News In Brief*

*These are abridged versions of articles originally published by the independent news service Investment Arbitration Reporter (http://www.iareporter.com/). They are used with permission and may not be reproduced without the express permission of IAReporter.

Parties announce settlement of dispute over German power plant
28.8.2010

A Swedish power company and the Federal Republic of Germany have reportedly settled their ICSID arbitration arising out of the stalemated construction of a controversial coal-fired power plant in the city of Hamburg.

As first revealed in IAReporter in early 2009, Vattenfall turned to arbitration in a bid to challenge permit delays and other curbs imposed on the company’s plant construction.

In late August Vattenfall announced that an agreement had been reached to terminate the ICSID case, but declined to disclose details due to the still-ongoing nature of the arbitration. (As parties are ordinarily free to discuss matters in ICSID arbitration, it is not clear if Vattenfall is abiding by a tribunal-imposed confidentiality order or one agreed voluntarily with Germany.)

To date, German and international media reports have alluded to a possible dilution of local water-use restrictions which would have prevented the completed plant from operating at full capacity. Vattenfall had complained that the project was hobbled by strict limits on the amount of water that could be drawn from the adjacent Elbe River for cooling purposes (as well a similar limits on the discharge of heated-water back into the river).

German environmental groups have been outspoken critics of the Hamburg plant and are expected to press authorities for more details of the settlement.

Belgian ratification of Colombia BIT suspended in face of labour protest
16.6.2010

Ratification of a bilateral investment treaty between Colombia and the Belgium-Luxembourg Economic Union has been suspended amidst pressure from Belgian trade unions critical of labour conditions in Colombia.

Belgium negotiates investment treaties in partnership with neighbouring Luxembourg, and has concluded such pacts with upwards of 100 countries. A BIT between the Belgium-Luxembourg Economic Union (BLEU) and Colombia was negotiated earlier this decade and signed on 4 February 2009.

So-called BLEU BITs undergo a complicated ratification process in Belgium whereby they must be approved by two Federal chambers of parliament, as well as three separate regional governments representing the Flemish, Walloon and Brussels-Capital regions.

Following regional Belgian elections in June of 2009, coalition governments in the Flemish and Walloon regions announced that future trade and investment agreements would need to incorporate binding labour and environmental standards.

As such, when trade union critics raised objections in the ensuing months to the BLEU-Colombia BIT— and what they characterized as inadequate labour provisions — the ratification process hit the skids. On 3 March 2010, the Flemish regional government announced it would no longer pursue ratification of the Colombia BIT.

Failure by oil corp to give Ecuador prior notice of treaty violations blocks claims
27.6.2010

Arbitrators  have ruled that certain claims for breach of the US-Ecuador bilateral investment treaty are inadmissible due to the failure of a US energy company to give clear advance notice that it held Ecuador to be in breach of its treaty obligations.

Burlington Resources Inc. sought to hold Ecuador liable for failing to provide physical protection and security for a pair of vast oil development blocks in the Amazonian rain forest.

The sites—officially dubbed Blocks 23 and 24—were awarded in the late 1990s, but have seen clashes with indigenous groups opposed to oil exploration.

Indeed, not long after Burlington bought into the blocks, the company invoked the force majeure clauses of the production-sharing contracts, signaling that conditions beyond its control precluded immediate development in the areas.

Controversy over the two blocks has flared ever since with indigenous groups and rich-country environmental groups campaigning against oil development. While Burlington has worked to appease critics, it signaled a new course in 2008 when it resolved to sue Ecuador over a hefty windfall levy which side-swiped the company’s other production activities in the country.

As part of its ICSID arbitration, Burlington also leveled charges that the Republic of Ecuador was liable for not providing adequate security so that activities in the stalemated Blocks 23 and 24 could move forward.

The claims, if heard on their merits, would have proven politically contentious— not least as arbitrators might have had to examine Ecuador’s other international law obligations, including various human rights law obligations owed to indigenous communities.

In the event, however, Burlington’s claims for physical protection and security will not be hear—at least at this time—by ICSID arbitrators.

In their 2 June 2010 Decision on Jurisdiction, arbitrators held that Burlington failed to give clear notice to Ecuador of its claims for denial of physical protection and security, and therefore the mandatory six-month waiting period in the treaty (which must elapse before arbitration can be initiated) had not begun to run. As such, the physical security and protection claims presented in Burlington’s 2008 Request for Arbitration were deemed inadmissible by arbitrators.

Non-disputing parties CAFTA State intervenes in arbitration to present arguments
22.4.2010

The Republic of El Salvador has intervened in an ongoing arbitration between another party to the US-Central America Free Trade Agreement (CAFTA) and a US-based investor.

The intervention by El Salvador is pursuant to a CAFTA provision permitting other member-states to make submissions setting forth their views on matters of CAFTA interpretation.

In a brief submission dated 19 March 2010, El Salvador argued that the CAFTA investment chapter does not cover pre-existing disputes (i.e. disputes which arose prior to the CAFTA’s entry into force and which persisted thereafter).

The move by El Salvador marks the first instance where a CAFTA party has exercised its right under Article 20.2 of CAFTA’s Chapter 10 on investment.

Notably, the CAFTA investment chapter does not expressly address pre-existing disputes; however, El Salvador maintains that a reading of various CAFTA provisions leads to the conclusion that the chapter covers only government “measures” occurring after the entry into force of the treaty.

As new case lands at ICSID, and several more loom, Bolivia turns up the heat on arbitral system
4.22.2010

On the heels of a politically-embarrassing provisional measures decision issued by an arbitral tribunal at the International Centre for Settlement of Investment Disputes (ICSID), the Republic of Bolivia has reacted by demanding the disqualification of all 3 tribunal members.

According to a source familiar with the request, Bolivia contends that the arbitrators are prejudiced against the government, and fail to meet the “impartiality” criterion imposed by the ICSID system.

Under the ICSID rules, a challenge to an entire tribunal would be adjudicated by the Chairman of ICSID Administrative Council (i.e. the World Bank President).

However, in view of Bolivia’s record of antipathy towards ICSID, it remains to be seen whether the Centre would hand the challenge off to some outside body. On occasion, the Centre has done this where challenges have been made to arbitrators with prior ties to the World Bank (for e.g. Andres Rigo Sureda, a former senior World Bank lawyer).

The latest move by Bolivia marks a dramatic escalation of hostilities between the country and an arbitral institution from which the government has sought to distance itself in recent years.

In 2007, Bolivia withdrew from ICSID, complaining that the Centre was biased towards foreign investors.

However, Bolivia’s withdrawal did not sever all ties with the Washington-based Centre. One pre-existing arbitration, the Quiborax claim, continued to be arbitrated at the Centre, while another lodged by a Telecom Italia subsidiary in 2007 was pursued for nearly two years before an agreement was struck to move the dispute to ad-hoc arbitration.

More recently, a US energy company has sought ICSID arbitration in relation to the nationalization of its stake in a Bolivian energy company. PanAmerican contends that the move by Bolivia to nationalize its 51% shareholding in the Chaco energy company breached protections contained in the US-Bolivia bilateral investment treaty by failing to provide full compensation.

Although Bolivia has objected vociferously to new claims being brought to the ICSID following the 2007 announcement of the country’s withdrawal from ICSID, PanAmerican is expected to argue that it was one of several multinational energy firms to put Bolivia on notice in 2005 of potential arbitration of claims arising out of the country’s nationalization plans for the energy sector. As such, this consent or acceptance of Bolivia’s offer to arbitrate at the ICSID would have been in place long before the country gave notice in May of 2007 to withdraw from the ICSID.