Wednesday, May 11, 2011

Saipem

Although many arbitration awards are voluntarily complied, enforcement of arbitration awards is a current challenge in international arbitration. Saipem S.p.A. v. The People’s Republic of Bangladesh1  (“Saipem v. Bangladesh”) apparently creates a new tier of protection when foreign investors are affected by the actions of a host country’s judiciary system. This might be an interesting trend, especially for those foreign investors that have investments in countries where the interference of the national court systems in arbitration proceedings is commonplace. In Saipem v. Bangladesh the illegal interference by national courts in an international commercial arbitration lead to a claim for expropriation for which the state was held liable. Due to the very unique circumstances of this case and the departure from previous ICSID case law, the legal rule established in Saipem v. Bangladesh most likely will not be applied in future cases.
 
1.   Background and the ICC Arbitration.

Saipem S.p.A., an Italian oil & gas company, and Petrobangla (Bangladesh Oil, Gas & Mineral Corporation), a Bangladeshi public entity, entered into an agreement on February 14, 1990, to build a natural gas pipeline in Bangladesh. This contract was governed by the laws of Bangladesh and set forth an arbitration clause. Such clause referred any dispute between the parties to the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC) and established Dhaka, Bangladesh as the venue of the arbitration.
The whole project was significantly delayed because of strong opposition by the local population. Although the parties agreed on extending the completion date, they could not reach an agreement regarding compensation and additional costs as a consequence of such delay. Also, a controversy arose in relation to a warranty bond and retention monies. In accordance with the original contract’s arbitration clause, Saipem initiated an ICC arbitration tribunal seeking outstanding payments owed under both the original contract and the subsequent extension agreement.

During the ICC arbitration, Petrobangla brought before the ICC tribunal various procedural requests.
2
  Since the ICC tribunal denied such requests, Petrobangla brought an action before the First Court of the Subordinate Judge of Dhaka seeking the revocation of the ICC Tribunal’s authority. The grounds of this action were an alleged misconduct of the arbitrators and a breach of the parties’ procedural rights when deciding the above-mentioned procedural requests made by Petrobangla.

Additionally, Petrobangla filed an action in the High Court Division of the Supreme Court of Bangladesh to stay all further proceedings of the ICC arbitration. A week later, an injunction restraining Saipem from proceeding with the ICC arbitration was issued by the Supreme Court of Bangladesh. Subsequently, Saipem filed an objection to the injunction restraining it from proceeding with the ICC arbitration. Thereafter, on April 5, 2000, a decision revoking the authority of the ICC arbitration Tribunal was issued by the First Court of the Subordinate Judge of Dhaka. Even though this last decision was subject to two degrees of appeals, Saipem decided not to do so. According to Saipem, “the latter decided not to file an appeal because any expectations to succeed appeared unsustainable under the circumstances.”
3
 

Despite the decision revoking the authority of the ICC tribunal rendered by the Bangladeshi courts, the ICC tribunal decided to resume proceedings. Subsequently, Petrobangla secured various injunctions from the High Court Division of the Supreme Court of Bangladesh restraining the continuance of the ICC arbitration tribunal.
4
  Nevertheless, on May 9, 2003, the ICC arbitration tribunal issued a final arbitration award holding inter alia that Petrobangla had breached its contractual obligation to compensate Saipem for the time extension and additional works.

In order to set aside the arbitration award, Petrobangla filed an action before the High Court Division of the Supreme Court of Bangladesh under Sections 42(2) and 43 of the Bangladeshi Arbitration Act 2001. This court denied the petition on April 21, 2004 stating that it was “misconceived and incompetent inasmuch as there is no Award in the eye of the law, which can be set aside…A non-existent award can neither be set aside nor can it be enforced.”
5
  According to this decision, the ICC award was rendered non-existent and was unenforceable in Bangladesh. Nonetheless, Saipem did not appeal this decision.
2.   The ICSID Arbitration.

