{"id":425,"date":"2010-01-12T15:29:00","date_gmt":"2010-01-12T20:29:00","guid":{"rendered":"http:\/\/itn.mattrock.ca\/2010\/01\/12\/uncitral-tribunal-determines-that-wheat-supply-contracts-are-not-%e2%80%9cinvestments%e2%80%9d-under-swiss-uzbekistan-bit\/"},"modified":"2013-01-24T02:38:30","modified_gmt":"2013-01-24T08:38:30","slug":"uncitral-tribunal-determines-that-wheat-supply-contracts-are-not-investments-under-swiss-uzbekistan-bit","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2010\/01\/12\/uncitral-tribunal-determines-that-wheat-supply-contracts-are-not-investments-under-swiss-uzbekistan-bit\/","title":{"rendered":"UNCITRAL Tribunal determines that wheat supply contracts are not “investments” under Swiss-Uzbekistan BIT"},"content":{"rendered":"

By Elizabeth Whitsitt<\/strong><\/span><\/p>\n

January 13, 2010<\/strong><\/span><\/p>\n

Swiss-based firm Romak S.A. has lost a protracted dispute against the Republic of Uzbekistan regarding alleged non-payment for wheat shipments to the country during the mid-1990s.<\/span><\/p>\n

On November 26, 2009 an arbitral tribunal composed of Fernando Mantilla-Serrano, Nicolas Molfessis and Noah Rubins dismissed Romak\u2019s claims against the Republic of Uzbekistan on jurisdictional grounds.\u00a0 Specifically, the tribunal determined that it did not have jurisdiction in the case given the absence of any \u201cinvestment\u201d underlying the dispute.<\/span><\/p>\n

In the aftermath of the dissolution of the Soviet Union, Romak and several companies entered into a set of contracts for the supply of wheat to Uzbekistan.\u00a0 Having experienced difficulties in obtaining payment for wheat deliveries, Romak commenced arbitral proceedings against one of its Uzbek counterparties under the auspices of the Grain and Feed Trade Association (GAFTA).\u00a0 After obtaining an arbitral award in its favour, however, Romak was unable to enforce the award in several countries, including Uzbekistan.\u00a0 As a result, the Swiss company commenced arbitral proceedings against Uzbekistan under the Swiss-Uzbek BIT<\/span> in accordance with the UNCITRAL<\/span> Arbitration Rules.<\/span><\/p>\n

Seeking more than USD $30 million in damages, Romak alleged that Uzbekistan violated its obligations under the BIT.\u00a0 Arguing that the actions of its Uzbek counterparties were attributable to Uzbekistan, Romak claimed that Uzbekistan violated numerous obligations under the BIT, including the guarantee of fair and equitable treatment, and the prohibition against expropriation or nationalization without compensation.\u00a0 Additionally, Romak argued that by refusing to enforce the GAFTA award Uzbekistan had violated its treaty obligations.<\/span><\/p>\n

Uzbekistan denied those assertions and contested the jurisdiction of the arbitral panel.\u00a0 Specifically, Uzbekistan contended that the tribunal lacked jurisdiction in the case because neither the wheat supply contracts nor the GAFTA award qualified as an \u201cinvestment\u201d subject to protection under the BIT.\u00a0 In support of its arguments, Uzbekistan relied upon the \u201cSalini test\u201d sometimes used by ICSID<\/span> tribunals as an analytical tool to determine the same jurisdictional question as the one presented in the instant dispute (i.e. whether there is an arbitral investment subject to BIT protection).<\/span><\/p>\n

In response, Romak alleged that the Salini criteria were \u201cinapplicable and irrelevant\u201d to UNCITRAL proceedings given their development within the ICSID system.\u00a0 Pushing for a literal interpretation of the definition of \u201cinvestments\u201d, Romak argued that the wheat supply contracts and the GAFTA Award fell squarely within the Swiss-Uzbek BIT.\u00a0 Alternatively, Romak asserted that the wheat supply contracts and the GAFTA award qualified as investments under the Salini test.<\/span><\/p>\n

