Over the past thirty years, foreign investors who have suffered losses as a result of the acƟons of the host state where their investments were made have increasingly resorted to investment treaty arbitraƟons to seek to recover their losses. As readers will know, such proceedings are brought under a network of bilateral investment treaƟes (“BITs”) that spans the globe. Through BITs, both State parƟes to the relevant treaty frequently agree to the submission of disputes between one state party and investors having the naƟonality of the other State party to arbitra- Ɵon before an internaƟonal arbitral tribunal. The tribunal will apply principles of internaƟonal law to determine whether the host state has breached its obligaƟons to protect the investment: key principles include fair and equitable treatment of investors, nondiscriminaƟon as between foreign investors and domesƟc businesses (or those from a ‘most favoured naƟon’), and a prohibiƟon on expropriaƟon, or naƟonalisaƟon, of assets without effecƟve compensaƟon. The InternaƟonal Centre for the SeƩlement of Investment Disputes (“ICSID”) established under the Washington ConvenƟon of 1965, oversees and administers investment treaty arbitraƟons. ICSID provides a procedural framework and arbitraƟon rules, and also offers a panel of qualified arbitrators from which appointments can be made. Arbitral tribunals appointed under BITs or the ICSID framework wield considerable power. They can determine that sovereign States must pay very significant sums to private investors. Of course, the State parƟes to the relevant treaƟes will have voluntarily submiƩed to the jurisdicƟon of the tribunal, by giving their consent to arbitraƟon to their (sovereign) counterparty to the treaty. Private investors benefit by virtue of their naƟonality, and must have made a qualifying investment in the territory State in ques- Ɵon. But even before an award is rendered, ICSID tribunals can make wide-ranging orders to protect the integrity of the arbitral process, or the rights of the parƟes on an interim basis. In this arƟcle, we look at how ICSID arbitrators may even order States to refrain from pursuing criminal proceedings against persons within their territory while an arbitraƟon is on foot, in effect adjudicaƟng the legality (or at least the permissibility) of prosecuƟons under the naƟonal laws of a sovereign state. This is a remarkable excepƟon to a State’s ability to police its own territory. It is worth pausing to reflect on it. Provisional measures ICSID tribunals make orders prevenƟng, restraining or staying criminal prosecuƟons or proceedings as ‘provisional measures’. Both the ICSID ConvenƟon and the ICSID ArbitraƟon Rules provide for this remedy. ArƟcle 47 of the ICSID ConvenƟon states that: “Except as the parƟes otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respecƟve rights of either party.” Rule 39 of the ICSID ArbitraƟon Rules is similarly concerned with the ‘preservaƟon of rights’. The ICSID ConvenƟon simply states that arbitrators can order “any” measures that preserve the “rights” of the parƟes. Neither the ICSID ConvenƟon nor the ICSID ArbitraƟon Rules provide further guidance as to what kind of ‘rights’ may be preserved. The existence or nature of such rights may well be hotly contested in the early stages of arbitral proceedings, which is when applicaƟons for provisional measures are likely to be made. As we will see, ICSID jurisprudence shows that tribunals interpret the noƟon of ‘rights’ expansively, just as they do the reference to “any” provisional measures. States oŌen contest that an ICSID tribunal even has jurisdicƟon over the substanƟve dispute. Arbitrators will, however, readily award provisional measures before deciding any jurisdicƟonal objecƟons. This follows from ArƟcle 39(1) of the ICSID ArbitraƟon Rules, which empowers a tribunal to award provisional measures “… at any Ɵme aŌer the insƟtuƟon of the proceeding …”. Giving priority to applicaƟons for provisional measures means exposing respondents to orders made before the tribunal has determined whether the claimant really is a qualifying investor. It also means that tribunals will order provisional measures without undertaking a full review of the underlying facts. In Caratube InternaƟonal Oil Company LLP and Devincci Salah Hourani v Republic of Kazakhstan (ICSID Case No. ARB/13/13), the tribunal addressed this point, stressing that: “… the applicant’s burden