This second issue of Lex Petrolea reaffirms King & Spalding’s commitment to leading the way in the international energy arbitration field. This issue starts by welcoming five prominent energy advocates to King & Spalding’s international arbitration practice: Harry Burnett, Adrian Cole, Egishe Dzhazoyan, Peter Megens, and Mehdi Haroun.
In “The Criminal Prosecution of Corporate Executives by Host States in Connection with Investment Arbitration Proceedings,” Lex Petrolea examines the increased risk of prosecution of corporate executives as a result of, or in connection with, the initiation by their companies of an investment arbitration against a sovereign State. While claimants may request arbitral tribunals to issue provisional measures ordering the suspension or cessation of retaliatory criminal proceedings against their executives, these provisional measures remain an inherently limited remedy. Companies and their executives must therefore work proactively with outside counsel to assess and mitigate the risks that exist when initiating arbitration against a State.
In “EP[I]C International Arbitrations,” Lex Petrolea spotlights arbitrations arising out of engineering, procurement, and construction (EPC) contracts in the energy industry. These disputes are generally highly technical, with
substantial amounts in controversy, complex “critical path” issues, and specific procedural rules. As a result, parties to an EPC contract should select counsel and—more importantly—experts and arbitrators who present the technical background required to comprehend the complexity of these projects.
This issue of Lex Petrolea also reviews the protection of commercial arbitration awards through investor-State arbitration. While the overall trend suggests that investor-State tribunals are increasingly open to extending investment treaty protections to commercial arbitration award holders, they are also delineating its boundaries—which this article discusses in some detail.
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Major Arbitration Talent
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Finally, Lex Petrolea analyses the recent arbitral decision in Mobil Investment Canada Inc. & Murphy Oil Corporation v. Canada, which involved the imposition of minimum research and development expenditures on oil and gas concessions located in Canada. As this article explains, the tribunal’s reasoning in that case arguably constitutes a peculiar application of the fair and equitable treatment standard under customary international law.
This second issue confirms Lex Petrolea’s place as a resource for the natural resource lawyer, along with the King & Spalding monthly Energy Newsletter, the King
& Spalding Quantum Quarterly:The Damages Newsletter of King & Spalding’s International Arbitration group, and the King & Spalding Energy Forum, the quarterly series of Houston-based programs offered by the Energy Working Group of King & Spalding. As always, we invite your comments on this and all subsequent issues of
Lex Petrolea:The King & Spalding International Energy Arbitration Newsletter. F
Mr. Cole has been recognized by all the major international directories as a leading international practitioner, being described as “Excellent” by The Legal 500 and Chambers Global and as a “World Leading Construction Lawyer 2013” by PLC Euromoney. Mr. Cole’s wide experience in the energy and infrastructure industries allows him to bring a commercial and pragmatic approach to the resolution of construction and engineering disputes.
Egishe Dzhazoyan joined King & Spalding’s London office in June 2013. During his 11 years of practice as a dual-qualified (UK and Russia) lawyer, Egishe has advised clients in more than
50 arbitration and litigation proceedings across a host of various jurisdictions,
with a particular focus on energy and banking disputes emanating from Russia and the CIS. Chambers UK
Most recently, Mehdi Haroun joined the Paris office of King & Spalding
in September 2013. Mehdi is a dual French/Algerian-qualified lawyer with a broad energy practice that covers general corporate and commercial matters, project development, finance, and
international arbitration. He works principally in the energy, infrastructure, and telecommunications sectors, with a geographic focus mainly on France and North Africa, but also on Francophone Africa more generally. Additionally, Mehdi has published extensively on subjects involving the North African energy sector and speaks regularly on energy issues. He was the alternate representative for Algeria at the International Chamber of Commerce (ICC) Court of Arbitration for four consecutive years and is the current vice president of the Board of the Arbitration and Conciliation Center of the Franco-Arab Chamber of Commerce. F
Major Energy Arbitration Talent
Joins King & Spalding’s International Arbitration Practice
describes him as “very proactive,” praising his “unique scope of experience” in Russia- and CIS-related disputes, with The Legal 500 praising his “excellent common sense.” Mr. Dzhazoyan is listed as a leading individual for international arbitration in both Chambers UK 2013 and The Legal 500 2012. He is also listed as a “Rising Star” in Euromoney’s Expert Guide
Over the past eighteen months, five prominent
international arbitration partners with extensive energy
expertise and experience, Harry Burnett (New York),
Adrian Cole (Abu Dhabi), Egishe Dzhazoyan (London)
Peter Megens (Singapore), and Mehdi Haroun (Paris),
have joined the already deep bench of King & Spalding
international energy arbitration lawyers. Their arrival
further contributes to King & Spalding market-leading
capabilities for all types of commercial and investment
disputes affecting the global energy industry.
Harry Burnett joined King & Spalding in June 2012. As an experienced
trial lawyer, Harry concentrates on international commercial and investor- State arbitration matters, with a particular focus on energy and mining disputes. He is particularly experienced
in matters emanating from Latin America and is fluent
in Spanish and Portuguese. Harry has been ranked by
clients and peers in Chambers USA as well as Chambers
Latin America for International Arbitration, which
notes how he “impresses sources with his ‘superb
focus and attention to detail’ and is considered to be
‘a thought leader of the future.’” He also has been
recognized by The International Who’s Who of Oil & Gas
Lawyers, 2010 & 2011.
Adrian Cole joined King & Spalding in June 2013 to lead the firm’s Middle East dispute resolution practice. He is a construction law specialist advising on disputes relating to energy and infrastructure development. Prior to becoming a lawyer, Mr. Cole qualified as a quantity surveyor.
to Commercial Arbitration 2013.
Peter Megens joined the firm in June 2013 as partner in our Singapore office, where he focuses on international construction disputes and international arbitration. Peter specializes in leading teams on international construction disputes arising out of energy, resources,
and infrastructure projects in the Asia-Pacific region. Recognized as “one of the heavy hitters for
infrastructure and construction litigation” (ALB 2009), Peter contributes his invaluable expertise with technical disputes to King & Spalding’s energy arbitration team. Before joining King & Spalding, Peter was co-head of international arbitration at one of the largest law firms based in the Asia-Pacific region.
The Criminal Prosecution of Corporate Executives by Host States in Connection with Investment Arbitration Proceedings
On June 13, 2012, the president of the arbitral tribunal directed Zimbabwe to refrain from taking any action in connection with its letter of June 11, 2012.9 The president did not provide reasons for his decision but
alluded to the “potential consequences that might result from [Zimbabwe’s] proposed actions.”10
A State’s universally recognized legal prerogatives include the right to prosecute an individual or company that has committed a crime in its territory.1 That right must be exercised in good faith, however, and must respect the fundamental right of investors to pursue arbitration claims before arbitral tribunals. The existence of numerous parallel criminal and arbitration proceedings is evidence of this uneasy cohabitation and is also a source of tension, with States seeking improper advantage by rank and often harsh intimidation. This short article focuses on the prosecution of corporate executives as a result of, or in connection with, the initiation by their companies of an investment arbitration against the State.2
The institution by a State of criminal proceedings against investors as a means of coercion has been a common occurrence since the investment arbitration regime was first implemented. For example, in one of the early ICSID cases, S.A.R.L. Benvenuti & Bonfant v. People’s Republic of the Congo, the State seized the claimant’s investment in PLASCO, a company that manufactured plastic bottles, following the institution of criminal proceedings against Mr. Bonfant that caused him, and most of PLASCO’s Italian staff, to flee the country.3
In recent years, however, States have begun to pursue criminal proceedings against investors and/or their corporate executives as a retaliatory tactic in the face of arbitration proceedings initiated against them. In
response, investors have turned to requesting provisional measures from the arbitral tribunal for their protection. Provisional measures are intended to preserve a factual or legal situation to safeguard a party’s rights.4 Faced with retaliatory criminal proceedings, claimants have generally
requested that the State be directed to suspend these proceedings and, more broadly, to refrain from taking any action that could further aggravate the dispute.5
This article provides an overview of the most recent investment cases (2007-2013) in which a State initiated criminal proceedings against corporate executives as
a result of, or in connection with, a related arbitration against that State, and in which the claimants sought the protection of the tribunal by way of provisional measures.
Overview of Investment Cases
Von Pezold et al. and Border Timbers Limited et al.
June 13, 2012 (Commercial farms)
A Swiss-German family and their businesses initiated two ICSID arbitration proceedings against Zimbabwe seeking restitution and damages for the expropriation of three large estates that produced timber, tobacco, tea, coffee, and macadamia nuts.6 On June 11, 2012, the claimants received a letter from Zimbabwe’s attorney general requesting that they disclose documents in connection with the arbitrations and threatening to institute criminal proceedings if they refused.7 On June 12, 2012, the claimants filed a request for provisional measures.8
In response, investors have turned to requesting provisional measures from the arbitral tribunal for their protection.
