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed.309

Restitution should be given in kind, or, if this is not possible, by payment of a sum corresponding to the value which a restitution in kind would bear and include, if need be, damages for loss sustained which would not be covered by restitution in kind or payment in place of it.310 Similarly, the ILC Articles on State Responsibility require States to ‘make full compensation’, which obliges the State ‘to re-establish the situation which existed before the wrongful act was committed’:311 Article 34 Forms of reparation Full reparation for the injury caused by the internationally wrongful act shall take the form of restitution, compensation and satisfaction, either singly or in combination, in accordance with the provisions of this chapter. Article 35 Restitution A State responsible for an internationally wrongful act is under an obligation to make restitution, that is, to re-establish the situation which existed before the wrongful act was committed, provided and to the extent that restitution: (a) Is not materially impossible; (b) Does not involve a burden out of all proportion to the benefit deriving from restitution instead of compensation. Article 36 Compensation 1. The State responsible for an internationally wrongful act is under an obligation to compensate for the damage caused thereby, insofar as such damage is not made good by restitution. 2. The compensation shall cover any financially assessable damage including loss of profits insofar as it is established.

(a) Restitutio in integrum As has been set out above, restitution is considered the principal remedy under customary international law. But claimants are generally considered to have the right to choose between restitution and compensation,312 and often the investor no longer wishes to continue doing business in the host State. As a result, very few

309

The Factory at Chorzów, note 240, 47. The Factory at Chorzów, note 240, para 125. 311 ILC Articles on State Responsibility, note 219, Art 31(1) and 35. 312 Crawford, The International Law Commission’s Articles on State Responsibility: Introduction, Text and Commentaries (Cambridge: Cambridge University Press, 2002), p 262. 310

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ICSID Jurisprudence 1974–2002 tribunals considered whether restitution could be granted. An illustrative example of the difficulties in this regard is LETCO v Liberia.313 There, the State had terminated a timber concession. By the time the arbitral award was rendered, two years had passed, and the Tribunal considered it unlikely that the State would be willing to cooperate with the Claimant company. The Tribunal, having been empowered by the parties’ agreement to determine appropriate damages, concluded for these reasons that monetary compensation was the only adequate remedy.314 In Goetz v Burundi, the Tribunal ordered the Respondent State either to pay compensation or to revoke the contested government measure (relief akin to restitution).315 Later tribunals affirmed that tribunals also have the power to order non-pecuniary damages.316 In SIREXM, the parties were ordered to return the benefits derived from the underlying contract which was declared invalid. Also, SIREXM—as the party who was responsible for the nullity—was entitled to have returned the benefits it conferred despite its ‘unworthiness’ and the return of those benefits could be withheld only if the agreement were found to be immoral.317 However, because of SIREXM’s responsibility for the nullity the Tribunal denied the investors compensation.318 (b) Compensation As set out above, the general standard of compensation for damages is to cover ‘any financially assessable damage including loss of profits insofar as it is established’. ICSID decisions appear consistent in the view that lost profits can only be recovered if the claimant is able to demonstrate with reasonable certainty that the revenue would have been earned absent the breach.319 Furthermore, only profits that were legitimate were held to be compensable.320 Where there is a contract, lost future profits can be awarded using the ‘earning capacity’ of the agreement to determine the market value. In Letco v Liberia,321 where the investor was unlawfully deprived

313

LETCO Award, Digest I-20, pp 369–79. LETCO Award, Digest I-20, pp 370–1. 315 Goetz Award, Digest I-46, para 135. 316 Enron Jurisdiction I, Digest II-17, paras 77–81; see further Ioan Micula et al v Romania, ICSID Case No ARB/05/20, Decision on Jurisdiction and Admissibility, 24 September 2008 (Lévy, Alexandrov, Ehlermann), para 166. 317 SIREXM Award, Digest I-58, para 6.19. The rule contemplated by the Tribunal was nemo auditur propriam turpitudinem suam allegans (the pursuer is unworthy to obtain redress). 318 SIREXM Award, Digest I-58, para 6.33. 319 Metalclad Award, Digest I-65, para 121; Wena Hotels Award, Digest I-73, para 123; SPP Award, Digest I-36, para 188; Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela, ICSID Case No ARB/00/5, Award, 23 September 2003 (Aucoven Award), Digest II-10, para 360; Tecmed Award, Digest II-4, para 186; Amco Asia II Award, Digest I-32, para 178. 320 SPP Award, Digest I-36, para 190. See further J Crawford, note 312, pp 201–2; Petrobart Limited v Kyrgyz Republic, note 202, pp 77–8; MTD Award, Digest II-24, para 238. 321 LETCO Award, Digest I-20, p 373. 314

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C. Substantive Issues of a concession, the Tribunal awarded lost future profits for the whole concession period (from 1983 to 2007). In Amco Asia, where the investor was evicted from a hotel which he had the right to manage, the Tribunal calculated the value of the stream of profits which would have been earned until the end of the contract term.322 In Middle Eastern Cement, where a licence held by the investor was indirectly expropriated, the Tribunal awarded lost profits under contracts which would have been concluded under the licence.323 The second Amco Asia Tribunal also addressed the causality and foreseeability of damages. It posited that for causality it was sufficient that the action was unlawful and caused the damage, i.e. that it could not be disputed by alleging that the Claimant had lost its business anyway by other lawful measures of the state, at least where such measures are speculative.324 It furthermore held that it was sufficient if a State foresaw that damages could occur, even if the precise amount was not foreseeable.325 In AMT, the Tribunal declared that damages were to be assessed based on the prevailing circumstance in the host country and not with reference to normal conditions in an ideal country.326 It was also decided in that case, however, that a State could not evade its duty to pay compensation to foreign investors as long as this denial of compensation was non-discriminatory, i.e. by arguing that compensation was paid to neither its own nationals nor nationals of third States.327 (c) Value of the investment Where an investment has been expropriated, nearly all investment treaties prescribe the payment of compensation in the amount of the ‘fair market value’ of the expropriated investment. The market value of an asset has been approximated using different methodologies in various decisions. It has become relatively common to use the discounted cash flow method (‘DCF method’) to assess the value of an ongoing enterprise.328 The DCF method is a forward-looking projection calculating the present value of future cash flows to be generated from a project. As the World Bank explained, DCF value: means the cash receipts realistically expected from the enterprise in each future year of its economic life as reasonably projected minus that year’s expected cash 322

See Amco Asia II Award, Digest I-32, para 179. Middle Eastern Cement Award, Digest I-90, para 127. See further MINE Award, Digest I-24, p 76, where the Tribunal awarded damages on the basis of a contract that should have been concluded with the Claimant. 324 Amco Asia II Award, Digest I-32, para 174. 325 Amco Asia II Award, Digest I-32, para 175. 326 AMT Award, Digest I-43, para 7.13. 327 AMT Award, Digest I-43, paras 6.23–6.24. 328 Cf e.g., Metalclad Award, Digest I-65, para 119: ‘Normally, the fair market value of a going concern which has a history of profitable operation may be based on an estimate of future profits subject to a discounted cash flow analysis’, cited with approval by the tribunal in Wena Hotels Award, Digest I-73, para 123. For a general overview, see S Ripinsky and K Williams, Damages in International Investment Law (London: BIICL, 2008), pp 202–5. 323

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ICSID Jurisprudence 1974–2002 expenditure, after discounting this net cash flow for each year by a factor which reflects the time value of money, expected inflation, and the risk associated with such cash flow under realistic circumstances.329

As a general rule, ICSID panels appear to agree that an asset should qualify as a going concern and have a proven track record of profitability before being valued using the DCF method. The World Bank defined a ‘going concern’ as: an enterprise consisting of income-producing assets which has been in operation for a sufficient period of time to generate the data required for the calculation of future income and which could have been expected with reasonable certainty, if the taking had not occurred, to continue producing legitimate income over the course of its economic life in the general circumstances following the taking by the State.330

In the period under review, several tribunals considered the issue of going concern value. According to the resulting decisions, the valuation of an asset as a going concern is generally inappropriate where the investment was never operative,331 or where it was operating for only a very short time.332 Illustrative examples are the decisions in Metalclad333 (where the waste landfill never became operative), Wena Hotels334 (where the hotels were operated only briefly) and SPP v Egypt335 (the project had only begun to be realized). Tribunals have also compared the period during which a business was running with the duration over which future cash flows are to be measured.336 This is in line with subsequent decisions as well.337 Where tribunals considered the requested lost profits to be too speculative or uncertain, they preferred to award damages on the basis of amounts invested or contributed to the project by the investor.338 329 World Bank Guidelines on the Treatment of Foreign Direct Investment, 1992, Sec IV 6, available at . 330 World Bank Guidelines on the Treatment of Foreign Direct Investment, Sec IV 6. 331 Metalclad Award, Digest I-65, para 121. See further Aucoven Award, Digest II-10, para 360 where the Tribunal, with view to extent of the project’s completion, drew attention to the fact that ICSID Tribunals were ‘reluctant to award lost profits for a beginning industry and unperformed work’. In such cases, lost profits could only be awarded where the project was nearly completed or ‘substantial investments’ had been made, see paras 361–2. Compare SPP Award, Digest I-36, para 188. See further Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana, Award on Damages and Costs, 30 June 1990 (Schwebel, Wallace, Leigh) (Biloune Damages), 95 ILR 211, 228–9, where the hotel resort was not completed at the time of the expropriation. 332 Wena Hotels Award, Digest I-73, para 123. 333 Metalclad Award, Digest I-65, para 121. 334 Wena Hotels Award, Digest I-73, para 123. 335 SPP Award, Digest I-36, para 188. 336 SPP Award, Digest I-36, paras 187–8 (an operational period of about one year was considered insufficient to predict with reasonable certainty 20 years of future cash flows). See further Tecmed Award, Digest II-4, para 186. 337 See Digest II, pp 366–70. 338 See SPP Award, Digest I-36, paras 188, 198; Wena Hotels Award, Digest I-73, para 125; Metalclad Award, Digest I-65, paras 121–2; Biloune Damages, note 331, 228–9.

