Publications2565_0

8/11/2019 Publications2565_0

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RS and

Millicom: Two

African Cases Illustrate the

Continued

Vitality of Contractual Arbitration

Clauses within

ICSID

Timothy G NELSON*

In the

early to

mid twentieth

century, investor-state arbitration was

mostly

associated with disputes arising

under

a contract between a state (a

state-owned

enterprise) and a foreign investor.

Known

sometimes as

concession

arbitration, this

form of dispute

gave rise

to

several important arbitral decisions

in the immediate post

war period.

1

When

in

1965, there was established the

International Centre for

the

Settlement

of

Investment Disputes

( ICSID ),

an international

arbitral

institution,

specializing

in

investor-state arbitration

and governed by

a specific treaty,

2

many

envisaged this as

the primary

form

of

future ICSID arbitration.

3

Today, however,

the

vast majority

of

ICSID cases arise

not

from concession

agreements,

but

from

bilateral

investment trea ties ( BITS ) between states,

which

give

private

investors

the right

to

sue foreign governments if they

establish

they

are

nationals

of

a BIT

contracting

state

with

an

investment

that qualifies for

protection

under the terms of that

BIT.

Yet

still

there remain

a respectable

number

of

cases

brought

before IcsID, based

upon an

ICSID arbitration clause contained

in

an investment contract

with the

host state.

Two recent

cases,

both

involving

African

states

and emanating from

Paris-based IcsID tribunals, illustrate

the

continuing

significance

(indeed, vitality) of

contractual

arbitration clauses

within the modem

system

of investor-state arbitration.

1.

PRE-REQUISITES FOR SECURING

ICSID

ARBITRATION

IN

A

PRIVATE

INVESTOR-STATE CONTRACT

In

creating

a

purpose-built arbitration

centre

to hear investor-state arbitration

disputes, IcsID's framers created a forum that is

not

subject to interference by national

courts.

Under the ICSID Convention, an ICSID

award

is automatically entitled

to

the

* B.A.

L.L.B.

(University

of

New South Wales), B.C.L. (University

of

Oxford).

Mr. Nelson is

a

Partner in

the

International Litigation and Arbitration Group ofSkadden,

Arps, Slate, Meagher

Flom

LLP

New York. The

views expressed

herein

are

solely those

of

the author and

are

not

those of

his firm

or

the

fiml's clients. The

author

can

be contacted at [email protected].

1 See,

e.g.,

Saudi Arabia v. Arab Am.

Oil

Co. ARAMCO)

,

27

LL.R.

117 (1958);

Sapphire

Int l

Petroleums

Ltd.

v. Nat /

Iranian

Oil Co.,

35

I.L.R. 136

(1963);

Ruler

if

Qatar v. Int l Marine Oil Co.,

53

LL.R.

534

(1953).

2 Convention

on the Settlement

of

Investment

Disputes between States

and

Nationals of Other States,

Mar.

18, 1965, 17 US.T. 1270,575 U.N.T.S.

159

(the IcsID Convention ).

3 See F.A. Manll, State Contracts and International Arbitration, 42 Brit. Y.B.

Iut'l L. 1,9-10

(1967) (discussing

utility ofICSID

Convention

in future

investor-state

contract disputes).


2/11

690

THE

JOURNAL

OF

WORLD INVESTMENT TRADE

same recognit ion as

if

it were a final judgment

of

a court of [each ICSID Contracting]

State, without the need to institute separate post-arbitral court proceedings to confirm

the ICSID award.

4

For

a

case

to qualify for

ICSID

jurisdiction, however,

it

must satisfy the

jurisdictional pre-requisites set forth

in

Article 25

of

he IcsID Convention. Article 25(1)

of

the ICSID Convention states:

The jurisdiction

of

the. Centre shall extend to any legal dispute arising directly out

of

an

investment, between a Contracting State

and a national

of

another contracting State,

which the parties to the dispute consent in writing to submit to the Centre.

When

the

parties have given their consent, no party may withdraw its consent unilaterally.

