(Originally published in 2011 in International Investment Law and Sustainable Development: Key cases from 2000\u20132010<\/em><\/a>; republished on this website on October 18, 2018. Read more here.<\/a>)<\/p>\n Award available at\u00a0https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/ita0095.pdf<\/a><\/p>\n Amicus curiae, causation, damages, definition of \u201cinvestment,\u201d expropriation, fair and equitable treatment, jurisdiction, margin of appreciation, multiple\/parallel proceedings, necessity, reference to other bodies\/principles of law, \u201cSalini\u201d test, transparency<\/p>\n Request for Arbitration: 5 August 2005<\/p>\n Constitution of Tribunal: 9 February 2006<\/p>\n Award: 24 July 2008<\/p>\n Mr. Bernard Honotiau (president)<\/p>\n Mr. Gary Born (claimant appointee)<\/p>\n Mr. Toby Landau (respondent appointee)<\/p>\n International Centre for Settlement of Investment Disputes (ICSID<\/span>)<\/p>\n ICSID Rules of Procedure for Arbitration Proceedings<\/p>\n United Kingdom\u2013Tanzania Bilateral Investment Treaty (BIT<\/span>)<\/p>\n In 2003, the World Bank and other international financial institutions awarded Tanzania US$140,000,000 in order to enable the country to repair and upgrade its water and sewer infrastructure and services. As a condition of that funding Tanzania had to appoint a private party to manage and operate the water and sewerage systems and related works. The claimant, Biwater Gauff (Tanzania) Limited (\u201cBiwater\u201d or \u201cthe Claimant\u201d[1]<\/a>), successfully bid for the right to develop Tanzania\u2019s water and sewer infrastructure and services project (\u201cthe Project\u201d) and formed another company, City Water, to operate the Project. City Water and the relevant government agency, the Dar es Salaam Water and Sewerage Authority (\u201cWater Authority\u201d), entered into the contracts governing implementation and operation of the Project in February 2003.<\/p>\n As a result of the Claimant\u2019s \u201cpoor\u201d bid and the Claimant\/City Water\u2019s subsequent mismanagement of the Project, City Water failed to generate expected income and consequently encountered extreme financial and practical difficulties that prevented it from meeting its contractual obligations (para. 789). These difficulties became so severe that, just eighteen months into what was supposed to be at least a ten-year arrangement, City Water made clear that it needed to renegotiate the terms of the underlying deal in order to avoid complete collapse of its business and activities. Although the government had no legal obligation under the contract to renegotiate, it agreed in February 2005 to do so. The parties appointed an expert mediator to facilitate the process and set 6 May 2005 as the deadline for reaching an agreement.<\/p>\n On 12 May 2005, the renegotiation process ended in failure when City Water rejected the final compromise agreement proposed by the mediator. Given the failure of the renegotiations and City Water\u2019s inability to fulfill its obligations under the contract, the Water Authority concluded that same day that, among other actions, it should begin the process to terminate the Project contract with City Water. On 13 May 2005, the Minister of Water and Livestock Development (\u201cthe Minister\u201d) issued a press release to the same effect. On 17 May 2005, the Minister informed City Water staff that the Project contract with City Water had been terminated and that City Water operations and staff would be transferred to a new government entity. The Water Authority issued a notice to terminate the contract on 25 May 1999; pursuant to that notice, the contract would terminate on 24 June 1999 if City Water had not yet cured its breach.<\/p>\n City Water, in turn, stated in a 30 May 1999 communication with the Water Authority that (1) the 25 May 1999 notice of contract termination was invalid and that (2) City Water was \u201cdetermined to continue to perform the contract and would continue to do so unless and\/or until\u201d an arbitral tribunal constituted in accordance with the Project contract \u201cdecided otherwise\u201d (para. 221). On 1 June 2005, government officials deported City Water\u2019s senior management, appointed new management, entered City Water\u2019s offices, took control of the company\u2019s assets and informed City Water staff of the changes.<\/p>\n The Claimant initiated these ICSID proceedings roughly two months later. It argued that the government\u2019s actions (including the actions of the Water Authority and the Minister, all collectively referred to as \u201cTanzania\u201d or \u201cthe Government\u201d), including its termination of the contract, announcements about that termination in a press conference and sta\ufb00 meeting, deportation of City Water\u2019s management, and seizure of City Water\u2019s assets violated Tanzania\u2019s obligations under the United Kingdom\u2013Tanzania Bilateral Investment Treaty\u00a0(BIT)\u00a0 to\u00a0 (1)\u00a0 not\u00a0 unlawfully\u00a0expropriate\u00a0 property, (2) provide fair and equitable treatment, (3) not impair the investment through unreasonable or discriminatory measures, (4) grant full protection and security and (5) guarantee the unrestricted transfer of funds.