Latin American Investment Protections Comparative Perspectives on Laws, Treaties, and Disputes for Investors, States, and Counsel
Edited by
Jonathan C. Hamilton Omar E. García-Bolívar Hernando Otero
LEIDEN • BOSTON 2012
© 2012 Koninklijke Brill NV ISBN 978 90 04 20249 8
Contents Latin American Arbitration and Investment Protections ....................... Jonathan C. Hamilton, Omar E. García-Bolívar and Hernando Otero
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1. Argentina ................................................................................................ Ignacio Torterola and Diego Brian Gosis
5
2. Bolivia ...................................................................................................... Fernando Aguirre B.
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3. Brazil ........................................................................................................ Pedro Paulo Cristofaro and Luiz Fernando Teixeira Pinto
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4. Chile ......................................................................................................... Gonzalo Biggs
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5. Colombia ................................................................................................. Hernando Otero and Enrique Gómez-Pinzón
149
6. Costa Rica ............................................................................................... José Antonio Muñoz and Roy de Jesús Herrera
193
7. Dominican Republic .............................................................................. Fabiola Medina Garnes
219
8. Ecuador ................................................................................................... Alvaro Galindo
245
9. El Salvador .............................................................................................. Josué Reyes
293
10. Guatemala ............................................................................................... Alvaro R. Castellanos Howell
317
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11. Honduras ................................................................................................ José Rafael Rivera Ferrari and Francisco Darío Lobo Flores
339
12. Mexico ..................................................................................................... Claus von Wobeser
361
13. Nicaragua ................................................................................................ Fernando Medina Montiel and José René Orúe
409
14. Panama .................................................................................................... Alfredo Ramírez Jr.
433
15. Paraguay .................................................................................................. Diego Zavala
459
16. Peru .......................................................................................................... Alfredo Bullard
485
17. Uruguay ................................................................................................... Jonás Bergstein and Alicia Gambetta
535
18. Venezuela ................................................................................................ Omar E. García-Bolívar and Eduardo Porcarelli
565
Contributors .................................................................................................. Acknowledgments ......................................................................................... Index ...............................................................................................................
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© 2012 Koninklijke Brill NV ISBN 978 90 04 20249 8
Extended Table of Contents Latin American Arbitration and Investment Protections ....................... Jonathan C. Hamilton, Omar E. García-Bolívar and Hernando Otero 1. Argentina Ignacio Torterola and Diego Brian Gosis I. Scope of Investment Protection Legal Framework ...................... A. State Responsibility ..................................................................... 1. Organization of the State ...................................................... 2. State-Owned/Controlled Enterprises ................................. 3. Domestic Law Limits on International Arbitration with the State .................................................................................. B. Domestic Law Investment Protection Framework ................. 1. Foreign Investment Law ....................................................... 2. Stabilization Regime ............................................................. 3. Foreign Investment Promotion Agency ............................. 4. International Arbitration Law ............................................. C. International Law Investment Protection Framework ........... 1. ICSID Convention ................................................................. 2. Investment Treaties ............................................................... II. Investment Disputes ......................................................................... A. Investment Dispute Precedents and Trends ............................ 1. Non-Emergency Cases ......................................................... a. Vivendi v. Argentine Republic .......................................... b. Siemens v. Argentine Republic .......................................... c. Azurix v. Argentine Republic ............................................ 2. Emergency Cases ................................................................... a. CMS v. Argentine Republic ............................................... b. LG&E v. Argentine Republic ............................................ c. Enron v. Argentine Republic ............................................. d. AES v. Argentine Republic ................................................ e. Metalpar and Buen Aire v. Argentine Republic .............. f. Sempra v. Argentine Republic ........................................... g. Camuzzi v. Argentine Republic ........................................
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h. i.
Camuzzi v. Argentine Republic .................................. Continental Casualty Company v. Argentine Republic ........................................................................ j. Gas Natural v. Argentine Republic ............................. k. Pioneer v. Argentine Republic ..................................... l. Pan American and BP v. Argentine Republic and BP and Others v. Argentine Republic ............................... m. El Paso v. Argentine Republic ..................................... n. Suez, Aguas de Barcelona and Interagua v. Argentine Republic ........................................................................ o. Suez, Aguas de Barcelona and Vivendi v. Argentine Republic ........................................................................ p. Aguas Cordobesas, Suez, and Aguas de Barcelona v. Argentine Republic ....................................................... q. Telefónica v. Argentine Republic ................................. r. Enersis v. Argentine Republic ...................................... s. Electricidad Argentina and EDF International v. Argentine Republic ....................................................... t. EDF International, SAUR International and León Participaciones v. Argentine Republic ........................ u. Unisys v. Argentine Republic ....................................... v. Azurix Corp. (Azurix Mendoza SA) v. Argentine Republic ........................................................................ w. Total S.A. v. Argentine Republic ................................. x. SAUR International v. Argentine Republic ................ y. CIT Group v. Argentine Republic ............................... z. Wintershall v. Argentine Republic .............................. aa. Mobil v. Argentine Republic ........................................ bb. France Telecom v. Argentine Republic ........................ cc. RGA Reinsurance Company v. Argentine Republic ... dd. Daimler Financial Services v. Argentine Republic .... ee. CGE v. Argentine Republic .......................................... ff. TSA Spectrum v. Argentine Republic ......................... gg. Asset Recovery Trust v. Argentine Republic ............... hh. Abaclat and Others ( formerly Giovanna a Beccara and Others) v. Argentine Republic ............................. ii. Giovanni Alemanni and Others v. Argentine Republic ........................................................................ jj. Impregilo v. Argentine Republic .................................. kk. Urbaser v. Argentine Republic .................................... ll. Hochtief v. Argentine Republic .................................... mm. Giordano Alpi and Others v. Argentine Republic .....
27 28 28 29 29 30 30 31 32 32 33 33 34 34 34 35 35 36 36 36 37 37 37 38 38 38 39 39 39 40 40 40
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Impregilo v. Argentine Republic .................................. Teinver v. Argentine Republic ..................................... BG Group Plc v. Argentine Republic .......................... AWG Group Ltd. v. Argentine Republic ..................... National Grid plc v. Argentine Republic .................... United Utilities International Limited (UUIL) v. Argentine Republic ....................................................... tt. Bank of Nova Scotia v. Argentine Republic ............... uu. ICS Inspection and Control Services Limited (United Kingdom) v. Argentine Republic ................................. III. Survey of International Investment Treaty Protections .............. A. Investor Nationality ................................................................... B. Definition of Investment ........................................................... C. National Treatment and Most-Favored-Nation Treatment ... D. Fair and Equitable Treatment and Full Protection and Security ........................................................................................ E. Free Transfer of Capital ............................................................. F. Expropriation .............................................................................. G. Performance Requirements ...................................................... H. Contracts and Obligations Observance .................................. I. Dispute Resolution .....................................................................
41 41 41 42 42
nn. oo. pp. qq. rr. ss.
2. Bolivia Fernando Aguirre B. I. Scope of Bolivian Investment Protection Framework ................. A. State Responsibility .................................................................... 1. Organization of the State .................................................... 2. State-Owned/Controlled Enterprises ................................ 3. Domestic Law Limits on International Arbitration with the State ................................................................................. B. Domestic Legal Investment Protection Framework .............. 1. Foreign Investment Law ..................................................... 2. Stabilization Regime ............................................................ 3. Foreign Investment Promotion Agency ........................... 4. International Arbitration Law ............................................ C. International Legal Investment Protection Framework ........ 1. ICSID Convention ............................................................... 2. Investment Treaties .............................................................. 3. Recognition and Enforcement of Foreign Arbitral Awards ................................................................................... II. Bolivian Investment Treaty Disputes ............................................. A. Investment Treaty Disputes: Precedents and Trends .............
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B. Bolivian Investment Treaty Cases ............................................ 1. ICSID ...................................................................................... a. Aguas del Tunari S.A. v. Republic of Bolivia (ICSID Case No. ARB/02/3) ........................................... b. Quiborax S.A., Non-Metallic Minerals S.A. & Allan Fosk Kaplún v. Plurinational State of Bolivia (ICSID Case No. ARB/06/2) ........................................... c. E.T.I. Euro Telecom International N.V. v. Plurinational State of Bolivia (ICSID Case No. ARB/07/28) .............. d. Pan American Energy LLC v. Plurinational State of Bolivia (ICSID Case No. ARB/10/8) .............................. 2. Other Fora ............................................................................. a. Gas Trans Boliviano v. Bolivia ....................................... b. Ashmore Energy International v. Bolivia ....................... c. Oiltanking GmbH and the Graña y Montero Group v. Bolivia ............................................................................... d. Guaracachi America Inc. & Rurelec PLC v. Plurinational State of Bolivia ......................................... III. Survey of International Investment Treaty Protections in Bolivia ................................................................................................ A. Investor Nationality ................................................................... B. Definition of Investment ........................................................... C. National Treatment and Most-Favored-Nation Treatment ... D. Fair and Equitable Treatment and Full Protection and Security ........................................................................................ E. Free Transfer of Capital ............................................................. F. Expropriation .............................................................................. G. Dispute Resolution ..................................................................... 3. Brazil Pedro Paulo Cristofaro and Luiz Fernando Teixeira Pinto I. Scope of Investment Protection Legal Framework ...................... A. State Responsibility .................................................................... 1. Organization of the State ..................................................... 2. State-Owned/Controlled Enterprises ................................ 3. Domestic Law Limits on International Arbitration with the State ......................................................................... B. Domestic Law Investment Protection Framework ................ 1. Investment Treaties and the ICSID Convention .............. 2. Recognition and Enforcement of Foreign Awards ...........
67 68 68
69 70 72 72 73 73 73 74 75 75 76 77 78 78 79 81
85 85 85 86 87 89 91 94
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4. Chile Gonzalo Biggs I. Investment and Arbitration Framework ........................................ A. State Responsibility ..................................................................... 1. Organization of the State ...................................................... 2. Financial System .................................................................... 3. State-Owned/Controlled Enterprises ................................. 4. State Access to International Arbitration ........................... B. Investment and Arbitration Law ............................................... 1. Available Instruments ........................................................... 2. Chapter XIV of the Foreign Exchange Rules of the Central Bank .......................................................................... a. Description ........................................................................ 3. The Foreign Investment Statute: DL 600 of 1974 .............. a. Description ........................................................................ b. The Foreign Investment Committee (“the Committee”) c. The Foreign Investment Contract .................................. d. Terms of Entry of Investments ........................................ e. Definition of Investment ................................................. f. Forms of Investments ....................................................... g. Rights of Foreign Investors .............................................. 4. The Right to Tax Invariability .............................................. a. Description ........................................................................ b. Comment ........................................................................... c. Indirect Taxes (Sales and Customs Duties on Manufactured Imports) ................................................... d. Benefits for Megaprojects ................................................ e. Export Regimes ................................................................. f. Mining Taxes ..................................................................... 5. Legal Remedies Available to Foreign Investors ................. a. Description ........................................................................ b. The Legal Remedies .......................................................... c. Legal Restrictions on Foreign Participation or Purchases ........................................................................... d. Relevant Jurisprudence .................................................... e. Access of Foreign Investors to Public Works Concessions ....................................................................... II. Arbitration Law ................................................................................. A. Applicable Laws, Issues, and Jurisprudence ............................ 1. Description ............................................................................. 2. Issues ....................................................................................... 3. Recognition and Enforcement of Arbitral Awards ...........
97 97 97 99 100 101 102 102 103 103 104 104 105 105 106 106 107 109 111 111 112 112 112 113 113 116 116 116 117 118 119 120 120 120 121 123
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B. Substantive Requirements ......................................................... C. Procedural (or exequatur) Requirements ................................ 1. Jurisprudence ......................................................................... 2. Enforcement of ICSID Awards ............................................ 3. Arbitration Treaties ............................................................... D. Investment & Settlement of Disputes Treaties ........................ 1. Description ............................................................................. 2. ICSID ...................................................................................... 3. BITs ......................................................................................... 4. FTAs ........................................................................................ 5. Economic Associations, Complementary Agreements, and other Agreements .......................................................... E. Protection Standards in Investment Treaties .......................... 1. Description ............................................................................. 2. Investor Nationality .............................................................. 3. Fair and Equitable Treatment and Full Protection and Security ................................................................................... 4. Expropriation ......................................................................... 5. Observance of Contracts and Obligations ......................... 6. Performance Requirements ................................................. F. Investment Disputes ................................................................... 1. Description ............................................................................. 2. Pey & Allende v. Chile ........................................................... 3. MTD Equity and MTD Chile v. Chile .................................. 4. Eduardo Vieira S.A. v. Chile ................................................. 5. Colombia Hernando Otero and Enrique Gómez-Pinzón I. Scope of Investment Protection Legal Framework ....................... A. State Responsibility ..................................................................... 1. Organization of the State ...................................................... 2. Decentralized State Entities and State-Owned/ Controlled Enterprises .......................................................... 3. Domestic Law Limits on International Arbitration with the State .................................................................................. B. Domestic Law Investment Protection Framework ................. 1. Foreign Investment Law ....................................................... 2. Legal Stability Regime ........................................................... 3. Foreign Investment Promotion Agency ............................. 4. International Arbitration Law ............................................. C. International Law Investment Protection Framework ........... 1. ICSID Convention .................................................................
