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When Ghana Telecom was privatized eight years ago, Telekom Malaysia (TM) seized the opportunity to expand. TM purchased a third of the African telecommunications company for $38 million, and a smaller share three years later, this time for $50 million. But a new regime came to power in Ghana and refused to allow the Malaysian telecom giant’s second investment. Add a currency devaluation in Ghana, and TM lost upward of $100 million in the investment. With no legal code to decide the matter, TM turned to investment treaty arbitration to return the $50 million deposit for the share, and to sell the remaining share back to the government. As global business booms, more companies are following in TM’s footsteps-and international arbitration attorneys are leading the way. An increasing number of elite international arbitration practitioners are taking on the more glamorous side of the practice. Investment treaty arbitration may sound intimidating, and it should be. The stakes are often higher in such arbitrations than in international commercial arbitrations, and the field is so specialized that it’s difficult to break into. “They are high-profile, bet-the-company and bet-the-country issues,” said Robert Volterra, global co-chairman of the international dispute resolution group and head of the public international law group in the London office of Latham & Watkins. Volterra worked on the Malaysian Telekom team in the Ghana dispute when he was at London’s Herbert Smith. “These cases are just not the same as international commercial arbitration cases. They are the brain surgery of international arbitration.” Investor-state arbitrations are disputes governed by bilateral investment treaties (BITs), treaties created by two countries to govern investments between them. The purpose is to attract investments for a developing country and to protect investments for the investing country. Currently, most cases involve countries in Latin America and Eastern Europe, since many BITs have been created to encourage First World countries to invest with confidence that laws exist to protect their capital, regardless of political turmoil or a regime change. Under BITs, private entities in one country can bring a claim against another country, providing that there is a BIT between the two countries. For instance, there is a BIT between Malaysia and Ghana, which allowed TM to seek damages in arbitration. The North American Free Trade Agreement (NAFTA) is another example, though it is a multilateral investment treaty because it involves three countries. Significant growth According to the United Nations Conference on Trade and Development (UNCTAD), the number of BITs has grown significantly, from under 1,000 in 1994 to around 2,400 in 2004, which has caused a proliferation of investor-state arbitrations. In the past ten years, the cumulative number of known investment treaty arbitrations has grown from six in 1995 to 219 in 2005, according to UNCTAD. Not all cases are made public, however. “I’d say that we’re one of the few firms who did this historically, now there’s so much of it,” said Abby Cohen Smutny, administrative partner in the international arbitration group in the Washington office of White & Case. “It’s seen as an exciting and interesting area for attorneys to get involved in.” It’s also a particularly specialized field. To prosecute a treaty investment arbitration successfully, counsel must be “experienced in public international law and international arbitration, experienced in working for and against governments, knowledgeable about the inclinations and personalities of the leading investment treaty arbitrators, and expert tacticians and strategists on a global context,” said Volterra. “They usually also require multiple language skills, as precedents and treatises are often in other languages, such as French and Spanish.” It is considered a particularly scholarly field, with many law professors in Europe acting as arbitrators in disputes at arbitration tribunals, most often in London; Washington; Paris; and The Hague, Netherlands. The increase in the number of BITs has brought about a greater awareness from businesses as well. “More and more investors are becoming aware that they can make claims under these treaties,” said Eric Ordway, co-chairman of the global dispute resolution group at New York’s Weil, Gotshal & Manges and a partner in the firm’s New York and Paris offices. “Also, there’s an increase in trade and investment, and the more investment, the more likely it is you’ll have disputes resolved under BITs. The knowledge that these are out there has grown.” Still, many companies are ignorant of the protections possible under BITs. “Some of the cases have achieved a certain level of notoriety,” said Barton Legum, counsel to the international dispute resolution group in the Paris office of New York’s Debevoise & Plimpton. “A lot of businesses are just learning about this. There’s also a growing industry of counseling businesses of how to structure their businesses to take advantage of the treaties.” Both Legum and Volterra counsel clients on how to structure their investments to obtain treaty protection. “Companies are spending millions of dollars a year seeking tax advice on how best to structure their finances,” Legum said. “Smart companies will be seeking similar treatment for investment treaties.” Volterra said that any client doing business overseas should expect to be counseled on investment treaty protections. “Most in-house counsel are not aware of investment treaties and investment treaty arbitration. If they do have an awareness, it is often vague,” Volterra