French power company Alstom has settled its international arbitration with Mongolia. In 2004, Alstom filed a suit at the World Bank’s arbitration facility, alleging that Mongolia was in breach of commitments under the Energy Charter Treaty and a separate investment protection treaty between Mongolia and Italy. The arbitration was one of the first to have invoked the foreign investment protections found in the Energy Charter Treaty.
Alstom’s tussle with Mongolia arose out of a contract for the refurbishment of a thermal electric station in Ulan Bator. The French company and local authorities disagreed over work to be done at the plant. By settling their dispute early this year, the parties avoided a jurisdictional hearing slated for February. The terms of the settlement have not been released.
Hearings wrapped up last month in an arbitration between Fraport, the German airport services company, and the Republic of the Philippines. Fraport is seeking the $450m that it says was sunk into a Filipino-German consortium and lost, after the government moved to revoke the consortium’s contract to build a terminal at Manila’s International Airport. After President Gloria Arroyo Macapagal came to power, she cancelled the contract, citing anomalies in it and alleging wrongdoing on the part of the consortium partners.
The project shut-down gave rise to a three-ring legal circus, with the consortium turning to the Philippines courts to seek compensation for an alleged expropriation, as well as to arbitration at the International Chamber of Commerce. Fraport, which helped to finance the project and holds a minority stake in the consortium, initiated its own arbitration at the World Bank’s arbitration facility. The German company, which is best known for owning and operating Frankfurt airport, accused the Philippines of violating an investment protection treaty that came into force with Germany in the year 2000.
The Philippines, meanwhile, is reportedly seeking counter-damages in its arbitrations with the consortium and Fraport, alleging corruption, fraud and shoddy performance by the consortium. Following two weeks of hearings in January, the three-member tribunal is expected to gather further evidence before issuing any ruling. Resolution of the dispute and its various legal offshoots could take years.
A settlement has been reached in a dispute between US-based Bechtel Corporation and the Republic of Bolivia. Bechtel had been the lead investor in a controversial water project in Cochabamba, Bolivia’s third largest city. Public opposition to privatisation of the city’s water supply rose to a rapid boil, leading Bechtel’s local subsidiary, Aguas del Tunari, to abandon its concession amid protests. The firm hoped to make up its losses on the project by turning to arbitration under an investment protection treaty between Bolivia and the Netherlands. But, after nearly four years of arbitration, the two sides agreed in January to abandon the claim; neither side will make payments to the other.
Activist groups had hailed the end of the case, which pitted one of the world’s largest privately held companies against South America’s poorest country. However, a preliminary arbitration ruling handed down in October could exert a major influence on how foreign investors structure their overseas investments.
In arguments before the tribunal, Bolivian government lawyers objected to the suspicious timing of a corporate reorganisation undertaken by Bechtel in late 1999, just as public opposition to the company’s water project was growing in Bolivia. Government lawyers accused Bechtel of setting up a “shell” company in the Netherlands at the 11th hour, so that its Bolivian investment might benefit from an investment protection treaty between the Netherlands and Bolivia.
A majority of the tribunal ruled that the contested Dutch holding company was not an empty shell, but a legitimate joint venture established by Bechtel and a new consortium partner, Italy’s SpA.
Moreover, the tribunal observed that bilateral investment protection treaties, such as the Netherlands’ treaty with Bolivia, may be couched so expansively that they make it easy for foreign investors from third countries to “route” their international investments through a country such as the Netherlands to take advantage of the treaty protections. The ruling has generated wide discussion among international lawyers.