ICSID tribunal dismisses claims brought against Indonesia based on forged mining licences
Churchill Mining PLC and Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and ICSID Case No. ARB/12/40
Inaê Siqueira de Oliveira [*]
After rendering separate decisions on jurisdiction¾one for the case brought by British company Churchill Mining PLC under the United Kingdom–Indonesia bilateral investment treaty (BIT), and another for Australian company Planet Mining Pty. Ltd.’s case under the Australia–Indonesia BIT¾the arbitral tribunal consolidated the two arbitrations, as both were based on the same facts, and issued a single award.
The requests of both claimants had relied on the same set of documents, which the arbitral tribunal deemed to be forged. Thus, the tribunal considered all claims inadmissible, ordering the claimants to bear all arbitration costs and to reimburse 75 per cent of Indonesia’s legal expenses.
Factual background and claims
A group of seven Indonesian companies¾the Ridlatama group¾introduced the mining project East Kutai Coal Project (EKCP) to the claimants, to explore a large coal deposit in the Regency of East Kutai, Indonesia. The claimants invested in EKCP by acquiring all shares of PT Indonesian Coal Development (PT ICD), a company registered in Indonesia.
Later, certain companies within the Ridlatama group obtained (fraudulently, as the tribunal later concluded) mining licences for large areas in the EKCP. These companies had Pledges of Shares Agreements and Cooperation Agreements with PT ICD, which would plan, set up and perform all mining operations in exchange for 75 per cent of the generated revenue.
Conflicts began as of 2010. The areas of certain licences granted to the Ridlatama group substantially overlapped with those of licences that had been given to other companies. At the recommendation of the Indonesian Ministry of Forestry, the Regent of East Kutai revoked all licences belonging to Ridlatama companies.
The Ridlatama group initiated proceedings against Indonesia before Indonesian courts, while the claimants resorted to the International Centre for Settlement of Investment Disputes (ICSID) in 2012, seeking full compensation for the expropriation of their investment.
Applicable law—and a “duty to adopt principles established in a series of consistent cases”
As the BITs were silent on the legal consequences of forgery, the tribunal deemed appropriate to apply, in addition to the BITs, Indonesian law and international law (para. 235). As to the relevance of previous decisions, the tribunal reasoned that, although it was not bound by previous decisions, it should pay “due consideration” to them because it had a “duty to adopt principles established in a series of consistent cases” in order to contribute “to the harmonious development of international investment law” (para. 253).
Fraudulent scheme to forge mining licences
Indonesia opposed the authenticity of 34 documents. In substance, the dispute centred on the signature in those documents. Government records showed that officials typically sign important documents (such as the ones related to mining licences) by hand, while all the signatures in the disputed documents had been mechanically reproduced.
In addition to the signature issue, several troubling oddities in ancillary elements also pointed to a fraudulent scheme put in place to fabricate documents. Other documents existed in more than one version, did not contain signatures or initials of officials, or were not registered in the government database. There was no paper trail regarding the licence application process, and ten days after the Regent of East Kutai had revoked the licences of the Ridlatama companies a supposed Re-Enactment Degree was issued to declare the licences valid again. The oddity did not escape the arbitral tribunal: “Why should a government revoke a licence one day and reinstate it ten days later?” (para. 441). All things considered, the arbitral tribunal “found that a fraudulent scheme permeated the Claimants’ investments in the EKCP” (para. 507).
As to whether the claimants had taken part in the fraudulent scheme, the arbitral tribunal noted that the record pointed “towards Ridlatama rather than the Claimants in relation to the forgery of the contentious documents” (para. 476).
Legal consequences of forgery
The arbitral tribunal resorted to international law and investment case law to establish the legal consequences of forgery. It conducted a large review of cases and concluded that, depending on the circumstances of each case, fraud could affect the tribunal’s jurisdiction (as in Phoenix v. Czech Republic, Inceysa v. El Salvador and Europe Cement v. Turkey), could affect the admissibility of the claim (as in Plama v. Bulgaria) or could be addressed in the merits (as in Cementownia v. Turkey, Malicorp v. Egypt and Minnotte v. Poland).
