• The Czech Republic’s legal woes continue as the country faces a long string of international lawsuits from foreign investors. In March, an arbitration tribunal ruled that the Czech government had breached the terms of its investment protection treaty with the Netherlands. The tribunal awarded €25.4m to Eastern Sugar, a Dutch-based joint venture of the UK’s Tate & Lyle and France’s Saint Louis Sucre SA.

    Dutch firm Eastern Sugar sued the Czech Republic in 2004, alleging that it was discriminated against when Czech officials reduced its domestic sugar production quotas, as part of the republic’s accession to the EU. The firm pointed to more favourable quotas handed out to local operators, and complained that the Czech government was looking to punish it for shutting down a Czech production facility earlier. The closure of the Mondrany production facility had sparked considerable protests and outcry from disgruntled Czech sugar beet farmers.

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    Ultimately, a trio of lawyers appointed to arbitrate the dispute ruled that Eastern Sugar was treated in an unreasonable and discriminatory fashion, contrary to its entitlements under the Czech-Dutch treaty.

 

  • The Czech Republic has also been the subject of a succession of international arbitrations, most recently by Dutch-based financial firm Invesmart, which contends that the republic contributed to the collapse of its investments in the Czech banking sector. Invesmart alleges that a Czech announcement that it would withdraw state aid to Union Banka led to a run on the bank, the eventual closure of the institution, and the destruction of Invesmart’s shareholdings. Czech government officials have publicly denied responsibility for Union Banka’s fate.

 

  • A hearing is looming in an arbitration between US-based Duke Energy and the government of Peru. Duke turned to the International Centre for Settlement of Investment Disputes (ICSID) in 2003, arguing that Peru had reneged on a commitment to provide income tax stabilisation to a Duke investment in a local electricity generation company, Egenor.

    In 2000, Peru’s tax agency, SUNAT, launched a tax audit of a Duke subsidiary in Peru, leading to a $48m assessment for back-taxes. The firm was only partially successful in challenging that assessment in the Peruvian courts, and ultimately turned to arbitration in an effort to hold Peru liable for breaching tax-stabilisation commitments alleged to have been guaranteed to Duke’s local subsidiary.

    Although Peru had objected to an ICSID tribunal’s jurisdiction over the dispute, the tribunal ultimately ruled that it could hear the dispute. Written legal arguments have now been filed, and oral hearings are slated for this spring. A final ruling could come as early as the end of this year, although tribunals sometimes take upwards of a year to make their rulings in more complex cases.

 

  • Two Dutch-based subsidiaries of Royal Dutch Shell have withdrawn an arbitration against the government of Nicaragua. The two Shell entities resorted to arbitration last year, after Nicaraguan authorities embargoed the use of Shell brands and trademarks in Nicaragua as part of an effort to enforce a court judgment of nearly $500m against Shell. The Dutch companies argued that they had been dragged into the middle of a dispute between hundreds of Nicaraguan farm workers and the US-based Shell Oil corporation.

    In 2002, a Nicaraguan court had ruled in favour of a group of farm workers harmed by the agro-chemical DBCP, which was used extensively in Nicaraguan banana plantations during the 1960s and 1970s. After securing a massive financial judgment in their favour, the farm workers sought to enforce that award against the various defendants, including Dow Chemical, Dole Foods and the Shell Oil company.

    When a Nicaraguan court later moved to embargo the Shell brands and trademarks in Nicaragua, the Dutch-based Shell companies opposed such a move. The companies filed suit under the Netherlands-Nicaragua investment protection treaty, alleging that Nicaragua had wrongly “expropriated” the intellectual property of a pair of companies that had no dealings in the agro-chemical industry.

    Ultimately, the embargo order was reversed by the Nicaraguan courts, leading to the withdrawal of the international arbitration claim by the Dutch-based Shell entities.

 

Luke Peterson is a journalist and research consultant based in Ottawa, Ontario. He produces an investigative news bulletin on international investment treaties for a Canadian think tank.

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