{"id":3495,"date":"2015-11-26T15:18:41","date_gmt":"2015-11-26T21:18:41","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=3495"},"modified":"2024-08-09T18:26:30","modified_gmt":"2024-08-09T16:26:30","slug":"awards-and-decisions-21","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2015\/11\/26\/awards-and-decisions-21\/","title":{"rendered":"Awards and Decisions"},"content":{"rendered":"

ICSID<\/span> tribunal renders interim decision on Ecuador\u2019s environmental counterclaim in long-running dispute
\n<\/strong>Perenco<\/em>\u00a0Ecuador Limited v. Republic of Ecuador<\/em>, ICSID<\/em>\u00a0Case No. ARB\/08\/6<\/em><\/p>\n

Matthew Levine\u00a0<\/strong>[*]<\/a><\/p>\n

Perenco\u00a0Ecuador\u00a0Limited\u00a0(Perenco)\u2014a French-owned oil and gas company\u2014and the Republic of Ecuador\u00a0have been involved in arbitration since\u00a02008 under the\u00a0France\u2013Ecuador bilateral investment treaty (BIT<\/span>) and certain concession contracts. An\u00a0International Centre for Settlement of Investment Disputes (ICSID)\u00a0arbitration tribunal\u00a0has issued an Interim Decision on the Environmental Counterclaim<\/em> (Interim Decision).<\/p>\n

The Interim Decision includes an invitation for the parties to settle the issues in dispute. The ICSID tribunal criticized the testimony of both sides\u2019 experts and suggested that the parties use a tribunal-appointed expert. The tribunal\u00a0declined to immediately decide the issues\u00a0raised\u00a0by the counterclaim, indicating instead a willingness to do so in a future, final decision.<\/p>\n

Background<\/em>\u00a0<\/em><\/p>\n

Perenco\u00a0was constituted under the laws of the\u00a0Bahamas. A controlling interest in Perenco is indirectly held by the estate of the late Hubert Perrodo, a French national. Perenco, along with a Texas-headquartered oil and gas company (Burlington Resources), which has subsequently been acquired by the international major ConocoPhillips, invested in the operation of two hydrocarbon blocks through Ecuadorian participation contracts.<\/p>\n

Following a political transition in Ecuador,\u00a0Perenco\u00a0was subjected to progressive windfall taxes of 50 and 99 per cent. Following imposition of the second levy,\u00a0Ecuador\u2019s national oil company Petroecuador took over operation of the blocks. In April 2008, Perenco filed with ICSID a request for arbitration against Ecuador and Petroecuador. Ecuador\u2019s December 2011 counter-memorial alleged that Perenco\u2019s activities had resulted in significant environmental damage (environmental counterclaim) and amounted to a failure to properly maintain the blocks\u2019 infrastructure in good working condition (infrastructure counterclaim).<\/p>\n

In a September 2014 Decision on Remaining Issues of Jurisdiction and on Liability<\/em>, the tribunal confirmed an earlier finding of jurisdiction under both the BIT and the\u00a0participation contracts. It\u00a0also found Ecuador liable to pay compensation to\u00a0Perenco\u00a0under these same instruments.<\/p>\n

The 2014 decision noted that the parties had agreed to a separate briefing schedule and hearing on Ecuador\u2019s counterclaims. Ecuador alleged that Perenco had left behind an environmental catastrophe and sought approximately 2.5 billion USD in compensation for necessary remediation. Perenco argued that that its liability did not exceed 10 million USD. The tribunal has now issued the Interim Decision.<\/p>\n

Parties\u2019 experts \u201ceffectively shooting at different targets\u201d<\/em><\/p>\n

After reviewing the evidence, the tribunal was satisfied that there was at least some contamination for which Perenco would likely be held liable. However, it also noted that each of the parties\u2019 expert witnesses was \u201cattempting to achieve the best result for the party by whom they were instructed, and that they crossed the boundary between professional objective analysis and party representation.\u201d They were \u201ceffectively shooting at different targets and this has made the work of this Tribunal most difficult\u201d (para. 581).<\/p>\n

