Abstract
Energy and resources companies are adventurous investors. They explore and invest in countries that many other businesses might consider unattractive due to the risk of nationalisation, expropriation and other forms of governmental interference. In the past, when faced with such adverse measures, energy and resources companies usually had limited options: they could either sue in the courts of their host state (and run the risk of “home town justice”) or ask their home state to intervene on their behalf. Both remedies were defective for different reasons. In response, over the last fifty years, a system of international investment law and arbitration has developed that gives aggrieved foreign investors the right to bring claims against their host state in their own name, in a neutral international forum that the host state does not control. But, to have these rights of recourse, the investor and its assets must usually first be covered by an investment treaty (the other means by which these rights of recourse may be acquired being state agreements and local investment laws, are largely outside the scope of this chapter). This chapter explains how the investment treaty system works, where it came from, and what energy and resources companies need to do to obtain the benefits it provides.
The author is grateful for the assistance of Molly Greenfeld. The views expressed in this chapter are the author’s alone.
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Notes
- 1.
Diplomatic protection is, however, still used in claims before the International Court of Justice, most recently in Ahmadou Sadio Diallo (Guinea v Democratic Republic of the Congo), [2010] ICJ Rep 639. See generally C.F. Amerasinghe, Diplomatic Protection (Oxford: OUP, 2008).
- 2.
For a wider history of international investment law, see Kate Miles, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge: CUP, 2013).
- 3.
Alexander Kursky and Andrei Konoplyanik, ‘State Regulation and Mining Law Development in Russia from the 15th Century to 1991’ (2006) 24(2) Journal of Energy & Natural Resources Law 221, 235–6.
- 4.
Andrew Seek, Safa Mirzoyev, Vagif Nasibov and Fatima Mamedova, ‘Azerbaijan: Rediscovering its Oil Potential? A Legal Perspective’ (1995) 13 Journal of Energy & Natural Resources Law 147, 148.
- 5.
Amir Rafat, ‘Compensation for Expropriated Property in Recent International Law’ (1969) 14(2) Villanova Law Review 199, 208.
- 6.
An example can be found in the concession agreement signed between the All-Union Oil Trading Syndicate (Neftesindikat) and the American company Barnsdall Corporation. Under the terms of the concession, in which Barnsdall undertook to deliver 20 rotary drilling rigs in return for 20 % of all oil produced, Neftesindikat and Barnsdall agreed that they would resolve disputes under the contract by arbitration.
- 7.
Arina Shulga, ‘Foreign Investment in Russia’s Oil and Gas: Legal Framework and Lessons for the Future’ (2001) 22(4) University of Pennsylvania Journal of International Economic Law 1067, 1082.
- 8.
Jason Waltrip, ‘The Russian Oil and Gas Industry After Yukos: Outlook for Foreign Investment’ (2008) 17 Transnational Law and Contemporary Problems 575, 576.
- 9.
Arina Shulga, ‘Foreign Invesment in Russia’s Oil and Gas: Legal Framework and Lessons for the Future’ (2001) 22(4) University of Pennsylvania Journal of International Economic Law 1067, 1085.
- 10.
Jason Waltrip, ‘The Russian Oil and Gas Industry After Yukos: Outlook for Foreign Investment’ (2008) 17 Transnational Law and Contemporary Problems 575, 577.
- 11.
Ibid, 579.
- 12.
Ibid, 585.
- 13.
Ibid,577.
- 14.
Ibid, 585–591.
- 15.
Arina Shulga, ‘Foreign Invesment in Russia’s Oil and Gas: Legal Framework and Lessons for the Future’ (2001) 22(4) University of Pennsylvania Journal of International Economic Law 1067, 1068.
- 16.
Martin Miranda, ‘The Legal Obstacles to Foreign Direct Investment in Mexico’s Oil Sector’ (2009) 33 Fordham International Law Journal 206, 213.
- 17.
Ibid, 214.
- 18.
Amir Rafat, ‘Compensation for Expropriated Property in Recent International Law’ (1969) 14(2) Villanova Law Review 199, 204.
- 19.
Ibid, 209.
- 20.
Ibid.
- 21.
