2011 Winston & Strawn LLP

Transcription

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2 Investor-State Arbitration: Effective Means to Resolve Disputes Between a Foreign Investor and a Host State Brought to you by Winston & Strawn s International Dispute Resolution Practice Group 2

3 Today s elunch Presenters Mark N. Bravin Co-Chair Global Practice Group International Arbitration Washington, D.C. mbravin@winston.com Ricardo E. Ugarte Geneva Managing Partner International Arbitration Geneva, Switzerland rugarte@winston.com Tomás Leonard Of Counsel, Latin American Chair International Arbitration Washington, D.C. tleonard@winston.com 3

4 Five General Topics To Be Covered Investor rights under international treaties that allow foreign investors to protect investment from adverse Governmental measures. Planning ahead: How to avail yourself of such rights through effective treaty planning. Pursuing investor rights through investor-state arbitration, Enforcement of arbitral awards: How it works. Cost considerations. 4

5 A System of International Treaties Protect Investors From Adverse Governmental Measures Bilateral and Multilateral Investment Treaties Regional and other multilateral treaties protect investor rights Nearly 3,000 Bilateral Investment Treaties (BITs) in force across the globe States entered into BITs to promote an influx of foreign investment Qualified investors may claim the protection of a BIT when a foreign government breaches its duty to protect their investment 5

6 Investment Treaties With The United States Albania Jordan Argentina Kazakhstan Armenia Korea* Azerbaijan Kyrgyzstan Bahrain Latvia Bangladesh Lithuania Bolivia Mexico Bulgaria Moldova Cameroon Mongolia Canada Morocco Chile Mozambique Colombia* Nicaragua Congo Oman Costa Rica Panama Croatia Poland Czech Republic Romania Dem. Rep. of Russian Federation the Congo Rwanda Dominican Rep. Senegal Ecuador Singapore Egypt Slovakia El Salvador Sri Lanka Estonia Trinidad & Tobago Georgia Tunisia Grenada Turkey Guatemala Ukraine Haiti Uruguay Honduras Uzbekistan Jamaica * Not yet in force 6 Source: United Nations Conference on Trade and Development website (

7 Planning ahead: How to avail yourself of treaty-based rights through effective treaty planning Proper treaty planning maximizes enforceable rights available under BITs The importance of the investor s nationality Changes to nationality sometimes are permissible, but nationality of investor should be established before the investment dispute arises Strategic structuring of a foreign investment may be required (e.g., use of a Swiss rather than U.S. subsidiary for investments made in China) 7

8 Examining Rights Under Treaties Scope of application: Definition of investment and investor Investment must be made in host country. Investment is broadly defined in most BITs, and includes, for example: Shares in a local corporation Claims to money related to an investment IP rights Rights conferred by contract or law Investor typically can be individuals or a corporation 8

9 Examining The Rights Under BITs (1 of 2) Protections commonly found in BITs: Right to fair and equitable treatment of the investment Protections against direct and indirect expropriation of the investment Right to use and dispose of the investment without being subject to arbitrary or discriminatory measures Right to full protection and security for the investment Right to enforce rights under an investment contract Most-favored nation and national treatment clauses Right to initiate arbitration against the host state seeking damages and injunctive relief, including provisional measures 9

10 Examining The Rights Under BITs (2 of 2) Types of governmental conduct that arise in treaty arbitrations Termination or unilateral amendment of the contract through which the investment was made Passage of legislative or regulatory measures that impair value of the investment Revocation of licenses Measures that discriminate against foreign investors in favor of local investors Denial of justice Corruption Key requirement: Conduct must cause harm to the investment 10

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12 Pursuing Investors Treaty Rights How BITs are beneficial to investors Access to a neutral forum for resolving investment disputes with foreign states The ability to enforce treaty-based rights under international law and host-state law. A State cannot avoid liability simply by claiming that its measures complied with domestic law. Treaty-based rights generally exist independently of any contract rights, even if a contract contains a forum selection clause. 12

13 Pursuing Investors Treaty Rights Domestic Courts of the Host State Investor-State Arbitration a) The ICSID Convention and the ICSID Rules of Procedure for Arbitration Proceedings (both the respondent and the non-disputing Party are parties to the ICSID Convention) b) The ICSID Additional Facility Rules (either the respondent or the non-disputing Party is a party to the ICSID Convention, but not both) c) Ad hoc Arbitration Under The UNCITRAL Arbitration Rules; or d) Other arbitration institutions or rules. 13

14 The International Centre For Settlement Of Investment Disputes ( ICSID ) International institution providing facilities and rules for the resolution of legal disputes between eligible parties (one of which must be a sovereign State) through conciliation or arbitration procedures. Established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID or the Washington Convention ) ICSID Convention is a multilateral treaty formulated by the Executive Directors of the World Bank. It was opened for signature on March 18, 1965, and entered into force on October 14, Includes more than member States. 14

