{"id":7699,"date":"2020-03-10T08:26:24","date_gmt":"2020-03-10T13:26:24","guid":{"rendered":"https:\/\/iisd.org\/itn\/?p=7699"},"modified":"2024-08-09T18:30:42","modified_gmt":"2024-08-09T16:30:42","slug":"cmcs-claims-dismissed-on-the-merits-while-a-settlement-agreement-may-be-considered-an-investment-under-the-bit-and-the-icsid-convention-mozambique-did-not-agree-to-one","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2020\/03\/10\/cmcs-claims-dismissed-on-the-merits-while-a-settlement-agreement-may-be-considered-an-investment-under-the-bit-and-the-icsid-convention-mozambique-did-not-agree-to-one\/","title":{"rendered":"CMC\u2019s claims dismissed on the merits: While a settlement agreement may be considered an investment under the BIT and the ICSID Convention, Mozambique did not agree to one"},"content":{"rendered":"

CMC Muratori & Cementisti and others v. Republic of Mozambique, ICSID<\/span> Case No. ARB\/17\/23<\/h2>\n

In May 2017, Italy-based company CMC Muratori & Cementisti and two of its subsidiaries based in Mozambique (jointly, CMC) filed for ICSID arbitration under the Italy\u2013Mozambique BIT<\/span> based on the non-payment of an alleged settlement agreement. The award, published in October 2019, dismissed Mozambique\u2019s jurisdictional objections but rejected all CMC\u2019s claims on the merits, finding that Mozambique did not enter into a settlement agreement. Arbitration costs were equally split.<\/p>\n

The alleged settlement agreement<\/h3>\n

In 2005, CMC won a public tender to repair part of a highway (Lot 3 Project) (para. 92). The contract, financed by the European Development Fund, was signed with the national road administration of Mozambique (ANE, in its Portuguese acronym).<\/p>\n

CMC concluded the work, but in mid-2009 the parties engaged in negotiations regarding additional payments. CMC alleged increased costs given delayed access to construction sites and unforeseen days off, among other issues. According to the contract, the claim should first be decided by the engineer\/supervisor of the project (para. 98). Out of more than EUR 12.7 million claimed, the engineer\/supervisor found that EUR 2.4 million was due (para. 110), and ANE authorized the payment of the latter amount (para. 115).<\/p>\n

Dissatisfied with the outcome, and with a different repair project underway (Lot 2 Project), CMC insisted on negotiating with ANE (paras. 117\u2013122). On October 30, 2009, ANE offered an additional payment of EUR 8.2 million. On November 2, CMC replied, stating that \u201cwe agree with your proposal\u2026clarifying that [it] is additional to the amount already certified and processed for the payment\u201d (para. 131). Soon thereafter, elections took place in Mozambique, and negotiations, although extended for years, eventually stalled.<\/p>\n

Prima facie, a settlement agreement is an investment under the BIT and the ICSID Convention<\/span><\/h3>\n

Mozambique argued that a settlement agreement was not an investment under the BIT and the ICSID Convention. It relied on the Salini <\/em>test from ICSID case law, stating it was not fulfilled by a settlement agreement for lack of contribution of capital, duration, risk and contribution to national economic development (paras. 180\u2013181).<\/p>\n

As to the definition of investment under the BIT, the tribunal found that the settlement agreement was a \u201ccredit for sums of money\u2026connected with an investment,\u201d and, as such, it was within the meaning of Article 1(1)(c) of the Italy\u2013Mozambique BIT.<\/p>\n

As to the interpretation of the ICSID Convention, the tribunal rejected the so-called \u201cdouble-keyhole\u201d test, according to which an investment must meet the requirements of both the BIT and<\/em> Article 25 of the ICSID Convention. Relying on SGS v. Paraguay<\/em>, to which it referred as a middle ground approach, the tribunal found that the BIT definition of investment did not \u201cexceed what is permissible under the ICSID Convention\u201d (para. 194).<\/p>\n

