Gaela Gehring Flores: What to consider when initiating an investment arbitration
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Transcript of Gaela Gehring Flores: What to consider when initiating an investment arbitration
arnoldporter.comArnold & Porter LLP, All Rights Reserved.
What to Consider When Preparing an Investment
Arbitration
Gaela K. Gehring FloresEighth Investment Arbitration
Forum: Investment Protection and the Mexican Energy Reform8 November 2016
Transglobal Green Energy v. Panama “[T]he Tribunal upholds Respondent’s objection to its jurisdiction on the ground of abuse by Claimants of the investment treaty system by attempting to
create artificial international jurisdiction over a pre-existing domestic dispute.”
Philip Morris v. Australia“In light of the foregoing discussion, the Tribunal cannot but conclude that the initiation of this
arbitration constitutes an abuse of rights, as the corporate restructuring by which the Claimant
acquired the Australian subsidiaries occurred at a time when there was a reasonable prospect that the dispute would materialise and as it was carried out for the principal, if not sole, purpose of gaining Treaty protection. Accordingly, the claims raised in this arbitration are inadmissible and the Tribunal is
precluded from exercising jurisdiction over this dispute.”
Jurisdiction: Rationae Personae
Jurisdiction Ratione Materiae: An “investment” that satisfies the requirements the investment agreement (and the ICSID Convention).
The term “investment” is usually broad, e.g., “every kind of asset owned or controlled, directly or indirectly, by an investor of one Contracting Party in the territory of the other Contracting Party . . . .”
Certain investment agreements include “shall admit such investments in accordance with its laws and regulations.”
Jurisdiction: Rationae Materiae
Sociedad Anonima Eduardo Vieira c.
Republica de Chile
“[L]a controversia objeto de este arbitraje surgió
con anterioridad al 29 de marzo de 1994 y la misma
se proyectó en el tiempo hasta el año de 2001 . . . ,
por ende, el Centro carece de jurisdicción ratione
temporis para conocer del presente caso.”
Jurisdiction: Rationae Temporis
Corona Materials v. Dominican Republic
“The record shows that the Claimant had actual knowledge of the alleged breach
and of the corresponding damage or harm before the critical date. It derives from the
evidence reviewed above that Claimant concluded well before the critical date that DR-CAFTA had been effectively breached and that such breach had produced substantial loss or
damage. As a matter of fact, the Claimant did not submit its Request for Arbitration until June 10, 2014, which is 3 years, 3
months, and 19 days later. As a consequence, its claims are timebarred by
DR-CAFTA Article 10.18.1.”
Jurisdiction: Rationae Voluntatis
Pey Casado y Fundación Presidente Allende v. República de Chile (2016)
“The Tribunal regrets that the Claimants did not set themselves to the specific task of showing what particular injury and damage could be proved to have
been caused to them by the breach of the guarantee of fair and equitable treatment under Article 4 of the BIT . . . . There was thus no other course open to it than to
dismiss, virtually in their entirety, the Claimants’ monetary claims.”
Proof of Damages: Causation and Quantum
AES v. Hungary
“[It] is not every process failing or imperfection that will amount to a failure to provide fair and equitable treatment. The standard is not one of perfection. It is only when a state’s acts or procedural omissions are, on the facts and in the context before the adjudicator, manifestly unfair or unreasonable (such as would shock, or at least surprise a sense of juridical
propriety) . . . that the standard can be said to have been infringed.”
“[T]he fact that an issue becomes a political matter . . . does not mean that the existence of a rational policy is erased.”
Fair & Equitable Treatment
Nominating an Arbitrator: Do Your Research – Know Your
Procedure
o Governing Investment Agreement Provisions
o Institution Rules, e.g., o ICSID Convention
Articles 37 -40o ICSID Rules 2-4
An investor Nationality of investor? Definition of “investor” under relevant investment
agreement? What is the corporate structure of investor and
affiliates/parent? signs a gas exploration and production agreement for 25
years What type of contract? Administrative contract? What is the relevant legal regime? Administrative law? Are there any exclusions in the investment agreement
for this type of contract? Does the contract comply with all formal local law
requirements, e.g., registration?
Hypothetical Case
It invests US$30 million How was $30 million invested? What evidence do you
have to prove it? What entity executed the investment? A subsidiary or
affiliate? and finds gas reserves
Under the existing hydrocarbon law, does the state own all natural resources regardless of entity that made discovery?
What were the terms of ownership and exploitation of reserves under the Agreement?
with a value of several billion USD. According to whom? Is this a speculative assessment? Based on DCF analysis?
What assumptions go into this valuation? This will be subject of great debate for damages experts.
Hypothetical Case (Cont.)
Due to the market situation, it does not obtain the financing to start drilling, According to whom/what evidence is the failure to
obtain financing due to market situations and not fault of investor and its own financial situation?
incurs considerable delay and, violates the corresponding milestone in the project agreement Was this foreseen in the financing terms of the
agreement? Any communications with government officials that
could be taken to imply that the government was aware of the difficulties and gave even tacit acceptance of the delay?
Hypothetical Case (Cont.)
After a change of governments, the Mexican Hydrocarbon Commission Any evidence that the new administration and/or Hydrocarbon
Commission is anti foreign investor? Any public statements by new administration to establish
hostile animus? initiates the administrative rescission of the gas exploration and
production agreement and terminates it Were all formalities followed, e.g., was proper notice of the
rescission given (under local law)?Does the Agreement provide for a different mechanism for
termination?Did investor appeal the decision? Fork in the road, exclusivity
and exhaustion of local remedies provisions in the investment agreement. (or ICSID Convention)
Hypothetical Case (Cont.)
without paying any compensation. Would compensation be required per the terms of the
agreement and/or the Hydrocarbon Law or Administrative Law?
Any conflicts between the laws? The Hydrocarbon Commission re-awards the gas
production contract for the multi-billion gas reserves Was re-awarding the contract permissible under the
Hydrocarbon Law and administrative law? to a political crony
What is the proof of cronyism? Beware of speculation and conspiracy theories.
Hypothetical Case (Cont.)
The original investor is left with a sunk investment lost of US$30 MM and does not receive any compensation for having discovered proven reserves of oil with a value of several billion US$, or its sunk investment What is the evidence of the loss? What is contemplated in the
Investment Agreement in terms of compensation post termination? Do theories of unjust enrichment exist under governing local law?
Is there any reason why this investor might have believed that it was guaranteed specific return on its investment?
due to the express prohibition in the Mexican Hydrocarbons Law to pay any kind of compensation Was the Hydrocarbon Law in existence at the time of the
agreement? If not, are there any grandfather rules that would exempt this
investor from the applicability of the HC law?
Hypothetical Case (Cont.)
Media
arnoldporter.comArnold & Porter LLP, All Rights Reserved.
Eighth Investment Arbitration Forum: Investment Protection and the Mexican Energy Reform
8 November 2016