15 ICSID Member States Source: The ICSID Caseload Statistics 15

16 Investor-State Arbitration ICSID Caseload Source: The ICSID Caseload Statistics 16

17 ICSID And ICSID Additional Facility Rules. Source: The ICSID Caseload Statistics 17

18 ICSID Arbitrations By Source of Jurisdiction Source: The ICSID Caseload Statistics 18

19 ICSID Caseload By Geographic Distribution. Source: The ICSID Caseload Statistics 19

20 ICSID Caseload By Economic Sector. Source: The ICSID Caseload Statistics 20

21 Disputes Decided by ICSID Arbitral Tribunals. Source: The ICSID Caseload Statistics 21

22 The Pursuit of Investors Treaty Rights Through Investor-State Arbitration Procedures for the Settlement of Disputes Between a Foreign Investor and the Host State Notice of investment dispute Cooling-off periods exist to bring parties to negotiating table, typically 3 to 6 months Thereafter, investment arbitration can be filed Jurisdictional stage is often more complex than typical commercial arbitration Average length of proceedings 22

23 Procedures for Written Submissions and Hearings Request For Arbitration First Session of the Tribunal Governing substantive law and procedural rules Place of proceedings Consider location of counsel, parties, witnesses, arbitrators Language of written and oral proceedings Deadlines for the written procedure Memorial, Counter-Memorial, Reply, Rejoinder Witness Statements and Expert Reports Bifurcation of Issues Discovery Bifurcation of Proceedings: Jurisdiction and Merits Written Pleadings: one or two rounds; post-hearing briefs Pre-Hearing Conference: months before the oral hearing Order and presentation of proof; examination of witnesses Time allocations Submission of rebuttal evidence Post-hearing briefing (including fee petition) Oral Hearing 23

24 Applicable Laws The BIT Applicable Arbitration Rules General International Law Domestic Laws Of The Host State The Law Of The Seat Of The Arbitration 24

25 Enforcement Preliminary Questions How often do investors obtain a favorable arbitral award in investment treaty arbitrations? Based on UN review of nearly 200 concluded investment treaty arbitrations: Award decided in favor of State approximately 40% Award decided in favor of Investor approximately 30% Settlement rate approximately 30% 25

26 Enforcement Preliminary Questions How often is enforcement against a State required? States reportedly comply with arbitral awards as often as 90% of the time, per 2008 PwC study Compliance measured by State s payment of damages imposed in award or State s renegotiation of contract with investor Examples of awards that States paid without need for enforcement: Czech Republic paid over $270 million Slovak Republic paid over $867 million Mexico recently paid over $21 million Certain States are notorious in resisting compliance with awards: Argentina, Kazakhstan, Russia, Zimbabwe 26

27 Enforcement Preliminary Questions Why such a high degree of compliance with arbitral awards by States? Incentives for compliance: Avoid alienating foreign investment Avoid fall-out with World Bank Recognition and enforcement of arbitral awards 27

28 Recognition and Enforcement of Final Awards Arbitrators lack power to enforce awards. Recognition and enforcement of an arbitral award is a procedure by which the prevailing party transforms the award into a binding court judgment that may be enforced and executed against the losing party. Whether the award is an ICSID award or an award issued pursuant to another set of arbitral rules (e.g., UNCITRAL) will determine the procedures that apply to recognition and enforcement proceedings. 28

29 Enforcement How It Works Pursuant To The ICSID Convention Article 53 of the ICSID Convention provides that Awards rendered pursuant to the ICSID Convention are binding and must be complied with by the parties to the arbitration. A State s failure to comply with an ICSID award results in a breach of Article 53 of the Convention: Investor may seek diplomatic protection from its own home state under Article 27, including the filing of an international claim; and Investor may bring a separate recognition and enforcement action in the courts of any of the nearly 150 other States that have adopted the ICSID Convention pursuant to Article

30 Enforcement How It Works Pursuant To The ICSID Convention Article 54 (1) provides that: Each Contracting State shall recognize an ICSID award as binding and enforce pecuniary obligations imposed by that award within its territories as if the award were a final judgment of a court in that State Observations re Article 54 (1) of ICSID Convention No grounds under Article 54 for a Contracting State to refuse recognition Due to Article 54 s enforcement of only pecuniary obligations, ensure all injunctive relief reduced, in the alternative, to monetary damages Imposes an obligation on all Contracting States to recognize and enforce an ICSID award Investor can seek recognition and enforcement in any of the nearly 150 Contracting States to ICSID 30

