Investment Law Lecture Notes Outline PDF

Preview

Summary

NAFTA FTC NOTE OF INTERPRETATION, 2001 (MINIMUM STANDARD OF TREATMENT IN ACCORDANCE WITHREISMAN AND SLOANE, “INDIRECT EXPROPRIATION AND ITS VALUATION IN THE BIT GENERATION,” 74 BRIT. INTRO INTRODUCTION INVESTMENT CONTRACTS – LEGAL STATUS BISHOP, CRAWFORD, AND REISMAN [BCR], FOREIGN INVESTMENT DISPUT...

Description

INTRO

2

1. INTRODUCTION 2 2. INVESTMENT CONTRACTS – LEGAL STATUS 3 BISHOP, CRAWFORD, AND REISMAN [BCR], FOREIGN INVESTMENT DISPUTES (2005), PP. 255 (BEGIN AT B)-61 3 ICSID CONVENTION (1965), ART. 42 4 AMCO ASIA V. INDONESIA, BCR 642-45 4 3. INVESTMENT CONTRACTS – STABILIZATION AND UMBRELLA CLAUSES 6 BCR 286-299 (END BEFORE D) 6 AMINOIL: AMERICAN INDEPENDENT OIL COMPANY V. KUWAIT (1982) 7 SGS V. PAKISTAN (ICSID, 2003) 7 SGS V. PHILIPPINES (ICSID, 2004) 9 III. PROTECTIONS UNDER BITS AND CUSTOMARY INTERNATIONAL LAW

11

4. FAIR AND EQUITABLE TREATMENT OF INVESTMENT 11 DOLZER AND SCHREUER, 130-39 11 2012 US MODEL BIT ARTICLE 5: MINIMUM STANDARD OF TREATMENT 11 TECMED V. MEXICO (ISCID, 2003, MEXICO/SPAIN) 12 POPE AND TALBOT V. CANADA (NAFTA PANEL, 2001) – 12 5. FAIR AND EQUITABLE TREATMENT (II) 13 NAFTA ARTS. 1131, 2001, 2202 13 NEER V. MEXICO (U.S.-MEXICO COMMISSION, 1926) 13 NAFTA FTC NOTE OF INTERPRETATION, 2001 (MINIMUM STANDARD OF TREATMENT IN ACCORDANCE WITH IL) (IN RESPONSE TO P&T) 13 POPE AND TALBOT V. CANADA, AWARD ON DAMAGES (NAFTA, 2002) 14 MONDEV V. UNITED STATES (ICSID, 2002) 14 GLAMIS GOLD V. UNITED STATES (ICSID, 2009) 14 6. NATIONAL AND MOST FAVORED NATION TREATMENT 14 US MODEL BIT (2012), ARTS. 3-4 14 POPE AND TALBOT V. CANADA (NAFTA PANEL, 2001) (NT) 15 METHANEX V. UNITED STATES, PART IV, CHAPTER B, PP. 6-19 ONLY (NAFTA, NT) 15 7. NATIONAL AND MOST FAVORED NATION TREATMENT (II) 16 NICHOLAS DIMASCIO AND JOOST PAUWELYN, “NONDISCRIMINATION IN TRADE AND INVESTMENT TREATIES: WORLDS APART OF TWO SIDES OF THE SAME COIN?, 102 AM. J. INT’L L. 48 (2008) 16 MAFFEZINI V. SPAIN (ICSID, 2000) – FACTS AND HOLDING ON MFN 17 8. PERFORMANCE REQUIREMENTS AND TRADE-RELATED INVESTMENT MEASURES 17 9. EXPROPRIATION 17 REISMAN AND SLOANE, “INDIRECT EXPROPRIATION AND ITS VALUATION IN THE BIT GENERATION,” 74 BRIT. YEARB OOK INT’L L. 115 (2003) 18 STARRETT HOUSING V. IRAN (IRAN-U.S. CLAIMS TRIBUNAL, 1987) (INDIRECT) 18 METALCLAD V. MEXICO (NAFTA ICSID, 2000) 18 WASTE MANAGEMENT V. MEXICO (NAFTA ICSID, 2004) 18 10-11. EXPROPRIATION (II) 19 11-12. COMPENSATION FOR EXPROPRIATION 20 12-13. THE STATE’S DEFENSE OF NECESSITY 21 CMS V. ARGENTINA (ICSID, 2005) (ANNULLED) 21 LG&E V. ARGENTINA, DECISION ON LIABILITY (ICSID, 2006) 22