In this context, the tribunal found that the only equitable solution in relation to the contamination problems would be to have a new expert examine the existing samples; if the problems were deemed to warrant remediation in light of all relevant circumstances, Perenco, its predecessor Petroamazonas, or both could be found prima facie<\/em> liable for remediation costs. Only once this and certain other procedures have been completed would the parties be in a position to reach a negotiated settlement or the tribunal in a position to make a final determination of any damages owed by Perenco to Ecuador.<\/p>\n

Fault-based liability applies during initial investment period<\/em><\/p>\n

Having reviewed the parties\u2019 written and oral submissions, as well as expert evidence, the tribunal arrived at a series of conclusions as to the manner in which the counterclaim was put and the state of the dispute.<\/p>\n

With regards to any contamination in excess of regulatory standards shown to have occurred between September 4, 2002 (when\u00a0Perenco acquired its interests in the blocks) and October 19, 2008 (when Ecuador\u2019s current Constitution was promulgated), the tribunal found that a fault-based regime must apply. However, liability for any excess contamination shown to have occurred after October 20, 2008 should be assessed on the basis of strict liability, in accordance with the 2008 Constitution\u2019s regime for environmental damage.<\/p>\n

Tribunal\u00a0resolves relationship between environmental regulations and \u201cbackground values\u201d <\/em><\/p>\n

The tribunal considered the relationship between the 2008 Constitution and domestic environmental regulations as the first of two major questions, the resolution of which narrowed the need for any further analysis.\u00a0It found that the 2008 Constitution was the state\u2019s supreme\u00a0legal framework within which other regulations specific to hydrocarbon activities must operate.<\/p>\n

Ecuador had argued that its hydrocarbons regulatory regime should give way to\u00a0\u201cbackground values\u201d found in the Constitution, such as full remediation of contamination. After carefully considering the arguments and the evidence, the tribunal found that it could not accept this argument. While nothing precluded Ecuador from promulgating regulations that would hold oilfield operators to more stringent environmental standards, the 2008 Constitution alone was not a\u00a0substitute for such regulations.<\/p>\n

In principle, the tribunal also noted the issue of whether the 2008 Constitution\u2019s strict liability regime could be applied to\u00a0Perenco\u2019s\u00a0pre-2008 activities. Having found that the 2008 Constitution could not\u00a0in and of itself establish\u00a0technical standards, the tribunal found that\u00a0it must look to the specific regulations enacted \u201con the ground\u201d by the Ecuadorian state both before and after 2008.<\/p>\n

Decision on infrastructure counterclaim<\/em>\u00a0reserved <\/em><\/p>\n

Finally, the tribunal noted that it was most expedient and constructive to issue its decision on the environmental counterclaim first so as to permit the new expert to be selected, appointed, and\u00a0instructed\u00a0on his or her mandate, and only to then engage in the work that needs to be done. The tribunal further noted that it was likely to benefit from the evidence regarding Perenco\u2019s\u00a0operation to be presented in a future hearing. It therefore reserved the infrastructure counterclaim to be addressed along with the overall quantum of damages.<\/p>\n

Notes<\/em>: The tribunal is composed of Judge Peter Tomka (President appointed by the Chairman of the ICSID Administrative Council, Slovak national), Neil Kaplan (claimant\u2019s appointee, British national), and Christopher Thomas (respondent\u2019s appointee, Canadian national). The Interim Decision on the Environmental Counterclaim<\/em> of August 11, 2015 is available at http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw6315.pdf<\/a><\/p>\n

\n

First ICSID case brought by Chinese mainland investors dismissed on jurisdictional grounds
\n<\/strong>Ping An Life Insurance Company of China, Limited and Ping An Insurance (Group) Company of China, Limited v. Kingdom of Belgium, ICSID Case No. ARB\/12\/29<\/em><\/p>\n

Joe Zhang\u00a0<\/strong>[*]<\/a><\/p>\n

In an award dated April 30, 2015, a tribunal at the International Centre for Settlement of Investment Disputes (ICSID) dismissed what is believed to be the first claim at ICSID initiated by investors from mainland China.<\/p>\n