Quiborax et al. v. Bolivia
February 26, 2010 (Mining)
Quiborax, Non Metallic Minerals (NMM) and Allan Fosk Kaplun initiated ICSID arbitration proceedings against Bolivia seeking compensation for damages following the State’s revocation of 11 mining concessions held by NMM (Mr. Fosk and Quiborax claimed to have a 51% majority interest in NMM).11 In December 2008, Bolivia initiated criminal proceedings against Mr. Fosk and others, including company lawyers in Bolivia, on
the ground that they had allegedly forged a document establishing that Quiborax and Mr. Fosk were NMM shareholders.12 The claimants submitted a request for provisional measures on September 14, 2009.13
The tribunal indicated that provisional measures could be granted only if the rights to be protected existed and the measures requested were urgent and necessary.14 The tribunal found that the criminal proceedings initiated
by Bolivia threatened the procedural integrity of the arbitration, and in particular the claimants’ right of access to evidence.15 The tribunal noted in this regard that the claimants had been deprived of their corporate records
as a result of the criminal proceedings.16 It also observed that these proceedings had been instituted against several potential witnesses for the claimants and that, through undue pressure or other means, these proceedings could reduce the witnesses’ willingness to participate in the arbitration.17 The tribunal ultimately directed Bolivia
to take all appropriate measures to suspend the ongoing criminal proceedings against the claimants’ executives and to refrain from initiating any other criminal proceedings in connection with the arbitration.18
Caratube v. Kazakhstan
July 31, 2009 (Oil & Gas)
Caratube initiated ICSID arbitration proceedings against Kazakhstan after Kazakhstan unilaterally terminated
a contract for the exploration and production of hydrocarbons.19 Despite the termination, Caratube continued to operate certain oil wells to avoid adverse technical consequences.20 As a result, Kazakhstan instituted criminal proceedings against Caratube and its director, Mr. Hourani.21 Caratube filed a request for
provisional measures requesting that the arbitral tribunal order Kazakhstan, inter alia, to suspend any existing criminal complaints against Caratube and to refrain from initiating any new criminal complaints arising out of Caratube’s continued occupation of the oil field.22
The tribunal dismissed Caratube’s request. Although the tribunal agreed that criminal investigations could be the subject of provisional measures,23 it held that
a particularly high threshold needed to be overcome for a tribunal to recommend provisional measures in connection with criminal investigations.24 The tribunal found that Caratube had not established that its right to pursue arbitration was threatened by the criminal proceedings.25 Nor had Caratube proven that the provisional measures it requested were urgent.26 The
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See, e.g., James Crawford, BROWNLIE’S PRINCIPLES OF PUBLIC INTERNATIONAL LAW 458 (Oxford University Press 8th ed., 2012).
The criminal prosecution of corporate executives by the State also occurs in the context of commercial arbitration in circumstances where the State or a State entity is a party. Moreover, States have been known to harass counsel and arbitrators in this way in connection with both commercial and investment arbitrations.
S.A.R.L. Benvenuti & Bonfant v. People’s Republic of Congo, ICSID Case No. ARB/77/2, Award ¶¶ 2.23, 4.59 (Aug. 8, 1980), available at
21 I.L.M. 740 (1982).
Julian D. M. Lew et al., COMPARATIVE INTERNATIONAL
COMMERCIAL ARBITRATION 585 (Kluwer Law International, 2003).
The arbitral tribunal’s jurisdiction under international law to order
Bernhard von Pezold et al. v. Zimbabwe, ICSID Case No. ARB/10/15 and Border Timbers Ltd. et al. v. Zimbabwe, ICSID Case No. ARB/10/25, available at http://www.globalarbitrationreview.com/ news/article/31429/panel-refuses-intervene-trespassers-zimbabwe- claim/.
Bernhard von Pezold et al. v. Zimbabwe, ICSID Case No. ARB/10/15 and Border Timbers Ltd. et al. v. Zimbabwe, ICSID Case No. ARB/10/25, Directions concerning Claimants’ Application for Provisional Measures of 12 June 2012 ¶ 3 (1.3) (June 13, 2012), available at http://www.italaw.com/sites/default/files/case-documents/ ita1024.pdf.
8 Id. ¶ 1.
9 Id. ¶ 8(b).
Id. ¶ 7. Although the president of the tribunal did not mention what
these consequences were, the claimants feared that they would be
subjected to intimidation and violence, in addition to having criminal
proceedings instituted against them. See id. ¶ 3 (paragraph 1.5).
Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplun v.
Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Provisional Measures, ¶¶ 4-7 (Feb. 26, 2010), available at http:// www.italaw.com/sites/default/files/case-documents/ita0698.pdf [Quiborax- Provisional Measures].
In its jurisdictional award, the tribunal declared that it had jurisdiction over the claims of Quiborax and NMM but not over Mr. Fosk’s claims. See Quiborax S.A., Non Metallic Minerals S.A. and
See Quiborax, Provisional Measures at ¶¶ 28-29.
13 Id. ¶ 13.
14 Id. ¶ 113.
15 Id. ¶ 148. The tribunal, however, rejected the claimants’ claims that
the criminal proceedings threatened the exclusivity of the arbitration,
aggravated the dispute, and had modified the status quo ante. See id.
¶¶ 130, 138.
16 Id. ¶ 142.
17 Id. ¶¶ 143-146.
18 Id. ¶¶ 46, 1-2.
19 Caratube International Oil Company LLP v.The Republic of Kazakhstan,
ICSID Case No. ARB/08/12, Decision regarding Claimant’s Application
for Provisional Measures, ¶ 4 (July 31, 2009), available at http://www.
provisional measures, including its ability to order a State to refrain
from further aggravating the dispute, is not contested. See e.g., The
Electricity Company of Sofia and Bulgaria (Belgium v. Bulgaria), PCIJ,
Ser. A/B, No. 79, Order, 9 (December 5, 1939), available at http://
Allan Fosk Kaplun v. Plurinational State of Bolivia, ICSID Case No.
ARB/06/2, Decision on Jurisdiction ¶ 309(A) (Sept. 27, 2012),
Id. ¶ 58 (paragraph 3).
Id. ¶ 58 (paragraph 54).
22 Id. ¶ 54.
23 Id. ¶ 136.
24 Id. ¶ 137.
25 Id. ¶ 139.
The Criminal Prosecution
continued from Page 5
tribunal concluded that any potential damages that Caratube sustained as a result of the criminal
investigations could be claimed and decided upon in the arbitration.27
The tribunal ultimately found that it did not have jurisdiction over Caratube’s claims in the arbitration and ordered it to pay US$3.2 million in costs to Kazakhstan.28
Paushok et al. v. Mongolia
September 2, 2008 (Mining)
Sergei Paushok, CJSC Golden East Company, and CJSC Vostokneftegaz Company initiated UNCITRAL arbitration proceedings against Mongolia alleging that it had breached its international law obligations by passing laws that adversely impacted the ability of mining companies to do business in Mongolia.29 The claimants subsequently filed a request for interim
measures (interim measures are equivalent to provisional measures) requesting that Mongolia be directed,
inter alia, to suspend any criminal action against the claimants or their investments.30
The tribunal held that it could issue interim measures only if the following five requirements were met: 1) prima facie jurisdiction; 2) prima facie establishment of the case;
However, it did not specifically direct Mongolia to suspend criminal actions against the claimants or its investments.
3) urgency; 4) imminent danger of serious prejudice (necessity); and 5) proportionality.31 The tribunal found that the claimants’ request for interim measures met all five.32 However, it did not specifically direct Mongolia to suspend criminal actions against the claimants or its investments. Rather, the tribunal directed both parties to refrain from actions that could further aggravate
the dispute, which presumably included pursuit by the Mongolian government of criminal actions.33
City Oriente v. Ecuador
November 19, 2007 (Oil & Gas)
City Oriente initiated ICSID arbitration proceedings against Ecuador following amendments to the Hydrocarbon Law purporting to unilaterally modify the parties’ hydrocarbons production-sharing contract. City Oriente claimed that the contract should be performed according to its original terms and conditions and should not be affected by the Hydrocarbon Law amendments. It requested that the
arbitral tribunal order provisional measures to maintain the status quo ante existing prior to the enactment
of the amendments to the Hydrocarbon Law. City Oriente’s request followed the State Attorney General’s announcement that a criminal complaint against City Oriente’s representatives and managers would be filed in connection with City Oriente’s refusal to comply with the Hydrocarbon Law amendments.34 While
the provisional measures application was pending, City
Oriente indicated that two criminal complaints had been filed against City Oriente executives.35
The tribunal held that provisional measures required the satisfaction of three requirements: 1) that the adoption of such measures be necessary to preserve the petitioner’s rights; 2) that their ordering be urgent; and 3) that each party be afforded an opportunity to raise observations.36 The tribunal found that City Oriente’s request for provisional measures met all three.37 In particular, the tribunal found them necessary to preserve City Oriente’s rights as well as the claim it asserted in the arbitration.38
Accordingly, the tribunal held that, until the dispute was resolved, the parties were to abide by the contract as it was originally executed without modifying its contents.39 The tribunal also ordered the suspension of the criminal proceedings initiated against City Oriente
executives—as a result of City Oriente’s refusal to comply with the Hydrocarbon Law amendments—because their continuation would breach the principle that neither party can aggravate or extend the dispute.40
When faced with retaliatory criminal proceedings against a claimant’s executives, arbitral tribunals should not hesitate to issue provisional measures ordering their suspension and/or the preservation of the status quo ante and the integrity of the proceedings. However, it is clear from the above overview of investment arbitration cases that their ordering turns on the specific facts and circumstances of each case.
In addition, provisional measures are an inherently limited remedy. Tribunals cannot themselves suspend criminal proceedings; they can only direct a State to do so. But States do not always comply with tribunals’ directions. Bolivia, for example, did not suspend the
criminal proceedings as ordered by the Quiborax tribunal.41 Moreover, even if provisional measures are obeyed, tribunals can direct that criminal proceedings only be suspended, not discontinued.42 Once the arbitration is concluded, a State is thus theoretically free to pursue these proceedings.