Relying on Venezuela Holdings v. Venezuela, Phoenix v. Czech Republic, Europe Cement v. Turkey and Hamester v. Ghana, the tribunal reasoned that fraudulent behaviour configures abuse of right (or, under certain circumstances, abuse of process), which is contrary to the principle of good faith, because an investor cannot benefit from treaty protection when her underlying conduct is deemed improper.
The arbitral tribunal went further, observing that particularly serious cases of fraudulent conduct, such as WDF v. Kenya and Metal-Tech v. Uzbekistan, have been held as contrary to international public policy. Following that train of thought, it reasoned that “claims arising from rights based on fraud or forgery which a claimant deliberately or unreasonably ignored are inadmissible as a matter of international public policy” (para. 508).
Having established the seriousness of a fraudulent scheme to forge mining licences, the arbitral tribunal turned to the question of whether a wrongdoing committed by a third party (the Ridlatama group) could affect the investors’ claim. To do so, it relied on the test proposed in Minnotte v. Poland to assess whether the claimants knew or should have known of the Ridlatama group’s wrongdoing.
Using the standard of willful blindness (also referred to as “deliberate ignorance”), the arbitral tribunal concluded that the claimants had incurred in remarkable absence of diligence. In the arbitral tribunal’s view, they were aware of the risks involved in investing in the coal mining industry in Indonesia, which had an “endemic problem” of corruption, and, even so, failed to engage in proper due diligence and oversight in their dealings with the Ridlatama group.
In sum, as the fraudulent scheme affected the entirety of the claimants’ investment, the tribunal deemed all their claims inadmissible.
The arbitral tribunal considered it appropriate to adopt the “costs follow the event” approach and order the claimants to bear all costs. As Indonesia had incurred in much greater legal fees and expenses (approx. US$12 million) than the claimants (US$4 million), the arbitral tribunal ordered the claimants to pay 75 per cent of Indonesia’s fees and expenses.
Notes: The tribunal was composed of Gabrielle Kaufmann-Kohler (President appointed by the co-arbitrators, Swiss national), Albert Jan van den Berg (claimant’s appointee, Dutch national), and Michael Hwang (respondent’s appointee, Singaporean national). The award of December 6, 2016 is available at http://www.italaw.com/sites/default/files/case-documents/italaw7893.pdf. The Decisions on Jurisdiction in Churchill Mining Plc v. Indonesia and Planet Mining Pty Ltd v. Indonesia, both dated February 24, 2014, are respectively available at http://www.italaw.com/sites/default/files/case-documents/italaw3103.pdf and http://www.italaw.com/sites/default/files/case-documents/italaw3104.pdf.
Renco failed to comply with formal waiver requirement under U.S.–Peru Trade Promotion Agreement
Renco Group Inc. v Republic of Peru, UNCT/13/1
María Florencia Sarmiento [*]
An arbitral tribunal under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) declared that U.S.-based investor Renco Group Inc. (Renco) failed to comply with the waiver requirement under the United States–Peru Trade Promotion Agreement (TPA). Accordingly, the tribunal declined to exercise jurisdiction over the case.
On April 4, 2011, U.S.-based mining company Renco initiated arbitration proceedings on its own behalf and of its wholly-owned enterprise, Doe Run Peru S.R. LTDA (DRP). Renco alleged that Peru breached its TPA obligations to afford fair and equitable treatment (FET) and national treatment, as well as certain contractual obligations. In an Amended Notice of Arbitration dated August 9, 2011, Renco withdrew the enterprise claim while retaining the claim on its own behalf.
TPA Article 10.18(2)(b) comprehends two different requirements: a formal one, which is the requirement to submit a written waiver giving up the right to initiate or continue before any administrative tribunal or court under the law of any party, or any other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach and a material one, which requires the investor to abstain from initiating or continuing local proceedings in violation of its written waiver.
The scope of the Partial Award of July 15, 2016 is the written waiver accompanying Renco’s Amended Notice of Arbitration. The waiver states that, “to the extent that the Tribunal may decline to hear any claims asserted herein on jurisdictional or admissibility grounds, Claimant reserves the right to bring such claims in another forum for resolution on merits”— “the reservation of rights” (paras. 58–59).
Peru asserted that Renco failed to comply with both the formal and material requirements of TPA Article 10.18(2). It noted that with the “reservation of rights” Renco reserved the right to bring claims in another forum and that, accordingly, Renco’s waiver did not comply with the TPA.