Background<\/em><\/p>\n

In 2007, the claimants\u2014two insurance giants from mainland China\u2014jointly became the largest shareholder of the Fortis group, a global banking and insurance group, regulated by Belgian, Dutch and Luxembourg authorities. In the aftermath of the 2008 financial crisis, Fortis was faced with a critical liquidity challenge. In order to rescue Fortis, the Belgian government implemented a series of measures that in effect nationalized the Belgian subsidiary of the group. Such restructuring resulted in a dilution of then-existing shareholders\u2019 (including the claimants\u2019) interest in Fortis. As the measures did not bring Fortis out of trouble, in early 2009 Belgium sold the Belgian subsidiary to BNP Paribas, which allegedly resulted in a significant loss to claimants of most of their investment in the Fortis group.<\/p>\n

Two BITs<\/em><\/p>\n

The claim relied on two bilateral investment treaties (BITs): the 1986 BIT between the Belgium\u2013Luxembourg Economic Union (BLEU) and China, and the 2009 BLEU\u00ad\u2013China BIT that replaced the earlier one. Both BITs contain substantive obligations of protection and equitable treatment, and conditions for expropriation and nationalization. However, the dispute settlement provision of the 1986 BIT was much more restrictive than that of the 2009 BIT. In particular, the 1986 BIT granted exclusive domestic jurisdiction to \u201call disputes\u201d; international arbitration could only be invoked to determine the amount of compensation for expropriation. By comparison, the 2009 BIT has a much broader dispute settlement clause, which provides that the investor may choose to submit any legal dispute between and investor of one state and the other state to ICSID for international arbitration.<\/p>\n

In October 2009, two months before the entry into force of the 2009 BIT, the claimants sent a notice of dispute to the Belgian government citing the 1986 BIT. In 2012, the claimants communicated with the Belgian government to confirm that the October 2009 letter constituted a notice of dispute under the 2009 BIT and subsequently filed a formal request for arbitration with ICSID relying on the 2009 BIT\u2019s arbitration clause. The merits of the claim, however, were entirely based on the substantive obligations under the 1986 BIT and general principles of international law.<\/p>\n

Discussions<\/em><\/p>\n

Belgium raised a total of five jurisdictional objections. The tribunal did not address the remaining four objections once it decided the case in favour of Belgium on its first objection\u2014ratione temporis<\/em>.<\/p>\n

Belgium argued that the dispute arose before the entry into force of the 2009 BIT, which only covered breaches of that treaty or other existing treaties, and did not include the obligations under the 1986 BIT and general principles of international law on which claimants relied in formulating their claims.<\/p>\n

After canvassing the previous ruling and awards rendered by international tribunals on the principle of non-retroactivity in international law, the tribunal noted that the issue of non-retroactivity is not relevant in this case as \u201cthe temporal application of jurisdictional provisions is a question separate from the retroactivity of substantive provisions\u201d (para. 186); and \u201cthe application of a new dispute settlement mechanism to acts which may have been unlawful when they were committed is not in itself the retroactive application of law\u201d (para. 218).<\/p>\n

The tribunal then focused on the interpretation of the arbitration clause of the 2009 BIT, in particular, whether it covers disputes previously notified but not submitted to a formal judicial or arbitral process before it came into force. Relying on the following six indicators, the tribunal ultimately found the parties to the treaty did not intend for the 2009 BIT to cover these disputes.<\/p>\n

First, the tribunal looked at the \u201cplain meaning\u201d of the arbitration provisions of the 2009 BIT and found it referred to future disputes rather than disputes that had already arisen, as the 2009 BIT used the language of \u201c[w]hen a legal dispute arises<\/em> [\u2026] either party to the disputes shall notify<\/em> [\u2026]\u201d instead of \u201chas arisen<\/em>\u201d or \u201cshall have notified<\/em>\u201d (para. 224).<\/p>\n

Second, the tribunal found that nothing in the preamble of the 2009 BIT that could assist the claimants\u2019 position, and refused to fill such gap by \u201ccreative interpretation.\u201d<\/p>\n

Third, the tribunal noted that the 2009 BIT expressly covered prior investments but not disputes arising before its entry into force.<\/p>\n

Fourth, although the 2009 BIT made it clear that it does not apply to disputes already under judicial or arbitral process before its entry into force, the tribunal rejected the claimants\u2019 argument that this supports the inference that those prior disputes already notified but not yet under judicial or arbitral process would be covered.<\/p>\n

Fifth, the fact that the 2009 BIT substituted and replaced the 1986 BIT does not justify the inference that these \u201cnotified but not matured\u201d disputes would survive under the 2009 BIT.<\/p>\n