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C. Substantive Issues (d) Moral damages Moral damages claims are relatively rare in investment treaty disputes, which are dominated by companies as Claimants, rather than individuals. Nevertheless, in addition to the obvious compensable moral damage that individuals may suffer due to pain and suffering, mental anguish, humiliation, loss of enjoyment of life, and loss of companionship or consortium, the possibility that a legal person could suffer inchoate but no less real injury to credit and reputation was contemplated as early as the Lusitania case of 1923.339 In the period under review, at least two corporate Claimants sought moral damages. In Atlantic Triton, the Tribunal denied a request of compensation for intangible losses due to a lack of evidence.340 In Benvenuti & Bonfant, the Claimant was similarly unable to present concrete evidence supporting their claim for moral damages. Nevertheless, the Tribunal, which was authorized by the parties’ contract to decide ex aequo et bono, was convinced that Benvenuti & Bonfant had lost credit with suppliers as a result of the government’s actions, and considered it ‘equitable’ to award moral damages.341 Compensation for intangible losses was also granted in 2008 by the Desert Line Tribunal, which confirmed that moral damages are available to legal persons in exceptional circumstances: Even if investment treaties primarily aim at protecting property and economic value, they do not exclude, as such, that a party may, in exceptional circumstances, ask for compensation of moral damages. It is generally accepted in most legal systems that moral damages may also be recovered besides pure economic damages. There are indeed no reasons to exclude them.342

Though not expressly stated by the second Amco Asia Tribunal, the US$10,000 awarded for ‘general disturbance’ seems to fall in the category of moral damages.343 It thus appears accepted that moral damages can be available in principle, but Claimants struggle to substantiate the nature and extent of the damage suffered.344 339 Lusitania case, VII UNRIAA 32, 40 (1923). See further ILC Articles on States Responsibility, note 219, Art 31(2). 340 Atlantic Triton Award, Digest I-21, para III.3.2. 341 Benvenuti & Bonfant Award, Digest I-9, para 4.96. 342 Desert Line Projects LLC v Yemen, ICSID Case No ARB/05/17, Award, 6 Feburary 2008 (Tercier, El-Kosheri, Paulsson), para 289. These exceptional circumstances were apparently found lacking in Inmaris Award, note 238, para 428 (‘The Tribunal does not find that any emotional or other harm Claimants may have suffered is sufficiently serious as to merit an award of additional compensation for moral damages’). 343 Amco Asia II Award, Digest I-32, paras 63, 166. 344 Similarly, the Umpire in the Lusitania case stated: ‘[Moral] damages are very real, and the mere fact that they are difficult to measure or estimate by money standards makes them none the less real and affords no reason why the injured person should not be compensated therefore.’ note 339, p 40. See further Ripinsky and Williams, note 328, 307–9.

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ICSID Jurisprudence 1974–2002 (e) Mitigation The Middle East Cement Tribunal stated that the duty to mitigate losses ‘can be considered to be part of the General Principles of Law which, in turn, are part of the rules of international law’.345 There, Egypt contended that Middle East Cement had violated its duty to mitigate losses because it did not change its goods, which had been banned from export, and did not resume its business after the ban was lifted. However, the Tribunal was convinced that the trade in other forms of cement was not economically feasible. It also rejected Egypt’s second argument: An investor who has been subjected to a revocation of the essential license for its investment activity, three years earlier, has good reason to decide that, after that experience, it shall not continue with the investment activity, after the activity is again permitted.346

In Amco Asia II, Indonesia contended that Amco had failed to mitigate its losses by selling its remaining contractual rights to third parties. While both parties agreed that the duty to mitigate damages existed under international law (and Indonesian law), the Tribunal considered that, in light of Indonesia’s actions, it would have been virtually impossible to find interested purchasers for these remaining rights. Thus, the Tribunal found no violation of the duty to mitigate losses.347 In SPP v Egypt, a hotel project planned at the location of the Pyramids in Cairo had been cancelled. During the proceedings, Egypt argued that the investor should have accepted an alternative site (some four miles away from the Pyramids). The Tribunal declared that the obligation to mitigate losses ‘is not so broad and all encompassing as to require the Claimants to accept an unsuitable alternative site that was never contemplated by the Parties’ agreement’.348 Not expressly referring to mitigation, the Tribunal in AMT v Zaire reduced the amount of compensation due to the Claimant, reasoning that because of the political, economic, financial, and other risks in Zaire, the investor would be unjustly enriched if fully compensated for his loss.349 In the more recent decision of MTD v Chile, the investor had acquired land without conducting proper legal due diligence. The Tribunal considered this to be a part of business risk and, while finding in the investor’s favour on the merits, reduced compensation by 50 per cent to account for contributory fault.350

345 Middle East Cement Award, Digest I-90, para 167. See further Gabčíkovo-Nagymaros (Hungary/ Slovenia), 1997 ICJ Reports 7, 55, para 80. For a general overview see Ripinsky and Williams, note 328, 319–25. 346 Middle East Cement Award, Digest I-90, para 169. 347 Amco Asia II Award, Digest I-32, para 168. 348 SPP Award, Digest I-36, para 172. 349 AMT Award, Digest I-43, para 7.15. 350 MTD Award, Digest II-24, paras 242–3.

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C. Substantive Issues (f) Interest Article 38 of the ILC Draft Articles on State Responsibility provides: Article 38 Interest 1. Interest on any principal sum due under this chapter shall be payable when necessary in order to ensure full reparation. The interest rate and mode of calculation shall be set so as to achieve that result. 2. Interest runs from the date when the principal sum should have been paid until the date the obligation to pay is fulfilled.

Interest is thus an integral part of compensation, as it rectifies the economic harm caused by the late payment of amounts established to be owed to the claimant.351 This has been explicitly affirmed by a number of tribunals. In Wena Hotels, the duty to pay interest was derived from the notion of ‘prompt, adequate and effective compensation’ for expropriations. On this basis, the Tribunal in Santa Elena concluded that compound interest would be appropriate ‘where an owner of property has at some earlier time lost the value of his asset but has not received the monetary equivalent that then became due to him’, because the investor would thereby receive the benefit of the money had he reinvested it.352 Unlike as stipulated by Article 38 of the above-cited ILC Draft Articles, the Tribunal in Klöckner I calculated the interest from the date of the request for arbitration.353

351

J Crawford, ILC Articles on State Responsibility, note 312, p 270. Santa Elena Award, Digest I-60, para 104; Middle East Cement Award, Digest I-90, para 174; Wena Hotels Award, Digest I-73, para 129; Metalclad Award, Digest I-65, para 128. 353 Klöckner I Award, Digest I-12, para 281. 352

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INDEX OF ARBITR ATORS Th is is a cumulative index providing volume and case numbers for the Digest of ICSID Awards and Decisions series. Volume I refers to this digest for the years 1974-2002 and Volume II refers to the digest for the years 2003-2007. P = President of the Tribunal S = Sole Arbitrator D = Dissenting Opinion Y Agboyibo II–19 S Agbayissah I–58 G Aguilar Alvarez I–48, I–84 J L Alberro-Semerena II–44(D) N Allard II–63 H Alvarez II–40, II–41, II–44 SKB Asante I–33(D) L Aynès II–12, II–68 M Bedjaoui I–49 J Berg I–24 F Berman II–46, II–48, II–51, II–88(D), II–96 C Bernal Verea II–4, II–47, II–86 P Bernardini I–47, I–51, I–71, I–90, II–11, II–21, II–32, II–52, II–70, II–82 G Bigg II–70 R Blanco II–24 K-H Böckstiegel I–41(P), I–50(P), I–85, I–90(P), II–10, II–43(P), II–46, II–55(P) J-D Bredin I–49 R Briner I–81(P), I–82(P), II–12(P), II–15(P), II–68(P) A Broches I–14(P), I–23(P), I–26(P), I–30 C Brower I–38, I–39, I–57, I–61, I–76, I–77, I–80, II–28, II–42(P), II–64, II–72 I Brownlie I–40 M Brunt I-29 A Bucher I–47, I–51, I–71, I–87, II–19(P), II–32 T Buergenthal I–47(P), I–51(P), I–55, I–59, I–68, I–69, I-71(P), I-75, II–34 R Bystricky I–9 L Caflisch II–52(P), II–60(P) D Cameron II–53 E Carmigniani Valencia II–20 D Caron II–44(P) J Castaneda I–25 P Cavin I–6(P) J-P Chabaneix II–53 S Charles I–29 EC Chiasson I–40

