Developments in international law, prepared by
the Editorial Staff of International Legal Materials
The American Society of International Law June 27, 2002
Southern Common Market (MERCOSUR):
Protocol of Olivos (February 18, 2002)
The four MERCOSUR Member States adopted the current Protocol
at their meeting in Olivos, Argentina, in order to modify
the MERCOSUR's dispute settlement system "as a means
of consolidating the [MERCOSUR's] legal predictability."
After it enters into force, the Protocol will derogate
the 1991 Protocol of Brasilia for the Settlement of Disputes.
Disputes covered by the Protocol include, inter alia,
the interpretation, application or non-fulfillment of
the MERCOSUR Agreement. Apart from the dispute settlement
system available pursuant to the current Protocol, a complaining
party may submit its dispute to the Dispute Settlement
System of the World Trade Organization, or of another
regional trade agreement, provided that all the parties
to the dispute are also the members of the latter.
The Protocol provides for a three-tier dispute settlement
system. The first tier is a process of direct negotiations,
with or without the intervention of the Common Market
Group. In case the dispute is not resolved in this phase,
the parties can recourse to an ad hoc arbitral
tribunal consisting of three arbitrators. After the tribunal
issues an award, except if the award is grounded on principles
of ex aequo et bono, any party to the dispute may
appeal for its revision to the Permanent Court of Review
("Court"). The appeal must be limited to the
legal issues of the dispute in question, and to the legal
interpretations construed in the tribunal's award. The
Court's decisions, which are deemed to be final, may confirm,
modify or revoke the legal grounds and decisions reached
by ad hoc tribunals. The Court will hear cases
in chambers consisting of three or five arbitrators, depending
on whether the dispute involves two or more MERCOSUR Member
States.
English translation of the document available in print
format from the ILM Office.
International Centre for Settlement
of Investment Disputes (ICSID): Wena Hotels Ltd. v.
Arab Republic of Egypt (Decision on Jurisdiction),
Case No. ARB/98/4 (June 29, 1999)
An ICSID Tribunal ruled that it had jurisdiction over
a dispute between a British investor and Egypt. The dispute
concerned obligations arising from agreements to develop
and manage two hotels in Luxor and Cairo, Egypt. Wena
Hotels Ltd. ("Wena"), the investor, entered
into these agreements with the Egyptian Hotels Company
("EHC"), an Egyptian public sector entity.
Wena was evicted from the hotels it had leased from the
EHC, and argued that this amounted to expropriation and
Egypt's failure to protect Wena's investment. Egypt raised
several objections to the Tribunal's jurisdiction, arguing
inter alia that (1) Wena should be treated as an
Egyptian, rather than a foreign, company; and (2) the
dispute was between Wena and the EHC, not Egypt.
The Tribunal accepted Wena's interpretation of Article
8(1) of the United Kingdom-Egypt Agreement for the Promotion
and Protection of Investments ("IPPA"), holding
that the latter's purpose was to "expand jurisdiction"
in cases where a company incorporated in the host state
was controlled by nationals of the non-host state. This
was contrary to Egypt's interpretation that the provision
excludes jurisdiction in cases where a company is majority-owned
by shareholders that have the nationality of the state
with which the company has a dispute. The Tribunal noted
that this provision, as well as Article 25(2)(b) of the
ICSID Convention, accounted for the "rather common
situation" in which a host government requires from
foreign investors to channel their investments through
a locally incorporated entity.
As to Egypt's second objection, the Tribunal held that
Wena presented a prima facie dispute, which was
sufficient to invoke jurisdiction under the IPPA and the
ICSID Convention. The Tribunal concluded that any further
determination of this issue belongs to the merits stage,
where Wena would have a burden to prove Egypt's responsibility
for alleged violations of the IPPA and international law.
International
Centre for Settlement of Investment Disputes (ICSID):
Wena Hotels Ltd. v. Arab Republic of Egypt (Award),
Case No. ARB/98/4 (December 8, 2000)
The Tribunal awarded Wena over $20
million in damages, finding Egypt in breach of its obligation
to provide "fair and equitable treatment" and
"full protection and security" to Wena's investments.
Additionally, the Tribunal held that Egypt's actions amounted
to violation of its duty to provide "prompt, adequate
and effective compensation" for expropriation of
Wena's investments. The Tribunal rejected Egypt's argument
that Wena's claims were time barred, and held that Egypt
failed to prove its allegations of misconduct and corruption
on behalf of Wena.
As to violations of the "fair
and equitable treatment" and "full protection
and security," the Tribunal noted that Egypt was
aware of EHC's intentions to seize the hotels that Wena
had leased from it, and took no immediate actions to prevent
the seizures or to immediately restore Wena's control
over the hotels. The Tribunal added that, once they were
returned, the hotels were not in the same operating condition
that they had been in before the seizures, and were not
given permanent operating licenses, which Egypt had revoked
prior to restoring hotels to Wena's control. The Tribunal
concluded that these actions also constituted an expropriation,
depriving Wena of its "fundamental rights of ownership,"
for which Egypt failed to offer the required "prompt,
adequate and effective compensation." The Tribunal
found that the latter was in violation of both the IPPA
and international law.
In rejecting Egypt's argument
that Wena's claims were time barred pursuant to Egypt's
statutes of limitation, the Tribunal held that this would
"collide with the general, well-established international
principle" that municipal statutes of limitation
"do not bind claims before an international tribunal."