of proof is that it must establish the requirements with sufficient likelihood, without however having to actually prove the facts underlying them. Moreover, the Tribunal’s assessment is necessarily made on the basis of the record as it presently stands; any conclusion reached in this decision could be reviewed if relevant circumstances were to change and would in any event not be binding on the Tribunal …” The corollary of making the remedy of provisional measures available on this basis is that the claimant must convince the tribunal that the measures applied for are both ‘urgent’ (such that the issue cannot wait unƟl the award on the merits) as well as ‘necessary’. It is implicit in these requirements that the applicant
must show a risk of substanƟal and irreparable harm, in the sense that it could not be repaired by a subsequent award of damages. A number of tribunals have referred to the amended UNCITRAL Model Law (2006) when it comes to the test for awarding such measures (see for instance Burlington Resources Inc v Ecuador (ICSID Case No. ARB/08/5). ArƟcle 17(A) of the Model Law requires: “(a) Harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substanƟally outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted.” The UNCITRAL Model Law goes further than looking at the harm that the applicant wishes to prevent. Under ArƟcle 17(B), the tribunal must also be saƟsfied that there is a reasonable possibility of the requesƟng party succeeding on the merits of the underlying claim. In contrast, it appears that (at least some) ICSID tribunals will be much more reluctant to consider the apparent strength of the claim when balancing the rights and interests of the parƟes: for instance, ArƟcle 17(B) was not referred to in the decision in Burlington. Along similar lines, in EuroGas Inc and Belmont Resources Inc v Slovak Republic (ICSID Case No ARB/14/14) (Procedural Order No. 3), the tribunal, when deciding an applicaƟon for provisional measures, cited earlier arbitral pronouncements and accepted that it could not “… examine in depth the claims and arguments on the merits of the case” (paragraph 70). The EuroGas arbitrators noted that it was necessary, and also sufficient, that the facts alleged by the claimant established the tribunal’s jurisdicƟon “at first sight”, but that these facts would not (and could not) be verified at that stage. On the facts, the EuroGas tribunal was persuaded that the claimant had set out a coherent prima facie argument that there was jurisdicƟon. The arbitrators therefore went on to consider whether the requirements for granƟng provisional measures were met (necessity and urgency). One may quesƟon whether there should have been at least some review of the merits of the underlying claim, even if only on a prima facie basis, or at ‘first sight’. If ICSID tribunals did that, orders for provisional measures may very well appear stronger. What rights can be preserved? The tribunal in EuroGas may have declined to look at the merits of the underlying claim (a reluctance in keeping with decisions by other ICSID panels) because of the nature of the rights that ICSID arbitrators will protect by granƟng provisional measures. Tribunals disƟnguish between substanƟve rights, so those that form part of the underlying claim, and procedural rights: the laƩer can be selfstanding and independent of the underlying claim. As a maƩer of strict logic, if procedural rights are self-standing and deserving of protecƟon, then they can also exist in respect of a claim that is weak or even bound to fail, always recalling that the tribunal has not yet found that the claim has no merit at the Ɵme of the applicaƟon for provisional measures. While that premise can be criƟ- cised as favouring the claimant overmuch, procedural rights worthy of preservaƟon in their own right are today firmly established in ICSID jurisprudence. Professor Schreuer, one of the leading authoriƟes on the interpretaƟon of the ICSID ConvenƟon, describes why tribunals award provisional measures as follows (“The ICSID ConvenƟon: A Commentary”, at page 746): “[t]he purpose of provisional measures is to induce behavior by the parƟes that is conducive to a successful outcome of the proceedings such as securing discovery of evidence, preserving the parƟes’ rights, prevenƟng self-help, safeguarding the awards’ eventual implementaƟon and generally keeping the peace. They have to be taken at a Ɵme when the