BR Civiletti I–45, I–56, I–65, I–84, I–91, II–22 J Covarrubias Bravo I-72, I–95(D), I–98 W L Craig II–29 J Crawford I–84(P), I–86, I–92, I–93, I–97, II–8, II–22(P), II–73, II–90 JR Crawford I–91(P) BM Cremades I–15(P), I–20(P), I–23(P), I–48(P), I–62(P), I–81, I–82, I–85, II–3(P), II–10, II–15, II–31, II–34, II–36, II–49, II–85(D), II–95(P) JA Cremades I–25 A Crivellaro II–18 S Czar de Zalduendo II–87(D) H Danelius II–88(P), II–96(P) R S M Dassou II–69 W Davis I–42(P) Y Derains II–67(P) A Diagne I-66 R Dolzer II–67 R Dossou II–3 P-M Dupuy II–43, II–55 R-J Dupuy I–7 A El Kholy II–26 AS El-Kosheri I–18, I–33(P), II–18(P), II–93(P) MAE El Mahdi I–19, I–27(D), I–36(D) N Elaraby II–90 I Fadlallah I–52, I–73, I–81, I–82, II–3, II–15, II–45, II–79 AA Fatouros I–35, I–37, I–58(P), II–48 A Faurès I–94, I–96, II–8, II–33, II–57 FP Feliciano I–22, I–79(P), I–94(P), I–96(P), II–1(P), II–8(P), II–77(P) JC Fernández Rozas I–86, I-92, I–97, II–4 F Fielding I–41, I–50 I Foighel I–10, I–11, I–13, I–16 LY Fortier I–54, I–60(P), I-63(P), I–74, I–78(P), I–89(P), I–92, I–97, II–12, II–25, II–26(P), II–68, II–71, II–83(P), II–85(P), II–94

369

Index of Arbitrators E Gaillard II–33, II–57 F Gamboa II–6 DA Gantz I–72, I–95, I–98 CH Geach I–66 A Giardina I–22, I–31, I–41, I–50, II–69, II–88, II–96 B Goldman I–10(P), I–11(P), I–13(P), I–16(P), I–33 H Golsong I–43 I Gómez-Palacio II–80 E Gómez-Pinzón II–40(P) J Gonçalves Pereira I–15, I–20, I–23 R Goode II–63(P) B Greenberg II–84 G Griffith I–70(S) H Grigera Naón II–4(P) H Gros Espiell II–17, II–27, II–40 JM Grossen I–6 G Guillaume II–31(P), II–36(P), II–49(P), II–66(P), II–73(P), II–90(P) B Hanotiau II–48(P) M Heth I–44, I–46, I–78, I–89 R Higgins I–28(P), I–32(P), I–34(P) K Highet I–40(P), I–62 K Hussain I–38, I–39 M Hwang II–42, II–76(S) J Irarrázabal II–84 A Jacovides II–2(D) D Janeiro II–28, II–72 R Jennings I–38(P), I–39(P) R Jijón Letort II–16(P) E Jiménez de Aréchega I–12(P), I–19(P) I–27(P), I–36(P) N Kaplan II–64(P) G Kaufmann-Kohler I–85(P), II–10(P), II–25, II–46(P), II–47, II–54, II–56(P), II–62, II–71, II–75(P), II–86 K Kerameus I-72(P), I-87(P), I–98(P) M Kerr I–4, I–5 J Kessler II–70(P) C Kessedjian II–93 KD Konstantinos I–95(P) G Lagergren I–1(P), I–2(P), I–3(P) P Lalive I–18(P) M Lalonde I–28, I–32, I–34, II–7, II–19, II–24, II–37, II–38, II–39, II–58, II–89, II–91(D), II–93 CB Lamm I–79, II–1 T Landau II–36 B Landy II–61 E Lauterpacht I–8, I–53(P), I–60, I-63, I–65(P), I–67(P), II–13 M Lee II–67 M Leigh I–52(P), I–73(P)

J Lever II–43, II–55 L Lévy II–89(P) J Lew II–89 V Lowe II–80(P) A Lowenfeld II–6, II–41(P), II–59 R McKay I–42 E Magallón Gómez I–86, II–22 P Magid I–28, I–32, I–34 E Magallón Gomez I–91, II–22 A Marriott II–63 D Martins II–13, II–58 Sir A Mason I–54(P), I–74(P), II–5(P), II–14(S), II–30(P) P Mayer II–56 A Maynard I–42 E Mayora Alvarado I–64, I–83 K Mbaye I–14, I–26, I–30, I–31, I–43 E Meese III II–80 A de Mestral I–79, II–1 AJ Mikva I–54, I–74, II–5, II–30 S Morelli Rico II–38, II–39, II–91 M Mustill II–5, II–30, II–51, II–82(P) O Nabulsi II–77 M Nader II–50 F Nariman II–11(P), II–51(P) P Nikken II–41, II–54, II–62 L Olavo Baptista I–48 S Ordóñez Noriega II–73 R Oreamuno Blanco I–64(P), I–83(P), II–20(P), II–24, II–53(P), II–61(P) F Orrego Vicuña I–44(P), I–46, I–55(P), I–59(P), I–68(P), I–75(P), I–87, II–7(P), II–17(P), II–25(P), II–27(P), II–29(P), II–37(P), II–38(P), II–39(P), II–71(P), II–74(D), II–78(P), II–83, II–91(P), II–92(P) P Otton II–75 R Owen I–44, I–46 J Paulsson I–45(P), I–53, I–56(P) I–67, II–9(P), II–34 RF Pietrowski, Jr I–19, I–27, I–36 A Ponce Martínez II–16 D Poncet I–6 JF Prat I–17, I–21 D Price II–21, II–82(D) M Pryles II–74 E Razafindralambo I–9 DA Redfern I–15, I–20, I–23 M Reisman II–85, II–87 P Reuter I–1, I–2, I–3(P) F Rezek I–64, I–69(P), I–83, II–7, II–23, II–37, II–65, II–81 A Rigo Sureda II–13(P), II–24(P), II–28(P), II–58(P), II–72(P)

370

Index of Arbitrators D Robinson II–2(P) A Rogers I–57, I–61, I–76, I–77, I–80, I–88, II–66 W Rogers I–12 K Rokison I–57, I–61, I–76, I–77, I–80 L Roldós Aguilera II–16(D) F Rouhani I–4, I–5, I–7 A Rovine II–95 W Rowley II–47(P), II–86(P) EW Rubin I–10, I–11, I–13, I–16 S Rubin II–2 A G Saavedra Olavarrieta II–59 G Sacerdoti II–50(P) K Sachs II–45(P) J Salacuse II–54(P), II–62(P) CF Salans I–25(P), II–35(P), II–45 E Salpius II–9 P Sanders I–8, I–17(P), I–21(P) D Schindler I–35, I–37 D Schmidt I–12(D) C Schreuer II–75 J Schultsz I–1, I–2, I–3(P) SM Schwebel I–93, II–26 I Seidl-HohenveldernI I–18, I–22(P) DJ Sharpe I–24 I Sinclair II–31, II–49 E Siqueiros I–62, I–65, II–95 G Speight I-29(P) Sir N Stephen I–93 B Stern II–52, II–56, II–60, II–77 S Sucharitkul I–30(P), I–31(P), I–35(P), I–37(P), I–43(P), I–88(P)

D Suratgar I–88 P Tercier I–58, II–33(P), II–57(P), II–79(P) JC Thomas I–94, I–96, II–8 J Trolle I–5(P), I–7(P), I–9(P) PD Trooboff I–69 P-Y Tschanz II–17, II–27, II–78, II–92 AJ van den Berg I–17, I–21, I–78, I–89, II–6(P), II–23, II–35, II–59(P), II–60, II–64, II–65, II–78, II–81, II–92 H van Houtte II–32(P) J Van Houtte I–14, I–26 V V Veeder II–35, II–50, II–66, II–94 A Viandier II–79 R Vinuesa II–84(P) C von Wobeser I–45, I–56, II–61, II–87(P) J Voss I–53, I–67, II–9 B Vukmir II–11 D Wallace, Jr I–52, I–73, I–90 I Wallenberg I–8(P) A Watts II–83 C G Weeramantry II–29 P Weil I–49(P), I–60, I–63, I–66(P), II–21(P/D) D A R Williams II–42, II–74(P) O L O de Witt Wijnen II–94(P) M Wolf I–55, I–59, I–68, I-75 A Wray Espinosa II–20 DE Zubrod I–24(P)

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INDEX This is a cumulative index for the first two volumes in the Digest of ICSID Awards and Decisions series. Volume I refers to this digest for the years 1974–2002 and Volume II refers to the digest for the years 2003–2007. References in bold are to case numbers in Part 1. The remaining references are to page numbers in Part 2. abuse of corporate form burden of proof II–44 abuse of process II–75 ad hoc committees challenge to President I–86 admissibility denial of benefits II–9 exhaustion of local remedies II–75 Oil Platforms test I–11, II–46, II–56 contract claims/treaty claims, differentiation II–8, II–332 failure to follow II–88 pre-arbitration negotiation period II–33 shareholder claims II–17, II–47, II–333 ancillary claims notice of I–72 objections to jurisdiction II–27 post-registration claims II–7 suspension of primary claim II–78 annulment appellate procedure, distinguished I–37 contract claims/treaty claims, differentiation I–343–4, II–331 costs I–18, I–92, II–42, II–48, II–69, II–70, II–73, II–77, II–88, II–90 forum selection clauses II–346–7 grounds failure to state reasons I–18, I–22, I–92, I–337–8, II–42, II–48, II–69, II–70, II–73, II–77, II–88, II–90 generally I–335 interpretation I–37 manifest excess of power I–18, I–22, I–30, I–37, I–92, I–335 serious departure from a fundamental rule of procedure I–18, I–22, I–37, I–336, II–42, II–48, II–73, II–77, II–88 standard of review I–87 justification for II–48 nature of II–69 omissions in award II–88, II–90 supplemental awards I–37 time bar I–22, I–335 anti-arbitration I–29

applicable law applicable law clause absence of I–9, I–33 consent I–36 contract claims/treaty claims I–12, I–18, I–27, I–33, I–49, I–73, I–92, I–328, II–16, II–17, II–27, II–28, II–331 failure to apply manifest excess of powers as I–22, I–37 forum selection clauses I–33 framework agreements II–32 Helms Amendment I–60 historical development of legal framework I–327–8, II–328–9 ICSID jurisdiction I–73, I–92, II–11, II–38, II–39, II–40 approval of investment fair and equitable treatment II–24 arbitrary and discriminatory measures applicable law I–326 fair and equitable treatment standard II–15, II–71, II–72, II–357 impairment of investments II–37 insolvency II–43 most-favoured-nation clauses II–1, II–4 no targeting of foreign nationals II–65 proof, lack of II–78 refusal to consent to arbitration II–31 unlawful acts II–58 arbitration agreement irrevocability of I–36 exclusive remedy as I–47 international investment disputes, and I–312 arbitrators challenges to appointment I–86, I–96, I–333–4 conduct complaints regarding II–42 disqualification I–96 attribution see also Draft Articles on State Responsibility (International Law Commission) actions in exercise of government authority II–43 acts of private companies I–16, I–59 acts of State I–41, I–59, I–68, I–81

