Investment disputes: ten questions for in-house counsel Michael W - PDF document

Cross-border Dispute Resolution 2005/06 Investment disputes: ten questions for in-house counsel Michael W Bühler and Jonathan Eades, Jones Day www.practicallaw.com/A47448 Many international transactions cause small and large companies (MIT). Treaties between nations offering protection to foreign to invest in foreign countries worldwide. Given the sums that are investors have been in force for decades. However, in the last often at stake, an investor must consider how well an investment fifteen years the number of BITs has increased dramatically and is protected in the foreign country. Once problems arise with an there are now more than 2,000 in existence. In addition, there investment abroad, the investor must review the available dispute are a number of MITs and multilateral free trade agreements resolution options. Apart from customary remedies (such as including: domestic or foreign litigation, or contractual arbitration), in- The North American Free Trade Agreement (NAFTA). house counsel today need to consider whether an investment ■ dispute claim can be brought against the government of the host The Energy Charter Treaty. state (that is, the recipient of the investment) under an invest- ■ Cross-border ment treaty (investment arbitration). The Association of South East Asian Nations Agreement for ■ the Promotion and Protection of Trade 1987. Investment arbitration provides foreign investors with a potentially powerful right of recourse against a host country, BITs are usually entered into between developed and developing when a host country's wrongdoing affects a foreigner's invest- nations, but there are numerous exceptions such as the treaty ment. Whether or not investment arbitration is ultimately between Bangladesh and Uzbekistan. To be certain whether a pursued and compensation claimed from the host state, consid- treaty exists, proper inquiries must be made. A helpful list of eration of this option should now be standard practice for counsel many BITs can be found at www.unctadxi.org/templates/ faced with a troubled investment abroad. DocSearch____779.aspx . This chapter poses ten primary questions to help counsel assess Even if no obviously applicable treaty exists and it seems that the extent of investment treaty rights and the possibility of investment arbitration is not possible, alternative treaties may pursuing an investment arbitration: apply if individual investors have dual nationality or corporate investors have foreign subsidiaries. Does an applicable investment treaty exist? ■ Can the international transaction be considered an invest- IS THE TRANSACTION AN INVESTMENT? ■ ment under the terms of the investment treaty? Many investment treaties contain a broad definition of invest- Where can an investment treaty claim be made? ment. The international transaction must conform to a relevant ■ definition to be eligible for investment treaty protection and this Who is the potential investment treaty claimant/investor? definition must be considered in each case. ■ Who is the investment treaty defendant? Similarly, if investment arbitration is sought before the Interna- ■ tional Centre for Settlement of Investment Disputes (ICSID), as Do the alleged acts violate any treatment guarantees under often happens, the investment must also be separately justified ■ the investment treaty? under the terms of the ICSID Convention. This is usually done by showing that the investment: What limitations does the investment treaty contain? ■ Involves a contribution by the investor. ■ Are there limitations to bringing investment claims not ■ expressly covered in investment treaties? Is for a specific period of time. ■ How long does investment arbitration last? Involves risk to the investor. ■ ■ How much does investment arbitration cost? As investment treaties are entered into with the objective of ■ encouraging foreign investment, the definition of investment is DOES AN APPLICABLE INVESTMENT TREATY EXIST? often much broader than what might commonly be thought of as investment. For example, loans and the purchase of bonds have The starting point is to determine whether there is an applicable been considered investments. Therefore, counsel must consider bilateral investment treaty (BIT) or multilateral investment treaty PLC CROSS-BORDER HANDBOOKS www.practicallaw.com/disputehandbook 7 This article was first published in the PLC Cross-border Dispute Resolution Law Handbook 2005/06 and is reproduced with the permission of the publisher, Practical Law Company. For further information or to obtain copies please contact jennifer.mangan@practicallaw.com, or visit www.practicalllaw.com/disputehandbook