{"id":3685,"date":"2016-05-16T03:09:08","date_gmt":"2016-05-16T08:09:08","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=3685"},"modified":"2024-08-09T18:26:53","modified_gmt":"2024-08-09T16:26:53","slug":"the-only-known-investment-treaty-arbitration-against-equatorial-guinea-fails-on-jurisdictional-grounds-grupo-francisco-hernando-contreras-sl-v-republic-of-equatorial-guinea-icsid-case-no-arb-af-12-2","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2016\/05\/16\/the-only-known-investment-treaty-arbitration-against-equatorial-guinea-fails-on-jurisdictional-grounds-grupo-francisco-hernando-contreras-sl-v-republic-of-equatorial-guinea-icsid-case-no-arb-af-12-2\/","title":{"rendered":"The only known investment treaty arbitration against Equatorial Guinea fails on jurisdictional grounds"},"content":{"rendered":"

Grupo Francisco Hernando Contreras, S.L. v. Republic of Equatorial Guinea, ICSID<\/span> Case No. ARB(AF)\/12\/2<\/em><\/h2>\n

A majority tribunal at the Additional Facility (AF) of the International Centre for Settlement of Investment Disputes (ICSID) dismissed the case of Spanish construction company Grupo Francisco Hernando Contreras, S.L. (Contreras Group) against Equatorial Guinea, in an award dated December 4, 2015. According to the majority, the claimant was not a protected investor under the bilateral investment treaty (BIT<\/span>), as it did not make an investment in accordance with host state law.<\/p>\n

Factual background and claims<\/em><\/h3>\n

Throughout 2008, a Contreras Group company signed several documents with Equatorial Guinea. These included a letter of intentions formalizing a proposal to build an industrial district and a self-sufficient city of 15,000 residences in Equatorial Guinea, and an agreement on the constitution of a joint-stock company to build industries in the Malabo and Bata regions. The Contreras Group subsequently constituted two companies in Equatorial Guinea: Nueva Edificaci\u00f3n 2000, S.A. (Nueva Edificaci\u00f3n), wholly-owned by the Contreras Group, and Industrias y Construcciones Guinea Ecuatorial, S.A. (INCOGESA), owned by the Contreras Group and Equatorial Guinea in equal parts.<\/p>\n

Between 2008 and 2011, several steps were taken to advance the construction projects. In particular, the Contreras Group delivered projects, business plans and profitability studies for the government\u2019s review, and acquired machinery in Spain. The government, in turn, authorized by resolution the establishment of Nueva Edificaci\u00f3n, hired a company to evaluate the projects presented, and issued Nueva Edificaci\u00f3n a direct award (\u201cadjudicaci\u00f3n directa\u201d) to build the administrative city of Oyala.<\/p>\n

In early 2012, however, the Contreras Group complained that Equatorial Guinea had failed to make outstanding payments and was imposing unjustified obstacles to the project, in breach of the 2003 Spain\u2013Equatorial Guinea BIT. It initiated arbitration in March 2012 under the BIT and ICSID AF Arbitration Rules, as Equatorial Guinea is not a party to the ICSID Convention<\/span>. The respondent opposed a series of objections to jurisdiction.<\/p>\n

Law applicable to jurisdictional objections<\/em><\/h3>\n

Recalling that the ICSID AF Rules do not define the applicable law and that the ICSID Convention does not apply to cases under ICSID AF Rules, the tribunal looked to the BIT to determine the applicable law.<\/p>\n

BIT Article 11(3) provides that the arbitration shall be governed by the provisions of the BIT, the domestic law of the host state, and applicable rules and principles of international law. Accordingly, the tribunal set out to analyze each of jurisdictional objection based on the BIT, applying the domestic law of Equatorial Guinea when BIT provisions so determined.<\/p>\n

Tribunal succinctly dismisses three jurisdictional objections<\/em><\/h3>\n

Equatorial Guinea had originally objected that the BIT was not in force when the dispute arose. Considering that both states had deposited their instruments of ratification by 2009, that the BIT provides for its provisional application upon its signing in 2003, and that the respondent had withdrawn its objection at the hearing, the tribunal held that the BIT was in force and applied to the dispute at hand.<\/p>\n

The respondent had also argued that it had not consented to arbitration under Article 25 of the ICSID Convention. Recalling that the ICSID Convention is not applicable to arbitrations under AF Rules, and indicating that the signing of the BIT expressed Equatorial Guinea\u2019s consent to arbitrate, the tribunal dismissed the objection.<\/p>\n

Equatorial Guinea also denied that there was a \u201clegal dispute\u201d within the meaning of Article 25(1) of the ICSID Convention. The tribunal once again rejected the application of the ICSID Convention, and held that, for purposes of determining its jurisdiction, it should assume the dispute had a legal nature, given that the investor claimed compensation for breach of investment protection standards under the BIT.<\/p>\n

To qualify as \u201cinvestor,\u201d claimant must have made a covered investment<\/em><\/h3>\n

The respondent argued that the Contreras Group did not make an \u201cinvestment\u201d in Equatorial Guinea within the meaning of the BIT and, therefore, did not qualify as an \u201cinvestor.\u201d<\/p>\n

