Investment protection An Eversheds guide to international investment agreements

Investment protection An Eversheds guide to international investment agreements

Introduction Eversheds Guide to international investment agreements, produced by our top-ranked international arbitration group, is designed to assist investors who make or hold foreign investments anywhere in the world to maximise their protection under international investment law. Eversheds international tax and corporate teams are also experts in advising on corporate structures to maximise tax efficiency and manage corporate liability. International investment agreements offer extensive protection for investors and their investments against expropriatory, unfair or discriminatory treatment by public authorities. By structuring investments carefully at an early stage, investors can often improve their negotiating position and secure important protections from harmful interferences by the State where the investment is made. Eversheds provides superior services in international treaty and commercial arbitration, and understands clients needs and reacts with alacrity. Legal 500 EMEA, 2014 Eversheds has helped many investors to structure or re-structure their investments in this way. We can also help you to identify and remedy gaps in the protection of significant investments efficiently and cost-effectively. If a dispute does subsequently arise in relation to one of your investments, our arbitration team can help to obtain compensation under an international investment agreement and manage the strategic issues that will arise.

International investment agreements One of the strongest international arbitration groups of the moment. Global Arbitration Review, 2014 What is a BIT and an MIT? A Bilateral Investment Treaty ( BIT ) is a treaty between two States by which each State grants rights and protections to investors from the other State. One of the key features of BITs is that they very commonly give investors the right to bring a claim directly against the State where the investment is made (the host State), before an international arbitral tribunal for violations of investors rights under the BIT, without the need for investors to conclude a direct contract or arbitration agreement with the government. International arbitration under a BIT can provide an alternative neutral forum to the domestic courts of the host State. There are now more than 2,500 BITs in operation worldwide. Many tax effective jurisdictions such as the Netherlands, Belgium, Luxembourg and common investor hubs (such as the USA, the UK, Germany) have a broad range of BITs. A Multilateral Investment Treaty ( MIT ) offers many of the same protections to investors as a BIT, but is made between multiple countries. One prominent example of an MIT is the Energy Charter Treaty ( ECT ), which offers wide-ranging protections for participants in the energy sector. In addition to sectorspecific MITs, there are also MITs concluded between States in particular regions of the world, such as the ASEAN Comprehensive Investment Agreement and the North American Free Trade Agreement ( NAFTA ). The NAFTA is an example of a free trade agreement with an investment-protection chapter, of which there are many other examples. New MITs containing investment protections, such as the Transatlantic Trade and Investment Partnership (TTIP) between the USA and the EU, and the Trans-Pacific Partnership Agreement, are likely to enter into force in the future. States may also provide protection to foreign investors and their investments in domestic laws and regulations, which offer similar protections (although often less concrete) to those in BITs and MITs. Countries often adopt foreign investment laws. States may also regulate foreign investment in particular sectors, such as by adopting national petroleum laws. In addition to offering protections to foreign investors, these domestic laws can also impose conditions or limits on investors rights, as discussed below. How do BITs and MITs protect investments in a foreign country? Some of the most common protections offered to investors and their investments under BITs and MITs are as follows: (i) not to expropriate or nationalise investments except for a public purpose, on a non-discriminatory basis and on payment of prompt, adequate and effective compensation; (ii) to accord fair and equitable treatment to the investments of investors of the other State party; (iii) not to take unreasonable or discriminatory measures against those investors; (iv) not to treat investors or their investments less favourably than the host State s own investors and their investments (known as national treatment ), or those of any third country (known as most favoured nation status); (v) to accord full protection and security, or protection by the State from interference by third parties, and the provision of a secure environment; and (vi) to observe any obligations entered into with respect to the investments of investors of the other State party (also referred to as an umbrella clause ).