Anglo-Iranian Oil Co Case (United Kingdom v Iran) [1952] ICJ Rep 93, 102.
- 22.
Amir Rafat, ‘Compensation for Expropriated Property in Recent International Law’ (1969) 14(2) Villanova Law Review 199, 216.
- 23.
Charles Harding, ‘The Iranian Situation’ (1951) American Bar Association: Mineral and Natural Resources Law Proceedings 15, 16.
- 24.
Amir Rafat, ‘Applicability of the Public-Purpose Principle to Cases Arising under International Law from Expropriation of Alien Private Property’ (1965) 43 University of Detroit Law Journal 375, 376–7.
- 25.
Ibid, 218.
- 26.
Anglo-Iranian Oil Co Ltd v Jaffrate (The Rose Mary) [1953] 1 WLR 246 (Supreme Court of Aden). The Rose Mary case stands as authority for the proposition that recognition of the expropriation of property by the government of a foreign country may be refused as contrary to forum public policy if the expropriation was unlawful under public international law on account of the absence of prompt, adequate and effective compensation.
- 27.
Anglo-Iranian Oil Co Case (United Kingdom v Iran), Preliminary Objections [1952] ICJ Rep 93, 102.
- 28.
Ibid, 114.
- 29.
See ‘National Jurisdiction: Recognition of Effects of Acts of Foreign State’ (1968) 6 Digest of International Law 1, 4–11; including: Anglo-Iranian Oil Co v Jaffrate (1953) 20 ILR 316 (Supreme Court of Aden); Anglo-Iranian Oil Co v SUPOR (1953) 22 ILR 19 (Civil Court of Venice); Anglo-Iranian Oil Co v SUPOR [1955] ILR 23 (Civil Court of Rome), Anglo-Iranian Oil Co v Idemitsu Kosan Kobuski [Kabushiki] Kaisha (1953) 20 ILR 305 (High Court of Tokyo).
- 30.
Amir Rafat, ‘Compensation for Expropriated Property in Recent International Law’ (1969) 14(2) Villanova Law Review 199, 230.
- 31.
Ibid, 232.
- 32.
Joel Fisher, Albert Golbert and Bahram Maghame, ‘British Petroleum v Libya: A preliminary comparative analysis of the international oil companies’ response to nationalization’ (1975) 7 Southwestern University Law Review 68, 69.
- 33.
Robert von Mehren and P. Nicholas Kourides, ‘The Libyan Nationalizations: TOPCO/CALASIATIC v Libya Arbitration’ (1979) 12(2) Natural Resources Lawyer 419, 419.
- 34.
Joel Fisher, Albert Golbert and Bahram Maghame, ‘British Petroleum v Libya: A preliminary comparative analysis of the international oil companies’ response to nationalization’ (1975) 7 Southwestern University Law Review 68, 69.
- 35.
Ibid, 69–70.
- 36.
Ibid, 76.
- 37.
G. Winthrop Haight, ‘Libyan Nationalization of British Petroleum Company Assets’ (1972) 6 International Lawyer 541, 541.
- 38.
Ibid, 544–5.
- 39.
Joel Fisher, Albert Golbert and Bahram Maghame, ‘British Petroleum v Libya: A preliminary comparative analysis of the international oil companies’ response to nationalization’ (1975) 7 Southwestern University Law Review 68, 80.
- 40.
BP Exploration Company (Libya) Ltd v Government of the Libyan Arab Republic (1974) 53 ILR 297.
- 41.
Robert von Mehren and P. Nicholas Kourides, ‘International Arbitrations between States and Foreign Private Parties: The Libyan Nationalization Cases’ (1981) 75 American Journal of International Law 476, 476.
- 42.
Ibid.
- 43.
Ibid.
- 44.
Libyan American Oil Company (LIAMCO) v Libya (1977) 62 ILR 140.
- 45.
Robert von Mehren and P. Nicholas Kourides, ‘The Libyan Nationalizations: TOPCO/CALASIATIC v Libya Arbitration’ (1979) 12(2) Natural Resources Lawyer 419, 421.
- 46.
