Arbitration Clauses Limited to Compensation due to Expropriation: Relevant Case Law, Interpretive Trends, and the Case of China’s Treaty Policy and Practice

Vaccaro-Incisa, G. Matteo

doi:10.1007/978-981-13-5744-2_14-1

G. Matteo Vaccaro-Incisa⁴

460 Accesses

Abstract

Variations in the texts of investment treaties aside, arbitral tribunals (as well as domestic courts and ICSID annulment committees subsequently seized) continue to offer views and interpretations from diverse conceptual standpoints regarding the rationale of investor-State dispute settlement clauses limited to compensation of foreign investors in the event of expropriation. Such clauses, reflecting a clear political rationale (certainly existing at the time of the conclusion of the relevant agreements), were employed by China as well until 1999 and are present today in 58 Chinese investment agreements that are still in force. The interpretive uncertainty is a cause for concern, not only per se but also because it reverberates on other treaty provisions (e.g., MFN, FET) that may be relied upon in connection with the extent of the arbitral tribunals’ jurisdiction.

This chapter begins with an analysis of China’s treaty policy and practice on this type of clauses and then synthesizes the relevant arbitral findings in cases that have arisen both out of Chinese and non-Chinese investment treaties. With specific regard to China, the conclusion is that interpretive inconsistencies on the point are a double-edged sword: while they may well contribute to foreign investors in China resorting to alternative methods to settle disputes with the Chinese government, Chinese investors abroad (particularly, in the West) see their legal weaponry blunted.

Jean Monnet Fellow (European University Institute); Of Counsel (Carnelutti Law Firm – Milan, and Vaccaro Law Bureau – Florence). Ph.D. (Geneva and Bocconi); LL.M. (MIDS)