Finally, the tribunal looked at the potential impact if the claim were allowed to proceed, and expressed its concern that claimants would be awarded access to a significantly broader dispute settlement mechanism simply by the coming into force of the 2009 BIT without any express consent by the contracting parties.<\/p>\n

Final decisions<\/em><\/p>\n

Regrettably acknowledging the risk that certain disputes, including the one at question, \u201cmight fall into some \u2018black hole\u2019 or \u2018arbitration gap\u2019 between the two BITs\u201d (para. 207), the tribunal nevertheless found there was nothing in the 2009 BIT that could justify the extension of its coverage to settle these disputes. However, the tribunal did not rule out the possibility that the claimant could still seek other remedies, including initiating a new claim (either investor\u2013state or state\u2013state) under the 1986 BIT by the operation of its survival clause, or initiating a proceeding in Belgium\u2019s domestic courts.<\/p>\n

The tribunal ordered the parties to share the expenses of the tribunal and ICSID, and each of the parties to bear its own legal fees and expenses.<\/p>\n

Notes: <\/em>The tribunal was composed of Lord (Lawrence) Collins of Mapesburty (President appointed by agreement of the co-arbitrators, British national), David A.R. Williams (claimants\u2019 appointee, New Zealand national), and Philippe Sands (respondent\u2019s appointee, British and French national). The award is available at http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw4285.pdf<\/a><\/p>\n

\n

Tribunal largely adopts independent expert\u2019s damages findings in USD 405 million award to previous owners of an Argentine public utility company
\n<\/strong>Suez, Sociedad General de Aguas de Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A. v. The Argentine Republic<\/em>, ICSID Case No. <\/em>ARB\/03\/17; and AWG Group Ltd. v. The Argentine Republic, UNCITRAL<\/span><\/em><\/p>\n

Marquita Davis\u00a0<\/strong>[*]<\/a><\/p>\n

In a combined ICSID and UNCITRAL decision dated April 9, 2015, a unanimous tribunal awarded claimants Suez, Sociedad General de Aguas de Barcelona S.A. (AGBAR), Vivendi Universal S.A. (Vivendi), and AWG Group Ltd (AWG) a total of USD 405 million for Argentina\u2019s breach of its fair and equitable treatment (FET<\/span>) obligation during the 2001 financial crisis.<\/p>\n

Background and claims<\/em><\/p>\n

The claimants owned and managed the Argentine company Aguas Argentinas S.A. (AASA), which had a 30-year concession contract with the Argentine government to provide public water and sewage services. In its 2010 Decision on Liability, the tribunal found that Argentina\u2019s emergency measures during its 2001 financial crisis led to the failure of AASA, but postponed the complex valuation of the losses sustained by the claimants.<\/p>\n

The claimants initially alleged losses exceeding USD 1 billion, seeking damages relating to debt payments they made to multilateral lenders, loss of equity interests in AASA, unpaid management fees, and unpaid dividend interests. In turn, Argentina argued the claimants sustained zero losses because AASA was going to fail for other reasons unconnected to Argentina\u2019s actions.<\/p>\n

Double recovery dismissed by tribunal<\/em><\/p>\n

Argentina also argued that there was a risk of double recovery, because AASA had a claim of ARS 2,487,600,000 (roughly USD 260 million) before Argentine courts. The tribunal determined that no actual double recovery had been established given that the Argentine court had not granted any recovery to AASA as of the date of the award.<\/p>\n

International law standard of compensation: full compensation<\/em><\/p>\n

Based on the three bilateral investment treaties (BITs) applicable in this case (the France\u2013Argentina BIT, the Argentina\u2013Spain BIT, and the Argentina\u2013United Kingdom BIT), the tribunal determined that the legal standard of awarding compensation for Argentina\u2019s treaty violation was to be found in international law principles. Because the parties disagreed on what international law principles should be applied, the tribunal determined that it must look to customary international law.<\/p>\n