Accordingly, it is important for companies and their executives to work with counsel to assess the risks that exist when initiating arbitration against a State and to take all necessary precautions. Although the issuance of
provisional measures may be a useful recourse and success with such applications may work against the State in the arbitration itself, they are not a foolproof protection for corporate executives faced with criminal prosecution. Investors should retain local counsel competent in criminal law to help assess the likelihood that such actions may
be taken in advance of commencing arbitration and to defend executives in the event that such actions are taken. Removing executives from the State may also be advisable if there is any prospect of arrest and incarceration. F
Harry Burnett is a partner in King &
Spalding’s NewYork office and a member of
the International Arbitration Group. As an
experienced arbitration and civil trial lawyer,
Mr. Burnett concentrates on international
commercial and investor-state arbitration
matters and ADR proceedings generally as well as general
domestic and international litigation in state and federal
courts. Mr. Burnett’s international dispute resolution
experience includes handling inbound litigation matters for
foreign clients, many from Latin America, and international
arbitration disputes including arbitrations under ICDR,
ICC, JAMS International, UNCITRAL and CPR Rules
as well as investor-state arbitrations involving claims under
ICSID, Bilateral Investment Treaties, the Energy Charter
Treaty, multi-lateral investment instruments and local
Cedric Soule is an associate in King & Spalding’s Paris office and is a member of the International Arbitration Practice Group. Mr. Soule is experienced in International Commercial Arbitration
and Investment Treaty Disputes under the arbitration rules of ICSID, UNCITRAL and the ICC. He obtained his law degree from McGill University and a Masters degree from the University of Oxford.
Id. ¶¶ 139, 141. The tribunal made clear that its finding was without prejudice to the possibility for Caratube to claim in the arbitration that Kazakhstan’s criminal investigations were an abuse of its sovereign right and a breach of the U.S.-Kazakhstan Bilateral Investment Treaty.
Caratube International Oil Company LLP v.The Republic of Kazakhstan, ICSID Case No. ARB/08/12, Award at 116 (June
5, 2012), available at http://www.italaw.com/sites/default/files/case- documents/italaw1100.pdf.
Sergei Paushok, CJSC Golden East Company and CJSCVostokneftegaz Company v. the Government of Mongolia, UNCITRAL, Order on Interim Measures, ¶¶ 4-6 (Sept. 2, 2008), available at http://www. italaw.com/sites/default/files/case-documents/ita0621.pdf. The Windfall Profit Tax Law provided that any gold sales at prices in excess of US$500 per ounce would be subject to a tax at the rate of 68% on the amount exceeding US$500 per ounce. The 2006 Minerals Law provided that the maximum number of foreign
of its workforce, unless the company paid a penalty equal to ten times the minimum monthly salary for each foreign national it employed.
30 Id. ¶¶ 11-12.
31 Id. ¶ 45.
32 Id. ¶¶ 54, 56, 60, 77, 85.
33 Id. ¶ 17.
34 City Oriente Limited v.The Republic of Ecuador and
Empresa Estatal Petroleos del Ecuador (Petroecuador), ICSID Case No. ARB/06/21, Decision on Provisional Measures, ¶ 12 (Nov. 19, 2007), available at http://italaw.com/documents/CityOrient- ProvisionalMeasures-EN.pdf [City Oriente].
35 Id. ¶¶ 16-17.
36 Id. ¶ 54.
37 Id. ¶ 83.
38 Id. ¶ 57.
40 Id. ¶¶ 62-63, 66.
Quiborax-Jurisdiction ¶ 300.
A tribunal can also direct a State to refrain from instituting criminal
proceedings. See, e.g., City Oriente, IV, Decision ¶ 1; see also
Quiborax-Provisional Measures, Decision ¶ 2.
EP[I]C International Arbitrations
either party may need expedited relief to maintain the
status quo or to prevent irreparable harm.
Today, the most common international arbitration institutions that handle EPC contract disputes provide that the parties can obtain interim relief from them before the tribunal is constituted.4 And many of the rules further provide that a party does not waive its right to arbitration if
may believe any further discussions would be futile, or there may be strategic reasons to filing first. Regardless of the reason, the other side is likely to contend that the
tribunal lacks jurisdiction until the pre-dispute procedures have been followed. The arbitral tribunal may bifurcate the proceedings to determine the jurisdictional issue first, or it may hear the issue with the merits.
International arbitrations arising out of engineering, procurement, and construction (EPC) contracts in the energy industry are truly epic. Energy EPC projects are among the largest construction projects in the world; naturally, so are the disputes arising out of them. While many international arbitration awards remain confidential, based on the experience of King & Spalding’s arbitration group and the disputes made public via press articles or enforcement proceedings, the amount in dispute typically ranges from the tens of millions of dollars to hundreds of millions of dollars and has exceeded $2 billion.1
EPC disputes can be highly technical. Often, they involve a detailed “Critical Path Methodology,” in which experts analyze various changes in conditions and schedule delays in an attempt to identify why the project is late and
significantly more costly than the parties had anticipated at the time of the contract, and of equal importance, whether the owner, contractor, or both are at fault. Complicating
matters, these projects take years to complete. Typically there are several significant, fairly independent claims involving unique facts and time periods that in other contexts would be large stand-alone arbitrations in their own right. Arbitration counsel are faced with the daunting task of synthesizing these various technical claims into a coherent and consistent case for the tribunal.
The EPC Contract
EPC contracts vary greatly, just as the projects that they cover vary. Generally, however, they have two key attributes. First, they are often (but not always) lump- sum or turnkey projects. Second, in addition to typical design and construction criteria, performance criteria
govern substantial completion.2 Taken together, what the owner expects to receive and what the EPC contractor promises to deliver, on time, is a completed facility that meets the performance requirements. Failure to do so often results in the application of significant liquidated damages provisions.
The previous issue of Lex Petrolea addressed interim measures at length,3 so they will not be addressed in much detail here. The issue of interim relief, though, can arise in a variety of situations related to an EPC contract. For example, regardless of whether the project is completed or has been terminated prematurely, the owner may seek to enforce the performance bonds, while the contractor may be able to seek injunctive relief preventing this from happening, depending on the type of bond.
Or the contractor may withhold providing key materials or information to which the owner is entitled under the EPC contract without which the owner cannot obtain full beneficial use of the works. In these and other situations,
it seeks such interim relief in the local courts, even though those same rules now provide for emergency relief in the arbitration proceedings.5
The strategic decision about the forum from which to seek interim relief is highly dependent on the facts of the situation. Generally, if one believes that its opponent will honor interim relief measures issued by the arbitration institution before the tribunal is constituted, then seeking
such relief before the organization is likely the better course of action, as it allows the matter to remain confidential
and is likely less expensive than filing a parallel proceeding in a local jurisdiction. But if one concludes that it needs the coercive force of a court order, parallel litigation is typically the better option. Regardless of the forum, a request for interim relief can arise in a variety of contexts in connection with EPC arbitrations.
Jurisdictional Dispute: Whether the Contracts Dispute Procedures Have Been Followed
Most EPC contracts have detailed pre-arbitration
procedures that attempt to resolve disputes between
the parties without resort to arbitration. These
procedures often commence with a meeting of technical
representatives of each party familiar with the project.
The dispute is then escalated up each side’s management
structure and often cumulates with a mandatory meeting
of senior executives. Other contracts also provide for
the appointment of neutral technical experts who make
recommendations that, while they may not be binding,
often are admissible in any subsequent dispute.6
While the procedures vary among EPC contracts, it is not uncommon for one side to file for arbitration before the pre-dispute procedures have been exhausted. The party
The precise wording of the EPC contract as well as the facts arising from the claims process will govern the outcome of the jurisdictional challenge. That said, some generalizations can be made. First, and foremost, is
the question of whether the pre-dispute procedures are jurisdictional. Most EPC contracts contain broad-form arbitration provisions covering all claims that arise out of or are related to the contract. Even if the provisions state that the pre-dispute procedures must be followed before a party can file for arbitration, a dispute concerning whether these procedures have been—or should be—followed likely falls within the scope of the broad arbitration provision. Thus, the tribunal will consider this issue, which is consistent with well-established law that the tribunal is competent to determine its own jurisdiction.
Second, the claimant will often claim futility; that is, the tribunal should not order any further adherence to the claims process because the process is unlikely to resolve the matter. The more it is apparent that the objecting party has not participated in the pre-dispute process in good faith, the more likely the tribunal will find futility. Conversely, if the tribunal concludes that the procedures have simply been ignored by the claimant, it may order that the parties submit to them and set a firm timetable. Most likely, the tribunal will retain jurisdiction and view the jurisdictional objection as a motion to compel the claimant to participate in good faith in the pre-dispute procedures. If those procedures turn out to be successful, then the arbitration will go no further. If they fail, then the tribunal is already constituted and the arbitration can commence in earnest.
continued on Page 10
King & Spalding has represented companies in international disputes involving EPC contracts where the amount in controversy has ranged from tens of millions of dollars to over $2 billion. Reported disputes over the last year confirm that international EPC arbitrations involve substantial amounts in controversy. See, e.g., Areva and SiemensWin Early Round of Nuclear Dispute, 7(4) GLOBAL ARB. REV. (Jul. 9, 2012) at 9 ($2 billion dispute); Kyriaki Karadelis, ICC Claim Increases Twenty-Fold as Nuclear Project Cancelled, GLOBAL ARB. REV. (Sept. 18, 2012), http://www.globalarbitrationreview.com/ news/article/30826/icc-claim-increases-twenty-fold-nuclear-project- cancelled/ (€1 billion dispute); Confidentiality Denied in Afghanistan ICC Award, GLOBAL ARB. REV. (Nov. 23, 2012), http://www. globalarbitrationreview.com/news/article/31001/confidentiality- denied-afghanistan-icc-award/ ($60 million total dispute (claims
and counterclaims)); Sebastian Perry, Petrotrin ClaimsVictory in Project Delay Dispute, GLOBAL ARB. REV. (Aug. 6, 2012), http:// www.globalarbitrationreview.com/news/article/30743/petrotrin-
See generally Charles M. Sink, Mega Project Construction Contracts: An Owner’s Perspective, 55 ROCKY MTN. MIN. L. INST. 21B-1, §§ 21B.02 & -.03 (2009).
See Caline Mouawad & Elizabeth Silbert, Breaking New Ground: Interim Measures in International Arbitrations Involving Petroleum Investments, LEX PETROLEA: THE INT’L ENERGY ARB. NEWSLETTER 4 (4Q 2011).
