Bar News - January 15, 2014
Section Connection: International Forum Strains to Handle Growth in Disputes
By: Greggory Wade
In 2012 the Argentine naval vessel La Libertad was detained in a port in Ghana. The ship was not seized by a warring nation, however; it was seized at the behest of an American-owned hedge fund, NML Capital. The investment firm sought the ship as payment on Argentina’s defaulted bonds. A local court agreed to grant an injunction and prevented the ship from leaving port for more than two months.
The Argentine Navy’s tall ship, used for training, was seized in an African port by order of an American investment firm in an attempt to force the Argentine government to pay debts. (Photos are from a 2007 visit to Boston harbor.)
Photo by Lorianne DiSabato via Flickr
Although the ship was later released, the incident – which generated controversy in Argentina and led to the resignation of the chief of the Argentine navy – shined a spotlight on the growing trend of investor-state investment disputes in international commerce. Investor-state disputes arise when a state breaches a treaty or agreement with a private entity and that entity seeks legal recourse against the state.
Last month, the NHBA’s International Law Section heard more about this rapidly developing legal area from Alexandra Meise Bay, an associate at Foley Hoag LLP’s Washington, DC, office and a member of its international litigation and arbitration practice group. Meise Bay, a member of the NH Bar, focused in particular on the resolution of these disputes through treaty-based arbitration. She highlighted the rise of Bilateral Investment Treaties, or “BITs,” which govern investments by entities of one state in another state. BITs were originally developed to protect Western investments in developing nations in the wake of decolonization and typically provide a fora neutral arbitration forum. This avoids the potential bias of local courts and helps level the playing field between smaller nations and larger foreign investors. According to Meise Bay, the most common types of foreign investment relate to infrastructure, such as airport management contracts, and natural resource extraction, like mining concessions.
The globalization of the world economy has increased such investment and, consequently, investor-state conflicts have proliferated. Accordingly, more nations are negotiating BITs to provide for alternative dispute resolution. The US is party to more than 4,000 BITs. These BITs most commonly invoke The International Centre for the Settlement of Investment Disputes, or ICSID, located within the World Bank headquarters in Washington, DC.
ICSID was established by the 1965 ICSID Convention, which was sponsored by the World Bank. Nearly 150 states have since signed the convention in order to spur international investment. ICSID is a particularly attractive forum, because its decisions are treated as final judgments in the local courts of ICSID signatories. In theory, this alleviates the need for parties to get approval from local courts when enforcing decisions. In practice, however, Meise Bay noted that the weight of a local court helps to ensure compliance, as when the local Ghanan injunction bottled up La Libertad.
Procedurally, ICSID is primarily influenced by the European civil law tradition. As Meise Bay puts it, the rules of evidence are “wishy-washy,” there is no discovery, and precedent is not fully binding. In the first decades of its existence, ICSID only saw a handful of cases, but it is becoming much busier; Meise Bay estimates that there are nearly 300 cases in progress today.
As ICSID’s caseload rises, the organization must meet new challenges. Meise Bay estimates that there are only 15 to 20 firms representing ICSID matters worldwide, and fewer than 150 people qualified as arbitrators. This pool of arbitrators is also graying. Many of them are in their seventies or eighties and are not being replaced by younger staff. Consequently there is a backlog of cases that will continue into the near future. This scarcity also makes ICSID arbitration an expensive endeavor. It requires a minimum deposit of $100,000, and court and legal fees are high.
Given the high stakes involved when governments and investors clash, international arbitration tribunals are generally considered worth the cost. With new foreign investment in Africa and Central Asia, particularly by large state-owned Chinese corporations, Meise Bay predicts that conflicts will continue to increase. ICSID and other international arbitration tribunals will be needed to resolve them and prevent international incidents like NML Capital v. Argentina.
Greggory Wade, admitted to the Bar in 2013, recently joined the External Affairs Department at ISO New England, and is also admitted to practice in Massachusetts. He is a graduate of Washington and Lee University and Suffolk University Law School, where he spent a semester studying European law at the University of Lund in Sweden. He is a member of the International Law Section.