ThllS,

it

must

also

be shown that the dispute

1)

involved an investment for

purposes of the ICSID Convention (Jurisdiction ratione

materiae)

2) that the parties

comprise a Contracting State and a national of another Contracting State

(nationality or jurisdiction ratione personae); and

3)

that the parties had consented to

ICSID

arbitration over the dispute. Each

of

these requirements must be satisfied before

an

ICSID

tribunal will accept jurisdiction.

Consent can be expressed in a variety

of

forms, most typically by:

a BIT between the host state and the investor's

home

state;

an investment statute enacted by the host state agreeing to submit future

investment disputes (or categories of disputes) with foreign investors to

ICSID;

or

a direct expression of consent in a specific contract between the investor and

the state.

The

last

of

these scenarios

is

the

classic

concession contract situation where an

investor negotiates an investment contract directly

with

the host state, and the parties

expressly agree to submit future disputes to international arbitration. Although such

disputes are now overshadowed by a much larger number of BIT arbitrations,

concession arbitration

has

a long history before IcsID, and, indeed, up until 2000, a

large percentage

of

ICSID s

cases

involved concession contracts many (if not most)

between foreign investors and African countries.

s

The

recent

cases

of Millicom

4

ICSID

Convention, art. 54(1).

ICSID

awards are, however, subject to possible post-award annulment by a

special Committee possessing limited review powers

on

such grounds

as

manifest excess of arbitrator's power, or

serious departure from a fundamental rule of procedure. Id., arts. 51-52.

5

See,

e.g.,

Tanzania Elec. Supply

Co. v.

Indep. P Uler Tallzania. Ltd., No. ARB/98/8, Award IcslD July 12,

2001),

reprinted ill 8

ICSlD

Rep. 226 (2005) (electricity contract); Banro Am. Res., Illc v. Democratic Republic qf

Congo,

No.

ARB/9817, Award

IcslD

Sept. 1, 2000),

excerpts reprinted

in

17

ICSlD

Rev.-F.I.L.J. 382 (2002) (gold mining

concession);

Societe d'ItlVestigation de

Recherche

et d'Exp/oitatioll Miniere v. BtlrkilJa Faso,

No. ARB/97

/1,

Award

(ICSID

Jan. 19,2000) (gold mining concession):

Vacuum Salt

Prods,

v. Ghalla,

No. ARB/92/1, Award

(ICSID

Feb. 16,1994),

reprinted

in

9

ICSID

Rev.-F.l.LJ. 72 (1994) (salt mining contract); Societe Ouest

AJricai11e des Betolls Industriels v.

S(megai, No. ARB/82/1, Award (IcSID Feb. 25, 1988) reprinted

in

2

ICSID

Rep. 164 (1994) (contract concerning

constrnction ofhotlsing units);

Maritime Int l Nominees Establishment v. Guinea,

No. ARB/84/4, Award

(ICSlD

Jan.

6,

1988),

reprinted

itl 4

ICSID

Rep.

61

(1997) (bauxite production

joint

venture);

Liberian E. Timber Corp.

v.

Liberia,

No. ARB/8312, Award (ICSID Mar. 31, 1986), reprinted in 2 ICSlD

Rep.

346 (1994) (forestry concession contract)

( LETCO );

Atl. Triton Co.

v.

Guinea,

No. ARB/84/1, Award IcslD Apr. 21, 1986), reprinted 3 ICSlD Rep. 13

1995); Kliickner Industrie-Anlagen GmbH v. CamerooH,

No. ARB/Si /2, Award

IcslD

Oct. 21, 1983), excerpts

reprinted

ill 2 ICSID Rep . 9 (1994) ( Establishment Agreement for fertilizer factory); S.A.R.L.

Benvenuti

BOIifal1t

v.

(footnote

continued

011 next page)


3/11

ICSID AFRICAN

CASES

691

International Operations

B.

V.

v.

Senega1

6

and RSM

Production Corp. v. Central African

Republic

7

likewise

both

involved contracts with African governments containing an

ICSID arbitration clause.

2. MILLICOM V.

SENEGAL

a)

THE

1998 TELECOMMUNICATIONS CONTRACT

AND

LICENSE

Millicom

involved claims against the Government

of

Senegal by two affiliates of

Millicom International Cellular S.A., a Luxembourg-incorporated telecommunications

company. n 1998, the Senegalese government granted Sente GSM S.A. ("Sentel"), a

Senegal-incorporated affiliate

of

Millicom, a long-term license to operate a mobile

telephone network within Senegal. The terms

of

the license were governed by a

Concession which,

as

described below, contained an arbitration clause.

