INVESTMENT ARBITRATION, QUO VADIS? REVIEW OF LANDMARK CASES IN - - PowerPoint PPT Presentation

INVESTMENT ARBITRATION, QUO VADIS? REVIEW OF LANDMARK CASES IN 2017-2018: THE FET STANDARD

Fifth International Conference for a Euro-Mediterranean Community of International Arbitration

Madrid, 20 November 2018

Noradèle RADJAI

2

77%

43 out of 56 cases alleged a breach of FET

FET breach alleged in most cases decided in 2017/2018

REVIEW OF LANDMARK CASES IN 2017-2018: THE FET STANDARD

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FET breach admitted for over half of the cases

58% 58% 42% 42%

Breach of FET admitted Breach of FET rejected 18 cases 13 cases

REVIEW OF LANDMARK CASES IN 2017-2018: THE FET STANDARD

JKX OIL v. UKRAINE

SCC (February 2017)

KONTINE NENTAL AL v. GABONESE REPU PUBLIC IC

PCA (early 2017)

CERV RVIN v. COS OSTA RICA

ICSID Case No. ARB/13/2 (7 March 2017)

EISER v. SPAIN

ICSID Case No. ARB/13/36 (4 May 2017)

TEINVER v. ARGE GENTINA

ICSID Case No. ARB/09/1 (21 July 2017)

VALOR ORES S MUNDIALES S v. VENEZU ZUELA

ICSID Case No. ARB/13/11 (25 July 2017)

MYTIL ILIN INEOS OS v. SERBIA (II)

PCA Case No. 2014-30 (August 2017)

LONGREEF F v. VENEZU ZUELA LA

ICSID Case No. ARB/11/5 (6 November 2017)

NATLAN AND D v. CZE ZECH REPUB PUBLIC IC

PCA Case No. 2013-35 (20 December 2017)

UAB v. LATVIA IA

ICSID Case No. ARB/12/33 (22 December 2017)

NOVENERGIA v. SPAIN

SCC Case 2015/063 (15 February 2018)

MASDAR v. SPAIN

ICSID Case No. ARB/14/1 (17 May 2018)

OLIN v. LIBYA

ICC Case No. 20355/MCP (25 May 2018)

ANTIN v. SPAIN

ICSID Case No. ARB/13/31 (15 June 2018)

CITY-STATE TE v. UKRAINE

ICSID Case No. ARB/14/9 (26 July 2018)

CHEVRON v. ECUADOR R (II)

PCA Case No. 2009-23 (30 August 2018)

UNIÓN FENOSA OSA v. EGYPT

ICSID Case No. ARB/14/4 (31 August 2018)

FORESIG IGHT T AND OTHERS v. SPAIN

SCC Case No. 2015/150 (14 November 2018)

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ISOLUX X v. SPAIN

SCC case no. V2013/153 (17 July 2016, publicly available July 2017)

BLUSUN v. ITALY

ICSID Case No. ARB/14/3 (27 December 2016, publicly available in June 2017)

ELI LILLY Y v. CANADA

ICSID Case No. UNCT/14/2 (16 March 2017)

JSW SOLAR AR v. CZE ZECH REPUB PUBLIC IC

PCA Case No. 2014-03 (11 October 2017)

KOCH v. VENEZU ZUELA

ICSID Case No. ARB/11/19 (30 October 2017)

FOUAD ALGHANIM M v. JORDAN

ICSID Case No. ARB/13/38 (14 December 2017)

EVROBALT T AND KOMPOZIT ZIT v. MOLDOVA

SCC (17 December 2017)

ANTARIS IS v. C CZE ZECH H REPUB PUBLI LIC

PCA Case No. 2014-01 (2 May 2018)

GAVRILOVIĆ v. CROATIA

ICSID Case No. ARB/12/39 (26 July 2018)

GROT v. MOLDOVA

ICSID Case No. ARB/16/8 (28 June 2018)

KREDERI v. UKRAINE

ICSID Case No. ARB/14/17 (2 July 2018)

MARFIN IN v. CYPR PRUS

ICSID Case No. ARB/13/27 (26 July 2018)