123 123 124 124 125 125 125 126 126 127 128 129 129 129 131 133 137 138 138 138 139 141 145
149 149 149 151 155 156 156 157 160 160 164 164
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2. Investment Treaties with Dispute Resolution Provisions (March 2011) ........................................................................ 3. Recognition and Enforcement of Awards ......................... II. Investment Disputes ........................................................................ A. Investment Dispute Precedents and Trends ........................... B. Investment Treaty Cases ............................................................ III. Survey of International Investment Treaty Protections .............. A. Investor Nationality ................................................................... B. Definition of Investment ........................................................... C. National Treatment and Most-Favored-Nation Treatment ... D. Fair and Equitable Treatment and Full Protection and Security ........................................................................................ E. Free Transfer of Capital ............................................................. F. Expropriation .............................................................................. G. Contracts and Obligations Observance .................................. H. Performance Requirements ...................................................... I. Dispute Resolution ..................................................................... 6. Costa Rica José Antonio Muñoz and Roy de Jesús Herrera I. Scope of Investment Protection Legal Framework ....................... A. State Responsibility .................................................................... 1. Organization of the State .................................................... a. Legislative Power ........................................................... b. Executive Power ............................................................. c. Judicial Power ................................................................. d. Other Governmental Entities ....................................... 2. State-Owned/Controlled Enterprises ................................ 3. Domestic Law Limits on International Arbitration with the State ................................................................................. B. Domestic Law Investment Protection Framework ................ 1. Foreign Investment Law ..................................................... 2. Stabilization Regime ............................................................ 3. Foreign Investment Promotion Agency ........................... 4. International Arbitration Law ............................................ C. International Law Investment Protection Framework .......... 1. ICSID Convention ............................................................... 2. Investment Treaties .............................................................. a. Bilateral Investment Treaties ........................................ b. Free Trade Agreements ................................................. c. Other Pending Multilateral Agreements .................... d. Central American Economic Integration ................... 3. Recognition and Enforcement of Awards .........................
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164 169 172 172 172 173 173 176 178 181 185 186 189 190 191
193 193 193 193 194 195 195 196 196 197 197 198 198 198 199 200 200 200 201 202 202 203
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II. Investment Disputes ........................................................................ A. Investment Dispute Precedents and Trends ........................... B. Investment Treaty Cases ............................................................ 1. Pending Cases ...................................................................... a. Reinhard Hans Unglaube v. Republic of Costa Rica (ICSID Case No. ARB/09/20) ...................................... b. Marion Unglaube v. Republic of Costa Rica (ICSID Case No. ARB/08/1) ......................................... 2. Concluded Cases .................................................................. a. Quadrant Pacific Growth Fund L.P. and Canasco Holdings Inc. v. Republic of Costa Rica (ICSID Case No. ARB (AF)/08/1) ...................................................... b. Alasdair Ross Anderson and Others v. Republic of Costa Rica (ICSID Case No. ARB (AF)/07/3) ............ c. Compañía del Desarrollo de Santa Elena SA v. Costa Rica, Final Award, (ICSID Case No. ARB/96/1) ....................................................................... III. Survey of International Investment Treaty Protections .............. A. Investor Nationality ................................................................... B. Definition of Investment ........................................................... C. National Treatment and Most-Favored-Nation Treatment ... D. Fair and Equitable Treatment and Full Protection and Security ........................................................................................ E. Free Transfer of Capital ............................................................. F. Expropriation .............................................................................. G. Contracts and Obligations Observance .................................. H. Performance Requirements ...................................................... I. Dispute Resolution ..................................................................... 1. Settlement of Disputes between Contracting Parties ...... 2. Settlement of Disputes between a Contracting Party and an Investor of the Other Contracting Party ..................... 7. Dominican Republic Fabiola Medina Garnes I. Scope of Investment Protection Legal Framework ...................... A. State Responsibility .................................................................... 1. Organization of the State .................................................... 2. State-Owned/Controlled Enterprises ................................ 3. Domestic Law Limits on International Arbitration with the State ................................................................................. B. Domestic Law Investment Protection Framework— Protection of the Foreign Investment ......................................
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208 210 210 210 211 212 212 213 214 214 216 216 216
219 219 219 220 221 221
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1. Foreign Investment Promotion Agency ........................... 2. International Arbitration Law ............................................ C. International Law Investment Protection Framework .......... 1. ICSID Convention ............................................................... 2. Investment Treaties .............................................................. 3. Recognition and Enforcement of Awards ......................... II. Investment Disputes ........................................................................ A. Investment Dispute Precedents and Trends ........................... B. Investment Arbitration Cases ................................................... 1. Disputes Relating to EDE Este ............................................. a. Société Générale in respect of DR Energy Holdings Ltd and Empresa Distribuidora de Electricidad del Este, S. A. v. Dominican Republic .......................................... b. TCW Group, Inc., and Dominican Energy Holdings, L.P. v. Dominican Republic ............................................ III. Survey of International Investment Treaty Protections .............. A. Investor Nationality ................................................................... B. Definition of Investment ........................................................... C. National Treatment Clause and Most-Favored-Nation ........ D. Fair and Equitable Treatment and Full Protection and Security ........................................................................................ E. Free Transfer of Capital ............................................................. F. Expropriation .............................................................................. G. Performance Requirements ......................................................
224 225 227 227 227 229 232 232 232 232
8. Ecuador Alvaro Galindo I. Scope of Investment Protection Legal Framework ...................... A. State Responsibility .................................................................... 1. Organization of the State .................................................... 2. State-Owned/Controlled Companies ............................... 3. Domestic Law Limits on International Arbitration with the State ................................................................................. B. Domestic Law Investment Protection Framework ................ 1. Foreign Investment Law ..................................................... 2. Stabilization Regime ............................................................ 3. International Arbitration Law ............................................ C. International Law Investment Protection Framework .......... 1. ICSID Convention ............................................................... 2. Investment Treaties .............................................................. 3. Recognition and Enforcement of Awards ......................... II. Investment Disputes ........................................................................ A. Investment Dispute Precedents and Trends ...........................
233 235 236 236 237 238 239 240 241 242
245 245 245 247 248 249 249 250 250 251 251 252 255 255 255
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B. Investment Treaty Cases ............................................................ 1. ICSID Cases ........................................................................... a. Pending Cases ................................................................... i. Perenco Ecuador Limited v. Republic of Ecuador and Petroecuador (ICSID Case No. ARB/08/6) ... ii. Burlington Resources, Inc. v. Republic of Ecuador (ICSID Case No. ARB/08/5) .................................. iii. Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador [(“Oxy II”)] (ICSID Case No. ARB/06/11) ................................ b. Concluded Cases .............................................................. i. Corporación Quiport S.A. and Others v. Republic of Ecuador (ICSID Case No. ARB/09/23) ............ ii. Repsol YPF Ecuador, S.A. and Others v. Republic of Ecuador and Petroecuador [(“Repsol II”)] (ICSID Case No. ARB/08/10) .............................................. iii. Murphy Exploration and Production Company v. Republic of Ecuador (ICSID Case No. ARB/08/4) ................................................................ iv. City Oriente Limited v. Republic of Ecuador and Petroecuador (ICSID Case No. ARB/06/21) ........ v. Técnicas Reunidas, S.A. and Eurocontrol, S.A. v. Republic of Ecuador (ICSID Case No. ARB/06/17) .............................................................. vi. Noble Energy Inc. and Machala Power Cía. Ltda. v. Republic of Ecuador and Consejo Nacional de Electricidad (ICSID Case No. ARB/05/12) ........... vii. Empresa Eléctrica del Ecuador, Inc. v. Republic of Ecuador (ICSID Case No. ARB/05/9) ................... viii. Duke Energy Electroquil Partners and Electroquil S.A. v. Republic of Ecuador (ICSID Case No. ARB/04/19) .............................................................. ix. M.C.I. Power Group, L.C. and New Turbine, Inc. v. Republic of Ecuador (ICSID Case No. ARB/03/6) ................................................................ x. IBM World Trade Corporation v. Republic of Ecuador (ICSID Case No. ARB/02/10) ................. xi. Repsol YPF Ecuador S.A. v. Petroecuador [(“Repsol I”)] (ICSID Case No. ARB/01/10) ....... 2. Ad-hoc Cases ........................................................................ a. Pending Cases ................................................................
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258 260 260
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Global Net-Únete Telecomunicaciones S.A. and Clay Pacific S.R.L. v. Republic of Ecuador ............ ii. Ulysseas v. Republic of Ecuador ............................. iii. Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador [(“Chevron III”)] ..................................................... iv. Copper Mesa Mining Corporation (Canada) v. The Republic of Ecuador ......................................... v. Merck Sharp & Dohme (I.A.) Corp. (U.S.A.) v. The Republic of Ecuador, PCA (Case No. AA442) .................................................. vi. The Republic of Ecuador v. The United States of America – UNCITRAL Arbitration ...................... b. Concluded Cases ............................................................ i. Occidental Exploration and Production Company v. Republic of Ecuador [(“Oxy 1”)] (Case No. UN3467) ................................................ ii. EnCana Corporation v. Republic of Ecuador (Case No. UN3481) ................................................ iii. Chevron Corporation and Texaco Petroleum Corporation v. Republic of Ecuador [(“Chevron II”)] ....................................................... III. Survey of International Investment Treaty Protections .............. A. Investor Nationality ................................................................... B. Definition of Investment ........................................................... C. National Treatment and Most-Favored-Nation Treatment ... D. Fair and Equitable Treatment and Full Protection and Security ........................................................................................ E. Free Transfer of Capital ............................................................. F. Expropriation .............................................................................. G. Contracts and Obligations Observance .................................. H. Performance Requirements ...................................................... I. Dispute Resolution .....................................................................
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i.
9. El Salvador Josué Reyes I. Investment and Arbitration Framework ....................................... A. State Responsibility .................................................................... 1. Organization of the State .................................................... 2. Decentralized State Entities and State-Owned/ Controlled Enterprises ........................................................
272 272
272 275
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281 284 285 286 287 288 288 289 290 290 292
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3. Domestic Law Limits on International Arbitration with the State ....................................................................... B. Domestic Law Investment Protection Framework .............. 1. Foreign Investment Law ..................................................... 2. Domestic Law Limits on Foreign Investment ................. 3. Stabilization Regime ........................................................... 4. Foreign Investment Promotion Agency ........................... 5. International Arbitration Law ........................................... C. International Law Investment Protection Framework ........ 1. ICSID Convention .............................................................. 2. Investment Treaties ............................................................. 3. Recognition and Enforcement of Awards ........................ II. Investment Disputes ........................................................................ A. Investment Dispute Precedents and Trends .......................... B. Investment Treaty Cases .......................................................... 1. Inceysa Vallisoletana S.L. v. Republic of El Salvador (ICSID Case No. ARB/03/26) ............................................ 2. Commerce Group Corp. and San Sebastian Gold Mines, Inc. v. Republic of El Salvador (ICSID Case No. ARB/09/17) .......................................................................... 3. Pacific Rim Cayman LLC v. Republic of El Salvador (ICSID Case No. ARB/09/12) ............................................ III. Survey of International Investment Treaty Protections ............ A. Investor Nationality .................................................................. B. Definition of Investment ......................................................... C. National Treatment and Most-Favored-Nation Treatment D. Fair and Equitable Treatment and Full Protection and Security ...................................................................................... E. Free Transfer ............................................................................. F. Expropriation ............................................................................ G. Observance of Contracts and Obligations ............................ H. Performance Requirements ..................................................... I. Dispute Resolution ................................................................... 10. Guatemala Alvaro R. Castellanos Howell I. Scope of Investment Protection Legal Framework ...................... A. State Responsibility .................................................................. 1. Organization of the State ................................................... 2. State-Owned/Controlled Enterprises ............................... 3. Domestic Law Limits on International Arbitration with the State ................................................................................