outcome of a dispute is sƟll uncertain. Therefore, the Tribunal has to strike a careful balance between the urgency of a request for provisional measures and the need not to prejudge merits of the case.” Preserving or securing evidence is one of the most obvious forms that an order for provisional measures might take. An early example of this is found in Agip S.p.A. v Congo (ICSID Case No. ARB/77/1). The Government of Congo had naƟonalized Agip’s Congolese subsidiary, and had occupied the local offices. The tribunal ordered the Government to preserve all the documents located on the premises, to produce a list of what records existed and to present documents to the claimant on request. Right to protect the integrity of the arbitraƟon and prevent aggravaƟon of the dispute Provisional measures can also be granted to protect intangible, procedural rights, such as a party’s enƟtlement to have the dispute resolved by the tribunal without undue or improper interference. As will be seen, provisional measures with regard to criminal proceedings are granted in order to protect such procedural rights. In 2006, the tribunal in Biwater Gauff (Tanzania) Ltd v Tanzania (ICSID Case No. ARB/05/22) made a number of orders dealing with applicaƟons for provisional measures. In Procedural Order No. 3, the arbitrators noted it was seƩled that tribunals could order provisional measures to prevent any conduct that might harm or prejudice the integrity of the arbitral proceedings, or aggravate or exacerbate the dispute, in line with fundamental noƟons of fairness and due process. The tribunal’s power to protect the arbitral process itself is also recognised in ArƟcle 17 of the Model Law, which sets out the circumstances in which interim measures may be granted. Arbitrators can: “(b) Take acƟon that would prevent, or refrain from taking acƟon that is likely to cause, current or imminent harm or prejudice to the arbitral process itself.” In this context, the Biwater tribunal further explained that provisional measures could be available to ensure that the arbitraƟon was conducted in an orderly fashion and that there was a level playing field between the parƟes. They also stated that any aƩempts to conduct a trial by media, or put external pressure on parƟes, witnesses, experts or other parƟcipants, might be controlled by suitable orders for provisional measures. When criminal proceedings endanger the rights of the claimant On the other side of the equaƟon is the State’s sovereign freedom to uphold and enforce its naƟonal laws, and to prosecute those it suspects of having commiƩed a crime in its territory - even if the suspected perpetrators happen to be claimants in an ICSID arbitraƟon. Indeed, some ICSID claims have previously been dismissed on grounds that included fraud and forgery by the claimants in seeking to establish and advance a claim (see for instance Cementownia “Nowa Huta” SA v Republic of Turkey (ICSID (AF) 06/2)). That a State should, as a maƩer of principle, be able to prosecute even an ICSID claimant if they are suspected of having commiƩed fraud, whether or not the fraud is connected to the investment which is the subject maƩer of the arbitraƟon, is uncontroversial. ICSID tribunals have affirmed that (EuroGas v Slovak Republic): “… that the right and duty to conduct criminal prosecuƟons is a prerogaƟve of any sovereign State and that only excepƟonal circumstances may therefore jusƟfy that an arbitral tribunal order provisional measures which interfere with criminal proceedings.” In pracƟce, arbitral tribunals nonetheless take the view that there are limits to this prerogaƟve, and that they can set those limits. The formulaƟon that has been increasingly adopted is that ‘a parƟcularly high threshold must be overcome’ before a tribunal can interfere with criminal proceedings through provisional measures (Churchill Mining PLC and Planet Mining Pty Ltd v. Republic of Indonesia (ICSID Case No. ARB/12/14), at paragraph 72). Before looking at the kind of (excepƟonal) circumstances in which this high threshold might be overcome, it is worth idenƟfying the jurisdicƟonal or legal basis for orders interfering with the enforcement of naƟonal criminal law. ArƟcle 26 of the ICSID ConvenƟon states that: “Consent of the parƟes to arbitraƟon under this ConvenƟon shall, unless otherwise stated, be deemed consent to such arbitraƟon to the exclusion of any other remedy.” This confers exclusive jurisdicƟon