The tribunal’s analysis of the waiver requirement under TPA Article 10.18(2)
The tribunal started its analysis by interpreting under the Vienna Convention of the Law of Treaties the relevant provisions involved in the claim, which establish the procedures that an investor may follow in order to submit a dispute to arbitration—the TPA articles on “Submission of a Claim to Arbitration,” “Consent of Each Party to Arbitration” and “Conditions and Limitations on Consent of Each Party.”
The tribunal noted that its jurisdiction would be established upon a valid arbitration agreement between Renco and Peru, formed when Renco accepted Peru’s standing offer to arbitrate claims by arbitration in accordance with the requirements under the TPA. However, it highlighted that compliance with Article 10.18(2) was a condition and limitation of Peru’s consent to arbitrate, constituting an essential prerequisite to the existence of the arbitration agreement and thus, to the tribunal’s jurisdiction.
Turning to the validity of Renco’s waiver and reservation of rights, the tribunal considered that the wording of the Article 10.18(2)(b) demonstrates that waivers qualified in any way are impermissible, and that this interpretation is consistent with the object and purpose behind this article that is to protect a respondent state from litigating in multiple proceedings. The tribunal also determined that the article constitutes a “no U-turn” provision that precludes the investor to pursue a subsequent claim in domestic forum, including if the claim is dismissed on jurisdictional or admissibility grounds.
To conclude, the tribunal analyzed the consequence of Renco’s non-compliance with Article 10.18(2)(b). It pointed out that it would have been preferable if Peru had raised the waiver objection at the outset of the proceedings, given that the arbitration has been on foot for a long time and that the issue became very complex since the consequences of non-compliance with Article 10.18(2)(b) are very severe.
Tribunal dismisses Renco’s attempt to cure the waiver or sever the reservation of rights and rejects Renco’s argument that Peru abused its rights
In its decision, the tribunal also took into account (1) whether it would be possible to cure the waiver, (2) whether the tribunal could sever the reservation of rights and (3) whether Peru’s arguments and conduct in relation to the waiver constituted an abuse of rights.
Regarding the possibility to cure the waiver, Renco submitted that the defect was only in form and that tribunals can cure formal requirements. Peru contended that the tribunal was not empowered to do so. The majority of the tribunal concluded that the submission of a valid waiver is a condition of the initial existence of a valid agreement and that therefore the tribunal was without any authority. One of the arbitrators accepted that Renco could unilaterally cure its defective waiver.
As to the severability principle, the tribunal concluded that the principle could not be applied in the case because no arbitration agreement came into existence and, therefore, the tribunal had no power to sever the reservation of rights.
Peru had raised for the first time the issue of defective waiver in the Notification of Preliminary Objections, filed three years after the institution of the proceedings. Renco asserted that Peru’s objections constituted an abuse of rights, submitting that Peru’s purpose was not to ensure the due respect of the waiver rights but to evade its duty to arbitrate Renco’s treaty claims. The tribunal concluded that Peru legitimately sought to exercise its right to receive a waiver in compliance with Article 10.18(2)(b). Yet, it highlighted that a possible abuse of rights could arise if Peru argued in any future proceedings that Renco’s claims were time barred because of the three-year period established in Article 10.18(1).
Decision and costs
The majority declared that Renco failed to comply with the formal requirement of Article 10.18(2)(b) by including the reservation of rights in the waiver together with the Amended Notice of Arbitration, that it could not unilaterally cure its defective waiver, and that it failed to establish the requirements for Peru’s consent to arbitrate under the treaty. Consequently, the tribunal dismissed the claims for lack of jurisdiction.
In the Partial Award on Jurisdiction, the tribunal had reserved the question of costs for a later award. In the Final Award, the tribunal decided to depart from the presumption that “costs follow the event” contained in the UNCITRAL Rules given that (a) Peru had only achieved a relative, rather than an absolute, measure of success; (b) the issues raised in the waiver phase of the arbitration were novel and complex; and (c) Peru delayed in raising its objection to the Tribunal’s jurisdiction on the basis of Renco’s non-compliance with Article 10.18(2)(b) of the Treaty. As a conclusion, the tribunal ordered each party to bear its own legal and other arbitration costs and to bear half of the costs of the tribunal and the administering authority.