Other jurisdictional objections<\/h3>\n

Mozambique also argued that (i) <\/em>the ICSID arbitration was in conflict with the Cotonou Convention, signed between the EU<\/span>, EU member states and a group of countries in Africa, the Caribbean and the Pacific (ACP countries); (ii)<\/em> the CJEU<\/span> decision in Achmea<\/em> had rendered the arbitration clause in the BIT invalid; and (iii)<\/em> the claims were purely contractual.<\/p>\n

The contract for the Lot 3 Project contained a dispute resolution clause requiring any dispute to be submitted to arbitration pursuant to the Cotonou Convention, to the exclusion of any other arbitration rules (paras. 224\u2013225). According to Mozambique, the dispute should be referred to that form of arbitration. CMC, on the other hand, argued that the forum selection clause in the Lot 3 contract did not prevent it from bringing a treaty claim under the BIT (para. 254).<\/p>\n

The tribunal found, first, that the Cotonou Convention and the BIT had a \u201cvery small\u201d overlap of subject matter (para. 272) and that, to the extent they overlapped, the treaties were compatible (para.\u00a0277). Second, it found that the Cotonou Convention provided for arbitration of disputes arising \u201cduring the performance\u201d of contracts financed under its framework, which was not the case, as the dispute, although related to a financed contract, had arisen out of disagreement on whether additional payment for completed <\/em>work was due (paras. 282\u2013287).<\/p>\n

The tribunal rejected the Achmea<\/em> objection, as it understood that the CJEU decision had no effect over extra-EU investment treaties (paras. 317\u2013318).<\/p>\n

As to the objection that the claims were contractual, the tribunal recalled that CMC had alleged breaches of substantive BIT standards\u2014FET, discrimination and legitimate expectations, among others\u2014all of which were treaty claims, regardless of their merit (para. 221).<\/p>\n

Claims dismissed on the merits as Mozambique did not agree to the alleged settlement<\/h3>\n

In the merits, CMC argued that Mozambique\u2019s actions related to the alleged settlement agreement\u2014refusal to honour its undertaking to pay; unreasonable delay in responding to CMC\u2019s requests for payments etc.\u2014had breached substantive BIT-based standards of treatment owed to foreign investors.<\/p>\n

Whether there was a settlement agreement in the first place was the most controversial issue. While CMC argued that its reply of November 2, 2009, was an acceptance <\/em>of the previous offer <\/em>made by ANE, and thus had created a valid and binding settlement agreement, Mozambique argued that CMC\u2019s reply was a counteroffer<\/em>, not an acceptance (para. 371).<\/p>\n

Both parties presented expert evidence on Mozambican law, which they agreed was the applicable law to determining whether an agreement had been reached. After examining the wording of the letters exchanged between CMC and ANE, as well as correspondence exchanged between the Director of ANE and the Minister of Public Works at the time, the tribunal reasoned that ANE had not <\/em>intended to offer EUR 8.2 million in addition <\/em>to the EUR 2.4 million already paid (para. 389). Thus, it agreed with Mozambique that CMC had made a counteroffer.<\/p>\n

As CMC\u2019s merits claims were, to a greater or lesser extent, predicated on the existence of a settlement agreement, the tribunal dismissed all of them.<\/p>\n

Allocation of costs<\/h3>\n

Finding that each party succeeded in different aspects of the case (CMC on jurisdiction and Mozambique in the merits), the tribunal decided that the parties should bear their respective costs and split the arbitration costs evenly (para. 486).<\/p>\n

Notes: <\/em>The tribunal was composed of John M. Townsend (president appointed by the co-arbitrators, U.S. national), Peter Rees (claimants\u2019 appointee, British national) and J. Brian Casey (respondent\u2019s appointee, Canadian national). The award of October 24, 2019 is available at https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw10879.pdf<\/a><\/p>\n

Ina\u00ea Siqueira de Oliveira<\/strong> is a Master\u2019s in Private Law candidate at the University of Sao Paulo.<\/p>\n