Jonathan Wallace, ‘Litigating an International Oil Dispute’ (1980) 2 New York Law School Journal of International Comparative Law 253, 257.
- 47.
Texaco Overseas Petroleum Company v Libya (1977) 53 ILR 389. See Julien Cantegreil, ‘The Audacity of the Texaco/Calasiatic Award: Rene-Jean Dupuy and the Internationalization of foreign investment law’ (2011) 22 European Journal of International Law 441, 442.
- 48.
Ibid, 445–6.
- 49.
These principles were set out by the Permanent Court of International Justice (the predecessor to the ICJ) in its decisions in Serbian Loans (France v Serbia) (1928) PCIJ Ser A No 20 and Brazilian Loans (France v Brazil) (1929) PCIJ Ser A No 21.
- 50.
Robert von Mehren and P Nicholas Kourides, ‘The Libyan Nationalizations: TOPCO/CALASIATIC v Libya Arbitration’ (1979) 12(2) Natural Resources Lawyer 419, 426.
- 51.
Ibid, 425.
- 52.
Jonathan Wallace, ‘Litigating an International Oil Dispute’ (1980) 2 New York Law School Journal of International Comparative Law 253, 258.
- 53.
Robert von Mehren and P. Nicholas Kourides, ‘The Libyan Nationalizations: TOPCO/CALASIATIC v Libya Arbitration’ (1979) 12(2) Natural Resources Lawyer 419, 433.
- 54.
Ibid.
- 55.
Luis Cuervo, ‘The Uncertain Fate of Venezuela’s Black Pearl: The Petrostate and its Ambiguous Oil and Gas Legislation’ (2010) 32 Houston Journal of International Law 637, 642–3.
- 56.
Ibid, 644.
- 57.
Ibid, 645.
- 58.
OECD (2012) OECD Economic Surveys: Indonesia September 2012, OECD.
- 59.
“NNT Takes Indonesia to Arbitration Court”, Jakarta Globe, 1 July 2014.
- 60.
See Presidential Regulation 39 of 2014 Concerning Lists of Business Fields that are Closed to Investment and Business Fields that are Conditionally Open for Investment.
- 61.
ConocoPhillips v PDVSA (17 September 2012) Final Award, ICC No. 16848/JRF/CA [24].
- 62.
Ibid.
- 63.
Ibid.
- 64.
Ibid.
- 65.
Mobil Cerro Negro Ltd v PDVSA (23 December 2011), Final Award, ICC No. 15416/JRF/CA [5].
- 66.
Ibid.
- 67.
“Exxon wins less than expected from Venezuela dispute”, Reuters, 1 January 2012.
- 68.
ConocoPhillips v PDVSA (17 September 2012) Final Award, ICC No. 16848/JRF/CA [45].
- 69.
Ibid, [77].
- 70.
Ibid, [333].
- 71.
Ibid.
- 72.
“Exxon wins less than expected from Venezuela dispute”, Reuters, 1 January 2012.
- 73.
Pablo Fernandez, ‘Valuation of an expropriated Company: The case of YPF and Repsol in Argentina’ (2013) Working Paper, IESE Business School, 3–4.
- 74.
Victor Mallet and Sylvia Pfeifer, ‘Repsol announces big shale oil find in Argentina’ (7 November 2011) Financial Times.
- 75.
Jude Webber, ‘Repsol sues Argentina over YPF seizure’ (15 May 2012) Financial Times.
- 76.
Stanley Reed and Raphael Minder, ‘Repsol in $5 Billion Settlement with Argentina’ (25 February 2014) New York Times.
- 77.
Paul B Stephan, ‘Taxation and Expropriation—the destruction of the Yukos Oil Empire’ (2013) 35 Houston Journal of International Law 1, 16.
- 78.
Ibid, 26.
- 79.
See, for example, Hulley Enterprises Limited v The Russian Federation (PCA Case No. AA226), Yukos Universal Limited v The Russian Federation (PCA Case No. AA227), Veteran Petroleum Limited v The Russian Federation (PCA Case No. AA228).
- 80.
Yukos Universal Limited (Isle of Man) v The Russian Federation (PCA Case No. AA 227), UNCITRAL, Interim Award on Jurisdiction and Admissibility, 30 November 2009.