Saipem, on October 5, 2004, filed a request for arbitration with the International Centre for Settlement of Investment Disputes (ICSID). The parties in the ICSID arbitration were Saipem and the Government of Bangladesh and the claims were based on the breach of the Bilateral Investment Treaty (BIT) between Italy and Bangladesh.6  The basis of Saipem’s claims was the undue intervention of the Bangladeshi courts in the ICC arbitration, which precluded the enforcement of the ICC award in Bangladesh or elsewhere. According to Saipem, those acts constituted an expropriation and deprived Saipem of any compensation. Thus, Saipem in its request for arbitration sought inter alia a declaration that Bangladesh expropriated Saipem of its investments without compensation and that Bangladesh breached its obligations under the BIT.

On June 30, 2009, the ICSID Tribunal rendered the final award. The Tribunal considered that the expropriated “property” consisted of “Saipem´s residual contractual rights under the investment as crystallized in the ICC Award.”
7  Also, the ICSID Tribunal concluded that the actions of the Bangladeshi courts were not a direct expropriation, but “measures having similar effects” within the meaning of Article 5(2) of the BIT.8  These actions deprived Saipem of the benefit of the ICC Award.9  The decision of the Supreme Court of Bangladesh that the ICC Award was a nullity “is tantamount to a taking of the residual contractual rights arising from the investments as crystallized in the ICC Award. As such, it amounts to an expropriation within the meaning of Article 5 of the BIT”.10
   
 
However, the ICSID Tribunal held that the “substantial deprivation of Saipem´s ability to enjoy the benefits of the ICC Award is not sufficient to conclude that the Bangladeshi courts’ intervention is tantamount to an expropriation.”
11  Otherwise, any setting aside of an arbitration award would lead to a claim for expropriation. The ICSID Tribunal, accordingly, stated that in order to give rise to a claim for expropriation the actions of Bangladesh must be illegal in addition to fulfilling the requirements for expropriation as set forth in Article 5 of the BIT.
12          
The ICSID Tribunal concluded that the revocation of the arbitrators’ authority by the Bangladeshi courts was contrary to international law, specifically to the principle of abuse of rights and the New York Convention and, therefore, such revocation constituted an expropriation within the meaning of Article 5 of the BIT.

The ICSID Tribunal concluded that courts of Bangladesh abused their rights when exercising supervisory jurisdiction over the ICC arbitration process. Although national courts have discretion to revoke an arbitrator´s authority in cases of misconduct, they cannot use this discretion to revoke the authority of arbitrators based on reasons wholly unrelated to such misconduct. As the ICSID Tribunal mentioned: “taken together, the standard for revocation used by the Bangladesh courts and the manner in which the judge applied that standard for the facts indeed constituted an abuse of rights.”
13
  In other words, the Bangladeshi courts exercised their supervisory jurisdiction for an end different from which it was instituted and, therefore, violated the principle of abuse of rights.

In addition, the ICSID Tribunal determined that the actions of the courts of Bangladesh were against the New York Convention, specifically Article II (1), which imposes on Contracting States the obligation of honoring arbitration agreements. Even though the Bangladeshi courts did not target the arbitration agreement itself, the revocation of the arbitrators’ authority can amount to a violation of Article II (1) “whenever it de facto prevents or immobilizes the arbitration that seeks to implement that arbitration agreement.”
14
  In fact, this was the situation before the ICSID Tribunal, since different Bangladeshi courts de facto frustrated the arbitration agreement, by issuing several injunctions against the continuation of the ICC Arbitration.

Furthermore, the ICSID Tribunal deemed that “the expropriation of the right to arbitrate the dispute in Bangladesh ... corresponds to the value of the award rendered without the undue intervention of the court of Bangladesh.”
15
  Thus, the ICSID Tribunal established that Saipem was entitled for relief, which was equivalent to the amount awarded in the ICC award plus interest. 

3.   Comments.

Saipem v. Bangladesh is most likely the first ICSID Award that holds a state responsible for expropriation based on the illegal interference by its judiciary in arbitration proceedings.
16  Although some commentators foresee that the theory behind Saipem v. Bangladesh will be a mechanism for countering to some degree the interference by national courts with international arbitration,17  this article will show why the application of the legal rule established in Saipem v. Bangladesh is rather remote.18
  The very unique circumstances of the case as well as the departure from previous ICSID awards would make the rationale of Saipem v. Bangladesh most likely inapplicable in other cases.