DAVID AVEN v. COS OSTA RICA

ICSID Case No. UNCT/15/3 (18 September 2018)

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1. Transparency and stability, including by reference to the investors’ legitima timate expect ctations ations 2. Proportionality and balance of interests, taking into account the State’s regulatory

• ry inte

terests ests 3. Due process, including denial of justice 4. Arbitrary, discriminatory, non-transparent or unreasonable conduct

Typical elements of the FET standard

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Leg egitima itimate e ex expecta ectation tions

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▪ Timing of the expectations ▪ Assurances/representations by the State: What State conduct can give rise to such expectations? ▪ Investor due diligence: What constitutes sufficient due diligence?

Legitimate expectations: recurring elements

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Timin ming g of

• f th

the ex e expec ecta tations tions

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• “reasonableness of an asserted expectation is to be determined objectively

at at the time the investm tment ent is is made” (Gavrilović v. Croatia)

• legitimacy of expectation must be assessed “at the

the time time of

• f the

the in investm stmen ent, considering the information the investor had (or should have had) if he had acted with the requisite due diligence” (Antin v. Spain)

• assessment of expectations at

at the the ti time me of

• f mak

making ng the the in investmen stment (Teinver v. Argentina)

• it is only the investor’s expectations at

at the the ti time me of

• f the

the inv investmen stment that are relevant (Cervin v. Costa Rica)

• FET application will depend on the expectations that were cultivated and

fostered by local laws and regulations as they were, specifically at at the the ti time me of

• f

the investmen stment (Novenergia v. Spain)

Timing of expectations: The Principles

11

✓ Nov Noven ener ergia v. Sp Spain ain: most of the «warning signs» cited by Spain as casting doubt on the durability of the special regime pos post-dated the the Claimant’s in investment estment and were thus not relevant × Iso solux ux v. Sp Spain ain: investment was only made in 2012, when it would have been much clearer to any investor that the special regime was not sustainable × Ce Cervin vin v. Costa Costa Ri Rica ca: investor could not rely on sta stateme ements nts by by the State made de af after the inves estm tments ents

Timing of expectations: The Practice

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What type e of State te cond nduct uct can n give e rise se to to legitima itimate e expect pectations tions by the invest estor?

• r?

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• “legitimate expectations founded on specif

ecific ic assura ssuranc nces es or

• r rep

epres esentat entatio ions ns ma made by by the State ate to the investor are protected” (Gavrilović v. Croatia)

• legitimate expectations “depend on speci

specific ic und under ertak takings ings and and rep epres esenta entati tions

• ns

ma made by by the the host host Stat State to to ind induce uce inv nves estors

• rs to make an investment” (Union Fenosa
• v. Egypt)
• affirmative action by the State, either in the form of speci

ecific ic comm commit itme ments nts or

• r

repres esent entatio ions ns made by by the host st State ate (Antin v. Spain) un under ertak takings ings and and ass ssuranc urances es need need not not be be speci specific ic and can be justified by state conduct and statements that objectively create expectations, regardless of the intent of the state to create them or not (Novenergia v. Spain)

The Principles: State assurances/representations must be specific (?)

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• “pr

promi

• mise

ses or

• r rep

eprese senta ntati tion

• ns to

to in invest stors

• rs ma

may be be inf infer erred fr from

• m dome

domestic stic le legisla slati tion

• n in the context of its background, including official statements

(without) legal force” (Antaris v. Czech Republic)

• repr

prese senta ntati tion

• ns can

an be be der derived ed fr from

• m a reg

egula ulati tion

• n aimed at encouraging

investments in a specific sector (Antin v. Spain)

• laws do not amount to promises that could engender expectations in

investors; laws ar are gen ener eral al, whil hile pr promi

• mise

ses and and contract contractua ual commit commitmen ments ar are spe specif cific ic, and

• nly

the latter create legitimate expectations (Blusun v. Italy)

• pr

provision sions of

• f gen

eneral eral le legi gisla slati tion or

• r sta

state pol polic icies ies ap applic plicable able to a plurality

• f persons do

do no not su suff ffice ice generally to establish legitimate expectations required under an FET autonomous standard (Koch v. Venezuela)

The Principles: State assurances/representations may be inferred from legislation/regulation (?)

