{"id":3428,"date":"2015-08-04T16:49:14","date_gmt":"2015-08-04T21:49:14","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=3428"},"modified":"2024-08-09T18:26:17","modified_gmt":"2024-08-09T16:26:17","slug":"mamidoil-jetoil-greek-petroleum-products-societe-s-a-v-the-republic-of-albania-icsid-case-no-arb-11-24","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2015\/08\/04\/mamidoil-jetoil-greek-petroleum-products-societe-s-a-v-the-republic-of-albania-icsid-case-no-arb-11-24\/","title":{"rendered":"Majority of ICSID tribunal finds no fair and equitable treatment violation by Albania in petroleum dispute"},"content":{"rendered":"

Mamidoil Jetoil Greek Petroleum Products Societe S.A. v. The Republic of Albania, ICSID<\/span> Case No.\u00a0ARB\/11\/24<\/em><\/h2>\n

An arbitration between a Greek petroleum products firm and the Republic of Albania has reached the award stage at the International Centre for Settlement of Investment Disputes (ICSID). The ICSID tribunal found jurisdiction under the 1991 Greece\u2013Albania bilateral investment treaty (BIT<\/span>).<\/p>\n

The tribunal unanimously dismissed the investor\u2019s claim in relation to a purported indirect expropriation. A majority of the tribunal dismissed the investor\u2019s claim that Albania had failed to provide fair and equitable treatment (FET<\/span>); however, the claimant\u2019s nominated arbitrator found Albania\u2019s conduct to breach the FET standard.<\/p>\n

Background<\/h3>\n

Mamidoil Jetoil Greek Petroleum Products Societe S.A. (Mamidoil) is a corporation organized and existing under the laws of Greece. From 1991 onwards, Mamidoil explored various commercial opportunities in Albania related to its major business activities, namely, the transport, storage and sale of petroleum products.<\/p>\n

Mamidoil eventually settled on the construction and operation of an oil tank farm in the Durr\u00ebs port area (Durr\u00ebs Tank Farm), which led to a series of increasingly substantial investments in 1999 and 2000. During this period, local government officials sent a series of letters related to Mamidoil\u2019s failure to obtain permits. The Durr\u00ebs Tank Farm is situated close to a residential area.<\/p>\n

The claimant substantially finished the construction of the Durr\u00ebs Tank Farm by 2000. Subsequently concerns arose regarding the social impact of the tank farm, and the Albanian government embraced, in tandem with the World Bank and the European Union, re-zoning proposals that would relocate Durr\u00ebs. Albania contended that an eventual ban on fuel vessels at Durr\u00ebs was part of its long-term transport sector strategy as part of the necessary modernization of its port system.<\/p>\n

Mamidoil contended that Albania encouraged it to invest in the country. Albania did not contest that it provided some support to Mamidoil, but contended that this was purely provisional and high level.<\/p>\n

Business activities considered as unitary investment for purposes of jurisdiction<\/h3>\n

Albania had argued that \u201cthe composite parts of the investment form a whole and must be considered together\u201d (para. 364). The tribunal agreed that construction of the Durr\u00ebs Tank Farm, establishment of an Albanian subsidiary that was first controlled and later wholly owned by the claimant, conclusion of a Durr\u00ebs-related lease by the subsidiary, and operation of Durr\u00ebs by the subsidiary must be considered as constituting a single investment.<\/p>\n

As the tribunal agreed with Albania that the investment be considered as a unity, it was not persuaded by Albania’s\u00a0argument that certain elements of the investment failed to fulfill the ICSID Convention<\/span>\u2019s criterion for a covered investment. Rather, it found that the investor\u2019s business activities clearly constituted an investment under the ICSID Convention.<\/p>\n

Albania also objected on the basis of illegality, arguing that the investor had failed to obtain required permits. The tribunal found this more relevant to the merits stage: as Albania had informed the investor that it was ready to consider curing the illegalities, it could be expected to accept jurisdiction. (However, the majority subsequently found that without such permits the investor could have no legitimate expectation of proceeding with the investment and that the claim for breach of FET, among other claims, must be rejected.)<\/p>\n

Energy Charter Treaty invoked at pleadings stage<\/h3>\n

In its Request for Arbitration, the claimant based its claim exclusively on the BIT and the ICSID Convention. The claimant\u2019s memorial, however, subsequently asserted that the respondent\u2019s consent to ICSID arbitration of the dispute was also found in the Energy Charter Treaty (ECT<\/span>).<\/p>\n