Notes: The arbitral tribunal was composed by Michael J. Moser (President agreed to by the parties, Austrian national), L. Yves Fortier (claimant’s appointee, Canadian national), and Toby T. Landau (respondent’s appointee, British national). The Partial Award on Jurisdiction of July 15, 2016 is available in English at http://www.italaw.com/sites/default/files/case-documents/italaw7434.pdf and in Spanish at http://www.italaw.com/sites/default/files/case-documents/italaw7435.pdf, and the Final Award of November 9, 2016 is available in English at http://www.italaw.com/sites/default/files/case-documents/italaw7744_1.pdf and in Spanish at http://www.italaw.com/sites/default/files/case-documents/italaw7745.pdf.
Pac Rim v. El Salvador: all claims dismissed; OceanaGold to pay US$8 million in costs
Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB/09/12
Martin Dietrich Brauch [*]
On October 14, 2016, a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) dismissed on their merits all claims by Pac Rim Cayman LLC (Pac Rim) against El Salvador. The tribunal ordered the mining company—currently owned by Australian-Canadian OceanaGold—to pay US$8 million towards El Salvador’s legal costs.
Between 2002 and 2008, two Salvadoran subsidiaries of Pac Rim acquired various mining exploration licences in El Salvador. Pac Rim’s largest activity was the El Dorado project, in Cabañas, one of the country’s poorest regions. Having verified that the area contained significant high-grade gold reserves, Pac Rim’s subsidiary Pac Rim El Salvador (PRES) applied in December 2004 to convert its exploration licences—which were to expire in January 2005—into an exploitation concession.
The application failed to include certain documents required under El Salvador’s Mining Law, such as the environmental permit and the consent of the landowners of property located in the surface area of the requested concession.
In late 2005, Salvadoran authorities proposed an amendment to the Mining Law to expressly limit the required documentation to the area affected by the mine’s infrastructure; if approved, the amendment would reduce the number of documents PRES needed to obtain. Though supporting PRES in the hope that the amendment would be approved, the authorities also formally requested that PRES submitted missing documents required by law.
However, PRES never submitted them, and El Salvador’s legislature rejected the amendment in February 2008. On March 10, 2008, Salvadoran President Antonio Saca said that he was in principle against granting new mining exploitation permits; a year later, he stated that Pac Rim would not be granted a concession.
Claims and decision on jurisdiction
On April 30, 2009, Pac Rim—on its own behalf and in respect of its subsidiaries—initiated arbitration against El Salvador under the country’s Investment Law and the Dominican Republic–Central America–United States Free Trade Agreement (CAFTA).
Asking for damages exceeding US$314 million, it claimed that the denial of the El Dorado concession resulted from El Salvador’s alleged de facto ban on metallic mining, in breach of the country’s obligations under Salvadoran and international law. El Salvador submitted that Pac Rim was not entitled to an exploitation concession, and that the state did not breach any obligations and was therefore not liable for any damages.
In its decision on jurisdiction of June 1, 2012, the tribunal dismissed the claims under CAFTA, but affirmed its jurisdiction under El Salvador’s Investment Law.
Tribunal overlooks case advanced by amicus curiae CIEL
In a non-disputing party submission, the Center for International Environmental Law (CIEL) argued that El Salvador’s measures regarding El Dorado were supported by its international obligations on human rights and the environment. However, the tribunal considered it unnecessary to address CIEL’s case, because the disputing parties did not consent to disclose the factual evidence to CIEL, and because the tribunal’s decisions “do not require the Tribunal specifically to consider the legal case advanced by CIEL: and, in the circumstances, it would be inappropriate for the Tribunal to do so” (para. 3.30).
Tribunal rejects El Salvador’s additional jurisdictional objections
El Salvador argued that claims based on international law and the Salvadoran Constitution fell outside the scope of the consent to arbitrate contained in Article 15 of the Investment Law. The tribunal dismissed the objection. Noting that the applicable law was not specified in the Investment Law or in any agreement between the parties, the tribunal invoked ICSID Convention Article 42(1) to decide that Salvadoran law (including the Constitution) and the applicable rules of international law applied to the arbitration.
