As widely expected, Argentina has moved to quash a potentially precedent-setting international arbitration ruling that was handed down in May 2005. Argentina had been ordered to pay US-based CMS Gas Transmission Company $133.2m for breaches of the US-Argentina investment protection treaty. The ruling was the first to emerge from a series of legal claims brought by foreign investors in the aftermath of Argentina’s financial crisis (see fDi, August-September 2005).
Argentina applied in August to the Washington-based International Centre for Settlement of Investment Disputes to have the arbitration ruling annulled on procedural grounds. This process could give the country a year or more of breathing space before CMS could move to collect compensation from the Argentine government. While the country still hopes for an amicable settlement of some claims – many of them with concession-holders in the energy and water sectors – the prospect of a multi-billion dollar arbitration by hold-out bondholders remains a likely prospect in the months to come.
Poland suffered a setback in August when an international arbitration tribunal held that the country is in breach of the terms of its foreign investment protection treaty with the Netherlands.
Dutch-based insurer Eureko had filed an arbitration claim in 2003, following a lengthy dispute over its stake in PZU, Poland’s largest insurance company. Eureko bought into PZU in 1999 but became frustrated with repeated delays in privatising the remainder of the firm. The Polish authorities appear to have got cold feet in the face of public opposition to foreign ownership.
A majority of the three-member arbitration tribunal found that Poland had violated contractual promises to Eureko, as well as the over-arching terms of the Dutch-Polish investment treaty. However, a dissenting arbitrator argued that the contract quarrel belonged in Polish courts, not in international arbitration. Lawyers for Poland have now moved to have the arbitral decision reviewed by the courts in Belgium (where the arbitration had been located for legal purposes).
If the tribunal’s ruling stands, the next step will be to quantify the damages owed to Eureko. The Dutch firm reportedly seeks more than $1bn for its thwarted investments.
On occasion, Romania has taken a beating in the press for its foreign investment climate. The UK’s Financial Times newspaper noted in April 2005 that Romania’s treatment of foreign investors could come back to haunt it as it edges towards EU membership. However, Romania won an important international test case in October when an arbitration tribunal rejected a bid by US investors to claim $300m over a failed privatisation.
The investors, US consortium Noble Ventures, bought the rights to a steel mill in Resita, western Romania, in 2000 but things quickly went wrong. Noble Ventures accused government authorities of misrepresentations during the privatisation process, and of failing to protect the company from social unrest in Resita.
The tribunal took a different stance and blamed the investors for not sinking sufficient capital into the project, as well as for stoking local unrest by failing to fulfil promises made to workers.
Winning an international arbitration award against a sovereign government is no guarantee of a pay-day, particularly if you own a small business – just ask Franz Sedelmayer. In July 1998, the German businessman convinced an arbitration tribunal that Russia had violated the terms of an investment protection treaty between Russia and Germany, when it expropriated parts of his small security firm in St Petersburg. More than six and a half years later, Mr Sedelmayer has yet to see a penny of the tribunal’s $2.35m award. His legal bills continue to mount up in his efforts to enforce the terms of the award. This autumn, he failed in Germany’s Federal Court to seize payments owed by German airline Lufthansa to Russia.
Mr Sedelmayer can only watch in bemusement as former shareholders of the embattled Yukos Corporation line up to sue Russia for billions under investment protection treaties.
As he now appreciates, winning and getting paid are two very distinct legal propositions.
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 .(www.iisd.org)