#uncitral arbitration

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New Montenegro UNCITRAL Arbitration

A new Montegro UNCITRAL arbitration has begun. The small Balkan state has had a strong track record since joining ICSID in 2012. We have already reported on two recent ICSID cases against Montenegro, both decided in favour of the state. However, it seems like this is not the end of the road.

Russian oligarch Oleg Depariska, in his personal capacity, filed an UNCITRAL claim against Montenegro in November this year. The reason is the decision of an ICSID tribunal from July this year in a case brought by Central European Aluminium Company (“CEAC”), a subsidiary of Deripaska’s En+Group, where the arbitral tribunal ruled it lacked jurisdiction to hear the case since Claimant had failed to prove that the official “seat” or registered office of CEAC was in Cyprus.

Filing just a request for annulment of the respective award was not enough for CEAC and Mr. Depariska. He is now hitting back on two fronts, bringing claims in his personal capacity under the Russia-Yugoslavia 1995 BIT, which binds Montenegro by rules of succession concerning the ex-Yugoslavia.

Mr. Depariska alleges that Montenegro unlawfully expropriated his investments in former State-owned aluminum smelting company KAP and a bauxite mining company named Rudnici Boksita. Claimant further invokes breach of the BIT’s fair and equitable treatment provisions.

The Ministry of Foreign Affairs, in a press statement addressing Deripaska’s claim, stated that CEAC has already lost one ICSID arbitration with respect to essentially the same claims and that the State was determined to prove once again that it was always acting in accordance with a 2010 settlement agreement reached between the parties.

A copy of the recent CEAC award dismissing jurisdiction is available below. It remains to be seen if Montenegro will continue to have a successful track record in defending itself before investment tribunals, but one thing is certain – his new Montengro UNCITRAL arbitration suggests that Mr. Deripaska has no intention of giving up easily.

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Greek International Arbitration – The Legal Framework

Greek international arbitration law includes a favorable legal framework for arbitrations taking place with their seat in Greece and for the execution of arbitral awards in the country.

In Greece, the international commercial arbitration regime is regulated by the 1958 New York Convention (NYC) and the UNCITRAL Model Law, where applicable.

The UNCITRAL Model Law was adopted by Greece by law 2735/1999. Its contribution was important for the crystallization of the term “foreign arbitral award”, which up to that point was defined only through doctrine and case law. Additionally, the direct reference of article 36 of law 2735/1999 to the NYC, in combination with article 28 of the Greek Constitution, led to the acceptance and application of the NYC as part of the domestic law by the Greek judiciary in all relevant aspects.

Greece is a signatory to the NYC and ratified the Convention through legislative decree 4220/1961. The NYC regulates the conditions for recognition and enforcement of commercial arbitral awards under the principle of reciprocity, for instance, which requires that the State in which the award was made also be a party to the NYC.

The following Greek Statutes regulate the preconditions and procedure for the recognition and enforcement of foreign commercial arbitral awards in Greece.

First, the provisions of the Greek Civil Procedure Code (CPC). To the extent that they are not set aside by special rules, the general provisions in articles 903, 904, 905, 906 CPC, concern the preconditions and procedure for recognizing and proclaiming the enforceability of foreign arbitral awards in general. The provisions regarding the special non-contentious procedure that applies for the recognition and enforcement of arbitral awards are also relevant (art 739 et al CPC). Finally, the provisions for execution within the Greek State are applicable (941 et al CPC).

Greece is also party to bilateral treaties, many of which provide Greece’s consent to arbitration, as for example the treaty between Greece and the USA (Law 2893/23.6-10.7.1954).

Greece is not a party to the European Convention on International Commercial Arbitration.

In reference to European Union Law, Regulation 1215/2012 (“Brussels Recast” of the previous 44/2001) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, it explicitly excludes from its scope arbitral awards, without therefore affecting the legal framework.

The deference given to the arbitral traditions of certain European States (France, United Kingdom, etc.), with which Greece has close economic ties and transactions, has prevented the development of significant, specifically Greek jurisprudence for international arbitration. The initiatives for developing the economy by encouraging new commercial activities in Greece and abroad, as well as the exacerbation of problems in dispute resolution at the Greek Courts (delays, costs etc.) are conducive to the development of Greek international arbitration over the coming decades, however.