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✓ Unio Union Feno enosa v. Egyp ypt: letter from relevant ministry sent as “official endorsement” of the investment ✓ Masda Masdar v. Spain ain: letters from the relevant Ministry regarding compensation conditions for the facility were deemed to constitute specific commitments ✓ Olin Olin v. Li Libya ya: changes in legal framework to incentivize investment, as well as public assurances and issuances of investment licences ✓ Nov Novene nergia ia v. Spai Spain: special regulatory framework designed to incentivize investments in Spanish renewable energy sector, combined with promotional material ✓ Antin Antin v. Sp Spain ain: Spain’s promotion of the stability of its incentive regime for renewable energy projects; though reports, press releases, preamble of royal decrees, government plans and advertising material

The Practice: State assurances/representations that can give rise to expectations

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× JSW JSW Solar

• lar v. Czech

Czech Repub epublic lic: documents or elements to which there is no proof the investor was privy at the time (e.g., political representations discussing the enactment of a support scheme the investor was not aware of) × Tei einv nver er v. Ar Arge genti ntina na: legislation which is general in nature, not reflecting any specific commitment × Cer Cervin vin v. Cos Costa ta Ric Rica: announcements regarding a forthcoming tariff regime that was not enacted × Blus usun v. It Ital aly: general commitments or legislation of the host State, by themselves, did not amount to promises that could serve to create legitimate expectations

The Practice: State assurances/representations that cannot give rise to expectations

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In Invest estor

• r due

e diligen ligence

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• If general legislation is source of an investor’s legitimate expectations, invest

stor

• r

mu must st demon demonstra strate tha that it it has has ex exer erci cise sed appr ppropr

• pria

iate due ue dili iligen ence and nd famil familiar iarise sed itself lf with the existi ting ng laws (Masdar v. Spain)

• A

pr prio ior ri risk sk asse assessme sment nt is is ne nece cessary ssary, taking into account all relevant circumstances (UAB v. Latvia)

• Investors

should be aware

• f

signifi nifican ant pol polit itic ical al, econ economic

• mic

and and

• ther

ther uncertainti tainties es in in the host stat ate (Koch v. Venezuela)

• Transitioning host States require an

an exte tensi nsive du due diligen ence ce (Gavrilović v. Croatia)

• It is reasonable for an investor to expect that the host state would comply with its

newly-enacted law (Olin v. Libya)

• If regulatory framework is adamantly clear, its understanding by common readers

doe

• es

no not requi equire a par arti ticularl cularly sophi

• phistic

sticated ed an anal alys ysis from the investor (Novenergia v. Spain)

Investor due diligence: The Principles

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× An Antaris taris v. Czech Czech Republic public: very limited legal advice and no request for specific representations from the host State’s regulators × Teinv einver er v. Ar Argentina gentina: absence of investigation into the legal framework and financial situation of the host State: no clarification or assurances sought in respect of the regulatory framework

Investor due diligence: The Practice

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Union n Fenos

• sa v. Egypt

Antin in v. Spain Novene nergia ia v. Spain in Masd asdar ar v. Spain in

David Aven v. Costa ta Rica Antari ris v. C Czech RepublicKoch v. Venezuela JSW Solar v. Czech Republic Cervin v. Costa sta Rica Blusun v. Italy Teinver v. Arg rgenti tina Isolux v. Spain Gavrilović v. Cro roati tia Fouad Algh ghanim v. Jord rdan an

Legitimate Expectations: Summary of

• utcome of cases 2017/2018

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St Stabi abilit lity y of

• f reg

egula ulatory

• ry fr

fram amework

• rk

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• regulatory stability is a key element of the FET standard

(Natland v. Czech Republic)

• “[stability

and predictability] cannot be absolute requirements, and have often been weighed against further criteria, and most notably the right of the host State to exercise its general legislative power and enforce laws and regulations to protect the public interest” (UAB v. Latvia)