The tribunal reasoned that Argentina\u2019s failure to accord claimants FET under the relevant treaties constituted international wrongful acts. As a result, Argentina was obligated to compensate the claimants for any injuries sustained from its failure to meet its international obligations and \u201cplace the Claimants \u2018in the situation which would, in all probability, have existed\u2019 if Argentina had not committed its illegal acts\u201d (para. 27). The tribunal looked to the Chorz\u00f3w Factory Case<\/em> to determine that full compensation (restitution in integrum<\/em>) was the appropriate customary international law standard.<\/p>\n

Damages valuated by independent financial expert<\/em><\/p>\n

After having received input from both parties, the tribunal appointed independent financial expert Akash Deep to valuate the damages. Each party was allowed to submit comments on Deep\u2019s preliminary report to the tribunal. During a later hearing, parties were allowed to examine Deep and have financial experts testify on their behalf.<\/p>\n

To determine the value of the investment, the tribunal asked Dr. Deep to first determine its value without<\/em> the measures taken by Argentina, and then calculate its value with<\/em> the measures taken by Argentina, and finally subtract the second value from the first and actualize that amount with an appropriate interest rate to put the claimants in the position they would have been had Argentina not breached its FET obligation. Dr. Deep created an economic model of AASA\u2019s operation that took into consideration various factors, including general economic conditions, labour conditions, operating costs, and changes in technology that would have impacted the profitability of AASA\u2019s concession.<\/p>\n

The tribunal acknowledged that the valuation of claimants\u2019 losses would be imprecise, but stated that international law does not require that damages be calculated with absolute certainty. The damages calculation need only put the claimant in the position they \u201cin all probability<\/em>\u201d (para. 30) would have been in had Argentina not breached its obligations.<\/p>\n

Valuation period: from date of breach until expiration date of the concession contract<\/em><\/p>\n

Argentina argued that the valuation period should only run from 2002 (when the violation occurred) until 2006 (when the concession was terminated). However, the tribunal agreed with the claimants and Dr. Deep that the valuation period should extend to 2023, the date of the concession\u2019s expiration according to the contract; otherwise, the shorter valuation period would \u201cseriously undervalue\u201d claimants\u2019 losses.<\/p>\n

Compensation for amounts paid to extinguish debt guarantees<\/em><\/p>\n

The four claimants were awarded compensation of USD\u00a0360,987,923 for the amounts they paid to multilateral lenders to extinguish the debt guarantees, including compound interest. The tribunal reasoned that compound interest was more effective than simple interest in putting claimants back in the position they \u201ccurrently <\/em>would have been had the injury not taken place\u201d (para. 65). It also cited to recent international tribunals who have applied compound interest for damage calculations and standard financial and business practices that apply compound interests when calculating losses.<\/p>\n

The tribunal also dismissed Argentina\u2019s argument that the claimants should have borne the risk of their choice to finance AASA with Dollar-denominated loans rather than Peso-denominated loans. Instead the tribunal reasoned that the fact that an investment presents a risk does not mean that it is not protected by a relevant treaty or applicable customary international law. The tribunal also awarded claimants USD 10.4 million for unpaid fines incurred by AASA.<\/p>\n

Compensation for management fees<\/em><\/p>\n

Claimant Suez was awarded USD 26,084,421 in unpaid management fees under its management contract with AASA for the years 2018 to 2023; Dr. Deep determined that in this period the claimant would have had sufficient cash flow to pay management fees if Argentina had afforded AASA fair and equitable treatment. Argentina opposed awarding management fees because it considered them to result from a commercial agreement, not consisting in an investment covered under the relevant BIT; thus, according to Argentina, claims arising under the contract were not within the jurisdiction of the tribunal. The tribunal determined that the management contract was not an ordinary commercial agreement given that the concession agreement required that \u201cat least one substantial investor serve as the Concession\u2019s operator\u201d (para. 75).<\/p>\n

However, the tribunal declined to award Suez earned but unpaid management fees for the years before 2001, when Argentina enacted its emergency measures. According to the tribunal, the Argentine government was not responsible for the non-payment of such management fees, and a reasonable regulator facing difficult circumstances during a financial crisis would not have provided for their payment.<\/p>\n

Compensation for loss on equity in AASA<\/em><\/p>\n

The claimants were awarded USD 17,466,706 for their loss on equity in AASA as determined by Dr. Deep, who averaged the results of two valuation methods: the Adjusted Present Value Method and the Flow to Equity Method. The tribunal did not award claimants the value of unpaid dividends because it considered them to be included in the value of the shareholders\u2019 equity in AASA.<\/p>\n

