Source: http://isdsblog.com/tag/international-investment/
Timestamp: 2019-04-19 10:19:22+00:00

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This summary of the case Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v. Kazakhstan is based on both the award from December 19, 2013 and the subsequent court decision in Svea Court of Appeal on December 9, 2016. Both documents are available here.
The dispute is based on the Energy Charter Treaty (ECT) and was initiated by Moldovan businessman Anatole Stati, his son Gabriel Stati and two companies owned by them. Together, the men and their companies owned two Kazakh corporations that invested in two oil and gas field in Kazakhstan. According to the investors, they were subjected to significant harassment from the state, with the ultimate purpose of forcing them to sell their investments cheaply. The harassments supposedly reached from interference with the day-to-day business operations to more extreme measures, such as jailing persons with connections to the companies. According to the investors, the value of their investments were affected negatively by the harassment, which was the state’s intention: the state was hoping to take over the fields and was therefore trying to bring the price down.
The investors consistently refused to sell to the state. Instead, they ultimately found an external buyer for the fields – who was supposedly ready to offer substantially more than the state – but that transaction never took place, because the state took over the fields.
Therefore the investors initiated the ECT arbitration, arguing that the state had violated the treaty in several different ways.
Kazakhstan claimed that the fields were badly managed from the outside, and also violated domestic law. Therefore, the state was forced to step in and save the companies from financial collapse. The state also argued that the corporate chain behind the investment was unclear, which would mean that the tribunal did not have jurisdiction under the ECT.
The tribunal found that it did have jurisdiction, and also largely accepted the investors’ arguments. After having gathered extensive evidence, the tribunal found that the state had violated the treaty’s fair and equitable treatment standard. The majority of the tribunal determined that the investors’ losses amounted to some $500 million, which was significantly less than what the investors claimed (one of the arbitrators dissented on the valuation point and considered that the field were in fact worth more than what the tribunal majority found).
The tribunal’s legal seat was in Stockholm, which among other things means that Swedish courts have supervisory jurisdiction. Kazakhstan therefore turned to Svea Court of Appeal in Stockholm in order to attempt to have the award set aside (we have written before on how domestic courts exercise supervisory jurisdiction in ISDS). The state argued that the award was invalid in several ways, as summarized well by the court in the judgment, which is still only available in Swedish. The Svea Court of Appeal ultimately found that the award did not violate Swedish law and therefore decided to uphold it.
This entry was posted in Case summaries, ISDS and tagged Case, International investment, Summary on 4 April, 2017 by admin.
This case summary is based on the August 2016 award in the case between Rusoro and Venezuela.
Venezuelan president Hugo Chavez nationalized the Venezuelan gold sector through an official decree during the summer 2011. The decree meant that the state took over all assets and rights from foreign gold companies active in the country, and that private companies were prohibited from exporting gold out of Venezuela.
Rusoro, a Canadian company with extensive gold production investments in Venezuela, claimed that the decree violated the bilateral investment treaty between Canada and Venezuela.
During the arbitration, the state did not deny that an expropriation had taken place, but it claimed that it was done in a legal manner (the state did contest the tribunal’s jurisdiction and Rusoro’s damage claims).
The tribunal rejected some of Rusoro’s claims on procedural grounds but found that the state had unlawfully expropriated the investor’s assets. Although the tribunal did concede that Venezuela had a right to expropriate on political grounds, and that it had done so in accordance with its own laws and in a non-discriminatory manner, it said that the state should have compensated Rusoro. Since no compensation had been paid, Venezuela had violated the treaty.
A large part of the award deals with the quantification of Rusoro’s losses (i.e. how much the state should pay as compensation for the expropriation). After hearing both sides’ economic experts, the tribunal valued Rusoro’s losses to $1,2 billion plus interest.
This entry was posted in Case summaries and tagged Case, International investment, States on 6 February, 2017 by admin.
Our first text about standards of protection in investment treaties is about the frequently occurring provision giving investors “full protection and security” (FPS). Most investment treaties contain this language, or wording similar to it.
In older treaties, the language is usually relatively short. These clauses have historically been interpreted to provide physical protection against interference with foreign investments, particularly during conflicts and/or in regions where the police power might interfere with foreign property.
The very first ISDS case, AAPL v. Sri Lanka, is an example of this interpretation. AAPL won its case against Sri Lanka, after the state was found to have neglected its duty to take precautionary measures in connection with a security force operation against the rebel group Tigers of Tamil. The operation, and the ensuing battle, destroyed AAPL’s shrimp farm, which the tribunal found could have been avoided if the state had acted differently.