Although the ICSID Tribunal determined that the acts of the Bangladeshi courts amounted to an expropriation, even Saipem acknowledged during the ICSID Arbitration that the facts of the case most likely constituted denial of justice rather than expropriation.
19 The BIT between Italy and Bangladesh narrows investment arbitration only to those cases based on expropriation. Indeed, Saipem acknowledged during the ICSID Arbitration that the reason why the plaintiff based its claims on expropriation and not on denial of justice was only because the Article 9.1 of the BIT did not confer jurisdiction to the ICSID Tribunal over a claim based on denial of justice.20  Additionally, Saipem made the same argument regarding equitable treatment.21


From the facts of the case, it is clear that the intervention of the Bangladeshi courts by not allowing the continuation of the ICC Tribunal was abusive. Even though the courts from Bangladesh abused their supervisory jurisdiction over the ICC Arbitration process, it should not allow the ICSID Tribunal to broaden the scope of the BIT beyond what was agreed upon the States. The BIT between Italy and Bangladesh protects investments in those situations specifically agreed by both States, that is, nationalization and expropriation. Hence, arbitrators should be bound to protect investments only under these two circumstances established in the BIT.

Moreover, the investor did not exhaust local remedies –as already mentioned, Saipem decided not to appeal the decisions of the Bangladeshi courts that revoked the authority of the arbitrators and the one that declared the ICC Award a nullity, which is normally a substantive condition to initiating an ICSID arbitration based on acts of the judiciary, particularly in cases related to denial of justice.
22  The main rationale is that “the prohibition of denial of justice presupposes a duty of the host state to provide a fair and effective system of justice. Therefore, until the whole system has been tried and failed, no claim of denial of justice can arise in international law.”23  This explanation “rests on the special nature of the administration of justice as a system” and leads to the conclusion that “any international wrong committed in the process of administering justice is actionable only after the whole system has been unsuccessfully tried.”24  Nevertheless, the ICSID Tribunal determined that, as opposed to denial of justice, exhaustion of local remedies is not a substantive requirement of a finding of expropriation by acts of the judiciary.25  The ICSID Tribunal did not elaborate on the reasons why the exhaustion of local remedies applies to cases of denial of justice, but not to those of expropriation by the judiciary. In this regard, commentators have stated that “[if] the special application of the local remedies rule to denial of justice claims is rationalised by reference to the special nature of the judicial system, it would seem logical that the same considerations be applied to all forms of judicial misconduct, including expropriation by courts.”26
  Thus, exhaustion of local remedies should also be a substantive condition to trigger the investor’s right to initiate arbitration based on expropriation by the judiciary. 

The ICSID Tribunal when analyzing whether the acts of the judiciary constituted indirect expropriation
27  did not base its decision on the so-called “sole effects” doctrine. According to this doctrine, the most important aspect for determining indirect expropriation is the impact of the measure; the deprivation has to be substantial in order to lead to expropriation.28  Although the ICSID Tribunal acknowledged that the fact of not enjoying the benefits of the ICC Award constituted a substantial deprivation, it considered that in this particular case the substantial deprivation was not sufficient to declare an expropriation, because it was also required that the actions of the Bangladeshi courts were illegal. For this reason, the ICSID Tribunal applied a legality test to determine whether the actions of the Bangladeshi courts amounted to an expropriation. In other words, in addition to the substantial deprivation, which characterizes the “sole effects” doctrine, the ICSID Tribunal also applied a legality test. The ICSID Tribunal pointed out that applying the legality test in this case “should not be understood as a departure from the ´sole effects doctrine´. It is due to the particular circumstances of this dispute and to the manner in which the parties have pleaded their case, both being in agreement that the unlawful character of the actions was a necessary condition.”29
 