- 2 III. DUTIES ON FOREIGN INVESTORS

22

14. FOREIGN INVESTMENT AND HUMAN RIGHTS – INTERNATIONAL REGULATION 15. FOREIGN INVESTMENT AND HUMAN RIGHTS – THE ALIEN TORT CLAIMS ACT 16. FOREIGN INVESTMENT AND CORRUPTION 17. THE BIG PUSH-BACK? PROPOSALS TO REVISE BITS

22 23 24 24

IV. RESOLUTION OF INVESTMENT DISPUTES

24

18. CUSTOMARY LAW AND DIPLOMATIC PROTECTION 19. ICSID ARBITRATION 20. INVESTOR-STATE ARBITRATION IN PRACTICE – GUEST SPEAKER: STEPHEN ANWAY 21. ICSID ARBITRATION (II) – ANNULMENT PROCEEDINGS 22. ENFORCEMENT OF ARBITRAL AWARDS IN DOMESTIC COURTS 23. THE INSURANCE ALTERNATIVE – GUEST SPEAKER: DEBORAH BURAND 24. THE LEGITIMACY OF INVESTMENT ARBITRATION A CASE FOR AN INTERNATIONAL INVESTMENT COURT (GUS VAN HARTEN) 25. DISPUTES ARISING OUT OF U.S. RESTRICTIONS ON INWARD INVESTMENT 26. CONCLUSION

24 24 24 25 25 26 26 26 31 33

INTRO 1. Introduction Tugelbayev, “Come and Exploit Us,” Far Eastern Economic Review, Jan. 28, 1993 “Angola: Investment Climate Statement for 2012,” from US Embassy Luanda website – skim Rudolf Dolzer and Christopher Schreuer, Principles of International Investment Law (2012) – skim 1-19, read 19 (beginning at 3)-27 History of International Investment Law 1. Originally, treaty practice in 1800s protected alien property by reference to domestic laws of HS 2. 1868 Calvo Doctrine: investment law governed under HS; HSs can reduce protection of alien property while reducing guarantees for property held by nationals (lack of protection) a. No right of diplomatic protection, access to international tribunals b. Conceived against backdrop of gunboat democracy 3. 1917 Russian Revolution: expro without compensation, reliance on national treatment standard to justify 4. 1938 Mexico nationalization of US interests + Hull doctrine: a. International law permits exprop. Of foreign property, but requires “prompt, adequate and effective compensation” 5. International minimum standard emerges a. Non-nationals are more vulnerable to domestic legislation (no participation in political process) b. May be different considerations regarding takings of property that require nationals to

- 3 bear greater burden in the public interest than non-nationals c. 1926 Neer standard

2. Investment Contracts – Legal Status Choice-of-law Clauses (ICSID Art. 42), Amco case 1. Apply law agreed upon by parties, 42(1) a. Notwithstanding any sovereignty issues or “overweening bargaining power” b. ICSID 42(1) incorporates BIT choice-of-law clause, even if parties agreed to something else in K? 2. Default rule: If no clause, apply HS DL (including rules on conflict of laws) + rules of IL as may be applicable, 42(1) a. Function of default rule: (Amco) i. (1) Fills lacunae in DL, and ii. (2) Where conflict between DL and IL, IL takes precedence over DL (IL > DL) (Amco) b. Weird clauses (pacta sunt servanda) will be applied by tribunal despite possible conceptual/sovereignty issues 3. No finding of non liquet on the ground of silence or obscurity of the law (ICSID 42(2)) a. Must provide answer, can’t refuse to decide on ground that law is unclear b. Look to trade customs, practice, soft law, industry-wide practices c. Reflects industry approach; provides clear expectations in absence of specific designated laws 4. Tribunal can decide a dispute ex aequo et bono if the parties so agree 42(3) a. Where tribunal is precluded from deciding a case ex aequo et bono, any mention of “equitable consideration” does not necessarily amount to a decision ex aequo et bono (Amco) b. Equitable considerations may include part of DL or IL (Amco) c. Would be grounds for nullity where tribunal decides an issue ex aequo et bono in lieu of applying the applicable law (Amco)

