“Ambulance chaser” is a slur levelled at a lawyer trailing behind an ambulance in hot pursuit to solicit his or her wares to victims or opportunists at the accident site. Bad news is potentially good news.
In stark contrast to Personal Injury claims, International Investment Arbitration claims otherwise known as ISDS (Investor-State Dispute Settlement) arbitration against, in particular, African developing states will no doubt offer greater appeal to ambulance chasers given the substantially larger sums at stake.
Perhaps with a small dose of cynicism, it is understandable that ‘chasing’ strategies have become an increasingly refined art form for certain large international law firms with large international arbitration departments which devote significant time and resource to researching and identifying investments flowing into vulnerable host states.
“Vulnerable host” states are described as such because (i) typically only states and not investors can be sued under an International Investment Agreement (“IIA”) (ii) A developing state is more likely to lack sufficient legal infrastructure or internationally acceptable practices (political and economic) to protect satisfactorily the investment subject of the IIA.
ISDS arbitration may be more favorable offering greater protections to international investors than the local legislative protections relied upon by domestic investors. For example, the local law of the host state may permit that state to expropriate property without providing any or full compensation to the domestic investor who would also have no recourse against state. However, an international investor would typically have additional rights and protections against expropriation whereby the applicable IIA would also provide for full and prompt compensation through international arbitration if required.
IIAs with ISDS arbitration provisions take different forms. They are commonly encapsulated within investment treaties i.e., Bilateral Investment Treaties (“BITs”) entered into between two states or Multilateral Investment Treaties (“MITs”) where there are several contracting states to the treaty i.e., The Energy Treaty Charter. ISDS arbitration powers may also derive from commercial contracts entered into between investors and the host state (or state organ) or from the domestic legislation of the host state – it is also therefore important to be aware of the various sources of local legislation of the host state granting rights and protections to international investors.
Within the context of an IIA, all that is typically required for an investor to bring a ISDS claim is for a state government or state organ or a public entity or person whose actions may be attributed to the state to breach the state’s obligations under the IIA. Common substantive obligations (breach of which may give rise to an ISDS claim) include: fair and equitable treatment of the investment, full protection and security, most favoured nation treatment and protection against nationalisation of investment assets. For practical purposes, a breach may arise: (i) if a state may makes discriminatory legislative reforms which adversely affect the international investment; or (ii) if a state arbitrarily or capriciously denies tax exemptions to international investors in respect of revenues or profits generated by their investment; or (iii) if a state discriminates against an international investor by refusing to grant or renew permits; or (iv) if a state expropriates investment assets without due and proper compensation paid to the investor etc.
Instigating ISDS arbitration claims may also appear attractive to investors because it permits binding arbitration proceedings in a neutral forum determined by neutral arbitrators rather than risk having to deal with the relatively less sophisticated Courts of the host state which may be subject to influence or which may lack the requisite expertise or efficient procedural processes to render a timely judgment. Moreover, within the framework of many IIAs, the age-old issue of sovereign immunity may be circumvented as waivers of immunity are often expressly agreed in the IIA itself. Accordingly, if and when an award is rendered by the arbitral tribunal in the investor’s favour, it may be enforced against host state assets granting the investor claimant excellent prospects of making a recovery.
A noticeable trend is emerging given it is estimated that at least 3000 treaties entered into globally contain ISDS arbitration provisions. An UNCTAD report published in May 2017 highlighted that in 2016 alone, 62 new Investor – State cases were commenced out of which two thirds were brought under BITs. Pertinently, of the 62 new cases, 60% were decided in favour of the investor and 40% in favour of the state – this is significant.
Ambulance chasers need only prepare a suitable database to record the vast myriad of existing IIAs currently in existence to scope more accurately the location of potential clients who have made investments in vulnerable states. Whilst this direction of travel may perhaps border on the unethical, the flip side is that it should, over time, serve to stimulate greater global harmonisation of acceptable standards of treatment towards international investors and their investments. Ultimately, the vast majority of the 54 states of Africa are in need of FDI and must therefore structure optimally their legal and political landscape to accommodate and attract the required levels of international investment.
A good recent example of a claim brought against an African state is the case of Joseph Houben v Republic of Burundi (ICSID Case No Arb/13/7). The dispute concerned an alleged indirect expropriation of land in Bujumbra, Burundi purchased by the Belgian claimant, one Mr Houben, in 2005 for real estate development purposes. The claimant asserted that Burundi state failed to provide adequate protection or security (in breach of Article 3 and 4.1 of the BIT) to the land by allowing its permanent occupation without compensation. The claimant had sent several letters to the authorities urging them to intervene and put an end to illegal activities on its property. Burundi state contended that the A-G had taken certain actions in respect of the illegal occupation by sending letters to the local administration and also pointed out that serious doubts existed concerning the validity of the claimant’s title to the land. The tribunal noted that the duty to provide full protection and security required due diligence by the state and that the level of due diligence partly depended on the circumstances and resources of the state in question. On the basis of the evidence before it, it concluded that Burundi state had failed to take the necessary minimum measures to protect the occupied land (having had the resources to do so). The tribunal also found evidence supporting the local authorities direct and indirect contribution to the occupation of the land and awarded Mr Houben US$209,340 as compensation for damages incurred.
Monetary compensation is often sought but other remedies such as interim relief whilst proceedings are ongoing, full and final declaratory relief and/or restitution may also be available. It is therefore imperative that a host state not only treats the investment with international standard gloves, it must also grant re-assurance to investors that there will be an internationally acceptable avenues for dispute resolution particularly where no BIT exists or is in operation. With Africa’s developing infrastructure and its renowned wrestle with corruption, inevitable growth pains will pose a delicate balancing act between protecting international investors and managing state exposure to potential claims. As Dickens might say: “It could be the best of times and the worst“.