ICSID and SADC: Investor-State Dispute Settlement

Investor-State Dispute Settlement
Investor-State Dispute Settlement (ISDS)
• ISDS mechanisms grant foreign investors the right to initiate dispute
settlement proceedings directly against a foreign government (the "Host
State") rather than suing the Host State in that State’s courts
• “Arbitration without privity”
• ISDS rights arise from provisions of certain bilateral investment treaties
“BITs”), international trade treaties, such as NAFTA’s Chapter 11, and
international investment agreements, such as the Energy Charter Treaty
• ISDS takes place under the auspices of international arbitral tribunals
such as the LCIA, the ICC, the Stockholm C of C, or UNCITRAL
Arbitration Rules, but it most often is associated with arbitration under
the rules of the International Centre for Settlement of Investment
Disputes, commonly referred to as the ICSID
Investor-State Dispute Settlement (ISDS)
• The U.S. enabling legislation for the ICSID Convention, 22 U.S.C.
• A benefit of the Washington Convention is that it is even more favorable
to recognition and enforcement of awards than the New York
Convention as there are no grounds under the Washington Convention
for national courts to refuse recognition and enforcement of ICSID
tribunal awards
The Convention on the Settlement of Investment
Disputes between States and Nationals of Other
African Members
Burkina Faso
Cabo Verde
Central African Republic
Congo, Democratic Rep. of
Congo, Rep. of
Egypt, Arab Rep. of
Sao Tome and Principe
Sierra Leone Somalia
Brunei Darussalam
Côte d’Ivoire
Gambia, The
South Sudan
ICSID Procedures for the Settlement of Disputes
Between an Investor and Host State
• Notice
• Cooling-off periods, 3 to 6 months (Parties often take
this time to negotiate the dispute)
• File arbitration
• Jurisdictional stage
ICSID Procedures
• Request For Arbitration
• First Session of the Tribunal
Governing substantive law and procedural rules
Location of proceedings – (counsel, parties, witnesses, arbitrators)
Language of written and oral proceedings
Deadlines for the written procedure - Memorial, Counter-Memorial, Reply, Rejoinder
Witness Statements and Expert Reports and Discovery
• Bifurcation of Proceedings: Jurisdiction and Merits
• Written Pleadings: Post-hearing briefs
• Pre-Hearing Conference
Order and presentation of proof; examination of witnesses
Allocations of time for presentations
Submission of rebuttal evidence
Post-hearing briefing (including fee petitions)
• Oral Hearing
ICSID - Statistics
• As of March 28, 2012:
• 233 cases concluded
• 142 cases pending
• Arbitrators:
• 70% of the arbitrators from Western Europe and North America
• 2% from Sub-Saharan Africa
• Host State Defendants:
• 1% of cases involved Western European states
• >20% of all cases African State Respondents
ICSID - Statistics
Based on UN review of nearly 200 concluded investment treaty
• Award decided in favor of State – approximately 40%
• Award decided in favor of Investor – approximately 30%
• Settlement rate – approximately 30%
ICSID – More Data
ICSID Proceedings Among ICSID Signatories
Egypt - 16
The Democratic Republic of Congo - 9
Congo Republic, Gabon, Guinea and Tanzania - 4
Algeria, Cameroon, Central African Republic, Liberia, Morocco, and
Zimbabwe - 3
• Burundi, Gambia, Ghana, Ivory Coast, Madagascar, Niger, Nigeria, Senegal,
Togo, and Tunisia - 2
• Burkina Faso, Kenya, Mali, Rwanda, and The Seychelles - 1
Proceedings against Non-Contracting States under the ICSID
Additional Facility Rules Among Non-ICSID Signatories
• South Africa - 1 arbitration
• Equatorial Guinea – 1 arbitration and 1 conciliation
A Few Arbitral Results
African State Respondents
Benvenuti & Bonfant v. People's Republic of the Congo
ICSID Case No. ARB/77/2 (Aug. 8, 1980)
Tribunal de grande instance, Paris, Decision of Dec. 23, 1980, 1982 Rev.
Arb. 205 Tribunal de grande instance, Paris, Decision of Jan. 13, 1981,
1982 Rev. Arb. 206 Cour d'appel, Paris, Decision of June 26, 1981, 1982
Rev. Arb. 207 and English translation in 20 I.L.M. 878 (1981)
• In is dispute, the Congolese authorities nationalized a joint venture bottling facility
by militarily occupying the facility and imprisoning the venture’s employees
• This case was only the second ICSID award to be reviewed in a national
• The saga in the French courts ultimately confirmed the benefits that the Convention
offers investors as it obliges each contracting state to recognize an ICSID award
Am. Mfg. & Trading Inc. v. Zaire
ICSID Case No. ARB/93/1 (Feb. 10, 1997)
• In this dispute, AMT claimed that Zaire violated its obligations under the U.S.Zaire BIT by failing to protect and maintain the security of its investment and by
failing to make restitution or pay compensation when Zairean soldiers broke into
its industrial complex and damaged and stole goods owned by its 94% owned entity
• The Tribunal rejected Zaire’s argument that the ICSID did not have jurisdiction
because the dispute was between a local Zairean company and Zaire, concluding
that AMT had a right to compel arbitration on its own behalf because it owned 94%
of the local company and that, because the local entity was majority-owned by U.S.
citizens, it had standing to utilize the ICSID
• It awarded US$9 million in compensation plus interest and costs
• This was the first award ever given under a bilateral investment treaty
to which the United States was a contracting party
M. Meerapfel Söhne AG v. Central African Republic
ICSID Case No. ARB/07/10 (May 12, 2011)
• The Tribunal was comprised of arbitrators from Morocco, Gabon, and Belgium,
and the Moroccan national was President of the Tribunal - Azzedine Kettani (Chair),
François T’Kint, Judge, Marie-Madeleine Mborantsuo
• Swiss Claimant company was the majority shareholder in a joint venture tobaccofarming business in the Central African Republic, with CAR minority shareholders
• When the venture suffered various problems, it filed a local lawsuit, but later entered
into a Protocol of Agreement with the CAR which contained an ICSID arbitration
• The assets of the venture were later requisitioned to recover tax debts, and the CAR
repudiated the Protocol of Agreement
• In the ICSID arbitration, the Claimant alleged that the CAR had expropriated its
investment without compensation in violation of the Protocol of Agreement
• The Tribunal concluded that the CAR had indirectly expropriated Claimant’s
investment and awarded damages in the value of the tobacco harvest actually lost to
the CAR’s expropriation by determining the average price of tobacco on the date of
expropriation but declined to award the Claimants lost profits and other expenses or
moral damages
Antoine Goetz & Consorts et S.A. Affinage des Metaux v.
Republique du Burundi,
ICSID Case No. ARB/95/3 (Feb. 10, 1999); 6 ICSID Rep. 5 (2004);
ICSID Case No. ARB/01/2 (June 21, 2012)
• Goetz v. Burundi involved a claim filed in 1995 that the revocation of a free
zone concession, which granted certain incentives and exceptions to a
mineral mining enterprise constituted an indirect expropriation under the
Belgium and Luxemburg Union-Burundi BIT
• The Tribunal ruled against Burundi, concluding that “the revocation of their
FTZ license forced [the complainants] to stop all activity . . . thereby making
their investment completely useless and depriving them of the benefits they
could expect therefrom”
• Tribunal allowed Burundi’s counterclaim and offered nonpecuniary remedy, i.e., reinstatement of the free zone regime
Biwater Gauff (Tanz.) Ltd. v. United Republic of Tanzania
ICSID Case No. ARB/05/22 (Jul. 24, 2008)
• An Anglo-German consortium filed a claim against the Republic of Tanzania
under the UK-Tanzania BIT concerning a concession to operate the water and
sewerage services of Tanzania's capital, Dar es Salaam
• The Tribunal's majority ruled that, while Tanzania's actions may have
constituted prima facie violations of certain BIT provisions, they did not
cause injury to the claimant's venture, and, accordingly, the claimant was not
entitled to compensation
• However, the finding of non-compensable fault on the part of Tanzania
allowed the Tribunal to allocate the costs of the proceeding equally
• The Award has been described as a “model of reasoning and exhaustive
analysis,” and it provides a flexible definition of "investment" under the ICSID
• It also offers clarity on a number of legal standards such as fair and equitable
• The Tribunal also served to legitimize amicus submissions
Bernardus Henricus Funnekotter and Others v. Republic of Zimbabwe,
ICSID Case No. ARB/05/6 (April 22, 2009)