296 296 296 297 298 298 298 299 299 299 303 304 304 304 305
306 308 310 310 311 312 312 313 314 315 315 316
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B. Domestic Law Investment Protection Framework ............. 1. Foreign Investment Law ................................................... 2. Stabilization Regime ......................................................... 3. Foreign Investment Promotion Agency ......................... 4. International Arbitration Law ......................................... C. International Law Investment Protection Framework ....... 1. ICSID Convention ............................................................ 2. Investment Treaties ........................................................... 3. Recognition and Enforcement of Awards ...................... II. Investment Disputes ..................................................................... A. Investment Dispute Precedents and Trends ........................ B. Investment Treaty Cases ........................................................ 1. Railroad Development Corp. v. Guatemala (ICSID Case No. ARB/07/23) .......................................... 2. Iberdrola Energía, S.A. v. Guatemala (ICSID Case No. ARB/09/5) ............................................ 3. TECO Guatemala Holdings LLC v. Guatemala (ICSID Case No. ARB/10/23) .......................................... III. Survey of International Investment Treaty Protections ........... A. Investor Nationality ................................................................ B. Definition of Investment ........................................................ 1. Definition of Investment .................................................. 1.1 Definition of Investment in DR-CAFTA ............... 1.2 Definition of Investment in the FTA with El Salvador, Honduras, and Mexico ....................... 1.3 Definition of Investment in BIT with France for the Reciprocal Promotion and Protection of Investments ............................................................... C. National Treatment and Most-Favored-Nation Treatment D. Fair and Equitable Treatment and Full Protection and Security ..................................................................................... E. Free Transfer of Capital .......................................................... F. Expropriation .......................................................................... G. Performance Requirements ................................................... H. Dispute Resolution ................................................................. 11. Honduras José Rafael Rivera Ferrari and Francisco Darío Lobo Flores I. Scope of Investment Protection Legal Framework ................... A. State Responsibility ................................................................. 1. Organization of the State ................................................. 2. State-Owned/Controlled Enterprises .............................
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3. Domestic Law Limits on International Arbitration with the State ..................................................................... B. Domestic Law Investment Protection Framework ............. 1. Foreign Investment Law ................................................... 2. Stabilization Regime ......................................................... 3. Foreign Investment Promotion Agency ......................... 4. International Arbitration Law ......................................... C. International Law Investment Protection Framework ....... 1. ICSID Convention ............................................................ 2. Investment Treaties ........................................................... 3. Recognition and Enforcement of Awards ...................... II. Investment Disputes ..................................................................... A. Investment Dispute Precedents and Trends ........................ 1. Astaldi S.p.A. & Columbus Latinoamericana de Construcciones S.A. v. Republic of Honduras (ICSID Case No. ARB/99/8) ............................................ 2. Astaldi S.p.A. v. Republic of Honduras (ICSID Case No. ARB/07/32) ........................................................................ 3. Elsamex S.A. v. Republic of Honduras (ICSID Case No. ARB/09/4) .......................................................................... B. Investment Treaty Cases ....................................................... III. Survey of International Investment Treaty Protections ................... A. Investor Nationality ................................................................ B. Definition of Investment ........................................................ C. National Treatment and Most-Favored-Nation Treatment D. Fair and Equitable Treatment and Full Protection and Security ..................................................................................... E. Free Transfer of Capital .......................................................... F. Expropriation .......................................................................... G. Performance Requirements ................................................... H. Dispute Resolution ................................................................. 12. Mexico Claus von Wobeser I. Scope of Investment Protection Legal Framework ................... A. State Responsibility ................................................................. 1. Organization of the State ................................................. 2. State-Owned/Controlled Enterprises ............................. 3. Domestic Law Limits on International Arbitration with the State ..................................................................... B. Domestic Law Investment Protection Framework .............
342 342 342 345 346 346 347 347 347 349 350 350
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1. Foreign Investment Law ..................................................... 1.1 Activities Reserved Exclusively for the Mexican State .............................................................................. 1.2 Activities Reserved for Mexican Nationals ............. 1.3 Activities and Acquisitions Subject to Specific Regulation ................................................................... 1.4 Real Estate ................................................................... 1.5 Foreign Investment in Mexican Companies ........... 2. Stabilization Regime ............................................................ 3. Foreign Investment Promotion Agency ........................... 4. International Arbitration Law ............................................ C. International Law Investment Protection Framework .......... 1. ICSID Convention ............................................................... 2. Investment Treaties .............................................................. 3. Recognition and Enforcement of Awards ......................... II. Investment Disputes ........................................................................ A. Investment Dispute Precedents and Trends ........................... B. Investment Treaty Cases ............................................................ 1. Cases Pursuant to ICSID Additional Facility Rules ........ 1.1 Metalclad Corp. v. Mexico .......................................... 1.2 Robert Azinian and Others v. Mexico ....................... 1.3 Waste Management, Inc. v. Mexico ........................... 1.4 Marvin Roy Feldman Karpa v. Mexico ..................... 1.5 Técnicas Medioambientales Tecmed S.A. v. Mexico 1.6 Waste Management, Inc. v. Mexico ........................... 1.7 Fireman’s Fund Insurance Co. v. Mexico ................... 1.8 Corn Products International, Inc. v. Mexico ............ 1.9 Archer Daniels Midland Co. and Tate & Lyle Ingredients Americas, Inc. v. Mexico ......................... 1.10 Gemplus S.A., SLP S.A., Gemplus Industrial S.A. de C.V., and Talsud S.A. v. Mexico ............................ 1.11 Bayview Irrigation District and Others v. Mexico ... 1.12 Cargill, Inc. v. Mexico ................................................. 2. Cases Under UNCITRAL Arbitration Rules ................... 2.1 GAMI Investments, Inc. v. Mexico ............................ 2.2 International Thunderbird Gaming Corp. v. Mexico .......................................................................... III. Survey of International Investment Treaty Protections .............. A. Investor Nationality ................................................................... B. Definition of Investment ........................................................... C. National Treatment and Most-Favored-Nation Treatment ...
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D. Fair and Equitable Treatment and Full Protection and Security ..................................................................................... E. Free Transfer of Capital .......................................................... F. Expropriation .......................................................................... G. Contracts and Obligations Observance ............................... H. Performance Requirements ................................................... I. Dispute Resolution ................................................................. 13. Nicaragua Fernando Medina Montiel and José René Orué I. Investment Protection Legal Framework .................................. A. Responsibility of the State ...................................................... 1. Organization of the State ................................................. 2. Constitutional Control ..................................................... 3. Limitations to International Arbitration with the State under National Laws ........................................................ B. General Investment Protection Legal Framework .............. 1. Foreign Investment Law ................................................... 2. Stabilization Regime ......................................................... 3. Foreign Investment Promotion Agency ......................... C. International Investment Protection Framework ............... 1. ICSID Convention ............................................................ 2. Investment Treaties ........................................................... 3. Recognition and Enforcement of Awards ...................... II. Background and Trends ............................................................... A. Investment Disputes Precedents & Trends .......................... B. Cases before ICSID ................................................................. 1. Shell Brands International AG and Shell Nicaragua S.A. v. Republic of Nicaragua (ICSID Case No. ARB/06/14) ... 2. Nicaragua v. Grupo Barceló .............................................. III. Survey of International Investment Treaty Protections ........... A. Nationality of Investors .......................................................... B. Definition of Investment ........................................................ C. National Treatment and Most-Favored-Nation Treatment D. Fair and Equitable Treatment and Full Protection and Security ..................................................................................... E. Free Transfer of Capital .......................................................... F. Expropriation .......................................................................... G. Contracts and Obligations Observance ............................... H. Performance Requirements ................................................... I. Dispute Resolution .................................................................
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14. Panama Alfredo Ramírez Jr. I. Scope of Investment Protection Legal Framework ................... A. State Responsibility ................................................................. 1. Organization of the State ................................................. 2. State-Owned/Controlled Enterprises ............................. 3. Domestic Law Limits on International Arbitration with the State ..................................................................... B. Domestic Law Investment Protection Framework ............. 1. Foreign Investment Law ................................................... 2. Stabilization Regime ......................................................... 3. Foreign Investment Promotion Agency ......................... 4. International Arbitration Law ......................................... C. International Law Investment Protection Framework ....... 1. ICSID Convention ............................................................ 2. Investment Treaties ........................................................... 3. Recognition and Enforcement of Awards ...................... II. Investment Disputes ..................................................................... A. ICSID Dispute Precedents, Trends, and Cases .................... 1. Nations Energy, Inc and Others v. Republic of Panama (ICSID Case No. ARB/06/19) .......................................... 2. Refinería Panamá Case ..................................................... 3. Parienti Case ...................................................................... III. Survey of International Investment Treaty Protections ........... A. Investor Nationality ................................................................ 1. Nationals by Birth ............................................................. 2. Nationals by Naturalization ............................................. 3. Nationals by Constitutional Provision ........................... 4. Nationality of Legal Entities ............................................ B. Definition of Investment ........................................................ C. National Treatment and Most-Favored-Nation Treatment 1. Equal Treatment Clauses .................................................. 2. Investments Only for a Party’s Own Investors .............. 3. Specific Cases Where the Most-Favored-Nation Treatment is Not Applicable ............................................ D. Fair and Equitable Treatment and Full Protection and Security ..................................................................................... E. Free Transfer of Capital .......................................................... F. Expropriation .......................................................................... G. Performance Requirements ................................................... H. Dispute Resolution .................................................................
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15. Paraguay Diego Zavala I. Legal Framework for Investment Protection ............................ A. Organization of the Paraguayan State .................................. B. Investment Protection Framework under Paraguayan Law 1. Relevant Norms ................................................................. 2. Foreign Investment Promotion Agencies ...................... 3. International Arbitration Law ......................................... C. Investment Protection Framework under International Law ............................................................................................ 1. The ICSID Convention ..................................................... 2. Investment Treaties ........................................................... 3. Recognition and Enforcement of Awards ...................... II. Investment Disputes ..................................................................... A. Investment Dispute Precedents and Trends ........................ B. Summary of Investment Treaty Cases .................................. 1. Eudoro Armando Olguín v. Republic of Paraguay (ICSID Case No. ARB/98/5) ............................................ 2. Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v. Republic of Paraguay (ICSID Case No. ARB/07/9) ............................................ 3. SGS Société Générale de Surveillance S.A. v. Republic of Paraguay (ICSID Case No. ARB/07/29) ........................ III. Survey of International Investment Protections under Treaties Signed by Paraguay ....................................................................... A. Investor Nationality ................................................................ B. Definition of Investment ........................................................ C. National Treatment and Most-Favored-Nation Treatment D. Fair and Equitable Treatment and Full Protection and Security ..................................................................................... E. Free Transfer of Capital .......................................................... F. Expropriation .......................................................................... G. Observance of Contracts and Obligations ........................... H. Performance Requirements ................................................... I. Dispute Resolution ................................................................. 16. Peru Alfredo Bullard I. Scope of Investment Protection Legal Framework ................... A. State Responsibility ................................................................. 1. Organization of the State ................................................. 2. State-Owned/Controlled Enterprises .............................
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3. Domestic Law Limits on International Arbitration with the State ................................................................................. B. Domestic Law Investment Protection Framework ................. 1. Foreign Investment Law ..................................................... 2. Stabilization Regime ............................................................ 3. Foreign Investment Promotion Agency ........................... 4. International Arbitration Law ............................................ C. International Law Investment Protection Framework ........... 1. ICSID Convention ............................................................... 2. Investment Treaties .............................................................. 3. Recognition and Enforcement of Awards ......................... II. Investment Disputes ......................................................................... A. Investment Dispute Precedents and Trends ............................ 1. DP World Callao S.R.L., P&O Dover (Holding) Limited, and The Peninsular and Oriental Steam Navigation Company v. Republic of Peru (ICSID Case No. ARB/11/21) ........................................................................... 2. Renée Rose Levy and Gremcitel S.A. v. Republic of Peru (ICSID Case No. ARB/11/17) ............................................ 3. Caravelí Cotaruse Transmisora de Energía S.A.C. v. Republic of Peru (ICSID Case No. ARB/11/9) .................. 4. Renée Rose Levy de Levi v. Republic of Peru (ICSID Case No. ARB/10/17) ............................................ 5. Convial Callao S.A. y Compañía de Concesiones de Infraestructura S.A. v. Republic of Peru (ICSID Case No. ARB/10/2) ............................................................................. 6. Tza Yap Shum v. Republic of Peru (ICSID Case No. ARB/07/6) ............................................................................. 7. Aguaytía Energy, LLC v. Republic of Peru (ICSID Case No. ARB/06/13) ................................................................... 8. Duke Energy International Perú Investments No. 1 Ltd. v. Republic of Peru (ICSID Case No. ARB/03/28) ............... 9. Industria Nacional de Alimentos S.A. and Indalsa Perú S.A. (Lucchetti S.A. and Luchetti Perú S.A.) v. Republic of Peru (ICSID Case No. ARB/03/4) ..................................... 10. Compagnie Minière Internationale Or S.A. v. Republic of Peru (ICSID Case No. ARB/98/6) ..................................... 11. Elecnor S.A. and Isolux Corsán Concesiones S.A. v. Republic of Peru .................................................................... B. Investment Treaty Cases ............................................................ 1. Aguaytía Energy, LLC v. Republic of Peru (ICSID Case No. ARB/06/13) ...................................................................
