Source: https://www.skadden.com/insights/publications/2019/02/latin-america-dispute-resolution-update
Timestamp: 2019-04-25 12:46:00+00:00

Document:
As detailed in an October 2, 2018, Skadden client alert, the United States’ efforts to revise the 25-year-old North American Free Trade Agreement (NAFTA) reached a milestone on September 30, 2018, when the U.S., Mexico and Canada announced they had formed an agreement on what will be called the United States-Mexico-Canada Agreement (USMCA). If ratified, the USMCA will significantly curtail the substantive investment protections available to investors.
Under Chapter XI of NAFTA (as it currently stands), investors from NAFTA countries enjoy a range of protections against adverse government action with respect to investments they make in other NAFTA countries. These protections include the right to bring international arbitration claims against NAFTA countries that violate those safeguards. Chapter XI arbitration has resulted in several significant damages awards against Canada and Mexico in claims brought by U.S. companies where treatment fell short of NAFTA standards. With respect to most investors in such situations, the USMCA rolls back the available protections. It amends the definition of expropriation so as to protect against direct expropriation only — reversing long-standing U.S. policy that previously sought to protect interests against indirect expropriation (i.e., measures tantamount to expropriation). It also amends the definitions of “fair and equitable treatment” and “full protection and security” to state that they do not require treatment in addition to or beyond that which is required by the “minimum standard of treatment” accepted under customary international law.
USMCA Chapter 14 also drastically changes the scope of investor-state arbitration. Except for certain “legacy” arbitration claims (i.e., claims concerning investments established or acquired between January 1, 1994, and the termination of the existing NAFTA), investor-state arbitration will cease to be available altogether with respect to either Canadian investments in the U.S. or Mexico, or for U.S. or Mexican investments made in Canada. This change (a concession to the Canadian government) means that those investors will have to resort to national courts, state-to-state arbitration or investor-state arbitration under a different treaty (if applicable).
For investments made by U.S. investors in Mexico or Mexican investors in the United States, investor-state arbitration will remain available pursuant to Annex 14-D of the USMCA, but its scope is substantially limited. For most investors, the USMCA significantly rewrites the basic guarantees so that investor-state arbitration would be permitted only in cases of denial of national treatment, “Most Favored Nation” violations or in the case of direct expropriation. Moreover, those investors would be required to seek recourse before a competent court or administrative tribunal of the respondent state for a minimum of 30 months before commencing investor-state arbitration, thus significantly delaying access to international remedies.
Pursuant to Annex 14-E, access to broader investor-state protections will continue only for a limited group of U.S. and Mexican investments: those that qualify as “covered government contracts” in sectors such as oil and natural gas production, power generation, telecommunication, transportation, and certain infrastructure investment.
Though the three states signed the agreement on November 30, 2018, it must still be ratified by the legislature of each country. In connection with the new pact, President Donald Trump announced on December 2, 2018, that he intends to formally terminate NAFTA, but Congress must still vote to approve the USMCA before it can enter into force. In the interim, investors who have relied on NAFTA to protect their cross-border investments can use this opportunity to reassess their existing investment protection structures and consider alternative ways to achieve protection under other bilateral or multilateral investment treaties.
On October 1, 2018, the International Court of Justice (ICJ) issued a decision in a long-standing border dispute between Bolivia and Chile. In a win for Chile, it held that coastal nation had no obligation under international law to negotiate regarding Bolivia’s access to the Pacific Ocean.
The case arose from a long-standing grievance with roots in the 1879-83 “War of the Pacific” between Bolivia and Chile, which resulted in Bolivia losing its coastline territory on the Pacific Ocean. Ever since then, Bolivian politicians have sought to undo this result. Despite vigorous diplomatic efforts — all aimed at restoring Bolivia’s access to the sea — the border has remained unchanged.