8

Ten years later, the Senegalese Government passed a decree purporting to

terminate Sentel's rights.

9

n

the ensuing

ICSID

arbitration, Sentel claimed damages for

breach

of

the. Concession, relying upon the provisions

of

the 1998 Concession that

contemplated arbitration pursuant to the

ICSID

Convention.

i

Sentel's Netherlands

parent company, Millicom International Operations B.V. ("Millicom B.V."), claimed

that the cancellation

of

the license constituted expropriation and unfair treatment in

breach

of

the Netherlands-Senegal BIT.ii

b) WHETHER THE

1998 CONTRACT

MANIFESTED ((CONSENT)) TO ICSID

JURISDICTION

Faced

with

Sentel's contract claim under the Concession, Senegal challenged the

jurisdiction of the ICSID Tribunal to hear either claim. While the Tribunal was able to

conclude with relatively little difficulty that it possessed jurisdiction over

Millicom B.V.'s treaty claims,12 it engaged in a considerable analysis of whether the

Congolese

Republic,

No. ARB177/2, Award ICSID Aug. 8, 1980), reprinted

in

1 IcslD Rep. 330 (1993) (contract

concerning bottling plant);

ACIP S.p.A.

v. Congolese

Republic, No.

ARB17711, Award ICSID Nov. 30, 1979)

(contract concerning oil distribution venture), reprinted in

1

ICSID Rep.

306 (1993);

Adriano Gardella S.p.A.

v.

COte

d Ivoire,

No. ARB174/1, Award (IcslD Aug. 29,1977), reprillfed in ICSID Rep. 283 (1993) (contract regarding fiber

and textiles plant);

Holiday Inns S.A. v. Morocco,

No. ARB172/1, Decision on Jurisdiction ICSID July 1, 1973)

Gurisdiction under hotel venture agreement),

sun11tlar(zed in

Pierre Lalive,

The

First

World Bank Arbitration

(Holiday

Inns v. Morocco) -

Some Legal

Problems, IcslD Rep. 645 (1993).

Mil/icorn IIlt 1

Operations

B.

V.

v. Senegal, No. ARB/08120, Decision

on

Jurisdiction ICSlD July 16, 2010).

7 RSM

Prod.

Corp. v. Celltral

African

Republic,

No. ARB/07/02 Decision on Jurisdiction and Liability

IcSJD

Dec.

7,

2010)

( RsMv. CAR ).

8 Millico/ll 5-10.

9

See

id.

22-23.

10 See

id.

126.

See

id.

12

The Millicom

Tribunal held that Millicom B.v. s indirect holding in a Senegalese company easily satisfied the

definition

of

"investment" under both the Netherlands-Senegal

Brr

and the

ICSID

Convention d. 77-82, 84-85.

The

Tribunal

also

rejected two technical objections by Senegal, holding

i)

that the

BIT

covered companies

as

well

as natural persons and

ii)

that Article 10 of the BIT contained a binding consent to ICSID arbitration. ld. 62-74.


4/11

692 THE JOURNAL OF WORLD INVESTMENT TRADE

dispute resolution clause in the Concession properly conferred IesID jurisdiction over

Sentel's claims. This clause, after stating that the parties were required to seek amicable

resolution of any disputes, further provided:

If

the dispute persists, the parties can resort to the final arbitration

of

international bodies

such

as

the Arbitration

Court of

[the Organization for the Harmonization

of

Business Law

in Mrica], the International Centre

of

Setdement

of

Investment Disputes

ICSID)

or the

International Chamber of Commerce in Paris (Ieep) ., .13

Senegal made a spirited attack

on

this clause, arguing that i t did not manifest a final

consent to IesID arbitration, but instead only contemplated the theoretical possibility

that Senegal might agree in future to arbitrate before one of the three designated arbitral

organizations.