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2. Duke Energy International Perú Investments No. 1 Ltd. v. Republic of Peru (ICSID Case No. ARB/03/28) ............. 3. Tza Yap Shum v. Republic of Peru (ICSID Case No. ARB/07/6) .......................................................................... III. Survey of International Investment Treaty Protections ........... A. Investor Nationality ................................................................ B. Definition of Investment ........................................................ C. National Treatment and Most-Favored-Nation Treatment D. Fair and Equitable Treatment and Full Protection and Security ..................................................................................... E. Free Transfer of Capital .......................................................... F. Expropriation .......................................................................... G. Contracts and Obligations Observance ............................... H. Performance Requirements ................................................... I. Dispute Resolution ................................................................. 17. Uruguay Jonás Bergstein and Alicia Gambetta I. Scope of Investment Protection Legal Framework ................... A. State Responsibility ................................................................. 1. Organization of the State ................................................. 2. State-Owned/Controlled Enterprises ............................. 3. Domestic Law Limits on International Arbitration with the State ..................................................................... B. Domestic Law Investment Protection Framework ............. 1. Foreign Investment Law ................................................... 2. Stabilization Regime ......................................................... 3. Foreign Investment Promotion Agency ......................... 4. UnASeP .............................................................................. 5. COMAP ............................................................................. 6. CND .................................................................................... 7. Uruguay XXI ..................................................................... 8. ANII .................................................................................... 9. International Arbitration Law ......................................... C. International Law Investment Protection Framework ....... 1. ICSID Convention ............................................................ 2. Investment Treaties ........................................................... 3. Recognition and Enforcement of Awards ...................... II. Investment Disputes ..................................................................... A. Investment Dispute Precedents and Trends ........................ B. Investment Treaty Cases ........................................................
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1. “Banco Pan de Azúcar” (Stéphane Benhamou v. República Oriental del Uruguay), Permanent Court of Arbitration (Concluded) .................................................. 2. FTR Holding S.A., Philip Morris Products S.A., and Abal Hermanos S.A. v. República Oriental del Uruguay (ICSID Case No. ARB/10/7) (Pending) ......................... III. Survey of International Investment Treaty Protections ........... A. Investor Nationality ................................................................ 1. Individuals ......................................................................... 2. Legal Entities ..................................................................... B. Definition of Investment ........................................................ C. National Treatment and Most-Favored-Nation Treatment D. Fair and Equitable Treatment and Full Protection and Security ..................................................................................... E. Free Transfer of Capital .......................................................... F. Expropriation .......................................................................... G. Contracts and Obligations Observance ............................... H. Performance Requirements ................................................... I. Dispute Resolution ................................................................. 18. Venezuela Omar E. García-Bolívar and Eduardo Porcarelli I. Scope of Investment Protection Legal Framework ................... A. State Responsibility ................................................................. 1. Organization of the State ................................................. 2. State-Owned/Controlled Enterprises ............................. 3. Domestic Law Limits on International Arbitration with the State ..................................................................... B. Domestic Law Investment Protection Framework ............. 1. Foreign Investment Law ................................................... 2. Stabilization Regime ......................................................... 3. Foreign Investment Promotion Agency ......................... 4. International Arbitration Law ......................................... C. International Law Investment Protection Framework ....... 1. ICSID Convention ............................................................ 2. Investment Treaties ........................................................... 3. Recognition and Enforcement of Awards ...................... II. Investment Disputes ..................................................................... A. Investment Dispute Precedents and Trends ........................ 1. Investment Treaty Cases .................................................. a. Fedax N.V. v. Republic of Venezuela (ICSID Case No. ARB/96/3) .............................................................
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b. Autopista Concesionada de Venezuela, C.A. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/00/5) ... c. Vestey Group Ltd v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/06/4) ........................................ d. GRAD Associates, P.A. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/00/3) ..................... e. Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/04/6) ............. f. I&I Beheer B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/05/4) ........................................ g. Eni Dación B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/4) ........................................ h. Mobil Corporation and Others v. Bolivarian Republic of Venezuela, (ICSID Case No. ARB/07/27) .............. i. ConocoPhillips Company and Others v. The Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/30) .................................................................... j. Brandes Investment Partners, LP v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/08/3) ... k. CEMEX Caracas Investments B.V. and CEMEX Caracas II Investments B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/08/15) ................... l. Gold Reserve Inc. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/09/1) ............................... m. Holcim Limited, Holderfin B.V. and Caricement B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/09/3) ...................................................................... n. Tidewater Inc. and Others v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/10/5) ..................... o. Universal Compression International Holdings, S.L.U. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/10/9) ...................................................................... p. Opic Karimum Corporation v. Bolivarian Republic of Venezuela (ICSID Case No. 10/14) ............................. q. Flughafen Zürich A.G. and Gestión e Ingenería IDC S.A. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/10/19) ............................................................. r. Nova Scotia Power Inc. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/11/1) ............. s. Highbury International AVV and Ramstein Trading Inc. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/1) ...............................................................
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Crystallex International Corporation v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/11/2) .............................................................. u. Longreef Investments A.V.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/5) ..................... v. The Williams Companies, International Holdings B.V.,WilPro Energy Services (El Furrial) Limited and WilPro Energy Services (Pigap II) Limited v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/10) .................................................................... w. Koch Minerals Sàrl and Koch Nitrogen International Sàrl v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/19) ............................................................. x. OI European Group B.V. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/25) ................... y. Tenaris S.A. and Talta – Trading e Marketing Sociedade Unipessoal LDA v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/26) ................... z. Hortensia Margarita Shortt v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/30) ................... aa. Gambrinus, Corp. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/31) ...................................... III. Survey of International Investment Treaty Protections .............. A. Nationality of the Investor ........................................................ B. Definition of Investment ........................................................... C. National Treatment and Most-Favored-Nation Treatment ... D. Fair and Equitable Treatment and Full Protection and Security ........................................................................................ E. Free Transfer of Capital ............................................................. F. Expropriation .............................................................................. G. Contracts and Obligations Observance .................................. H. Performance Requirements ...................................................... I. Dispute Resolution .....................................................................
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Contributors .................................................................................................. Acknowledgments ......................................................................................... Index ...............................................................................................................
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Colombia Hernando Otero and Enrique Gómez-Pinzón1
I. Scope of Investment Protection Legal Framework A. State Responsibility Under international law, States are responsible for the conduct of organs and persons exercising governmental authority. According to Article 4(1) of the International Law Commission’s Articles on the Responsibility of States for Internationally Wrongful Acts (“Articles on State Responsibility”), “[T]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State.” Article 4(2) of the Articles on State Responsibility further explains that, “[A]n organ includes any person or entity which has that status in accordance with the internal law of the State.” As explained by the commentary to the Articles on State responsibility, although the internal law of the State is not necessarily determinative of the issue, it does play a relevant role.2 For that reason, an overview of how the Colombia State is organized is a logical starting point. 1. Organization of the State In accordance with the Colombian Constitution, Colombia is organized as a unitary Republic, administratively decentralized3 and with limited autonomy
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The authors would like to thank Colombian and international attorney Omar Andrés Martínez for his comments. See The International Law Commission’s Articles on the Responsibility of States for Internationally Wrongful Acts (“ILC Articles”), Art. 4, cmt. (11) (explaining that “a State cannot avoid responsibility for the conduct of a body which does in truth act as one of its organs merely by denying it that status under its own law”). Colombian Constitution, Art. 1 (“Colombia is a social state [based on] the rule of law and organized in the form of a unitary republic, decentralized. . . .”).
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for its sub-national entities.4 The country is politically divided into 32 Departments and a capital district, Bogotá D.C.5 Colombia’s central government consists of the organs of the three traditional branches of government, and others that are “autonomous and independent for the execution of other State functions.”6 The legislative branch is composed of the Senate and the Chamber of Representatives only. Departmental assemblies and municipal councils issue general and binding rules in their respective jurisdictions, but are considered part of the executive branch, at an administratively decentralized level of government.7 In turn Colombia’s judicial branch is made up of the State’s high courts – the Constitutional Court (Corte Constitucional), the Supreme Court (Corte Suprema de Justicia), and the Council of State (Consejo de Estado), the Superior Council of Justice Administration (Consejo Superior de la Judicatura) – the Attorney General’s Office (Fiscalía General de la Nación) and the lower civil and administrative courts. For its part Colombia’s executive branch can be divided among organs at the central and decentralized levels of government as follows: • Central Level: This level includes the Presidency, the Vice Presidency, the Superior Councils of Administration (Consejos Superiores de la Administración), ministries (16),8 administrative departments, superintendencies, and administrative units without separate legal personality.9 Some of the more notable organs, for purposes of foreign investment, include the following: Ministry of Mines and Energy (Ministerio de Minas y Energía), Ministry of Commerce, Industry and Tourism (Ministerio de Comercio, Industria y Turismo), Ministry of the Environment and Sustainable Development (Ministerio de Ambiente y Desarrollo Sostenible), Ministry of Information Technologies and Communications (Ministerio de Tecnologías de la Información y las Comunicaciones), the Financial Superintendency (Superintendencia Financiera), the Superintendency of Industry and Commerce (Superintendencia de Industria y Comercio). • Decentralized Level: This level encompasses State organs, State-owned or controlled enterprises, and private entities that have been delegated
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Colom. Const., Art. 287. (“Territorial entities enjoy autonomy for the management of their interests within the limits of the Constitution and the law.”) Colom. Const., Art. 176. Colom. Const., Art. 113. See Law No. 489 (Colombia), Art. 39 (29 Dec. 1998). See Law 1444 (Colombia) (May 4, 2011). See Law 489 of 1998 (Colombia), Art. 38.