<\/p>\n Over the respondent\u2019s objections, the Tribunal found that it had jurisdiction over the dispute and then agreed with the Claimant that Tanzania had violated the first four of the five treaty obligations noted above. The Tribunal held, however, that the breaches of the BIT did not cause City Water any losses. Accordingly, the Tribunal held that Tanzania was not liable to pay any damages to the Claimant. In reaching its conclusions, the Tribunal relied not only on the submissions by parties, but also on information provided in an amicus brief by several non- governmental organizations (NGOs) (\u201cthe Amici\u201d)[2]<\/a>with expertise in environmental, human rights and sustainable development issues relevant to the case (paras. 57\u201368, 356\u2013392).<\/p>\n City Water had also initiated parallel proceedings before a separate tribunal, in which City Water alleged Tanzania breached its obligations under the Project contract. In a December 2007 decision, that tribunal, which operated in accordance with the UNCITRAL<\/span> [United Nations Commission on International Trade Law] Arbitration Rules, rejected City Water\u2019s claims and instead awarded roughly \u00a33 million in damages to the Water Authority.[3]<\/a>Shortly after the UNCITRAL tribunal issued that decision, Tanzania submitted the decision to the ICSID Tribunal on the ground that it was relevant to, and should be considered in connection with, assessment of the Claimant\u2019s treaty-based claims (para. 477). The ICSID Tribunal, however, disagreed. It stated that it was both obligated and able to \u201cmake its own determinations on all matters of fact and law\u201d and that it would therefore not rely on the UNCITRAL award when assessing the merits of the treaty dispute (para. 478).<\/p>\n This investor\u2013state dispute touches on a host of issues relating to sustainable development: it speaks to, among other topics, the balance struck by BITs between investors\u2019 rights and investors\u2019 obligations and states\u2019 corresponding rights and obligations; transparency in and legitimacy of investor\u2013state dispute settlement; and needs for and risks of private investment in what are traditionally public services. This summary focuses on six particular issues: (1) jurisdiction and the definition of an \u201cinvestment\u201d under the ICSID Convention; (2) transparency of the proceedings; (3) amicus curiae participation in investment disputes; (4) the award\u2019s apparently low threshold for successful expropriation claims; (5) the Tribunal\u2019s apparent failure to accord Tanzania a \u201cmargin of appreciation\u201d and subsequent rejection of the government\u2019s \u201cnecessity\u201d justifications; and (6) the practical significance of the Tribunal\u2019s approach to causation.<\/p>\n Article 25 of the ICSID Convention specifies that ICSID tribunals can only assume jurisdiction over certain legal disputes. One of its jurisdictional requirements is that the dispute must arise directly out of an \u201cinvestment,\u201d a term that, in contrast to many BITs (including the BIT between the United Kingdom and Tanzania governing the Biwater <\/em>dispute), is not defined in the Convention. Tanzania argued that the meaning of an \u201cinvestment\u201d under the ICSID Convention had been developed through case law and required establishment of five criteria that are often cited as the \u201cSalini\u201d <\/em>test: (1) adequate duration; (2) regularity of profit and return; (3) risk; (4) substantial commitment of resources, financial or otherwise; and (5) contribution to the host state\u2019s development.[4]<\/a>\u00a0 Tanzania objected that even if the Claimant\u2019s activities qualified as an investment under the governing BIT, which defined investments broadly, the Claimant\u2019s activities did not satisfy the Salini <\/em>test and, therefore, the Tribunal did not have jurisdiction under the ICSID Convention to hear the dispute.<\/p>\n The Tribunal rejected Tanzania\u2019s arguments. It stated that the five Salini <\/em>criteria were neither fixed nor mandatory requirements for an \u201cinvestment\u201d under the ICSID Convention, but were merely factors that should be taken into account. Notably, the Tribunal also stated that the definition of \u201cinvestment\u201d in the relevant BIT should inform interpretation of \u201cinvestment\u201d under the ICSID Convention. \ue062e Tribunal noted that, in the case before it, the governing BIT broadly defined an \u201cinvestment\u201d as \u201cevery kind of asset.\u201d It then concluded that such broad language counselled against using the narrow definition of \u201cinvestment\u201d that would result through strict application of the Salini <\/em>test.