A number of other FPS clauses have been interpreted more broadly, and even been found to encompass legal protection and legal security. Such interpretations of FPS overlap to the aspects of fair and equitable treatment (FET) which protects investors against denial of justice.
How broadly a tribunal interprets full protection and security is largely dependent on the language of the individual clause. Many new treaties therefore clarify the scope of the provision, most commonly by making clear that it only applies to physical protection.
This entry was posted in CETA, International Arbitration, ISDS, Okategoriserade and tagged CETA, International investment, ISDS on 11 January, 2017 by admin.
It is clear that to fight climate change, we need to scale up green investment both in terms of amount and geographical reach. However, climate change law, in this case the United Nations Conference Framework on Climate Change and the recently-signed Paris Agreement, do not specifically include terms to promote and protect investment. This is a policy gap.
The SCC, together with the International Bar Association, the International Chamber of Commerce and the Permanent Court of Arbitration, took an initiative to discuss this gap by organising a conference, Bridging the Climate Change Policy Gap: The Role of International Law and Arbitration, in Stockholm on 21 November.
It is noted during the conference that around USD 100 billion in investment over the next fifteen years is needed to combat climate change – a target that is considered achievable. Another speaker emphasised that there is no shortage of capital to address climate change. The challenge is how to get investors to actually invest and how to match the capital with the green investments.
It appeared to be a consensus among the speakers that good policy is key to attracting sustainable investments. Policy needs to be long-term and stable. Short-term policies, often associated with government’s turnover, caused bad impacts, from high transaction costs to the fact that the industry had to fire and re-hire employees depending on how policy is.
A panel of lawyers discussed how litigation has been used to fight climate change, directly and indirectly. Among other things, renewable energy investors have resorted to international arbitration to bring a claim against government for unstable policies and revocation of incentives. Another case being discussed in depth was Urgenda Foundation v. the Netherlands where a Dutch district court ruled that the government has breached its duty of care to its citizens by not doing enough to address climate change.
It may be foreseen that these types of cases, both in domestic and international fora, will propel the right type of government actions.
A report from the conference with more details will be published soon.
This entry was posted in Environment, International Arbitration, Okategoriserade, SCC and tagged Agreement, Arbitrators, Environment, Facts, International investment, policy, SCC, Sustainable development on 28 November, 2016 by admin.
The investor’s legitimate expectations are often a key question in ISDS cases. Such expectations can be based on, for example, the host state’s laws, policies, or contractual commitments – such as when a host state granted the investor mining rights for a certain number of years. A violation of these expectations can be a ground for the investor to bring an ISDS claim against the host government. Several tribunals have ruled that a host country cannot act contrary to the investor’s legistimate expectations.
Karl P. Sauvant and GüneşÜnüvar have written an article published by Columbia Center for Sustainable Investment, introducing the question of whether or not states can also have legitimate expectations towards the foreign investor. According to the article, such expectations may arise from, for instance, the investor’s statements of its contribution to the host country.
As an example, the article points to Sempra v Argentina, where Argentina argued that it “had many expectations in respect of the investment that were not met or otherwise frustrated … (such as)… work diligently and in good faith…”. The article also notes, however, that since governments currently cannot initiate ISDS proceedings against foreign investors, their reliance on legitimate expectations is limited to counterclaims brought in response to investors’ claims. See our previous post about counterclaims here.
Finally, the article proposes that future international investment agreements (IIAs) could explicitly stipulate that host states’ legitimate expectations are protected, thereby establishing a right for host states to bring a claim on this basis.
This entry was posted in Debate, Environment, ISDS and tagged Agreement, Environment, International investment, Investment arbitration, Investors, ISDS, Sustainable development, Trade on 19 October, 2016 by admin.
A much-anticipated award is now released for public, Peter A. Allard v Barbados.
As we have written before, a Canadian investor, Peter Allard, brought a claim against Barbados in Permanent Court of Arbitration in 2010. The case concerned Mr Allard’s environmental sanctuary in coastal Barbados. He grounded his claim on the failure of the government of Barbados to enforce its own environmental law which, as a result, has polluted his sanctuary.
The investor claimed that the government’s failure amounted to violation of Canada – Barbados Bilateral Investment Treaty.
In an award rendered in June 2016, the tribunal rejected the investor’s claim on all grounds.