See Charles C. Correll, Jr. & Ryan Szczepanik, No Arbitration Is
an Island:The Role of Courts in the Aid of International Arbitration, 6(3)
WORLD ARB. & MED. REVIEW 574 (2012); see, e.g., ICC
Rules Art. 29-.1-.2 (in force from Jan. 1, 2012) (but note that under
Art. 29.6(a) this provision does not apply to arbitration agreements
concluded prior to Jan. 1, 2012); ICDR Rules Art. 37 (as amended
Jun. 1, 2009).
ICC Rules Art. 29.7; ICDR Rules Art. 37.
See generally, Jesse B. Grove & Richard Appuhn, Comparative
Experience with Dispute Boards in the United States and Abroad, 32(3)
CONSTRUCTION LAW 6 (Summer 2012) (describing the use of
such provisions in international agreements); see also Dispute Board
Rules of the ICC (in force from Sept. 1, 2004).
EP[I]C International Arbitrations
continued from Page 9
Third, pre-arbitration negotiations may be used by the claimant to argue that the parties have agreed in writing to modify or not follow the formal pre-dispute process. High- level negotiations concerning numerous claims may lead to a memorandum of understanding or a similar document outlining a path forward for attempted negotiation
and resolution of the controversy. The party seeking to impose strict adherence to the EPC contract’s pre-
dispute procedures should ensure that the wording of such documents cannot be construed as a written agreement that they no longer apply; otherwise, such documents may be used by a claimant to avoid complying with the EPC contract’s pre-arbitration procedures.
The project is late and has cost the contractor significantly more than the contract price. The contractor seeks substantial additional compensation and recognition of time extensions; the owner seeks to apply large liquidated damages and argues that the contract’s fixed price should not be altered. While a host of important issues will be arbitrated—such as disputes over change orders, pricing provisions, final accounting provisions, and many others— the issue of who caused the delay or delays in the project is often central to the dispute and to the tribunal’s award.
Building a house provides a simple example: pouring the foundation is likely a critical path activity at a certain point in time, as other activities cannot commence until it is completed.
The Critical Path Methodology (CPM) is used to determine who is responsible for the delay. CPM has long been used in construction planning and disputes. CPM compares the “as planned” schedule to the “as built” schedule, focusing on those activities on the “critical path.” A critical path activity must occur per the schedule to achieve timely completion, and a delay to such activity will cause a comparable delay to the date of completion. A noncritical delay, on the other hand, does not impact the timely completion of the project. It contains what is called “float,” defined as the number of days an activity can be delayed without affecting the completion of the project.
Building a house provides a simple example: pouring the foundation is likely a critical path activity at a certain point in time, as other activities cannot commence until it is completed. Landscaping is typically not, as it can be completed over a longer period of time than is necessary
for that particular activity, and even if it takes longer than planned, it will not impact the final completion date.
There are three types of delay: non-excusable, excusable, and compensable. A non-excusable delay is caused solely by the contractor. The contractor is not entitled to either additional compensation or a time extension. An excusable delay is one where the contractor is entitled
to a time extension, and therefore can avoid penalties, but not to additional compensation. A force majeure event is an example of an excusable delay. Finally, there are compensable delays. These are delays to which
the contractor did not contribute, and it is entitled to additional compensation as well as time extensions.
For energy EPC projects, a “windows” analysis is often the CPM used to assess delays, causation, and compensation.7 The contemporaneous documents on large EPC energy projects will include detailed schedule analyses, tracked in a computer program such as Primavera Project Planner. The windows analysis allows a party’s expert to view the project’s schedule and progress in “time slices” in which the expert accounts for actual delays and progress, allowing the expert to determine what caused a delay at any point
in time and whether the contractor recovered time from previous delays. Applied properly, by accounting for actual progress in every time slice, the windows analysis
should yield the appropriate amount of days of delay and accurately attribute them to the contractor, owner, or both.
This is a highly detailed exercise that raises at least three critical points in arbitrating these disputes:
Select an Arbitrator Who Can Understand the Windows Analysis: To the extent the relevant arbitration procedures allow a party to select one of the arbitrators, a party should choose an arbitrator who can understand the complexities of this analysis. As with any computer program, “garbage in means garbage out.” The windows analysis can be subject to partisan manipulation, and identifying how the
other side is manipulating the analysis is often critical. Such arguments can confuse arbitrators who do not understand how a proper windows analysis should be done, nor can an arbitrator effectively explain this to the chairman if he or she determines that your client is correct.
Select a Reputable Expert: A scheduling expert whom I was interviewing once told me, “we can make Primavera dance.” Stay away from such experts.
(I did not retain him.) The expert’s credibility is paramount, as the tribunal must ultimately adopt one expert’s judgment calls and assumptions. One needs an honest, credible analysis that will withstand the other side’s attack. Furthermore, with the increasing use of expert conferences to narrow the issues in dispute via discussions between the experts, it is even more important that one’s retained expert have a true mastery of the scheduling analysis. Do not be lured into thinking that one can aggressively manipulate the analysis and prevail.
Commit the Necessary Project Personnel: Usually by the time the dispute is in international arbitration, the parties have moved on to other projects, which the key personnel from the project in dispute are needed to support. There is no substitute, however, for having access to the personnel who lived the various incidents and who can provide insight on what impacted the schedule and why. Companies
invest millions of dollars in attorneys’ and expert fees in EPC arbitrations but often fail to commit the
requisite internal resources. To successfully apply the windows analysis, the expert must have significant access to key project personnel, and often the testimony of such personnel at the hearing is essential in supporting the expert’s analysis. They should remain involved in the development of the case and have their work responsibilities adjusted accordingly.
Of course, the attorneys must be familiar with the methodology so that they can explain it to the tribunal and attack any attempt by the other side to manipulate it. But a party’s position is infinitely better if it selects an arbitrator who can understand the windows analysis and an expert who will credibly apply it, along with committing the necessary internal resources.
EPC arbitrations are epic: the amounts in controversy are substantial; the procedural machinations are extensive; and the issues on the merits are complex. Companies should retain counsel with a proven track record in EPC disputes, experts who are credible, and arbitrators who have the technical background to comprehend the complexities
of these projects, while simultaneously committing the internal resources necessary for victory. F
Charles Correll is a partner in King &
Spalding’s San Francisco office. He is
an active member of the firm’s Energy
Litigation, Commercial Litigation, and
International Arbitration Groups. Mr.
Correll’s practice involves complex
commercial litigation in federal and state courts and
before international and domestic arbitration panels. He
has represented clients such as the Chevron Corporation,
the Halliburton Company, KBR, Inc. and Cimarex
Energy Company. Mr. Correll has broad experience in a
diverse range of domestic and international commercial
litigation matters including antitrust, breach of contract,
construction, oil and gas exploration and royalty, business
torts, investment disputes, patent infringement, trade
secrets, toxic tort and personal injury litigation.
The Impacted-As-Planned and Collapsed-As-Built CPMs are not often used for such large projects. It is beyond the scope of this short article to discuss the usefulness and limitations of these methodologies.
Protecting Commercial Arbitration Awards through Investor-State Arbitration1
of Commerce (ICC) Rules in Dhaka, Bangladesh, under Bangladeshi law.7 After project delays,8 Saipem commenced ICC arbitral proceedings. The ICC tribunal found that Petrobangla had breached its contractual obligations to compensate Saipem for the delays.9
Following an application by Petrobangla, the High Court Division of the Supreme Court of Bangladesh found
the ICC Award invalid because Bangladeshi courts had
Although international commercial arbitration and investor-State arbitration traditionally have been viewed as independent, recent investor-State decisions create an interesting intersection between the two by
permitting investors to use treaty protections to safeguard commercial arbitration awards. One recent investor- State tribunal noted a “developing jurisprudence on the treatment of [commercial] arbitral awards to the effect that awards made by tribunals arising out of disputes concerning ‘investments’ made by ‘investors’ under BITs represent a continuation or transformation of the original investment.”2 Upon establishing that the award embodies an investment, tribunals may determine that the State court’s annulment of the award constitutes a denial of justice, an expropriation of the rights embodied in the award, or, where available, a breach of “effective means of asserting claims.”3
A brief survey captures the developing jurisprudence and supports the following two general conclusions. First, tribunals will consider an award to be an investment
if it is a continuation or transformation of a qualified investment as defined in the treaty. Second, denial of justice is no longer the only relevant standard in the context of enforcing a commercial arbitral award: where available, investors may also invoke the less stringent
There is a developing trend in investor-State disputes to extend treaty protections to commercial arbitral awards.
“effective means of asserting claims” standard. An annulment decision may also constitute an expropriation where the decision is final and the court violated international law.
There is a developing trend in investor-State disputes to extend treaty protections to commercial arbitral awards. Three recent tribunals in Saipem v. Bangladesh (2009), ATA v. Jordan (2010), and White Industries
v. India (2012) have granted relief for a host State’s annulment of or delays in enforcing a commercial award. Another 2010 decision, Frontier Petroleum
v. Czech Republic, considered that an award was the continuation of an investment for purposes of investor- State jurisdiction but rejected the claim on the merits. Still other tribunals, explored in Section III in the context of limitations, have refused jurisdiction because the underlying award is not an investment. But GEA v. Ukraine bucked the trend, finding that an award is not in and of itself an investment and, in dicta, that an award is not an investment even where it crystallizes or is the embodiment of an investment.4
Saipem v. Bangladesh
In 2009, the Saipem v. Bangladesh tribunal found that Bangladeshi court decisions invalidating an ICC award constituted an expropriation of Saipem’s investment, as embodied in the award.5 The dispute arose out of
a gas pipeline construction contract. Saipem had a contract with Petrobangla, a Bangladeshi state-owned entity, to construct a pipeline to carry condensate and gas to various locations within Northeast Bangladesh.6 The contract provided for disputes to be resolved
by arbitration under the International Chamber
earlier revoked the tribunal’s authority.10 Saipem then
filed a request for arbitration with ICSID pursuant to the
The ICSID tribunal asserted jurisdiction over the claim, emphasizing that “for the purpose of determining whether there is an investment . . . it will consider the entire operation,” which included “the Contract, the construction itself, the Retention Money, the warranty, and the related ICC Arbitration.”12 Specifically, the
tribunal considered that “the rights embodied in the ICC Award were not created by the Award, but arise out of the Contract. The ICC Award crystallized the parties’ rights and obligations under the original contract.”13
After establishing jurisdiction, the tribunal found that the Bangladeshi courts’ invalidation of the ICC Award violated the New York Convention (revocation of the arbitral tribunal’s authority violated “at least the spirit of the Convention”14) and international law (“in international law . . . a State exercising a right
for a purpose that is different from that for which that right was created commits an abuse of rights”15). The tribunal thus considered the decisions to constitute an expropriation of Saipem’s investment as embodied in the award.16 This finding marked a turning point: the
tribunal openly ruled against a State for its court’s actions in improperly annulling a commercial arbitration award, and sent a strong message that investor-State tribunals are willing to protect commercial arbitration awards under the right circumstances.