on an ICSID tribunal, and precludes a local or administraƟve proceedings with respect to the maƩers that have been referred to ICSID arbitraƟon. This exclusive jurisdicƟon is, however, limited to civil proceedings between the same parƟes, with the same subject maƩer, as was stated in Lao Holdings N.V. v The Lao People’s DemocraƟc Republic (ICSID Case No. ARB(AF)/12/6). It is clear, therefore, that ArƟcle 26 of the ICSID ConvenƟon does not provide a legal basis for provisional measures controlling criminal proceedings. The ICSID ConvenƟon was intended to deal with investment disputes: indeed, it was not intended to deal specifically with malicious prosecuƟon, wrongful arrest, or other abuses in the administraƟon of a State’s naƟonal criminal jusƟce system. Such conduct could of course amount to expropriaƟon or discriminatory, unfair and inequitable treatment of investors, and thus be in breach of a BIT if it led to the loss of the investment. Obviously, investors would need to discharge the usual burden of proof to establish such a claim on the merits. What is more, the tribunal in Lao Holdings expressly stated that (at paragraph 21): “Neither the ICSID ConvenƟon nor the BIT imposes a prohibi- Ɵon on a State that enjoins it from exercising criminal jurisdicƟon over [the ordinary laws of general applicaƟon prohibiƟng bribery, corrupƟon, money laundering and embezzlement]. In parƟcular, they do not exempt suspected criminals from invesƟgaƟon or prosecuƟon by virtue of their being investors. The Tribunal rejects any suggesƟon that ordinary domesƟc criminal law of general applicaƟon was intended to be or is constrained by the iniƟaƟon of ICSID proceedings under the BIT.” Having said that, the tribunal then nevertheless went on to find that, on the facts before it, Laos ought to be “constrained” as to how it enforced the ‘ordinary domesƟc criminal law of general applicaƟon’. The arbitrators acknowledged that although Laos had the sovereign power to prosecute crimes, and the power to invesƟ- gate whether the claimants had made their investments in compliance with the general laws against bribery and corrupƟon, these prosecutorial powers “… of course must be exercised in good faith and with due respect for Claimants’ rights”. In Churchill Mining v Indonesia, the tribunal noted that (paragraph 84): “In any event, ICSID arbitraƟon does not confer “automaƟc immunity” from criminal proceedings, which fall outside of the jurisdicƟon of ICSID and this Tribunal.” Read in isolaƟon, this statement clearly does not reflect arbitral pracƟce: ICSID tribunals do assume jurisdicƟon over criminal proceedings by ordering provisional measures (and the tribunal in Churchill itself would have been prepared to intervene in Indonesia’s criminal jusƟce system if there had been excepƟonal circum-stances). But saying that criminal proceedings are ‘beyond the jurisdicƟon of ICSID arbitrators’ is, technically speaking, correct. What do ICSID tribunals rely on as the jurisdic- Ɵonal basis for restraining criminal proceedings? The consensus that appears from a number of awards is that where criminal proceedings are closely connected with the arbitra- Ɵon, are specifically aimed at interfering with it, or are designed to harass and inƟmidate the claimant or its witnesses, then they endanger the integrity of the arbitral process, or infringe the claimant’s right not to have the dispute aggravated. These rights, which the relevant decisions say are being protected or preserved under ArƟcle 41 of the ICSID ConvenƟon, are unwriƩen. They are the result of jurisprudence created by arbitral tribunals. In Eurogas, the tribunal (ciƟng the earlier decision in Churchill) held that (at paragraph 83): “An allegaƟon that the status quo has been altered or that the dispute has been aggravated needs to be buƩressed by concrete instances of inƟmidaƟon or harassment.” From this, it appears that it is objecƟonable conduct (harassment and inƟmidaƟon) that would allow an ICSID tribunal to intervene. However, it needs to borne in mind that the allegedly objecƟonable conduct relates to the exercise of the State’s sovereign prerogaƟve, a maƩer which “falls outside the jurisdicƟon of ICSID …” (to quote the tribunal in Churchill). Misconduct alone does not appear to be a sufficient jurisdicƟonal basis - even though it is plainly desirable that tribunals should be able to prevent harassment or malicious prosecuƟon. In Quiborax SA, Non