Investment Treaty Update - Watson, Farley & Williams

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“...THE RIGHT TO HAVE RECOURSE TO INTERNATIONALARBITRATION WAS VERY MUCH RELATED TO INVESTORS’“MANAGEMENT, MAINTENANCE, USE, ENJOYMENT ORDISPOSAL OF THEIR INVESTMENTS” AND IN PARTICULARTHE “MAINTENANCE” OF INVESTMENTS.”provisions in whole or in part set forth in another treaty,unless the MFN provision in the basic treaty leaves no doubtthat the Contracting Parties intended to incorporate them”.More Recent DecisionsMFN clauses have been the focus of three recent decisions inthe last six months: (1) National Grid Plc v The ArgentineRepublic (20 June 2006), (2) Suez, Sociedad General deAguas de Barcelona, S.A. and Vivendi Universal S.A. v TheArgentine Republic and Anglian Water Group Ltd. v TheArgentine Republic (3 August 2006) and (3) Telenor MobileCommunications A.S. v The Republic of Hungary (13September 2006).In the Suez case, the arbitration concerned claims againstArgentina relating to the provision of water services. SociedadGeneral de Aguas de Barcelona S.A. (“AGBAR”) and AnglianWater Group Ltd. (“AWG”) sought to invoke the MFN clauses ofthe Spain-Argentina and UK-Argentina BITs respectively in orderto overcome requirements in those BITs to pursue claims foreighteen months in domestic courts prior to pursuinginternational arbitration. The investors argued that they shouldbe treated the same as their French counterparts, Suez andVivendi, who were entitled under the France-Argentina BIT topursue international arbitration after a six month waiting period.In the case of the Spain-Argentina BIT, the MFN clauseexpressly applied to “all matters” covered by the treaty. Thetribunal held that dispute settlement was clearly a “matter”covered by the BIT and held that the most favourable treatmentafforded by the BIT applied to the right to dispute settlement.Accordingly, AGBAR was able to obtain the more favourabletreatment found in the France-Argentina BIT.The MFN clause in the UK-Argentina BIT was not expresslystated as applying to “all matters”. However, the tribunalinterpreted “treatment” as meaning “the rights and privilegesgranted and the obligations and burdens imposed by aContracting State on investments made by investors coveredby the treaty”. The tribunal held that the right to have recourseto international arbitration was very much related to investors’“management, maintenance, use, enjoyment or disposal oftheir investments” and in particular the “maintenance” ofinvestments.The tribunal in National Grid Plc v The Argentine Republic alsohad to consider the MFN clause in the UK-Argentina BIT. Inreaching its decision, the tribunal endorsed the reasoning in theMaffezini case. As in Maffezini, the National Grid tribunalsought to stress that there were limits to how far theinterpretation of MFN clauses extended. However, the NationalGrid tribunal was of the opinion that the purpose of an MFNclause was “to ensure that foreign investors are treated on abasis of parity with other foreign investors and with nationalinvestors when they invest abroad”.The National Grid tribunal did not expressly reject the Plamadecision, but did seek to distinguish it. In this instance thetribunal did so on the basis that Plama was an example of anattempt to extend the interpretation of an MFN clause beyondappropriate limits, and that the Plama decision did not “justifydepriving the MFN clause of its legitimate meaning or purposein a particular case”. Neither tribunal expressed an opinion asto whether an MFN clause of the kind considered by the Plamatribunal could have the effect of replacing a BIT’s disputeresolution mechanism.The Telenor DecisionThe very recent Telenor case concerned a claim against theHungarian government under the Hungary-Norway BIT. TheNorwegian investor sought to overcome Hungary’s limitedconsent (contained in the BIT) to ICSID arbitration for disputes“concerning the amount or payment of compensation … orconcerning any other matter consequential upon an act ofexpropriation” in order to pursue a claim before ICSID forbreach of the BIT’s fair and equitable treatment provision. In itsdecision, after having considered the Maffezini award andsubsequent decisions which had followed it, the Telenortribunal endorsed the Plama decision and its reasoning. Further,the Telenor tribunal used the same grounds relied upon by theSuez tribunal to distinguish the Plama decision, to distinguishits own case from the Suez decision.CommentIt is perhaps an overstatement to suggest that the recentdecisions represent a consensus of legal opinion on theinterpretation and application of MFN clauses, such that anMFN clause in a basic treaty can be invoked in order toovercome prescribed waiting periods by importing morefavourable dispute settlement provisions from third party BITs,but not to create jurisdiction not envisaged by the contractingparties to the BIT. Despite the recent decisions, the reasoningadopted by the tribunals in Maffezini and Plama remainsinconsistent and hard to reconcile. It is therefore likely that thisissue will continue to be an area of controversy in investmenttreaty jurisprudence.THE INVESTMENT TREATY UPDATE WATSON, FARLEY & WILLIAMS ARBITRATION GROUP 04