According to El Salvador, the consent to international arbitration under Article 15 was trumped by other provisions of Salvadoran law, as the Investment Law specifically subjects subsoil-related investments to the Constitution and secondary laws, and the Mining Law refers disputes involving mining exploration licences or exploitation concessions to the exclusive jurisdiction of Salvadoran courts. The tribunal, however, held that El Salvador’s interpretation was not binding, and refused to “apply other legislative provisions that would override an expression of jurisdictional consent that is valid, clear and unambiguous as a matter [of] international law” (para. 5.68).
El Salvador also invoked the Salvadoran Civil Code to argue that certain claims were time-barred. The tribunal rejected the objection by recalling: “the fact that a provision of Salvadoran legislation provides the consent to arbitration does not mean that the Tribunal’s decisions on jurisdiction are governed by Salvadoran law” (para. 5.71). It also held that investment tribunals do not necessarily need to apply domestic statutes of limitations.
Award focuses on El Dorado project
In determining whether Pac Rim was entitled to the El Dorado concession, the tribunal focused on two aspects: the legal interpretation of Mining Law Article 37(2)(b) and the claim of estoppel or actos propios. Both are summarized as follows.
Pac Rim had also pleaded ancillary claims regarding five other mining areas, but the tribunal dismissed them, finding that the investor failed to establish liability, causation and injury.
Article 37(2)(b) interpreted adversely to Pac Rim’s case
Article 37(2)(b) requires that the applicant for an exploitation concession submit “the property title for the real estate or authorized permissions, in legal form, from the landowner.” For Pac Rim, this merely required documentation for the area (likely) to be directly affected, while El Salvador understood it as requiring documentation for the entire surface area of the requested concession. The tribunal rejected Pac Rim’s argument based on three factors.
The first factor was the acquiescence by Pac Rim and PRES: although knowing that the state’s interpretation of Article 37(2)(b) was not in their favour, they relied on the possibility of an amendment, and did not pursue any other plan: “They were confident that amending legislation would see them right. In this regard, they were mistaken” (para. 8.30).
Second, the tribunal deferred to El Salvador’s interpretation of the provision, holding: “As a general approach, deference should be given by an international tribunal to the unanimous interpretation of its own laws given in good faith by the responsible authorities of a State at a time before the emergence of the parties’ dispute” (para. 8.31).
Finally, the tribunal looked at a third, teleological factor. Applying the proportionality principle under the Salvadoran Constitution, it concluded that Article 37(2)(b) required consent from surface owners or occupiers facing potential or actual risks—beyond those directly affected by the activity—and concluded that Pac Rim did not fulfill the requirement.
Tribunal rejects claim based on estoppel or actos propios doctrine
Pac Rim also argued that El Salvador had made “clear and unequivocal representations” that the Article 37(2)(b) issue would not lead to a denial of the concession, and that Pac Rim had relied in good faith on those representations; El Salvador would thus be, under international law or Salvadoran law, estopped or precluded from stating otherwise. However, the tribunal did not find any representation by El Salvador to the effect that, absent the amendment to the provision, PRES would have been deemed in compliance with the requirement, or that the concession would be granted even without such compliance.
Notes: The ICSID tribunal was composed of V. V. Veeder (President appointed by the parties, British national), Guido Santiago Tawil (claimant’s appointee, Argentinian national) and Brigitte Stern (respondent’s appointee, French national). The award is available in English at http://www.italaw.com/sites/default/files/case-documents/italaw7640_0.pdf and in Spanish at http://www.italaw.com/sites/default/files/case-documents/italaw7641_0.pdf.
NAFTA tribunal orders Canada to pay U.S. wind power developer more than CAD28 million
Windstream Energy LLC v. Government of Canada, PCA Case No. 2013-22
Matthew Levine [*]
An arbitral tribunal under Chapter 11 of the North American Free Trade Agreement (NAFTA) has reached the award stage. Although dismissing the discrimination and indirect expropriation claims, the tribunal upheld the claim of failure to provide fair and equitable treatment (FET), and ordered Canada to pay damages and half of the investor’s legal costs, totalling over CAD28 million (roughly US$21.4 million).
