ICSID issues first award involving China as Respondent, finding in host state’s favour

In an award dated 9 March 2017, the Tribunal in an ICSID arbitration between Korean investor Ansung Housing Co., Ltd and China dismissed all claims as time-barred. The Claimant's attempt to circumvent the limitation period by relying on the most favoured nation (MFN) clause did not succeed. The Tribunal came to this conclusion at an early stage of the proceeding, "with relative ease and despatch".

This is the first ICSID arbitration to involve China as the respondent state that has proceeded to a substantive hearing and resulted in an award.

See our previous blog on the case here

Click here for a copy of the Award.

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Mixed messages to investors as India quietly terminates bilateral investment treaties with 58 countries

The Government of India says it has sent notices to terminate bilateral investment treaties (BITs) with 58 countries, including 22 EU countries.  It has been reported that many of these BITs will cease to apply to new investments from as early as April 2017. The BIT between India and The Netherlands (which had been a common route for investment into India) has already been terminated from December 2016.  Termination of the BITs would also remove protection for new investments by Indian investors into the counterparty countries. For the remaining 25 of its BITs that have not completed their initial term, and so are not ripe for termination, India has circulated a proposed joint interpretative statement to the counterparties to these BITs seeking to align the ongoing treaties with its 2015 Model BIT.  While investments made before the termination of the 58 treaties may be protected for some years under the 'sunset' clauses in those BITs, India's actions send mixed messages at a time when the Indian government is making renewed efforts to attract inbound investment with its 'Make in India' campaign, and when outbound investment by Indian companies continues to increase into both developed and developing economies. 

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Urbaser v. Argentina and Burlington v. Ecuador: Investment arbitration is not over the counterclaims yet

Two recent decisions by tribunals have advanced the body of tribunal practice considering the issue of counterclaims by respondent states in investment treaty arbitration: Burlington Resources Inc. v. Ecuador, in which the tribunal awarded damages against the investor for breach of Ecuadorian environmental law in the performance of its investment, and Urbaser SA and Consorcio de Aguas Bilbao Bizkaia v. Argentina, in which the tribunal accepted jurisdiction to hear Argentina's counterclaim asserting that the investor had violated international human rights obligations. These decisions arise in the context of conceptual challenges to the pursuit of counterclaims in investment arbitration.

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New dispute resolution rules for foreign investors in South Africa

South Africa’s draft regulations for investor-state mediation require refinement to work effectively with international arbitration.

Interested parties have until 28 February 2017 to comment on draft Regulations on Mediation Rules (Regulations) published by South Africa’s Department of Trade and Industry (DTI) on 30 December 2016, under the Protection of Investment Act, 2015 (Act).

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“Planes, paintings and Russian space assets” – Practicalities, challenges, successes and failures in the enforcement of arbitral awards against states and state entities

Wednesday 6 July 2016, 12.45 – 1.45pm BST

States are increasingly involved in disputes arising from commercial transactions and arbitrations with investors under various bilateral and multilateral investment treaties.  Resolving a dispute with a state is only the first step – more significant is the ability to enforce the award.

In this webinar, our speakers will draw on recent examples to discuss:

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Video post in “Observations on Arbitration” series: “Introduction to Investment Arbitration”

In this video post in the "Observations on Arbitration" series, Christian Leathley provides an Introduction to Investment Arbitration, discussing the ways in which an investment arbitration can arise, explaining what bilateral investment treaties (BITs) are and outlining the nature of the obligations owed by a state to an investor under such agreements. Continue reading

Investor’s claims against Peru thrown out due to abusive corporate restructuring to acquire treaty rights

In an award rendered on 9 January 2015, an ICSID tribunal (Gabrielle Kaufmann-Kohler (presiding), Eduardo Zuleta, and Raúl Vinuesa), determined that one of the Claimants had acquired shares in a Peruvian company only for the purpose of obtaining treaty rights, in relation to a foreseeable dispute and less than two weeks before the announcement of the State measures at issue in the case. The Tribunal concluded that the only plausible reason for the restructuring was to provide an investment treaty claim against Peru. The restructuring was therefore abusive. On that basis, the Tribunal declined to rule on the merits of the case, dismissed the claims, and ordered the Claimants to pay the Republic of Peru more than US$1.5 million in costs.

Investors are increasingly alive to the investment protections offered by bilateral and multilateral investment treaties.  Not all structuring (or re-structuring) of investments will constitute an abuse of process and with careful advance planning, investors can make their investments using the right vehicle and transaction structure to ensure the best treaty protections possible. For more information on this topic, please contact Prudence Heidemans to access our webinar on Structuring Investments and Maximising Treaty Protection.