14

Senegal further

argueCl

that, insofar

as

it contemplated arbitration in a

variety of possible forums, the clause was pathological, with the result that the only

permissible means of dispute resolution was litigation in the Senegalese courts.

is

In analyzing this clause, the arbitral tribuna11

6

looked to four considerations: i) the

origin and drafting history of the clause, ii) the dispute resolution system created

by the clause;

iii)

the wording

of

the clause; and iv) its basis, i.e., its purpose

or

intent.

Looking first to the drcifting history, the Tribunal took account of the unchallenged

witness statements

of

the attorneys who drafted it, who testified that Sentel refused to

sign the Concession unless it provided for international arbitration.1

7

t was perhaps

relevant that the evidence

of

the investor's deal lawyers (whom Senegal elected not to

cross-examine) was unrebutted.

Concerning the

system

established by the clause, the Tribunal noted that it

contemplated a multi-tier procedure in which the parties first would seek to resolve

the dispute through negotiations,

with

arbitration

as

a natural supplement in case of

a breakdown ofnegotiations, without any reference to a judicial procedure.

18

This

two-tier

procedure left little room

to

suggest that disputes should be referred to the

Senegalese courts.

The

wording of the clause, while awkward and leav[ing] lingering doubts,

[did] not unequivocally conflict

with

an intention to arbitrate.

19

Although Senegal

had objected that the clause [did] not designate a particular [arbitral] body

but

list[ed]

13

Translation.

The

French original reads:

Si Ie

litige

persiste, les parties pourrol'lt el l difillitive

recourir

a

'arbitrage

d'orgarlismes intematiollallx

tels

que

la cotlr

d'arbitrage de

[ OHADA,

Ie

Centre international

de

reglement des differends sur les itlVestissements

ORDI)

ou

la

Chambre

de

Commerce internatiol'lal

de

Paris (CCIP) ...

JJ

4

ld. 93.

15

See

id. 96, 98.

16

The Millicom Tribunal comprised Pierre Tercier (Switzerland), Kaj Hober (Sweden) and Judge Ronny Abraham

(France).

7

ld.

95.

18 ld. 96.

9

I d ~ 9 7


5/11

ICSID AFRICAN

CASES

69

several, the Tribunal held that this did

not

make the clause pathological ;

on

the

contrary:

Nothing ... prevents an arbitration clause from affording several options, from amongst

which the party initiating the proceedings has the right to choose. The solution is current

practice in investment treaties and its validity

is

not disputed since it

is

not contrary to the

spirit of arbitration, especially since the mentioned bodies are

all

highly reputed.

20

Perhaps most critically for the Tribunal, the

basis or

purpose

of

the clause

supported the view that

it

was binding. Arbitration was the classic means

of

resolving

investor-state disputes.

n

international transactions, there generally exists a

presumption

in

favor

of

arbitration, meaning that an arbitration clause should be

understood

as

expressing the intent

of

the parties to submit to arbitration.

The

supposed ambiguities raised by Senegal were not sufficient to disturb this

presumption.

21

Thus, the principle

of

effectiveness required that the clause

be

upheld:

[P]reference must be given to the version which gives the rule real significance. n case

of

a dispute, it is always possible for parties to agree to submit it to arbitration, but it is obvious

and the mention thereof superfluous if it

is

not accompanied at least by a moral, conditional

or even legal commitment [to arbitrate].22

As a fall-back position, Senegal contended that, even

if

the Concession contained

an otherwise valid arbitration clause, it was nonetheless unenforceable under the

contract's governing law (Senegalese law) because

of

a provision

of

Senegalese

administrative law which Senegal claimed barred governments from agreeing to

international arbitration.

23

The

Tribunal rejected this argument in strong terms,

invoking the firmly established principle that

a

State

is

prohibited from

invoking

its

own

domestic law in order to avoid arbitration and its capacity to enter into arbitration

clauses. 24

Such

an attitude, it held, would violate the principles

of

good faith and

of

'international

public policy'

25

especially given that, during the negotiations for the concession,

Senegal never invoked a prohibition against arbitration clauses.

