Grupo Francisco Hernando Contreras, S.L. v. Republic of Equatorial Guinea,Case No. ARB(AF)/12/2
A majority tribunal at the Additional Facility (AF) of the International Centre for Settlement of Investment Disputes (ICSID) dismissed the case of Spanish construction company Grupo Francisco Hernando Contreras, S.L. (Contreras Group) against Equatorial Guinea, in an award dated December 4, 2015. According to the majority, the claimant was not a protected investor under the bilateral investment treaty (), as it did not make an investment in accordance with host state law.
Factual background and claims
Throughout 2008, a Contreras Group company signed several documents with Equatorial Guinea. These included a letter of intentions formalizing a proposal to build an industrial district and a self-sufficient city of 15,000 residences in Equatorial Guinea, and an agreement on the constitution of a joint-stock company to build industries in the Malabo and Bata regions. The Contreras Group subsequently constituted two companies in Equatorial Guinea: Nueva Edificación 2000, S.A. (Nueva Edificación), wholly-owned by the Contreras Group, and Industrias y Construcciones Guinea Ecuatorial, S.A. (INCOGESA), owned by the Contreras Group and Equatorial Guinea in equal parts.
Between 2008 and 2011, several steps were taken to advance the construction projects. In particular, the Contreras Group delivered projects, business plans and profitability studies for the government’s review, and acquired machinery in Spain. The government, in turn, authorized by resolution the establishment of Nueva Edificación, hired a company to evaluate the projects presented, and issued Nueva Edificación a direct award (“adjudicación directa”) to build the administrative city of Oyala.
In early 2012, however, the Contreras Group complained that Equatorial Guinea had failed to make outstanding payments and was imposing unjustified obstacles to the project, in breach of the 2003 Spain–Equatorial Guinea BIT. It initiated arbitration in March 2012 under the BIT and ICSID AF Arbitration Rules, as Equatorial Guinea is not a party to the. The respondent opposed a series of objections to jurisdiction.
Law applicable to jurisdictional objections
Recalling that the ICSID AF Rules do not define the applicable law and that the ICSID Convention does not apply to cases under ICSID AF Rules, the tribunal looked to the BIT to determine the applicable law.
BIT Article 11(3) provides that the arbitration shall be governed by the provisions of the BIT, the domestic law of the host state, and applicable rules and principles of international law. Accordingly, the tribunal set out to analyze each of jurisdictional objection based on the BIT, applying the domestic law of Equatorial Guinea when BIT provisions so determined.
Tribunal succinctly dismisses three jurisdictional objections
Equatorial Guinea had originally objected that the BIT was not in force when the dispute arose. Considering that both states had deposited their instruments of ratification by 2009, that the BIT provides for its provisional application upon its signing in 2003, and that the respondent had withdrawn its objection at the hearing, the tribunal held that the BIT was in force and applied to the dispute at hand.
The respondent had also argued that it had not consented to arbitration under Article 25 of the ICSID Convention. Recalling that the ICSID Convention is not applicable to arbitrations under AF Rules, and indicating that the signing of the BIT expressed Equatorial Guinea’s consent to arbitrate, the tribunal dismissed the objection.
Equatorial Guinea also denied that there was a “legal dispute” within the meaning of Article 25(1) of the ICSID Convention. The tribunal once again rejected the application of the ICSID Convention, and held that, for purposes of determining its jurisdiction, it should assume the dispute had a legal nature, given that the investor claimed compensation for breach of investment protection standards under the BIT.
To qualify as “investor,” claimant must have made a covered investment
The respondent argued that the Contreras Group did not make an “investment” in Equatorial Guinea within the meaning of the BIT and, therefore, did not qualify as an “investor.”
Considering that the Contreras Group was both constituted and headquartered in Spain, the tribunal held that it qualified as a “company” of Spanish nationality that owns or controls a company established in Equatorial Guinea, within the meaning of the BIT. In addition, the tribunal concluded that, to qualify as an “investor,” the claimant also needed to have made an investment in the other party in accordance with its domestic laws.