Stability of regulatory framework: Key element of FET

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• “investors know that the

he leg legisla slati tive frame framework

• rk ma

may cha change and evolve in the light

• f circumstances and of political developments; it is not every change which gives

rise to a claim based on breach of legitimate expectation” (Antaris v. Czech Republic)

• Req

equir uirem emen ent of

• f st

stabil abilit ity under ECT does no not eq equa uate to to th the immu immutabi tabilit lity of

• f the

the legal frame amework

• rk (Antin v. Spain)
• FET standard does not protect against normal
• rmal bu

busin siness ri risk sks or

• r reg

egul ulatory

• ry actio

action by the host State (Koch v. Venezuela)

• “an investor can have no

no legitima legitimate ex expe pecta ctati tion

• n th

that th the ho host st State’s laws ws wil ill no not change” (JSW Solar v. Czech Republic)

• FET standard “does not
• t give a right

ht to to regula latory

• ry stabilit

lity per se se” (Eiser v. Spain)

• FET standard doe
• es no

not cr create an an indep ndepen endent dent obliga bligati tion

• n to

to pr provid ide stab stable le an and transpar nsparen ent investmen tment conditi itions

• ns (Novenergia v. Spain)

The Principles: FET standard is no guarantee against changes to legal and regulatory framework

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• “absent explicit undertakings directly extended to investors and

guaranteeing that States will not change their laws or regulations, in inves estment tment treati eaties do do no not el elimina iminate States’ ri right ht to to mod

• dify

ify the heir ir reg egula latory

• ry reg

egime imes to meet evolving circumstances and public needs” (Eiser v. Spain)

• FE

FET standa standard obligates States to “create stable, equitable, favourable, and transparent conditions” but “pr prese eserves the the reg egula latory

• ry auth

uthorit rity of

• f the

the host st sta state to to mak make and and change change its its la laws ws and and reg egula ulati tion

• ns to adapt to changing needs […] subject to

respect for specific commitments made” (Blusun v. Italy)

The Principles: State retains right to regulate

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• Host State has a regulatory right but not an

an un unfetter ered ed rig ight ht; FET standard does not ensure full regulatory stability but reg egula latory

• ry cha

changes must st st stay wit ithin hin the the boun

• undarie

daries of

• f an

an acc accep eptable table ran ange of

• f leg

legisla lativ tive and and reg egul ulatory

• ry beha

behavi viour

• ur

(Novenergia v. Spain)

• Host State has the right to modify its legal framework but not in

in an an un unreas easonab

• nable

le

• r
• r un

unjusti justifi fied ed man manner er or

• r whic

hich vio iola lates spe specif cific ic commit commitmen ments undertaken towards the investor (Masdar v. Spain)

• Such cha

hang nges “should have due due regar ard to to the the reas easona nabl ble rel eliance iance int inter eres ests ts of recipients who may have committed substantial resources on the basis of the earlier regime” (Blusun v. Italy)

• Cha

hanges must be “con

• nsi

sist sten ent wit ith assur assuran ance ces on

• n stab

stabili ility of the regulatory framework provided by the State and required by the ECT” (Antin v. Spain)

… with some limitations

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✓ Eise iser v. Spa Spain in: FET protects against “unprecedented and wholly different regulatory approach, based on wholly different premises” ✓ Nove

• vener

nergia ia v. Spain pain: Measures adopted in 2013/2014 which replaced the regime with a new framework which had a “significant damaging economic effect” on the investor’s plants, decreasing revenues by 24-32% (but where investor retained a profit margin) ✓ Anti ntin v. Spain Spain: 2013/2014 measures introduced by Spain eliminated the “essential features” of the renewable energy system

Stability of regulatory framework: The Practice

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× Eli Eli Lill Lilly v. Canada Canada: a change in the relevant regulatory law without a dramatic departure from previously established domestic case law is not a FET violation × JSW JSW Solar Solar v. Cz Czech ech Republic epublic: regulatory measures do not breach FET if they are a reasonable, carefully calibrated response to developments in a sector at a time of economic and political uncertainty