This clarification, on one hand, confirms the very unique circumstances of the case and, on the other, illustrates the limited application of the analysis made by the ICSID Tribunal to future cases. That is because not any illegality by the judiciary can lead to a claim for expropriation. The notion of “illegality” should be also restricted to avoid that ICSID arbitrators’ jurisdiction being improperly broadened. This is because judicial errors are a kind of illegality. For instance, if a judge resolves a case by applying an improper law, or if the judge applies the right law but interprets it incorrectly, in both events the adopted decision would be illegal. Nevertheless, such illegality should not give rise to a claim for expropriation; otherwise, the ICSID tribunal would end up exercising a control of legality over local courts, which are vested with supervisory jurisdiction over commercial arbitration awards. This indeed would largely exceed the jurisdiction of any ICSID tribunal. Therefore, the notion of illegality for a claim for expropriation cannot encompass these kinds of judicial mistakes. In sum, the legality test of Saipem v. Bangladesh might only be applied in future cases with extreme circumstances like the ones where national courts, in abuse of their supervisory jurisdiction over arbitration awards, unlawfully impede the issuance of the award or deny its existence without even analyzing its grounds.

Furthermore, the facts of this case are unique; so a similar situation is very unlikely to happen in future cases. In Saipem v. Bangladesh the courts from Bangladesh did not respect the arbitration agreement. Although these courts did not specifically target the arbitration agreement, the decision to revoke the authority of the arbitrators and the decision of the Supreme Court of Bangladesh that the ICC Award was “a nullity” or “non-existent” frustrated the arbitration agreement. This absence of arbitration award allowed the ICSID Tribunal to hold that the disputes were within the jurisdiction of the ICSID and the competence of the ICSID Tribunal.
30  The result would be different if the ICC Award would have existed, that is, if the Supreme Court instead of having declared that “there is no Award in the eye of the law”, the Supreme Court would have concluded –after examining its basis- that such award was null and void. Even if such conclusion were mistaking it will not lead to ICSID arbitration, as otherwise the ICSID arbitration would become another possibility to enforce ICC awards; and the ICSID arbitration is not intended to create a new tier of protection when the judiciary interferes with ICC arbitration. Given the fact that in most cases local courts will declare the nullity of an international commercial arbitration award based on its grounds, whatsoever the decision might be, it will not lead to investment arbitration. Indeed, miscarriage of justice is a risk that either national or foreign investors should equally bear. Additionally, the basis of the ICSID arbitration would be contractual matters, which are not within the scope of the ICSID Convention.31
 

4.   Conclusion.

In sum, the circumstances of this case were unique and it is very unlikely that they will happen again. According to previous ICSID awards, an investor should exhaust local remedies in order to initiate investment arbitration based on acts of the judiciary. The ICSID Tribunal in this case found that this condition is not applicable in the case of expropriation, with no further explanation. Additionally, prior ICSID awards have used only the “sole effects” doctrine to determine whether the disputed actions amount to indirect expropriation, but the ICSID Tribunal here also applied a legality test. This test should be limited to those extraordinary cases where national courts, in abuse of their supervisory jurisdiction over arbitration awards, unlawfully impede the issuance of the award or deny its existence without even analyzing its grounds. Therefore, the ICSID Tribunal’s holding in Saipem v. Bangladesh seems to be restricted in such a way that most likely will not be applied in future cases.

source:http://www.cpradr.org/Resources/ALLCPRArticles/tabid/265/ID/714/Comments-on-the-ICSID-Award-Saipem-v-Bangladesh-Would-its-rationale-be-applicable-in-future-cases-2011-Writing-Contest-Winner.aspx