Background and claims
The claimant, Windstream Energy LLC (Windstream), is a company constituted under U.S. laws. It was in the business of developing an offshore wind electricity generation project in the province of Ontario, Canada (Offshore Project).
In 2009, Ontario enacted a Feed-in-Tariff (FIT) scheme whereby a tender process was opened for independent renewable energy producers to sell into the provincial grid. Through the tender process, Windstream secured a FIT contract for the Offshore Project.
Following various permitting delays related to Windstream’s development activities, Ontario ultimately imposed a moratorium on offshore wind projects. The primary reason given for the moratorium was that additional scientific research was necessary. Meanwhile, other holders of FIT contracts were offered alternative opportunities to participate in Ontario’s clean energy sector, which were not offered to Windstream.
Windstream initiated arbitration in January 2013 and the tribunal was constituted in July 2013. Windstream’s principal claims were that the province’s conduct had fallen below the FET standard in NAFTA and had an effect that was tantamount to expropriation.
Tribunal dismisses indirect expropriation claim
For the tribunal, the determination of whether an indirect expropriation has taken place is in the first place a matter of evidence and thus a factual determination of whether an effective taking of property attributable to the state has taken place. This would be the case even if there has been no formal transfer of title, and even if the state has not obtained any economic benefit. In turn, the first step in determining whether an effective taking has taken place is to determine whether the investor has been substantially deprived of the value of its investment.
Having carefully reviewed the relevant evidence, the tribunal found that on the facts in the current case no expropriation had taken place. Among other relevant factors, the tribunal indicated that the FIT Contract was still formally in force and had not been unilaterally terminated by Ontario, and that the investor’s CAD6 million security deposit was still in place and had not been taken or rendered otherwise worthless because of any action taken by the province. It therefore could not be said that the investor had been substantially deprived of its investment.
Tribunal finds that administration of moratorium was unfair and inequitable
The parties disagreed on the content of the minimum standard of treatment set out in NAFTA Article 1105(1) as well as on how the content of that standard should be established.
In the tribunal’s view, it was for each party to support its position as to the content with appropriate legal authorities and evidence. In principle the content of a rule of customary international law, such as the minimum standard of treatment, could best be determined on the basis of evidence of actual state practice establishing custom that also shows that the states have accepted such practice as law (opinio juris). However, neither party had produced such evidence, and so the tribunal had to rely on indirect evidence to ascertain the content, such as decisions taken by other NAFTA tribunals.
Upon consideration of the indirect evidence provided by the parties, the tribunal noted that Windstream invoked the FET element but not the “full protection and security” element of NAFTA Article 1105(1). The tribunal therefore considered whether Ontario’s conduct was “unfair” or “inequitable” in accordance with the customary international law minimum standard of treatment, and recalled that this determination was best done not in the abstract, but in the context of the facts of the case.
The tribunal found nothing unfair or inequitable in the evidence related to Ontario’s decision to impose a moratorium on offshore wind development and the related process. It considered that, while government conduct leading up to the moratorium could have been more transparent and public opposition to offshore wind was present, these factors did not amount to a breach of NAFTA.
However, it found that the conduct of the province following the moratorium was more troubling. According to the tribunal, Ontario did little to address the scientific uncertainty and, most importantly, did little to address the legal and contractual limbo in which Windstream found itself after the imposition of the moratorium. The tribunal concluded that failure “to take the necessary measures, including when necessary by way of directing the OPA [Ontario Power Authority, a regulatory agency], within a reasonable period of time after the imposition of the moratorium to bring clarity to the regulatory uncertainty surrounding the status and the development of the Project created by the moratorium, constitutes a breach of Article 1105(1) of NAFTA” (para. 380).
Damages valuation based on comparable transactions
The tribunal determined the appropriate method of valuation in light of the project’s particular stage of development. It pointed out that, while it is common to use the discounted-cash-flow (DCF) method to value offshore wind projects, “it is not usually used for projects that have not yet reached financial closure, given the many risks and uncertainties surrounding such projects” (para. 474). In the circumstances, the tribunal considered that the project was best valued on the basis of the comparable transactions methodology.
Upon consideration of the evidence on comparable transactions—offshore wind projects in Europe—the tribunal observed a range of between 18 and 24 million euros as relevant to the valuation of Windstream’s project. It then considered potential adjustments, but concluded that the mid-point of the above range was appropriate, that is, 21 million euros. Based on the exchange rate of the date of the award, this was converted to CAD31,182,900.