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution

Institutional subscriptions

Notes

1.
State conduct that was most frequently challenged by investors in 2015 included…alleged direct expropriations of investments – UNCTAD IIA Issues Note 8.6.2016
2.
See Art. 3.2 of the 1958 Germany-Pakistan BIT (the 1st BIT).
3.
Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, para 54: “…the Tribunal considers that there are good reasons to conclude that today dispute settlement arrangements are inextricably related to the protection of foreign investors…” [emphasis added].
4.
As synthesized by Andrea Leiter in “The Silent Impact of the 1917 Revolutions on International Investment Law – And What It Tells Us about Reforming the System,” 6:10 ESIL Reflection (2017): “…the socialist pressure had an effect in the liberal world as well and can be traced through the introduction of the notion of investment. The idea of investment connects foreign property to an expected social performance and can hold the idea of a societal good. After the turmoil of WW II, international legal thought caught up with the interwar events and it is thus not by chance that the introduction of investment coincides with the inauguration of the modern development discourse promulgated by Truman in his first address on 20 January 1949. As argued by Escobar, it was the moment of the discovery of poverty of large parts in the world and combatting this poverty is then cause and legitimation for intervention in the name of development. The kind of development imagined by Truman was deliberately set in opposition to the socialist model. Investment is the liberal answer to the demands for a more social world that allowed to secure Western influence vis-à-vis the Soviet Union. Development, accordingly, was to be achieved not through foreign property, but through foreign investment.”
5.
A notable exception is Romania, which has been the most active socialist State in concluding BITs (the first, in 1976, with the UK) and has continued to be particularly active also in the post-socialist era (today, Romania enjoys a network of 84 BITs (almost the size of Italy’s network, constituted of 93 agreements)).
6.
As noted inter alia by the High Court of the Republic of Singapore in Government of the Lao People’s Democratic Republic v Sanum Investments Ltd, [2015] SGHC 15, High Court-Originating Summons No 24 of 2014, Edmund Leow JC, Judgment of 20 January 2015, p. 44, at para 123
7.
See Gallagher N, Shan W (2009) Chinese investment treaties: policies and practice. Oxford University Press; contra, Q Kong, which affirms that China never used a model for its BIT negotiations; see Kong Q (1998/99) Bilateral investment treaties: the Chinese approach and practice. Asian Yearb Int Law 8:105, 114. However, in light of the more recent, conspicuous and uncontested work of Gallagher and Shan, it is here assumed that, at the time of Kong’s writing, this piece of information was not publicly available. See also Chaisse J (2015) The shifting tectonics of international investment law – structure and dynamics of rules and arbitration on foreign investment in the Asia-Pacific region. George Wash Int Law Rev 47(3):563–638
8.
See, e.g., Willems J (2019) Investment disputes under China’s bits: jurisdiction with Chinese characteristics? In: Chaisse J (ed) China’s international investment strategy: bilateral, regional, and global law and policy. Oxford University Press, London, p 560
9.
For an overall review on the point, see Vaccaro-Incisa GM (forthcoming) China’s treaty policy and practice in international investment law and arbitration. Brill/Nijhoff international investment law series
10.
That is, the Trilateral Investment Agreement with Japan and South Korea (2012)
11.
For example, the China-ASEAN Agreement on Investment (2009)
12.
For example, the China-Chile Supplementary Agreement on Investments (2012)
13.
For example, the China-New Zealand FTA (2008)
14.
See fn. 9.
15.
UNCTAD. World investment report 2019, pp. 3–7
16.
Chinese BITs have been divided into various “generations” in slightly different fashions (e.g., Gallagher & Shan, Li, Vaccaro-Incisa); scholars agree, however, on the typical traits of the 1st generation, e.g., Gallagher N, Shan W (2009) Chinese investment treaties: policies and practice. Oxford University Press, p 4
17.
Key: (A) Express wording on any choice being “final”; (B) Express wording on finality of domestic court choice (including “provided that the investor has not submitted the dispute to a domestic court of that Contracting Party” or equivalent); (C) ISDS mechanisms expressly listed as “alternative”; (D) ISDS mechanisms implicitly alternative (“choice” or “request” of the investor between items separated by “or”); (E) Arbitration subject to withdrawing from domestic courts; (F) The investor is required to waive its right to initiate court proceedings.
18.
William Nagel v. The Czech Republic, SCC Case No. 049/2002, award on jurisdiction, 9 September 2003
19.
Paras 269–271
20.
Para 269
21.
Para 271
22.
Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005
23.
Paras 183–227
24.
Most notably, since Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction, 25 January 2000
25.
Para 207
26.
Para 227
27.
Vladimir Berschader and Moïse Berschader v. The Russian Federation, SCC Case No. 080/2004, award on jurisdiction, 21 April 2006
28.
Art. 10
29.
Paras 151–158
30.
Para 153
31.
Para 185
32.
Weiler’s separate opinion, paras 1 et seq.
33.
Idem, paras 15 et seq.
34.
Telenor Mobile Communications A.S. v. The Republic of Hungary, ICSID Case No. ARB/04/15, award on jurisdiction, 13 September 2006
35.
Article XI Hungary-Norway BIT
36.
Paras 69–80
37.
See, e.g., para 83.
38.
Para 90
39.
Para 92
40.
Para 100
41.
European Media Ventures SA v. The Czech Republic, UNCITRAL, decision on jurisdiction, 15 May 2007
42.
Para 52
43.
Para 56
44.
Paras 56–66
45.
Para 67
46.
2007 EWHC 2851 (Comm), 5 December 2007, para 32
47.
Para 44
48.
Para 45
49.
Para 52
50.
RosInvestCo UK Ltd. v. The Russian Federation, SCC Case No. V079/2005; decision on jurisdiction, 1 October 2007
51.
Para 110
52.
Para 122; an identical ISA clause was debated in Telenor (see supra)
53.
Para 114
54.
Paras 116–117
55.
Para 120
56.
Para 130
57.
It is worth noting that Veeder (Essex Court Chambers, like Steyn and Berman, arbitrators in this case) appointed as arbitrator by Bulgaria in Plama, in this case acted as counsel for the claimant.
58.
Para 132
59.
Para 135
60.
Stockholm District Court Default, Judgment, Case No. T24891-07, 9 November 2011; Rosinvest denied the challenge but failed to appear in Court for the preparatory hearing.
61.
Svea Court of Appeal, Judgment, Case No. T 10060-10, 5 September 2013
62.
Renta 4 S.V.S.A, Ahorro Corporación Emergentes F.I., Ahorro Corporación Eurofondo F.I., Rovime Inversiones SICAV S.A., Quasar de Valors SICAV S.A., Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. v. The Russian Federation, SCC No. 24/2007, decision on preliminary objections, 20 March 2009
63.
For example, paras 53–54, with regard to the analysis of the relevance of statements of the Belgian Ministry of Foreign Affairs in Berschader
64.
Para 34; it cannot go unnoticed that Mr. Paulsson’s firm at the time, Freshfields Bruckhaus Deringer, counselled the claimants in Berschader, while Russia’s nominee, Mr. Landau, represented EMV in the UK courts against the Czech Republic.
