Transcript Diapositiva 1

International Investment
Agreements: Recent Trends in
Investor-State Case Law and Treaty
Negotiation
Key Substantive Disciplines:
Protection against expropriation,
Umbrella clauses & Special formalities
Roberto Echandi
Taipei, March, 2011
Protection against expropriation
• Two key issues:
– Which are the conditions for a taking to be
lawful?
– Expropriation vs. State regulatory authority
• What amounts to a taking?
• Breath of the obligation: relationship between what
constitutes a taking and the definition of
investment…
Protection against expropriation
•
4 conditions for a taking to be lawful:
– Public purpose
• Genuine public need and good faith
• In practice States have been granted a wide margin of appreciation in this determination
(Amoco International Finance Corporation vs. Iran)
– Non-discrimination
• Under CIL expropriations solely on the basis that the foreign national belongs to a specific
racial,religious,cultural, ethnic or national group are not allowed.
• Highly context specific
– Due process of law
• Some basic legal mechanisms, such as reasonable advance notice, fair hearing, unbiased
and impartial adjudicator. Legal procedure must grant the affected investor with a
reasonable chance within a reasonable time to claim its legitimate rights and have its
claims heard. ADC vs. Argentina
– Compensation:IIAs typically address 4 issues:
•
•
•
•
Standard of compensation and valuation methods
Date for determining compensation
Convertibility and transferability
Payment of interest
Protection against expropriation
• The historic debate on the compensation formula:
– Hull formula: prompt, adequate and effective
– Fair, just, appropriate…
• Is this an issue of the past? Perhaps, but determining the amount of
damages is always a tricky business….
• PCIJ: Chorzów Factory (Germany vs. Poland, 1928)
– “…an illegal act…reparation must, as far as possible, wipe out consequences
of the illegal act and reestablish the situation which would, in all probability,
have existed if that act had not been committed..”
– PICJ distinguished between illegal expropriation which require total reparation of status
quo ante (which includes lost profits) and legal expropriations requiring fair and just
compensation equal to the”value of the undertaking at the moment of disspossesion”.
• Is this an illusory distinction?
Protection against expropriation
• Valuation methods
• Classical case: Starret Housing Corp. vs.Iran (Iran-U.S. Claims Tribunal)
fair market value was defined as
– “…the price that a willing buyer would pay to a willing seller in circumstances in
which each had good information, each desired to maximize his financial
gain,and neither was under duress or threat, the willing buyer being a
reasonable business person.”
• Different methods to calculate fair market value
– Discounted cash flow analysis
• Business as going concern (examination of history of operations and assessment
based on estimation of future profits subject to a discounted cash flow analysis).
• DFC is relatively new in the world of arbitration. Cannot be used when enterprise has
not operated for a long time to establish a performance record or where it has failed
to make a profit, tribunals have found that future earnings cannot be used to
determine going concern or fair market value as such approach may lead to
speculation. Vivendi II vs. Argentina, Middle East vs. Egypt
– Net book value, replacement or liquidation value
– Actual investment (Metalclad vs. Mexico, Wena vs. Egypt, Sedelmayer
vs.Russia)
Protection against expropriation
• What amounts to a taking ?
– Direct takings
– Indirect takings
• Confiscatory tax measures, environmental
measures...
• IIAs tend to lack a clear-cut definition or list the exact
factual criteria that entail an indirect taking
• Measures tantamount or equivalent to a taking:
– Negative impact on patrimony?
– Loss of right of property?
Indirect Expropriation
• Finding whether there has been a taking…
• Case by case approach:
– Permanent deprivation of ownership rights
– Substantiality of such interference
– Existence of reasonable investment-backed
expectations
– Proportionality between public policy objective and the
impact on the property rights of the investor
• Breath of the obligation: what is expropriated is
the investment not only tangible property…
– IPRs
Expropriation: Case Law
•
•
•
•
•
•
•
Wena vs. Egypt
– Seizure of Wena’s two hotels, followed by its illegal possession of the hotels for almost
a year, period during which it stripped them of fixtures and furniture
Goetz vs.Burundi
– Revocation of certificate of «free zone»
Metalclad vs. Mexico
– Ecological decree banning economic activity
Tecmed vs. Mexico
– Failure to renew the hazardous waste landfill permit already held by the investor’s
subsidiary (as a result of the non-renewal, economic and commercial operations in the
landfill were destroyed)
Middle East Cement Shipping and Handling vs. Egypt
– Annulment of a ten year authorization for the import and storage of bulk cement, and
seizure and auction of a ship
CME vs. Czech Republic
– Investor was deprived of business arrangement under which it was to have the
exclusive use of a broadcasting license.
Eureko vs. Poland
– Investor deprived of benefits of contractual rights to acquire a controlling stake in an
insurance company.
Expropriation: Case Law
• Feldman v. Mexico
“…governments must be free to act in the
broader public interest though the protection of
the environment, new or modified tax regimes,
the granting or withdrawal of governent
subsidies, reductions or increases in tariff
levels, imposition of zoning restrictions and the
like. Reasonable government regulation of this
trype cannot be achieved if any business that is
adversely affected may seek compensation,
and it is safe to say that customary international
law recognizes this.”
Case Law and Impact on Rule-making
• “New generation” Agreements on Expropriation
-- Text has been included in order to make it explicit that
the obligations regarding expropriation are intended to
reflect the level of protection granted by customary
international law
─ Clarification has been complemented by guidelines and
criteria in order to determine whether, in a particular
situation, an indirect expropriation has in fact taken
place
Umbrella Clauses
• Clause under which the Contracting Party assumes the
responsibility to respect other obligations undertaken
regarding investment of investors of the other Contracting
Party
• Art.11 BIT Switzerland-Pakistan
– « Either Contracting Party shall constantly guarantee
the observance of the commitments it has entered into
with respect to the investments of the other Contracting
Party »
• Issue: Does such clauses convert any violation regarding
any commitment with respect of an investment a treaty
violation?
Umbrella Clauses
• SGS v. Pakistan
– Effects of umbrella clauses are so sweeping that
evidence is needed to demonstrate that those effects
were in fact intended by the contracting parties
• SGS v. Philippines and L.E.S.I-DIPENTA v.
Algeria
– Effects of umbrella clauses is to transform breaches of
State’s contractual obligations into violation of that
provision of the treaty, and thus, endows arbitral tribunal
constituted in accordance with the treaty with
jurisdiction over such breaches.
Special Formalities and
Information Requirements
• Special Formalities
– National treatment obligation will not prevent a Party from adopting or maintaining a
measure that prescribes special formalities in connection with the establishment of
investments by investors of the other Party such as residence requirements for investors
or requirements that investments be legally constituted under the laws or regulations of
the Party
– Provided that such formalities do not materially impair the protections afforded by a Party
to investors of the other Party and investments of investors of the other Party pursuant to
this Chapter.
• Information Requirements
– National treatment and MFN will not prevent a Party from requiring an investor or its
investment, to provide routine information concerning that investment solely for
informational or statistical purposes.
– The host State shall protect any confidential information from any disclosure that would
prejudice the competitive position of the investor or the investment, but the host State ill
not be prevented from otherwise obtaining or disclosing information in connection with
the equitable and good faith application of its law.
Thank you
for your attention
[email protected]