Phoenix

A three-member tribunal has disqualified a claim by the Israeli-based Phoenix Action LTD, concluding that its purchase of two Czech companies was solely a pretext for exploiting the Israel-Czech Republic bilateral investment treaty. The jurisdictional award rendered on 15 April 2009 charges Phoenix Action with “an abuse of the international investment protection regime”,   and orders the company to bear the full cost of the arbitration, including the Czech Republic’s legal costs. Phoenix Action’s claim, lodged with the International Centre for Settlement of Investment Disputes (ICSID) in 2006, relates to its purchase in 2002 of two companies, Benet Praha and Benet Group, both of which were involved in the purchase and sale of ferroalloys (iron mixed with other elements, used in the production of steel). Phoenix Action bought the two Czech companies while they were under a criminal investigation over alleged custom duty evasion. The Israeli company argued that lengthy litigation proceedings, which continued after it took ownership of the companies, amount to a denial of justice. For its part, the Czech Republic characterized Phoenix Action has a “sham Israeli entity”, whose purpose was to gain access to international arbitration by way of the Israel-Czech Republic BIT.  Indeed, the case represents “one of the most egregious cases of ‘treaty-shopping’ that the investment arbitration community has seen in recent history,” argued counsel for the Czech Republic.

Tribunal doubts investment was made in good faith

The Tribunal’s decision to nix the claim on jurisdictional grounds was linked to the revelation that one family remained in control of the Benet companies, despite their sale to different corporate entities. According to the evidence presented to the Tribunal, the former Chairman of Benet Praha, Vladimir Beno, established Phoenix Action after fleeing to Israel under charges of tax evasion. Phoenix Action subsequently purchased Benet Praha from a company owned by Mr. Beno’s his wife for US$4000. In 2008, Phoenix Action sold Benet Praha back to Mr. Beno’s wife for the same price. In light of these facts, the Tribunal concluded that Phoenix Action’s purchase of the Benet companies was “simply a rearrangement of assets within a family, to gain access to ICSID jurisdiction to which the initial investor was not entitled.” “The unique goal of the ‘investment’ was to transform a pre-existing domestic dispute into an international dispute subject to ICSID arbitration under a bilateral investment treaty,” writes the Tribunal.

Tribunal weighs in on the concept of investment under the ICSID Convention

The Tribunal’s verdict is significant, in part, for its analysis of what constitutes an investment under the ICSID Convention. Because the ICSID Convention does not define the concept of investment, tribunals and commentators have formulated their own criteria. The most common is the so-called Salini test, which sets four criteria for an ICSID investment: a contribution of money or other assets of economic value; a certain duration; an element of risk, and; a contribution to the host State’s development. In this case, the Tribunal adopts the Salini test as its starting point, but takes issue with the fourth criteria, on the grounds that determining an investment’s contribution to development is “impossible to ascertain.” Instead, the Tribunal favours “a less ambitious approach”, and proceeds to consider if there has been a contribution to the economy of the host state. In addition to restricting the scope of the Salini test’s fourth criteria, the Tribunal would consider two other criteria: were the assets invested in accordance with the laws of the host state and was there a bona fide investment of those assets? Ultimately, Phoenix Action’s claim would fail to meet the Tribunal’s benchmark for of bona fide investment. This conclusion was drawn in part because the company displayed no intention of engaging in actual economic activities (the Tribunal notes, for instance, the absence of a business plan, program of re-financing, valuations, etc). The timing of the claim—served two months after Phoenix Action purchased the Benet companies—also served to bolster the Tribunal conviction that Phoenix Action was a vehicle designed to bring a domestic dispute to international arbitration. Indeed, the Tribunal characterized the claim as “an abusive manipulation of the system of international investment protection under the ICSID Convention and BITs.” This damning assessment led the Tribunal to order Phoenix Action to pay the full cost of the arbitration proceedings, amounting to some USD$356 000, in addition to the Czech Republic’s legal costs of some US$1 million. Phoenix Action estimated its own legal costs at some US$1.6 million.

Number of investment claims against the Czech Republic undisclosed

The prompt release of the Phoenix Action award—published by the Czech Republic a day after it was dispatched to the parties—stands in contrast with the secrecy that shrouds other investment treaty claims against the Czech Republic. Indeed, the exact number of investment-treaty claims against the Czech Republic has not been disclosed. An official with the Czech Ministry of Finance declined to provide ITN with a list of investment treaty claims currently pending against the Czech Republic, explaining that it is “not a policy of the Czech Republic to actively support the public availability of that information.” At least a few recent rulings in known claims against the Czech Republic, which are not in favour the country, remain confidential.

