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

Churchill Mining v Indonesia: ICSID Tribunal takes cautious approach to request for provisional measure

On July 8, 2014, a tribunal composed of Professor Gabrielle Kaufmann-Kohler (President), Michael Hwang S.C., and Professor Albert Jan van den Berg (the “Tribunal”), issued a Procedural Order No. 9 denying Churchill Mining PLC and Planet Mining Pty Ltd (“Claimants”) their application for provisional measures. Relying on Article 47 of the ICSID Convention and Rule 39 of the ICSID Arbitration Rules, Claimants asked the Tribunal to “recommend,” among other things, that the Republic of Indonesia (“Indonesia” or “Respondent”) (i) “refrain from threatening or commencing any criminal investigation or prosecution against the Claimants, their witnesses in these proceedings, and any person associated with the Claimants’ operations in Indonesia, including their wholly owned subsidiary (…);” and (ii) “stay or suspend any current criminal investigation or prosecution against Claimants’ current and former employees, affiliates or business partners pending the outcome of th[e] arbitration.” The Claimants also requested more general measures seeking to prevent Indonesia from threatening “the exclusivity” of the ICSID proceedings and generally aggravating the dispute.

At a time where the investor-state dispute resolution system is criticized for permitting too lax an access to treaty-based remedies through arbitration, the Churchill Mining Tribunal showed restraint and caution in addressing Claimants’ request to enjoin a host state from initiating or continuing criminal proceedings against Claimants’ witnesses and potential witnesses. The Tribunal did recognize Claimants’ theoretical right to protection against existing or threatened criminal proceedings that would be likely to impair Claimants’ rights in the arbitration. However, the Tribunal set a high bar for the evidence that Claimants would have had to adduce to establish the likelihood that their rights are indeed put at risk by Indonesia’s actions.

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ICJ orders provisional measures in proceedings between East Timor and Australia

The International Court of Justice (ICJ) has handed down its decision in respect of provisional measures sought by East Timor in a pending case before the Court. The principal claim relates to documents and data seized by the Australian Security Intelligence Organisation (ASIO) from the office of an Australian lawyer representing East Timor in an upcoming arbitration with Australia.¹

At least some of the materials seized relate to a pending arbitration between East Timor and Australia concerning allegations by East Timor that Australia engaged in spying during negotiations to sign the 2006 Treaty on Certain Maritime Arrangements in the Timor Sea (CMATS). In that arbitration, East Timor contends that Australian espionage invalidates CMATS, a $40 billion gas and oil treaty, as the treaty was not negotiated in good faith.

The Court has ordered that Australia:

  • ensure that the content of the seized material is not used to the disadvantage of East Timor before the principal claim is determined;
  • keep the seized materials and any copies thereof under seal; and
  • not interfere in any way in communications between East Timor and its legal advisors in relation to the CMATS arbitration.

However, the Court did not order that Australia deliver the seized materials into the custody of the ICJ or deliver to East Timor and the ICJ a list of the materials seized in the raid that have been disclosed to any person and a list of those to whom the materials had been disclosed, as requested in East Timor’s request for provisional measures.

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