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The PCA Secretary General’s Role as Arbitrator Appointing Authority

The Secretary General of one of the oldest arbitral institutions in the word, the Permanent Court of Arbitration (the “PCA”), has a very important role under the UNCITRAL Rules as an arbitrator appointing authority.

Under both the 1976 and the 2010 UNCITRAL Rules (as revised in 2013), the Secretary General acts as the appointing authority when designated by the arbitration clause or subsequent agreement by the parties. In addition, the UNCITRAL Rules entrust him or her with the role of the designator of the “appointing authority”, the so-called “indirect appointment” method, for ad hoc arbitrations under the UNCITRAL Rules.

Under the 1976 UNCITRAL Arbitration Rules, the PCA Secretary General may be requested to designate an “appointing authority” in following cases: when there is to be a sole arbitrator but the parties could not agree within the prescribed amount of time (Article 6), in cases when there are three arbitrators, but the Respondent does not appoint the arbitrator within the prescribed period of time ( Article 7, (2) and (3) ) or when two arbitrators appointed by the parties cannot agree on the choice of the President (Article 7, (3)). In addition, the Secretary General will also take this role when the appointing authority agreed upon refuses to act or fails to appoint the arbitrator (Article 6(2) and Article 7(2)), a less common situation. Furthermore, pursuant to Article 12 of the UNCITRAL Rules, he is also given certain powers in case of the challenge of an arbitrator.

Essentially the same provisions can be found in the 2010 UNCITRAL Rules, with slight changes in article numbering.

When the Secretary General acts as the appointing authority, he generally follows the list-procedure provided by Article 6(3) 1976 UNCITRAL Rules and Article 8(2) 2010 Rules. However, the choice of arbitrators for the list-procedure or direct appointments is not limited to any list or panel, and he has broad discretion to choose whoever he finds the most appropriate arbitrator for a particular case.

In practice, the PCA’s role as designator of the arbitrator appointing authority has functioned well under the UNCITRAL Rules. The first Request dates from the days of the Iran-US Claims Tribunal, but the number of requests has increased regularly since then. This “indirect” method might not be the most efficient for the parties, but it provides for the most equitable result, taking into account that it would be extremely hard for a small institution to be able to be the arbitrator appointing authority in each and every case referred to them anywhere in the world.

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Διεθνής Εμπορική Διαιτησία στην Ελλάδα – Το Νομοθετικό Πλαίσιο