65.
Para 31
66.
Idem.
67.
Para 58
68.
Para 56
69.
Idem.
70.
IAR, Tribunal in Spanish shareholders’ Yukos claim holds that narrow arbitration clause permits expropriation claims, 16 April 2009.
71.
Para 99
72.
Para 100
73.
Para 101
74.
The relevant parts of the clause, in the original Spanish version, read: Articulo 5 – Tratamiento – 1. Cada Parte garantizará en su territorio un tratamiento justo y equitativo las inversiones realizadas por inversores de la otra Parte. 2. El tratamiento mencionado en el punto anterior no será menos favorable que el otorgado por cada Parte a las inversiones realizadas en su territorio por inversores se un tercer Estado.
75.
Paras 111–119
76.
Stockholm District Court, Judgment, Case No. T 15045-09, 11 September 2014, p. 32
77.
P. 32
78.
P. 34
79.
P. 33
80.
P. 34
81.
PP. 34–35
82.
Svea Court of Appeal, Judgment, Case No. T 9128-14, 18 January 2016
83.
P. 4
84.
P. 3
85.
P. 6
86.
P. 6
87.
P. 6
88.
P. 9
89.
P. 10
90.
P. 9
91.
P. 7
92.
Austrian Airlines v. The Slovak Republic, UNCITRAL, final award, 9 October 2009
93.
Para 96
94.
Para 97
95.
Para 104
96.
Para 119
97.
Para 126
98.
Para 129
99.
Para 135
100.
As noted, Greenwood had already been appointed arbitrator by the respondent in EMV.
101.
Appointed After respondent manifested its intention to challenge the claimant’s first appointment (Mr. Brower).
102.
European American Investment Bank AG (EURAM) v. Slovak Republic, UNCITRAL, decision on jurisdiction, 22 October 2012
103.
Para 364
104.
Para 367
105.
Para 372
106.
Para 370
107.
Para 371
108.
See para 377.
109.
Para 385
110.
Para 436
111.
Para 443
112.
Para 446
113.
Para 455
114.
UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Decision on preliminary issues of jurisdiction, 3 March 2016
115.
Edenred S.A. v. Hungary, ICSID Case No. ARB/13/21, award of 13 December 2016 (not public)
116.
Sodexo Pass International SAS v. Hungary, ICSID Case No. ARB/14/20 (not public)
117.
See IAR report, BIT tribunal rules in favor of French investor, Sodexo Pass, in latest intra-EU award against Hungary, 29 January 2019.
118.
Whom already chaired Rosinvest; the parties had previously agreed on Kaufmann-Kohler, which however did not accept the appointment.
119.
Chair of the concurrent arbitral panel in A11Y which, by majority, touching upon the same issue, declined to extend its jurisdiction over FET claims by way of a MFN clause (see below).
120.
Involved in 2014 in the Sanum case as expert for the claimant, although on a specific aspect (see below)
121.
Para 157
122.
Para 163
123.
Para 159
124.
Para 160
125.
ICS Inspection and Control Services Limited (United Kingdom) v. The Republic of Argentina, UNCITRAL, PCA Case No. 2010-9, award on jurisdiction, 10 February 2012
126.
Para 188
127.
Para 190
128.
Para 193
129.
Para 191
130.
Para 194
131.
Para 222
132.
A11Y LTD. v. Czech Republic, ICSID Case No. UNCT/15/1, award, 29 June 2018
133.
Paras 70–92
134.
Para 95
135.
The dissent is expressed in para 108 and is based on (i) a different approach to textual interpretation (he would have moved from “treatment,” and addressed whether this included ISA), (ii) the analysis of State consent to arbitration, and (iii) the majority analysis of the UK BIT practice. With regard to the latter two, while signaling the need for more investigation on the part of the tribunal to reach the conclusions it had, he seemingly offers none in addition himself.
136.
Paras 103–104
137.
Señor Tza Yap Shum v. The Republic of Peru, ICSID Case No. ARB/07/6, decision on jurisdiction, 19 June 2009
138.
In the Spanish version: “…una controversia que involucra el monto de compensación por la expropiación…”
139.
Para 150
140.
Para 151
141.
Paras 152–157. The skepticism is expressed again at para 187.
142.
Paras 159–161; the apparent haste with which the matter was handled by the tribunal (also in procedural terms), while not sufficient to cause annulment, was openly criticized by the ad hoc committee (see below).
143.
The reasoning centered on Art. 25.4 ICSID; see paras 163–166.
144.
Paras 168–169
145.
Para 172
146.
Paras 174–176
147.
Paras 177–183
148.
Para 188
149.
Para 196
150.
Para 207
151.
Para 212
152.
Para 213
153.
Para 216
154.
ICSID Case No. ARB/07/6, Decision on Annulment, 12 February 2015; it shall be mentioned that the claimant was here assisted inter alia by Mr. Alexandrov (later arbitrator in A11Y)
155.
Para 99; at para 133, the committee expressed criticism also with respect of how the tribunal handled (procedurally, if not as a matter of interpretation) the fork in the road provision: “…did the Arbitral Tribunal have an obligation to go back to the Parties to ask about the last sentence of Article 8(3) on which the Parties had not focused? Given the importance of the analysis to the Arbitral Tribunal’s overall reasoning, one may be inclined to say that it should have. It is however possible to take the view that it did not have such an obligation, although the matter could have been handled better by the Arbitral Tribunal”; on this, see also para 141.
156.
Sanum Investments Limited v. Lao People’s Democratic Republic, UNCITRAL, PCA Case No. 2013-13, decision on jurisdiction, 13 December 2013
157.
Lao Holdings N.V. v. Lao People’s Democratic Republic, ICSID Case No. ARB(AF)/12/6
158.
A first effort by the claimant to prove such breaches by Laos of the settlement deed failed in 2015
159.
Sanum Investments Limited v. Lao People’s Democratic Republic, ICSID Case No. ADHOC/17/1; ICSID AF/New York, tribunal: Kalicki (chair), Reichert (claimant’s appointee), Boisson de Chazournes (Respondent’s appointee)
160.
Para 328
161.
Para 329
162.
Para 332
163.
Para 333
164.
Para 358
165.
Government of the Lao People’s Democratic Republic v Sanum Investments Ltd [2015] SGHC 15
166.
Para 121
167.
Para 124
168.
Para 125
169.
Government of the Lao People’s Democratic Republic v Sanum Investments Ltd [2016] SGCA 57
170.
Paras 132–133
171.
Para 149
172.
Chair also of the ICSID AF Sanum case
173.
Counsel for the claimant in Rosinvest
174.
Counsel for the Czech Republic in EMV
175.
Beijing Urban Construction Group Co. Ltd. v. Republic of Yemen, ICSID Case No. ARB/14/30, decision on jurisdiction, 31 May 2017
176.
Paras 64–65
177.
According to the translation employed by the tribunal; see paras 50 and 74.
178.
Para 71
179.
Para 77
180.
Para 87
181.
Para 92
182.
Para 97
183.
Para 116
184.
Following the resignation of Donovan, the law firm of which he is partner at, Debevoise & Plimpton, took up the claimant’s case in Sanum.
185.
Counsel for the Slovak Republic in EURAM
186.
China Heilongjiang International Economic & Technical Cooperative Corp., Beijing Shougang Mining Investment Company Ltd., and Qinhuangdaoshi Qinlong International Industrial Co. Ltd. v. Mongolia, UNCITRAL, PCA case no. 2010-20, award on jurisdiction, 30 June 2017
187.
See, in particular, para 445.
188.
Para 446
189.
Para 449
190.
Para 450
191.
Para 451
192.
IAR, In-depth: a first look inside the now-surfaced award in the case of China Heilongjiang v. Mongolia award; claimants now pursuing set-aside, 1 October 2017
193.
Ping An Life Insurance Company, Limited and Ping An Insurance (Group) Company, Limited v. The Government of Belgium, ICSID Case No. ARB/12/29, award on jurisdiction, 30 April 2015