Considering that the Contreras Group was both constituted and headquartered in Spain, the tribunal held that it qualified as a \u201ccompany\u201d of Spanish nationality that owns or controls a company established in Equatorial Guinea, within the meaning of the BIT. In addition, the tribunal concluded that, to qualify as an \u201cinvestor,\u201d the claimant also needed to have made an investment in the other party in accordance with its domestic laws.<\/p>\n

Did the Contreras Group make investments in accordance with Equatoguinean law?<\/em><\/h3>\n

BIT Article 1(2) defines \u201cinvestments\u201d by an illustrative list of assets, subject to the investor\u2019s compliance with host state law. To determine whether there was an investment, the majority briefly referred to criteria of the\u00a0Salini\u00a0<\/em>test (contribution by the investor, duration, risk). It noted that both parties agreed that the existence of an investment depended on \u201ca contribution of the Claimant which would arise from a contractual relationship\u201d (para. 141), but disagreed as to whether the investment complied with host state law.<\/p>\n

Emphasizing that the contractual basis of the claims was an essential requirement for the existence of a covered investment, the tribunal set out to analyze, under Equatoguinean law, the alleged contractual relationship for the construction work in Malabo and Bata, and the supposed existence of a direct award for the construction work in Oyala.<\/p>\n

Based on the text of the constitution agreement related to the Malabo and Bata construction work, the tribunal concluded that the existence of rights and obligations was conditioned on: (a) the conclusion of a construction agreement between INCOGESA and Equatorial Guinea; and (b) the proper constitution of the companies Nueva Edificaci\u00f3n and INCOGESA.<\/p>\n

There was no evidence that the Contreras Group had complied with the administrative procedure under the Equatoguinean Law on Contracts for the conclusion of a construction agreement with the state, the tribunal indicated. Furthermore, it concluded that the state\u2019s \u201cadministrative silence\u201d did not generate binding effects that could replace compliance with the legal procedure.<\/p>\n

Even though Nueva Edificaci\u00f3n was duly registered, the tribunal noted that its capital stock was later reduced significantly below the minimum required by law\u2014which would eventually lead to the company\u2019s dissolution. It also noted that Nueva Edificaci\u00f3n did not begin its activities within the time limits established by law. With respect to INCOGESA, the tribunal pointed out that, although the company was formally constituted and its capital stock was allegedly paid in full, there was no proof that the capital stock had been deposited in a bank account, as required by Equatoguinean law.<\/p>\n

Finding that neither of the companies was formed in accordance with Equatoguinean law, the tribunal concluded that they did not have legal personality to operate as vehicles for the claimant\u2019s investments. In the majority\u2019s analysis, \u201cthe arguments and conduct of the Claimant evidence its lack of appropriate knowledge of the domestic law applicable to its alleged investment,\u201d a failure that \u201cexpresses negligent conduct\u201d (para. 227).<\/p>\n

As to the Oyala construction, the majority noted that the government resolution formalizing a direct award did not exclude the need to enter into a contract within 30 days of the award, as required by the Law on Contracts. As there was no evidence that the Contreras Group sought to conclude the contract or that Equatorial Guinea refused to conclude it, the Contreras Group abandoned its intention to invest in the country, in the majority\u2019s view.<\/p>\n

Dismissal and costs<\/em><\/h3>\n

The majority deemed it unnecessary to examine the\u00a0Salini<\/em>\u00a0criteria of duration and risk. It dismissed the case for lack of a protected investor and investment, ordering each party to bear its own expenses and an equal part of arbitration costs.<\/p>\n

Dissent rejects\u00a0<\/em>Salini\u00a0criteria, formalistic notion of contract, and remarks about the claimant\u2019s lack of knowledge<\/em><\/h3>\n

Arbitrator Orrego Vicu\u00f1a, however, would have upheld the tribunal\u2019s jurisdiction. In his dissent, he indicated that the\u00a0Salini<\/em>\u00a0criteria were not included in the BIT, and have been rendered obsolete by investment treaties and jurisprudence. Even acknowledging that there was no written contract, he disagreed with the majority\u2019s formalistic interpretation. In his view, there were sufficient elements to evidence the existence of a contract, consisting in an agreement expressed by an offer followed by acceptance.<\/p>\n

He also opposed the majority\u2019s remarks about the investor\u2019s negligence: \u201cif the investor is contracting with the state, it is the latter who has the obligation to require that all the steps required by its legislation are adopted\u201d (dissent, para. 14).<\/p>\n

Notes<\/em>: The ICSID tribunal was composed of Bernardo Sep\u00falveda Amor (President appointed by the Chairman of the Administrative Council, Mexican national), Francisco Orrego Vicu\u00f1a (claimant\u2019s appointee, Chilean national), and Ra\u00fal E. Vinuesa (respondent\u2019s appointee,\u00a0Spanish and Argentine national). The award, including the dissent by Francisco Orrego Vicu\u00f1a, is available in Spanish only at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw7106.pdf<\/a>.<\/p>\n

Martin Dietrich Brauch\u00a0<\/strong>is an International Law Advisor and Associate of IISD<\/span>\u2019s Investment for Sustainable Development Program, based in Latin America.<\/p>\n