The new draft Dutch BIT: what does it mean for investor mailbox companies?

The Netherlands has released a new draft investment treaty for public comment (“Draft BIT“).  If adopted, the Draft BIT may raise questions about the Kingdom’s attractiveness for foreign investors who have long taken advantage of Dutch treaty protections by structuring their investment via companies in the Netherlands.  The Netherlands proposes to use the new model as a basis for renegotiating its existing BITs with non-EU states, and, as such, the new draft’s more restrictive provisions may be significant for existing investors with protection under existing BITs, as well as those considering future investments. Key features of the Draft BIT are considered below.

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Bear Creek Mining Corp. v. Peru: the potential impact on damages of an investor’s contributory action and failure to obtain a social license

In an award dated 30 November 2017 (the “Award“), an ICSID Tribunal ordered Peru to pay around US$30.4million to Canadian company Bear Creek Mining (the “Claimant“) following its finding that a 2011 decree (“Decree 032“) constituted an unlawful indirect expropriation of the Claimant’s right to operate the Santa Ana mine (the “Project“).

This post discusses the disagreement between Karl-Heinz Bockstiegel (the president of the tribunal) and Michael Pryles (appointed by the Claimant) (together, the “Majority“), and Prof. Philippe Sands QC (appointed by Peru), on the assessment of damages. Prof. Sands considered that the damages should be reduced due to contributory fault on the part of the Claimant.

The impact the Claimant’s conduct had on the Tribunal’s calculation of damages was, in any case, significant. Given the extent of, and reasons for, the opposition to the Project by the time of Decree 032, the Tribunal thought a hypothetical purchaser would not have obtained the necessary ‘social license’ to proceed with the Project. Ultimately it awarded the Claimant only a fraction of the US$522 million claimed. The reduced damages award emphasises the importance of respect for human rights and engagement with indigenous communities by investors.

The respective views expressed by the arbitrators concerning the Claimant’s conduct are also interesting in light of the broader debate about the relevance of the human rights of non-parties in investor-state arbitration.

An overview of the overall Award can be found in the post published on 16 December 2017 on the Kluwer Arbitration Blog. Continue reading

3rd EFILA annual conference 2018: parallel states’ obligations in investor-state arbitration – 5 February 2018, London

The European Federation for Investment Law and Arbitration (EFILA) will be holding its third Annual Conference on 5 February 2018 at the Senate House in London. The conference will focus on four topics:

  1. non-disputing third parties and their influence on arbitration;
  2. investment regulation and arbitration;
  3. human rights, environment and arbitration; and
  4. the proposed Investment Court System.

For more information and details on how to reserve a place, please see the conference flyer here. Continue reading

Environmental and Human Rights issues in Africa have international implications – know what rights and remedies apply

In the first of our regular Africa themed webinars, on Thursday 5 October 2017, 1.00 – 2.00pm BST, we will consider the international implications of environmental and human rights issues in Africa, including:

  • The extraterritorial impacts of a local crisis: international treaty claims and the growing trend of class actions
  • To stay or to go: the risks of exit vs. remaining in-country following a crisis
  • The importance of investment structuring to maximise protection
  • Relying on treaty rights in Africa if things go wrong
  • Preventing and managing crises in Africa

Speakers

John Ogilvie, Partner, Dispute Resolution, London

Andrew Cannon, Partner, International Arbitration, Paris

Laurence Franc-Menget, Of Counsel, International Arbitration, Paris

To register for the webinar, please contact Jane Webber. Continue reading

ILO adopts new treaty on forced labour

On 11 June 2014, the International Labour Organisation (“ILO”) adopted a Protocol (“Protocol”) to the 1930 Forced Labour Convention No. 29 (“Convention”). The Protocol is intended to update the 84 year old Convention and to address gaps in its implementation.

The Protocol calls for governments to pursue a range of measures in order to prevent and eliminate forced labour, including by ensuring that the coverage and enforcement of legislation relevant to the prevention of forced labour applies to all workers and sectors of the economy and by strengthening labour inspection services.

The Protocol will enter into force one year after it has been ratified by at least two member States of the ILO.

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Towards a Treaty on Business and Human Rights?

The Human Rights Council has adopted a resolution establishing a new working group with a mandate to elaborate “an international legally binding instrument on transnational corporations and other business enterprises with respect to human rights”. In this note, we briefly summarise the background to the resolution and its implications for the future of the business and human rights agenda at the UN.

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ECHR reaffirms State immunity from civil proceedings for acts of torture in Jones v United Kingdom

In the recent case of Jones and others v United Kingdom, the European Court of Human Rights (the Court) found that the United Kingdom had not breached Article 6 of the European Convention on Human Rights (the right of access to a court) by granting immunity from jurisdiction to Saudi Arabia and its officials in respect of civil claims brought against them for alleged acts of torture. The Court held that the generally recognised rules of public international law did not contain an exception to State immunity in respect of civil claims concerning alleged acts of torture. It also found that such immunity of a State also protects individual employees and officers in respect of acts undertaken on behalf of the State.

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Rise in arbitration in the extractive industries

According to a recent report from think-tank Chatham House, arbitration cases have increased nearly fourfold between 2001 and 2010 in the mining sector, reflecting tensions among stakeholders which escalated with the commodity price boom.

The rise in commodity prices increased popular expectations, and governments accordingly came under pressure to show that citizens would receive greater benefits as a result of the rising resource revenues.  In the face of growing uncertainty about future prices and demand, however, extractive companies started to face pressure from their shareholders to scale back, delay or even cancel projects.  Governments were therefore seeking to benefit from windfall profits during price spikes, whilst on the other hand the companies wanted the ability to delay or downsize the project during a downturn.  Unfortunately, many contracts did not provide the flexibility required; the Chatham House report notes that model contracts of the 1990s have by and large failed to weather the commodities price boom.