ATA v. Jordan
In 2010, the ATA v. Jordan tribunal considered the validity of the Jordanian courts’ annulment of an arbitral
award rendered under Jordanian law in favor of the claimant—a Turkish company—following a dispute arising from the collapse of a dike constructed on the Dead Sea by the claimant for the Arab Potash Company (APC), a Jordanian State-controlled entity.17 After completing construction, ATA handed the dike over to APC, which proceeded to fill it with water. During the filling process, a section of the dike collapsed.18 A dispute arose as to which entity was responsible for the collapse. APC filed an arbitration,19 but ATA succeeded both on its defense and counterclaims.20 APC then challenged the Final Award in the Jordanian Court of Appeal,21 which annulled the Final Award and, applying a new Jordanian
Arbitration Law, extinguished the arbitration agreement.22 ATA unsuccessfully appealed the annulment decision in the Court of Cassation.23
Applying the reasoning in Saipem v. Bangladesh, the tribunal first found that the Final Award fell within the definition of an investment: “Measured by the standards in Saipem, the Final Award at issue in the
present arbitration would be part of an ‘entire operation’ that qualifies as an investment.”24 But “[s]ince the first legal confrontation between the parties over the Final Award occurred prior to the entry into force of the Turkey-Jordan BIT, as previously concluded, the Tribunal
continued on Page 14
This article reflects only the author’s opinions and does not reflect the opinion of King & Spalding.
White Industries Australia Ltd v.The Republic of India, UNCITRAL Award, November 30, 2012, § 7.6.8 (hereinafter “White Industries v. India”) (referring to Mondev International Ltd v. United States, Award, ICSID Case No ARB(AF)/99/2, 2002 (hereinafter “Mondev v. U.S.”) (considering lawsuits to be investments to the extent they continue the original investment); Chevron Corp. and Texaco Petroleum Co. v. Ecuador, Interim Award, Ad hoc—UNCITRAL Arbitration Rules, 2008 (hereinafter “Chevron v. Ecuador”) (same); Frontier Petroleum Services Ltd v. Czech Republic, Final Award, PCA—UNCITRAL Arbitration Rules, 2010 (hereinafter “Frontier v. Czech Republic”) (same); Saipem v.The People’s Republic of Bangladesh, ICSID Case No. ARB/05/06, Decision on Jurisdiction, March 21, 2007 (hereinafter “Saipem v. Bangladesh, Jurisdiction”) (finding that annulment of a commercial arbitral award was an expropriation)
and ATA Construction, Industrial and Trading Company v.The Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Award, May 18, 2010 (hereinafter “ATA v. Jordan”) (considering lawsuits to be investments to the extent they continue the original investment).
Id. § 11.4.9; see also Chevron v. Ecuador (finding that Ecuadorian courts violated the “effective means” standard by failing to adjudicate lawsuits in a timely fashion).
GEA Group Aktiengesellschaft v. Ukraine, Award, ICSID Case No ARB/08/16; IIC 487 (2011) (hereinafter “GEA v. Ukraine”), ¶¶ 161- 162.
Saipem S.p.A. v.The People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, 2009 (hereinafter “Saipem v. Bangladesh, Award”).
6 Id. ¶¶ 6-7.
7 Id. ¶ 10.
8 Id. ¶ 23.
9 Id. ¶¶ 25, 48.
10 Id. ¶¶ 49-50.
11 Id. ¶ 52.
Saipem v. Bangladesh, Jurisdiction, ¶ 110.
Id. ¶ 127. Note that the BIT in Saipem v. Bangladesh included a
very broad definition of investment: “any kind of property.” Id. ¶
14 Id. ¶ 167.
15 Id. ¶ 160.
White Industries v. India, § 7.6 (referring to Saipem v. Bangladesh,
Award, Mondev v. U.S., Award, Chevron v. Ecuador, and Frontier v.
ATA v. Jordan, ¶¶ 30-31.
18 Id. ¶ 32.
19 Id. ¶¶ 32-33.
20 Id. ¶ 33.
22 Id. ¶¶ 35, 46.
23 Id. ¶¶ 51-54.
24 Id. ¶ 115.
Protecting Commercial Arbitration
continued from Page 13
cannot claim jurisdiction ratione temporis over any issue concerning the annulment of the Final Award.”25
The tribunal nevertheless found another type of investment susceptible to annulment: the right to arbitrate. It observed that “the right to arbitration is a distinct ‘investment’ within the meaning of the BIT because Article I(2)(a)(ii) defines an investment inter alia as ‘claims to . . . any other rights to legitimate performance having financial value related to an investment.’ The right to arbitration could hardly be considered as something other than a ‘right . . . to legitimate performance having financial value related to an investment.’”26 According to the tribunal, “the
transformed into an entitlement to a first secured charge in the Final Award.”30 In so doing, the Tribunal noted that “Article 1(a) of the BIT provides that ‘[a]ny change in the form of an investment does not affect its character as an investment’” and “[a]ccordingly, by refusing to recognize and enforce the Final Award in its entirety, the Tribunal accepts that respondent could be said to have affected the management, use, enjoyment, or disposal by Claimant of
“Ecuador argued in the arbitration that it was entitled to pay the lower domestic price for a barrel of crude oil . . . ”
agreement was not properly authorized.35 Accordingly, GEA brought a claim against Ukraine for breach of the Germany-Ukraine BIT.
GEA argued that its investment consisted of the original agreement to convert fuel, the subsequent settlement and repayment agreement, and the ICC award.36
The tribunal agreed that the conversion agreement constituted an investment37 but did not consider the settlement and repayment agreements—which had provided for ICC jurisdiction—to be “investments.”38 The tribunal then rejected the argument that the ICC award should be viewed as an investment. First, it rejected the idea that an arbitral award could—in and
States, Chevron v. Ecuador, and Frontier v. Czech Republic, the White Industries v. India tribunal found that an ICC award constituted an investment because it was the continuation or transformation of a qualified investment under the India-Australia BIT.43 On the merits, the tribunal introduced the use of treaty language requiring that India “provide effective means of asserting claims and enforcing rights with respect to investments” to obtain relief for court delays.
In this case, Australian company White Industries had entered into a contract with Indian public company India Coal for the sale and installation of coal mining equipment.44 After White Industries installed the equipment, India Coal complained about the quality and refused to pay a performance bonus to White Industries of Aus$2.23 million. India Coal also drew down White Industries’ Bank Guarantee of Aus$2.77 million.45
White Industries filed a request for arbitration with the ICC pursuant to the contract, which provided for the application of Indian law, but did not stipulate
retroactive effect of the Jordanian Arbitration Law,
what remained of its original investment.”31
of itself—be an investment: “the ICC Award—in and of
a seat of arbitration.46
The parties chose London.47
which extinguished a valid right to arbitration deprived an investor such as the Claimant of a valuable asset
in violation of the Treaty’s investment protections,” in
GEA v. Ukraine
Going against this trend, in 2011 the GEA v. Ukraine
itself—cannot constitute an ‘investment.’”39 Properly analyzed, “it is a legal instrument, which provides for the disposition of rights and obligations arising out of
The London-based ICC tribunal found that White
Industries was entitled to the performance bonus and to
recover the Bank Guarantee, and rendered an award of
breach of fair and equitable treatment.27 As relief, the
tribunal found that an award is not in and of itself
the Settlement Agreement and Repayment Agreement
Aus$4.08 million in favor of White Industries.
tribunal instructed Jordan to restore Claimant’s right to arbitrate by permitting a new arbitration, something Jordan had already offered to do.28
Frontier Petroleum Services Ltd v. Czech Republic In a 2010 decision, the Frontier Petroleum Services Ltd v. Czech Republic tribunal considered that an arbitral award constituted an investment for purposes of jurisdiction,
an investment and, in dicta, that an award is not an investment even where it crystallizes or is the embodiment of an investment.32
In GEA v. Ukraine, German firm New Klöckner (ultimately acquired by claimant GEA) and the Ukrainian State-owned chemical company Oriana entered into an agreement for New Klöckner to supply fuel to Oriana.
(neither of which was itself an ‘investment’).”40 This statement appears uncontroversial.
Nevertheless, the tribunal went on to state that even if the award stemmed from qualified investments, it would not be an investment: “the Tribunal considers that the fact that the Award rules upon rights and obligations arising out of an investment does not
India applied to the High Court of Calcutta to set aside
the award. Under Indian law (as India applied the New
York Convention), an Indian court could set aside a
foreign arbitral award that applied Indian law.49 At the
same time—and unaware that India Coal had applied
to set aside the award—White Industries applied to the
High Court of New Delhi to enforce the ICC award.50
Dueling court decisions ensued, and the case went to
but the tribunal rejected Frontier’s claims that the Czech
The parties later discovered that 125,000 tons of naphtha
equate the Award with the investment itself . . . the
the Supreme Court.