said. “This is indeed rapidly changing, as the number of BIT cases increases. It is safe to say in 2006 that any lawyer advising a client on an overseas investment who does not incorporate an analysis of investment treaty protections in structuring the deal is arguably professionally negligent.” However, the circle of top lawyers handling investment treaty arbitrations remains relatively tight, despite the recent growth. “It’s a very small number,” said Smutny. “Like any small bar, one tends to get to know each other, especially those firms that are repeat players.” Often mentioned among the elite U.S. firms handling treaty arbitrations are White & Case; Fulbright & Jaworski of Houston; King & Spalding of Atlanta; Debevoise & Plimpton; Shearman & Sterling of New York; Latham & Watkins; Covington & Burling of Washington; Cleary Gottlieb Steen & Hamilton of New York; and Sidley Austin. “You know who is doing what,” said Emmanuel Gaillard of the BIT arbitration community. Gaillard is the chairman of the international arbitration practice at the Paris office of Shearman & Sterling. “It’s high-stakes, it’s very visible,” he said. As a result, it remains a small but growing community. “These BIT arbitrations are currently the measure against which the international arbitration community now judges its members,” Volterra said. “The international arbitration community knows who the real players in this field are; those who are not on the inside are just busting a gut to get in. In part, it is a status thing.” With treaty arbitration attorneys in high demand, many firms are developing attorneys from within the firm ranks, rather than trying to compete for lateral hires-though no one is ruling that out. The majority of BIT arbitration attorneys are based in Europe, primarily London, with some in Paris. Europe-based attorneys had a head start on the treaty investment arbitration trend, as there was always a greater amount of international arbitration in Europe than in the U.S. “We have a very strong history of arbitration in Europe,” Gaillard said. “U.S. litigation has been very domestic for years, for decades, really. The equivalent is your federal court. Now the U.S. is using arbitration because of the internationalization of business.” At the top of the European practice are firms such as Freshfields Bruckhaus Deringer of London, Clifford Chance and Gide Loyrette Nouel in Paris. Latham & Watkins scored a major coup in late 2004 when the firm lured international arbitration partner Robert Volterra away from Herbert Smith. Volterra has brought his treaty arbitration practice to the firm, a much-desired practice area for top U.S. firms. “It is a growing area of law as companies that invest overseas become increasingly aware of their rights under international law,” he said. “The issues at play are of a macro-geopolitical and economic nature. The cases go to the core of the biggest international disputes and reflect the conflicting interests between global economic players and competing national economies.” And U.S. firms like Latham & Watkins are playing a major role. “I would say the traditional strong firms were based in Europe, but it’s changing, American firms are now focusing on it more,” Gaillard said. Gaillard, who is also a professor of law at the University of Paris XII, heads one of the most established treaty arbitration practices in the world. He started the practice 20 years ago, working predominantly on commercial arbitration until seven years ago. He has mostly trained other attorneys within the ranks of the firm to build the practice, which now has 11 partners and more than 50 associates. Gaillard is currently representing the majority shareholders in Yukos Oil Co. in a series of three arbitrations against the Russian Federation for expropriation of their investment. The shareholders are asking for more than $33 billion, making it the largest investment treaty arbitration ever. At White & Case, Smutny devotes all of her time to BIT arbitration. About 25 attorneys in the firm have also handled these disputes, she said. Many uncertainties However, as the practice is still in its early stages, many uncertainties still exist. “There’s still not a firm sense of what will and will not give rise to liability,” Smutny said. “As there are more decisions made, as the law becomes a bit more well known, as more recent cases become decided, and it becomes clear to lawyers as to what gives rise to liability, perhaps the number of cases will plateau. It’s not easy to prove that a country has broken its international obligations.” Yet countries are continuing to conclude treaties, often regardless of whether they’ve had claims brought against them under BITs. One exception is Argentina, which has a number of BITs and had numerous claims brought against it after its economic crisis. “Argentina signed like 50 BITs,” Gaillard said. “Now in the past years, they’ve been facing some 30 arbitration cases on the basis of these BITs, so it’s a bitter experience for them. So they’re complaining, saying these BITs are no good, they went too far.” Whether or not the Argentine example will make other countries reluctant to conclude BITs remains to be seen. “It’s no surprise they oppose [BITs],” Smutny said. “It’s a shock to their financial system. They are exposed to literally billions of dollars in claims, so yes of course this has been a very big issue for them.” However, Pakistan is an example of a country that created BITs, and had several claims successfully brought against them, but continues to create them. Pakistan is said to be currently working on a BIT with the U.S.

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