Author information

Authors and Affiliations

European University Institute (EUI), Florence, Italy
G. Matteo Vaccaro-Incisa

Authors

G. Matteo Vaccaro-Incisa
View author publications
You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to G. Matteo Vaccaro-Incisa .

Editor information

Editors and Affiliations

School of Law, City University of Hong Kong, Kowloon, Hong Kong
Julien Chaisse
School of Business and Law, University of Portsmouth, Portsmouth, UK
Leïla Choukroune
Institute of Malaysia and International Studies, National University of Malaysia, Bangi, Selangor, Malaysia
Sufian Jusoh

Rights and permissions

Reprints and permissions

Copyright information

About this entry

Cite this entry

Vaccaro-Incisa, G.M. (2019). Arbitration Clauses Limited to Compensation due to Expropriation: Relevant Case Law, Interpretive Trends, and the Case of China’s Treaty Policy and Practice. In: Chaisse, J., Choukroune, L., Jusoh, S. (eds) Handbook of International Investment Law and Policy. Springer, Singapore. https://doi.org/10.1007/978-981-13-5744-2_14-1

Download citation

DOI: https://doi.org/10.1007/978-981-13-5744-2_14-1
Received: 10 July 2019
Accepted: 14 July 2019
Published: 17 December 2019
Publisher Name: Springer, Singapore
Print ISBN: 978-981-13-5744-2
Online ISBN: 978-981-13-5744-2
eBook Packages: Springer Reference Law and CriminologyReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences

Publish with us

Policies and ethics