373

Index attribution see also Draft Articles on State Responsibility (International Law Commission) (cont.): autonomous corporate bodies II–36 commercial conduct II–46 functional test I–68 government working group, actions of II–59 indirect State participation II–33, II–44 private law contracts of municipal authorities II–9 State agency II–75 State-run company II–94 subsidiary of State holding company II–67 umbrella clauses II–361 automotive industry dry cell battery production and sale I–42 vehicle and emission inspections II–61 aviation industry airport construction and operation II–85 airport renovation, expansion and operation II–64 avoidance corruption, contracts secured by II–66 bad faith see also good faith costs, effect on I –20 denial of justice I–32 expropriation II–86 fair and equitable treatment I–78, II–15, II–84, II–358 insufficient support for negotiations I–69 banking operating licence cancellation I–89 privatization I–51, I–71 purchase of bank I–78 bilateral investment treaties (BITs) applicable law as source of I–33, I–49 arbitration provisions I–64, I–81, II–8, II–63, II–329 breach of contract II–15, II–17, II–36, II–43, II–86 breach of licence II–91 composite acts II–84 consent arbitration to I–33 signing by II–64 see also consent continuous ownership II–52 emergency clause II–37 entry into force of Treaty I–41, I–49, I–51, I–59, I–90, II–4, II–8, II–9, II–18, II–31, II–34, II–36, II–37, II–43, II–52, II–56, II–58, II–60, II–65, II–67, II–83, II–84, II–87, II–88, II–338–9 exhaustion of local remedies I–59, II–9 expropriation II–63, II–64

full protection and security provisions breach I–33, I–87 duty to ensure I–49 fraudulent investments II–61 historical development I–310 ICSID jurisdiction, exclusion of II–31 indirect investments II–53, II–83 indirect shareholder claims II–17, II–27, II–28, II–38, II–39, II–40 introduction of II–326 investments, assets qualifying as I–44, I–51, I–59, I–64, I–78, I–81, I–82, I–88, I–90, I–323, I–338–40, II–9, II–11, II–13, II–16, II–19, II–29, II–41, II–46, II–54, II–60, II–62, II–64, II–69, II–75, II–84, II–89, II–334, II–335 no violation found II–79 obligation to protect investment I–68 project management fees II–64 pre-arbitration negotiation periods I–43, I–359, II–8, II–9, II–21, II–23, II–33, II–46, II–82 protection and security provisions I–33, I–43 ratione personae exclusion of I–52 retrospective application II–56 rights and obligations under II–40 scope of protection II–29, II–35 settlement attempts to settle amicably I–81, I–82 violation of I–89 breach of contract applicable law failure to apply I–30 BIT treaty claims and II–15, II–17, II–36, II–43 burden of proof II–43 expropriation I–16, II–22, II–58 forum selection clause II–31, II–40 NAFTA Chapter 11 II–22 no distinct treaty claims II–29 permits II–24 umbrella clauses II–8, II–18, II–37, II–43, II–360 UNCITRAL arbitration clause II–29 validity of transfer rights I–58 bribery procurement II–66 voidability of agreement I–76 burden of proof abuse of corporate form II–44 breach of contract II–43 claimant on I–50 fair and equitable treatment II–15 individual nationality II–26 jurisdiction II–29 nature and quantum of expenditure II–9 oral agreements II–49 Calvo doctrine state-to-state disputes I–308, II–324–5

374

Index causation II–73 cement industry licence to import, stock and distribute I–90 Charter of Economic Rights and Duties of States compensation for expropriation II–326 chemical industry production of chemical products I–55, I–59, I–68, I–75 choice of law see applicable law, forum selection clauses coercion fair and equitable treatment II–358 companies authority to institute proceedings I–40 continuous ownership II–52 control corporate nationality II–21, II–24, II–38, II–39, II–44 denial of benefits II–35 impermissible managerial control II–85 indirect control through voting rights II–11 investment under BIT II–13 State control I–81 corporate nationality Article 25 jurisdiction I–317–21, II–344–5 change of II–5 control by foreign nationals I–2, I–52, I–85, I-318–21, II–3, II–11, II–21, II–24, II–35, II–38, II–39, II–40, II–44, II–337–8 denial of benefits II–35, II–338 incorporation I–14 international partnership not conferring nationality I–88 ‘foreign business’ I–11 migration II–44 piercing the corporate veil II–21, II–64 real seat I–14 res judicata II–47 state of incorporation rule II–21 substantial business activity II–21, II–35 timing I–66 corporations of convenience I–81 legal successors II–47 shareholders admissibility of claims II–17, II–47, II–333 concessions II–54 continuous ownership II–52 corporate nationality II–3, II–11, II–21, II–24, II–35, II–38, II–39, II–40, II–337–8 dual nationality II–12 former shareholders II–52 indirect claims by II–17, II–27, II–28, II–38, II–39, II–40, II–52, II–53, II–83, II–90 investors, qualification as II–60 minority shareholders, claims by II–7, II–17, II–23, II–27, II–38, II–39, II–52, II–333–4

375

shareholder agreements circumventing national laws II–85 shell companies II–5, II–44, II–337 subsidiary companies estoppel II–60 qualification as investor II–22, II–336 compensation see also damages capital contributions nemo auditor propriam turpitudinem I–58 civil unrest for I–33, I–43 date of valuation I–60 discounted cash flow II–4, II–11, II–64, II–72, II–78, II–86, II–368–9 Draft Articles on State Responsibility I–362–3, II–24, II–92, II–367 economic prejudice II–53 emergency, state of II–78 equitable estimations I–18 estimated return on planned investment II–11 expropriation, for bilateral investment treaties II–326 Charter of Economic Rights and Duties of States II–326 environmental reasons I–60 failure to provide II–4 generally II–367–8 Hull formula II–325 loss of a ‘going concern’ I–16, I–364 military activities II–19 shares at ‘going concern’ evaluation I–9 unlawful II–6 value of lost investment II–72 failure to mitigate losses I–32, I–36, I–90, I–366, II–11 fair market value I–43, I–60, I–363–4, II–4, II–58, II–64, II–72, II–78, II–86, II–90 fraudulent misrepresentation I–58 full reparation principle II–81 guarantees, amount outstanding under II–14 interest II–10, II–11, II–14, II–20, II–24, II–32, II–58, II–72, II–78, II–81, II–86, II–92, II–95, II–370 international standard, of I–49 investment expenditure II–71, II–86 lack of II–64 limitations I–68 loss of right to operate other businesses I–16 moral damages I–364–5, II–369–70 nationalization I–309 out-of-pocket expenses I–36, II–10 profits, loss of I–9, II–4, II–10, II–72, II–95, II–369 ‘prompt, adequate and effective’ I–73, I–87 quantum I–16, II–58, II–64, II–71, II–78, II–81, II–366 tax windfalls II–32

Index compensation see also damages (cont.): third party claims I–7 treaty breaches II–369–370 unjust enrichment II–40, II–61 concessions II–10, II–13, II–16, II–22, II–25, II–26, II–27, II–33, II–44, II–47, II–54, II–57, II–60, II–62, II–63, II–72, II–78, II–86, II–93 concrete industry factory construction I–14 confidentiality of proceedings I–13, I–54 consent Additional Request I–26 assignment of contractual rights II–33 BITs demonstration of consent I–33, I–41 express terms I–81 signatory to II–64 conditions precedent I–62, I–85 contractual disputes II–60 exhaustion of local remedies I–1 express exclusion from arbitration I–48, II–63 indirect investments II–53 indirect measures II–40 inference I–70 interpretation I–11, I-24 invited participants II–27 jurisdiciton to I–1, I–19, I–27, I–42, II–2, II–9, II–16, II–23, II–330 limitation of I–4, I–27 NAFTA fulfillment of requirements I–62 national legislation effect of I–27 express consent in writing as I–27 retroactivity and I–41 requirements I–324–6 stipulation to the contrary I–48 timing I–317–21 waiver of other remedies I–19 withdrawal of I–4 writing, absence of I–51 consolidation agreement II–32 consolidation of proceedings II–60, II–95 consortiums investor, status as II–20, II–33, II–57, II–63, II–89, II–94 construction industry see also hotels; tourism canal widening II–56 commercial buildings I–93, II–9 dam construction II–31, II–33, II–49, II–57 fertilizer factory construction I–12, I–18 highways construction I–79, I–81, I–82, I–85, II–1, II–10, II–15, II–46, II–48 housing development II–11, II–24, II–73 pasta factory construction II–88 parking facilities II–89

pipeline construction II–75, II–83 public housing I–26 contingent liabilities investments, as II–29 contract claims adjustment of contract terms I–77 assignment of rights II–33 breach of contract I–9, I–24, I–26, II–15, II–17, II–36, II–61 consent to arbitration I–81, II–40 contract terms tribunal to give meaning to I–61 entry into force of contract II–16 existence of binding contract II–25 forum selection clauses II–13, II–17, II–18, II–38 mutability of administrative contracts doctrine I–36 preclusive effect of DR clauses II–8, II–10 specific performance I–57 treaty claims contrasted I–343–4, II–8, II–13, II–27, II–46, II–75, II–86, II–331–333 umbrella clauses I–342, II–8, II–18, II–37, II–43, II–52, II–58, II–60, II–65, II–360 validity II–64, II–83 contracting parties Article 25(2)(a) (natural persons) dual nationality I–83, I–340, II–12, II–68, II–74, II–343 international partnership not conferring nationality I–88 Article 25(2)(b) (juridical persons) agents I–51 consent to jurisdiction I–42, II–2, II–9, II–16, II–330 continuous ownership II–52 contracting parties, meaning of II–21, II–344 joint ventures II–36 mailbox companies II–35, II–345 minority shareholders II–39 nationality II–3, II–11, II–40 origin of capital II–21, II–64, II–74, II–75 ownership and control II–24 proof of control II–40 shareholders II–23, II–44 state of incorporation rule II–21 subsidiary of State holding company II–67 generally II–342 proper party to dispute I–42 control corporate nationality I–39, II–21, II–24, II–38, II–39, II–44 denial of benefits II–35 impermissible managerial control II–85 indirect control through voting rights II–11 investment under BIT II–13

