Majority of ICSID tribunal finds no fair and equitable treatment violation by Albania in petroleum dispute

Mamidoil Jetoil Greek Petroleum Products Societe S.A. v. The Republic of Albania, ICSID Case No. ARB/11/24

An arbitration between a Greek petroleum products firm and the Republic of Albania has reached the award stage at the International Centre for Settlement of Investment Disputes (ICSID). The ICSID tribunal found jurisdiction under the 1991 Greece–Albania bilateral investment treaty (BIT).

The tribunal unanimously dismissed the investor’s claim in relation to a purported indirect expropriation. A majority of the tribunal dismissed the investor’s claim that Albania had failed to provide fair and equitable treatment (FET); however, the claimant’s nominated arbitrator found Albania’s conduct to breach the FET standard.

Background

Mamidoil Jetoil Greek Petroleum Products Societe S.A. (Mamidoil) is a corporation organized and existing under the laws of Greece. From 1991 onwards, Mamidoil explored various commercial opportunities in Albania related to its major business activities, namely, the transport, storage and sale of petroleum products.

Mamidoil eventually settled on the construction and operation of an oil tank farm in the Durrës port area (Durrës Tank Farm), which led to a series of increasingly substantial investments in 1999 and 2000. During this period, local government officials sent a series of letters related to Mamidoil’s failure to obtain permits. The Durrës Tank Farm is situated close to a residential area.

The claimant substantially finished the construction of the Durrës Tank Farm by 2000. Subsequently concerns arose regarding the social impact of the tank farm, and the Albanian government embraced, in tandem with the World Bank and the European Union, re-zoning proposals that would relocate Durrës. Albania contended that an eventual ban on fuel vessels at Durrës was part of its long-term transport sector strategy as part of the necessary modernization of its port system.

Mamidoil contended that Albania encouraged it to invest in the country. Albania did not contest that it provided some support to Mamidoil, but contended that this was purely provisional and high level.

Business activities considered as unitary investment for purposes of jurisdiction

Albania had argued that “the composite parts of the investment form a whole and must be considered together” (para. 364). The tribunal agreed that construction of the Durrës Tank Farm, establishment of an Albanian subsidiary that was first controlled and later wholly owned by the claimant, conclusion of a Durrës-related lease by the subsidiary, and operation of Durrës by the subsidiary must be considered as constituting a single investment.

As the tribunal agreed with Albania that the investment be considered as a unity, it was not persuaded by Albania’s argument that certain elements of the investment failed to fulfill the ICSID Convention’s criterion for a covered investment. Rather, it found that the investor’s business activities clearly constituted an investment under the ICSID Convention.

Albania also objected on the basis of illegality, arguing that the investor had failed to obtain required permits. The tribunal found this more relevant to the merits stage: as Albania had informed the investor that it was ready to consider curing the illegalities, it could be expected to accept jurisdiction. (However, the majority subsequently found that without such permits the investor could have no legitimate expectation of proceeding with the investment and that the claim for breach of FET, among other claims, must be rejected.)

Energy Charter Treaty invoked at pleadings stage

In its Request for Arbitration, the claimant based its claim exclusively on the BIT and the ICSID Convention. The claimant’s memorial, however, subsequently asserted that the respondent’s consent to ICSID arbitration of the dispute was also found in the Energy Charter Treaty (ECT).

The tribunal rejected the ECT as applicable law, but took into account the legitimate disagreement between the parties as to whether the investment had been made illegally and therefore could not benefit from the protection of the ECT. In concluding its discussion of this complication, the tribunal noted that, “to the extent the Parties both took positions as to the propriety of the Respondent’s conduct under the ECT, for this reason alone the Tribunal will consider the ECT when addressing the existence and legality of an investment under each of the BIT and the ECT and Respondent’s compliance with both the BIT and the ECT.” (para. 278).

Indirect expropriation claim is unanimously dismissed

The claimant submitted that Albania had indirectly expropriated its investment under both under the BIT and the ECT. It relied on the following key facts: in June 2000, Durrës was re-zoned to exclude the investment; in July 2000, the investor was ordered to suspend construction of the tank farm, which was subsequently re-authorized; and, as of July 2009, Durrës was closed to petroleum vessels.

The tribunal disagreed, finding that re-zoning was transportation policy and that in any case the claimant had been allowed to operate profitably until the port was closed in 2009. It pointed out that “[r]egulations that reduce the profitability of an investment but do not shut it down completely and leave the investor in control will generally not qualify as indirect expropriations” (para. 572), referencing El Paso v. Argentina.

Majority dismisses FET- and discrimination-based claims

The majority (Rolf Knieper and Yas Banifatemi) noted that Albania’s recent history—“a highly repressive and isolationist communist regime” followed by “a severe economic financial crisis” (para. 625)—was relevant to the FET obligation under the BIT, especially the obligation to provide a stable and transparent legal framework. For the majority, Mamidoil knew that Albania was a country with run down infrastructure and a problematic legal and regulatory framework, and could not therefore legitimately expect the same stability as in other jurisdictions.

In terms of unreasonable and discriminatory measures, for the majority “the State’s conduct bore a reasonable relationship to some rational policy. […] Finally, the closure did not favour a local competitor because it concerned all importers of petroleum products” (para. 791).

Dissenting arbitrator finds violation of FET standard

The dissenting arbitrator (Stephen Hammond) disagreed with the majority’s conclusion that Albania provided fair and equitable treatment. The dissent disagreed with several important factual findings in the award, for example, that the claimant was aware that transformation of the port was imminent when it began construction of the tank farm.

The dissent also disagreed with the legal implications of continued construction after notification of imminent re-zoning. Citing the award in MTD v. Chile, it suggested that this was a mere failure to mitigate and could not result in a forfeiture of treaty rights. In terms of legitimate expectations specifically, the dissent found that the relevant time for determination of whether legitimate expectations had been created was the moment when the decision to invest was made.

Dissent finds violation of Energy Charter’s prohibition on unreasonable and discriminatory measures

The dissent found that Albania’s ban of fuel vessels at Durrës resulted in a failure to accord fair and equitable treatment and also constituted a breach of the ECT’s prohibition on unreasonable and discriminatory measures. While Albania maintained that its decision to ban fuel tankers at Durrës was based on public policy considerations, Mamidoil contended that it was instead driven by the need to settle another arbitration, this time under contract at the International Chamber of Commerce in Paris. Mr. Hammond agreed that the available documents showed the ban to have been triggered by Albania’s settlement agreement. (The majority had found in the award that the settlement agreement reiterated the government’s policy objectives.)

Notes

The tribunal was composed of Rolf Knieper (President appointed by the Chairman of the ICSID Administrative Counsel, German national), Stephen A. Hammond (claimant’s appointee, U.S. national), and Yas Banifatemi (respondent’s appointee, French national). The final award of March 30, 2015 is available at http://www.italaw.com/sites/default/files/case-documents/italaw4228.pdf. The dissenting opinion of March 20, 2015 is available at http://www.italaw.com/sites/default/files/case-documents/italaw4235.pdf.

Author

Matthew Levine is a Canadian lawyer and a contributor to IISD’s Investment for Sustainable Development Program.