26

c) WHETHER THE INVESTOR H D ICSID

N TION LITY

Senegal

also

tried to challenge Sentel's claim to possess

ICSID

nationality. t argued

that because the

ICSID

Convention only permits disputes

between

states and

foreign

investors, Sentel a Senegalese company) could not bring claims against it. Rejecting this

submission, the Tribunal held that Article 2S(2)(b)

of

the

ICSID

Convention pennits

locally-incorporated companies to claim foreign nationality based

on

them being

20 ld

21

ld

98.

22 ld The

Millicom Tribunal observed that this conclusion corresponded to international case law and the

views ofleading arbitral commentators.

ld

99.

23

ld

101-02.

24 ld

103 (emphasis added).

25 ld

26 ld

104.


6/11

694

THE JOURNAL OF WORLD INVESTMENT TRADE

controlled by foreign investors.

27

Here, Sentel

was

controlled by companies

incorporated

in other ICSID

Contracting

States

(Luxembourg

and/or The Netherlands),

and thus was

entitled

to claim non-Senegalese

nationality based on

such

foreign

control. 28 Senegal

knew

these

facts

at

the

t ime

that it

agreed

to

ICSID

jurisdiction,

and

was

deemed

to have

agreed that Sentel was a

foreign

investor

for purposes

o

he

ICSID

Convention.

29

Thus,

the Tribunal found that it had jurisdiction over all

o

Sentel's

claims.

3. RSM V. CENTRAL AFRICAN REpUBLIC

RSM v. Central African Republic

rai5ed

the'third

critical

element

o ICSID jurisdiction

under

Article

25, namely, the existence

o

a dispute over an investment

(subject

matter jurisdiction).

(a)

THE

1999 CONTRACT

AND OIL EXPLORATION LICENSE

In 1999, RSM and the Central African Republic signed a petroleum exploration

and development

agreement (the 1999

Contract ), granting

RSM

certain rights within

the

Central

Mrican

Republic.

Once that contract came into effect,

the

Central Mrican

Republic issued a license allowing

RSM

to explore

for oil

near the Central

African

Republic/Chad border for an initial period o four years.

30

Although

things

apparently

ran

smoothly

for the first few years, problems

emerged

after the political

and

civil

unrest o May 2001

and

attempted coup

o October

2002, which allegedly caused RSM

to have

difficulties

finding contractors willing to

perform

seismic

work. In April

2003, RSM

notified the Central

African Republic o

the existence

o

force majeure events and purported to suspend the 1999 Contract

for

the duration

o these

events. 31 Problems

persisted and,

negotiations

and

an expert

27

The second sentence of Article

25(2)(b)

of the ICSID Convention expressly permits the parties to

agreeD to treat[] a national of the host

state

as being

a

national of another Contacting State because of

foreign contro1. ICSID Convention, art. 25(2)(b).

28

See

Millicom

-r -r 111-14,

29

ld.

114. The principal authority cited

by

the Millicom tribunal on this point was

LETCO

which dealt with

a contract between

a

Liberian company, LETCO (which was 100% French owned) and the Liberian government.

The ICSID tribunal held that, notwithstanding the

absence

in the arbitration clause of a fornlal reference to

Article 25

(2)

(b) or foreign control in that arbitration clause, the very fact the parties

had

submitted to ICSID meant

that they were deemed to have agreed to treat LETCO s French-owned for purposes of Article 25(2)(b), thus

creating valid IesJD jurisdiction. LETCO 2 ICSID Rep, at 352. The result is consistent with a number

of

other cases

where locally-incorporated entities entered into an ICSID arbitration clause with the host

state.

See

e.g.

Amco Asia

Corp. II. Irldonesia

No.

ARB/81/1

Decision on Jurisdiction

(IesID

Sept. 25, 1983),

reprinted il1

1

ICSID

Rep. 389,

392, 395, n.

14

(1993) (where an investment agreement resulted from

an

executed investment Application

categorizing an Indonesian-incorporated company

as

foreign, and where it had foreign shareholders, it was

obvious that both parties to the contract had agreed to treat the Indonesian company s under foreign control

for purposes of the second sentence of Article 25(b)(2)); KlOckllcr 2 ICSID Rep, at 16 (foreign-owned Cameroon

company, SOCAME, executed an Establishment Agreement with the host

state

that contained an ICSID clause;

the Tribunal found that the ICSID clause, standing alone, was sufficient evidence

of

an intention to treat SOCAME as

a foreign

IeslD

national for purposes of Article 25(2)(b)); Lalive, slIpra

at

662 (summarizing Holiday bms: similar

holding where contract involved a Moroccan-incorporated company that

was

foreign-owned).