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functions which are only in some instances governmental in nature.10 This category will be described in more details in the next section. Colombia’s “other” organs include institutions that require autonomy and independence from the traditional branches of government to perform specialized or technical government functions as follows: • Monetary policy: The Central Bank (Banco de la República); • Regulation of television service: The National Commission for Television (Comisión Nacional de Televisión); • Fiscal and disciplinary control of government: The National Comptroller’s Office (Contraloría General de la República), the Office of the Inspector General (Procuraduría General de la Nación) and the National Ombudsman Office (Defensoría del Pueblo); • Electoral functions: The Electoral National Council (Consejo Nacional Electoral), the National Registry of Civil Status (Registraduría Nacional del Estado Civil); • Educational functions: Public universities; • Environmental functions at the subnational level: Autonomous Regional Corporations (Corporaciones Autónomas Regionales); • Civil service functions: National Civil Service Commission (Comisión Nacional del Servicio Civil). 2. Decentralized State Entities and State-Owned/Controlled Enterprises The executive branch of the Colombian State has been administratively and functionally decentralized in order to delegate a number of functions, industrial and commercial activities and public services that are only in some instances governmental in nature.11 For the sake of simplicity, Colombia’s decentralized entities may be categorized as 1) Decentralized Entities, 2) State Enterprises, 3) Private Enterprises with controlling government stake, and 4) Private enterprises. (1) Decentralized entities: State entities which are created, and to which government authority is delegated by law to exercise regulatory functions in specific sectors.12 These entities are endowed with independent 10 11 12
See Law 489 of 1998 (Colombia), Art. 38. Ibid. Law 489 of 1998 (Colombia), Art. 68. As a result of the exercise of governmental authority and in accordance with the Public Contracting Statute (Law No. 80 of 1993 as amended), contracts with State entities involving an activity that involves a State monopoly, a public service, the exploitation or concession of public goods, or public works shall include
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legal personality, administrative and financial autonomy, and are governed by administrative law – including the Public Contracting Statute.13 Some examples of such state entities are special administrative units and superintendencies with legal personality, and public establishments (establecimientos públicos).14 The more notable of these decentralized state entities, for purposes of foreign investment, include: • The National Hydrocarbons Agency (Agencia Nacional de Hidrocarburos), • The National Directorate for Tax and Customs (Dirección de Impuestos y Aduanas Nacionales), • The National Mining Agency (Agencia Nacional Minera), • The Telecommunications Regulatory Commission (Comisión de Regulación de Telecomunicaciones), • The Electricity and Gas Regulatory Commission (Comisión de Regulación de Energía y Gas), • The Potable Water and Basic Sanitation Regulatory Commission (Comisión de Regulación de Agua Potable y Saneamiento Básico), • The Superintendency for Domiciliary Public Utilities, (Superintendencia de Servicios Públicos Domiciliarios), • The Superintendency for Health (Superintendencia Nacional de Salud), • The Superintendency for Companies (Superintendencia de Sociedades), • The National Infrastructure Agency (Agencia Nacional de Infraestructura). (2) State enterprises: Decentralized State enterprises created by law with controlling State ownership and notable presence in Colombia’s burgeoning sectors for private investment, including the oil and gas, electricity, telecommunications, water and sanitation sectors.15 In
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14 15
provisions: 1) authorizing the State’s unilateral right to terminate, interpret, or modify the contract, or to declare that it has lapsed (caducidad); 2) declaring that the contract is governed by Colombian law even when the Public Contracting Regime allows otherwise, see Public Contracting Statute, as amended, Art. 13); and 3) reverting public goods given for exploitation or granted in concession back to the State, see Public Contracting Statute, as amended, Art. 14. These types of provisions are referred to as exceptional clauses (“claúsulas excepcionales”). Law 489 of 1998 (Colombia), Arts. 68, 81–82. The Public Contracting Statute is encompassed by Law 80 of 1993 (Colombia), as amended, including Law No. 1150 (Colombia) (16 July 2007). See Law 489 of 1998 (Colombia), Arts. 70 and 82. Law 489 of 1998 (Colombia), Art. 68 and Constitutional Court, Ruling C-736 (2007). The conduct of some of these entities and enterprises may attract State responsibility under
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most cases, these enterprises are open market competitors exercising no governmental authority.16 Such State enterprises are endowed by law with independent legal personality and administrative and financial autonomy,17 and engage in industrial and commercial activities exempt from the Public Contracting Regime.18 They include
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international law either as organs of the State or as entities exercising delegated governmental authority. Indeed, according to Article 5 of the Articles on State Responsibility, “[T]he conduct of a person or entity which is not an organ of the State under article 4 but which is empowered by the law of that State to exercise elements of the governmental authority shall be considered an act of the State under international law, provided the person or entity is acting in that capacity in the particular instance.” A major exception to this generalization is when sectoral regulatory commissions (a class of decentralized State entities), require regulated power and gas, telecommunications, and water and sanitation enterprises (which can be either State enterprises or private enterprises with State ownership) to include exceptional clauses (claúsulas excepcionales) in contracts of particular importance to the public interest. See Law No. 142 (Colombia), Art. 31 (11 July 1994) and Law No. 143 (Colombia), Art. 8 (11 July 1994). Under international law there is also an exception worth noting. According to Article 8 of the International Law Commission’s Articles on State Responsibility, State-owned or controlled entities, and entities with some degree of State ownership can in some instances be found to have engaged in conduct attributable to the State when that conduct has been directed or controlled by the State or its organs. Some recent examples include EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13 (UK/Romania BIT), Award (8 Oct. 2009) and F-W Oil Interests, Inc. v. The Republic of Trinidad and Tobago, ICSID Case No. ARB/01/14 (US/ Trinidad and Tobago BIT), Award (3 Mar. 2006), paras. 203, 204 (ruling that the notion of when a State enterprise engages the responsibility of the State “is intended to be a flexible one,” and therefore “although there must be serious doubt as to whether either” of the defendant entities constituted organs of the State, “it is by no means to be excluded that, for some of their individual activity at least, either of those two bodies might, in the particular circumstances established in evidence in this arbitration, have been acting sufficiently within the overall aegis of public authority as to engage the responsibility of the State for international law purposes”). Law 489 of 1998 (Colombia), Arts. 68, 85, 97. Law 1150 of 2007 (Colombia), Art. 14. See also Decree No. 2474 (Colombia), Art. 51 (7 July 2008). Law 1150 of 2007 suggests that in most cases the acts and contracts of Stateowned or controlled enterprises are governed by the Public Contracting Regime (Colombia). Decree 2474 of 2008 more accurately suggests the opposite. According to the Decree, there are express sector-specific exceptions to the Public Contracting Regime, including those for: the public financial and insurance industry, see Law 80 of 1993 (Colombia), as amended, Art. 32, ¶ 1); telecommunications, see Law 80 of 1993, as amended, Art. 38; domiciliary utility services, see Law 142 of 1994 (Colombia), as amended, Art. 31; electricity, see Law 143 of 1993, as amended, Art. 8. It is also worth noting, however, that Art. 13 of Law 1150 of 2007 provides that even entities exempt from the Public Contracting Regime are nevertheless subject to the constitutional principles governing governmental administrative functions and public fiscal management. See Colom. Const., Arts. 209, 267;
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State industrial and commercial enterprises (Empresas Industriales y Comerciales del Estado), and State mixed-capital enterprises (Sociedades de Economía Mixta).19 The more notable among these include the following: • Empresa Colombiana de Petroleos S.A. (Ecopetrol ), the Statecontrolled oil company; and • Empresas Públicas de Medellín E.S.P., a public company owning interests in the infrastructure for local and regional water and sanitation services, power generation, transmission, and distribution, and fixed and mobile telephone services. (3) Private enterprises with controlling State ownership also engage in industrial and commercial activities, governed by private commercial law and sector-specific regulation or supervision. Mixed capital public utility companies (empresas de servicios públicos mixtas)20 are a notable subset of this group. The more important among these for purposes of foreign investment are: • Interconexión Eléctrica S.A. E.S.P. (ISA), the State-controlled provider of power grid infrastructure and connection services;21 • ISAGEN S.A. E.S.P., state-controlled power generation generation (third largest in the country). • Empresa de Energía de Bogota S.A. E.S.P., holding company owning interests in infrastructures for power generation, transmission and distribution at both the local and regional levels, and for natural gas transportation and distribution at the national level; and • Empresa de Telecomunicaciones Bogota S.A. E.S.P., a telecommunications company whose service includes fixed and mobile telephone and the internet.
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see also Law 489 of 1998, Arts. 3, 4. This does not, however, indicate that State-owned or -controlled entities engaged in industrial or commercial activity are exercising delegated government authority. Law 489 of 1998 (Colombia), Arts. 85, 97. According to Law 489 of 1998 (Colombia), other examples include State social enterprises (i.e., health service providers), State public utility (empresas oficiales de servicios públicos domiciliarios) and technological and scientific institutes (institutos científicos y tecnológicos). See Law 142 of 1994 (Colombia), Art. 14.6. ISA, along with Ecopetrol, are exempt from the Public Contracting Regime. Law No. 1118 (Colombia), as amended, Art. 6 (27 Dec. 2006); Law 143 of 1994 (Colombia), as amended, Art. 8.
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(4) Private entities exercising delegated government authority: This category is comprised of private persons to whom governmental authority is delegated to assist the government in the performance of certain governmental functions and services.22 Administrative acts and contract performed as a result of the specific governmental authority are subject to public administrative law and the Public Contracting Regime.23 Notable example include: public notaries, (witness the execution of corporate documents and real property deeds), urban curators (issue building permits), and the Bogota Chamber of Commerce (administers the company registry, and operates a conciliation and arbitration center). 3. Domestic Law Limits on International Arbitration with the State In principle, in Colombia there are no domestic law limitations on the ability of the State to resort to international arbitration. Law 315 of 1996, Colombia’s law on international arbitration, provides that international arbitration will be governed in all respects by the “treaties, conventions, protocols and other international laws acts executed and in force in Colombia.”24 As a result, any intended limitations should have been negotiated and made to appear in each international investment protection treaty.25 Law 315 of 1996 also makes clear that State organs and entities subject to the Public Contracting Regime may resort to international arbitration.26 While the legality under Colombian law of governmental measures are beyond arbitrable subject matter,27 the country’s Constitutional Court has
22 23
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Colom. Const., Art. 210. See also Law 489 of 1998 (Colombia), Art. 110. Law 489 of 1998 (Colombia), Art. 112. See, e.g. Constitutional Court, Ruling C-909 of 2007 (31 Oct. 2007). Law No. 315 (Colombia), Art. 2 (12 Sept. 1996). The provisions of that law, together with other provisions relevant to local and international arbitration, have been integrated by the government in Decree No. 1818 (Colombia) (7 September 1998). For example the prohibition in Decree 1056 of 1993 upon hydrocarbon sector contracts. Law 315 of 1996 (Colombia), Art. 4. This provision modified Art. 70 of the Public Contracting Regime (Colombia). See also Constitutional Court, Ruling SU-174 (14 Mar. 2007), § 3.2. (Note that under Colombian law an “SU,” or “Sentencia de Unificación,” ruling by the Constitutional Court is of particular importance because it integrates the Court’s previous rulings and provides a unified view on an issue or subject.) The Colombian government has expressly noted this limitation in some of its free trade agreements. See, e.g., Free Trade Agreement between Canada and the Republic of Colombia (Lima, 21 Nov. 2008), not yet entered into force (“Colombia – Canada Free Trade Agreement”), Art. 832, para. 1 n. 10; Free Trade Agreement between the Republic of Colombia and the Republics of El Salvador, Honduras, and Guatemala (Medellín, 9 Aug. 2007), entered into force 13 Nov. 2009 (Colombia – Guatemala), 1 Feb. 2010 (Colombia – El Salvador), 27 Mar 2010 (Colombia – Honduras) (“Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement”), Art. 12.29 (4).
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made clear the economic impact of such measures on a contracting party are not: In this Ruling, the Court will reiterate the constitutional doctrine embodied in Ruling C-1436 of 2000, which has just been reviewed, in particular the distinction drawn by the Court between controlling the validity of administrative acts issued as a result of the State’s contracting activity, on the one hand, and the resolution of purely economic disputes arising between the contracting parties, whether by reason of such administrative acts or because of other circumstances related to the execution, development, performance and liquidation of administrative contracts, on the other. It is perfectly feasible in the resolution of these purely economic disputes, for arbitral tribunals to avoid considering the legality or the validity of the administrative acts; if the dispute is economic in nature, the core aspects of its resolution relate to issues such as the existence, content, scope, and conditions of the disputed financial obligation – i.e., if there is a contractual debt, and how it is to be quantified. It is unnecessary to declare the validity of contractual administrative acts contract for purposes of reaching a decision on these points.28
B. Domestic Law Investment Protection Framework 1. Foreign Investment Law Law 9 of 1991,29 Andean Community Decision 291 of 1991,30 and Decree 2080 of 2000, constitute the core of Colombia’s investment regime.31 Law 9 and Decision 291 provide important definitions of what constitutes a foreign “investor” and “investment,” and describe crucial substantive national treatment and free transfer of capital protections that are afforded to them.32 Decree 2080 of 2000 and its subsequent amendments further regulate these matters.33 These definitions and protections inform the scope of similar provisions in international investment treaties effective in Colombia. Decree 2080 governs foreign investment in all economic sectors, but also carves out special regimes for investment in the financial, hydrocarbons, and
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Ruling SU-174, § 3.1.4. Authors’ translation. Law No. 9 (Colombia), (17 Jan. 1991), as amended. Andean Community Decision 291 was signed by Colombia on March 21, 1991, and it came into force on April 4, 1991. The Decision is directly applicable in the country without the need of implementing legislation. Decree No. 2080 (Colombia) (18 Oct. 2000), as amended. Decision 291 (Andean Community) (21 March 1991), Arts. 1, 2, 4, 5 and Law 9 (Colombia), (17 Jan. 1991), as amended, Art. 15. Decree No. 2080 (Colombia) (18 Oct. 2000), as amended. Arts. 2–5, 10, 11.