376

Index cooling-off periods see pre-arbitration negotiation periods corporate nationality Article 25 jurisdiction II–344–5 change of II–5 companies owned by governments I–51 control by foreign nationals I–52, II–3, II–11, II–21, II–24, II–35, II–38, II–39, II–40, II–44, II–337–8 denial of benefits II–35, II–338 migration II–44 piercing the corporate veil II–21, II–54 res judicata II–47 state of incorporation rule II–21 substantial business activity II–21, II–35 corruption II–66 allegation of corruption ancillary claim, as I–80 costs additional costs I–9, I–333 allocation I–5, I–16 annulment I-30, I–32, I–87, II–42, II–48, II–69, II–70, II–73, II–77, II–88, II–90 bad faith conduct I–20, I–78 between parties I–46, I–58, I–67, I–70, I–80, I–83, I–90, II–33, II–43, II–87 changes after closure of proceedings I–23 damages claims I–21, II–81 date of payment I–43 excessive delay II–70 expert as a ‘promotional expense’ I–26 failure to act reasonably and prudently I–76 following success II–64, II–68 generally II–14, II–19, II–58, II–61, II–66, II–72, II–78, II–80, II–84, II–85, II–89, II–91, II–95 inappropriate requests I–97 jurisdictional/merits distinction II–86 lack of jurisdiction II–5 lack of merit II–42 legal fees, reimbursement I–24 merits phase limited to I–73 partial success II–10 reasonable fees II–11 rectification of award I–23, I–63, I–97, II–55, II–92 reimbursement I–55 reservation of II–47, II–67 security, for I–55 shared I–9, I–87, I–95, II–69, II–71, II–73, II–88 technicality, loss on II–59 unnecessary complication of proceedings II–9 unsuccessful claimants I–56 counterclaims II–8, II–20 countermeasures II–95

377

customary international law applicable law relationship, with I–7, I–22, I–60 arbitrariness I–32 conflict with domestic prescription laws I–73 effective nationality II–5, II–12, II–64, II–74 expropriation compensation for I–310, II–64 meaning II–59 necessity, state of II–37, II–65, II–78, II–91 protection and security I–93, I–311, II–43, II–86 recourse to I–18 role to fill lacunae of domestic law I–22, I–328 State responsibility I–74, I–345–6 damages see also compensation; moral damages assessment, of actual investments method I–73 actual market value I–43, I–90 direct investment value I–65 discounted cash flow method I–32, I–36, II–4, II–11, II–368–9 market capitalization calculation I–65 net book valuation I–32 contributory factors II–24 correction of award I–98 customary international law I–90, II–64 damnum emergens I–32 date of assessment II–64 error calculating depreciation I–34 failure to mitigate losses I–32, I–366, II–11 failure to state reasons I–30 fair market value I–65, II–4 full reparation principle II–81 investment expenditures II–2 limitations I–68 lost future profits I–20, I–24, I–90, II–10, II–72 lucram cessans I–32 out-of-pocket expenses I–36, II–10 procedural irregularities I–90 denial of justice as I–32 quantum assessment of I–7, I-24, II–81 legal dispute as II–33 rate of interest I–36 unjust procedure as cause of loss I–32 unlawful expropriation II–64 decolonization international investments disputes and I–310 denial of benefits admissibility II–9 corporate nationality, and II–9, II–338 Energy Charter Treaty II–35 retrospective application II–35 denial of justice immunity from suit I-32, I–36, I–56, I–69, I–78, I–95, I–356–7 unfair treatment II–86

Index discounted cash flow compensation I–32, I–36, II–4, II–11, II–64, II–72, II–78, II–86, II–368–9 discrimination see also like circumstances, North American Free Trade Agreement arbitrary and discriminatory measures fair and equitable treatment standard I–78, I–95, II–15, II–71, II–72, II–357 impairment of investments II–37 insolvency II–43 most-favoured-nation clauses II–1, II–4 no targeting of foreign nationals II–65 proof, lack of II–78 refusal to consent to arbitration II–31 unlawful acts II–58 different treatment of foreign and local investors II–59 national treatment obligation I–83, II–95 refusal to consent to arbitration II–31 superior treatment of replacement operator II–64 unreasonable or discriminatory measures breach of obligations I–20, II–64 dissenting opinion see also separate opinion actions before entry into force of BIT II–87 annulment II–88 applicable law I–33, I–36 choice of forum II–16 consent conditions precedent I–62 limitation of II–44 control by foreign nationals II–44, II–85 fair and equitable treatment I–95, II–82 ICC jurisdiction clause effect of I–12 individual nationality II–74 origin of capital II–21 relevance of I–91 Draft Articles on State Responsibility (International Law Commission) see also attribution actions in exercise of government authority II–43 actions before entry into force of BIT II–4, II–36, II–84 compensation II–24, II–92, II–367 emergency, state of II–90 moral damages I–364–5, II–369–70 necessity II–37, II–78, II–95 post award interest II–92 reparation II–24, II–81, II–92, II–366 restitution II–367 satisfaction II–377 State responsibility I–345 drafting history ICSID Convention II–75 dual nationality Article 25(2)(a) ICSID I–83, I–340, II–12, II–68, II–74, II–343

shareholders II–12 economic value investment criteria for II–33, II–46, II–67, II–69 electricity industry construction of power plant I–57, I–61, I–76, I–77, I–80, I–88, II–25, II–7, II–36, II–71, II–84 privatization II–40 emergency, state of contractual and treaty obligations II–37 expropriation II–78 reparation II–90 Energy Charter Treaty (ECT) arbitration provisions II–329 denial of advantages II–35 development of legal framework II–327 dispute settlement clauses II–83, II–331 misrepresentation II–35 energy industry hydrocarbon resources development II–20, II–60 pipeline construction II–75, II–83 privatization II–2b, II–52 enforcement corruption contracts secured by II–66 stay of I–35 equity intra-corporate arrangements II–25 estoppel course of dealing between parties I–61 participation in national proceedings II–8 proof I–43, I–76 subsidiary company, prior action by II–60 evidence admissibility new evidence in resubmission proceedings I–37 burden of proof I–50 nature and quantum of expenditure II–9 excess of powers see manifest excess of powers ex aequo et bono decisions I–9, I–21, II–73 ex parte proceedings I–4, I–5, I–20 exhaustion of local remedies admissibility II–75 BIT, inclusion of requirement in II–9 expropriation II–349–51 foreign investor protection and I–311 lack of final judgment II–5 previously agreed dispute settlement procedures I–48, II–25 rectification II–30 waiver of claims under NAFTA I–74, I–95 export restrictions II–95

378

Index expropriation act of illegal self-help I–16 action equivalent to II–4 advance notice II–64 annulment of contractual agreement I–56 arbitrary taking of property II–11 bad faith II–86 breach of contract I–7, I–9, I–11, II–22, II–58, II–86 breach of licence II–91 burden of proof II–82 compensation for bilateral investment treaties II–326 Charter of Economic Rights and Duties of States II–326 date of I–60 failure to provide II–4 generally II–367–8 Hull formula II–325 contract rights I–352–3, II–72, II–353 control, no loss of II–65 creeping expropriation I–351, II–9, II–72 deprivation of economic enjoyment II–37, II–86 direct and indirect expropriation I–50 due process II–64 effect of II–45 exhaustion of local remedies II–5, II–75, II–353–4 failure to mitigate losses II–11 foreign investment as prerequisite of claim I–50 generally I–346–54, II–6, II–348–9 impact standard of regulatory impediments II–63 indirect expropriation I–65, I–83, I–347–8, I–353, II–15, II–37, II–63, II–71, II–78, II–82, II–89, II–91, II–352–51 insolvency II–43 international standard of compensation I–49 judicial acts II–75 lack of information on loss II–63 legitimate regulation/regulatory expropriation II–351–3 liability for lost rights II–45 military activities II–19 NAFTA, meaning under II–59 nationalization I–20, I–309 necessity II–37, II–65 non-payment of invoices II–22 permanency II–45 progressive expropriation I–50 public interest II–64, II–84 public purpose I–20, I–36, I–351–2 requirements, for I–16, I–73, II–59 seizure and auction by national courts I–90