The ICJ’s decision has notable parallels to the law of contract, which typically does not subject parties to obligations to which they have not clearly consented. It is also notable that the court expressly distinguished the one prior occasion when it did subject a party to legal obligation based on a unilateral statement: France’s pledge in 1974 to cease atmospheric nuclear testing in the South Pacific.
Two recent developments may assist parties engaged in litigation outside of Brazil to serve process on defendants located in Brazil.
First, Brazil recently acceded to the Hague Service Convention (Convention). The treaty will enter into force for Brazil on June 1, 2019, subject to the enactment of a presidential decree. Previously, parties needing to serve process on a party located in Brazil in connection with a U.S. litigation had to comply with the Inter-American Convention on Letters Rogatory, which required parties to obtain letters rogatory in order to serve a party in Brazil and took up to a year to complete. In contrast, the Hague Service Convention provides a streamlined method for service of process for contracting parties.
Significantly for U.S. parties, Brazil made several reservations in connection with the methods of service permitted under the Hague Service Convention. It stated that it is opposed to (1) the use of the methods of transmission of judicial and extrajudicial documents provided for in Article 8 of the Convention, which permit transmission through diplomatic and consular channels, and (2) the methods of transmission of judicial and extrajudicial documents provided for in Article 10 of the Convention, which permits service through mail or through judicial officers or officials of the country of destination.
Second, we understand from local counsel that Brazil’s Superior Court of Justice has issued two decisions regarding the ability of a party to serve process in the manner agreed in the parties’ commercial contract. In one case,6 the Brazilian court considered whether a foreign judgment issued in Florida should be recognized in Brazil where the defendant had been served through the courier delivery service Federal Express rather than through letters rogatory. Service through a mechanism such as Fed Ex had been expressly mentioned in the parties’ contract. The court found that the service of process was accomplished in the manner agreed to in the parties’ contract and, therefore, rejected the argument that the foreign judgment should not be recognized on the basis that the defendants had not been served through letters rogatory.
In a second decision,7 the same court again rejected the argument that the foreign judgment should not be recognized on the basis of failure to serve process through letters rogatory where the service of process was accomplished in accordance with both the applicable local law in the foreign jurisdiction in which the judgment was issued (New York) and the local law referenced in the parties’ contract (here, also New York). In their contract, the parties had agreed that service in any litigations related to the contract could be accomplished through registered or certified mail, and that “no provision of this agreement prevents the ability to serve process in any other form allowed by law.” The court found that process had been served in accordance with the laws of New York as well as the parties’ contract and, accordingly, rejected the defense to enforcement of the judgment.
Over the past several years, allegations of corruption in certain Latin American countries have resulted in significant commercial litigation in Latin America and the United States. Notably, in some of these litigations, an entity whose employees or agents are alleged to have been engaged in corruption attempts to recover the proceeds of that corruption from the party that benefited from making illegal payments.
Although claimants in both cases failed on procedural grounds, it is likely that the trend of pursuing such claims will continue.
On September 27, 2018, a New York state appellate court issued an important ruling in Daesang Corp. v. NutraSweet Co. regarding the ability of New York courts to vacate an arbitration award on the basis that it was rendered in “manifest disregard of the law.”11 Historically, in addition to the various grounds for vacatur based on errors of “procedure” recognized by the Federal Arbitration Act (FAA), U.S. courts also have recognized that a court may vacate an arbitration award if it was rendered in “manifest disregard of the law” — that is, where “the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether,” and the ignored governing law was “‘well defined, explicit, and clearly applicable’ to the case.”12 This ground for vacatur, and its proper interpretation, has been the subject of much controversy and is rarely successful.
In 2008, the U.S. Supreme Court cast doubt on the continuing validity of the manifest disregard doctrine in Hall Street Associates, LLC v. Mattel, Inc.,13 in which it held that the FAA sets forth the “exclusive grounds” for vacating an arbitration award. Following this decision, some U.S. courts found that “manifest disregard of the law” was no longer a valid basis to vacate an arbitration award. Other courts, including New York state courts, continued to recognize manifest disregard as a possible basis to vacate an arbitration award.