Metallic Minerals SA v Bolivia (ICSID Case No ARB/06/2), the tribunal noted that Bolivia’s sovereign power to prosecute conduct that might be criminal under naƟonal law had to be exercised in ‘good faith’ and “…respecƟng Claimants’ rights, including their prima facie right to pursue this arbitraƟon.” This seems to impose two requirements: the State must act in good faith, and (addiƟonally) it must respect the right of the claimants to bring a ‘prima facie’ case before an ICSID tribunal. Turning to the first requirement, the principle of good faith is deeply ingrained in public internaƟonal law. BITs are treaƟes, or ‘agreements’ between sovereign States. They are to be construed in accordance with public internaƟonal law, as enshrined in the Vienna ConvenƟon on the Law of TreaƟes. ArƟcle 26 of the Vienna ConvenƟon, enƟtled “Pacta sunt servanda”, provides that “[e]very treaty in force is binding upon the parƟes to it and must be performed by them in good faith”. ArƟcle 31 states that a “… treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose”. This applies to every BIT. The Special Rapporteur commenƟng on the draŌing of the Vienna ConvenƟon made it clear that (InternaƟonal Law Commission, “Report of the InternaƟonal Law Commission Covering its 16th Session, 727th MeeƟng, 20 May 1964”): “… the intended meaning [of ArƟcle 26] was that a treaty must be applied and observed not merely according to its leƩer, but in good faith. It was the duty of the parƟes to the treaty not only to observe the leƩer of the law, but also to abstain from acts which would inevitably affect their ability to perform the treaty.” More recently, the InternaƟonal Court of JusƟce has interpreted ArƟcle 26 of the Vienna ConvenƟon as meaning that (GabčíkovoNagymaros Project (Hungary v Slovakia) (Merits)  ICJ Rep 7, 79): “… the purpose of the Treaty, and the intenƟons of the Par- Ɵes in concluding it, … should prevail over its literal applica- Ɵon. The principle of good faith obliges the ParƟes to apply it in a reasonable way and in such a manner that its purpose can be realized.” If a State purposefully set out to sabotage an ICSID arbitraƟon through naƟonal criminal proceedings or prosecuƟons, then that would be in bad faith, and would make it impossible to honour the promise given (sovereign to sovereign) under the applicable BIT or the ICSID ConvenƟon: to allow investors to refer disputes relaƟng to qualifying investments to an internaƟonal tribunal for resolu- Ɵon. The Vienna ConvenƟon and the principle of good faith would allow ICSID tribunals to put forward a solid jurisdicƟonal basis for interfering with the sovereign right to conduct criminal proceedings: by entering into the relevant BIT, the State conceded and agreed that it would not use its sovereign powers so as to undermine or frustrate the arbitraƟon agreement with investors. If more regard were paid to these principles of public internaƟonal law in the analysis set out in ICSID decisions, they might be seen to have more legiƟmacy than measures based on the rights of nonaggravaƟon of the dispute, or the tribunal’s inherent jurisdicƟon to protect the arbitral process. The second requirement referred to by the tribunal in Quiborax is the claimant’s prima facie right to pursue the claim. The tribunal elaborated on this right by referring to an earlier decision in Plama ConsorƟum Limited v Bulgaria (ICSID Case No. ARB/03/24) (at paragraph 40) which noted that provisional measures could protect the claimants’: “… ability to have [their] claims and requests for relief in the arbitraƟon fairly considered and decided by the arbitral tribunal.” One purpose of the BIT is obviously to allow investors to refer disputes to arbitraƟon, and (in line with the principle of good faith) States should not frustrate that purpose. However, the reference to a prima facie case suggests that the tribunal will not invesƟgatethe merits - as noted, when provisional measures are being applied for, tribunals tend to consider only the quesƟon of jurisdicƟon on a prima facie basis. When do States cross the line? In Quiborax v Bolivia, the Bolivian authoriƟes began to audit certain companies associated with the claimant and the investment in respect of which the arbitraƟon had been commenced. ThereaŌer, the State prosecutor commenced criminal proceedings against a number of persons closely associated with the claimant and the arbitraƟon, including one of the individual