- 81.
Proceedings were also brought by various Yukos entities in the arbitration court of the Stockholm Chamber of Commerce (SCC) and the ICC, with related assistance and enforcement actions in national courts around the world.
- 82.
See Hulley Enterprises Limited (Cyprus) v The Russian Federation (PCA Case No. AA226), Final Award, 18 July 2014; Yukos Universal Limited (Isle of Man) v The Russian Federation (PCA Case No. AA227), Final Award, 18 July 2014; Veteran Petroleum Limited (Cyprus) v The Russian Federation (PCA Case No. AA228), Final Award, 18 July 2014.
- 83.
“Rio Tinto seals $20bn iron ore development project with Guinea”, Financial Times, 26 May 2014.
- 84.
“Rio, BHP seek protection for foreign investments”, Australian Financial Review, 22 May 2014.
- 85.
See for example Churchill Mining Plc & Planet Mining Pty Ltd v Republic of Indonesia (ICSID Case No. ARB/12/14 and 12/40).
- 86.
While FPS claims are not usually associated with resource nationalism, there may be situations in which the FPS standard becomes relevant, an example being where local parties attack the foreign investor or its assets in an expression of popular sentiment. For an illustration of an FPS claim, see Asian Agricultural Products Ltd v Sri Lanka (ICSID Case No. ARB/87/3). In this case, the ICSID tribunal considered a claim under the Sri Lanka-UK BIT by a foreign investor whose property had been damaged as a result of armed combat between Sri Lankan troops and insurgents. In its decision, the tribunal held that the host state was liable under a FPS provision if the damages suffered were attributable to that State’s failure to act with “due diligence”. The practical result of this finding is that the foreign investor does not have to prove bad faith by the host state, but simply that the host state failed to take all reasonable measures to protect the foreign investment.
- 87.
A relevant example for the oil industry is the North American Free Trade Agreement (NAFTA). NAFTA Annex 602.3 reserves for the Mexican State activities relating to the exploration, exploitation, refining, processing and pipelining of crude oil, natural gas and basic petrochemicals. Similarly, in terms of their access rules, FTAs are more likely than BITs to include what are known as “denial of benefits” clauses, these being provisions that limit the ability of investors to acquire treaty protection simply by incorporating a company in one of the contracting states, requiring instead that the investor have “substantial business activities” in the state from which it derives its nationality. The ECT contains such a provision.
- 88.
For an overview of the nationality planning process, see M. Skinner, S. Luttrell and C. Miles, ‘Access and Advantage in Investor-State Arbitration: The Law and Practice of Treaty Shopping’ (2010) Journal of World Energy Law and Business 3.
- 89.
ACIA Article 4(c)(iv).
- 90.
ACIA Article 4(c)(v).
- 91.
ACIA Article 4(c)(vi).
- 92.
It is important to note that, under this definition, the instruments that underpin the investment may themselves qualify as investments. To put this in a practical context, where the cost recovery rules of a PSC are unilaterally modified by the host state (or the contracting party that represents it in the agreement), the foreign investor may be able to resist or seek compensation for that measure through a claim for indirect expropriation or breach of FET. This is because the PSC itself qualifies as an “investment”.
- 93.
This name comes from the seminal case of Salini Costruttori SpA and Italstrade SpA v. Kingdom of Morocco (ICSID Case No.ARB/00/4), Decision on Jurisdiction, 23 July 2001.
- 94.
See for example Romak SA v The Republic of Uzbekistan, UNCITRAL (Switzerland-Uzbekistan BIT, PCA Case No. AA280).
- 95.
See for example the United Kingdom-Indonesia BIT, which requires that the asset or interest must first have been “granted admission in accordance with the [Indonesian] Foreign Capital Investment Law No. 1 of 1967, or any law amending or replacing it”.
- 96.
For an example of more detailed local admission/approval rules, see Article 3 of the UK-Thailand BIT, which provides as follows: “The benefits of this Agreement shall apply only in cases where the investment of capital by the nationals and companies of one Contracting Party in the territory of the other Contracting Party has been specifically approved in writing by the competent authority of the latter Contracting Party. Nationals and companies of either Contracting Party shall be free to apply for such approval in respect of any investment of capital whether made before or after entry into force of this Agreement. When granting approval in respect of any investment, the approving Contracting Party shall be free to lay down appropriate conditions.