379

stabilization clauses I–7, II–37, II–72, II–89 taxation authorities actions of I–95 wilful disregard for due process II–11 fair and equitable treatment approval of investment II–24 bad faith II–15, II–358 burden of proof II–15, II–82 conduct of officials II–58 denial of justice II–86 even-handed and just manner II–72 generally I–354–8, II–354–355 incorporation by reference II–32 inappropriateness II–81 insolvency II–43 international minimum standards I–78, I–93 legitimate expectations I–36, II–1, II–4, II–17, II–23, II–24, II–46, II–58, II–64, II–65, II–71, II–73, II–78, II–83, II–84, II–89, II–91, II–95, II–357–8 like circumstances II–68 manifest injustice II–5 MFN clause, confusion with II–73 minimum standard of treatment I–354–8, II–6, II–65, II–68, II–86, II–91, II–355–8 negligence II–71 non-payment of invoices II–22 non-settlement of claims II–84 objectivity II–37 premature intervention II–65 scope of protection I–73, II–15 standard of proof II–31 transparency I–65, I–68, II–65 violation of obligations I–74, II–4, II–64 whether obligation proactive II–73 fair market value compensation for loss I–43, I–60, I–363–4, II–4, II–8, II–64, II–72, II–78, II–86, II–90 farming development of farm land I–41, I–50 fertilizer industry fertilizer factory construction I–12, I–18 fishing fishing vessels operation I–21 joint venture II–94 quota II–87 shrimp fishing I–33 food processing corn products I–64, I–83 fructose corn syrup, excise duty II–95 force majeure II–10, II–33, II–57, II–91 foreign exchange controls losses I–70 fork-in-the-road clauses failure to trigger I–64, I–78, I–92, II–7, II–13, II–84

Index fork-in-the-road clauses (cont.): lack of II–8 nature, of I–90, I–341–3, II–347 objections, to II–347–8 pending proceedings II–12, II–13, II–17 forum selection clauses absence, of I–9, I–20, I–33 annulment II–346 breach of contract II–31, II–40 contract claims/treaty claims, differentiation I–328–9, I–343–4, II–16, II–17, II–27, II–28, II–38, II–346 domestic courts II–347 exclusive jurisdiction II–18 ICSID jurisdiction, and I–69, I–328–9, II–13, II–22, II–31, II–36, II–40, II–44, II–54, II–62, II–72, II–347 inapplicable II–13 framework agreements applicable law II–32 fraud abuse of corporate form II–44 acting in defeat of Treaty’s objects II–84 application of law by Tribunal II–77 fair and equitable treatment II–15 fraudulent investments II–61 fraudulent misrepresentation I–58 revocation of permits II–84 scope of BIT protection II–61 tax fraud claim I–28 gas industry privatization II–7, II–17, II–23, II–27, II–37, II–38, II–39, II–41, II–65, II–78, II–81, II–90, II–91, II–92 good faith see also bad faith amicable settlement evidence of I–41 domestic law imposition of duty I–30 newspaper publication, contrary to I–13 obligation to act in BIT obligation II–84 negotiations I–76 government procurement bribes II–66 Chapter 11 NAFTA II–1 suspension of contract II–72 Helms Amendment US prohibition of foreign aid I–60 hotels construction and operation I–1, I–2, I–3, I–11, I–13, I–16, I–22, I–28, I–32, I–34, I–35, I–37, II–67 develop and lease I–52, I–73, I–87, II–45

Hull formula compensation for expropriation I–309, II–325 ICSID Additional Facility I–45, I–62, I–65, I–67, I–72, I–74, I–79, I–84, I–98, II–1, II–4, II–5, II–6, II–22, II–30, II–59, II–70, II–80 ICSID Administrative and Financial Regulations communication of Request for Arbitration II–11 lodging fee I–334 ICSID Convention Article 25 I–27, I–41, I–48 requirements I–315–26 Article 25(1) arising directly from investments I–4, I–5, I–15, I–20, I–51, I-321–4, I–338–40, II–2, II–7, II–17, II–21, II–25, II–28, II–33, II–41, II–56, II–60, II–64, II–74, II–75, II–340–1 capital conduits II–64 consent to jurisdiction I–6, I–28, I–39, I–42, I–43, I–44, I–52, II–2, II–9, II–16, II–330 contract claims II–61 contracting parties, meaning of II–342 fraudulent investments II–61 general economic policy II–60 investment, meaning of II–16, II–33, II–56, II–64, II–76, II–341–2 investor, qualification as II–5, II–13, II–20, II–22, II–33, II–60, II–336–8 legal dispute I–7, II–33, II–38, II–45, II–50, II–52, II–54, II–60, II–62, II–75, II–339–40 national laws, impact of II–64 nature and scope of claimant’s rights II–56 origin of capital II–21, II–64, II–74, II–75 project plan management fees II–64 proper party to the dispute I–42 Article 25(2)(a) (natural persons) dual nationality I–83, I–340, II–12, II–68, II–74, II–343 Article 25(2)(b) (juridical persons) consent to jurisdiction I–20, I–39, I–43, I–49, II–2, II–9, II–16, II–330 continuous ownership II–52 contracting parties, meaning of II–21, II–344 control by foreign national I–2, I–11, I–12, I–20, I–85, I–318–21, II–38 divergent nationality agreed, to I–14 international partnership not conferring nationality I–88 joint ventures II–6 mailbox companies II–35, II–345 minority shareholders II–39 nationality I–2, II–3, II–11, II–40 origin of capital II–21, II–64, II–74, II–75 ownership and control II–24 proof of control II–40 separate juridical personality I–15

380

Index shareholders II–23, II–44 state of incorporation rule II–21 subsidiary of State holding company II–67 Article 25(4) (notification of classes of disputes) unilateral notification I–4, I–5 Article 26 (consent to arbitration) I–1, I–12, I–13, I–19, I–22, I–26, I–27, I–29, I–47, I–48 Article 41(1) (tribunal, competence of ) I–10 Article 42 (applicable law) I–12, I–16, I–27, I–311, II–11, II–38, II–39, II–40 choice of law clause absent I–9, I–20 Article 42(1) I–9, I–22, I–27, I–28, I–32, I–327–8 Article 42(3) I–9 Article 46 incidental or supplemental claims I–12 Article 47(provisional measures) I–13, I–21, I–47, I–55, I–57, II–58, II–75 Article 48(3) (failure to deal with questions) I–18, I–22, I–47 Article 49(2) (deal with omissions and rectification of errors) I–18, I–22, I–23, II–30, II–55, II–92, II–96 Article 51(1) (revision of award) I–22 Article 52 (annulment) exceeding powers I–18, I–22, I–87, II–42, II–48, II–69, II–70, II–73, II–77, II–88, II–90 finding of ground, of I–18 new claims I-28 procedural irregularity II–42, II–48, II–73, II–77, II–88 reasons, lack of II–42, II–48, II–73, II–77, II–88, II–90 Article 52(4) I–86 Article 52(5) I–35, I–37 Article 54(1) (recognition of awards) I–35, I–37 Article 61(2) (costs) assessment, of I–6, I–20 dispute settlement clauses II–331 drafting history II–75 framework for investor-State arbitrations I–313 parallel proceedings II–33 scope of protection II–3, II–41 standard of proof II–50 illegality jurisdiction, and II–1, II–16, II–24, II–43, II–57, II–61, II–64, II–81, II–83, II–85, II–86, II–89, II–334–6 imports consumer goods and foodstuffs I–43 pre-shipment inspection II–8, II–18 imprévision II–37, II–91 improvements compensation for II–4 incorporation by reference arbitration agreements II–35

381

fair and equitable treatment II–32 information technology industry information systems concessions II–16 injunctions anti-suit injunctions I–1 domestic proceedings request for summary measures I–1, I–3 suspension of I–29 tribunal’s power to grant II–17 insolvency fair and equitable treatment II–43 inspection services provison of I–94, I–96 insurance industry damage to investments II–50 funeral insurance I–54, I–74, II–5, II–30 personal lines insurance II–6, II–59 interest compensation on I–33, I–46, I–60, I–73, I–87, I–367, II–10, II–11, II–14, II–20, II–72, II–78, II–81, II–86, II–370 compound interest II–370 interest rate I–21, I–36 international law principles I–87 LIBOR I–68, II–24 pre/post award interest II–32, II–58, II–92 rectification II–92 simple interest I–60, II–95 International Centre for the Settlement of Investment Disputes (ICSID) development of dispute resolution framework II–329–30 reasons for establishment I–313 International Law Commission Draft Articles on State Responsibility acts of State organs I–16 compensation II–367 moral damages I–364–5, II–369–70 reparation, forms of II–366 restitution II–367 satisfaction II–377 interpretation application for II–45 general principles I–66 investment see also jurisdiction ratione materiae approval of II–24 arising directly from I–15, I–51, I–81, I–82, I–85, I–88, I–321–4, I–338–40, II–7, II–17, II–21, II–25, II–28, II–38, II–41, II–52, II–67, II–82, II–89, II–340–1 contingent rights II–29 contract rights II–8, II–13, II–15, II–16, II–89 criteria for determining II–33, II–46, II–67, II–69, II–75, II–76 debt instruments I–44 definition I–4, I–26, I–44 devaluation II–53