claimants, his business partner and legal counsel: the gist of the alleged crimes was that the share cerƟficates by which the claimants sought to prove their ownership of the company that had held the investment were forged. The Bolivian authoriƟes then also seized a range of company records, and began to interview (or interrogate) potenƟal witnesses that were thought to give evidence in the arbitraƟon. The tribunal found that Bolivia’s conduct merited provisional measures protecƟng the claimants, and endangered the integrity of the arbitral process. Bolivia had referred to the ICSID proceedings as harmful to the State’s interests by their very existence: “… the very nature of these criminal proceedings is bound to reduce their willingness to cooperate in the ICSID proceeding. Given that the existence of this ICSID arbitraƟon has been characterized within the criminal proceedings as a harm to Bolivia, it is unlikely that the persons charged will feel free to parƟcipate as witnesses in this arbitraƟon.” The claimants had been deprived of evidence, in the form of corporate records that been seized, and because witnesses had been discouraged from giving evidence. Measures to protect the claimant were both necessary and urgent, as they could not wait for the final award: without the evidence, the final award could not fairly deal with the claimants’ case. Similarly, in Lao Holdings, the tribunal noted a very close and direct relaƟonship between the criminal proceedings and the arbitraƟon. The tribunal found that the primary purpose of the criminal invesƟgaƟons was for the State to secure evidence that could be used against the claimants in the arbitraƟon. Laos also sought to pursue an onerous and intrusive invesƟgaƟon of a number of witnesses and potenƟal witnesses at a Ɵme when the claimant was heavily engaged in final preparaƟons for the hearing. The tribunal concluded that the integrity of the arbitral process was threatened, and refused to permit criminal invesƟgaƟons that were directly related to the arbitraƟon. In both these cases, the tribunals were saƟsfied that the claimants had established the required high threshold, and had shown that excepƟonal circumstances existed that jusƟfied the tribunal intervening in the sovereign affairs of the respondent State. Drawing the threads together Drawing the threads together, provisional measures restraining criminal proceedings might be granted where: • There is a strong and direct link between the criminal proceedings and the ICSID arbitraƟon. • The State’s power to insƟtute criminal proceedings is used to collect evidence for use in the arbitraƟon which will undermine the integrity of the arbitral process. • The tribunal is saƟsfied that the criminal proceedings have a chilling effect on potenƟal witnesses in the arbitraƟon. • There are concrete instances of inƟmidaƟon or harassment (as referred to in Churchill Mining). Provisional measures will only be granted where the requirements of urgency and necessity are met. This has not troubled tribunals greatly, as the risk of the claimant being unable to present its case is seen as sufficiently serious to merit protecƟve measures straightaway. Of course, the State could always conƟnue with criminal proceedings aŌer the award has been rendered (so the State’s ability to enforce its naƟonal law is not subject to the same immediate threat). In conclusion, the fact that ICSID tribunals have intervened where States have been guilty of misconduct or have acted in bad faith with direct regard to the arbitraƟon proceedings is to be commended. However, future awards might perhaps seek to set out the jurisdicƟonal basis more fully by reference to the principle of good faith in public internaƟonal law, which would help to meet any criƟcism that tribunals meddle in the sovereign affairs of States without jusƟ- ficaƟon. A final point that merits further consideraƟon is whether tribunals should also saƟsfy themselves that a claimant seeking provisional measures aimed at preserving the right to present its case, or protecƟng the arbitral process itself, actually has a good case, at least on a prima facie basis. It is suggested that tribunals would usually have sufficient informaƟon on the record to form a view at the Ɵme when applicaƟons for provisional measures are being made. Again, if that were done, criƟcs of investment arbitra- Ɵon would find it more difficult to allege pro-investor bias.