30

ld. 1134.

31 ld.

14.


7/11

ICSID AFRICAN CASES

695

dispute resolution procedure having failed,

RSM

commenced arbitration pursuant to

Article 29.1 of the 1999 Contract, which provided for rCSID arbitration of any

disputes.

3

RSM

sought a declaration that the 1999 contract remained valid and operative

and an order enjoining the Central African Republic from allowing any other party to

exploit the area covered by RSM's permit.

Before the rCSID tribunal,33 the Central African Republic did not dispute either that

there existed a legal dispute , or that

RSM,

a Uni ted States company, was a national

of another Contracting State for purposes ofArticle 25(1)

of

the

rCSID

Convention.

34

It did, however, challenge whether there existed an investment for purposes

of

the

ICSID Convention.

b)

WHETHER N OIL

DEVELOPMENT

CONTR CT IS N INVESTMENT

The

Central African Republ ic claimed that the petroleum development license and

contract did not qualify as an investment because these intangible rights did not meet

the objective criteria

of

investment for purposes of the

rCSID

Convention. The

Tribunal, while agreeing with the Central Mrican Republ ic that certain basic and

objective criteria needed to be satisfied

in

order to create an investment ,35 held that

the requireent is usually satisfied by proving certain general characteristics or

yardsticks of an investment, namely:

1 a contribution in

money or

other

assets;

2 a certain duration;

3

an element of risk;

4 an operation made in order to develop an economic activity in the host State;

5 assets invested in accordance with the laws of the host State;

6 assets

invested bona fide.

36

32

ld. S.

33

The RSM v. CAR tribunal comprised Professor Azzedine Kettani (Morocco), as President, Professor

Philippe Merle (France) and Professor Brigitte Stem (France).

34 Id. 27.

35 There is no detailed definition

of

investment in the ICSID Convention. See Christoph

H

Schreuer, The

ICSlD Convention:

A

Commetttary 113 (2d ed. 2009) (stating that although [t]he concept of investment

is

central to

the Convention ... the Convention does

not

offer any definition

or

even description of this basic term ). Some

IeSID tribunals have favored the view that the BIT supplies the criteria for defining investment. See

Malaysian

Historical Salvors

SDN BHD v.

Malaysia No ARB/OS/IO, Decision on the Application for Annulment 72 (IesID

Apr. 16,2009). Others have suggested that the parties' agreed definition in an investment cOlltract should be given

presumptive validity. See RSM Prod. Corp. v. Grenada No. ARB/OS/14, Award 236 (IeslD Mar. 13,2009) ( The

agreement to the jurisdiction of resID in a transaction between a state and a foreign private party ... can be viewed

as a presumption that the transaction

is

indeed an investment. ); Autopista COllcesiollada de

Venezuela

C A

v.

Venezuela No. ARB/OO/S, Decision on Jurisdiction 97

IesID

Sept. 27, 2001), reprillted

ill

16 reslD Review-

F.I.L.J. 469 (2001) (holding that ICSlD tribunals should respect the definitions agreed to in an investment contract,

provided that the criteria agreed upon by the parties are reasonable and not totally inconsistent with the purposes

of

the Convention ). At the same time, several cases have highlighted that certain objective criteria

be

satisfied,

e.g. an expectation of return, an outlay of capital for a certain duration, and a contribution to the host state. See

e.g.

Phoenix

Action

Ltd

II Czech Republic No. ARB/06/5, Award 81-82 (IesID Apr. 15,2009); Salilli

COllstruttOri

S P A v. Morocco ARB/00/4, Decision

on

Jurisdiction S2

ICSID

July 23,2001), reprinted in 421.L.M. 609 (2003).

The RSM

v. CAR

tribunal strongly endorsed this approach. RSM

v.

CAR 46.

36

ld.

S8 (quoting

Phoenix

114).