Source: http://www.iisd.org/itn/2009/04/20/tribunal-disqualifies-abusive-claim-by-phoenix-action-against-the-czech-republic/

Globex

On December 1, 2010 the arbitration tribunal of the International Centre for Settlement of Investment Disputes announced its final award in Global Trading Resource Corp. and Globex International, Inc. V. Ukraine case.
 On 21 May 2009 the ICSID received a request for arbitration dated 18 May 2009 filed by those companies both juridical persons organized under the laws of the United States of America and engaged primarily in the exportation of meat and poultry products, against Ukraine.
The Tribunal decided that the claims brought in the arbitration by Global Trading Resource Corp. and Globex International, Inc. against Ukraine are manifestly without legal merit, within the meaning of Article 41, paragraph (5) of the ICSID Arbitration Rules. Thus, the Tribunal satisfied the objection raised by Ukraine that the claimants’ claims, as formulated in the request for arbitration and subsequently in the pleadings, represented nothing more than claims to payment under trading contracts, and did not therefore amount, in law, to ‘investments.’ Ukraine insisted that claims arising from trade transactions, involving only the cross-border sale of goods, were deliberately excluded by Ukraine and the USA from the definition of “investment” set out in Article I of the U.S.-Ukraine BIT. Ukraine also asserted that those represented purely commercial transactions of a type which fallen outside the scope of Article 25(1) of the ICSID Convention defining the jurisdiction of ICSID itself, and thus outside the limits of the jurisdiction of any tribunal set up under the ICSID system.

Source 1: http://www.iareporter.com/downloads/20101204
Source 2: http://arbitration-blog.eu/icsid-global-trading-resource-globex-international-ukraine/