“THE DESIRE FOR TRANSPARENCY OFTEN CLASHES WITHTHE PRESUMPTION OF CONFIDENTIALITY USUALLYATTACHING TO THE ARBITRAL PROCESS, WHICH MANYPRACTITIONERS ASSUME SHOULD APPLY EQUALLY TOTREATY ARBITRATION.”Transparency in <strong>Treaty</strong> ArbitrationConfidentiality is one of the main features and advantages ofinternational commercial arbitration, and flows from the natureof arbitration as a private process between private partiespursuant to an express agreement to resolve disputes that way.In investor-state treaty arbitrations, however, the arbitration isprimarily founded upon a treaty and/or national legislativeprovisions rather than upon a negotiated dispute resolutionagreement between the parties. Furthermore, the general publicinterest in investor-state disputes, as well as states’ generalduty of accountability, influence the character of the arbitration.Accordingly, the development of investor-state arbitrations overthe past decade has given rise to calls for greater transparencyin these proceedings. The desire for transparency often clasheswith the presumption of confidentiality usually attaching to thearbitral process, which many practitioners assume should applyequally to treaty arbitration. It may also conflict with theintegrity of the arbitral process as a means of achieving a fairresolution of the dispute.In Biwater Gauff (Tanzania) Limited v United Republic ofTanzania, an eminent ICSID tribunal attempted to balance theconflicting requirements of confidentiality, transparency andprocedural integrity. The tribunal was called upon to clarifythese issues in circumstances where the parties wereconducting media campaigns against each other, in a disputewhich attracted, and continues to attract, general media, NGOand public interest.In 2005, a dispute arose between Biwater Gauff (Tanzania) Ltd(“BGT”), a joint venture company, and the United Republic ofTanzania (“Tanzania”). BGT alleged that in 2005 Tanzaniaexpropriated its investment when the government repudiated acontract with BGT’s Tanzanian subsidiary (City Water) for theprovision of water and sewerage services, deported City Water’ssenior management, seized the company’s assets, occupied itsoffices and took over its business. BGT commenced ICSIDarbitration proceedings against Tanzania in August 2005. InMarch 2006 the tribunal held its first session and in May 2006it issued procedural order No.2 for the production ofdocuments.Shortly afterwards, Tanzania unilaterally “leaked” the minutes ofthe first session and a copy of the procedural order No.2, bypublishing them on the internet. Tanzania’s Counsel admittedbeing the origin of the “leak” and subsequently declined to givean undertaking not to disclose BGT’s recently filed pleadings,the exhibits attached thereto or any of the nine files of materialproduced by BGT in compliance with procedural order No.2.BGT applied for interim relief seeking to protect theconfidentiality of these documents.The issue raised by BGT’s application was delicate. On theone hand, BGT argued that the disclosure of such documentsbreached Tanzania’s obligations to observe the proceduralintegrity of the arbitration and not to aggravate the dispute.On the other hand, Tanzania argued that it had consistentlyadvocated the importance of transparency in this dispute,and that neither the ICSID convention nor the ICSIDArbitration Rules authorised the restrictions on transparencysought by BGT.The tribunal found that the media campaigns conducted by theparties and the general public and media interest in the disputewere sufficient threats to the procedural integrity of thearbitration, and gave rise to a concrete risk of aggravation andexacerbation of the dispute, requiring restrictions on thetransparency of the proceedings. However, in view of the publicnature of the dispute, the tribunal decided that any restrictionson transparency had to be carefully and narrowly defined. Thetribunal ordered that, in the absence of agreement, the partiesshould refrain from disclosing to third parties numerouscategories of documents produced in the arbitration (includingpleadings, disclosure and records of hearings). However, thetribunal allowed the parties to apply for these restrictions to belifted or varied on a case by case basis. It further ordered thatits decisions, orders or directions other than awards were not tobe disclosed to third parties, but allowed the parties to seek itsprior permission to do so. Finally, the tribunal reminded theparties that they were entitled to engage in general discussionabout the case in public, provided that any such publicdiscussion be restricted to what was necessary, and not beused as an instrument to antagonise the other party, exacerbatetheir differences, unduly pressurise a party, or render theresolution of the dispute potentially more difficult.Confidentiality v TransparencyThe tribunal noted that in the absence of any agreementbetween the parties on confidentiality or transparency, and inthe absence of relevant provisions on either issue in anapplicable BIT, there was no provision imposing a general dutyof confidentiality in ICSID arbitration, whether under the ICSIDConvention, the ICSID Administrative and Financial Regulations,the ICSID Arbitration Rules, the UNCITRAL Arbitration Rules orotherwise. Whilst these instruments ensure the privacy ofhearings, and provide for the publication of awards subject tothe parties’ consent, none expressly provides for theconfidentiality of pleadings, documents or other informationsubmitted by the parties during the arbitration. The tribunalTHE INVESTMENT TREATY UPDATE WATSON, FARLEY & WILLIAMS ARBITRATION GROUP 05
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