Lima Arbitration

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THE NEW FACE OF INVESTMENT ARBITRATION: NAFTA CHAPTER 11 The filing of the claim led to protests by environmentalists and the U.S. Environmental Protection Agency (EPA). Charges were made that NAFTA Chapter 11, by allowing corporations to recover for unfair treatment, favored corporate profits over the legitimate exercise of sovereignty by local governments. This arbitral process was attacked as undemocratic, cloaked in secrecy, and lacking adequate rights of appeal and protection for equally injured domestic producers. NAFTA was further criticized as denying the American public a right to protect its water and air. 84 2. Loewen In Loewen v. United States, a Mississippi jury verdict led to claims of failure to grant «fair and equitable treatment» and expropriation without adequate compensation. 85 The jury had awarded half a billion dollars in favor of a Mississippi funeral director who claimed that a Canadian buyer had breached a contract for the purchase of his funeral parlors. When the Canadian attempted to appeal, he found that a state law required the posting of a bond as security for payment of the judgment equal to 125% of the amount awarded. In this case the sum would have been $625 million, high enough to force a substantial settlement. The Canadian defendant then filed a NAFTA Chapter 11 claim against the United States in an ICSID Additional Facility arbitration. The merits of the case are still being arbitrated, but an interim award did decide that a court judgment can be considered a governmental «measure» that might give rise to liability for discrimination, failure to grant «fair and equitable treatment,» and expropriation without adequate compensation. 86 84 For a survey of the criticisms of NAFTA provoked by Methanex, see Lucien J. Dhooge, The Revenge of the Trail Smelter: Environmental Regulation as Expropriation Pursuant to the North American Free Trade Agreement, 38 Am. Bus. L.J. 475, 478-79 (2001). 85 The $500 million verdict awarded by the Mississippi jury included $400 million in punitive damages. See Loewen, ICSID Case No. ARB (AF)/98/3, Interim Award on Jurisdiction (Jan. 5, 2001), para. 2, http:// www.naftaclaims.com. The arbitration claim was based on NAFTA Articles 1102, 1105, and 1110. Id. para. 30. The rich tapestry of this dispute is set forth in Jonathan Harr, The Burial, New Yorker, Nov. 1, 1999, at 70, which describes the backgrounds of the Mississippi plaintiff, Jeremiah O’Keefe, his Florida lawyer, Willy Gary, the allegedly xenophobic comments to the jury, and the circumstances surrounding the $175 million settlement. 86 Loewen, Interim Award on Jurisdiction (Jan. 5, 2001). 36 LIMA ARBITRATION. N° 1 - 2006
GUILLERMO AGUILAR ÁLVAREZ / WILLIAM W. PARK 3. Mondev In the final example, a Quebec corporation commenced arbitration arising from a decision by the Massachusetts Supreme Judicial Court dismissing an action against the city of Boston for breach of a contract to sell property in connection with municipal redevelopment, and against the Boston Redevelopment Authority for tortious interference with contractual relations. 87 The developers had entered into an agreement with Boston to acquire a parcel of downtown real estate. When the city balked at going through with the transfer, the failure was ultimately excused on the basis that the Canadian investment vehicle did not «follow the steps» required under the agreement, since its offer to buy the parcel had not manifested a «precise time and place for passing papers.» 88 The claim against the Boston Redevelopment Authority was dismissed on the basis that this public body was immune from tort liability under the Massachusetts Tort Claims Act. 89 Aggrieved by the court decision, the Montreal investor brought a $50 million claim under the ICSID Additional Facility alleging discrimination, expropriation without compensation, and denial of «fair and equitable treatment.» The decision of the Massachusetts Supreme Judicial Court endorsing the denial of the developer’s right to purchase the land was described as «unprincipled» and «arbitrary.» 90 One can understand that such a proceeding might surprise many Americans. What could be more likely to fall within the power of the Supreme Judi- 87 Mondev International Ltd. v. United States, ICSID Case No. ARB (AF)/99/2, Award (Oct. 11, 2002), 42 I.L.M. 85 (2003). The arbitral tribunal dismissed Mondev’s claims, finding that the American court decisions «did not involve any violation of Article 1105(1) of NAFTA or otherwise.» Id. award cl. (c), 42 I.L.M. at 116. The party-nominated arbitrators were James Crawford (for Claimant) and Stephen Schwebel (for Respondent), and the Presiding Arbitrator was Ninian Stephen. See also Lafayette Place Associates v. Boston Redevelopment Auth., 694 N.E.2d 820 (Mass. 1998). Operating in Boston through the limited partnership, Mondev had agreed to participate in a project originating in an attempt to rehabilitate the so-called «combat zone,» a dilapidated area near Boston’s downtown shopping district. Although the Supreme Judicial Court found the contract with Boston to be enforceable, the developers were deemed to have forfeited their rights due to lack of evidence that they were ready, able, and willing to close the sale. 88 Lafayette Place Associates, 694 N.E.2d at 827. 89 Id. at 831-35. See Mass. Gen. Laws Ann., ch. 258, §§ 1, 10(c) (West Supp. 2002). 90 Mondev, Notice of <strong>Arbitration</strong> (Sept. 1, 1999), at 74, http:// www.naftaclaims.com. LIMA ARBITRATION. N° 1 - 2006 37
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EL ARBITRAJE DEL CIADI Y EL DERECHO
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LOS MEDIOS «ALTERNATIVOS» DE SOLU
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AUDIENCIA PÚBLICA DEL CONGRESO DE
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ARBITRAJE Y GRUPOS DE SOCIEDADES. E
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CONFLICTUANDO EL CONFLICTO. LOS CON
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EL ARBITRAJE EN LA DOCTRINA CONSTIT
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