8/11

696

THE JOURNAL OF WORLD INVESTMENT TRADE

Having set forth these criteria, the Tribunal had little hesitation concluding that the

1999 Contract satisfied the ordinary meaning of investment for purposes of the IeSID

Convention:

The

Tribunal agrees with the applicant that an oil contract

is

the quintessence

of

an

investment

operation.

If

an oil exploration contract

is

not an investment, it

is

difficult to

see what would be within the contours

of

the notion investment

. ..

An

oil contract in effect confers on the holder rights and legal obligations with respect

to an economic transaction involving contributions for a certain du,ration and involving

riskS.

7

The ,Tribunal also noted that the contract investment was for a certain length of

time (four years with the expectation of renewal, with a 25 year term in the event of

commercial discoveries) and involved an element of risk, especially

if

there were no

commercial discoveries.

38

Thus, the Tribunal concluded that the Article 25(1)

objective criteria for ascertaining the existence

of

an investment were satisfied.

c)

WHETHER

NON-COMPUANCE WITH THE HOST STATE S L ws COULD VITIATE

THE

CONTRACT

AND ARBITRATION CLAUSE)

The Central African Republic next argued that the investment was invalid on a

variety of grounds, thereby depriving the Tribunal of subject-matter jurisdiction and

vitiating its consent to reSID arbitration. Most of these grounds were based upon

alleged non-compliance

with

internal Central Mrican Republic laws and constitutional

requirements. The Tribunal considered each of these objections, without prejudice to

its view that an invalidity of the contract

would

not, under the well-established

principle of autonomy of the arbitration clause, result in invalidity of the arbitration

clause.

9

The Central Mrican Republic 's first objection was that the Presidential Decree that

enabled the 1999 Agreement should be subject to the same constitutional requirements

as

governed treaties, including that the arrangements in question should be subject to

Parliamentary ratification.

4o

This objection was quickly dismissed by the Tribunal,

which held that the 1999 Contract did not fall within the scope

of

the Constitutional

rules with respect to treaties. While treaties are agreements between nations (the

subject of international law ), a corporation, it explained, could

not

be viewed

as

a

subject of international law.

41

The Central African Republic next argued that the 1999 Contract was inconsistent

with

a trilateral 1960 Agreement between itself, France and Chad, committing the three

37 Id 61-62. The actual amount of expenditure incurred by the investor was not relevant, nor was the fact

that the investment had been interrupted. ld. 64-67.

38 ld 68-70.

39 ld 71.

40 ld 174-75.

4 ld 78-79.


9/11


10/11

698

THE

JOURNAL

OF WORLD INVESTMENT TRADE

states have

claimed

that

particular

investments have

failed

to

comply with

their own laws

or have claimed belatedly that

required

regulatory approvals were not

properly

obtained.

46

Having

found

that jurisdiction existed however the Tribunal found against RSM

on

a critical

merits issue. The four-year term

o

the license i t held expired

in 2004.47

While

the license may have

been

subject to

a valid

notification

o force majeure

during

some o his initial

term 48

RSM had failed to exercise

its

right o renewal o

he

license.

49

Consequently RSM could not

treat the

license as remaining on foot

and its remedies

were limited to

pre-expiry

conduct by the Central African Republic.

RSM

therefore

would

have

no right

to

lost profits or

similar

damages

to cover losses

that

might

have

accrued

had the license not been terrrdnated.

CONCLUSION

Millicom

and RS

usefully

illustrate

the

kinds

o technical objections

that

governments often bring

in

investor-state

arbitration. n both cases

the host state

at tempted

to escape its obligation to arbitrate contractual claims by

claiming that

the

subject contract or the arbitration

clause

did not

comply with

the internal law

o

the

offoreign investment); Sandline

Int l,

Inc. v.

Papua

New

Guinea, 117 I.L.R. 552, 561 (UNClTRAL, Oct. 9, 1998) (in

case

involving contract with private security contractor, dismissing host state objection that the contract breached

a constitutional prohibition on the hiring

of

military contractors; applying international law principle that a State

cannot rely upon

its

own internal law as the

basis

for a plea that a contract concluded by it is illegal ); Bilmme

v.