Did the Contreras Group make investments in accordance with Equatoguinean law?
BIT Article 1(2) defines “investments” by an illustrative list of assets, subject to the investor’s compliance with host state law. To determine whether there was an investment, the majority briefly referred to criteria of the Salini test (contribution by the investor, duration, risk). It noted that both parties agreed that the existence of an investment depended on “a contribution of the Claimant which would arise from a contractual relationship” (para. 141), but disagreed as to whether the investment complied with host state law.
Emphasizing that the contractual basis of the claims was an essential requirement for the existence of a covered investment, the tribunal set out to analyze, under Equatoguinean law, the alleged contractual relationship for the construction work in Malabo and Bata, and the supposed existence of a direct award for the construction work in Oyala.
Based on the text of the constitution agreement related to the Malabo and Bata construction work, the tribunal concluded that the existence of rights and obligations was conditioned on: (a) the conclusion of a construction agreement between INCOGESA and Equatorial Guinea; and (b) the proper constitution of the companies Nueva Edificación and INCOGESA.
There was no evidence that the Contreras Group had complied with the administrative procedure under the Equatoguinean Law on Contracts for the conclusion of a construction agreement with the state, the tribunal indicated. Furthermore, it concluded that the state’s “administrative silence” did not generate binding effects that could replace compliance with the legal procedure.
Even though Nueva Edificación was duly registered, the tribunal noted that its capital stock was later reduced significantly below the minimum required by law—which would eventually lead to the company’s dissolution. It also noted that Nueva Edificación did not begin its activities within the time limits established by law. With respect to INCOGESA, the tribunal pointed out that, although the company was formally constituted and its capital stock was allegedly paid in full, there was no proof that the capital stock had been deposited in a bank account, as required by Equatoguinean law.
Finding that neither of the companies was formed in accordance with Equatoguinean law, the tribunal concluded that they did not have legal personality to operate as vehicles for the claimant’s investments. In the majority’s analysis, “the arguments and conduct of the Claimant evidence its lack of appropriate knowledge of the domestic law applicable to its alleged investment,” a failure that “expresses negligent conduct” (para. 227).
As to the Oyala construction, the majority noted that the government resolution formalizing a direct award did not exclude the need to enter into a contract within 30 days of the award, as required by the Law on Contracts. As there was no evidence that the Contreras Group sought to conclude the contract or that Equatorial Guinea refused to conclude it, the Contreras Group abandoned its intention to invest in the country, in the majority’s view.
Dismissal and costs
The majority deemed it unnecessary to examine the Salini criteria of duration and risk. It dismissed the case for lack of a protected investor and investment, ordering each party to bear its own expenses and an equal part of arbitration costs.
Dissent rejects Salini criteria, formalistic notion of contract, and remarks about the claimant’s lack of knowledge
Arbitrator Orrego Vicuña, however, would have upheld the tribunal’s jurisdiction. In his dissent, he indicated that the Salini criteria were not included in the BIT, and have been rendered obsolete by investment treaties and jurisprudence. Even acknowledging that there was no written contract, he disagreed with the majority’s formalistic interpretation. In his view, there were sufficient elements to evidence the existence of a contract, consisting in an agreement expressed by an offer followed by acceptance.
He also opposed the majority’s remarks about the investor’s negligence: “if the investor is contracting with the state, it is the latter who has the obligation to require that all the steps required by its legislation are adopted” (dissent, para. 14).
Notes: The ICSID tribunal was composed of Bernardo Sepúlveda Amor (President appointed by the Chairman of the Administrative Council, Mexican national), Francisco Orrego Vicuña (claimant’s appointee, Chilean national), and Raúl E. Vinuesa (respondent’s appointee, Spanish and Argentine national). The award, including the dissent by Francisco Orrego Vicuña, is available in Spanish only at http://www.italaw.com/sites/default/files/case-documents/italaw7106.pdf.
Martin Dietrich Brauch is an International Law Advisor and Associate of’s Investment for Sustainable Development Program, based in Latin America.