Transcript The European Union’s Shaping of an International Law on

Protecting Russian Investments
Abroad
Opportunities and constraints
Anatole Boute
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• STRUCTURE OF THE PRESENTATION
Protecting Russian investments abroad: relevance
Introduction to Russian investment treaty-making
Reciprocity in international investment law
Principle of Most-Favored Nation
Procedural protection
Substantive protection
The way forward
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• Protecting Russian investments abroad: relevance
Commercial v. investment arbitration
Ex ante – ex post
Investor-state arbitration: independence of
protection
procedural
Substantive standards that go beyond states’
obligation under customary international law
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Russian investments in unstable and unpredictable
climates
Developing and transition economies:
Mongolia (Paushok, Golden East,
Vostokneftegaz, April 28, 2011)
Moldova (Bogdanov, March 30, 2010)
The EU internal energy market?
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• Introduction to Russian investment treaty-making
– Russian Bilateral Investment Treaties (BITs)
“First-generation” BITs
“Second-generation” BITs
“Third-generation” BITs?
BUT
Dangerous classification
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– Russian multilateral investment treaties
Energy Charter Treaty (and Draft Convention on
Energy Security)
Partnership and Cooperation Agreement with the
EU?
WTO?
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– The European Convention for Human Rights
Article 1, First Additional Protocol
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•
Reciprocity in international investment law
BITs as “bilateral” treaties: reciprocity of rights / obligations
Obligations apply to both Contracting Parties
Rights for investors from both Contracting Parties
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Reciprocity and the economic power of the parties:
bilateral in practice?
Primarily aimed at countries with weak
institutional framework and weak “rule of law”
to export capital to developing or transition
economies.
But, the trend is changing: ex. claims against
the US.
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Example: the Energy Charter Treaty
Objective: to reduce non-commercial risks
associated with energy investments
to facilitate “Western” investments in the CIS
countries.
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André Mernier, Secretary General of the Energy Charter:
“it is extremely important to recall that the provisions of the Treaty are
not only applicable to upstream markets. Political risk is not confined
only to one part of the energy value chain, and companies from
producer countries are increasingly active on downstream markets.
Through the Treaty, these companies receive the same binding
protection against non-commercial risk.”
Reciprocity of arbitration (although commercial) highlighted
in recent BP-Rosneft deal.
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Reciprocity also means that Russian investors abroad face
the same arbitration obstacles as foreign investors in
Russia
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•
PRINCIPLE OF MOST-FAVORED NATION
Requirement not to treat investors from the other
Contracting Party less favorably than other investors
Application of non-discrimination principle to the relation of
a host state with investors that come from all the states with
which the host state has concluded investment treaties.
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“Neither Contracting Party shall in its territory subject
investors of the other Contracting Party, as regards their
management, maintenance, use, enjoyment or disposal
of their investments, to treatment less favorable than that
which it accords to investors of any third State.”
(Art. 3, para. 2 UK-Soviet BIT)
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Relevance:
Harmonization of investment protection.
Obligations go beyond a particular investment treaty.
Application to substantive protection?
Application to procedural protection?
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• Procedural protection
Access to independent investor-state arbitration
Key: scope of the dispute resolution clause
“First-generation” BITs
“Second-generation” BITs
ECT
Prospects?
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“First generation Russian BITs” :
- Dispute resolution clauses apply to any dispute:
“relating to the amount or method of payment of the
compensation due under article 6 of this Agreement [on
nationalization and expropriation].”
Art. 10 Spain-Soviet BIT.
See also Soviet BITs with UK, Belgium/Lux, Germany,
Austria, Finland, Netherlands
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- Interpretation of dispute resolution clauses:
● Strict:
The clauses exclude from the scope of arbitration:
(i) other disputes than related to expropriation, and
(ii) disputes concerning “whether or not an act of
expropriation actually occurred”.
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On the expropriation itself: RU courts or contract
Berschader v Russia, Award, 21 April 2006 (SCC
080/2004.
See also RosInvest v Russia, Award on Jurisdiction,
October 2007 (SCC V079/2005)
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● Broad:
“It is impermissible to read Article 10 of the BIT as a
vanishingly narrow internationalization of Russia’s
commitment. Yet that would be the consequence if
Russia could determine unilaterally and conclusively
whether the very predicate of the Tribunal’s jurisdiction
were operative or not”.
Renta v Russia, Award on Preliminary Objections,
20 March 2009 (SCC 24/2007).
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- Interpretation of MFN clause:
● Strict:
MFN does not allow to “import” broader dispute
resolution clauses from other BITs.
(Berschader, Renta)
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● Broad:
“if [MFN] applies to substantive protection, then it
should apply even more to “only” procedural
protection.”
(RosInvest)
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Restricted dispute resolution clause in all “firstgeneration” BITs?
Exception:
Soviet BITs with France and Canada
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“Second-” and “third-generation” Russian BITs:
Investor-state dispute resolution open to:
“Any dispute which may arise between an investor of
one Contracting Party and the other Contracting Party in
connection with an investment on the territory of that
other Contracting Party”.
