Société Générale passes jurisdictional hurdle in dispute with Dominican Republic; controversy erupts over press release

By Fernando Diaz Cabrera
28 October 2008

Lawyers for the Dominican Republic have accused a subsidiary of the French financial services company Société Générale of breaking confidentiality rules in an ad-hoc arbitration when it issued a press release announcing that the tribunal had ruled in its favour by rejecting the Dominican Republic’s objections to jurisdiction.

A 3 October 2008 press release by TCW Group, a subsidiary of Société Générale, states that the Tribunal had “rejected the objections raised by the Dominican Government and allowed US$ 680 million in claims against the Republic to proceed to a final hearing and an award on the merits of the dispute.”

Counsel for the Dominican Republic, Peter Thomas, partner at Simpson Thacher & Bartlett LLP, says the press release, at a minimum, violated the spirit of Article 32(5) of UNCITRAL Rules by providing details of the confidential award.

Article 32(5) states that an “award may be made public only with the consent of both parties.”

Mr. Thomas told ITN that the press release was an incomplete and misleading summary of the award, given that the company failed to mention two important objections by the Dominican Republic that were upheld by the tribunal. As a result, the Dominican Republic wanted to publish the award in order to make the full facts known. Lawyers for the Dominican Republic have voiced their displeasure to the tribunal.

For their part, counsel for Société Générale, Christopher Dugan and Joseph Profaizer of Paul, Hastings, Janofsky & Walker LLP, said that Article 32(5) prohibits only the publication of the award itself, rather than references of the sort provided in the press release.

Moreover, Mr. Dugan argues that even if the Dominican Republic’s interpretation of Article 32(5) is valid, it was in fact the Dominican Republic that first went public with details of the award. He alleges that government officials told people outside of government that they had won the decision, and that it was in response to this that TCW issued its press release.

In an interview with ITN, David Caron, co-author of “the UNCITRAL Arbitration Rules, A Commentary” and C. William Maxeiner, Distinguished Professor of Law at Berkeley, said they do not view Article 32(5) by itself as prohibiting a press release reporting the basic decision of a tribunal. However, if an UNCITRAL tribunal did find a violation of the rule, it could order the offending party to refrain from repeating their actions, explained Mr. Caron.

Société Générale v. Dominican Republic arbitration proceeds to merits stage following decision on jurisdiction

As reported previously in ITN*, TCW and its affiliates launched two arbitration claims against the Dominican Republic in 2007, seeking US$ 680 million as compensation in each case.

One claim was brought under the 2003 Dominican Republic-France bilateral investment treaty by TCW’s parent company, Société Générale. The other claim was launched by TCW and one of its subsidiaries under the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR).

Among TCW’s claims were that the Dominican Republic had expropriated its investments in the electricity distributer EDE Este, as a result of the country’s alleged failure to allow for electricity rate increases and to control rampant electricity theft.
In November of 2007 the Dominican Republic objected to the tribunal’s jurisdiction in respect of the BIT claim, which is governed by the UNCITRAL rules of arbitration.

The Dominican Republic raised four objections: (i) that Société Générale had not made an investment that could be protected by the BIT because there was no contribution to the Republic’s development as the preamble to the BIT envisages; (ii) that the facts alleged by the claimant, even if true, did not amount to an expropriation; (iii) that the events that gave rise to the claim occurred before the BIT came into effect in January of 2003; (iv) and that the dispute occurred before the French company Société Générale acquired the investment November of 2004, and therefore the claims are not protected by the Dominican Republic-France BIT.

In a decision on jurisdiction handed down in late September,  the tribunal rejected the first objection and held that despite the indirect and complicated structure of Société Générale’s investment, which involves several subsidiaries and joint ventures, and which was acquired for a nominal fee of $2 dollars, it did fall under the BIT’s broad definition of investment.

In rejecting the second objection, the tribunal held that if proven at the merits phase, the facts alleged by Société Générale were capable of resulting in a breach of the BIT, and should therefore be adjudicated at that phase.

The tribunal’s decision on the third objection was mixed. It accepted the Dominican Republic’s view that events occurring before the BIT’s entry into force could not be considered as violations due to the principle of non-retroactivity. But the tribunal held that these events could be considered as continuous acts that may have resulted in violations after the BIT’s entry into force.

Finally, the tribunal again accepted the Dominican Republic’s argument that Société Générale could not make claims for acts and events occurring before it became involved in the investment in November of 2004. It also limited the claim to the portion of the investment that belonged to Société Générale, thereby excluding from its jurisdiction over 50% of the investment which it determined was owned by American investors.

The case will now move on to the merits phase with the temporal and nationality limitations imposed by the tribunal.

The TCW press release is available from Market Watch at:{93B0BED5-E791-4A9C-8788-D0587DF3551E}&dist=hppr

The decision on jurisdiction in Société Générale v. Dominican Republic is available on the Investment Treaty Arbitration website at: