Investment arbitration update

ICSID statistics

ICSID has published an update to statistics about its caseload, including all new cases as at 20 June 2014. These reveal an increasing number of claims in the energy and natural resources sectors (which comprised 65 per cent of new claims in 2014) and a concurrent rise in claims brought under the Energy Charter Treaty. In addition, claims against South American states (although still numerous) are somewhat less prolific, while new claims against Western European and African states are increasingly being filed. These statistics can be found on the ICSID website.

Europe

The increase in ECT claims is likely to reflect the number of claims brought against Spain as a result of cuts to renewable energy subsidies. So far, seven claims have been filed at ICSID: the last being a claim by Renergy Sarl, an investor in Iberéolica, which follows those filed by Infrared (through its UK subsidiary), British investment fund Eiser Infrastructure, BNP Paribas subsidiary Antin, as well as US's NextEraEnergy, Abu Dhabi's Masdar Clean Energy and Deutsche Bank-owned Rreef (through various subsidiaries). CSP Equity Investments, a Luxembourg subsidiary of Spain's Abengoa, has also filed an SCC claim against Spain. There have also been a number of claims against Spain under the UNCITRAL Rules.

Russia and Iran have been vindicated in two separate proceedings: Iran won its first arbitration under an investment treaty against Turkish mobile phone company Turkcell. The Tribunal declined jurisdiction on the basis of no qualifying "investment" under the Turkey-Iran BIT, having considered the application of the BIT to pre-existing investments, and whether or not rights allegedly acquired through tender amounted to protected rights under the BIT. Russia's major oil company Tatneft was awarded US$112 million in a UNCITRAL arbitration as a result of Ukraine's forcible takeover of a refinery in 2007. The tribunal found that the physical takeover, and the ouster of Tatneft as a shareholder, was a breach of the fair and equitable treatment guarantee under the 1998 Russia-Ukraine BIT.

Russia has applied to the Dutch Courts to set aside the US$50 billion award obtained in July by former majority shareholders in Yukos Oil Company against Russia under the Energy Charter Treaty. The application is based on a jurisdictional challenge which includes claims of "serious flaws" in the award, and that the rulings were "politically biased". In a separate matter, the District Court of Stockholm has confirmed the jurisdiction of an SCC arbitral tribunal which found for Spanish investment funds against Russia in July 2012, in connection with a claim brought under the 1990 Spain-Russia BIT, for the loss of value of American depository receipts relating to Yukos Oil.

South America

Mexico faces four separate claims totaling over US$200 million from investors in gaming, construction, soft drinks and water treatment industries. These have been commenced by investors under the Spain-Mexico BIT, the France-Mexico BIT and two claims under NAFTA.

El Salvador: ICSID proceedings have commenced in respect of a claim brought by US gold-mining company Pacific Rim Mining and its Australian partner OceanaGold against El Salvador under the Dominican Republic-Central American Free Trade Agreement. El Salvador refused to grant a gold-mining permit that has been pending for much of the past decade, citing national policies aimed at safeguarding the environment and human health. The claim has incited public protests against the actions of the mining companies.

The usual suspects, Ecuador, Venezuela and Argentina, remain embroiled in ICSID arbitration.

The saga between Ecuador and Chevron continues in the Permanent Court of Arbitration (PCA), after a failed attempt by Ecuador to disqualify the tribunal hearing Chevron's claim under the US-Ecuador BIT in 2009. Chevron dispute the US$9.5 billion judgment handed down by an Ecuadorean court for oil pollution (allegedly caused by its predecessor Texaco) in the Amazon. The PCA has released Texaco from liability in respect of claims brought by the state or third parties in the public interest, but postponed a decision on whether their findings would have precluded Ecuador's case. Chevron also alleges that the judgment was procured by fraud. In the meantime, Ecuador has violated interim awards made by the PCA by failing to prevent enforcement actions in Canada, Brazil and Argentina. An appeals court in Ontario found Ecuador had the right to pursue Chevron's assets in Canada last December.

An ICSID panel has refused to modify a decision staying enforcement of a US$2.3 billion award against Ecuador in favour of Occidental Petroleum, despite Occidental's concern that Ecuador will take steps to enforce a US$11.5 million tax judgment against it. Enforcement of the award is stayed, pending annulment proceedings.

Venezuela continues to face claims arising out of changes to its oil and gas regime in 2007, which imposed a minimum 50 per cent state participation through PDVSA and increased tax and royalty rates. ConocoPhilips has filed a new ICC claim in parallel to its ongoing US$30 billion ICSID proceedings against the state. Conversely, a tribunal hearing ExxonMobil's claims in relation to two oil projects in the Orinoco Belt has deemed Venezuela's expropriation lawful - albeit awarding US$1.6 billion (offset by the US$908 million already awarded in ICC proceedings) to ExxonMobil in compensation. Venezuela has, however, won a provisional stay on enforcement on the basis of a request for clarification. Separately, Venezuala was ordered to pay US$740 million to Canadian mining company Gold Reserve under the Canada-Venezuela BIT for depriving it of its rights to a gold and copper project. Venezuela has filed a petition to set-aside the award in the French courts.

Argentina: a third group of 74 Italian bondholders, Giovanni Alemanni and others, have filed a claim at ICSID under the Italy-Argentina BIT in relation to Argentina's 2001 default of sovereign debt. The first claim, the Abaclat arbitration involving 60,000 Italian bondholders, was filed in 2011 and is significant as being the largest collective claim under an ICSID tribunal. Last year, a tribunal in the Ambiente Ufficio case upheld jurisdiction over claims by 90 bondholders.

Argentina's ongoing effort to overturn the US$185 million arbitral award in favour of BG Group plc, has been thwarted by the US Supreme Court, which refused Argentina's appeal against the award's reinstatement in May.

China

Ansung Housing Co, a Seoul-based developer, has filed a claim at ICSID against China under the 2007 China-Korea BIT in respect of the actions of the provincial government which frustrated the development of a golf and country club and condominiums in Sheyang Xian, Jiangsu. This is only the second ICSID claim filed against China, and it is the first ICSID claim to be filed by a Korean investor.

Bilateral trade

Investor State Dispute Settlement (ISDS) provisions have caused much controversy in the context of negotiating international free trade agreements, as opponents fear these leave governments vulnerable to actions from overseas investors, when local laws interfere with the profitability of investments. This issue still threatens to derail the Transatlantic Trade and Investment Partnership which aims to remove trade barriers between the EU and the US in a wide range of economic sectors, and is currently in its seventh round of negotiations.

However, innovative ISDS provisions included in the EU-Canada Trade Agreement (CETA) concluded on 26 September 2014 have allayed such concerns. The ISDS provisions ensure a high level of protection, while preserving the EU and Canada's right to regulate and pursue legitimate public policy objectives. They provide more precise definitions of the "fair and equitable treatment" standard, of "indirect expropriation", and do not incorporate "Most Favoured Nation" clauses. Many of the new provisions are also found in the Investment Protection Chapter of the EU-Singapore Free Trade Agreement (EUSFTA) concluded on 17 October 2014. The EUSFTA replaces 12 existing BITs between Singapore and EU member states.