Italy,
(Art. 8 Denmark-Russia BIT. See also BITs with
Cyprus, Norway, Sweden, Hungary)
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The Energy Charter Treaty dispute resolution clause:
Article 26 applies to “disputes which concern an alleged
breach of an obligation under Part III [investment
promotion and protection]”.
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Interpretation:
“Article 26 ECT provides to a covered investor an almost
unprecedented remedy for its claims against a host state.”
Plama v Bulgaria
Decision on Jurisdiction of 8 February 2005
(ICSID ARB/03/24)
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The Y…. case:
30 November 2009 (PCA)
The central issue:
Is Russia bound by the investment regime of the ECT on
the basis of the provisional application clause?
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No protection under the ECT after 18 October 2009
The investment chapter of the ECT, as well as the
dispute resolution clause, remains in force for existing
investors until 18 October 2029
Cavaet: No doctrine of precedent in international
arbitration
But: Ioannis Kardassopoulos v Georgia, Decision on
Jurisdiction of 6 July 2007 (ICSID ARB/05/18)
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Relevance for Russian investments abroad:
Art. 45, para 2, (b) of the ECT:
Neither a signatory which makes a declaration in
accordance with subparagraph (a) nor Investors of
that signatory may claim the benefits of provisional
application under paragraph (1).
What about investments incorporated in other countries?
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The dispute resolution clause of the Draft Convention on
Energy Security:
recognizes investor-state arbitration
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• Substantive protection
- Expropriation;
- National treatment and non-discrimination;
- Fair and equitable treatment;
- Full protection and security;
- Umbrella clause.
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• Expropriation
Expropriation clauses in most Russian BITs
include measures “tantamount” to expropriation
ex. Italy-Russia BIT: de jure and de facto
compensation (Hull formula)
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Interpretation in arbitral practice
debate on “regulatory taking”:
the sovereign right of states to regulate v. the
protection of property
degree of interference with an investment
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• National treatment and non-discrimination
Relative and not absolute standard
No treatment less favorable than national investors
that are in a comparable situation
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Most Russian BITs contain a NT clause, except with
Finland and Austria
BUT
MFN and fair and equitable treatment standard
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Some Russian BITs limit protection “to the extent
possible” and “in accordance with their laws and
regulations”
2002 Model Russian BIT: retains the right to
introduce exceptions to NT
ex post?
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Additional safeguards: Germany-Soviet BIT:
discriminatory measures include “unjustified
restrictions on the acquisition of raw materials
and auxiliary materials, energy and fuel”.
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Interpretation:
“comparable situation”: the likeness test.
exactly the same business?
the same economic sector?
over cross-sectoral analysis?
justification based on public policy objectives
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• Fair and equitable treatment
“Currently the most promising standard of
investment
protection” (Schreuer)
Absolute standard that “fills the gaps” left by other
standards (Dolzer)
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- Respect for investors’ legitimate and reasonable
expectations
- Stability and predictability of the legal framework
- Protection against arbitrariness and discrimination
- Procedural propriety and due process
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Discussion in arbitral practice:
Does it go further than the minimum standard of
protection under customary international law?
Russian BITs do generally not refer to the
of international law” in the formulation of
Equitable Treatment standard
“principles
the Fair and
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NL and Sweden BITs refer to “fair and equitable
treatment” in preamble:
fair and equitable treatment will stimulate the
flow of capital and technology and the
economic development of the contracting
parties.
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Specific formulation in Russian BITs:
link with non-discrimination (with Cyprus)
only “fully equitable” (Germany) or just
“fair” (2002 Model BIT)
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• Full protection and security
Physical security
Legal security?
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Full protection and security clauses in Russian BITs:
“full protection” (Germany)
“full and unconditional legal protection” (Cyprus)
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• Umbrella clauses
Sanctity of contract
Add the compliance with (investment) contracts and
other commitments to the BIT substantive standards
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In Russian BITs: only few
UK and NL-Soviet:
shall observe any obligation it may have entered into
with regards to investors the other Party
BUT
limited dispute resolution clause
Japan-Russia
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Substantive protection standards and MFN
Differences in the investment disciplines included in the
respective BITs and their formulation,
BUT
MFN clause applies to substantive protection:
“import” of more favorable protection standards from
other (third-party) BITs.
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• CONCLUSION
Reciprocity:
Reciprocity of investment obligations and rights
Increasing use by Russian investors can be
expected, following the general trend
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Access to arbitration:
Crucial importance of access to arbitration: a
considerable limit for Russian investments abroad,
just as for certain foreign investments in Russia
In EU: Germany, Finland, UK, Austria, NL, BEL/LUX
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Most Favored Nation:
Harmonization of substantive protection
More sensitive for procedural protection
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Momentum:
Negotiations of a new EU-Russian Partnership
Agreement
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Thank you for your attention!
[email protected]
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