Ακολουθώντας τα πρότυπα των περισσότερων ανεπτυγμένων χωρών, η Ελλάδα έχει διαμορφώσει ένα ευνοϊκό καθεστώς για την αναγνώριση του δεδικασμένου και την κήρυξη της εκτελεστότητας των διεθνών εμπορικών διαιτητικών αποφάσεων. Τα παρακάτω νομοθετήματα ρυθμίζουν τις προϋποθέσεις και την διαδικασία αναγνώρισης και εκτέλεσης αλλοδαπών εμπορικών διαιτητικών αποφάσεων στην Ελλάδα: Πρώτα απ’ όλα, οι ρυθμίσεις του Κώδικα Πολιτικής Δικονομίας (ΚΠολΔ). Στο βαθμό που δεν υποκαθίστανται από ειδικές διατάξεις, οι γενικές ρυθμίσεις των άρθρων 903, 904, 905, 906 ΚΠολΔ, αφορούν τις προϋποθέσεις και τη διαδικασία αναγνώρισης και κήρυξης της εκτελεστότητας των αλλοδαπών διαιτητικών αποφάσεων εν γένει. Δευτερευόντως, σχετικές είναι οι διατάξεις του ΚΠολΔ για την διαδικασία της εκούσιας δικαιοδοσίας, που εφαρμόζεται για την αναγνώριση και κήρυξη εκτελεστότητας των διαιτητικών αποφάσεων (739 επ. ΚΠολΔ). Τέλος, σχετικές είναι οι διατάξεις του ΚΠολΔ, που ρυθμίζουν την εκτέλεση στην Ελληνική Επικράτεια (941 επ. ΚΠολΔ). Στην Ελλάδα, το ειδικότερο καθεστώς των διεθνών εμπορικών διαιτητικών αποφάσεων ρυθμίζεται από τη Σύμβαση της Νέας Υόρκης του 1958 (ΣυμβΝΥ) και τον πρότυπο νόμο του UNCITRAL (UNCITRAL Model Law), όπου πληρούνται οι προϋποθέσεις εφαρμογής τους. Η Ελλάδα είναι συμβαλλόμενο μέρος της ΣυμβΝΥ, την οποία κύρωσε με το νομοθετικό διάταγμα 4220/1961. Η ΣυμβΝΥ ρυθμίζει τις προϋποθέσεις αναγνώρισης και εκτελεστότητας των εμπορικών διαιτητικών αποφάσεων υπό την αρχή της αμοιβαιότητας, δηλαδή το κράτος προέλευσης της διαιτητικής απόφασης πρέπει να είναι συμβαλλόμενο μέρος στη ΣυμβΝΥ. Ο UNCITRAL Model Law, υιοθετήθηκε στην Ελλάδα από το νόμο 2735/1999. Η συμβολή του ήταν σημαντική για την αποκρυστάλλωση της έννοιας «αλλοδαπή διαιτητική απόφαση», η οποία μέχρι τότε οριζόταν από τη θεωρία και τη νομολογία. Επιπλέον, η σαφής παραπομπή του άρθρου 36 ν. 2735/1999 στην ΣυμβΝΥ, σε συνδυασμό με το άρθρο 28 του Συντάγματος, οδήγησε στην αποδοχή και εφαρμογή της ΣυμβΝΥ ως κομμάτι του εσωτερικού δικαίου από τη νομολογία στα σχετικά θέματα. Ενδεχόμενη εφαρμογή έχουν και άλλες διμερείς συμφωνίες στις οποίες η Ελλάδα είναι συμβαλλόμενο μέρος, όπως για παράδειγμα, η σύμβαση μεταξύ Ελλάδας και ΗΠΑ (ν. 2893/23.6-10.7.1954). Η Ελλάδα δεν έχει προσχωρήσει στην Ευρωπαϊκή Σύμβαση περί Εμπορικής Διαιτησίας.

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Limits to the Police Powers Doctrine

According to the police powers doctrine, host States may enforce their laws against the foreign investors without being liable of any wrongdoing.

For example, a host State may revoke a concession granted to an investor if the latter does not comply with laws of the former. The tribunal in Quiborax v. Bolivia agreed with the respondent’s argument that, if a revocation decree was the legitimate exercise of Bolivia’s sovereign right to sanction violations of the law in its territory, it would not qualify as a compensable taking. The tribunal refers to the American Law Institute’s Restatement (Third) of the Foreign Relations Law, Tecmed v. Mexico, CME v. Czech Republic, Genin v. Estonia and Swisslion v. Macedonia. It considered that the police powers doctrine is particularly adapted to the case of rights of exploitation (such as licenses or concessions) that depend on the fulfillment of certain requirements by the foreign investor.

However, the tribunal recognised that the police powers of States are not unlimited and it draws the borders of the doctrine. The tribunal, in Quiborax v. Bolivia, applies a three-folded test in order to verify if the use of police powers is legitimate and whether it is a veritable taking disguised as the exercise of the State’s police powers. The tribunal verified (i) whether the revocation is based on an actual violation of law by the claimant; (ii) whether those violations of law are in fact sanctioned with the termination of the concessions; and (iii) whether the revocation was carried out in accordance with due process. These three conditions are cumulative.

A Violation of Law by the Investor

Bolivia revoked the concession on the ground of two alleged violations. First, the investor systematically refused to provide information to tax authorities, thus preventing tax audits from taking place. Second, the discrepancies in the amount of extracted ore declared and actually transported were in violation of the Tax Code. With respect to the first ground, the tribunal found that the investor was not notified and thus was not able to participate in the audit. The second ground was not factually proven.

A Violation Sanctioned by the Termination of the Concession 

The State may invoke the police powers doctrine if it establishes the existence of a link between the violation of law by the investor and the revocation of the concession. In other words, the law or the provision of the contract should provide that in case of a specific violation, the concession will be withdrawn.