Bishop, Crawford, and Reisman [BCR], Foreign Investment Disputes (2005), pp. 255 (begin at B)-61 Choice-of-law clauses: Examples 1. HS domestic law only 2. Domestic + principles of IL 3. General principles of law normally recognized by civilized states, including those used by International Tribunals 4. Hybrid/combo DL: Principles of law common to host state + home state, plus any matters under Alberta, CA common law if no agreement between host state/home state principles 5. DL to extent consistent with principles of IL Sornarajah, the Settlement of Foreign Investment Disputes (HS perspective) 1. Parties have autonomy to choose governing law, but autonomy is NOT absolute: a. Cannot choose a legal system which has no relevance to the K; instead, legal system chosen must have some nexus to the K b. Mandatory rules cannot be evaded thru choice-of-law clauses c. Clause made thru use of overweening bargaining power will not be recognized 2. Developing states on governing law: principle of territoriality  investment process taking place within territory of HS should be subject to exclusive jdx of HS a. Permanent sovereignty over natural resources  extends to control over a nation’s economy b. NOTE: inconsistent with ICSID Art. 42(1), which specifies DL + IL as default rule Charles E Stewart, Commentary (FI Perspective) 3. Tension between HS, which wants DL law to govern, and FI, which would want a stabilization clause to freeze applicable law to date of the K 4. One solution: choose law of a neutral, commercially sophisticated well-developed body of law like English

- 4 or NY law a. BUT HS will probably object to choice of laws of another sovereign state b. Plus, laws of 3rd states may change 5. Solution 2: “law of the agreement,” supplemented by laws of HS or IL or common law between the 2 6. Solution 3: IL a. BUT problem: is IL developed enough? i. Could ·examine civil/commercial law systems of leading jurisdictions and deduce what commercial law concepts are common to all ii. (Sounds like general principles of law common to civilized nations – Statute of the ICJ Article 38-1(c) 7. Should “internationalize” the K to avoid unilateral termination by HS 8. Choice-of-law clause should specify that measure of damages should be determined in accordance to law chosen (to preclude tribunal from applying “equity” when calculating damages) R. Doak Bishop, a Practical Guide for Drafting Int’l Arbitration Clauses 1. A choice-of-law clause can be viewed as a. Conflicts rules to be followed to determine substantive law b. Substantive law itself c. Procedural law d. Law to determine validity and effect of arbitral clause 2. Modern tendency: substantive law a. Should avoid including conflicts law

ICSID Convention (1965), Art. 42 (1) The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal may apply law of the Contracting State parties to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable. a. Presumption for applying law as agreed by parties b. If no rules by parties, apply law of HS i. Including HS conflict of laws ii. Rules of IL as applicable (2) The Tribunal may not bring in a finding of non liquet on the ground of silence or obscurity of the law a. Must provide answer, can’t refuse to decide on ground that law is unclear b. Must use gap-fillers – international principles, trade usages, custom, etc. (3) The provisions of paragraphs (1) and (2) shall not prejudice the power of the Tribunal to decide a dispute ex aequo et bono if the parties so agree. a. “From equity and conscience” – can dispense with consideration of the law and consider what is fair and equitable under circumstances

Amco Asia v. Indonesia, BCR 642-45 1. 2.

3.