These protections are particularly important when investing in countries and industries where there is a high risk of governmental or regulatory interference or when investing in high profile assets. When the host State (including its organs or agencies such as regulators, police, ministries, local authorities, licensing authorities etc.) carries out activities that negatively affect the value of the investment, these protections may be breached. For example, such actions may include seizing an investor s assets, taking control of the investor s business or demanding a share in the profits. Investment treaty disputes have arisen in relation to a wide range of factual scenarios and in numerous different industry sectors including energy, telecoms, construction, telecoms, tourism and financial services. These claims have been raised against both developed and developing States. By way of example, in recent years, a significant number of disputes have arisen under BITs/ MITs in relation to: changes to the laws and regulations concerning renewable energy in the European Union; the events of the Arab Spring and their impact upon foreign investors; and changes in State regulations brought in response to (or reliance on) various national and global economic downturns. How will I know if I am a qualifying investor who has made a qualifying investment for the purposes of a BIT/MIT? The key gateway issues for any claim brought under a BIT or MIT will be whether the investor qualifies as an investor, and whether that investor s interests in the host State qualify as an investment under the BIT or MIT in question. If the conditions for investors and investments under the BIT or MIT are not met, the investor or their investment will not be protected. In general, investment treaties define investors as persons of a State party to the treaty, other than the State where the investment takes place. Typically, this will include a juridical person (i.e., company) incorporated in the investor s home State. Importantly, however, some BITs define investor more strictly, for example also requiring a company to have its seat in the relevant home State and to carry out real economic activities there, in order to qualify as an investor. It is often also possible to invest via other States that have a BIT with the host State. This allows investors to channel their investments via a company or investment vehicle into the host State even if the investor s home State has no BIT with the host State. The extent to which a BIT protects direct and indirect investments, structured through third States, will depend on the terms of the treaty. Each BIT or MIT usually also contains its own definition of investment. Typically, the definition is broad and covers every kind of asset, including tangible and intangible property, shares, bonds, IP and business concessions (e.g. to extract or exploit natural resources). However, a BIT or MIT may also impose conditions, such as that an investment must be approved by the host State, or must have certain characteristics such as the commitment of capital or other resources, and the assumption of risk over a certain duration. What can I do if my investment is not covered under a BIT/MIT? Structuring investments to maximise BIT and MIT protections should be considered at an early stage in deal structuring. It may also be possible to restructure an investment so as to gain the protections afforded by BITs/MITs, if this is done sufficiently early before a dispute arises. For example, an investment can be re-routed through a company established in a third State that has entered into a BIT with the relevant host State. Eversheds LLP provides incredible services to clients in high-value international arbitration cases. The fantastic team, which is always incisive and exactly on-point, has been representing Iran in several state-versusstate cases and recently won Iran s first ever investorstate arbitration. Legal 500, 2015

Eversheds LLP s level of service is excellent ; advice is fast, astute and in-depth. The firm handles large investment and commercial disputes, and has substantial experience in the projects, oil and gas, mining and telecoms sectors. Legal 500 EMEA, 2012 Determining whether or not a legal dispute has arisen can be challenging. It can also be essential because arbitral tribunals may reject claims if they consider that the investor has restructured its investment for the sole purpose of obtaining protection, at a time when a dispute was already very probable. What can I claim for under a BIT/MIT? An investor can claim against the host State for breaches of the various protections and guarantees contained in the BIT and financial compensation for the loss and damage suffered as a result of the breaches. For example, arbitral tribunals have found breaches of the fair and equitable treatment standard where the host State violated specific guarantees designed to entice investors to invest in the energy sector. An unlawful expropriation has been found where the host State cancelled a contract by ministerial decree. In the largest damages award to date, an arbitral tribunal awarded the claimants over US$50 billion for the expropriation of their shares in a company and its assets through a series of measures including tax reassessments, criminal proceedings against company officials and the forced sale of the company s assets. If a BIT or MIT contains a most favoured nation clause, then the investor may also be able to rely on protections that are not included in the BIT or MIT under which the claim is brought, but which can be found in the host State s BITs or MITs with third States. For example, in one case the claimants were able to rely on the most favoured nation clause in a BIT to import an obligation to provide fair and equitable treatment from one of the host State s other BITs. In another case, the claimants relied on a most favoured nation clause to import a more generous standard of compensation. How can I make a claim? Usually, the protections under a BIT or MIT are enforceable by way of international arbitration. This is not the case with all BITs or MITs, so care needs to be taken when structuring an investment to ensure access to international arbitration in case a dispute arises. BITs and MITs will often provide a menu of options for the investor, such as arbitration under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID), the United Nations Commission on International Trade Law (UNCITRAL), or the Arbitration Institute of the Stockholm Chamber of Commerce (SCC). The investor will often have strategic options to consider, such as whether to commence arbitration under a BIT or MIT, arbitration under a contract, litigation in the local courts in the host State, or to commence a combination of these actions. There may be more than one BIT available with differing provisions and requirements. Some BITs exclude claims that have been submitted to the domestic courts of the host State, whereas others require claims to be submitted to the domestic courts or to negotiation for a period of six months. It is therefore important for the investor to consider the best strategic approach as early as possible. On occasion, there may be advantages to bringing certain aspects of a dispute in one forum and other aspects of a dispute in a different forum, where it is possible to do so (e.g. bringing contractual claims before a commercial arbitration tribunal, and claims under an investment treaty before another tribunal).

