2010/IEG/WKSP1/003 Trends in Treaty-Based Investment Disputes

Transcription

1 2010/IEG/WKSP1/003 Trends in Treaty-Based Investment Disputes Submitted by: Vanderbilt University Workshop on Dispute Prevention and Preparedness Washington, DC, United States July 2010

2 Trends in Treaty- Based Investment Disputes Professor Susan D. Franck VISITING ASSOCIATE PROFESSOR OF LAW VANDERBILT UNIVERSITY, SCHOOL OF LAW 26 July 2010 My Summer Vacation and What it Taught Me about Dispute Prevention 1

3 Methodology: Data Basis Identify Sources of Data a UNCTAD and ICSID Research by Franck (2007; 2008; 2009; forthcoming 2010; forthcoming 2011) Analysis and conclusions are as good as underlying data source Franck analyses based upon data from publicly available awards (pre-2007) Dataset in process of updating further to intercoder reliability testing Scope of Claims UNCTAD Data: Cumulative number of known treatybased cases = % filed with ICSID 25% filed with UNCITRAL 6% filed with SCC 6% filed in other foras (ICC, Cairo, ad hoc) In 2009, there were at least 32 new investment treaty arbitration disputes 2

4 Scope of Claims filed during 2009 UNCTAD Data: Canacar v. United States (UNCITRAL) Apotex v. United States (II) (UNCITRAL) Abengoa, S.A. y COFIDES, S.A. v. United Mexican States (ICSID Additional Facility) Dow AgroSciences LLC v. Canada (UNCITRAL) Howard and Centurion Health Corporation v. Canada (UNCITRAL) Scope of Claims: Historical Data from UNCTAD l number of cases Annua ve number of cases Cumulati ICSID Non-ICSID All cases cumulative 3

5 Scope of Claims: Historical Data Decisions from 2009 UNCTAD Data Forty-four decisions rendered in 2009: 7 Jurisdiction Awards 20 Merits Awards 4 Arbitrator Challenges 3 Annulment Decisions Other decisions concerned admissibility of ancillary claims, provisional measures and settlement agreements 4

6 Awards in 2010 UNCTAD Data Between January and July 2010, ICSID registered at least 14 new requests Existence of other alternative arbitral forums means number of new awards could be higher [NB: awards may not be final resolution of a case] One case involving an APEC economy: Convial Callao S.A. and CCI - Compañía de Concesiones de Infraestructura S.A.v. Peru Party Demographics: Respondents Argentina Mexico Czech Republic Ecuador United States Ukraine Canada Venezuela Poland Egypt India Kazakhstan Number 30of cases

7 Party Demographics: APEC Respondents Mexico The United States Canada Russia Chile The Philippines Peru Viet Nam Thailand Indonesia Number of cases Party Demographics: Respondents 6

8 Party Demographics: Investors United States Netherlands United Kingdom Germany Canada Italy France Spain Belgium Greece Number of cases Demographics: Industries 7

9 Demographics: Industries UNCTAD Data Services & commerce 3% Information & communication 6% Finance 8% Agriculture, pêche & forêts 4% Pétrole, gaz & mines 25% Transports 11% Autres industries 10% Tourisme 5% Construction 7% Electricité & autres sources d'énergie 13% Eau, assainissement & protection contre les inondations 8% Demographics: Treaties UNCTAD Data CAFTA 2% ASEAN 2% NAFTA 5% Energy Charter Treaty 7% Bilateral investment treaties 84% 8

10 Demographics: Treaties Actual Risk: Winning Disputes Claim: Investors win more than States Claim: Investors win more than States Data: Investors won 39% of the time and states won 52% of the time 9

11 Actual Risk: Winning Disputes Claim: Investors recover large amounts Data: On average, investors won US$10m but requested US$343m Actual Risk: Amounts Awarded 10

12 Scope of Risk Data from UNCTAD (amount claimed v. amount awarded) Case Name Amount Claimed Amount Awarded Siemens v. Republic of Argentina Enron Corp. & Ponderosa Assets v. Republic of Argentina Sempra Energy International v. Republic of Argentina Iberdrola Energía, S.A. v. Republic of Guatemala KT Asia Investment Group B.V. v. Republic of Kazakhstan Abengoa, S.A. y COFIDES, S.A. v. United Mexican States US$ 462,477,071 US$582,000,000 US$210,000,000 US$672,000,000 US$1,500,000,000 US$96,000,000 US$237,838,439 US$106,200,000 US$128,250,462 Pending Pending Pending Variables Linked with Outcome: Development Status 11

13 Variables Linked with Outcome: Development Status Damages: Mark Kantor Expropriation Market Value the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion. International Valuation Standards Council 12