Ghana Investment

Centre,

95 I.L.R. 184,207-10 (UNCITRAL Oct. 27,1989) (investor commenced investment prior

to obtaining building permit based on state representations that work could commence; holding that investor had

placed justified reliance on these representations; noting further that permits had not been required for other

projects and no procedure was in place for dealing with building permit applications);

Shufeldt Claim United States

v. Guatemala),

2 Rep. Int'l Arb. Awards 1079, 1094

(July

24, 1930) (holding that, recognized the validity

of

the

contract for

six years

and received

all

the benefits to which they were entitled under the contract and allowed

Shufeldt to

go

on spending money on the concession, the Guatemalan government was precluded from denying

its validity based on failure to obtain approval from the national legislature).

See

also

Repsol YP Ecuador S.A.

v.

Empresa

Estatal Petro

leas

del Ecuador,

ARB/OllIO, Award 166 (ICSID Feb.

20, 2004)

( If every new government

scrutinized the legal obligations undertaken by

its

predecessor with a view to decide whether to fulfill them

or

not,

international trade and in particular foreign investment would become impossible.

If

States were to proceed on this

basis, the international legal order would collapse because it would be enough for a new government to allege that

its

predecessor made a mistake in a negotiation in order to repudiate legal obligations. ).

46 See

Andrew Newcombe

LIuis

Paradell,

Law and

Practice

i nvestment Treaties: Standards of Treatment 95

(2009)

( [H]aving formally or

de

facto recognized the validity

of

an investment contract by benefiting from i t for

a certain time, international law precludes a host state from denying, without more, its validity under domestic law

and thus escape liability for breach or unilateral termination ).

See,

e.g.,

Southern

Pacific Properties

Middle East)

Ltd

II.

Egypt,

ARB/84/3, Award \MI81-83

(ICSID

May 20, 1992),

reprinted

ill 3 ICSID Reports 189 (1995) (denying Egypt's

attempts to rely on internal law to invalidate a contract; noting that various state

officials

had represented the validity

of

the contract and this carried the mantle

of

governmental authority; holding that the practice of states has

conclusively established the international responsibility for unlawful acts

of

state organs, even

if

accomplished

outside the limits

of

their competence and contrary to domestic law );

if Metalclad Corp. v. Mexico,

No. ARB(AF)/97/1, Award

86 89 108 (IcsID

Aug. 30, 2000),

reprinted

in 5 ICSID Rep. 212

(2002)

(investor

justifiably relied on representations

of

local government that

its

existing permits were sufficient to commence

work).

See, generally,

T. Meron, Repudiation

of

Ultra

Vires

State Contracts and the International Responsibility

of

States 6 Int'l L.

Compo

L.Q. 273 (1957).

47

The RS Tribunal held that the license only had an initial term

of

4 years in length (rather than 5 years,

the length of the 1999 Contract), because the Petroleum Code was imperative in limiting the period of any

license to 4 years. RS

v.

C R \MI133-34.

48 See id.

209-13.

49

See

id.

227-35.


11/11

ICSID AFRICAN CASES

699

host state.

n both cases

the Tribunal proved unsympathetic to those claims - holding

(in Millicom that local constitutional rules were

no

defense to the host state's

international obligations

under

the

ICSID

Convention, and (in RSM that a host state

could

not

rely

upon

irregularities for which it itself was responsible.

Both

cases also

reveal the philosophy that a tribunal

is

likely to bring to the

interpretation

of

an arbitration clause.

The

RSM

tribunal, while willing to consider the

effect

of

technical non-compliance

on

the contract

as

a whole,

took

pains to stress the

doctrine of autonomy

of

the arbitration clause - under which the parties' obligation

to arbitrate (and the Tribunal's

power

to adjudicate disputes)

would not

be affected,

even

if

there existed a technical defect that vitiated the contract

as

a whole.

The Millicom

case is perhaps an even more emphatic exercise

of

arbitral power:

in

sustaining the obligation

to

arbitrate before

IcsID

the Tribunal applied a presumption

in favor

of

arbitration

as

well

as

the principle

of

effectiveness to sustain jurisdiction

over a contractual claim. Despite syntactical infelicities

in

the arbitration clause itself, the

Millicom

tribunal readily inferred a mutual intention to submit disputes to arbitration.

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