Our investment risk assessment In order to help you to structure your investments efficiently, we offer to carry out a health check on your investments, to determine the extent to which you have effective treaty protection for those investments as described above. Where protection is found not to be in place, we would identify what remedial steps can be taken to put this protection in place. Where protection is found to be limited, we would identify ways to strengthen your treaty protection. The risk assessment will be carried out as follows: We work with you to identify the investments you want to protect, and consider the risk to those investments using criteria including relevant international risk registers. We carry out an assessment for each investment based on your specific needs, which may include the following: Is there a BIT/MIT in place that the investor and the investment could benefit from? Are the definitions of investor and investment met and any conditions under the BIT/MIT complied with? Does the BIT/MIT provide key relevant protections, such as protection from expropriation, fair and equitable treatment, protection from discriminatory or unreasonable treatment, etc.? Does the BIT/MIT provide access to international arbitration for claims in respect of all relevant treaty standards? If so, are there procedural conditions that must be complied with before a claim may be made? Does the local law of the host State provide any additional protection, or impose limitations or conditions on protection? Where sufficient treaty protection is not in place, we will identify whether remedial steps are available which would allow you to protect an investment (for example, by restructuring the investment through a third State). Where treaty protection is in place, but our risk assessment shows that it is limited, we will work with you to identify ways to enhance your treaty protection. For example, where a BIT does not provide the right to submit a claim to international arbitration, or limits that right in respect of certain investments or treaty standards, we may suggest restructuring to benefit from investment protection under a broader treaty.

Key contacts Will Thomas Partner, Head of International Arbitration Tel: +33 1 55 73 41 15 williamthomas@eversheds.com David Sellers Partner, Paris Tel: +33 1 55 73 41 10 davidsellers@eversheds.com Rodman Bundy Partner, Singapore Tel: +65 65 72 55 88 rodmanbundy@eversheds.com Stuart Dutson Partner, London Tel: +44 20 7919 0813 stuartdutson@eversheds.com Loretta Malintoppi Of Counsel, Singapore Tel: +65 65 72 55 82 lorettamalintoppi@eversheds.com Wesley Pydiamah Senior Associate Tel: +33 1 55 73 41 22 wesleypydiamah@eversheds.com Greg Falkof Senior Associate Tel: +33 1 55 73 40 26 gregfalkof@eversheds.com Natasha Harrington Senior Associate Tel: +33 1 55 73 41 81 natashaharrington@eversheds.com Cameron Forsaith Senior Associate Tel: +44 207 919 0507 cameronforsaith@eversheds.com Natalie Limbasan Associate Tel: +33 1 55 73 41 39 natalielimbasan@eversheds.com Of counsel Loretta Malintoppi receives positive feedback from clients: She is someone you can rely on; she s very reactive and I d like to work with her again. Chambers Europe 2014 Clients appreciate William Thomas prowess in arbitration matters, saying he is really very brilliant and extremely intelligent. He heads the firm s international arbitration group, regularly advising on investment treaty disputes. Chambers Global 2015 Rodman Bundy is one of the foremost experts in pure PIL matters, with sources recognising him as one of he leading specialists, possibly the best. Chambers Global 2010 [A]mong the world s leading experts in public international law Legal 500 Paris 2014 David Sellers has the touch of genius; he has total command of the subject, complete knowledge of the details of each of his cases and gets results for his clients. Legal 500, 2015 Stuart Dutson is brilliant to work with, very quick at seeing the critical issues, no-nonsense and commercially very astute. He is known for putting the hours in himself, so he s not passing the buck, and has an extensive BIT arbitration practice. Chambers 2015

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