Index investment see also jurisdiction ratione materiae (cont.): duration of II–75 economic development, contribution to II–76 economic policy measures II–52 foreign investments I–44, I–50 host State territory II–8 indirect ownership II–53, II–83, II–85 loans I–2, I–51 meaning bilateral investment treaties, and I–64, II–9, II–11, II–13, II–16, II–19, II–29, II–41, II–46, II–69, II–75, II–84, II–334, II–335 ICSID Convention, Article 25 I–4, I–5, II–16, II–33, II–56, II–64, II–76, II–341–2 national legislation interpretation of I–36 national recognition II–46, II–75, II–82, II–85 origin of capital II–21, II–64, II–74, II–75 ownership of II–13 pre-investment expenditure II–2 service, concept of II–69 taxation measures II–17 territoriality I–70, II–18 unity of I–2, I–328, I–348–50 valuation ‘going concern’, as I–9, I–16 investors see also jurisdiction ratione personae assignment of contractual rights II–33 companies I–93, II–3, II–5, II–11, II–21, II–24, II–35, II–38, II–39, II–40, II–44, II–47, II–337–8 consortiums II–20, II–33, II–57, II–63, II–89, II–94 denial of benefits clauses II–9, II–35, II–338 dual nationality I–83, I–340, II–12, II–343 effective nationality II–5, II–12, II–64, II–74 foreign investors customary international law and I–93 interpretation I–41, I–59 jurisdictional requirement of I–50 indirect investors II–13 individuals II–12, II–26, II–77, II–83, II–336 joint ventures II–36 nationality permanent residence conferring I–72 qualification as I–41, I–51 shareholders continuous ownership II–52 former shareholders II–52 generally II–60 minority shareholders I–48, II–7, II–17, II–23, II–27, II–38, II–39, II–52, II–333–4 shell companies II–5, II–44, II–337 strategic investors I–66

subsidiary companies II–22, II–336 joint ventures capacity to act I–41, II–36 nullity of agreement I–58 transfer of rights I–58 juridical persons Article 25 jurisdiction I–11, I–39, I–42, I–51, II–9, II–344 jurisdiction see also consent, ICSID Convention, nationality additional objections II–82 competence, distinguished I–74 denial of justice I–56 effectiveness and finality of I–71 fork-in-the-road clauses II–7, II–8, II–12, II–13, II–17, II–347–8 forum selection I–9, I–33, I–69, I–328–9, II–13, II–16, II–17, II–18, II–22, II–27, II–28, II–31, II–36, II–38, II–40, II–44, II–54, II–62, II–72, II–346–7 general unity of investment operation I–4 ICC jurisdiction clause effect of I–12 introduction II–330 investment treaties and I–311 judicial finality rule I–74 jurisdictional requirements I–28 local remedies rule I–74 nationality investor of I–14 requirements I–15, I–43 objections, withdrawal of 16 objective requirements I–4 pre-investment expenditure II–2 prima facie I–11, I–52 proprio motu I–4, I–5 ratione materiae see also investment contract claims/treaty claims, differentiation I–343–4, II–8, II–16, II–17, II–27, II–28, II–46, II–56, II–72, II–331–3 fraud claims I-28 generally II–330 minority shareholders, claims by II–7, II–17, II–23, II–27, II–38, II–39, II–52, II–333–4 qualifying investments I–44, II–9, II–11, II–13, II–16, II–19, II–29, II–41, II–46, II–54, II–56, II–62, II–64, II–69, II–334–6 tax fraud claim I–28 ratione personae assignment of contractual rights I–88, II–33 companies I-28, I–52, I–59, II–3, II–5, II–11, II–21, II–24, II–35, II–38, II–39, II–40, II–44, II–47, II–337–8

382

Index consortiums II–20, II–33, II–57, II–63, II–89, II–94 ‘contracting State’, meaning of I–81 denial of benefits clauses II–9, II–35, II–338 dissolved company I–28 dual nationality I–83, I–340, II–12, II–74, II–343 effective nationality II–5, II–12, II–64, II–74 indirect investors II–13 individuals II–12, II–26, II–74, II–77, II–83, II–336 joint ventures II–36 offshore companies I–42 shareholders I–43, II–7, II–17, II–23, II–27, II–38, II–39, II–52, II–60, II–333–4 shell companies II–5, II–44, II–337 subsidiary companies II–22, II–336 ratione temporis conduct, complaints regarding II–42 contract claim/treaty claim distinction II–56 duration of investment II–75 entry into force of NAFTA I–72, I–93 entry into force of Treaty I–59, II–4, II–8, II–9, II–18, II–31, II–34, II–36, II–37, II–43, II–52, II–56, II–58, II–60, II–65, II–67, II–83, II–84, II–87, II–88, II–338–9 pre-arbitration negotiation periods II–8, II–9, II–21, II–23, II–33, II–46, II–82, II–345–6 retroactivity I–41, II–35, II–36, II–84 relevant date II–5 single/double exclusion clauses II–88 resubmission proceedings I–32 scope of arbitration agreement I–14, I–71 territoriality II–18, II–80 time of claim I–49 legal dispute compensation previously consented to I–7 divergence II–67 existence of I–4, I–5, I–7, I–9, I–43, I–44, I–51, I–69, I–85, II–33, II–38, II–52, II–54, II–60, II–62, II–75 expropriation, effect of II–45 indirect measures II–50 nature, of I–4, I–5, I–44, I–317 legal framework, development of dispute settlement I–307–14, II–327–30 introduction I–307, II–323 state-to-state disputes I–308–11, II–324–7 legal profession cessation of business II–19, II–69 legality jurisdiction, and II–1, II–16, II–24, II–43, II–57, II–61, II–64, II–81, II–83, II–85, II–86, II–89, II–334–6

383

legitimate expectations fair and equitable treatment II–1, II–4, II–17, II–23, II–24, II–46, II–58, II–64, II–65, II–71, II–73, II–78, II–83, II–84, II–89, II–91, II–95, II–357–8 licence breach of II–91 revocation of I–16 like circumstances II–1, II–37, II–68, II–95 see also discrimination, North American Free Trade Agreement lis pendens right to ICSID arbitration I–329–30, II–8 triple identity test I–9, I–329 loans guarantee payments I–47, II–14, II–32, II–42 London Interbank Offer Rate (LIBOR) interest awards, and I–68, II–370 lost profits II–4, II–10, II–72, II–95, II–369 mailbox companies Article 25 jurisdiction II–35, II–345 manifest excess of powers applicable law failure to apply I–22, I-30 annulment I–22, I–37, I–87, II–42, II–48, II–69, II–70, II–73, II–77, II–88, II–90 excess of power requirement that ‘self-evident’ I–87, I–335 market value compensation expropriation II–368 other treaty breaches II–369 migration control system for control and personal identification II–28, II–72 mining bauxite mining I–4, I–5 diamond mining II–93 gold mining I–58 gold and silver mining II–3 mining concessions I–66 phosphate resources II–29 salt mining I–38, I–39 minority shareholders jurisdiction of claims by II–7, II–17, II–23, II–27, II–38, II–52, II–333–4 miscarriage of justice fair and equitable treatment II–15 moral damages awards I–9, I–21, I–364–5, II–369–70 most-favoured-nation (MFN) clauses access to arbitration, and II–364–5 ‘all or nothing’ interpretation II–28 breach of clause II–1 discrimination II–1, II–4

Index most-favoured-nation (MFN) clauses (cont.): fair and equitable treatment, confusion with II–73 national courts requirement for submission to I–59, II–41, II–54, II–62 permits II–24 pre-arbitration litigation requirement I–59, II–40, II–54, II–62, II–72 procedural bridge to other provisions I–358–60, II–54, II–62, II–63 retrospective application II–84 scope of consent to arbitration II–35 selective inclusion II–28, II–54, II–62, II–63 treaty shopping II–31, II–35 umbrella clause, incorporation of II–36 multilateral investment treaties arbitration provisions II–329 introduction of II–326 nationality see also jurisdiction agreement on I–2 assignment I–88 corporate I–11, I–17, I–66, I–85, I–317–21, II–5, II–11, II–21, II–24, II–35, II–38, II–39, II–40, II–44, II–47, II–337–8 foreign corporations I–39 diplomatic protection I–66 dual nationality I–83, I–340, II–12, II–74, II–343 effective II–5, II–12, II–64, II–74 individual I–72, II–12, II–26, II–74, II–77, II–83, II–336 international partnership I–88 investors I–14 joint ventures II–36 requirements I–43, I–317–21 residence I–72 nationalization compensation for expropriation infringement of sovereignty as I–309, II–325 necessity, state of exemption from liability II–65, II–91 expropriation II–37, II–65, II–78 refusal of defence II–90 negotiations Additional Request II–23 consent to arbitration and II–87 negotiating history control II–44 enforceability II–32 interpretation of agreement II–32 parties’ agreement to negotiate compulsion violating agreement I–38 post-registration claims II–7 pre-arbitration periods I–341, II–8, II–9, II–21, II–23, II–33, II–46, II–82

ripeness of claims II–38, II–40, II–50 settlement II–93 non-parties I–11 North American Free Trade Agreement (NAFTA) see also discrimination, like circumstances additional claims I–72 arbitration provisions II–329 Chapter 11 II–5, II–6 breach of contract II–22 countermeasures II–95 expropriation and compensation I–56 government procurement II–1 locus standi I–72 measures I–74 subsidiary companies II–22 waiver I–62, I–91 development of legal framework and II–326–7 disclosure I–98 domestic content requirements II–1 exhaustion of local remedies I–74 expropriation, meaning of II–59 fair and equitable treatment I–357–8, II–1, II–355–7 financial services sector II–6 immunity from suit I–93 indirect expropriation II–95 jurisdiction I–56 like circumstances II–95 measures judicial acts in litigation I–74 most-favoured-nation clause II–1 national-treatment obligation I–68, II–1, II–95 notice of intention to submit claim I–91, II–1 performance requirements II–1, II–95 protection and security II–1 prudential measures exception II–59 seat of arbitration I–79, I–84 state-to-state dispute settlement II–6 territoriality II–80 time bar I–72, I–93, I–95 objections to jurisdiction withdrawal II–14 observance of obligations II–8 oil industry oil refinery purchase II–35 petroleum distribution I–7 production-sharing agreement II–b70 synthetic gasoline manufacture I–29 Oil platforms test (admissibility) I–11, II–46, II–56 contract claims/treaty claims, differentiation II–8, II–332–3 failure to follow II–88