For the purposes of its report, Chatham House carried out an analysis of disputes and the arbitration data available, looking for patterns and indicators that might help identify the drivers and conditions for company-government disputes in the extractive industries.  Whilst it found it difficult to draw robust conclusions to help identify expropriation- or arbitration- prone countries, it did identify key drivers of disputes, namely “resource nationalism”, tensions with local communities, and environmental issues.     

“Resource nationalism” is a popular concept generally used to refer to moves by producer countries to gain greater control of their country’s resources.  It is more likely to become a problem in cases where the initial deal struck with the government is perceived as unfair by local communities:  this will increase the risk that the government will come under pressure from stakeholders to renegotiate the deal or even renege on its agreement at a later stage.  

Stéphane Brabant (co-head of the Business and Human Rights Group as well as the Mining Group at HSF), recently attended the Second Annual United Nations Forum on Business and Human Rights in Geneva to discuss the implementation of the UN Guiding Principles on Business and Human Rights at the international and national level by States and companies.  At the breakfast panel session hosted by Herbert Smith Freehills (HSF) on 5 December 2013 to mark the publication of a new report by the McKinsey Global Institute (MGI), “Reverse the Curse: Maximizing the potential of resource-driven economies”, he noted that companies are waking up to the connection between the upholding of human rights and shareholder value.  Indeed, breaches of such “soft law” principles can lead directly to “hard” sanctions as well as potentially serious reputational damage. 

An audience participant at the breakfast seminar noted the importance of flexibility in contractual arrangements to ensure the sustainability of a deal.  He also commented on the importance of effective communication to ensure that a fair deal is appropriately perceived as such by all stakeholders.  This is an important theme of the MGI report, which stresses that effective communication with the government and local stakeholders is key at all stages: before the deal is struck, when it is crucial to understand their objectives and address potential future concerns; during operations, to manage expectations and make local stakeholders aware of the importance of the company’s contribution to the local economy; and when projects are likely to be delayed or cancelled, to make the host government aware of the potential downside of attempts to renegotiate deals or expropriate assets.

Many deals will need to be renegotiated.  In West Africa, for example, where mining contracts and codes are being opened to public scrutiny as part of initiatives such as the Extractive Industries Transparency Initiative (EITI), governments are under pressure to renegotiate contracts and review their mining codes, and various reviews of the sort are already under way in Guinea, Sierra Leone, Mali, Liberia and Ghana. 

In many cases, companies and governments will be able to come to a new agreement, cooperating to ensure that the host country’s legitimate policy concerns are addressed and a strong and stable legal framework is put in place for their deals.  Where governments make sudden changes in the terms of investment, acting under pressure to offset societal unrest or to drum up political support, however, it may not be possible to reach a mutually acceptable compromise.  In such circumstances, companies may need take a hard line and be willing to resort to arbitration against a host government for reneging on an agreement or changing its provisions, not least as an important precedent for future disputes.  The MGI report cites the example of ExxonMobile, which was able to recoup roughly USD300 million in 2007 after its assets in Venezuela were expropriated.

Although commodity prices are now falling, according to the Chatham House report, disputes between resource groups and governments are only likely to keep increasing as companies start reducing their capital expenditure and come under pressure to renegotiate their contracts with host governments or lose their licences as a result.  HSF has extensive experience in advising companies on crisis management and dispute resolution in the mining sector.  Companies may wish to get in touch to obtain specialist advice on the options available to them if they have any concerns regarding their mining deals.   

For more information, please contact , Matthew Weiniger, Partner, Naomi Lisney, Associate, or your usual Herbert Smith Freehills contact.

Matthew Weiniger
Matthew Weiniger
Partner
+44 20 7466 2364
Naomi Lisney
Naomi Lisney
Associate
+44 20 7466 2749

European Commission publishes employment and recruitment sector guide: Corporate responsibility to respect human rights

The European Commission has published guidance for the employment and recruitment sector on meeting the corporate responsibility to respect human rights under the UN Guiding Principles on Business and Human Rights (UNGPs). The guidance sets out the steps required under the UNGPs to “know and show” a respect for human rights and has translated this into the particular context of employment and recruitment agencies.

The guidance is of relevance not only to employment and recruitment agencies, but to all companies globally, who rely on agencies for the recruitment of direct hire employees or the supply of workers. The sector guide will be particularly relevant for personnel engaged in corporate governance, ethics and compliance or human resources functions, and those whose role includes managing business relationships with employment and recruitment agencies. It is also intended to be helpful to groups who are interested in promoting respect for human rights in this business sector, including trade unions.

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European Commission publishes oil and gas sector guide: corporate responsibility to respect human rights

The European Commission has published guidance for companies in the oil and gas sector on meeting the corporate responsibility to respect human rights under the UN Guiding Principles on Business and Human Rights (UNGPs). The guidance sets out the steps required under the UNGPs to “know and show” a respect for human rights and translates this into the particular context of the oil and gas sector.

The guidance is of relevance to all companies globally in the oil and gas sector. The sector guide will be particularly relevant for personnel engaged in corporate governance and ethics and compliance functions, and whose role includes managing business relationships with contractors, suppliers and joint venture partners. It is also intended to be helpful to groups who are interested in promoting respect for human rights in this business sector, including governments, industry associations, NGOs and trade unions. The guidance builds on a draft published for public consultation in December 2012 (see our e-bulletin on the draft guidance here) and focuses on upstream activities, albeit not exclusively.

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