Stability of regulatory framework: The Practice

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Ei Eiser v. Spain in Nat atlan land v. Czech ch Republ blic ic Anti tin v. Spain in Novene nergia ia v. Spain in Antar aris is v. Czech h Republ blic ic Koch v. Venezu ezuela la Blu lusun un v. Italy Isolux ux v. Spain in JSW Solar ar v. Czech ch Repub ublic lic

Stability of Regulatory Framework: Summary of outcome of cases 2017/2018

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Den enial ial of

• f ju

justice tice an and brea each ch of

• f d

due e process

• cess

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• “denial of justice under the FET standard equates with denial of justice

under customary international law” (Chevron v. Ecuador, Track II)

• Unfair decision constitutes a denial of justice if it

its sh shock

• ckin

ing na natur ure implies a breach of due process (Olin v. Libya)

• “a governmental authority cannot be faulted for acting in a manner

validated by its courts, unless the conduct of the courts themselves constitutes a breach of treaty” (Fouad Alghanim v. Jordan)

• denial of justice is defined as ine

nexcu cusable sable ruling ulings i.e. rulings that no reasonably competent judge could make (Fouad Alghanim v. Jordan)

• clear evidence

nce of

• f egregious

gious and shock

• ckin

ing conduct uct (Eli Lilly v. Canada)

Denial of justice and breach of due process: The Principles

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✓ Olin Olin v. Li Libya: a state measure lacks transparency if communicated several weeks after its enactment, without the investor being informed in advance that such measure in relation to its investment is contemplated, and being given a reasonable opportunity to engage in a dialogue with the government to find an adapted solution ✓ Ce Cervin in v. Co Costa sta Ric Rica: two years and four months to reach a decision instead

• f eight days as provided under the law was a “gross and flagrant failing on

the part of the administrative authority to comply with one of its most fundamental obligations, that of processing with reasonable diligence a recourse” ✓ Che hevron

• n v. Ecua

cuador

• r, Track

ack II II: impugned judgment was clearly improper and discreditable, with the failure by the national system as a whole to satisfy minimum standards

Denial of justice and breach of due process: The Practice

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× David id Aven ven v. Costa sta Ric Rica: the acts of the judiciary were deemed to be in accordance with internal laws × UAB AB v. La Latvia ia: The irregularities in the relevant procedure for the approval of the tariffs must be “weighed alongside the existence of an avenue of appeal”; since there were two avenues for judicial review, they were not considered serious enough to give rise to a breach of due process amounting to a breach

• f FET

× Foua

• uad Alg

lgha hanim nim v. Jo Jordan dan: although some of the steps taken by the State with respect to imposition

• f

the tax measure were “unusual, even unprecedented”, these steps were still consistent with a State conducting itself according to basic principles of constitutional government and Rule of Law

Denial of justice and breach of due process: The Practice

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Ch Chevron n v. Ecuador dor (II) I) Valo lores es Mundial iales es v. Venezu ezuel ela Olin n v. Libya Cervi vin v. Costa a Rica a (no damages es awarded) ed) Davi vid Aven v. Costa a Rica Fouad d Algha hanim nim v. Jorda rdan Eli Lilly ly v. Canada Gavrilović v. Cro roati tia UAB v. Lat atvi via a

Denial of justice and breach of due process: Summary of outcome of cases 2017/2018

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Arbitr bitrar ary, , discr scrimina iminator

• ry,

, non

• n-transpa

transparent ent

• r
• r u

unr nrea eason sonable able con

• nduct

uct

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• it does not matter whether a tribunal believes that a particular course
• f action is ‘good’ or ‘bad’, that a different solution might have been

‘better’, or that a State could have done ‘more’, or that other States took different measures”, as long as there is an an appr prop

• pria

riate corr correl elation tion between en the he hos host State’s objectiv jectives and th the me measur sures es it it to took

• k (Antaris v. Czech Republic)
• conduct which appears to be founded on prejudice or preference,

rather than on reason or fact, is arbitrary (UAB v. Latvia)