With respect to allegations of misconduct and corruption,
the Tribunal ruled that Egypt failed to, inter alia,
present any information as to whether it had investigated,
or proved the existence of, the alleged misconduct and
corruption. Additionally, the Tribunal held that Egypt
failed to refute Wena's evidence that a consultancy agreement
- for which Egypt alleged to amount to corruption - was
a legitimate agreement to help pursue Wena's development
opportunities in Egypt.
International
Centre for Settlement of Investment Disputes (ICSID):
Wena Hotels Ltd. v. Arab Republic of Egypt (Annulment
Proceedings), Case No. ARB/98/4 (February 5, 2002)
An ad hoc ICSID Committee
("Committee") rejected in its entirety the application
for annulment that Egypt had launched against the arbitral
award granted in the investment dispute with Wena. Egypt
based its request for annulment on the provisions of Article
52(1) of the ICSID Convention, claiming that the Tribunal
(1) manifestly exceeded its powers; (2) made a serious
departure from a fundamental rule of procedure; and (3)
failed to state the reasons on which it based its award
on the merits.
The Committee noted that the
excess of power must be "self-evident" rather
than the "product of elaborate interpretations one
way or the other." The Committee held that it was
within the Tribunal's "discretion" and "power"
to choose among many alternatives available for, inter
alia, calculation of interest, regardless of whether
the one that was eventually chosen by the Tribunal was
the most appropriate in the circumstances of the case.
As to the alleged violation
of a fundamental rule of procedure, the Committee noted
that, in order to be proven, the violation of such rule
must have caused the Tribunal to reach a result "substantially
different" from what it would have awarded had such
rule been observed. The Committee found, inter alia,
that although the Tribunal had a discretionary power to
call upon the parties to produce additional evidence,
it was "incumbent to the parties" to produce,
or to request the Tribunal to call for, such evidence.
The Committee stressed that
the standard of review for the alleged Tribunal's failure
to state the reasons on which it based the award "does
not allow" the Committee to reconsider whether the
reasons underlying the Tribunal's decision were "appropriate
or not, convincing or not." The Committee held,
inter alia, that the challenge to the Tribunal's
calculation of damages failed because the Tribunal's reasoning
demonstrated that it was accepting Wena's documentary
evidence on the losses it claimed to have suffered. The
Committee concluded that the relevant reasons for the
Tribunal's findings were "thus stated implicitly
by reference to such documentation."
All three documents
were submitted to the ILM Office in print format.
North American
Free Trade Agreement (NAFTA) Arbitral Tribunal: Pope
& Talbot, Inc. v. Government of Canada (Award in Respect
of Damages),(May 31, 2002)
A NAFTA Arbitral Tribunal
("Tribunal") awarded damages in the amount of
$461,566 to an American investor, while it reserved the
determination of costs for the next phase of the arbitral
process. Prior to deciding on the amount of damages,
the Tribunal examined the implications of the NAFTA Free
Trade Commission's Notes of Interpretation of Certain
Chapter 11 Provisions of July 31, 2001 ("Interpretation")
to the Tribunal's determination on the merits. The Commission
issued the Interpretation on July 31, 2001, few months
after the Tribunal published its award on the merits.
The NAFTA Article 1105 requires
each NAFTA Party to accord to investments of investors
of another Party treatment "in accordance with international
law, including fair and equitable treatment and full protection
and security." The Commission interpreted the concepts
of "fair and equitable treatment" and "full
protection and security" as not requiring treatment
"in addition to or beyond" that which is required
by the customary international law minimum standard of
treatment of aliens.
The Tribunal found that, although
the Commission was entitled to issue binding NAFTA interpretations,
NAFTA arbitral tribunals had a power to consider whether
the Commission's action can be qualified as an interpretation
or not, provided that there is a doubt as to whether the
Commission acted within its powers. The Tribunal underlined
that Article 1105 contained ambiguities that had to be
resolved by appropriate interpretations, but that the
scope of the term "international law" was the
"least troubling," since it is "well accepted"
that the content of international is a "good deal
broader" than customary international law. Nevertheless,
the Tribunal decided to treat the Commission's document
as an interpretation, holding that the current case did
not require it to determine whether the document amounted
to an amendment or not. However, the Tribunal observed
that if it were required to make this determination, it
would find that the Interpretation was in fact an amendment.
The Tribunal held that the
Interpretation, although binding, did not overturn the
Tribunal's previous award on the merits. The Tribunal
rejected what it called a "static conception of customary
international law" advanced by Canada according to
which customary international law would allow damages
only for an "'egregious' act or failure" to
meet internationally recognized standards. The Tribunal
noted that the customary international law has evolved
through state practice, which "is now represented
by" numerous Bilateral Investment Treaties ("BITs").
The Tribunal opined that the standard of fair and equitable
treatment was central to BITs, many of which require state
conduct to be evaluated under fairness elements "apart
from the standards of customary international law,"
and noted that fair and equitable treatment required treatment
"at least as good as" that accorded by a state
to its own nationals. The Tribunal concluded, however,
that Canada's conduct was egregious "even applying
Canada's proposed standard," and that it was
not necessary for it to propose a formulation of the present
content of customary international law that would be "more
in keeping" with the present practice of states.
(Emphasis in original)
International Law In Brief (ILIB) - Copyright 2002
- The American Society
of International Law (ASIL) Editors: Branislav A. Maric, Scott Smith
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