Costs<\/em><\/p>\n

Costs in the UNCITRAL and ICSID cases were decided separately.<\/p>\n

Under UNCITRAL Arbitration Rules, costs are normally borne by the unsuccessful party, but the tribunal has discretion to consider specific factors of the case when apportioning costs. As the present case involved \u201cmany novel and complex issues of fact and law\u201d (para. 113), the claimants only prevailed on one violation claimed (FET), and claimants recovered far less than they claimed, the tribunal decided that it was appropriate to depart from the general principle of the unsuccessful party paying costs. It ordered claimant AWG and Argentina to each bear their own costs and to split the costs of arbitration.<\/p>\n

Under the ICSID case, claimants Suez, Vivendi, and AGBAR as well as respondent Argentina were also directed to bear their own costs and split the costs of arbitration for the above reasons.<\/p>\n

The claimants committed not to seek double recovery for any loss awarded and paid in the present arbitration.<\/p>\n

Notes<\/em>: The tribunal was composed of Jeswald W. Salacuse (President appointed by ICSID, U.S. national), Gabrielle Kaufmann-Kohler (claimant\u2019s appointee, Swiss national), and Pedro Nikken (respondent\u2019s appointee, Venezuelan national). The award is available at http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw4365.pdf<\/a>. The 2010 Decision on Liability is available at http:\/\/www.italaw.com\/documents\/SuezVivendiAWGDecisiononLiability.pdf<\/a><\/p>\n

\n

Energorynok had no ownership or control over energy-related economic activity; ECT<\/span> case against Moldova dismissed
\n<\/strong>State Enterprise \u201cEnergorynok\u201d (Ukraine) v. The Republic of Moldova, SCC<\/span> Arbitration V (2012\/175)<\/em><\/p>\n

Martin Dietrich Brauch\u00a0<\/strong>[*]<\/a><\/p>\n

A January 29, 2015 award by a tribunal under the Arbitration Institute of the Stockholm Chamber of Commerce has recently become public. The tribunal dismissed the claims by Ukrainian state enterprise Energorynok against Moldova under the Energy Charter Treaty (ECT) for lack of jurisdiction.<\/p>\n

Background and claims<\/em><\/p>\n

In February 1995, the energy ministries of Ukraine and Moldova concluded an Agreement on the Parallel Operation of the Energy Systems of Ukraine and Moldova (the APO), vesting its performance in two state enterprises: Ukrenergo for Ukraine, Moldtranselectro for Moldova.<\/p>\n

An overflow of electricity of 50,000,000 kWh occurred from Ukraine to Moldova in October 1998; under the APO, this overflow trigged Moldova\u2019s obligation to compensate Ukraine in the amount of USD 1,662,297.81. Ukraine\u2019s credit for the overflow was transferred from Ukrenergo to the claimant, Ukrainian state enterprise Energorynok, established in May 2000.<\/p>\n

After trying unsuccessfully to obtain payment from Moldtranselectro for five years, Energorynok initiated a lawsuit in 2002 against Moldova\u2019s energy ministry. This lawsuit resulted in a December 25, 2002 decision of the Economic Court in Kiev that ordered Moldova\u2019s energy ministry to pay Energorynok USD 1,745,412.71 and litigation costs.<\/p>\n

As Energorynok\u2019s efforts to enforce the 2002 decision also failed, it initiated arbitration against Moldova under the ECT in December 2012. In particular, it argued that its claim to money under the 2002 decision was an investment under the ECT and that, by failing to enforce the decision, Moldova expropriated Energorynok\u2019s investment and breached the fair and equitable treatment standard under the ECT. It sought compensation in the amount determined in the 2002 decision, plus interest, and arbitration fees and legal costs.<\/p>\n

Moldova objects to jurisdiction; Energorynok insists it had \u201cinvestment\u201d under ECT<\/em><\/p>\n

According to the tribunal, Moldova objected to the tribunal\u2019s jurisdiction arguing that the 2002 Kiev court decision was \u201cillegally and fraudulently obtained\u201d and therefore did not deserve protection under the ECT, and that, even if this were not the case, Energorynok did not satisfy the criteria to bring an ECT claim (para. 77).<\/p>\n