However, the tribunal noted that Windstream was not entitled to compensation for the full value of its investment, which included a letter of credit that remained in place and the FIT Contract that remained in force. The tribunal then found that the above valuation must be discounted by CAD6 million to account for the letter of credit, but that the value associated with the potential reactivation or renegotiation of the FIT Contract was extinguished upon the issuance of the arbitral award.
The tribunal agreed with and noted the parties’ agreement with the principle in Article 42 of the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) establishing that “[t]he cost of the arbitration shall in principle be borne by the unsuccessful party” (para. 512). This rule applied to legal costs, but not arbitrations costs, that is, the costs and fees of the tribunal and the Permanent Court of Arbitration (PCA).
In terms of the apportionment of legal costs, the tribunal recalled that Windstream had prevailed, and although only one of its four claims was granted, this was one of its two principal claims. Ultimately, the tribunal found it appropriate for Canada to reimburse half of Windstream’s legal costs. As regards arbitration costs, for the tribunal these effectively arose out of the parties’ arbitration agreement, and thus it was more appropriate that each of the parties cover half.
Notes: The tribunal was composed of Veijo Heiskanen (President by agreement of parties, Finnish national), R. Doak Bishop (claimant’s appointee, U.S. national), and Bernardo Cremades (respondent’s appointee, Spanish national). The final PCA award of September 27, 2016 is available at http://www.italaw.com/sites/default/files/case-documents/italaw7875.pdf.
PCA tribunal dismisses expropriation and FET claims concerning an eco-touristic venture
Peter A. Allard v. The Government of Barbados, PCA Case No. 2012-06
Amr Arafa Hasaan [*]
On June 27, 2016, a tribunal under the auspices of the Permanent Court of Arbitration (PCA) dismissed all claims by Canadian businessman Peter A. Allard against Barbados under the Canada–Barbados bilateral investment treaty (BIT) and the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). Seeking over CAD29 million in damages, Allard claimed that a failure by Barbados to take environmental protection measures breached the BIT and resulted in the destruction of the value of his investment in an eco-tourism site.
In 1994, Allard decided to establish an eco-tourism attraction in the western part on the south coast of Barbados. Between 1996 and 1999 he incorporated a company and acquired land in Barbados for the construction of a Sanctuary, opened to the public in 2004. After a failure in the South Coast Sewage Treatment Plant in 2005, Allard decided to sell the Sanctuary in 2007, announcing its closure on October 29, 2008.
Allard initiated arbitration against Barbados on May 21, 2010 claiming that the government’s actions and hesitation in closing the sluice gate of the sewage treatment plant resulted in drastic environmental damage, making his investment in the eco-touristic site worthless, in breach of BIT provisions on fair and equitable treatment (FET), full protection and security (FPS) and expropriation.
According to Allard, the Sanctuary suffered severe environmental degradation that gradually transformed it into “little more than a mosquito-infested swamp” (para. 56) by the time of its closure in 2009. Barbados rejected this allegation, asserting that the ecology of the site was not promising when Allard decided to start his business.
In a 2014 award, the tribunal dismissed Barbados’s jurisdictional objections ratione materiae and ratione personae. It found that Allard owns and controls assets pursuant to Barbadian law, and that these assets constitute an investment under the BIT. However, it postponed to the merits phase its examination of one issue of Barbados’s objection to the tribunal’s ratione temporis jurisdiction.
Allard’s decision to invest predates Barbados’s representations; no breach of FET
Allard alleged that Barbados failed to meet his legitimate expectations as an investor and thus breached its FET obligation under the BIT. According to Allard, he relied on representations made by some Barbadian officials that reflected Barbados commitment to maintain the eco-environment in the area surrounding the Sanctuary.
Barbados contended that the FET standard corresponds to the minimum standard of treatment of aliens under customary international law. Further, it added that the representations and circumstances Allard relied on happened after his decision to invest.
The tribunal found that none of the statements relied on by Allard qualified as specific representations that could generate legitimate expectations: they were either plans or reports prepared by experts hired privately by Allard himself. In addition, the tribunal concluded that, except for one document dated 1986, all representations were made after his decision to invest, in 1994. Therefore, the tribunal concluded that Barbados did not breach its FET obligation.
