Russia has not ratified the treaty, but Group Menatep’s lawyers argue that Russia’s signature suffices to trigger a novel provision in the treaty which ensures ‘provisional application’ of the treaty protections. Menatep claims to have suffered a virtual expropriation of its shareholdings, contrary to the Energy Charter Treaty’s protections. The group is seeking a mammoth $30bn in compensation, making it the largest known investment arbitration in history. The parties and the tribunal will meet for the first time at a procedural hearing scheduled for October 31, in The Hague.
A UK court will hear a challenge by Ecuador to a $75m arbitration ruling in favour of California-based Occidental. Oxy won the arbitration last year in a dispute under the US-Ecuador bilateral investment treaty. The company – which has exploration and production rights for a block of Ecuador’s Amazon rainforest – argued that it was entitled to VAT refunds on goods and services purchased in connection with its exploration activities. When tax authorities balked at providing the refunds, Oxy turned first to local courts, and then to international arbitration. Ecuador insists that the arbitral tribunal overstepped its authority by reviewing tax matters which should lay outside the scope of its investment treaty with the US. When Ecuador appealed to UK courts in an effort to overturn the arbitral award, Occidental objected on the grounds that the complaint was not justiciable under England’s Arbitration Act (1996). However, successive court rulings this year have rejected Oxy’s effort to block Ecuador’s appeal. Ecuador’s case is now slated to be heard before the English Commercial Court (Queen’s Bench Division) in December.
Canadian firm Encana is pursuing a similar arbitration against Ecuador over VAT refunds. A source close to the company says that the case, which alleges breaches of Canada’s investment protection treaty with Ecuador, is likely to see a decision later this year. In a recent SEC filing, Encana disclosed that its claim for VAT refunds had reached $139m by December 31, 2004.
- Foreign Investors are queuing up to sue Argentina over government actions taken during the recent financial crisis (see last issue’s cover story), but they’re also suing each other in the fall-out from the crisis. Argentina’s abandonment of the peg between the peso and the dollar has wreaked havoc with some of the contracts and agreements concluded among foreign investors operating in the country. Repsol-YPF, the Spanish-Argentine energy heavyweight, is locked in an arbitration with a subsidiary of US-based CMS Energy over an energy supply contract; the contract was concluded a decade ago, when the peso was still pegged to the dollar. Repsol gave a small amount of ink to the dispute in its June 30, 2005, filing with the Securities and Exchange Commission: “CMS asserts that payments by YPF for electricity and vapour supplied under the agreement must be made in the originally agreed upon currency [dollars] and not in Argentine pesos.” The company argues that the ‘pesification’ of obligations in foreign currency imposed by the Public Emergency Law is unconstitutional. YPF is preparing an answer to the complaint. A legal source in Argentina confirms that a number of other such disputes are quietly being arbitrated as companies quarrel over who will take the hit from the collapse of the peso.
- Lebanon is looking to a Swiss court to overturn a large damages award rendered by an international arbitration tribunal in favour of France Telecom earlier this year. France Telecom, through a subsidiary, had operated a GSM mobile phone network in Lebanon since 1994. When the firm fell out with authorities over performance under the contract, the parties ended up in international arbitration. In a ruling handed down in February of this year, an arbitral tribunal found that Lebanon had violated legal protections contained in the France-Lebanon investment protection treaty, and awarded France Telecom $266m for its losses.
Luke Eric 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)