Romak

Swiss-based firm Romak S.A. has lost a protracted dispute against the Republic of Uzbekistan regarding alleged non-payment for wheat shipments to the country during the mid-1990s.
On November 26, 2009 an arbitral tribunal composed of Fernando Mantilla-Serrano, Nicolas Molfessis and Noah Rubins dismissed Romak’s claims against the Republic of Uzbekistan on jurisdictional grounds.  Specifically, the tribunal determined that it did not have jurisdiction in the case given the absence of any “investment” underlying the dispute.
In the aftermath of the dissolution of the Soviet Union, Romak and several companies entered into a set of contracts for the supply of wheat to Uzbekistan.  Having experienced difficulties in obtaining payment for wheat deliveries, Romak commenced arbitral proceedings against one of its Uzbek counterparties under the auspices of the Grain and Feed Trade Association (GAFTA).  After obtaining an arbitral award in its favour, however, Romak was unable to enforce the award in several countries, including Uzbekistan.  As a result, the Swiss company commenced arbitral proceedings against Uzbekistan under the Swiss-Uzbek BIT in accordance with the UNCITRAL Arbitration Rules.
Seeking more than USD $30 million in damages, Romak alleged that Uzbekistan violated its obligations under the BIT.  Arguing that the actions of its Uzbek counterparties were attributable to Uzbekistan, Romak claimed that Uzbekistan violated numerous obligations under the BIT, including the guarantee of fair and equitable treatment, and the prohibition against expropriation or nationalization without compensation.  Additionally, Romak argued that by refusing to enforce the GAFTA award Uzbekistan had violated its treaty obligations.
Uzbekistan denied those assertions and contested the jurisdiction of the arbitral panel.  Specifically, Uzbekistan contended that the tribunal lacked jurisdiction in the case because neither the wheat supply contracts nor the GAFTA award qualified as an “investment” subject to protection under the BIT.  In support of its arguments, Uzbekistan relied upon the “Salini test” sometimes used by ICSID tribunals as an analytical tool to determine the same jurisdictional question as the one presented in the instant dispute (i.e. whether there is an arbitral investment subject to BIT protection).
In response, Romak alleged that the Salini criteria were “inapplicable and irrelevant” to UNCITRAL proceedings given their development within the ICSID system.  Pushing for a literal interpretation of the definition of “investments”, Romak argued that the wheat supply contracts and the GAFTA Award fell squarely within the Swiss-Uzbek BIT.  Alternatively, Romak asserted that the wheat supply contracts and the GAFTA award qualified as investments under the Salini test.
Romak could not, however, convince the tribunal that its long-running dispute was the proper subject for arbitration under the Swiss-Uzbek BIT.
In particular, the tribunal rejected Romak’s literal construction of the term “investment” in the Swiss-Uzbekistan BIT.  In so doing, the tribunal found that an ostensibly broad definition of “investment” in the Swiss-Uzbekistan BIT should not be interpreted in a way that “render[s] meaningless the distinction between investments, on the one hand, and purely commercial transactions on the other.”  Using the approach advanced by Romak, the tribunal postulated that “…every contract entered into between a Swiss national and a State entity of Uzbekistan…as well as every award or judgment in favor of a Swiss national…would constitute an investment under the BIT.”  Finding such a possibility untenable, the tribunal indicated that one-off sales contracts could constitute investments under the terms of a BIT only in cases where the wording of the BIT left “no room for doubt” that the contracting parties intended the term to carry such an extraordinary meaning.
The tribunal also disagreed with Romak’s contention that “the definition of ‘investment’ in UNCITRAL proceedings (i.e. under the BIT alone) is wider than in ICSID Arbitration.”  According to the tribunal, Romak’s suggestion would lead to unreasonable results by narrowing or widening the substantive protections afforded an investor under a BIT depending on the investor’s choice of various dispute settlement mechanisms.  Consistent with this reasoning, the tribunal held that there is no basis to suppose that the term “investment” has a different meaning in the ICSID Convention than it bears in relation to the Swiss-Uzbekistan BIT.  Thus, the tribunal observed that “the term ‘investments’ under the Swiss-Uzbekistan BIT has an inherent meaning…entailing a contribution that extends over a certain period of time and that involves some risk.”
The tribunal went on to determine that the wheat supply contracts and the GAFTA Award were “inextricably linked” and that any determination as to the existence of an “investment” under the BIT must be made with reference to the entire economic transaction at issue.  On that basis the tribunal found that the Romak’s wheat supply arrangement with, and subsequent arbital award against, Uzbekistan failed to display the hallmarks of an “investment” under the Swiss-Uzbekistan BIT (i.e. contribution, duration and risk).
Specifically, the tribunal determined that Romak’s delivery of wheat could not be considered a contribution indicative of an investment as it was “a mere transfer of title over goods in exchange for full payment.”  Similarly, the tribunal considered that the duration of Romak’s wheat deliveries, which lasted some five months, did not reflect the sort of commitment normally associated with “investments.”  Finally, the tribunal noted Romak’s economic transaction did not involve the risk normally associated with an investment.  Specifically, the tribunal described the risk assumed by Romak as “…circumscribed to the possible non-payment of the wheat delivery, which is the ordinary commercial or business risk assumed by all those who enter into a contractual relationship.”

source: http://www.iisd.org/itn/2010/01/12/uncitral-tribunal-determines-that-wheat-supply-contracts-are-not-investments-under-swiss-uzbekistan-bit/

Wednesday, May 4, 2011

Monegasque De Reassurances SAM v NAK Naftogaz

In Monegasque De Reassurances SAM v NAK Naftogaz of Ukraine et al (2nd Cir 2002), the subrogated reinsurer filed an action under the Convention seeking to confirm a Russian arbitration award against the respondent NAK, a Ukrainian company, and against the State of Ukraine. NAK sought dismissal based on lack of personal jurisdiction, alleging that “all events leading to the arbitral award occurred in Ukraine and neighbouring countries”. The state of Ukraine separately moved on sovereign immunity grounds. The district court dismissed the petition on FNC grounds, holding that Ukraine was an “adequate alternative forum”.
The Second Circuit considered the interplay between Convention articles III and V. Article III states: “Each contracting state shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the [signatory] territory” (emphasis added). Article V.1. (a)-(e) sets out grounds for non-recognition. The Second Circuit first considered the FNC doctrine as “procedural rather than substantive” (citing American Dredging Co v Miller (1994) (an admiralty case not involving the Convention)). Next, because of the reference to “rules of procedure” in Article III, the court rejected the argument that “article V… sets forth the only grounds” for non-recognition and agreed that the application of the FNC was permitted by article III 311 F3d at 496. It affirmed the FNC dismissal.