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mining sectors, and for portfolio investments.34 The Decree creates an open market for foreign investment. Indeed most foreign investment does not require government authorization.35 The only sectors closed in their entirety to foreign investment are “defense and national security activities” and the “processing, disposition and disposal of toxic, dangerous or radioactive waste not produced in the country.”36 2. Legal Stability Regime Colombia created a legal stability contract regime to encourage national and foreign investors to invest or expand existing investments in the country. The regime was created pursuant to Law 963 of 200537 and regulated by Decree 2950 of 2005.38 This framework now must be understood in light of subsequent judicial decisions that have fundamentally altered its effects on investors and their investments. Law 963 of 2005 creates “legal stability contracts” to cover foreign direct investment at or above a threshold amount39 in the following sectors: Tourism; Industry; Agriculture; Forestry for export; Mining; Export processing zones; free zones for commercial and oil production; Telecommunications; Construction; Infrastructure development relating to ports and railways, electricity generation, irrigation, efficient use of water resources; and any other economic activity that is approved by the a legal stability committee. Portfolio investments, in contrast, are expressly excluded.40
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36
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See Decree 2080 of 2000 (Colombia), as amended, Art. 1, 18 (financial sector), 20 (hydrocarbons and mining), 26 (portfolio investment). The special regimes do not discourage foreign investment generally speaking but may require certain conditions be met. Decree 2080 of 2000 (Colombia), Art. 7. The Decree does require foreign investment capital to be registered with the Central Bank. Failure to do so may constitute a foreign exchange violation and may impact the investor’s ability to freely transfer capital abroad. See Decree 2080 of 2000 (Colombia), as amended, Arts. 8, 10. Decree 2080 of 2000 (Colombia), as amended, Art. 6. There are a couple of exceptional limitations. The first, concerning “free-to-air” television concessions in which foreign equity is limited to 40%. See Law No. 182 (Colombia) (20 Jan. 1995) Art. 34, as amended by Law No. 680 (Colombia) (11 Aug. 2001), Art. 1. The second concerning radio broadcasting services in which foreign equity is limited to 25%. See Decree 1447 (Colombia) (31 Aug. 1995), Art. 7. Though Law No. 9 (Colombia) (17 Jan. 1991), Art. 15, provides national treatment for foreign investors, these limitations were introduced subsequently and cannot be considered to have derogated thereafter by Decree 2080, a hierarchically lower norm. Law No. 963 (Colombia) (8 July 2005). Decree No. 2950 (Colombia) (29 Aug. 2005), as amended. The Law sets the minimum required amount of an investment at 7,500 times the monthly minimum wage set yearly by the government. Law 963 of 2005 (Colombia), Art. 2.
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The regime was designed to “guarantee investors who execute” contracts intended to be in force for three to twenty years that: “should any of the norms identified in such contracts as being a determinant of the investment be adversely modified during the time such contracts are in force, the investors shall have the right to continue to be governed by the original norms for the period during which their contract remains in force.”41 In exchange investors must agree to pay the State a premium equal to one percent (1%) of the value of the investment made in each year.42 The regime also provides that such contracts may have an arbitration agreement providing for national arbitration under Colombian law.43 Several elements of the legal stability contract regime have been challenged before Colombia’s Constitutional Court. The Court’s rulings provide important interpretations of the regime that must be taken into account to fully understand its impact on investors and their investments in Colombia. The regime was first challenged for allegedly improperly limiting the power of Congress and the government to modify existing legislation. In its ruling, the Court fundamentally altered the effect of the legal stability regime upon investors. According to the Court, the legal stability regime merely grants investors injured by the modification of the existing legal framework in the contract to seek compensation (rather than barring the modification of the framework itself.) The Court explained it as follows: The Court considers that the impugned article must be understood to mean that, by virtue of legal stability contracts, investors are not guaranteed the unchangeability of the law, but they are assured of the permanence, within the terms of the agreement entered into with the State, of the same legal conditions existing at the time of its execution, in a way that should the mentioned norms be modified and some dispute arise as a result, the possibility to resort to compensatory mechanisms intended to prevent an impact on the economic equilibrium originally agreed to, or ultimately to a judicial decision, is provided. In other words, it is possible that a potential modification of the investment regime in a legal stability contract may take place. But such an event, though not hindering its effectiveness, brings as a consequence that the investors may resort to legal claims they consider convenient. As a result, the incorporation of some legal norms in a government contract does not thereafter inhibit their modification by a competent authority.44
41 42 43 44
Law 963 of 2005 (Colombia), Art. 1. Authors’ translation. Law 963 of 2005 (Colombia), Art. 5. Authors’ translation. Law 963 of 2005 (Colombia), Art. 7. Constitutional Court, Ruling C-320 (24 Apr. 2006), at 20. Author’s translation.
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The legal stability regime was also challenged for allegedly inhibiting the right of parties to the stability contract to agree to international arbitration.45 The claimant supported his claim by citing to, among other sources, Colombia’s accession to the ICSID and New York Conventions. In its ruling, the Court held that the impugned provisions were constitutional mainly because Congress had inherent discretion to regulate the subject matter at issue. The Court provided some discussion on arbitration that is worth highlighting: The Court considers reasonable and proportional that the arbitration tribunal that may be called upon be governed by Colombian laws, because if national norms are the object of the legal stability contracts, it is foreseeable that the eventual disputes that may arise between the parties concern elements of Colombian law that correspond to such an object and it would not be coherent to attempt to resolve them in accordance with law other than national law. . . . But in addition, subjecting an arbitral tribunal to Colombian laws responds to legal stability contract regulations that encourage their execution in Colombia and, above all, performance in Colombian territory, given that they involve ‘the promotion of new investments and the expansion of existing investment in the national territory.’ Under those conditions, the noted requirement, far from being contrary to the Constitution, fully conforms to its mandates, given that the principle that contracts are to be governed by the legal regime of the place of their execution is a rule of frequent application and of undoubtable reasonableness, it is fairly obvious that an arbitral tribunal called to resolve the disputes arising out a legal stability contract should be governed by Colombian laws.46
In its explanations, the Court stated that it was merely seeking to explain why national arbitration governed by Colombian law was a reasonable and proportional dispute resolution mechanism under the Constitution and did not disqualify international arbitration. Many foreign investors may prefer to protect their investment in Colombia through an international investment agreement binding on Colombia and avoid having disputes concerning their investment being consumed in Colombian national courts or arbitration panels as a result of a legal stability contract. In any case, notwithstanding Article 7 of Law 963 of 2005, foreign investors that have executed a legal stability contract with the Colombian government may still submit their disputes to international arbitration pursuant to an international investment agreement. For example, the Colombia – Canada
45
46
The claimant noted Article 7 of Law 963 of 2005 provides that legal stability contracts may include an arbitration agreement to resolve disputes pursuant to national arbitration under Colombian law. Constitutional Court, Ruling C-961 (22 Nov. 2006) at 16–17. Author’s translation. Internal citations omitted.
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Free Trade Agreement provides that a Canadian investor who has executed a legal stability contract with the Colombian government, and who has been injured by its conduct, may: • Submit an arbitration claim “concerning the interpretation of, or compliance by the Colombian government with a Juridical Stability Contract” to an arbitration tribunal seated in Bogotá, operating pursuant to UNCITRAL Arbitration Rules and deciding the dispute under “Colombian law and such rules of international law as may be applicable”;47 or • Submit an international arbitration claim for “a measure taken by Colombia in connection with a Juridical Stability Contract pursuant to the ICSID Convention, the ICSID Additional Facility or the UNCITRAL Arbitration Rules.”48 3. Foreign Investment Promotion Agency Proexport is the Colombian entity tasked with promoting and facilitating foreign investment into the country. To pursue these objectives, Proexport actively informs and assists potential and existing investors on matters regarding Colombia’s investment climate and investment regime through a number of services, including providing country and sectoral information and setting up contacts and meetings with government and private sector representatives.49 Proexport is organized as a non-financial, stand-alone trust governed by private commercial law and administered by a State-controlled trust for foreign trade (Fiduciaria Colombiana de Comercio Exterior S.A., or Fiducoldex). Proexport cannot engage the responsibility of the Colombian State or any of its organs. Moreover, Proexport does not have an independent legal personality that allows it to contract with other parties.50 4. International Arbitration Law Colombia has enacted a law on international arbitration, Law 315 of 1996, which provides an important legal framework for international arbitration in the country. Though this Law does not determine the substantive and procedural terms governing the access of international investors to
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Colombia – Canada Free Trade Agreement, Art. 839, paras. 1, 3. Colombia – Canada Free Trade Agreement, Art. 839, para. 2. For a general view of what this entails, please refer to Proexport’s website for foreign investors, available at www.investincolombia.com.co. Proexport therefore differs markedly from Chile’s Foreign Investment Committee and cannot perform similar functions as those attributed to the Chilean Foreign Investment Committee by MTD Equity Sdn. Bhd. et al. v. Republic of Chile, ICSID Case No. ARB/01/7, Award (25 May 2004).
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international arbitration pursuant to bilateral or multilateral investment treaties, it is important to review it for purposes of the enforcement of investorState arbitral agreements or recognition and enforcement of investor-State arbitral awards. Law 315 of 1996 is largely fashioned after the UNCITRAL Model Law,51 but is very limited in scope and content. Indeed, the law only has four substantive articles, of which only the first two merit comment here. Article 1 follows to some extent Article 1(3) of the Model Law (see Table below). In contrast to the UNCITRAL Model Law, however, Article 1 of Law 315 of 1996 provides that an arbitration will be international only “when the parties so agree.” To some extent, this suggests that parties to an arbitral agreement in Colombia must carefully qualify their agreement as “international.” Although this is not necessarily the prevailing interpretation of Article 1, reluctant parties favoring proceedings before a local arbitration tribunal or court may be tempted to invoke this provision in their favor. Indeed Article 1 has been interpreted in a well-publicized power purchase agreement dispute between TermoRío S.A. E.S.P., a US energy investment company, and Electrificadora del Atlántico S.A. E.S.P. (“Electranta”), a Colombian State-controlled electricity utility, before a national, noninstitutional arbitral panel operating pursuant to ICC Arbitration Rules. Following the issuance of the award in TermoRío’s favor, Electranta successfully set aside the award before Colombia’s highest administrative court, the Council of State. In its ruling, the Council of State found that the dispute between the locally incorporated subsidiary of a US investor and the Statecontrolled utility could not be considered “international” according to the criteria set forth in Article 1, and therefore set aside the arbitral award for having been rendered in proceedings not governed by Colombia’s civil procedure law.52 Article 1 of Law 315 of 1996 requires that an agreement to arbitrate satisfy one of a number of criteria in order to be qualified as “international.”53 These criteria largely follow the UNCITRAL Model Law, with the exception that they frequently refer to “domicile” rather than “place of business.”54
51
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United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration (2006) (“UNICITRAL Model Law”). Council of State (Consejo de Estado), Third Section (Sección Tercera) in Termorío S.A. E.S.P. v. Electrificadora del Atlántico S.A. E.S.P (Case 21041), (1 Aug. 2002). Law 315 of 1996 (Colombia), Art. 1(1)–(5). This difference may have an impact on the question of whether investors under an international investment treaty should bring claims on their own behalf or through a subsidiary, in light of the fact that Colombia has reserved in some of its more recent treaties the right to require the local incorporation of subsidiaries.
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Importantly, Law 315 of 1996 includes an additional criterion for disputes directly and unequivocally affecting the interests of international trade.55 Comparison Table – Law 315 vs. UNCITRAL Model Law Law 315/96, Art. 1(1)–(5)
UNCITRAL Model Law, Article 1
(1) That the parties, at the time of entering an arbitral agreement, have their domiciles in different States.
1(3)(a) [T]he parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States. 1(3)(b) [O]ne of the following places is situated outside the State in which the parties have their places of business: (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected. 1(3)(b) [O]ne of the following places is situated outside the State in which the parties have their places of business: (i) the place of arbitration if determined in, or pursuant to, the arbitration agreement; . . . 1(3)(c) [T]he parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.
(2) That the place of performance of a substantive portion of the obligations directly related to the matter in dispute lies outside of the State in which the parties have their principal domicile.
(3) When the place of the arbitration is outside the State in which the parties are domiciled, as long as this has been agreed to in the arbitral agreement.56 (4) When the subject matter of the arbitral agreement clearly relates to the interests of more than one State and the parties have expressly agreed that this is the case. (5) When the dispute submitted to an arbitral decision directly and unequivocally affects the interests of international trade.
N/A
Article 2 of Law 315 is also important because it provides that “international arbitration in all stages will be governed by the norms in [Law 315 of 1996], and in particular by the provisions of treaties, convention, protocols, and other instruments of international law signed and ratified by Colombia,
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Law 315 of 1996 (Colombia), Art. 1(5). Colombia’s Constitutional Court has interpreted the third criterion under Law 315 of 1996 to require an international element which prevents Colombian nationals involved in a purely domestic transaction from agreeing to international arbitration. See Constitutional Court, Ruling C-347 (1997).