Romak could not, however, convince the tribunal that its long-running dispute was the proper subject for arbitration under the Swiss-Uzbek BIT.<\/span><\/p>\n

In particular, the tribunal rejected Romak\u2019s literal construction of the term \u201cinvestment\u201d in the Swiss-Uzbekistan BIT.\u00a0 In so doing, the tribunal found that an ostensibly broad definition of \u201cinvestment\u201d in the Swiss-Uzbekistan BIT should not be interpreted in a way that \u201crender[s] meaningless the distinction between investments, on the one hand, and purely commercial transactions on the other.\u201d\u00a0 Using the approach advanced by Romak, the tribunal postulated that \u201c\u2026every contract entered into between a Swiss national and a State entity of Uzbekistan\u2026as well as every award or judgment in favor of a Swiss national\u2026would constitute an investment under the BIT.\u201d\u00a0 Finding such a possibility untenable, the tribunal indicated that one-off sales contracts could constitute investments under the terms of a BIT only in cases where the wording of the BIT left \u201cno room for doubt\u201d that the contracting parties intended the term to carry such an extraordinary meaning.<\/span><\/p>\n

The tribunal also disagreed with Romak\u2019s contention that \u201cthe definition of \u2018investment\u2019 in UNCITRAL proceedings (i.e. under the BIT alone) is wider than in ICSID Arbitration.\u201d\u00a0 According to the tribunal, Romak\u2019s suggestion would lead to unreasonable results by narrowing or widening the substantive protections afforded an investor under a BIT depending on the investor\u2019s choice of various dispute settlement mechanisms.\u00a0 Consistent with this reasoning, the tribunal held that there is no basis to suppose that the term \u201cinvestment\u201d has a different meaning in the ICSID Convention<\/span> than it bears in relation to the Swiss-Uzbekistan BIT.\u00a0 Thus, the tribunal observed that \u201cthe term \u2018investments\u2019 under the Swiss-Uzbekistan BIT has an inherent meaning\u2026entailing a contribution that extends over a certain period of time and that involves some risk.\u201d<\/span><\/p>\n

The tribunal went on to determine that the wheat supply contracts and the GAFTA Award were \u201cinextricably linked\u201d and that any determination as to the existence of an \u201cinvestment\u201d under the BIT must be made with reference to the entire economic transaction at issue.\u00a0 On that basis the tribunal found that the Romak\u2019s wheat supply arrangement with, and subsequent arbital award against, Uzbekistan failed to display the hallmarks of an \u201cinvestment\u201d under the Swiss-Uzbekistan BIT (i.e. contribution, duration and risk).<\/span><\/p>\n

Specifically, the tribunal determined that Romak\u2019s delivery of wheat could not be considered a contribution indicative of an investment as it was \u201ca mere transfer of title over goods in exchange for full payment.\u201d\u00a0 Similarly, the tribunal considered that the duration of Romak\u2019s wheat deliveries, which lasted some five months, did not reflect the sort of commitment normally associated with \u201cinvestments.\u201d\u00a0 Finally, the tribunal noted Romak\u2019s economic transaction did not involve the risk normally associated with an investment.\u00a0 Specifically, the tribunal described the risk assumed by Romak as \u201c\u2026circumscribed to the possible non-payment of the wheat delivery, which is the ordinary commercial or business risk assumed by all those who enter into a contractual relationship.\u201d<\/span><\/p>\n

Sources:<\/span><\/p>\n

Award in Romak S.A. (Switzerland) v. The Republic of Uzbekistan is available here:<\/span><\/p>\n

http:\/\/www.PCA<\/span>-CPA<\/span><\/span>.org\/upload\/files\/ROMAK-UZBEKISTAN%20Award%2026%20November2009.pdf<\/span><\/a><\/p>\n