The tribunal disagreed with the investor that Barbados has failed to accord him full protection and security by failing to prevent pollution from coming to the sanctuary. As a departing point, the tribunal asserted that the obligation of the State to provide the investment with full protection and security standard is of ”due diligence” and ”reasonable care” – not of strict liability.
In this case, the tribunal found that Barbadian officials have taken reasonable steps to protect the sanctuary. Among others, the tribunal pointed out that the officials established a committee tasked with developing plans for preservation of the sanctuary.
The claim of expropriation was also dismissed. The tribunal concluded that there was no substantial deprivation of the investment since the investor remains the owner of the sanctuary and operates a cafe there. The tribunal further referred to the investor’s statement during the hearing that ”there is some kind of business remaining there”.
Meanwhile, Simon Lester, a trade policy analyst for Cato Institute, argues that the case sends an important signal for environmental protection. According to him, the legal standard in BIT may pave the way for future cases that environmentalists could help investors bring against governments who may do too little to protect the environment. An example mentioned is if the impact of climate change, for instance rising sea level, caused damage to an investor’s property.
This entry was posted in Environment, International Arbitration, ISDS and tagged Environment, International investment, Loss of profit, Sustainable development on 13 October, 2016 by admin.
National courts play important roles in safeguarding the rule-of-law outcome of ISDS proceedings. Under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a party to an ISDS proceeding may request a national court to set aside an arbitral award. This can be done however on limited grounds, among others, if one of the parties was unable to present its case and if the arbitral procedure was not in accordance with the agreement of the parties. In addition, arbitration laws of a country also may provide grounds for setting aside an award.
Let’s take a look when this actually happened in practice.
In CME Czech Republic v Czech Republic, the tribunal found that the country’s media authority had destroyed the investor’s exclusive position as services provider for a private Czech TV channel, which left the company with assets but without business. In this case, the tribunal sided with the investor that the actions constituted an expropriation under the Netherlands – the Czech Republic Bilateral Investment Treaty.
The Czech Republic further requested the Svea Court of Appeal in Sweden to set aside the award under the Swedish Arbitration Act, on the grounds that, among others, one of the arbitrators had been excluded from the deliberations and that the award violated Swedish public policy. The Court of Appeal rejected this claim and found that the tribunal had given the arbitrators reasonable time to submit comments. Further, the Court viewed that the Czech Republic had failed to show that the award violated public policy. The Court therefore rejected the request on all grounds.
Meanwhile, in Metalclad v. Mexico, the tribunal found a violation of Chapter 11 of the North American Free Trade Agreement since the investor was denied fair and equitable treatment by the government due to the absence of clear rules about a certain permit. According to the tribunal, this amounted to a failure by the government to ensure transparency for the investor.
Mexico submitted a request to the British Columbia Supreme Court in Canada to set aside the award, on the grounds that the tribunal had incorrectly considered that transparency requirement formed part of minimum standard of treatment and expropriation provisions of Chapter 11 of the NAFTA. The Court agreed with Mexico and ruled that the tribunal had decided a matter beyond its jurisdiction. The award was therefore partly set aside the award.
This entry was posted in International Arbitration, ISDS and tagged ICSID, International investment, Investors, Loss of profit on 2 September, 2016 by admin.
The United Nations Conference on Trade and Development (UNCTAD) has recently published a report on developments of ISDS in 2015. The report addresses ISDS cases initiated in 2015 as well as the statistics on overall ISDS cases from 1987 to 2015.
The report finds that there were 70 ISDS cases initiated in 2015, which brings an overall number of publicly known ISDS cases to 696. Most of the cases initiated in 2015 arose from old bilateral investment treaties dating back in the 1990s.
Investors from developed countries made the most frequent claimants in cases initiated in 2015, with the top three home states of investors being the United Kingdom, Germany and Luxembourg. This is also true when it comes to the home states of claimants in total since 1987, where investors from the United States, the Netherlands and the United Kingdom top the list.
On the state side, Spain was the most frequent respondent state in cases initiated in 2015, followed by Russia, Czech Republic and Ukraine. Overall since 1987, most frequent respondent states in ISDS cases are still developing countries, with Argentina and Venezuela top the list.
As for the matters being disputed, a number of cases initiated in 2015 concerned sustainable development sectors such as infrastructure and climate change mitigation. Approximately 30% of cases were triggered by the regulation of renewable energy producers, all of which were brought against EU member States (Bulgaria, Italy, and Spain).
ISDS tribunals rendered at least 51 decisions in 2015, 31 of which were in the public domain at the time of the writing of the report. This brings the number of concluded cases to 444 by the end of 2015, with 36% of the cases decided in favour of the State, 26% in favour of investors and 26% cases were settled.