The court held in United States v. Hoskins that a person may not “be guilty as an accomplice or a co-conspirator for an FCPA crime that he or she is incapable of committing as principal.”20 In doing so, the court rejected an avenue that the U.S. Department of Justice had previously used to assert jurisdiction over foreign nationals with no other connection to the United States. The government had charged Lawrence Hoskins, a non-U.S. citizen who worked for a U.K. subsidiary of the French company Alstom S.A., with conspiracy to violate the FCPA, and aiding and abetting others in doing so. Hoskins allegedly approved the selection of consultants retained by Alstom’s U.S. subsidiary and authorized payments to them with knowledge that portions of the payments were intended as bribes.
The Second Circuit agreed with Hoskins that Congress did not intend for the FCPA to apply to non-U.S. natural persons who did not act within the U.S. territory and are not officers, directors, employees or agents of a U.S. domestic concern or U.S. issuer. However, the court did not foreclose the argument that, provided Hoskins acted as an “agent” of the U.S. subsidiary, he could be liable of “conspiring with foreign nationals who conducted relevant acts while in the United States.”21 Accordingly, the Second Circuit appears to have left open the possibility of this and certain other potential avenues of extending the FCPA’s reach to foreign individuals even if they never entered the U.S., which may diminish the practical implications of the Hoskins decision.
2 Obligation to Negotiate Access to the Pacific Ocean (Bolivia v. Chile), Preliminary Objection, Judgment, 2015 I.C.J. Rep. 592, ¶ 34.
3 Bolivia v. Chile, Judgment, 2018 I.C.J. Rep. 153, ¶ 86 (quoting North Sea Continental Shelf cases, 1969 I.C.J. Rep. 1 ¶ 85).
6 Superior Court of Justice, Recognition of Foreign Decision No. 896, Docket (2017/0212022-8), Sanafarma International LLC Inc and Medecell do Brasil Comercio e Importação Ltda., Decision by Minister Maria Thereza de Assis Moura, Special Court, Published on DJe 05/23/2018.
7 Superior Court of Justice, Recognition of Foreign Decision No. 89, Docket (2016/0305869-7), Shutterstock Inc and Latin Stock Brasil Produções Ltda., Decision by Minister Maria Thereza de Assis Moura, Special Court, Published on DJe 10/31/2017.
8 Vantage Deepwater Co. v. Petrobras Am. Inc., No. 4:18-cv-2246 (S.D. Tex. filed July 2, 2018).
9 PDVSA Litig. Trust v. Lukoil Pan Ams. LLC, No. 1:18-cv-20818 (S.D. Fla. filed Mar. 3, 2018).
10 Report & Recommendation at 20, PDVSA Litig. Trust, No. 1:18-cv-20818 (S.D. Fla. Nov. 5, 2018), ECF No. 636.
11 167 A.D.3d 1 (N.Y. App. Div. 2018).
12 Roffler v. Spear, Leeds, & Kellogg, 13 A.D.3d 308, 310 (N.Y. App. Div. 2004) (quoting Folkways Music Publ’rs, Inc. v. Weiss, 989 F.2d 108, 112 (2d Cir. 1993).
13 552 U.S. 576, 583 (2008).
14 Daesang Corp. v. Nutrasweet Co., 58 N.Y.S.3d 873, 2017 WL 2126684, at *5, *7 (N.Y. Sup. Ct. 2017) (unpublished table decision).
15 Daesang Corp. v. NutraSweet Co., 167 A.D.3d at 4 n.1 (quoting the amicus curiae brief submitted by the International Commercial Disputes Committee of the Association of the Bar of the City of New York) (second alteration in original)).
19 15 U.S.C. § 78dd-1 to -3.
20 902 F.3d 69, 76 (2d Cir. 2018).

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 78