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which will prevail over the relevant rules provided by the Civil Procedure Code.” Article 2 therefore helpfully incorporates by reference all of the dispute settlement provisions in international investment protection treaties binding on Colombia, but it does not provide much additional guidance, potentially creating a number of problematic scenarios.57 Article 2 also provides that “in every case, the parties are free to determine the applicable substantive norms pursuant to which the arbitrators will resolve the dispute. They will also be able to directly, or by reference to a set of arbitration rules, determine everything relating to the arbitral procedure, including the constitution, the conduct, the language, the appointment and nationality of the arbitrators, as well as the seat of the Tribunal, which may be in Colombia or in a foreign nation.”58 Article 2 is therefore the primary safeguard against the interference of national courts in international arbitral proceedings. In a recent case, Empresa Colombiana de Vías Férreas (Ferrovías), a State-owned railway transportation company, attempted to persuade Colombia’s Council of State to set aside an international award by an ICC tribunal seated in Paris. The Council of State twice declared that it lacked jurisdiction to set aside the award.59 Despite the encouraging result in the Ferrovías case, parties’ the attempt to undermine arbitral proceedings by of a local party by resorting to local courts should not come as a surprise.60 Indeed, having a State organ or enterprise as a party to the proceedings may increase the likelihood of having a local court interfere with arbitral proceedings.61 Though such interference may not necessarily be
57
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For example, while Article 3 of Law 315 of 1996 defines a foreign arbitral award to be one which is issued by a tribunal seated outside Colombia, Article 54 of the ICSID Convention provides that Colombia “shall recognize an award rendered pursuant to [the] Convention [. . .] as if it were a final judgment of a court in that State. Law 315 of 1996 (Colombia), Art. 2. Authors’ translation. Council of State (Consejo de Estado), Third Section (Sección Tercera), Empresa Colombiana de Vías Férreas v. Drummond Ltd., (24 Oct. 2003), affirmed (en banc) on 22 Apr. 2004. Local courts of course have an important role to play should Colombia be the seat of arbitration, and, obviously, for the recognition and enforcement of a foreign arbitral award. This has particularly been the case with Acción de Tutela, a constitutionally sanctioned legal recourse to protect a person’s fundamental rights. This extraordinary and summary legal recourse serves an important purpose in the legal system, but is frequently misused to attempt to disrupt, undermine, or frustrate arbitral agreement, proceedings and awards by dissatisfied parties claiming they have been subject to a gross violation of due process (“vía de hecho”). This has been particularly the case with national arbitration. For example Colombia’s Constitutional Court has recently annulled a national arbitral award rendered in favor of Telefónica Móviles de Colombia S.A., a Spanish-owned telecommunications investment company. See Constitutional Court, Ruling T-058 (2 Feb. 2009) Interestingly, Acciones de Tutela has not proven to be as effective when employed by successful arbitral claimants to avoid having the arbitral award set aside. See Constitutional Court, Ruling
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binding on an international tribunal seated outside Colombia, it should not be ignored as it may have an impact if the award is to be recognized and enforced in Colombia. C. International Law Investment Protection Framework Colombia is a party to a number of international conventions and treaties governing the promotion and protection of foreign investments. These international instruments have been ratified with little guidance on how their provisions are interpreted in light of other national legislation, thereby creating uncertainty on how they will be interpreted by local courts. 1. ICSID Convention Colombia signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”) on May 18, 1993, and the country’s legislature approved the Convention through the enactment of Law 267 of 1996. The ICSID Convention, together with its implementing legislation, was found to be constitutional by the Constitutional Court62 and entered into force for Colombia on August 14, 1997.63 Colombia has not taken any measures, notifications or designations under Articles 25(1), (3), (4), 54(2), 68, 69, or 70 of the Convention. 2. Investment Treaties with Dispute Resolution Provisions (March 2011) Colombia has signed, ratified or is a party to the following agreements that provide investor-state dispute resolution procedures:64
62 63
64
T-839 (12 Aug. 2005). That said, there are a number of encouraging results recently that show that Colombian courts are rejecting this type of tactic when ruling on the recognition and enforcement of foreign arbitral awards. In a dispute between FAI Insurance Limited and Agrícola de Seguros, a number of Colombian courts, including the Constitutional Court, refused Agrícola de Seguros’ attempt to set aside the Supreme Court’s recognition of the foreign judgment. See Constitutional Court, Ruling T-716 (16 Dec. 1996); Constitutional Court, Auto 037 (9 Oct. 1997). See also Constitutional Court, Ruling T-557 (26 May 2005), § 4.2.3. Constitutional Court, Ruling C-442 (19 Sept. 2006). Decree No. 2783 (Colombia) (20 Nov. 1997). See also ICSID Secretariat List of Contracting States and other signatories available on the institutional website. Colombia is a party and has negotiated other international agreements that contain provisions on the treatment of investment. For example Colombia is in the process of ratifying an agreement with the European Free Trade Association – EFTA that has limited scope. In addition, Colombia has reportedly has reached agreement on a bilateral investment treaty with Korea that has yet to be signed, and is in on-going free trade negotiations other countries.
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Colombia’s International Investment Protection Instruments Instruments
Date of Signature
Entry into Force
Colombia – Mexico Free Trade Agreement or G-2 Agreement (Chapter XVII)65 Colombia – Peru Bilateral Investment Treaty67
June 13, 1994 June 11 and 13, 2011 (Protocol) April 26, 1994 May 7, 2001 (Amending Protocol) December 11, 2007 (New Agreement)69
January 1, 199566 Pending
65
66
67
68
69
March 21, 200468 Pending
Free Trade Agreement between the United Mexican States and the Republic of Colombia. The Agreement, originally named the G-3 Treaty, was denounced by Venezuela on May 31, 2006. In accordance with Article 23.8.1 of the Treaty, the denunciation took effect 180 days later, on November 20, 2006. After Venezuela’s withdrawal, the Treaty was accordingly renamed the G-2 Treaty. The text of the Treaty and other related information are available at the Organization of American States (OAS) Foreign Trade Information System website (accessed 29 June 2010). The Agreement was approved by the Colombian Congress with the issuance of Law 172 of 1994. See Law No. 172 (Colombia) (12 Dec. 1994). On December 31, 1994, through the enactment of Decree 2900, the President of Colombia exercised his constitutional prerogative to give the treaty provisional application. The Colombian Constitutional Court ruled the Treaty was constitutional on April 25, 1995. See Constitutional Court, Ruling C-178 (25 Apr. 1995). Agreement between the Republic of Colombia and the Republic of Peru for the Reciprocal Promotion and Protection of Investments (Lima, 26 Apr. 1994) (“Colombia – Peru Bilateral Investment Treaty”). The Colombia – Peru Bilateral Investment Agreement, its Protocol and its Additional Amending Protocol have been in force between the Parties since March 21, 2004. The Agreement and the Protocol were signed in Lima on April 26, 1994, and approved by the Colombian Congress by the enactment of Law 279 of 1996. See Law No. 279 (Colombia) (13 May 1996). Thereafter, however, the country’s Constitutional Court ruled that the instruments were partially unconstitutional. The Court ruled that Article 7 of the Agreement overlooked the fact that Article 58 of the Colombian Constitution (later amended) authorized expropriation without compensation in exceptional circumstances. See Constitutional Court, Ruling C-08 (23 Jan. 1997). The governments of Colombia and Peru subsequently negotiated an Additional Amending Protocol, signed on May 7, 2001. The Additional Amending Protocol was approved by Congress through the enactment of Law 801 of 2003 and ruled constitutional by the Constitutional Court on October 21, 2003. See Law No. 801 (Colombia) (18 Mar. 2003) and Constitutional Court, Ruling C-961 (21 Oct. 2003) respectively. On December 11, 2007, Colombia and Peru signed a new agreement. This new treaty will derogate the existing Agreement and its additional Protocols. The new agreement was approved by Colombia’s Congress by Law 1342 of 2009. See Law No. 1342 (Colombia) (31 July 2009). The Constitutional Court ruled the Treaty was constitutional on May 19, 2010. See Constitutional Court, Ruling C-377 (19 May 2010). It is unclear as of March 2011 if Colombia has notified Peru of the completion of its ratification procedure as required by
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(cont.) Colombia’s International Investment Protection Instruments
Date of Signature
Entry into Force
Colombia – Spain Bilateral Investment Treaty70 Colombia – Chile Free Trade Agreement (Chapter 9)72 Colombia – Switzerland Bilateral Investment Treaty73 Colombia – El Salvador, Guatemala, Honduras
March 31, 2005
September 22, 200771
November 27, 2006
May 8, 2009
May 17, 2005
October 6, 200974
August 9, 200775
November 12, 2009 (Guatemala)76
70
71
72
73
74
75
76
the agreement. In any case the terms of the agreement (art. 41) provide for its provisional application subject to certain limitations for purposes of dispute settlement with investors. Agreement between the Republic of Colombia and the Kingdom of Spain for the Reciprocal Promotion and Protection of Investments (Bogotá, 9 June 1995) (“Colombia – Spain Bilateral Investment Treaty”). The Agreement was approved by the Colombian Congress on July 31, 2006. See Law No. 1069 (Colombia) (31 July 2006). It was then submitted to the Colombian Constitutional Court, which found the Agreement constitutional in Ruling C-309 of 2007. See Constitutional Court, Ruling C-309 (3 May 3 2007). Colombia and Spain notified each other on July 24, 2007 and January 11, 2006, respectively, that ratification had been completed. Consequently, the Agreement entered into force on September 22, 2007. See Decree No. 383 (Colombia) (12 Feb. 2008). According to Article 13(1) of the Colombia – Spain Bilateral Investment Treaty, it would enter into force 60 days after both Parties notified each other that they had completed the steps required for ratification. Free Trade Agreement between Colombia and Chile (Santiago, 27 Nov. 2006), entered into force 8 May 2009 (“Colombia – Chile Free Trade Agreement”). The Agreement was approved in Colombia by Congress through the enactment of Law 1189 of 2008 and thereafter and declared constitutional by the Constitutional on January 28, 2009. See Law No. 1189 (Colombia) (28 Apr. 2008) and Constitutional Court, Ruling C-031 (28 Jan. 2009) respectively. Chile and Colombia notified each other that their respective ratification had been completed on April 15, 2008, and March 9, 2009, respectively, and the Agreement officially entered into force on May 8, 2009. See Decree No. 2142 (Colombia) (8 June 2009). According to Article 22.3 of the Agreement, the instrument would enter into force 60 days after both parties notified the other party that they had completed the necessary steps for ratification. Agreement between the Republic of Colombia and the Swiss Confederation for the Promotion and Protection of Investments (Bern, 17 May 2005), entered into force 6 Oct. 2009 (“Colombia – Switzerland Bilateral Investment Treaty”). The Agreement was signed and approved by the Colombian Congress via Law 1198 of 2008. See Law No. 1198 (Colombia) (6 June 2008). The agreement was then submitted to the Constitutional Court, which found it constitutional on March 11, 2009. See Constitutional Court, Ruling C-150 (11 Mar. 2009). The Agreement entered into force on October 6, 2009. See Decree No. 4309 (Colombia) (5 Nov. 2009). The agreement was approved by the Colombian Congress on June 30, 2008. See Law No. 1241 (Colombia). (30 June 30 2008). The Agreement and its approving legislation were subsequently deemed to be constitutional by the Constitutional Court. See Constitutional Court, Ruling C-446 (8 July 2009). Decree No. 4765 (Colombia) (3 Dec. 2009).