<\/p>\n The approach used by the Tribunal here\u2014of using the BIT to guide interpretation of the ICSID Convention and to inform (and broaden) the scope of ICSID jurisdiction\u2014arguably contrasts with the approach used by other tribunals. In Phoenix v. Czech Republic<\/em>, for example, the tribunal emphasized that the jurisdictional requirements of the ICSID Convention were separate from and additional to the jurisdictional requirements under the governing BIT or other agreement. According to the Phoenix<\/em>tribunal, parties to a BIT can confirm or restrict the ICSID notion of an investment in their BITs, but cannot expand it in order to have access to arbitration under the ICSID Convention.<\/p>\n In September 2006, in response to a request by the Claimant, the Tribunal issued an order directing parties to refrain from disclosing to any third parties documents and other information produced by the parties during the proceedings. The confidentiality order also instructed parties to limit public discussion of the case to what was \u201cnecessary\u201d and would not cause the dispute\u2019s resolution to become \u201cpotentially more difficult\u201d (para. 51). When issuing that order, the Tribunal noted that there was no general principle of confidentiality in ICSID proceedings that would prevent a party from disclosing information from or about the proceedings,[5]<\/a> and also acknowledged that there was an \u201caccepted need for greater transparency in this field [that] generally militate[d] against\u201d the gag order sought by the Claimant.[6]<\/a> It nevertheless held that its restrictions on disclosure were warranted in the Biwater <\/em>dispute because the public interest in and media attention on the case threatened<\/em>to aggravate the matter and prejudice the parties.[7]<\/a><\/p>\n The Tribunal\u2019s order\u2014which limits public access to information precisely because of the public\u2019s interest in it and which was triggered by thethreat <\/em>of (as opposed to actual<\/em>) prejudice\u2014raises concerns, including that it could conflict with obligations of governments and businesses to act openly and transparently.<\/p>\n During the course of these proceedings, the ICSID Arbitration Rules were amended to include more specific provisions regarding non-party participation. In particular, Arbitration Rule 37 was revised to both make clear that tribunals have the general authority to allow submissions by amicus curiae and to provide guidelines regarding when consideration of such submissions would be appropriate. Pursuant to those amended rules, the Amici filed their petition for amicus curiae status in November 2006.<\/p>\n The Claimant opposed the Amici\u2019s request on the grounds that the Amici\u2019s contributions would be factually and legally irrelevant to the dispute and\/or would not contribute anything that could not be added by the parties (para. 358). The Tribunal, however, rejected the Claimant\u2019s arguments. In support of its decision to admit the brief, the Tribunal first noted the broad implications of and the public interest in the dispute (para. 358). Then, turning to the particular application of the Amici, the Tribunal held that their participation was appropriate in light of the considerations set forth in the new Arbitration Rule 37. The Tribunal explained that the petitioners were NGOs \u201cwith specialized interests and expertise in human rights, environmental and good governance issues\u201d who \u201capproach[ed] the issues in this case with interests, expertise and perspectives that have been demonstrated to materially differ from those of the two contending parties, and as such have provided a useful contribution to these proceedings\u201d (para. 359). The Tribunal further emphasized the importance of the Amici\u2019s input, making clear that the Amici\u2019s \u201csubmissions [had] informed the [Tribunal\u2019s] analysis of [the] claims\u201d (para. 392).<\/p>\n The Tribunal, however, constrained the nature of the Amici\u2019s participation. The gag order discussed above hindered the Amici\u2019s ability to meaningfully participate in the dispute by limiting the Amici\u2019s knowledge about relevant issues and facts. The Tribunal also rejected the Amici\u2019s attempts to overcome those limits when it denied the Amici\u2019s requests to access documents produced by the parties during the proceedings and to attend oral hearings (paras. 365\u2013369).[8]<\/a>\u00a0Although the Tribunal indicated that it might have revisited and\/or altered its decision regarding access to documents if there were sufficient need, it suggested its discretion on the issue of oral hearings was more limited: the Tribunal explained that because the Claimant opposed opening the hearings to the Amici, it was powerless under the ICSID Arbitration Rules to allow the non-parties\u2019 attendance (paras. 367\u2013369).