Source: http://www.whoswholegal.com/news/features/article/28658/the-role-forum-non-conveniens-declining-recognise-new-york-convention-awards

Mondev International Ltd. v. United States of America

Mondev International Ltd., a Canadian real-estate development corporation, has submitted a claim under the ICSID Additional Facility Rules on its own behalf for losses allegedly suffered by Lafayette Place Associates ("LPA"), a Massachusetts limited partnership it owns and controls. Mondev alleges that these losses arise from a decision by the Supreme Judicial Court of Massachusetts and from Massachusetts state law.
Mondev alleges that Massachusetts' statutory immunization from intentional tort liability of the Boston Redeveloment Authority is incompatible with international law, and that the decision of the Supreme Judicial Court was arbitrary and capricious and amounted to a denial of justice. Mondev also alleges that the United States failed to meet its Chapter Eleven obligations by not according LPA national treatment (Art. 1102); by not according it treatment in accordance with international law (Art. 1105); and by expropriating its investment without compensation (Art. 1110). Mondev claims damages of not less than $50 million.
On October 11, 2002, the tribunal issued an award dismissing all claims against the United States.

Source: http://www.state.gov/s/l/c3758.htm

Bechtel Co. Ltd. v. Department of Civil Aviation of the Government of Dubai 300 F. Supp. 2d 112

In the 2004 case of International Bechtel Co. Ltd. v. Department of Civil Aviation of the Government of Dubai 300 F. Supp. 2d 112 (DDC. 2004), a USD$25 million dollar arbitration award rendered in favor of the claimant (Bechtel) was set aside by the Dubai Court of Cassation on the grounds that the arbitrator had failed to swear witnesses in the manner prescribed by UAE law for court hearings, namely Article 41(2) of the Civil Procedure Code.  Bechtel simultaneously appealed to the Courts of France and the US District Court.  
At first in the US, Judge Robertson granted motion to dismiss Bechtel’s petition, finding that, in the absence of a governing treaty regime, the Federal Arbitration Act could not be invoked to confirm and enforce an arbitral award that had been annulled under contractually selected foreign law. However, in International Bechtel Co., Ltd. v. Dep’t of Civil Aviation of the Govt. of Dubai, 360 F.Supp.2d 136 (D.D.C.2005) Bechtel obtained dismissal of the petition by the Department of Civil Aviation to set aside the award and obtained confirmation and enforcement of the arbitration award in Bechtel’s favor that had been annulled by the Dubai Court of Cassation.
The Paris Court of Appeal also upheld the award in favor of Bechtel, setting aside the Dubai Court of Cassation’s decision and dismissing the petition of the Department of Civil Aviation to annul the award.  The Paris Court of Appeal ruled that the arguments set forth by the Department of Civil Aviation were invalid.  The Paris Court ruled that the arbitral award did satisfy the requirement in Article 13(1)(c ) of the mutual enforcement treaty concluded on 9 September 1991 between France and the UAE (the “UAE-France” treaty) in that an arbitral award can be subject to appeal in a country and at the same time be recognized in France.   The provision which the Department of Civil Aviation was referring to dealt with judicial decisions.  Article 13(1)(c ) of UAE-France treaty  provides that a judicial decision can be recognized in France only once it can no longer be appealed in the UAE and is accordingly capable of enforcement in its country of origin.  In this case, the parties were not required to wait for the decision of the Dubai Court of Cassation, as the Court was concerned with an arbitral award rather than a judicial decision, before applying to enforce the award in another country, specifically France.  The Paris Court also ruled that the enforcement of the award was not contrary to international public policy.

Source: http://ilovetheuae.com/2010/01/19/the-story-of-bechtel%E2%80%99s-arbitration-award-in-the-uae-the-us-and-france-how-an-award-can-be-challenged-and-overturned-in-one-country-however-enforced-in-other-countries/