The tribunal found that the Bolivian law, invoked by respondent, did not provide a blanket authorization to the government to annul concessions if audits confirmed the existence of any breaches of Bolivian law. It only allowed the government to annul concessions if the audits established breaches that were sanctioned by nullity pursuant to the laws and regulations in force. Consequently, the tribunal concluded that the alleged violations by the investor did not justify the revocation of the concession.

The Revocation Must Be Carried out in Accordance with Due Process

The tribunal found that the revocation of the concessions did not not comply with the minimum standards of due process, whether under international law or national law. The tribunal referred to the due process standard under international law as summarized in ADC v. Hungary, requiring “an actual and substantive legal procedure for a foreign investor to raise its claims against the depriving actions already taken or about to be taken against it.” Even if Bolivian law provides for several constitutional or administrative actions that the investor may have attempted, the tribunal found that the due process has not been respected, the determinative factors being that the investors were not heard during the audits.

As a result, the Tribunal found that the revocation of concession was not a legitimate exercise of Bolivia’s police powers. A copy of the decision is available below.

Andrian Beregoi, Aceris Law SARL

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The Success Rate of Investment Arbitration Claims

Many foreign investors would quite naturally like to know the success rate of investment arbitration claims, and whether or not they should expect to win a case, prior to spending three years and hundreds of thousands of dollars on the fees of arbitrators, arbitral institutions, experts and lawyers.

While the chances of success of each case of course depend on their facts, as well as the composition of the arbitral tribunal actually hearing the claims, data also suggests that certain investment arbitration claims have a higher rate of success than others.      

A commonly-considered investment arbitration claim is the claim of expropriation by a State. While direct expropriations are today quite rate, indirect expropriations remain common. According to a study of 400 cases with available data, there were 75 claims of direct expropriation and 317 claims of indirect expropriation, with 15 direct expropriation requests being found by arbitral tribunals and 43 indirect expropriation claims succeeding. Thus, from this sample, the success rate of expropriation claims in international investment arbitrations was less than 15%.

After having subtracted 154 cases where parties decided to settle or discontinue prior to a determination on liability, however, and subtracting 78 cases where arbitral tribunals declined to find that they had jurisdiction, the data is more positive for investors, with approximately 28% of cases succeeding with respect to their claims on expropriation. This data suggests that claims of expropriation have a realistic chance of success.

Among the 15 confirmed direct expropriation claims, 13 also alleged violations of fair and equitable treatment, 7 of which were successful. For the 43 successful claims of indirect expropriation, 33 also claimed fair and equitable treatment violations, and 24 claims were confirmed, representing a high rate of success. Thought the data is limited, the relevance between a claim of expropriation and fair and equitable treatment is clear. This can be explained by the fact of the resemblance of criteria of these two commonly-alleged treaty violations. In reality, many investment arbitration tribunals also choose to analyze first whether the fair and equitable treatment standard was violated by the host State of investment, and then to rely upon their findings to establish or to exclude expropriation claims.

Excluding cases that ended in settlement, or those that failed at the preliminary phase in the calculation, according to data from the same website, there were 347 fair and equitable treatment violations claims and 86 claims were confirmed, representing an almost 25% success rate.

For full protection and security claims, which are related to a finding of fair and equitable treatment, the success rate was only 18% (15/183).

For umbrella clause violation claims, where it is alleged that the State violated an undertaking that rises to the level of a treaty breach, the success rate was a mere 15% (13/100).

Overall, the findings from this data thus show the following rate of success of investment arbitration claims:

Successful Unfair And Inequitable Treatment Investment Arbitration Claims: 25%

Successful Full Protection and Security Investment Arbitration Claims: 18%

Successful Expropriation Investment Arbitration Claims: 15%

Successful Umbrella Clause Violation Investment Arbitration Claims: 15% 

Based on this data, investors who have been harmed by a State have the greatest chance of success of succeeding on claims of unfair and inequitable treatment, if such a claim is possible under the treaty or instrument that is invoked. If a State has “merely” violated an undertaking or contractual commitment, then investors might be better off considering alternatives to investment arbitration, since the odds of a successful investment arbitration claim are low.