<\/p>\n The Tribunal\u2019s acceptance of and reference to the Amici\u2019s contributions is significant for a number of reasons: it recognizes and affirms the public interest in investor\u2013state disputes, helps normalize the idea of non-party participation, helps ensure that investor\u2013state disputes take into account broader issues such as sustainable development and human rights where relevant, promotes investor and government accountability and enhances the perceived legitimacy of the system. Moreover, although the decision seems to allow either party to veto opening hearings to non-parties, it also appears to suggest a willingness to override a party\u2019s objection to disclosing documents in some circumstances (paras. 365\u2013368). Building on these trends, in October 2009, a tribunal in another investor\u2013state dispute, Foresti v. South Africa<\/em>,[9]\u00a0<\/a>issued a decision clarifying when such document disclosure would be necessary. It concluded that in order to enable the non-parties participating in the dispute to be effective and useful, those non-parties must be granted access to documents submitted by the disputing parties.[10]<\/a><\/p>\n According to the Tribunal, key elements establishing an expropriation claim are that the state, (1) acting through exercise of its sovereign authority (as opposed\u00a0 to\u00a0 acting\u00a0merely\u00a0 as\u00a0 a\u00a0 contractual\u00a0 party)\u00a0(paras.\u00a0 457\u2013458), (2) unreasonably deprived an investor of its rights (para. 463). Based on these principles, the Tribunal found that Tanzania had cumulatively expropriated the Claimant\u2019s rights in violation of the BIT. More specifically, the \u201crights\u201d that the Tribunal found had been expropriated were the Claimant\u2019s rights to termination of the contract in accordance with the contractually specified procedures <\/em>(para. 487). With respect to the allegedly wrongful acts, the Tribunal held that Tanzania had effected the expropriation through a series of steps including (1) the Minister\u2019s 13 May 2005 press conference and 17 May 2005 speech to City Water staff announcing termination of the contract, (2) the government\u2019s takeover of City Water\u2019s premises, assets and operations on 1 June 2005 and (3) the government\u2019s deportation of City Water officials, also on 1 June 2005 (para. 519).<\/p>\n One reason these findings warrant attention is that they appear to deviate from other investment law decisions by applying a low threshold for government exposure to expropriation claims. More specifically, the Tribunal\u2019s holding that the government effected an expropriation by depriving the Claimant of its contract termination rights\u2014a small subset of the Claimant\u2019s original bundle of rights under the Project contract\u2014seems inconsistent with the body of case law that only allows expropriation claims for substantial deprivations of rights that essentially destroy the investor\u2019s investment (paras. 438, 463). The Tribunal noted that those rights to normal contract termination were, as a result of the Claimant\u2019s own misconduct, the only <\/em>rights the Claimant had left at the time of the expropriation; the Tribunal then concluded that, by interfering with those limited remaining rights, the government interfered with the Claimant\u2019s entire investment (para. 489). Consequently, Biwater <\/em>seems to lower the threshold for claimants to prevail in expropriation claims and, paradoxically, also seems to do so when the investor has played a significant role in eviscerating its own rights.<\/p>\n Biwater <\/em>seems to also lower the bar for government exposure to expropriation claims by finding that statements by government officials (1) to the public relating to such fundamental issues of public importance as water infrastructure and (2) to staff regarding the future of their employment could give rise to liability even where there is no evidence that such statements had any impact at all on the investment (paras. 696, 699, 800).\u00a0Biwater<\/em>, therefore, raises questions regarding when government statements are legitimate efforts to manage the public\u2019s and employees\u2019 legitimate expectations and when those statements could be deemed wrongful under international investment law.<\/p>\n Tanzania argued that its actions in taking over the facilities and management of City Water could not support any liability under the BIT because they were justified under the Project contract\u2019s provision allowing the Water Authority to \u201ctake any measures\u2026necessary<\/em>\u2026to ensure continuity of water supply and sewerage services\u201d when facilitating change to \u201ca new system of management\u201d (para. 428). More specifically, Tanzania argued that City Water\u2019s lack of funds prevented it from performing properly and created a \u201creal threat to public health and welfare\u201d (para. 436). In light of that threat, when City Water refused to turn over its operation of the Project \u00a0at \u00a0the \u00a0end \u00a0of \u00a0May, \u00a0the\u00a0government \u00a0had \u00a0contractual discretion\u2014in addition to moral and arguably legal obligations\u2014to take actions it thought necessary to regain possession and control of City Water\u2019s assets and operations (paras. 