This entry was posted in ISDS, Reports & Statistics and tagged International investment, ISDS, Reports & Statistics, Sustainable development, UNCTAD on 16 June, 2016 by admin.
Most ISDS disputes are based on agreement between states, usually bilateral investment treaties (BITs), which aim to provide protection under international law to foreign investors. Since only states are parties to the agreements, it is also only states that have obligations under these agreements. Obligations aimed to give rights to foreign investors. Therefore ISDS clauses are designed so that a proceeding can only be initiated by the foreign investor, not by the state. But there are exceptions.
A state that is being sued may respond by claiming that the investor also breached its obligation, through a counterclaim. This is possible under most investment agreements and arbitration rules as long as the state’s counterclaim is clearly connected with the main dispute. There are many examples of counterclaims, but a notable case is Ecuador’s successful counterclaim against Perenco.
This high-profile ISDS case was an ICSID proceeding in which Perenco initially brought a claim against Ecuador due to changes in Ecuadorian legislation, which, according to Perenco, violated its rights under the investment agreement. Ecuador launched a counterclaim against Perenco, claiming that Perenco violated Ecuadorian environmental legislation, including by not informing the state of several oil spills. According to Ecuador, the failure had led to several environmental disasters in the Amazon, and Ecuadorian environmental laws provide that the company must reimburse the state with USD 2.5 billion for cleaning up of the spills.
The tribunal in Perenco v. Ecuador issued a decision in which they indicated that Ecuador’s allegations at first sight seemed justified but that it was unlikely that the damages could be as large as USD 2.5 billion. Although the tribunal seemed to agree with Ecuador’s argument, it also viewed that it would require a long and expensive investigation to determine the damages, and encouraged the parties to reach a settlement. Negotiations are still ongoing. Meanwhile, Ecuador has launched counterclaims against another energy company with similar factual circumstances, and the case is also still pending.
States have also brought claims against investors directly, which is possible under the ICSID Arbitration Rules. There have been ICSID cases in which the state sued the foreign investor for alleged breach of contract, such as Gabon v. Société Serete S.A. and Tanzania Electric Supply Co. Ltd. v. IPTL (which was launched by Tanzania’s state owned power company, but where, in practice, the state stood behind the process). Another example is when East Kalimantan (a province of Indonesia) launched an ICSID case against several coal mining companies having operation in the province, arguing that these companies had a divestment obligation. The tribunal found that it did not have jurisdiction to hear the dispute. In these types of cases, it is common that the case is not based on agreements between states, but a direct agreement between the state and the investor.
This entry was posted in Case summaries, International Arbitration and tagged BIT, Counterclaim, International investment, Investment protection, State on 4 April, 2016 by admin.
This summary is prepared based on facts described in the award rendered in October 2015.
The investor made an investment in the development and operation of a limestone quarry in Oman through two lease agreements between his corporations and an Omani state-owned enterprise. The dispute arose mainly because of the termination of the lease agreement by the Omani SOE. In addition, the investor based his claim on his arrest and prosecution by the Omani authorities relating to unlawful operation of the quarry.
The investor brought the claim under the U.S – Oman Free Trade Agreement, arguing that the measures by the Omani authorities constituted violation of fair and equitable standard treatment and that it amounted to expropriation.
The tribunal found that it had no jurisdiction to decide on termination of the first lease agreement because it had ceased to exist before the U.S – Oman FTA came into force. Further, the tribunal rejected the expropriation claim due to the termination of the second lease agreement by the Omani SOE, asserting that this action was not attributable to the Omani State. According to the tribunal, the SOE did not exercise the necessary governmental authority for its actions to be considered those of the Omani State.
The arrest and prosecution of the investor, according to the tribunal, did not amount to a violation of fair and equitable treatment standard protection. The tribunal took note of the fact that the investor was prosecuted and later acquitted for, among others, alleged violation of environmental law by operating quarries without necessary permits. However, in the view of the tribunal, a state must be able to take a legal position when it comes to alleged violation of its laws, even if that position turns out to be wrong, provided it does so in good faith and with appropriate due process.
The Tribunal agreed that in this case, Oman had to defend itself against claims that had been “entirely unmeritorious”. Accordingly it ordered that the investor pay to the Omani State as respondent 75% share of its total litigation costs.
This entry was posted in Case summaries, Environment and tagged International investment, Investment arbitration, Oman, Trade, US on 8 March, 2016 by admin.

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