Bolivia ordered to suspend criminal proceedings in its ongoing dispute with Chilean chemical firm Quiborax

By Elizabeth Whitsitt

April 8, 2010

An ICSID tribunal has granted provisional measures in a dispute between co-claimants Quiborax, Non Metallic Metals (NMM) and Allan Fosk Kalún and respondent state, Bolivia.  On February 26, 2010 a three-member panel ordered the central South American state to suspend criminal proceedings against several persons involved in Quiborax’s Bolivian operations.

Arbitral proceedings between the parties commenced in October of 2005 with the claimants alleging that Bolivia had expropriated their property, after Bolivia rescinded their mining concession in Salar de Uyuni (southern Bolivia) in 2004. The ulexite mineral concession was being exploited through Quiborax’s majority owned subsidiary, NMM.

Seeking US$ 40 million in damages, the claimants allege that Bolivia has violated its obligations under the Bolivia-Chile BIT.  Bolivia contends that it rescinded the concession because the claimants withheld information from customs officials, including the volumes of the mineral ulexite it was exporting, in order to evade taxes.  The claimants dispute this and instead argue that their license was rescinded due to anti-Chilean sentiments which swelled in Bolivia in 2003. Bolivia and Chile have had troubled relations since Chile blocked Bolivia’s access to the Pacific in the late nineteenth century.

As previously reported by ITN, tensions between the parties have continued to escalate during the past five years, despite attempts to settle their differences.  Amid rumors of a possible settlement this past fall, the claimants proceeded to file their memorial on the merits of their claim with ICSID along with a request for provisional measures on September 14, 2009.

At the heart of the claimants’ application for provisional relief is their concern about criminal proceedings that have been commenced against several persons involved in Quiborax’s Bolivian operations.

Bolivia initiated criminal proceedings after certain irregularities were found in NMM’s corporate documents.  Specifically, the Bolivian government discovered the existence of the minutes of an NMM shareholders’ meeting dated September 11, 2001, which had not been provided to the government during a prior audit of the company’s records, and which contained a different list of shareholders from that included in the minutes of a meeting allegedly held two days later.  According to Bolivia, the existence of these two contradictory documents suggests that the minutes of the September 13, 2001 meeting may have been forged in order to support claimants’ contention that they were shareholders of NMM at the time the arbitral dispute arose, thus allowing them to gain access to ICSID arbitration.

For their part, the claimants contend that the criminal proceedings are solely motivated by Bolivia’s goals in the arbitration, one of which is to force them to give up their claims.  As a result, the claimants requested provisional measures on the grounds that the criminal proceedings impaired the following rights: (1) the right to exclusivity of the ICSID proceedings; (2) the right to preservation of the status quo and non-aggravation of the dispute; and (3) the right to the procedural integrity of the arbitration proceedings.

In response, Bolivia contended that the alleged criminal proceedings did not impair any of the claimants’ rights.  Additionally, Bolivia argued that provisional measures could not be granted in the case because the criminal proceedings did not affect any of the claimants’ rights “in the dispute” (i.e. the rights that are the subject matter of the ICSID arbitration).

In siding with the claimants, the tribunal – composed of Professor Gabrielle Kaufmann-Kohler, the honorable Marc Lalonde and Professor Brigitte Stern – first confirmed its prima facie jurisdiction to order provisional measures in the dispute.  While this part of the tribunal’s reasoning only spans one page of the decision, the tribunal’s confirmation of jurisdiction is noteworthy given Bolivia’s renunciation of the ICSID Convention in 2007.  Any concerns that Bolivia might not be subject to the center’s jurisdiction were easily disposed of by the tribunal, which noted that Bolivia was still a signatory to the ICSID Convention when this dispute was initiated.

The tribunal went on to address Bolivia’s preliminary contention that the rights protected by provisional measures may only be the rights “in dispute.”  Citing previous ICSID decisions, the tribunal confirmed that the rights to be preserved by provisional measures are not limited to those which form the subject matter of the dispute, but may extend to procedural rights, including the general right to the preservation of the status quo and to the non-aggravation of the dispute.

Applying this principle to the facts of the case, the tribunal determined that there was “…a direct relationship between the criminal proceedings and the ICSID arbitration that [might] merit the preservation of the [c]laimants’ rights in the ICSID proceeding.”  In coming to this conclusion, the tribunal was careful to recognize Bolivia’s sovereign right to prosecute crimes committed within its territory.  However the tribunal also found that, based on the evidence, the criminal proceedings were related to and perhaps motivated by the ICSID arbitration.

The tribunal proceeded to examine whether any or all of the three rights invoked by the claimants merited protection by way of provisional measures.  While the tribunal rejected the claimants’ assertions with respect to the first two rights, it ultimately found that provisional measures were warranted given the existence of a threat to the procedural integrity of the arbitral proceedings.  Specifically, the tribunal considered that the criminal proceedings might be impairing the claimants’ right to present their case, in particular with respect to their documentary evidence and witnesses.  In particular, the tribunal noted that since the initiation of the criminal proceedings Bolivia had deprived the claimants of their corporate records.  Additionally, the tribunal observed that the nature of the criminal proceedings were bound to negatively affect the willingness of potential witnesses to cooperate in the ICSID proceedings.

Noting that provisional measures may only be granted in circumstances of “urgency and necessity”, the tribunal went on to consider the claimants’ application on those grounds.

With respect to “urgency”, the tribunal found that when provisional measures are intended to protect the procedural integrity of an arbitration, especially with respect to access to or the integrity of evidence, the measures are, by definition, urgent.

Similarly in assessing whether provisional measures were “necessary” in this case, the tribunal considered that “….any harm caused to the integrity of ICSID proceedings, particularly in relation to a party’s access to evidence or the integrity of the evidence adduced could not be remedied by an award of damages.”  According to the tribunal, however, the necessity requirement obliged it to balance the harm caused to the claimants by the criminal proceedings against the harm that would be caused to Bolivia if those proceedings were stayed or terminated.

Despite assurances from Bolivia that it would cooperate with the claimants regarding access to evidence for the arbitral proceedings, the tribunal found in favour of the claimants.  In so doing, the tribunal took great pains to insist that it did not question Bolivia’s sovereign right to conduct criminal proceedings but noted that this case was “exceptional”.

Specifically, the tribunal noted that while Bolivia may have reasons to believe that the persons being prosecuted could have engaged in criminal conduct, the facts presented to the tribunal suggested that the initiation of those criminal proceedings was motivated by the ICSID arbitration.

Accordingly, the tribunal determined that once the arbitration between the parties is finalized, Bolivia would be free to continue its criminal proceedings.

Sources:

Decision on Provisional Measures in Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplun v. Plurinational State of Bolivia is available here:

http://ita.law.uvic.ca/documents/2010-02-26DecisiononProvisionalMeasures.pdf

Previous ITN Reporting:

“Quiborax claim against Bolivia continues; may provide first decision on effects of ICSID exit,” By Fernando Cabrera Diaz, Investment Treaty Newsletter, 3 November 2009, available at:

http://www.investmenttreatynews.org/cms/news/archive/2009/11/01/quiborax-claim-against-bolivia-continues-may-provide-first-decision-on-effects-of-icsid-exit.aspx

“Chilean chemical firm launches ICSID suit against Bolivia”, By Damon Vis-Dunbar and Luke Eric Peterson, Investment Treaty Newsletter, March 14, 2006, available at: http://www.iisd.org/pdf/2006/itn_mar14_2006.pdf