429, 434). Tanzania further contended it was entitled to a \u201cmeasure of appreciation\u201d by the Tribunal reviewing its actions (paras. 434\u2013435).<\/p>\n The Tribunal, however, dismissed those defences and apparently did not accord the government its requested level of deference. Even though it recognized that, \u201cviewed at that time, this crisis [with City Water] could have threatened a vital public service and\u2026had to be resolved one way or the other\u201d (para. 654), it nevertheless held that there was \u201cno necessity or impending public purpose to justify the Government\u2019s intervention in the way that took place\u201d (para. 515). This holding suggests both a lack of deference to governments and a strict requirement for them to adhere to contractual procedures, irrespective of whether such adherence is compatible with their broader obligations to the public.<\/p>\n Although the Tribunal found for the Claimant on four of its five claims, it held that Tanzania was not liable for any damages because any losses suffered by the Claimant were caused by the Claimant\u2019s own failures in the performance of the Project contract (para. 773\u2013808). This approach, which places the causation analysis in the context of assessing whether and what amount of damages are due, differs notably from the approach used in other cases such as Lauder v. Czech Republic<\/em>,[11]\u00a0<\/a>which require proof of causation in order to establish there has been a violation of the BIT at all (paras. 757\u2013758). The difference in the two approaches is not just analytical, but can have practical impacts. A tribunal\u2019s conclusion that a respondent state has violated the BIT, for example, can result in it imposing a larger share of the parties\u2019 and tribunal\u2019s legal fees and costs on the respondent state or can damage the host state\u2019s reputation as a safe and desirable place for foreign investment.<\/p>\n [1]<\/a> The term \u201cClaimant\u201d is used to refer to Biwater Gauff (Tanzania), or BGT, as well as Biwater International Limited and HP Gauff Ingenieure GmbH and Company, BGT\u2019s English and German parent companies, whose joint venture had prepared and submitted the bid (para. 112).<\/p>\n [2]\u00a0<\/a>The Amici included the Lawyers\u2019 Environmental Action Team, the Legal and Human Rights Centre, the Tanzania Gender Networking Programme, the Center for International Environmental Law, and the International Institute for Sustainable Development (para. 57).<\/p>\n [3]\u00a0<\/a>See A. Seager (2008), \u201cTanzania wins \u00a33m damages from Biwater subsidiary,\u201d The Guardian, 11 January, http:\/\/www.guardian.co.uk\/business\/2008\/jan\/11\/worldbank.tanzania.<\/a><\/p>\n [4]\u00a0<\/a>As shown in Phoenix v. Czech Republic, the Salini test is often cited as having four, not five, cirteria: a contribution (1) of money or other assets of economic value, (2) for a certain duration, (3) with an element of risk, and (4) that makes a contribution to the host state\u2019s development.<\/p>\n [5]<\/a> Biwater, Procedural Order No. 3, 29 September 2006, paras. 124\u201325.<\/p>\n [6]\u00a0<\/a>Biwater, 2006, para. 133.<\/p>\n [7]\u00a0<\/a>Biwater, 2006, paras. 143\u201348.<\/p>\n [8]\u00a0<\/a>See N. Bernasconi-Osterwalder (forthcoming), \u201cTransparency and amicus curiae in ICSID arbitration: Lessons learned from Biwater Gauff v. Tanzania,\u201d in M. Gehring, M.-C. Cordonier Segger & A. Newcombe (Eds.), Sustainable development in world investment law, Kluwer Law International.<\/p>\n [9]<\/a> Piero Foresti, Laura de Carli and others v. Republic of South Africa, ICSID Case No. ARB(AF)\/07\/1.<\/p>\n [10]\u00a0<\/a>Foresti v. South Africa, Letter to Non-Parties in Response to Petition for Limited Participation as Non-Disputing Parties, 5 October 2009. The Foresti tribunal left open to a later date the issue of whether it would allow the non-parties to attend or make oral submissions at hearings in the case.<\/p>\n [11]<\/a> Final Award (3 September 2001), paras. 233\u2013234.<\/p>\nKeywords<\/h3>\n
Key dates<\/h3>\n
Arbitrators<\/h3>\n
Forum and applicable procedural rules<\/h3>\n
Applicable treaty<\/h3>\n
Alleged treaty violations<\/h3>\n
\n
Other legal issues raised<\/h3>\n
\n
1.0 Case Summary<\/h2>\n
1.1 Factual Background<\/h3>\n
1.2 Summary of Legal Issues and Award<\/h3>\n
2.0 Select Legal Issues<\/h2>\n
2.1 Definition of an \u201cinvestment\u201d under the ICSID Convention<\/h3>\n
2.2 Confidentiality requirements<\/h3>\n
2.3 Amicus Curiae Participation<\/h3>\n
2.4 Expropriation: Lowering the threshold for liability<\/h3>\n
2.5 Protection of public interests and the margin of appreciation<\/h3>\n
2.6 Causation and damages: Finding liability even without losses<\/h3>\n
\nNotes<\/h3>\n