After five years, the Supreme
court’s refusal to enforce an arbitral award was a denial of justice, because the court’s decision was not arbitrary,
supplied to Oriana were missing and entered into a settlement and repayment agreement for the missing
two remain analytically distinct, and the Award itself involves no contribution to, or relevant economic
Court had yet to render a decision, so White Industries
filed an UNCITRAL arbitration against India under the
discriminatory, or made in bad faith.29 Like the Saipem
v. Bangladesh and ATA v. Jordan tribunals, it considered
the commercial award in the context of the original
investment: “this Tribunal accepts that Claimant’s original
investment consisted of the payments . . . which were
fuel, which stipulated that disputes would be settled at the ICC.33 GEA brought a successful claim before an ICC tribunal34 but could not enforce the award because Ukrainian courts found that the repayment
activity within, Ukraine.”41 This statement appears to
be anomalous and has been criticized.42
White Industries v. India
In 2012, citing Saipem v. Bangladesh, Mondev v. United
continued on Page 16
26 Id. ¶ 117.
27 Id. ¶¶ 125-126.
28 Id. ¶ 131.
29 Frontier v. Czech Republic, ¶ 529 (“As far as the alleged violation of the fair and equitable treatment standard pursuant to Article III of the BIT is concerned, this Tribunal concludes that there is no indication that the courts determining Claimant’s requests for the recognition and enforcement of the Final Award acted arbitrarily, discriminatorily, or in bad faith. Claimant’s requests were entertained by four levels of courts and Claimant had several opportunities to submit legal arguments on the proper interpretation and application of the exceptions to the recognition and enforcement of the Final Award established under Article V of the New York Convention.”).
30 Id. ¶ 231.
31 Id. ¶ 231.
32 GEA v. Ukraine, ¶¶ 161-162.
33 Id. ¶¶ 47-55.
34 Id. ¶¶ 57-62.
35 Id. ¶¶ 62-65.
36 Id. ¶ 145.
37 Id. ¶ 150.
38 Id. ¶ 157.
39 Id. ¶¶ 157-161.
40 Id. ¶ 161.
41 Id. ¶ 162.
See, e.g., White Industries v. India, § 7.6.8 (citing Mondev v. U.S., Chevron v. Ecuador, and Frontier v. Czech Republic).
44 Id. § 3.2.
46 Id. § 3.2.29-30.
47 Id. § 3.2.30.
48 Id. § 3.2.31-34.
49 Id. § 3.2.35.
50 Id. § 3.2.36.
51 Id. § 3.2.36-65.
52 Id. § 3.2.65.
Protecting Commercial Arbitration
continued from Page 15
The tribunal then considered whether the Indian courts’ delay in considering the annulment and enforcement applications amounted to a denial of justice.
Based on very broad treaty language—“’investment’ means every type of asset . . . including . . . right to money or performance having a financial value, contractual or otherwise . . . business concessions and any other right to conduct economic activity”—White Industries claimed that its investment comprised (1) all its contractual rights under the Contract, (2) all its rights in relation
to the Bank Guarantee, and (3) all its rights under the award.53 The tribunal found that the contract was an investment, as was the award to the extent it “is part of the original investment.”54 In so concluding, the tribunal relied on Saipem v. Bangladesh. The tribunal
then criticized the GEA v. Ukraine decision’s statement, in dicta, that an award would not be an investment even if it were the continuation or crystallized of a qualified investment.55 Specifically, “the conclusion expressed by the GEA tribunal represents an incorrect departure from the developing jurisprudence on the treatment of arbitral awards to the effect that awards made by tribunals arising out of disputes concerning ‘investments’ made
by ‘investors’ under BITs represent a continuation or transformation of the original investment.”56
The White Industries tribunal did, however, agree that
“the ICC Award—in and of itself—cannot constitute an investment.”57 This overlap reflects a boundary: an
award is an investment provided that it is a continuation of a qualified investment.
After determining that the award constituted an investment, the tribunal considered whether India had violated White Industries’ legitimate expectations by failing to properly apply the New York Convention and by failing to allow White Industries to enforce the award in a fair and reasonably timely manner. The tribunal rejected White Industries’ legitimate expectations claims because
(a) White Industries knew or should have known that India permitted its courts to set aside awards that applied Indian law,58 (b) the TECMED tribunal’s definition of legitimate expectations was overly broad,59 and (c) the investor must take the court system as it finds it—in this case, log-jammed and inefficient.60
The tribunal also considered and denied White Industries’ claim that the delays constituted an expropriation of
its investment in the form of the award on the grounds that there had been no final taking (the Supreme Court decision was still pending).
The tribunal then considered whether the Indian courts’ delay in considering the annulment and enforcement applications amounted to a denial of justice. Applying the standard for denial of justice outlined in Mondev v. U.S., which requires
“a particularly serious shortcoming and egregious conduct that shocks, or at least surprises, a sense of judicial propriety,” the tribunal noted that a judicial delay would not usually constitute a denial of justice, particularly in civil cases.61 Accordingly, the tribunal determined that the delay was not a denial of justice.62
The tribunal next considered whether India breached its duty to “provide effective means of asserting claims and enforcing rights with respect to investments,” as set forth in Article 4.5 of the India-Kuwait treaty and imported by the MFN clause in the India-Australia treaty (Art. 4.2). The tribunal found that India had breached this duty by
virtue of the significant court delays.63 According to the tribunal, “effective means” provided a lower standard than “denial of justice,” and the delays met that standard:64
In these circumstances, and even though we decided that the nine years of proceedings in the set aside application do not amount to a denial of justice, the Tribunal has no difficulty in concluding the Indian judicial system’s inability to deal with White’s jurisdictional claim in over nine years,
and the Supreme Court’s inability to hear White’s jurisdictional appeal for over five years amounts to undue delay and constitutes a breach of India’s voluntarily assumed obligation of providing White with “effective means” of asserting claims and enforcing rights.
The White Industries decision provides a good overview of the evolution of investor-State tribunals’ involvement in commercial arbitration awards, providing both a new
option for relief and delineating the limitations of the trend.
As the White Industries decision showed, there are certain limits inherent to challenging State court treatment of commercial awards. First, tribunals appear to agree
that an award is not an investment in isolation. Rather, jurisdiction is contingent upon whether the contract or right addressed in the award is a qualified investment
under the treaty. Second, cases involving annulment or enforcement of awards typically hinge on establishing a denial of justice or some variation thereof, which presents a series of substantive requirements.
An Award Is Not in and of Itself an Investment Like the tribunals in Frontier Petroleum v. Czech Republic and White Industries v. India, the tribunals in Romak v.
Uzbekistan65 and Compagnie International de Maintenance
(CIM) v. Ethiopia66 considered an award to be an
investment only where the award was a continuation or
crystallization of a qualified investment.
In Romak v. Uzbekistan, Swiss grain company Romak concluded several contracts with Uzbek companies. Romak never received payment and accordingly commenced arbitration against the Uzbek purchaser. The tribunal issued an award in Romak’s favor, which the Uzbek courts considered unenforceable under the New York Convention. Romak commenced arbitration at the Permanent Court of Arbitration alleging that Uzbekistan violated numerous obligations under the Swiss-Uzbek BIT by, in relevant part, refusing to enforce the award.
Romak characterized its investment as a “right to money,” “a right conferred by virtue of contracts and economic relations,” and stated “the GAFTA Award itself constitutes an investment . . . to the extent that its bicephalous nature simultaneously links it to the notion
of a right to money, and that of a decision of the authority in accordance with the law.”67 In considering whether the GAFTA Award68 constituted an investment, the tribunal considered that “[t]he GAFTA Award merely constitutes the embodiment of Romak’s contractual rights (as determined by the GAFTA Arbitral Tribunal) stemming from the wheat supply transaction entered into by Romak.”69 Accordingly, “[i]f the underlying transaction
is not an investment within the meaning of the BIT, the mere embodiment or crystallization of rights arising thereunder in an arbitral award cannot transform it into an investment.”70 Ultimately, the tribunal determined
continued on Page 18
53 The tribunal found that the Bank Guarantee did not comprise
an investment, at least “standing alone,” because it was not a right
to payment or money. Id. § 7.5. First, “the Performance Guarantee
. . . did not provide White with any substantive (if any) rights.” Id. §
7.5.5. “At most, White had the right . . . to ensure that payment
would not be taken thereunder.” Accordingly, the Bank Guarantees
provided to India Coal were not “an ‘asset’ of White” and did not
constitute an investment. Id. § 7.5.6. The tribunal also found that
the Government of India had nothing to do with the contract or the
drawdown of the Bank Guarantee. Id. § 3.2.27.
54 Id. § 7.6.
Id. (citing GEA v. Ukraine, ¶ 162).
Id. § 7.6.8 (citing Mondev v. U.S., Chevron v. Ecuador, and Frontier Petroleum v. Czech Republic).
Id. § 7.6.6 (citing GEA v. Ukraine, ¶ 161).
58 Id. § 10.3.
59 Id. § 10.3.6.
60 Id. § 10.3.14-16.
61 Id. § 10.4.9-10.
63 Id. § 11.4.9.
Romak v. Uzbekistan, PCA Case No AAA280, 2009.
Compagnie International de Maintenance (CIM) v. Ethiopia,
summarized in Investment Arbitration Reporter, March 4, 2012,
available at http://www.iareporter.com/articles/20120304_4.
Romak v. Uzbekistan, ¶ 209.
GAFTA stands for Grain and Feed Trade Association.
Romak v. Uzbekistan, ¶ 211.