384

Index oral agreements burden of proof II–49 out-of-pocket expenses compensation for I–36, II–10 pacta sunt servanda breach of principle I–16 parallel proceedings fork-in-the-road clause II–12, II–17 stay of national arbitration II–8, II–36, II–46 Washington Convention II–33 performance requirements II–1, II–95 permits breach of contract II–24 most-favoured-nation clause II–24 revocation II–84 piercing the corporate veil corporate nationality II–21, II–64 plastics industry plastic bottle manufacturing I–9 pre-arbitration negotiation periods I–341, II–8, II–9 Additional Request II–23 admissibility II–33 failure to comply II–46, II–82 NAFTA I–79 preconditions to arbitrate failure to comply with II–47 national courts, submission to II–54, II–62 pre-arbitration litigation requirement II–40 preliminary measures binding force of I–55 jurisdiction for I–21, I–57 privatization banking industry I–51, I–71 electricity industry II–40 energy industry II–2, II–52 gas industry II–7, II–17, II–27, II–37, II–38, II–39, II–41, II–65, II–78, II–81, II–90, II–91, II–92 steel industry II–43, II–55 water industry II–13, II–58 procedure ad hoc committee disqualification of President I–86 conduct of officials II–58 confidentiality of proceedings general duty, of I–54 newspaper article, compatibility with I–13 consolidation II–60, II–95 documents, production of I–80 institution of proceedings I–326–7 proper authority for I–40 irregularity annulment I–69, I–87, II–42, II–48, II–73, II–77, II–88

385

parallel proceedings II–8, II–12, II–17, II–33, II–36 place of arbitration I–79, I–83 pleadings amendment, of II–70 breach of BIT II–31 public disclosure I–54 suspension, of II–8 profits repatriation, of II–4, II–10, II–72, II–95, II–369 protection and security burden of proof II–82 customary international law II–43 failure to provide I–43 intangible assets II–72 legal security II–71, II–72, II–78 most-favoured-nation treatment clause II–1 scope of obligations I–73, I–87, I–354, II–4, II–64, II–68, II–86, II–89, II–359–60 provisional measures conservatory measures I–57 emergency measures I–47 measures necessary to preserve rights I–47 precedent for I–55 recommendations I–55, I–331–2 restraint from extension of dispute I–13 scope I–330–1 stay of proceedings in local courts I–94 violation of prior decision I–38, I–39 public interest expropriation II–64, II–86 public policy corruption, contracts secured by II–66 fraudulent investments II–61 publishing industry violation of BIT II–21, II–82 qualifying claimants see investors ratione materiae see jurisdiction ratione personae see jurisdiction ratione temporis see jurisdiction reasons, lack of annulment I–18, I–30, II–42, II–48, II–73, II–77, II–88, II–90 rectification costs I–23 errors I–34, I–89 ‘material’ error I–75 relationship between applicable and international law I–63 respondent’s lawyers II–96 exhaustion of local remedies II–30 omissions from awards claimant’s lawyers II–55 post-award interest II–92

Index rectification (cont.): procedure clarification, of I–97 scope of application of request I–334–5 reliance conditions promulgated during privatization II–78 foreign investor’s expectations II–73 remedies see compensation, damages, rectification, reparation, restitution reparation compensation Draft Articles on State Responsibility I–362–3, II–377 expropriation for II–367–8 full reparation principle II–81 moral damages I–364–5, II–369–70 profits, loss of II–369 treaty breaches II–369–70 customary international law II–64 Draft Articles on State Responsibility compensation II–24, II–92, II–367 generally I–362–3, II–81, II–366 moral damages I–364–5, II–369–70 restitution II–367 satisfaction II–377 res judicata ad hoc committees reasoning of I–28 annulment proceedings I–37 corporate nationality II–47 lack of identity of parties or claim II–61 national/international distinction I–329–30, II–88 ownership of claimant company II–35 prior arbitral proceedings I–27, I–28 resubmission claims I–91 triple identity test I–329 reservation notification as I–4 resources, committing investment, criteria for II–33, II–46, II–67, II–69 restitution Draft Articles on State Responsibility I–361–2, II–367 unjust enrichment I–58 retail industry duty free shops II–66 retrospective application BIT II–36, II–56, II–84 denial of benefits clauses II–35 ripeness of claims matters subject to negotiations II–38, II–40, II–50 risk investment, criteria for II–33, II–46, II–67, II–69

state of necessity and II–37 Salini test I–323 satisfaction Draft Articles on State Responsibility II–367 separate opinion see also dissenting opinion post-judgment interest II–91 pre-investment expenditure II–2 service concept of II–69 settlement amicable settlement obligation to attempt before arbitration I–81 duress I–82 negotiation of II–93 notice of discontinuance I–4 partial settlement I–46 record of I–67 shareholders admissibility of claims II–17, II–47, II–333 concessions II–54 continuous ownership II–52 corporate nationality II–3, II–11, II–21, II–24, II–35, II–38, II–39, II–40, II–337–8 dual nationality II–12 former shareholders II–52 indirect claims by II–17, II–27, II–28, II–38, II–39, II–40, II–52, II–53, II–83, II–90 investors qualification as II–60 minority shareholders claims by II–7, II–17, II–23, II–27, II–38, II–39, II–52, II–333–4 shareholder agreements circumvention of national laws by II–85 shell companies II–5, II–44, II–337 shell companies standing II–5, II–44, II–337 shipping bauxite shipping I–24, I–30 marine salvage services II–76 port concessions I–48, II–26, II–77 sovereignty establishment protection of antiquities by I–36 infringement compensation for expropriation by I–309 reparation II–81 stabilization clauses II–37, II–72, II–89 repudiation of nationalization by unilateral means I–6 standard of proof treaty breaches II–50

386

Index State Responsibility, ILC Draft Articles on see also attribution actions before entry into force of BIT II–4, II–36, II–84 actions in exercise of government authority II–43 compensation II–24, II–92, II–367 emergency, state of II–90 international law, and I–74, I–345–6 moral damages I–364–5, II–369–70 necessity II–37, II–78, II–95 post award interest II–92 reparation II–24, II–81, II–92, II–366 restitution II–367 satisfaction II–377 steel industry privatization II–43, II–55 subsidiary companies estoppel II–60 qualification as investor II–22, II–336 subsidies repayment of II–91 suspension of proceedings national arbitration II–8

limitations I–68 conduct, complaints regarding II–42 contract claim/treaty claim distinction II–56 duration of investment II–75 entry into force of Treaty I–2, II–4, II–8, II–9, II–18, II–31, II–34, II–36, II–37, II–43, II–52, II–56, II–58, II–60, II–65, II–67, II–83, II–84, II–87, II–88, II–338–9 NAFTA I–95 nationality of investor I–66 pre-arbitration negotiation periods II–8, II–9, II–21, II–23, II–33, II–46, II–82, II–345–6 relevant date II–5 retroactivity I–16, II–35, II–36, II–84 single/double exclusion clauses II–88 tourism see also hotels real estate purchase I–60, I–63, II–74 tourist complex development I–19, I–27, I–36 transparency II–4, II–65, II–68, II–82 travaux préparatoires fraudulent investments II–61 treaty shopping most-favoured-nation clauses, and II–31, II–35, II–365

taxation cigarettes I–95, I–98 customs and fiscal exemptions I–49 exclusion from jurisdiction II–52 limited jurisdiction II–60 NAFTA violations I–95, II–95 politically motivated investigations II–82 stabilization clauses I–4 tax assessments foreign investors for II–17 tax fraud claim I–28 tax windfall exclusion from compensation II–32 tobacco products I–72 telecommunications industry cable services I–42 public mobile radio telephone services II–63 territoriality defined by agreement I–70 no property owned in territory II–80 services performed outside territory II–18 textile industry cotton industry restructuring II–12, II–68 hemp I–6 timber exploitation of reserves I–15, I–20, I–23 timing see also jurisdiction ratione temporis compensation date of valuation I–60

ultra vires acts international law responsibilities I–36 umbrella clauses annulment II-90 attribution II–361 breach of licence II–91 concession agreements II–72 contractual claims I–342, II–8, II–18, II–37, II–43, II–52, II–58, II–60, II–65, II–360 disregard of obligations II–78 effect II–361–2 incorporation by reference II–36 interpretation II–31 no breach of contract II–71 no violation of treaty rights II–29 scope of application II–18, II–362–4 UNCITRAL arbitration clause breach of contract II–29 rules seat of arbitration I–79 unjust enrichment double recovery II–40 fraudulent investments II–61 fraudulent misrepresentation I–58 international principle of law as I–32 unreasonable or discriminatory measures see also arbitrary and discriminatory measures breach of obligations II–64

387

Index Vienna Convention on Law of Treaties II–44 waiting periods see pre-arbitration negotiation periods waiver legitimate expectation II–1 local remedies I–91, I–95 NAFTA derogation requirement I–62 investor and enterprise I–93 right to ICSID arbitration II–8, II–13, II–44, II–54, II–62, II–87 waste management industry landfill II–4

waste transport and processing I–45, I–56, I–56, I–62, I–65, I–84, I–91, II–22 water industry dam construction II–31, II–33, II–49, II–57 diversion of water II–80 concession contract II–44, II–54, II–62 privatization II–13, II–58 water and sewage systems operation I–69, I–86, I–92, I–97, II–47, II–86 withdrawal objections to jurisdiction II–14 World Trade Organization dispute settlement mechanism II–95

388