(Annulment decision by ad hoc tribunal) ICSID Article 42(1) – authorizes tribunal to apply rules of IL only to fill lacunae in applicable DL and ensure precedence of IL norms where rules of DL are in collision with such norms. Justified because: a. All ICSID awards must be recognized by every K-ing state to Convention b. National state of FI is precluded from exercising normal right of diplomatic protection during ICSID proceedings c. Parties consented to this framework (int’l > DL) when they accepted ICSID Article 42 Where tribunal is precluded from deciding a case ex aequo et bono, any mention of “equitable consideration” does not necessarily amount to a decision ex aequo et bono a. Equitable considerations may include part of DL or IL (precedential basis for equitable considerations in IL thru ICJ cases) b. This is impermissible (would be grounds for nullity) where tribunal decides an issue ex aequo et bono in lieu of applying the applicable law

- 5 -

Applicable law (includes DL, IL principles) 42(1)

Ex aequo et bono 42(3) (ground for nullity if incorrect body of law)

Equitable considerations Class notes 1.

2.

3.

4.

Choice-of-law clauses a. Critical to include for interpretation b. FI will attempt to “externalize” or “internationalize” the K to bring outside realm of HS; gives more protection for changing DL c. Ability to do so will depend on leverage of parties d. Limits on what choice-of-law clauses can accomplish? i. Sornarajah says yes, there must be some connection to the law chosen (Alberta example), and overweening bargaining power can invalidate clause ii. Black-letter rule: countries can pick rule of whatever country to govern K (int’l law does not prohibit) iii. Does not violate sovereignty principle of HS to allow itself to be governed by another country’s laws 1. ICJ Wimbledon case: states exercise sovereignty by signing treaties 2. Bargaining power is generally not a defense a. Ks and treaties always reflect unequal bargaining power b. BUT can conceive of exceptions (coercion, force, etc.) Pacta sunt servanda – principle applies to treaties between states per the VCLT a. Can this be incorporated into a private K between state and private party? b. Can the FI be held accountable under a principle that normally obligates only states? c. Tribunals generally follow parties’ agreements (respect for party autonomy), notwithstanding conceptual issues of applying state/state concept to state-private agreement 42(2) prohibits finding of non-liquet – what if there is no DL, IL, or general principle of int’l law? a. Look to trade customs, practice, soft law, industry-wide practices b. May be characterized as holding parties to rules to which they have not consented c. BUT custom reflects industry approach; provides clear expectations in absence of specific designated laws AMCO case – annulment decision a. 2 roles for IL under Article 42(1) i. Fills lacunae in DL ii. Where conflict between DL and IL, IL takes precedence over DL (IL > DL) b. BITs also contain choice-of-law clauses (not just K’s), can provide dispute settlement under treatey terms (over DL) c. ICSID 42(1) incorporates BIT choice-of-law clause, even if parties agreed to something else in K?

- 6 -

5.

1.

2.

d. BIT governs dispute more so than K rules in ICSID disputes Overall, 3 layers for analysis: a. K: conflict-of-law clause b. ICSID: Article 42 c. BIT: conflict-of-law clause Type a. b.

Intangibility clause: govt. can’t unilaterally modify or terminate K Stabilization clause stricto sensu: Governing law of K = law of HS at time contract was executed (excludes subsequent changes in HS law) c. Good will/GF: requires both parties to perform agreement in GF and precludes unilateral modification/termination i. Applies to both parties (FI and HS) Stab clause after Aminoil: a. Should be explicit in what it is meant to prohibit; should provide that state expressly waives its right to nationalize (not merely nationalize without compensation/confiscate) b. Should provide that its terms are binding regardless of subsequent compromise, negotiation, or amendment of K unless both parties provide expressly, in writing, to change meaning or binding effect of stab clause i. Will allow FI to negotiate without tribunal declaring negotiation as weakening or changing nature of stab clause itself

3. Investment Contracts – Stabilization and Umbrella Clauses BCR 286-299 (end before d) 3.

4.

5.

6.

