News in Brief

Opposition to investor-state arbitration in TTIP grows

The European Commission is being asked why investor-state arbitration provisions should be included in the Transatlantic Trade and Investment Partnership (TTIP), which has been under negotiation between the United States and European Union since July 2013.

On July 11^th, Germany’s upper parliament passed a resolution that highlights the “substantial risks” of investment arbitration, and asks the European Commission to explain why it would be necessary in the TTIP.

A group of 120 academics has also voiced its concern in a joint statement released in July 2014.[1] The statement takes aim at a recent online consultation organized by the Commission in which it invited the public to comment on its approach to investment protection and investor-state dispute settlement in the TTIP.

The group calls the consultation document “an extraordinary text,” containing on the one hand “fierce … criticism of the international investment treaty arbitration regime” while simultaneously seeming “content to entrust these same actors the vital constitutional task of weighing and balancing the right to regulate of sovereign states and the property rights of foreign investors.”

In line with the German parliament, the academics ask the question: “why consider including investor-state arbitration in the TTIP at all?”

The group points out that investor-state arbitration was originally developed to protect foreign investment in countries with weak legal and judicial systems. But “it is difficult to argue realistically that investors have cause to worry about domestic legal systems on either side of the Atlantic.”

Currently, nine EU member states have bilateral investment treaties with the US. As such, investment protection and arbitration provisions in the TTIP would add coverage to an additional 19 member states.

UNCITRAL approves draft convention on transparency

The United Nations Commission on International Trade Law (UNCITRAL) has approved a draft convention on transparency in treaty-based investor-state arbitration.

The draft convention comes on the heels of a package of rules agreed in July last year that aim to make investor-state arbitration more transparent. However, those rules will apply on a default basis only to UNCITRAL investor-state arbitrations conducted under investment treaties concluded after the new rules came into effect on April 1, 2014.

The new rules on transparency will only apply to treaties concluded before that date if the disputing parties or treaty parties agree on a case by case basis. As the UNCITRAL secretariat explains, the “purpose of the convention on transparency is to provide a mechanism for the application of the Rules on Transparency to arbitration cases arising under the almost 3,000 investment treaties concluded before 1 April 2014.

The draft convention will now be submitted to the United Nations General Assembly for final consideration and adoption at its 69th session this Fall.

Update on Renco Group vs. Peru: Renco files memorial on liability

On February 20, 2014, the U.S. investor The Renco Group, Inc. filed with ICSID a memorial on liability in arbitration proceedings against Peru under UNCITRAL rules.[2]

A Renco-led consortium acquired from Peru in 1997 the heavily polluted smelting and refining complex of La Oroya. The investor relied on assurances that the Peruvian Government would remediate existing soil contamination and assume liability for third-party claims for environmental damage.

A total of 22 personal injury lawsuits have been initiated on behalf of about 1,000 Peruvian citizens residing in the town of La Oroya, who allege harms arising from the operation of the complex. The lawsuits were consolidated in a U.S. federal court in St. Louis, Missouri. Renco initiated arbitration claiming that Peru, by refusing to honour its legal and contractual commitment to assume liability for the lawsuits and by subsequently adopting a “pattern of grossly arbitrary and unfair treatment” of the investor, violated the United States–Peru Trade Promotion Agreement (TPA).

In its memorial on liability, Renco first describes at length the factual background to the dispute, and affirms the tribunal’s jurisdiction over the investor’s treaty claim. It then elaborates on the arguments that Peru’s conduct violated the TPA provisions on fair and equitable treatment (FET) (Article 10.5(1)) and national treatment (Article 10.3). Renco finally argues that Peru caused it to lose control over its investment, indirectly expropriating it (Article 10.7).

Accordingly, the investor’s requests for relief include declarations that Peru breached its treaty obligations and expropriated Renco’s investments. Renco requests compensation for material damages, but leaves their quantification to be determined in the course of the proceedings. It also requests an award of all costs incurred with the St. Louis lawsuits and with the arbitration proceeding itself.

An interesting claim, mentioned in the requests for relief but nowhere else in the memorials, is that for “compensation for moral damages arising from harm to Claimant’s reputation,” which Renco qualified as “a part of reparation of an international wrong as clearly established under the International Law Commission’s Articles on State Responsibility Articles 31, 36 and 37” (paragraph 413).

According to the tribunal’s Procedural Order No. 1 of August 22, 2013, assuming Peru has not raised an objection as a preliminary question under Article 10.20(4) of the TPA, Peru’s counter-memorial on liability, including any counterclaims or jurisdictional objections, will be due on August 21, 2014.