The tribunal rejected the ECT as applicable law, but took into account the legitimate disagreement between the parties as to whether the investment had been made illegally and therefore could not benefit from the protection of the ECT. In concluding its discussion of this complication, the tribunal noted that, \u201cto the extent the Parties both took positions as to the propriety of the Respondent\u2019s conduct under the ECT, for this reason alone the Tribunal will consider the ECT when addressing the existence and legality of an investment under each of the BIT and the ECT and Respondent\u2019s compliance with both the BIT and the ECT.\u201d (para. 278).<\/p>\n

Indirect expropriation claim is unanimously dismissed<\/h3>\n

The claimant submitted that Albania had indirectly expropriated its investment under both under the BIT and the ECT. It relied on the following key facts: in June 2000, Durr\u00ebs was re-zoned to exclude the investment; in July 2000, the investor was ordered to suspend construction of the tank farm, which was subsequently re-authorized; and, as of July 2009, Durr\u00ebs was closed to petroleum vessels.<\/p>\n

The tribunal disagreed, finding that re-zoning was transportation policy and that in any case the claimant had been allowed to operate profitably until the port was closed in 2009. It pointed out that \u201c[r]egulations that reduce the profitability of an investment but do not shut it down completely and leave the investor in control will generally not qualify as indirect expropriations\u201d (para. 572), referencing\u00a0El Paso v. Argentina<\/em>.<\/p>\n

Majority dismisses FET- and discrimination-based claims<\/h3>\n

The majority (Rolf Knieper and Yas Banifatemi) noted that Albania\u2019s recent history\u2014\u201ca highly repressive and isolationist communist regime\u201d followed by \u201ca severe economic financial crisis\u201d (para. 625)\u2014was relevant to the FET obligation under the BIT, especially the obligation to provide a stable and transparent legal framework. For the majority, Mamidoil knew that Albania was a country with run down infrastructure and a problematic legal and regulatory framework, and could not therefore legitimately expect the same stability as in other jurisdictions.<\/p>\n

In terms of unreasonable and discriminatory measures, for the majority \u201cthe State\u2019s conduct bore a reasonable relationship to some rational policy. [\u2026] Finally, the closure did not favour a local competitor because it concerned all importers of petroleum products\u201d (para. 791).<\/p>\n

Dissenting arbitrator finds violation of FET standard<\/h3>\n

The dissenting arbitrator (Stephen Hammond) disagreed with the majority\u2019s conclusion that Albania provided fair and equitable treatment. The dissent disagreed with several important factual findings in the award, for example, that the claimant was aware that transformation of the port was imminent when it began construction of the tank farm.<\/p>\n

The dissent also disagreed with the legal implications of continued construction after notification of imminent re-zoning. Citing the award in\u00a0MTD v. Chile<\/em>, it suggested that this was a mere failure to mitigate and could not result in a forfeiture of treaty rights. In terms of legitimate expectations specifically, the dissent found that the relevant time for determination of whether legitimate expectations had been created was the moment when the decision to invest was made.<\/p>\n

Dissent finds violation of Energy Charter\u2019s prohibition on unreasonable and discriminatory measures<\/h3>\n

The dissent found that Albania\u2019s ban of fuel vessels at Durr\u00ebs resulted in a failure to accord fair and equitable treatment and also constituted a breach of the ECT\u2019s prohibition on unreasonable and discriminatory measures. While Albania maintained that its decision to ban fuel tankers at Durr\u00ebs was based on public policy considerations, Mamidoil contended that it was instead driven by the need to settle another arbitration, this time under contract at the International Chamber of Commerce in Paris. Mr. Hammond agreed that the available documents showed the ban to have been triggered by Albania\u2019s settlement agreement. (The majority had found in the award that the settlement agreement reiterated the government\u2019s policy objectives.)<\/p>\n

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Notes<\/h3>\n

The tribunal was composed of Rolf Knieper (President appointed by the Chairman of the ICSID Administrative Counsel, German national), Stephen A. Hammond (claimant\u2019s appointee, U.S. national), and Yas Banifatemi (respondent\u2019s appointee, French national). The final award of March 30, 2015 is available at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw4228.pdf<\/a>. The dissenting opinion of March 20, 2015 is available at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw4235.pdf<\/a>.<\/p>\n

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Author<\/h3>\n

Matthew Levine<\/strong> is a Canadian lawyer and a contributor to IISD<\/span>\u2019s Investment for Sustainable Development Program.<\/p>\n