• measure has to depart from the law, justice or reason (Cervin v. Costa

Rica)

• measures that pursue a legitimate objective are neither arbitrary nor

unreasonable (JSW Solar v. Czech Republic)

Arbitrary, discriminatory, non-transparent

• r unreasonable conduct: The Principles

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✓ Union Feno

nosa sa v. Egyp gypt: discrimination between users of gas against the investment plant placed an excessive and disproportionate burden on the investor and amounted to conduct that was materially “unjust”, “discriminatory” or “unfair”

×

Cer ervin v. Co Costa ta Ric Rica: mere existence of an error in the interpretation or application of a regulatory framework was insufficient; inconsistencies deemed to be too inconsequential to amount to a breach and the conduct had already been part of the authority’s practice at the time of making the investment

×

Eli Lillly v. Can anada ada: dramatic change of the law test not met; investor should have, and could have, anticipated that the patent law would change over time as a function of judicial decision-making

×

UAB v. La Latvia: the Respondent had the rational objective of reducing excessive profits and sheltering consumers from excessive electricity price rises, and its actions were not arbitrary or irrational because there was an appropriate correlation between its

• bjectives and the measures it took

Arbitrary, discriminatory, non-transparent

• r unreasonable conduct: The Practice

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Teinver er v. Argentina rgentina Valor

• res

es Mundi diales ales v. Venezu ezuel ela Olin n v. Libya Valor

• res

es Mundi diales ales v. Venezu ezuel ela a Antin in v. Spain Antar aris is v. Czech h Republ blic ic Fouad d Algha hanim nim v. Jorda rdan Cervi vin v. Costa a Rica Eli Lilly ly v. Canada Nat atland land v. Czech ch Republ blic ic Koch v. Venezu ezuela la UAB v. Lat atvia ia

Arbitrary, discriminatory, non-transparent or unreasonable conduct: Summary of outcome

• f cases 2017/2018

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Mak aking ing sen ense se of

• f

th the e Sp Span anish ish en ener ergy y cases es (?)

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Factual background

Spain remuneration regime aimed at renewable energy producers

2007 07

financial crisis and deterioration of Spain’s finances

2008 08

Spain amended Feed-in tariff (FiT) remuneration system

2010 10

Spain imposed a 7% tax on electricity production

2012 12

Spain amended and rolled back the FiT system

2013/4 13/4

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▪ All invoked the FET standard under Article 10(1) ECT:

“Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stab table, eq equitab itable, favourab able and tr tran anspar aren ent co conditio ditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a com commitm itmen ent to to ac accor cord at at all all tim times es to Investments

• f Investors of other Contracting Parties fair

air an and eq equitabl itable trea eatm tmen

• ent. Such Investments shall also enjoy

the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations. Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party”.

▪ All decided in past 2-3 years ▪ All based on Spain’s regulatory changes in the renewable energy sector

7 decisions to date – emerging pattern?

REVIEW OF LANDMARK CASES IN 2017-2018: THE FET STANDARD

EISER v. SPAIN

ICSID Case No. ARB/13/36 (4 May 2017)

NOVENERGIA A v. SPAIN

SCC Case No. 2015/063 (15 February 2018)

MASDAR v. SPAIN

ICSID Case No. ARB/14/1 (17 May 2018)

ANTIN v. SPAIN

ICSID Case No. ARB/13/31 (15 June 2018)

FORESIG IGHT T AND O OTHERS v. SPAIN

SCC Case No. 2015/150 (14 November 2018)

CHARANNE v. SPAIN

SCC Case No. V062/2012 (21 January 2016)

ISOLUX X v. SPAIN

SCC case No. V2013/153 (17 July 2016)

Diverging outcomes

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➢ Distinguishing Charanne: diff fferent ent regula ulatory y measur easures es ➢ Distinguishing Isolux: lat ater investme estment t

Making sense of the difference (?)

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Thank you

Noradèle Radjai nradjai@lalive.ch

REVIEW OF LANDMARK CASES IN 2017-2018: THE FET STANDARD