• This ICSID claim was brought in 2005 by a group of 13 Dutch farmers who
alleged that Zimbabwe had breached various provisions of the NetherlandsZimbabwe BIT by expropriating their agricultural landholdings and other
property as part of Mugabe’s land-reform program
• In its defense, Zimbabwe noted that its actions were justified in the public
interest to address entrenched historical inequalities in land-ownership in
• Zimbabwe also argued that large-scale nationalizations called for a discounted
rate of compensation, although this was dismissed by the Tribunal, which
determined that the value of an investment should be considered
independently “of the number and aim of the expropriations”
• In April 2009, the Tribunal ordered Zimbabwe to pay the claimants
approximately 8.2 million Euros in damages and US $225,000 in arbitral
Southern African Development Community
• SADC’s primary objective is “to promote sustainable and equitable
economic growth and socio-economic development through efficient
productive systems, deeper co-operation and integration, good
governance, and durable peace and security, so that the region
emerges as a competitive and effective player in international
relations and the world economy”
• 15 Member States: Angola, Botswana, Democratic Republic of the
Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique,
Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia,
Southern African Development Community
• The SADC Protocol on Finance and Investment (the "Protocol"), which
entered into force on April 16, 2010, contains international protections for
foreign investors in the SADC, including the ability to initiate binding
international arbitration proceedings directly against Member States
• While Article 28(2) sets forth three options for investor state-arbitration the SADC Tribunal, the ICSID or the ICSID Additional Facility, or the
UNCITRAL Rules – the SADC Tribunal’s jurisdiction has been restricted to
disputes between Member States, so the choices now are limited to the
ICSID options and UNCITRAL
• Further, Article 28 allows parties that resist arbitration to effectively limit a
party’s choice of forum to arbitration under the UNCITRAL Rules
Southern Africa Development Community (SADC)
• Exceptions for measures relating to public morals and safety, the protection of
human, animal or plant life or health, the conservation of natural resources,
environmental protection, prudential and taxation measures, as well as for
existing non-conforming measures and ‘excluded sectors’, and omitting MFN
• Recommendations for various investor obligations, an article confirming a host
state’s right to regulate in the public interest, and a provision on ‘fair
administrative treatment’ rather than the ‘fair and equitable treatment’
• Recommendation for ‘fair and adequate’ compensation in cases of legitimate
expropriation, rather than ‘prompt, adequate and effective’
• Recommendation that foreign investors be denied recourse to
international investor-state dispute settlement procedures, or, if
such recourse is included, qualifying it by requiring that investors
first exhaust local remedies
System Under Scrutiny
• The legitimacy of investment agreement arbitration has increasingly come
under scrutiny
• Bolivia, Ecuador, and Venezuela have publicly denounced the ICSID
Convention, a formal legal withdrawal pursuant to its Article 71
• A frequent unsuccessful respondent in ICSID proceedings, Argentina also has
indicated that it may withdraw from the Convention
• Australia recently decided to exclude provisions on international arbitration in
its future investment agreements
• India’s Department for Industrial Policy and Promotion has called for a review
of all of the BITs that India has signed
• Indonesia too has indicated that it may let its ISDS legal obligations lapse
A System Under Scrutiny
• South Africa, although not an signatory of the Washington Convention,
launched a review of its BITs following a claim against it under the ICSID
Additional Facility Rules in Piero Foresti v. Republic of South Africa
• Investors from Luxembourg and Italy argued that South Africa's Mining
and Petroleum Resources Development Act violated the fair and
equitable treatment and the national treatment provisions of South
Africa’s BIT with Belgium and Luxembourg and expropriated their
mineral rights by treating foreign investors and investments less
favorably than investments with Historically Disadvantaged South
• The claim was settled in 2010, but South Africa immediately began its
BIT review
• Draft Promotion and Protection of Investment Bill and Model BIT
• https://icsid.worldbank.org/ICSID/Index.jsp
• http://www.sadc.int/
• http://unctad.org/SearchCenter/Pages/Results.aspx?k

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