Purposes of stabilization clauses: a. Provide measure of certainty/security of investment against future changes, particularly where longterm investment is contemplated b. Protect against risk posed by subsequent changes in govt. c. Insulate K from further legislative changes (ideally); freezes law of HS at time of entry; precludes HS right to unilaterally alter K by changing its municipal law Scope of stab clauses: a. Can be general, covering all laws/regulation b. Can apply specifically to a tax regime c. Can be categorical, or apply only where FI would be detrimentally affected (negative changes only) Types of stabilization clauses: a. Intangibility clause: govt. can’t unilaterally modify or terminate K b. Stabilization clause stricto sensu: Governing law of K = law of HS at time contract was executed (excludes subsequent changes in HS law) c. Good will/GF: requires both parties to perform agreement in GF and precludes unilateral modification/termination Problems: a. Mere K-ual provision cannot fetter legislative sovereignty of HS i. K is NOT like a treaty; FI lacks reciprocity ii. Means that legislation isn’t prohibited, but it might be interpreted differently (see below) b. Some Ks are between FI and state company (NOT the state itself), so no stabilization clause i. Solution: can attribute actions to state (if exercises control over state company) 1. But this is “lifting of the corporate veil”, not popular ii. Risk allocation to state company for unilateral intervention by its own govt. (predominant approach) 1. Limitations: a. FI is limited to pursuing claims against state company only, which will have

- 7 -

b. c.

7.

8.

limited liability Can moderate effects of subsequent add-on taxation, but does not eliminate financial impact completely (not complete protection for taxes?) State could annul Ks between state company and FI thru legislative fiat; absent arbitration agreement concluded directly with state, FI is limited to diplomatic protection and other CIL remedies

Potential interpretations: a. May increase amount of compensation for termination of agreement (may apply to prospective gains or lost profits for remainder of effective period of K) b. Interpret legislation as prima facie not applying to particular foreign investment, unless the intention to apply the legislation is given clearly Recommended stab clause after Aminoil (below): a. Stab clause should be very explicit in what it is meant to prohibit; should provide that state expressly waives its right to nationalize (not merely nationalize without compensation/confiscate) b. Stab clause should provide that its terms are binding regardless of subsequent compromise, negotiation, or amendment of K unless both parties provide expressly, in writing, to change meaning or binding effect of stab clause i. Will allow FI to negotiate without tribunal declaring negotiation as weakening or changing nature of stab clause itself

Aminoil: American Independent Oil Company v. Kuwait (1982) 1.

2.

3.

4.

5.

Disregarded intent of parties to prohibit nationalization in stab clause (interpreted stab clause as prohibiting mere confiscation, or nationalization without compensation); interpreted subsequent negotiations between parties as changing/weakening the inherent nature of the stab clause Original 1948 stab terms of K: a. Shaikh can’t annul agreement except as provided in Article 11; no alteration to agreement except by joint agreement b. Not terminated before expiration date (60 years) except by surrender or if company is in default c. Straightforward reading: prohibits any nationalization Analysis of stab clause: a. NOT imposed upon colonial Kuwait while not in possession of full sovereign powers i. Terms were confirmed in 1961 revision (after complete independence), and in 1973 b. NOT subsequently annulled, either thru Kuwaiti Constitution of 1962 or IL rule of jus cogens on state sovereignty over natural resources i. Constitution provisions would not interfere with state’s ability to grant stab clause guarantees in K; even if so, state failed to give notice to FI ii. No evolution of jus cogens norm Effect/interpretation of stab clause: prohibits confiscation (nationalization without compensation), but not nationalization itself a. K-ual limits on state’s right to nationalize are possible, but i. Must be expressly stipulated ii. Within regulations governing the conclusion of state contracts iii. Only relatively limited period of time b. Does not deprive stab clause of meaning; reinforces necessity for proper indemnification Pacta sunt servanda: a. Need to uphold, but K underwent great changes since 1948 b. Changes cannot be viewed piece-meal, but on basis of total effect, results in metamorphosis of K c. Changes to which FI acquiesced over time d. But NOT fundamental change in circumstances (merely change in nature of K itself)

SGS v. Pakistan (ICSID, 2003) 1.

Relationship between breach of K and breach of BIT a. ILC Article 3: The characterization of an act of a state as internationally wrongful is governed by int’l

- 8 law. Such characterization is NOT affected by characterization of same act as lawful by internal law Treaty law governed by int’l law; reach of K will be governed by law specified in K i. Ex Attribution: State may be liable thru attribution at int’l law, but will not be responsible for performance of Ks entered into by provincial authority (separate legal personality) under its own DL c. Compliance with DL does not equate to compliance with IL; breach of DL does not necessarily am...