Protecting Commercial Arbitration
continued from Page 17
that the claimant’s investment (the wheat supply transaction) was not an “investment” under the treaty and therefore the subsequent arbitral award was likewise not an “investment.”71
Although the award is not publicly available, it appears that the tribunal in Compagnie International de Maintenance (CIM) v. Ethiopia also considered an award to be an investment only where the underlying contract meets
the BIT requirements.72 According to the IA Reporter, the tribunal held in its 2009 decision that an annulled
arbitral award did not qualify as an investment because the underlying contract was “akin to a ‘once-off’, commercial arrangement rather than a long-term partnership.”73
Denial of Justice Claims
As a general rule, tribunals follow the test for denial of justice formulated by the tribunal in Mondev v.
Likewise, the Jan de Nul tribunal considered that while the 10-year duration of the proceedings in Egypt was “certainly unsatisfactory in terms of efficient administration of justice, it does not rise to the level of a denial of justice.”77
the question is whether, at an international level and having regard to generally accepted standards of the administration of justice, a tribunal can conclude in the light of all the facts that the impugned decision was clearly improper and discreditable, with the result that the investment has been subjected to unfair and inequitable treatment.
A denial of justice may take the form of “a willful disregard of due process of law … which shocks, or at least surprises, a sense of judicial propriety.”75 Moreover, “[d]enial of justice may occur irrespective of any trace
of discrimination or maliciousness, if the judgment at stake shocks a sense of judicial propriety.”76 Applying this standard, the tribunal in Mondev v. U.S. rejected Mondev’s denial of justice claim against the U.S. courts because there was no denial of justice in the U.S. courts’ application of the immunity. Likewise, the Jan de Nul tribunal considered that while the 10-year duration of the proceedings in Egypt was “certainly unsatisfactory in terms of efficient administration of justice, it does
not rise to the level of a denial of justice.”77 Similarly, the AMTO v. Ukraine tribunal indicated that AMTO’s expectations from the Ukrainian court system were unreasonable.78 The same is true for GEA v. Ukraine,79 Frontier Petroleum,80 and other cases.81
In this context, however, the Chevron v. Ecuador tribunal considered that the respondent State had the burden of “prov[ing] that remedies exist,” which “extends to proving a direct and objective relationship between the proposed device and the resolution of the wrong.”84
Denial of justice claims also require exhaustion of local remedies. In Loewen, for example, the NAFTA tribunal found “the conduct of the trial by the trial judge was
so flawed that it constituted a miscarriage of justice amounting to a manifest injustice as that expression is understood in international law”82 but rejected the claim because Loewen had not exhausted its
options under U.S. courts. Expropriation claims and “effective means” claims also require some iteration of exhaustion of remedies.83 In this context, however, the Chevron v. Ecuador tribunal considered that the respondent State had the burden of “prov[ing] that
remedies exist,” which “extends to proving a direct and objective relationship between the proposed device and the resolution of the wrong.”84
The above decisions tend to show that while tribunals increasingly consider that an award embodies a qualified investment, they are still hesitant to question or interfere with domestic court decisions and processes.
Jurisprudence suggests that tribunals are increasingly open to extending investment treaty protections to commercial arbitration award holders. They are also delineating its boundaries. First, tribunals will consider an award to be an investment if it is a continuation or transformation of a qualified investment as defined
in the treaty. Second, the investor must prove the substantive requirements of a denial of justice, expropriation, or denial of “effective means” in the context of annulment of or delay in enforcing a commercial arbitral award. F
Ana Vohryzek is an associate in King &
Spalding’s New York office and a member
of the International Arbitration Group.
Ms. Vohryzek has worked on international
arbitration cases conducted under the
ICSID and UNCITRAL rules. She
received her J.D. from Yale Law School and her B.A. in
History from University of California, Berkeley.
“Ethiopia prevailed in face of foreign investor’s attempt to use
investment treaty to sue over ICC arbitral award,” Investment
Arbitration Reporter, March 4, 2012, available at http://www.
Mondev v. U.S., ¶ 127; Loewen Group Inc. and Loewen v. United States,
Award, ICSID Case No ARB(AF)/98/3, IIC 254 (2003), (hereinafter
“Loewen Award”), ¶¶133-134 (citing Mondev); AMTO LLC v.
Ukraine, Final Award, SCC Case No 080/2005; IIC 346 (2008)
(hereinafter “AMTO v. Ukraine”) §76 (“In respect of the applicable
standard to establish a case of denial of justice under Article 10(1)
in respect of judicial decisions, the Tribunal refers to the discussion
in Mondev”); Jan de Nul NV and Dredging International NV v. Egypt,
Award, ICSID Case No ARB/04/13; IIC 356 (2008) (hereinafter “Jan
de Nul v. Egypt”), ¶¶ 192-194 (applying the Mondev v. U.S. standard).
Jan de Nul v. Egypt, ¶ 192 (applying “[t]he definition adopted by the Loewen tribunal pursuant to which denial of justice implies “[m]anifest injustice in the sense of a lack of due process leading to an outcome which offends a sense of judicial propriety”).
Id. ¶ 193 (citing Loewen Award).
77 Id. ¶ 204.
AMTO v. Ukraine.
GEA v. Ukraine, ¶ 236 (on the merits, the tribunal reiterated that the
award was not an investment, and regardless, Ukraine was not liable
simply because “the Ukrainian courts came to a conclusion different
to what which GEA had hoped”).
Frontier v. Czech Republic, ¶¶ 520- 529.
See, e.g., Arif v. Moldova, Award, ICSID Case No ARB/11/23; IIC
585 (2013), § VI(B)(2); Iberdrola Energía SA v. Guatemala, Award,
ICSID case no ARB/09/5; IIC 559 (2012), ¶¶ 499-508.
Loewen Award, ¶ 54. The Loewen tribunal arguably erred in requiring exhaustion of remedies in the context of NAFTA. NAFTA requires waiver of local remedies as a condition precedent to arbitration. This is lex specialis and should have displaced the customary international rule of exhaustion. By requiring exhaustion of local remedies, the Loewen tribunal placed the investor in an impossible bind: either forfeit a NAFTA claim for any other breaches by exhausting its remedies in local courts, or forfeit a denial of justice claim by failing to exhaust local remedies.
See White Industries v. India (finding that the delay could not be expropriation because there was no final taking); see also Chevron Corp. and Texaco Petroleum Co. v. Ecuador, Partial Award on Merits Ad hoc—UNCITRAL Arbitration Rules, IIC 421 (2010), ¶¶ 323, 329 (“The Tribunal finds that a qualified requirement of exhaustion of local remedies applies under the ‘effective means’ standard of
Article II(7).” In the case of delay, this meant “that the Tribunal must
be satisfied that the proposed remedies could have had a significant effect on the expediency of the Claimants’ court proceedings prior to their having reached the limit of reasonable delay.”).
Chevron Corp. and Texaco Petroleum Co. v. Ecuador, Partial Award on Merits Ad hoc—UNCITRAL Arbitration Rules, IIC 421 (2010), ¶ 329.
The Curious Case of Mobil & Murphy v. Canada
under Article 1106. When Canada signed the NAFTA, it included a reservation to ensure that Article 1106 would not apply to its Federal Accord Act, which governed the
A significant influence on the tribunal’s reasoning appears
The decision in Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada (Mobil & Murphy) could
be considered a misapplication—or at least a curious application—of the fair and equitable treatment (FET) standard under customary international law. In that case, the tribunal faced claims of breach of NAFTA Article 1105 (which includes the duty to accord fair and equitable treatment to investments) and Article 1106 (which prohibits a NAFTA party from imposing “performance requirements” on investments) as a result of minimum research and development expenditures (R&D Benchmarks) that a Canadian regulatory board
imposed on existing oil and gas concessions, including the one that Mobil and Murphy (claimants) operated.1
Claimants argued that the imposition of R&D Benchmarks required a doubling of their research and development expenditures, or an additional US$147 million in “forced spending.”2 Because Canada required no precise threshold for such expenditures when claimants began investing, they argued that the new benchmarks breached their “legitimate expectations” and thus, the “fair and equitable treatment” (FET) provision of the NAFTA. Canada argued that the R&D Benchmarks could not amount to a breach of either NAFTA provision, because (i) claimants should have expected them: their concession contracts were valid
for one year and were extended on an annual basis only after a regional board approved their submitted
“Benefits Plans,” which were required to include planned expenditures for research and development; and (ii)
the R&D Benchmarks fell within the scope of Canada’s express reservation to Article 1106, which listed the federal legislation that governed those Benefits Plans and required R&D expenditures (the “Federal Accord Act”)
as a pre-existing, nonconforming measure exempt from the NAFTA prohibition on performance requirements.
When assessing the FET claim under Article 1105, the tribunal considered that in order to find that the R&D Benchmarks breached the FET standard, it would need to be satisfied that the concept of “legitimate expectations” had become a part of customary international law; that claimants could have legitimately expected Canada not
to impose the R&D Benchmarks; and that Canada’s imposition of benchmarks was contrary to those expectations. The tribunal dismissed the claim for breach of the FET standard on the first prong of the analysis, finding that the minimum standard of FET under customary international law “does not require a State
to maintain a stable legal and business environment for investments, if this is intended to suggest that the rules governing an investment are not permitted to change, whether to a significant or modest extent.”3
The tribunal stated that the customary international law standard of FET instead protects investors from, for
example, measures that are “arbitrary or grossly unfair or discriminatory.”4 The tribunal concluded that
there is nothing . . . to prevent a public authority from changing the regulatory environment to take account of new policies and needs, even if some of those changes may have far-reaching consequences and effects, and even if they impose significant additional burdens on investors.5
Having rejected the claim under Article 1105, the tribunal then considered the claim that the R&D Benchmarks breached the prohibition on “performance requirements”
Benefits Plans that concessionaires were required to submit
on an annual basis. The Federal Accord Act required
concessionaires to include in their Benefits Plans the
amount of R&D expenditures that the investors planned
to make in the given year. While there was no minimum
requirement for R&D investments, the Benefits Plans
could not be approved by the relevant board (and the
concession contracts not extended) without a statement of
the planned R&D expenditures.