The tribunal reasoned that whether Energorynok had obtained the 2002 decision illegally and fraudulently was a question for the merits. Leaving that question to the side, it set out to look instead at whether it had jurisdiction, analyzing whether Energorynok had an \u201cinvestment\u201d under the ECT.<\/p>\n

Relying on the definition of \u201cinvestment\u201d under ECT Article 1(6), Energorynok argued that its investment is a claim for money or the right to compensation for the overflow, and that this claim or right was an energy-related asset with an economic value. The claimant relied on Petrobart v. Kyrgyz Republic<\/em>, which concluded that a contract, a court decision, and a claim to money concerning the sale of a gas condensate were \u201cinvestments\u201d under the ECT.<\/p>\n

Tribunal looks at Petrobart and Electrabel to clarify circular definition of \u201cinvestment\u201d<\/em><\/p>\n

In interpreting whether Energorynok had an investment, the tribunal looked mostly to Petrobart <\/em>and to Electrabel v. Hungary<\/em>, another ECT case. Both tribunals noted the ambiguous and unclear language in ECT Article 1(6)(c). In referring to \u201cclaims to money and claims to performance pursuant to contract having an economic value and associated with an Investment<\/em>,\u201d the provision defines \u201cinvestment\u201d by resorting to a reference to \u201cinvestment\u201d\u2014a circular definition raising logical problems.<\/p>\n

The Petrobart<\/em> tribunal concluded that, since the gas condensate sold was an energy material qualified as an \u201cinvestment,\u201d the claimant\u2019s right to be paid for this gas condensate was also covered under \u201cinvestment.\u201d The Electrabel<\/em> tribunal indicated that interpreting ECT Article 1(6)(c) depended on an overall assessment of the investment.<\/p>\n

Energorynok failed to show ownership or control over energy-related economic activity <\/em><\/p>\n

Applying these interpretations to the present case, the tribunal pointed out that the claimant, unlike Electrabel<\/em>, was \u201cnot a shareholder in an entity directly or indirectly engaged in the underlying economic activities.\u201d Furthermore, it indicated that Energorynok, unlike Petrobart<\/em>, did not have \u201cfull control over its own sales and deliveries,\u201d and was not \u201ca full party to the sale and delivery contract\u201d (para. 86).<\/p>\n

The tribunal agreed with Energorynok that \u201cECT Article 1(6) requires the investor to own or control the asset\u201d (para. 89). Yet the tribunal interpreted that, for the claim to money to qualify as an \u201cinvestment\u201d under Article 1(6)(c), the investor must also have ownership, control or a financial interest in the \u201cinvestment\u201d to which the claim was associated, that is, the underlying energy-related economic activity out of which the claim ultimately arose.<\/p>\n

Indicating that Energorynok was not a party to the APO and, accordingly, had no right, obligation or role under the APO, the tribunal found that the claimant, even though owning or controlling a claim to money, did not have any ownership, control or interest in the \u201cinvestment\u201d to which the claim to money was associated\u2014the transmission of electricity in Moldova. Accordingly, the tribunal found that Energorynok\u2019s claim to money did not constitute an \u201cinvestment\u201d under the ECT, and dismissed the case for lack of jurisdiction.<\/p>\n

The parties were ordered to bear arbitration costs equally, and each of them was ordered to bear its own legal costs and other expenses.<\/p>\n

Notes<\/em>: The SCC tribunal was composed of Nancy B. Turck (Chairperson appointed by the Arbitration Institute of the SCC), Joseph Tirado (claimant\u2019s appointee), and Rolf Knieper (respondent\u2019s appointee). The award is available at http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw6299.pdf<\/a><\/p>\n

\n

<\/a>Authors:<\/em><\/p>\n

Martin Dietrich Brauch <\/strong>is an International Law Advisor and Associate of IISD<\/span>\u2019s Investment for Sustainable Development Program, based in Latin America.<\/p>\n

Marquita Davis <\/strong>is a Geneva International Fellow from University of Michigan Law and an extern with IISD\u2019s Investment for Sustainable Development Program.<\/p>\n

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

Joe Zhang <\/strong>is a Law Advisor to IISD\u2019s Investment for Sustainable Development Program.<\/p>\n