14 Damages: Mark Kantor Net Invested Capital and Net Book Value Are Not Market Values Unlawful Conduct Chorzow Factory - reparation must, as far as possible, wipe out all the consequences of the illegal act and re- establish the situation which would, in all probability, have existed if that act had not been committed. Damages: Mark Kantor Unlawful Conduct ILC Art. 36 (Compensation) 1. The State responsible for an internationally wrongful act is under an obligation to compensate for the damage caused thereby, insofar as such damage is not made good by restitution. 2. The compensation shall cover any financially assessable damage including loss of profits insofar as it is established. 13

15 Practical Implications of Damage Calculations: Mark Kantor the valuation of expropriated shares in a company necessarily involves a consideration of the future profitability of the business, a matter which is inherently uncertain. As Whiteman observed: However, the absolute certainty of prospective profits can scarcely ever be established in as much as in all cases they are to be realized in futuro. It is the worth of the expectation of future profits, appropriately discounted, that is to be considered in cases where an award for the loss of prospective profits is proper. Kazakhstan v. Rumeli Annulment Decision, at 40 Dispute Resolution Risk Calculus Risk is a function of: Amount claimed Amount likely to be awarded Amount of interest on any award Cost of arbitral tribunal (TCE) Cost of parties lawyers (PLC) Which party bears TCE and/or PLC 14

16 Cost Issues UNCTAD s Approach Costs involved in ITA have skyrocketed Legal fees may amount to an average of 60% of case s total costs Example Plama v. Bulgaria (2008): Investor s PLC was around US$4.7 million Respondent s PLC was US$13.2 million TCE nearly US$1 million Losing investor required to pay: (1) own PLC + (2) respondent s PLC of US$7 million + (3) TCE = US$12.7 million Cost Issues UNCTAD Examples Victor Pey Casado v. Chile (2008): Investor s PLC around US$14.5 million Respondent s PLC around US$4.4 million TCE was around US$4 million Losing State required to pay: (1) own PLC + (2) investor s PLC of US$2 million + (3) 75% (US$3 million) of TCE = US$9 million 15

17 Cost Issues UNCTAD Examples ADC Affiliate v. Hungary (2006): Investor s PLC around US$7 million Respondent s PLC around US$3 million TCE around US$700,000 Losing State required to pay: (1) own PLC, (2) Investor s PLC, and (3) TCE = US$7.7 million Cost Issues UNCTAD Examples Waguih Elie George Siag and Clorinda Vecchi v. Egypt (2009): Investors PLC around US$8 million Respondent s PLC around US$3.5 million TCE around US$1 million Losing State required to pay: (1) own PLC + (2) investors PLC of US$6 million + (3) 50% of TCE = US$14 million 16

18 Cost Issues APEC Counter Examples Thunderbird Gaming v. Mexico (2006): u d b d a g o ( 006) Investor s PLC around US$1 million Respondent s PLC around US$1.5 million TCE around US$500,000 Losing Investor required to pay: (1) own PLC + (2) investors PLC of US$1 million + (3) 75% of TCE = US$2.5 million Merrill & Ring Forestry v. Canada (2010) TCE around US$1 million Parties bare own PLC + 50% of TCE Cost Issues Recent APEC Examples Walter Bau AG v. Thailand (2009): Investor s PLC around EUR3.4 million Respondent s PLC around EUR1.1 million TCE around EUR3.1 million Losing State required to pay net PLC/TCE of EUR1.8 million 17

19 A Need for Rationalization? Eureko v. Poland oa = aguab arguable outlier US$1.34 billion claimed + prominent tribunal 86-page award Cost justification was two sentences: Claimant has prevailed. Consequently, its costs and those of the Tribunal shall be borne by the Respondent. IIA flatly prohibited this approach Franck s Normative Recommendation Address ITA costs at an early stage Encourage tribunals to be transparent cost decisions Implement clear and predictable legal guidelines for making cost decisions Implement a pleading system with enhanced clarity for claimed damages Consider use of ADR 18

20 Alternative Means of Settling Investment Treaty Disputes What are alternative methods? Negotiation, Mediation, Early Neutral Evaluation, Hybrids, etc. Consider how alternative methods being used now in systemic diagnostic Consider Dispute Systems Design (DSD) to create systems to implement strategic recommendations using proper norms Other forms of Dispute Resolution 19

21 Other forms of Dispute Resolution Data from ICSID Responding to Challenges Conduct research to monitor trends and emerging issues in IIAs and ISDS Offer technical assistance activities to develop understanding and capacity related to understanding investment framework, negotiate IIAs, train government officials, and train courses on managing investment disputes Encourage innovation to address real issues and learn from success stories 20

22 Implications for the Future Expand scope of empirical research More data, variables and models Encourage stakeholders to take the data into account Informed policy debates Enhanced efficacy for designing ISDS systems Implement DPP and ADR Provide training, capacity building and communication networks 21