Despite Canada’s reservation, the tribunal concluded that the R&D Benchmarks breached Article 1106 of the NAFTA. The tribunal considered that, to fall within the scope of Canada’s Article 1106 reservation, the challenged measure (the R&D Benchmarks) would have to be consistent with the reserved measure (i.e., the Federal Accord Act) and any new subordinate measure that fell within the scope of the reserved measure. It found that “new subordinate measures” included claimants’ previously submitted and approved
Benefits Plans, as well as prior board decisions extending claimants’ rights to their concession.6 Because it found that the R&D Benchmarks were inconsistent with the “new subordinate measures,” the tribunal concluded that they fell outside the scope of a permissible reservation
to the treaty, notwithstanding its finding that the R&D
to be its finding that the benchmarks were an additional, “substantial” financial burden that altered the legal framework applicable to the investment in a “fundamental manner.”7
Benchmarks fell within the scope of the expressly reserved measure, the Federal Accord Act.
In other words, the tribunal concluded that R&D Bench- marks were not inconsistent with the general requirement, under the Federal Accord Act, that investors make R&D expenditures, but that the specific benchmarks imposed were inconsistent with previous board decisions that made no mention of a minimum expense requirement. A signifi- cant influence on the tribunal’s reasoning appears to be its finding that the benchmarks were an additional, “sub- stantial” financial burden that altered the legal framework applicable to the investment in a “fundamental manner.”7
When considered together, the tribunal’s analysis of Articles 1105 and 1106 is curious and raises doubts as to whether it correctly applied principles of international
law. Those doubts are magnified when it appears that the tribunal could have reached the same result, while applying the law differently, yet consistent with its own analysis.
First, the tribunal’s finding that “legitimate expectations” is not part of the FET standard under customary international law appears at odds with the relevant jurisprudence, including the NAFTA jurisprudence, that the tribunal considered in its award.8 For example, the
continued on Page 22
1 Mobil Investments Canada Inc. & Murphy Oil Corp. v. Canada,
ICSID Case No. ARB(AF)/07/4 (NAFTA) Decision on Liability
and on Principles of Quantum, May 22, 2012 (hereinafter, “Mobil &
2 Id. ¶ 358.
3 Id. ¶ 153 (emphasis added).
4 Id. ¶¶ 152-153.
5 Id. ¶ 153.
6 See id. ¶¶ 280-281.
7 See id. ¶¶ 401, 410-411.
See id. ¶¶ 138-150. The concept is undoubtedly accepted in non-
NAFTA cases, like Saluka v. Czech Republic, where the tribunal found
that “legitimate expectations” is “the dominant element” of the FET
standard. Saluka Investments BV v. Czech Republic, ICSID Case
Partial Award, March 17, 2006, ¶ 302.
The Curious Case
continued from Page 21
Metalclad tribunal found that investors are entitled to rely on government representations and that Mexico’s failure to abide by its representations amounted to a failure to provide a predictable business framework and therefore violated the investors’ expectation of fair and equitable treatment.9 Similarly, the tribunal in Waste Management
v. Mexico found that whether a State breached its own representations that the investor reasonably relied upon was “a relevant factor” in determining whether the State violated the FET standard.10
Most relevant, the International Thunderbird tribunal expressly stated that
the concept of ‘legitimate expectations’ relates, within the context of the NAFTA framework, to a situation where a Contracting Party’s conduct
creates reasonable and justifiable expectations on the part of an investor (or investment) to act in reliance on said conduct, such that a failure by the NAFTA Party to honor those expectations could cause the investor (or investment) to suffer damages.11
The Mobil & Murphy tribunal cited that very finding before espousing a stricter standard for “legitimate expectations” and relegating it to merely a factor to be considered—rather than a fundamental part of—the customary international law standard of FET.12
Particularly given the tribunal’s finding that the R&D Benchmarks changed the investment environment in a substantial and overly burdensome manner, the tribunal would have been justified in finding a violation of the FET standard under Article 1105. Instead, the Mobil & Murphy tribunal settled upon a standard that is both overly strict
See Mobil & Murphy, Award ¶¶ 139-140 (citing Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/1, Award, August 30, 2000, ¶¶ 89-99).
See Mobil & Murphy, Award ¶¶ 141-142 (citing Waste Management v.
Mexico, ICSID Case No. ARB(AF)/00/3, Award, April 30, 2004,
¶ 98). The Mobil & Murphy tribunal also states that the Waste
Management “award said nothing about the concept of ‘legitimate
expectation’”–strange commentary in light of the Waste
Management tribunal’s statement that reasonable reliance on state
representations is relevant to an FET analysis. Id.
See id. ¶¶ 143-145 (citing International Thunderbird Gaming Corp. v.
Mexico, UNCITRAL Award, January 26, 2006, ¶ 147).
Id. The Mobil & Murphy tribunal concluded that “legitimate
expectations” require “explicit representations” from a State. Id. ¶
Id. ¶¶ 152-153. That conclusion is also suspect given that Article
1105 protects “investments” rather than “investors.”
and unhelpfully ambiguous. The tribunal concluded that host States violate the FET standard under customary international law only when they cause harm to a claimant by “egregious behavior” that “is arbitrary, grossly unfair, unjust, or idiosyncratic, or is discriminatory and exposes
a claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome [that] offends judicial propriety.”13 Given that the tribunal also found that the R&D Benchmarks Canada had imposed were financial burdens that significantly altered the legal and business framework of claimants’ investments—indeed, they required claimants to more than double their R&D investments—we are left to wonder what type of State behavior would, in the tribunal’s view, rise to the level of “gross unfairness.”
Second, the tribunal’s pronouncements with respect to Canada’s NAFTA reservation are based on seemingly circular reasoning14 and result in a fluid legal standard that Canada will undoubtedly find difficult to meet (and which is quite likely well beyond what Canada intended when it signed the NAFTA). By finding that an investor- created yet board-approved Benefits Plan is a “new subordinate measure” that falls under the scope of a treaty reservation,15 the tribunal essentially gives municipal regulatory bodies the power to amend the text of a multinational treaty. Certainly that finding is at odds with Canada’s domestic law governing how such modifications may be made.
Moreover, the tribunal acknowledged that the same R&D Benchmarks at issue here might be legitimate when applied to a different concession operated by a different investor.16 Whether the R&D Benchmarks fall within the scope of Canada’s NAFTA reservation will, according to
the tribunal, depend upon the scope of any given investor’s Benefits Plans and the municipal board decisions affecting that investor’s concession.17 It follows from that type
of legal test that Canada’s obligations under the same treaty—the NAFTA—will vary from investor/investment to investor/investment. The majority acknowledged as much when it stated that its “methodology implies an evolving legal and regulatory framework, which holds
According to an interpretive note to the NAFTA, a reserved “measure” includes “any subordinate measure adopted or maintained under the authority of and consistent with the [reserved] measure.” Id. ¶ 260. Therefore, in order to find that the Benefits Plans and Board Decisions are “new subordinate measures,” the tribunal had to conclude that they were “consistent” with the reserved measure (i.e., the Accord Acts)–yet the tribunal finds that the R&D Benchmarks are consistent with the reserved measure but not the “new subordinate measures” vis á vis these investors. See id.
¶ 300 et seq.
Id. ¶¶ 333-342. Thus, the tribunal effectively permits regulatory
bodies to amend a multinational treaty, which is no doubt contrary
to domestic law requirements.
NAFTA Parties potentially accountable to subordinate measures that differ in significant ways from their initial non-conforming reservation.”18 Obviously Canada could not have intended to subject itself to fulfilling, much less keeping track of, such varied obligations when it made
a relatively simple and straightforward reservation to Article 1106. Questions also arise regarding the fairness to investors on the whole when Canada’s reservation may apply to some investments but not to others.
It light of its finding that the R&D Benchmarks imposed a significant financial burden that fundamentally altered
the legal framework of claimants’ investments, the tribunal would have been on better legal ground to conclude that the R&D Benchmarks violated Canada’s obligation to accord fair and equitable treatment to Mobil’s & Murphy’s investment, which is an “unreserved” treaty obligation. That conclusion would have avoided a complicated analysis, which is likely to be difficult for Canada to respect and implement, which may erode the strength of other States’ treaty reservations in general, and which provides little consistency for investors in terms of whether Canada’s R&D Benchmarks breach the NAFTA. F
Amy Frey is a senior associate in King &
Spalding’s Paris office and a member of the
International Arbitration Group. Ms. Frey
practices nearly full-time in investment
treaty arbitration, and she has worked
on more than sixteen such disputes since
she began her career in 2006. Ms. Frey has extensive
experience obtaining interim injunctive relief for her
clients and resisting challenges to awards in ICSID
annulment proceedings and domestic courts. Her cases
have been brought under bilateral investment treaties
and the Energy Charter Treaty, and they have involved
changes to legal regimes that have harmed foreign
investments and concessions, as well as complex tax and
tariff disputes, including the application of customs duties
on imports, changes to corporate income tax regimes,
taxes on the export of oil and gas, transport pricing, and
so-called “windfall profits” taxes.
18 Id. ¶ 338.
Arbitration of Energy Disputes: New Challenges
September 1-2, 2014
King & Spalding is sponsoring an international conference on Arbitration of Energy Disputes, to be held in Copenhagen September 1-2, 2014, under the auspices of the Danish Institute of Arbitration. Doak Bishop, a partner in King & Spalding’s Houston office, has been invited to deliver the keynote address, and three other King & Spalding lawyers are also speaking at the event. Some 40 panelists from 12 different countries will be examining topics relating to both investment arbitration and international commercial arbitration
as well as discussing issues arising from investment and boundary disputes in the Arctic; disputes arising in connection with alternative sources of energy; and dispute settlement options available for environmental disputes arising in the context of energy projects.
The program and registration form is available at www.danisharbitration.com.
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