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Bilateral investment treaties, commonly known as BITs, offer potentially significant benefits to investors whose investments have been impaired by the actions of a foreign state. Yet many international investors remain unaware of what BITs are and the rights they afford. This may now be changing because of the rising number, prominence and success of BIT claims. This article describes BITs generally, their history and some of the recent cases that have contributed to the growing field of investor-protection law. In recent years, there has been an explosion of BITs. A few decades ago, foreign investors had to rely for protection of their investments either on local law at the place of investing, or on the states of which they were nationals taking an interest in their cases and asserting “diplomatic protection” claims on their behalf. Needless to say, this regime did not provide great confidence to investors. To encourage international capital investment, particularly in the developing world, countries began entering into treaties with each other promising mutual respect for, and protection of, investments in each other’s territory. Over the last 25 years, and particularly in the last decade, these treaties have proliferated. Today it is widely estimated that there are more than 2,000 BITs in existence, although frankly, the pace of treaty making has exceeded the ability of organizations to maintain a current count. While there are differences among the various BITs, they have many common and familiar elements. They contain significant procedural and substantive rights that do not otherwise exist in law. The procedural rights created by BITs are that they permit individual investors rather than states to make claims against other states directly, and that they waive sovereign immunity from those claims at least to the extent of permitting them to be tried by privately constituted international arbitration tribunals. In these procedural ways, BITs make claims against states similar to claims brought in many international commercial disputes concerning purely private parties. Substantive rights under BITs BITs also provide additional substantive rights under international law that are different from the rights an investor may have under local law, and may even exceed rights available to the host state’s own nationals. BITs define an “investor” and an “investment” very broadly, and they establish substantive standards of treatment for the investor’s investment. The substantive standards of protection typically prohibit direct or indirect expropriation (without due process and just compensation); treatment that is not “fair and equitable”; treatment that is “arbitrary or discriminatory”; a failure to provide “full security and protection” for the investment; treatment that is less than required by international law; and treatment that is less than that provided to investments of the host state’s own nationals or nationals of other states. These substantive standards of protection may sound vague. To some extent they are. But they are being given definition and force by precedent-making arbitration awards. The concept of indirect expropriation has evolved to extend to any governmental measure depriving an investor of all or part of the economic value of an investment, which generally includes intangible assets such as contractual rights. Similarly, tribunals have interpreted the obligation of “fair and equitable” treatment as imposing a standard of treatment that does not necessarily require a showing by the investor of “egregious” or “shocking” conduct on the part of the sovereign, but calls for regulatory discipline more generally. Finally, BITs typically contain a “most favored nation” clause that allows an investor from any country having a BIT with the host country to claim the best treatment available to any investor from any other country that has a BIT with the host state. So, for example, a Dutch national investing in a host state under a BIT may actually be able to take advantage of substantive protections contained in a BIT made between the United States and the same host state. According to some authorities, an investor may even be able to benefit from the procedural protections offered by a BIT between the host state and a third country. See Emilio Agust�n Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction of Jan. 25, 2000, available at www.worldbank.org/icsid/cases/emilio_DecisiononJurisdiction.pdf. Recent awards After languishing in obscurity for many years, BITs are now beginning to attract the attention of international investors. This development is reflected in, and will no doubt be encouraged by, recent BIT awards favoring investors that illustrate the potential to secure justice through BITs. Examples of such cases, including some cases under Chapter 11 of the North American Free Trade Agreement (NAFTA), which offers substantive and procedural protections like those in BITs, include: CME Czech Republic B.V. v. Czech Republic. Partial award of Sept. 13, 2001, available at www.cetv-net.com/ne/ articlefiles/439-cme-cr_eng.pdf; final award of March 14, 2003, available at www.cetv-net.com/ne/articlefiles/439-Final_Award_Quantum.pdf. The claimant successfully argued that certain actions by the Czech Media Council that destroyed the value of the claimant’s Czech television station violated many of the substantive provisions of the Dutch-Czech BIT. The claimant obtained a damages award in excess of $350 million, which has now been fully paid. Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4 (2000), award of Dec. 8, 2000, reprinted in 41 I.L.M. 896 (2002); decision of the Ad Hoc Annulment Committee of Jan. 28, 2002, reprinted in 41 I.L.M. 933 (2002). The claimant successfully argued under the United Kingdom-Egypt BIT that certain measures by Egyptian state instrumentalities constituted unfair treatment and expropriation of its hotel development projects in Luxor and Cairo and obtained a damages award in excess of $20 million. Losses for Mexico and Canada Metalclad Corp. v. United Mexican States, ICSID Case No. ARB(AF)/97/1 (2000), award of Aug. 30, 2000, reprinted in 40 I.L.M. 36 (2001). The claimants successfully argued under NAFTA Chapter 11 that certain land zoning regulations by local authorities constituted unfair treatment and expropriation of their investment in a landfill site and obtained a damages award in excess of $16 million. SD Myers Inc. v. Canada. Partial award of Nov. 13, 2000, reprinted in 40 I.L.M. 1408 (2001); final award of Oct. 21, 2002, available at www.dfait-maeci.gc.ca/tna-nac/documents/MyersPA.pdf. The claimants successfully argued under NAFTA Chapter 11 that a ban on trade in hazardous waste constituted unfair and discriminatory treatment of its hazardous-waste processing business and obtained a damages award in excess of 6 million Canadian dollars, plus interest. T�cnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2 (2003), award of May 29, 2003, available at www.worldbank.org/icsid/cases/tecmed-award.pdf. The claimants successfully argued under the Spanish-Mexican BIT that the denial of renewal of an operating license constituted unfair treatment and expropriation of their investment in a hazardous-waste treatment facility; they obtained a damages award in excess of $5 million plus compound interest. Subsequent settlement In addition to these examples of successful recovery, there are also cases in which the BIT arbitration tribunal found in favor of the investor on liability and the parties subsequently settled. One such case is Antoine Goetz v. Republic of Burundi, ICSID Case No. ARB/95/3 (1999), award of Feb. 10, 1999, reprinted in ICCA Yearbook XXVI (2001) 24. Belgian investors successfully argued under the Belgium-Burundi BIT that the withdrawal of a “free zone” certificate granting a series of tax and customs exemptions to their investment in a precious-metal business constituted an expropriation. The tribunal ordered Burundi either to compensate the investors or to reinstate their free-zone status. The parties subsequently entered into an agreement whereby Burundi agreed to reimburse the investors the taxes and custom duties they had paid, amounting to almost $3 million, and to create a new free-zone regime. On March 27, 2001, the claimants filed a further request for arbitration with ICSID. The proceeding is currently pending. See Antoine Goetz v. Republic of Burundi, ICSID Case No. ARB/01/2. While the above sample of cases is not comprehensive, it does illustrate the range of disputes that may be properly resolved through BIT arbitration. More recent disputes in particular display the ability of sophisticated investors to assert rights and claims against varied forms of governmental interference with their investments under the seemingly general and vague language of BIT provisions. BIT arbitration has evolved to reach far beyond the archetypal case of formal expropriation or nationalization. It has been or is now being used to resolve disputes arising out of “regulatory takings,” whether they are effectuated through trade bans, discriminatory licensing or other actions or omissions adversely affecting the investment and attributable to the host state; breaches of concession agreements, when the applicable BIT has elevated such breaches of contractual obligations between the host state and the investor to the level of BIT breaches; taxation measures and measures of macroeconomic or monetary policy, when they constitute takings or breach of contract, or are discriminatory or unfair; and domestic court decisions, when they rise to the level of a denial of justice. Sometimes investors lose Of course, investors do not win all investment treaty cases. But the cases investors have lost generally were lost because of the specifics of the case, not because of a failure to recognize the substantive protections BITs afford. For example, a very recent award dismissed a Canadian company’s NAFTA challenge to a $500 million jury verdict in Mississippi for what was essentially a breach-of-contract claim. Loewen Group Inc. v. United States of America, ICSID Case No. ARB (AF)/98/3 (2003), award of June 26, 2003, available at www.state.gov/documents/organization/22094.pdf. The arbitrators dismissed the case on jurisdictional grounds because the company had settled the case for $475 million rather than pursuing an appeal, and because the company subsequently was sold to an American company (NAFTA does not permit a national to bring claims against his own country). The arbitrators nevertheless could not help but explain why the jury verdict violated international law principles embodied in NAFTA and commonly found in BITs. Why consider BIT claims? Why are investors turning to BITs with increasing frequency and success? There are at least two reasons. First, BITs provide substantive rights under international law over and above the rights that host states’ local laws provide. Second, BITs provide a forum-international arbitration before three independent arbitrators-that investors widely consider to be substantially more evenhanded and often faster than the courts of the state in which they are suing. BIT arbitration is still in its relatively early days. But there is no denying that it has become a part of the international law firmament. The International Center for the Settlement of Investment Disputes (ICSID) in Washington, a part of the World Bank, is the administering organization for some, but not all, investment disputes. For the first 30-odd years after its founding in 1965, ICSID had administered perhaps a few dozen cases. That has now changed. Close to 60 cases have been commenced at ICSID just since January 2000, with 14 of those having been commenced in just the first six months of 2003. See www.worldbank.org/icsid. The prospects for relief under an investment treaty, as in any case, depend on the strength of the claim deriving from the particular facts of the case. It is nevertheless generally true that in cases that might trigger investment treaty rights, the prospects for relief under an investment treaty are very often greater than the prospects for relief without such a treaty. There may be many valid reasons in any given circumstance not to pursue a BIT claim-it is too expensive to prosecute, or the state action is too remote from the injury, or there is political sensitivity that makes asserting such a claim unattractive, etc. But at this point in the development of international investor- protection law, there are not many valid reasons to make that decision without a full appreciation of all the benefits and risks of pursuing such a claim. Mark Friedman is a partner in the London office, and Gaetan Verhoosel is an associate in the New York office, of Debevoise & Plimpton, which was counsel to the claimant in the CME Czech Republic B.V. v. Czech Republic arbitration discussed in this article. They can be reached, respectively, at [email protected] and [email protected].

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