Barbados fulfilled its FPS commitment
Allard alleged that the FPS commitment meant more than securing against physical interference with the investment. He asserted that Barbados failed to adequately manage the sluice gate, which he considered as the main reason for environmental degradation at the Sanctuary, in addition to its failure to enforce its environmental laws. In response, Barbados contended that the FPS standard is limited to protection against direct physical harm to the investor or its property.
The tribunal found that Barbados took all necessary steps to protect the investment: Barbadian officials implemented procedures to prevent environmental damages to the Sanctuary. Further, the tribunal concluded that Barbados’s purported failure to apply the pertinent environmental law is irrelevant to the alleged breach of the FPS standard. Moreover, it pointed out that Allard never alerted Barbados of the problems associated with not applying those laws. As a result, the tribunal held that Barbados complied with its FPS obligation.
Indirect expropriation claim is not substantiated
Allard alleged that Barbados’s measures were tantamount to expropriation. In particular, he indicated that, in 2003, Barbados implemented a reclassification plan of lands adjacent to the Sanctuary, allegedly resulting in a substantial increase of impurities into the Sanctuary and turning it into a conservation project rather than a touristic one. He added that Barbados’s failure to apply the relevant environmental laws and to operate the sluice gate properly allowed the environmental degradation of the Sanctuary. In turn, Barbados contended that Allard was never deprived of the Sanctuary or of its economic worth. On the opposite, it claimed that the site attracted visitors until its closure in 2009.
The tribunal was persuaded that Allard remained the sole operator of the site either as an eco-touristic attraction or later as a café: he had not been deprived of the physical possession of the real estate. It also pointed out that Allard gained economic benefit of running his business until he decided to close it. The tribunal also found that Allard failed to establish a cause-and-effect bond between the alleged degradation of the surrounding environment and his decision to cease his business. According to the tribunal, he also failed to substantiate the existence of exceptional damage to the marine environment before he made his decision to opt out of the Sanctuary. For the tribunal, Barbados’s purported failure to enforce the relevant environmental laws did not reflect a breach of its obligations under the BIT. Accordingly, the tribunal dismissed the expropriation claim.
Dismissal of remaining jurisdictional objections
BIT Article XIII(3) establishes a three-year time bar for submitting a claim to cover a damage in a breach of the BIT. As Allard filed the dispute on May 21, 2010, Barbados maintained that the tribunal would not have jurisdiction over facts before May 21, 2007. In its 2014 Award on Jurisdiction, the tribunal had postponed to the merits phase the decision on its ratione temporis jurisdiction concerning the alleged mismanagement of the sluice gate before May 21, 2007. In the 2016 award, having found that Barbados fulfilled its commitments under the BIT, the tribunal considered it futile to examine the remaining jurisdiction objection.
In its closing statement at the hearing, Barbados claimed that Allard’s answers under cross-examination gave rise to two new jurisdictional issues. However, the tribunal affirmed that the new jurisdictional objections were not based on any new facts or circumstances, and concluded that they should have been raised before the Award on Jurisdiction.
Notes: The PCA tribunal was composed of Gavan Griffith (President appointed by the co-arbitrators, Australian national), Andrew Newcombe (claimant’s appointee, Canadian national) and W. Michael Reisman (respondent’s appointee, U.S. national). The June 26, 2016 award, including the Decision on Jurisdiction of June 13, 2014 as an annex, is available at http://www.italaw.com/sites/default/files/case-documents/italaw7593.pdf.
Inaê Siqueira de Oliveira is a Law student at the Federal University of Rio Grande do Sul, Brazil.
Maria Florencia Sarmiento is a teaching and research assistant at the Catholic University of Argentina.
Martin Dietrich Brauch is an International Law Advisor and Associate of IISD’s Investment for Sustainable Development Program, based in Latin America.
Matthew Levine is a Canadian lawyer and a contributor to IISD’s Investment for Sustainable Development Program.
Amr Arafa Hasaan is an Alumnus of the Graduate Institute of Geneva and the University of Geneva, and Counsellor at the Egyptian State Lawsuits Authority.