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Investment protection and ISDS in the TTIP: the discussion continues with more consultation around the corner

Yesterday afternoon, the EU Commission issued its Report on the outcome of the public consultation on the inclusion of investment protection and investor-state-dispute-settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP) being negotiated between the EU and the US. As discussed in our blog post here, the public consultation was launched against the backdrop of vociferous debate about the nature of ISDS and investment protection more generally and in relation to the TTIP. The controversy surrounding investment protection and ISDS in connection with the TTIP is described in our recent podcast.

It is no surprise that the Report reveals strong opposition to, and concerns about, ISDS in the TTIP. It is also no surprise that the discussion as to both the content of the investment protections (including any “right to regulate”, as it is known), and the nature of the mechanism by which these can be enforced, will continue. In its Report, in response to the criticisms of inclusion of ISDS in the TTIP, the Commission refers back to the fact that the consultation takes place in specific circumstances in which the Council (and therefore, to all intents and purposes, each Member State) has unanimously entrusted the Commission to negotiate high standards of investment protection and ISDS within the TTIP, providing the final outcome corresponds to EU interests.   Further, whilst the negotiating directives include an element of conditionality and make clear that a decision on whether or not to include ISDS is to be taken during the final phase of negotiations, it cannot be ignored that the US position is also that investment protection and ISDS should feature in the TTIP.

Whilst the consultation received an extremely high proportion of pre-populated responses organised by NGOs (which generally opposed the inclusion of ISDS), it also solicited responses from a broad cross-section of stakeholders which has allowed the Commission to identify a number of key points areas (or “core issues”) to develop. These are:

  • The protection of the right to regulate
  • The supervision and functioning of arbitral tribunals
  • The relationship between ISDS arbitration and domestic remedies
  • Review of ISDS decisions for legal correctness through an appellate mechanism

The Commission has committed to further consultation with EU stakeholders in the first quarter of 2015.  However, at this stage it is not clear how further consultation on these “core issues” will put the Commission in a better position to develop the investment chapter. For example, the “right to regulate” is the flip-side of the guarantee to an investor of fair and equitable treatment. Any re-consideration of the right to regulate will be deficient if it does not take into account the positive rights of investors which impact on the state’s right, as well as the sectors in which such right should exist without limitation. Again, the relationship between ISDS arbitration and domestic remedies depends on the balance struck between investment protections and the rights of states.  A holistic approach is needed.

The Commission’s Report on the responses to the Consultation is found here, and the accompanying Commission Memo is found here. Aspects of the Report are considered in further detail below. You may also wish to hear Herbert Smith Freehills public international law partner Matthew Weiniger QC discussing these issues on the Today programme on Radio 4 on 14 January 2014 (at 18.55 mins into the broadcast).

For further information, please contact Matthew Weiniger QC, partner, Christian Leathley, partner, or Andrew Cannon, partner, or your usual Herbert Smith Freehills contact.

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Potential risks to investors highlighted by two ICSID tribunals declining to recommend provisional protection against criminal investigations

Investors in some states face a real risk of reprisals after commencing investment claims. Reprisals may range from entirely legitimate (albeit unusually forceful) investigation of serious wrongdoing, which is the prerogative of a sovereign state, to the abuse of power to obtain unfair advantage in the arbitration, which is prohibited.

Consistent with the approach taken by previous tribunals, two ICSID decisions published in December 2014 show the difficulty that the investors faced in overcoming the “particularly high threshold” necessary to convince a tribunal to interfere with a criminal investigation being conducted by the host state – anything short of “concrete instances of intimidation or harassment” may not be sufficient (Churchill Mining Plc and Planet Mining Pty Ltd v. Indonesia (ICSID Case No. ARB/12/14 and 12/40; Caratube International Oil Company LLP & Mr. Devincci Salah Hourani v. Kazakhstan ICSID Case No. ARB/13/13). Despite an apparent link between the criminal investigation and arbitration in each application, provisional relief was refused.

These decisions illustrate that vigorous criminal investigations may be a legitimate state-response to an investment claim, and should be anticipated by investors prior to making a claim. The consequences of such investigations may be particularly difficult to mitigate where the investor relies on an ongoing relationship with the state to conduct its business. Investors might not be entitled to protection against such investigations by way of provisional measures, except where there is compelling evidence that the state’s conduct amounts to intimidation or harassment, or directly prevents an investor from presenting their case. In practice, as the Churchill Mining and Caratube decisions show, this evidentiary burden may be difficult for an investor to discharge and these risks would be better addressed prior to commencing arbitration. Continue reading

Inaugural conference of the European Federation for Investment Law and Arbitration: 23 January 2015

The European Federation for Investment Law and Arbitration (EFILA) will be holding its inaugural conference on 23 January 2015 at the Senate House in London. The topic of the conference is “EU law and investment treaty law: convergence, conflict or conversation?“. Herbert Smith Freehills is proud to be a sponsor of this important event which will bring together many of the key thinkers in this area, including politicians, civil servants, advisers, practitioners and academics.

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