- 97.
Yaung Chi Oo Trading Pte Ltd v Government of the Union of Myanmar (ASEAN ID Case No. ARB/01/1), Award of 31 March 2003. This was a claim brought under the ASEAN Investment Guarantee Agreement, Article II(3) of which required that the investor obtain the express written approval of the host State before its investment would enjoy the protection of the treaty. The tribunal found that the investment had not been specifically approved and registered in writing after the treaty entered into force for Myanmar. The result was that the claimant’s interest did not qualify as an “investment” under the treaty, and the tribunal held that it did not have jurisdiction over the merits of the dispute.
- 98.
While, in some cases, this increase in sophistication has been organic (for example, acquired as a result of the State’s experience in defending treaty claims), in many other countries foreign law firms have played a significant role. It is now relatively common for a country to take advice from foreign counsel before it takes measures that fall under the heading of resource nationalism.
- 99.
Metalclad Corporation v United States of Mexico (ICSID Case No. ARB (AF)/97/1), Final Award, 30 August 2000, paragraph 103.
- 100.
Tippets, Abbet, McCarthy & Stratton v TAMS-AFFA Consulting Engineers of Iran and the Islamic Republic of Iran (Iran-United States Claims Tribunal, 1983), IUSCTR 219, 216.
- 101.
This example is drawn from Article 3(2) of the United Kingdom-India BIT.
- 102.
Técnicas Medioambientales Tecmed SA v The United Mexican States (ICSID Case No. ARB (AF)/00/2), Mexico-Spain BIT, Award, 29 May 2003, paragraph 154 (Tecmed). In recent years, the Tecmed decision has been criticised for what what some have seen as its overly expansive approach to legitimate expectations. Many arbitrators see the 2006 award in Saluka v Czech Republic as the better authority where legitimate expectations are concerned. See Saluka Investments BV v Czech Republic, UNCITRAL/PCA (Netherlands-Czechoslovakia BIT), Partial Award, 17 March 2006.
- 103.
Rudolf Dolzer, “Fair and Equitable Treatment: Today’s Contours” (2014) 12 Santa Clara Journal of International Law, 1, 7.
- 104.
CMS Gas Transmission Company v Argentine Republic (ICSID Case No. ARB/01/08), Award of 12 May 2005).
- 105.
LG&E Energy Corp & Ors v Argentine Republic (ICSID Case No. ARB/02/1), Award of 3 October 2006.
- 106.
Although their substantive provisions are often less “investor friendly” than a BIT, FTAs (and multilateral investment treaties) do offer certain advantages. In particular, FTAs tend to produce more durable, balanced trade relationships than BITs. As such, for long term investments such as those often made by resources companies, FTAs may provide more reliable project coverage. Recently, this point has been brought into focus by Indonesia’s decision not to renew its BIT with the Netherlands, and reports that it intends to terminate all of its other BITs (Indonesia is yet to confirm this, or take any further action). While the termination of a BIT implicates the host state’s relations with only one country, withdrawal from an FTA implicates the host state’s standing and trade relations with an entire bloc of nations.
- 107.
In ICSID arbitration, the tribunal has no national seat, meaning national courts do not control or supervise the proceedings; rather, the arbitration takes place on the plane of international law (governed by the ICSID Convention and public international law). The parties can agree to hold the hearing anywhere, but in the absence of any agreement to the contrary, the venue of the hearings will be Washington DC.
- 108.
In non-ICSID arbitration, this review function is usually performed by the courts of the seat, which will normally be the state in which the arbitration was conducted.
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Luttrell, S. (2015). Resource Nationalism: Old Problem, New Solutions. In: Moens, G., Evans, P. (eds) Arbitration and Dispute Resolution in the Resources Sector. Ius Gentium: Comparative Perspectives on Law and Justice, vol 43. Springer, Cham. https://doi.org/10.1007/978-3-319-17452-5_11
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