31 Enforcement ICSID Member States Source: The ICSID Caseload Statistics 31

32 Enforcement How It Works Pursuant To The ICSID Convention Article 54 (2) provides that the investor seeking recognition or enforcement in the territories of a Contracting State shall furnish to the competent court or other authority designated by the enforcing State a certified copy of the ICSID award. The United States has designated the U.S. federal district courts as the competent court to recognize and enforce ICSID awards in U.S. Example of Funnekotter et al. v. Zimbabwe: Dutch investors obtained ICSID award against Zimbabwe on April 23, 2009, and filed suit in the U.S. District Court for the Southern District of New York seeking recognition and enforcement of the award pursuant to 22 U.S.C. Section 1650a. On February 1, 2010, the Court in this case confirmed the award pursuant to 22 U.S.C. Section 1650a. This Federal Court Judgment permitted the Dutch investors to pursue attachment of Zimbabwean assets located in the United States. 32

33 Enforcement How It Works Pursuant To The ICSID Convention Once you have confirmed the award pursuant to the recognition and enforcement process, if State still refuses to comply you may have to initiate attachment or execution proceedings, and herein you may confront issues of State immunity Article 55 makes clear that nothing in Article 54 shall derogate from the law of the enforcing State relating to immunity of that State or of any foreign State from execution. Thus, in seeking forced payment from a State, the investor will likely have to confront arguments relating to State immunity as generally not all foreign State assets are subject to attachment or execution. 33

34 Enforcement How It Works Pursuant To The New York Convention For treaty arbitrations filed pursuant to other arbitral rules, such as UNCITRAL, recognition and enforcement likely would be conducted pursuant to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. There are nearly 150 signatories to the New York Convention which is one of the basic reasons why international arbitration is viewed as an effective remedy. Article IV of the New York Convention provides that the party applying for recognition and enforcement must supply a certified copy of the arbitral award and evidence of the arbitration agreement to the competent enforcing authority. 34

35 Enforcement How It Works Pursuant To The New York Convention Article V of the New York Convention provides very limited grounds for resisting recognition and enforcement Per Article V(1), the Court has the discretion to refuse recognition and enforcement if the party resisting the award can establish one of four grounds: Invalid arbitration agreement Inability to present your case Tribunal ruled upon an issue not within the scope of the arbitration agreement Improper constitution of the arbitral tribunal Per Article V(2), the Court has the discretion to refuse recognition and enforcement sua sponte on one of two grounds: Non-arbitrability Contrary to public policy State immunity still applies. 35

36 State Immunity General Principles Prevailing law in many jurisdictions is that States enjoy limited immunity as opposed to absolute immunity. State assets that are generally considered immune from execution include those used for sovereign purposes, such as military property, embassy property, and accounts of foreign central banks. Assets of losing State that are used for commercial purposes are not subject to immunity in many states. Mere consent to arbitration is not generally considered a waiver of immunity against enforcement, so generally investors have to find assets used for commercial purposes. 36

37 State Immunity in U.S. In the U.S., claims of foreign immunity are decided by courts in conformity with the principles set forth in the Foreign Sovereign Immunities Act ( FSIA ). The FSIA provides that foreign sovereigns are immune from jurisdiction of Courts in U.S. unless one of the statutory exceptions is established. Under Section 1605(a)(6)(B), a foreign state shall not be immune from the jurisdiction of the U.S. courts if the action is brought to confirm an award made pursuant to a valid arbitration agreement and is subject to either the ICSID Convention or the New York Convention. Under Section 1610(a)(6), the property of a foreign sovereign which is used for a commercial activity in the U.S. is not immune from attachment or execution upon a judgment entered by a U.S. Court confirming an arbitral award rendered against the foreign state. 37

38 Issues to Consider in Light of State Immunity Principles Recommended ways for investors to address this issue: Assess not only merits of case, but record of voluntary compliance of State at issue Select premiere arbitral panel to discourage review or challenge of award Identify commercial assets owned by the State in an arbitrationfriendly jurisdiction. Avoid places that provide for absolute sovereign immunity (e.g., recent decision in Hong Kong) Seek post-award interest from Tribunal to ensure that you are paid interest if State resists compliance with the award Consider partial or complete sale of award to third party that specializes in enforcement of awards 38

39 Costs Considerations Costs of investment treaty arbitrations are significant in light of complexity of issues Initial costs are minimal. Largest cost component by far is outside attorney fees, but there are also fees of arbitral institution, arbitrators fees, expert fees Interest can be sought: Pre and post-award interest can be sought Compound interest can be sought Arbitration costs are often awarded to prevailing party Third party-funding as finance option 39

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41 Questions? 41

42 Thank You. 42

43 Contact Information Mark N. Bravin Co-Chair Practice Group Washington, D.C Ricardo E. Ugarte Geneva Managing Partner Geneva, Switzerland +41 (0) Tomás Leonard Of Counsel, Latin American Chair Washington, D.C