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(cont.) Colombia’s International Investment Protection Instruments
Date of Signature
Free Trade Agreement (Chapter 12) Colombia – United Kingdom Bilateral Investment Treaty79 Colombia – Cuba Bilateral Investment Treaty82 77 78
79
80
81
82
83
March 9, 1994 March 17, 201081 (revised) July 16, 1994
Entry into Force February 1, 2010 (El Salvador)77 March 27, 2010 (Honduras)78 Pending80 Pending Pending83
Decree No. 585 (Colombia) (24 Feb. 2010). Decree No. 2051 (Colombia) (8 June 2010). This Decree formally decrees the Free Trade Agreement between the Republic of Colombia and the Republics of El Salvador, Guatemala and Honduras entry into force for Colombia (Art. 1). Agreement between the Republic of Colombia and the United Kingdom of Great Britain and Northern Ireland for the Promotion and Protection of Investments (London, 9 Mar. 1994), not yet entered into force. It has been wrongly suggested the agreement is already in force. See, e.g. OAS SICE website, available at http://www.sice.oas.org/ctyindex/COL/COLBITs_e.asp. (accessed 24 June 2010). This error results from confusing the date of the agreement’s approval in the Colombian Congress with the agreement’s entry into force in Colombia. After being signed by the two governments, the Agreement was approved by the Colombian Congress on December 29, 1995. See Law No. 246 (Colombia) (29 Dec. 1995). In 1996, however, the Constitutional Court concluded in Ruling C-358 that the agreement was partly unconstitutional. The Court held that Article 6 of the Agreement, which concerns nationalization and expropriation, ignored Article 58 of the Colombian Constitution, which then allowed Congress to exempt the Colombian State’s obligation to pay compensation for such actions on the grounds of public interest and equity. See Constitutional Court, Ruling C-358 (14 Aug. 1996). London and Bogotá did not take any steps to renegotiate the Agreement after the ruling. Colombia’s Congress, however, later amended Article 58 of the Constitution to eliminate the possibility of expropriation without compensation. On March 17, 2010, Colombia and the United Kingdom signed a revised investment treaty in Bogotá, which has yet to be ratified. Agreement between the Republic of Colombia and the Republic of Cuba for the Promotion and Protection of Investments (Bogotá, 16 July 1994), not yet entered into force (“Colombia – Cuba Bilateral Investment Treaty”). The text of the agreement can be found at the Andean Community (Comunidad Andina) website, available at http://www.comunidadandina.org/inver siones/Acuerdos%20BIT/Colombia/Colombia%20-%20Cuba.pdf (accessed 30 June 2010). Following approval by the Colombian Congress through Law 245 of 1995, the Colombia – Cuba Bilateral Investment Agreement was submitted to Colombia’s Constitutional Court, which then ruled Article 7 of the Agreement (requiring compensation to be paid in all cases of expropriation ) to be unconstitutional. See Law No. 245 (Colombia) (29 Dec. 1995) and Constitutional Court, Ruling C-379 (22 Aug. 1996) respectively. The Court reasoned that Article 7 violated Article 58 of Colombia’s Constitution, which, as discussed above, then allowed Congress to determine, on the basis of equity and the public interest, whether a given
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(cont.) Colombia’s International Investment Protection Instruments
Date of Signature
Entry into Force
Colombia – United States Free Trade Agreement84 (Chapter 10) Colombia – Canada Free Trade Agreement86 (Chapter 8) Colombia – China Bilateral Investment Treaty88 Belgium/Luxembourg Bilateral Investment Treaty89 India Bilateral Investment Treaty
November 22, 2006
Pending85
November 21, 2008
Pending87
November 22, 2008
Pending
February 4, 2009
Pending90
November 10, 2009
Pending
84
85
86
87
88
89
90
expropriation warranted compensation. The Colombian government apparently took no Article 58 of the Colombian Constitution was later amended. This treaty has not been renegotiated. The Colombia – United States Trade Promotion Agreement (Washington, 22 Nov. 2006), not yet entered into force (“Colombia – US Free Trade Agreement”). The text of the Agreement is available both in English and Spanish at the United States Trade Representative website, available at http://www.ustr.gov/trade-agreements/free-trade-agreements/ colombia-fta (accessed 30 June 2010). A Protocol of Amendment to the Agreement was executed on June 28, 2007. The Colombian Congress approved the Agreement and Protocol of Amendment. See Law No. 1143 (Colombia) (4 July 2007) and Law No. 1166 (21 Nov. 2007). The Constitutional Court thereafter ruled the instruments to be constitutional. See Constitutional Court, Rulings C-750 (24 July 2008), Ruling C-751 (24 July 2008). The United States has yet to ratify the agreement. Agreement between the Republic of Colombia and Canada (Lima-Peru, 21 Nov. 2008), not yet in force, (“Colombia – Canada FTA”). Colombia’s Congress approved the Agreement on December 9, 2009. See Law No. 1363 (Colombia) (9 Dec. 2009). The Constitutional Court ruled the Agreement was constitutional on August 3, 2010. See Constitutional Court, Ruling C-608 (3 Aug. 2010). Bilateral Agreement for the Promotion and Protection of Investments between the Government of the Republic of Colombia and the Government of the People’s Republic of China (Lima, 22 Nov. 2008), not yet entered into force (“Colombia – China Bilateral Investment Treaty”). Agreement between the Republic of Colombia and the Belgo-Luxembourg Economic Union for the Reciprocal Promotion and Protection of Investments (4 Feb. 2009), not yet entered into force. As the date of writing neither side has taken all of the necessary steps to ratify the agreement. Belgium has suspended its ratification of this treaty due to domestic political pressure concerning working conditions in Colombia. See Luke Eric Peterson, “Belgian Ratification of Colombia BIT Suspended in Face of Labour Protest,” IAReporter.com, 16 June 2010, available at http://www.iareporter.com/articles/20100616_1 (accessed 15 July 2010).
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3. Recognition and Enforcement of Awards Pursuant to the dispute resolution provisions in the country’s international investment treaties, in the event of an investment dispute involving Colombia, an international tribunal may be convened pursuant to the ICSID Convention, the ICSID Additional Facility Rules, or the UNCITRAL arbitration rules. The ICSID Convention provides disputing parties with a distinct advantage in the recognition and enforcement of awards.92 In contrast, nonICSID Convention awards have to be recognized in Colombian courts to be enforced. Colombia is a party to a number of international agreements and conventions on the recognition and enforcement of foreign arbitral awards. In practice the provisions on the recognition (exequatur) of foreign judgment or awards by the Colombia’s Supreme Court in the Civil Procedure Code must also be taken into account.93 The more significant instruments in force in Colombia regarding the recognition and enforcement of international arbitral awards are as follows:94 • New York Convention:95 Colombia acceded to the New York Convention on December 24, 1979,96 and the legislature ratified the Convention on September 25, 1979, through the enactment of Law 37 of 1979.97 Colombia ratified the Convention with a declaration stating: “This State will apply the Convention only to recognition and enforcement of awards made in the territory of another contracting State.”98 The ratification law, however,
92
93
94
95
96
97 98
Article 54 of the ICSID Convention provides that Colombia “shall recognize an award rendered pursuant to [the] Convention [. . .] as if it were a final judgment of a court in that State.” The adherence of Colombia’s court to this international obligation has yet to be tested. See Law 315 of 1996 (Colombia), Art. 2. See also Empresa Colombiana de Vías Férreas v. Drummond Ltd, Consejo de Estado, Sección Tercera, October 24, 2003. Affirmed (en banc) on April 22, 2004. Colombian Civil Procedure Code, articles 693–695 govern the recognition and enforcement of foreign arbitral awards. See generally, MONROY Cabra, Marco Gerardo, “El Arbitraje Internacional en Colombia.” [“International Arbitration in Colombia”]. In: Revista Iberoamericana de Arbitraje y Mediacón, available at www.servilex.com.pe/arbitraje/estrado.php (accessed 30 June 2010). Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) 330 U.N.T.S. 3, entered into force 7 June 1959 (“New York Convention”). “Status of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards,” UNCITRAL website, available at http://www.uncitral.org/uncitral/en/uncitral_ texts/arbitration/NYConvention_status.html (accessed 30 June 2010). Law No. 37 (Colombia) (25 Sept. 1979). See the UNCITRAL website, Status of the New York Convention: http://www.uncitral.org/ uncitral/en/uncitral_texts/arbitration/NYConvention_status.html.
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was later declared unconstitutional for procedural reasons, and a second law, Law 39 of 1990, was enacted in its place.99 • Panama Convention:100 Colombia signed the Panama Convention on January 30, 1975 and ratified it through the enactment of Law 44 of 1986.101 The country deposited its instruments of ratification with the General Secretariat of the Organization of American States on December 29, 1986.102 In accordance with Article 10 of the Panama Convention, the Convention entered into force with respect to Colombia thirty days after, on January 28, 1987. • Inter-American Convention on Extraterritorial Validity of Foreign Judgment and Arbitral Awards:103 Colombia signed the Convention on May 8, 1979, and ratified it through the enactment of Law 16 of 1981.104 Colombia’s instruments of ratification were deposited with the General Secretariat of the Organization of American States on September 10, 1981.105 In accordance with Article 11 of the Montevideo Convention, the Convention entered into force thirty days later, on October 10, 1981. Colombian judicial precedents on the recognition and enforcement of foreign judgments or awards are scarce. A number of country overviews on arbitration in Colombia tend to cite only a limited number of precedents, in many cases dating back to 1992.106 The most notable and recent precedent on the exequatur process in Colombia has been the Colombian Supreme Court’s recognition in 2004 of a
99 100
101 102
103
104 105
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Law No. 39 (Colombia) (20 Nov. 1990). Inter-American Convention on International Commercial Arbitration (Panama City, 30 Jan. 1975), 1975 O.A.T.S. 42, 1438 U.N.T.S. 248, entered into force 16 June 1976 (“Panama Convention”). The English version of the Convention is available at the Organization of American States Department of International Law website, available at http://www.oas .org/juridico/english/treaties/b-35.html (accessed 11 July 2010). Law No. 44 (Colombia) (19 Sept. 1986). Organization of American States, Department of International Law website, available at http://www.oas.org/juridico/english/sigs/b-35.html (accessed 14 July 2010). Inter-American Convention on Extraterritorial Validity of Foreign Judgment and Arbitral Awards (Montevideo, 8 May 1979) 1439 U.N.T.S. 90, entered into force 14 June 1980 (“Montevideo Convention”). The English version of the Montevideo Convention is available at the Organization of American States Department of International Law website, available at http://www.oas.org/juridico/english/treaties/b-41.html (accessed 11 July 2010). Law No. 16 (Colombia) (22 Jan. 1981). Organization of American States Department of International Law website, available at http://www.oas.org/juridico/english/sigs/b-41.html (accessed 6 July 2010). A number of overviews cite to Sunward Overseas v. Servicios Marítimos Limitada Semar, a decision of November 1992.
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judgment – not an arbitral award – rendered in Portugal in a case concerning a foreign company, García Fernandes Internacional Importaçâo e Exportaçâo S.A., and a domestic company, Productos de Colombia S.A. (Prodeco). The Supreme Court of Colombia granted recognition of the judgment against Prodeco. Though the case did not involve an arbitral award, the Supreme Court notably refused to revisit the merits of the case, and dismissed Prodeco’s argument that the foreign judgment violated Colombian public order because it ordered the payment of default interest from a date other than the date on which the judgment became enforceable. In its reasoning, the Court narrowly construed the notion of public policy objection as follows: In regards to respecting the rules of internal public order, it is important to note that this requirement does not translate into requiring decisions rendered by foreign courts to abide by all of the mandatory rules that are part of Colombian substantive law, as suggested by the opposing party, as this would be the equivalent of saying that, at least in part, the decision had to be issued in accordance with local law – an argument that contradicts the very essence of exequatur as a necessary procedure to grant enforceability in Colombia to judgments issued in a foreign country and pursuant to the law in force in the country in which the dispute arose. .... The notion of public policy, therefore, should only be used to prevent a foreign judgment or law from being recognized when it contradicts fundamental principles. For this reason, [legal] doctrine has indicated that there is no disadvantage for a country to apply foreign laws that, while differing from its own laws, do not clash with the basic principles of its institutions. However, when a foreign law, or the judgment that applies it, is based on principles that are not only different but also contrary to the fundamental institutions of the country in which they are intended to apply, the judges of the State may, in exceptional cases, refuse to enforce the foreign law or ruling that departs from that community of principles.107
The Prodeco case was also notable because following the Supreme Court’s recognition of the judgment, Colombia’s Constitutional Court also rejected an extraordinary motion (“tutela”) to set aside the recognition and endorsed the Supreme Court’s narrow reading on the issue of public policy.108
107
108
Supreme Court, Civil Appeals Chamber, August 6, 2004, pgs. 6–7 (Justice Edgardo Villamil Portilla). Authors’ translation. Constitutional Court, Ruling T-557 (26 May 2005), §4.2.3.
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II. Investment Disputes A. Investment Dispute Precedents and Trends To date, no international arbitral claims have been brought against Colombia under an international investment protection treaty and pursuant to the ICSID Convention, the ICSID Additional Facility Rules or the UNCITRAL Arbitration Rules. There are several reasons, particular to Colombia, which may help to explain this situation. First, the State has a limited number of international investment agreements in force. Second, most of the country’s international investment treaties are fairly recent. For example, the bilateral investment agreement with Spain has been in force only since September 2007, even though Spanish companies have been major players in Colombia’s investment history since the 1990s. Colombia also only recently came to agreement with the United States on investment promotion and protection, as part of the negotiations for the Colombia – US Free Trade Agreement, even though US nationals have been responsible for the greater portion of foreign investment into Colombia in recent years. Third, some of Colombia’s earlier investment frameworks were limited in scope. For example the Andean Community’s Decision 291 and the Colombia’s G-2 treaty with Mexico do not contain fair and equitable treatment, full protection, or observance of obligations provisions. Decision 291 also does not provide a dispute resolution mechanism for foreign investors. Finally, a number of Colombia’s more attractive foreign investment sectors have very recently been liberalized, with former State monopolies being unbundled and privatized. This is particularly true in the hydrocarbons sector. Indeed, during the past years the overwhelming majority of foreign investment into Colombia has been in the oil and gas, and mining sectors.109 B. Investment Treaty Cases As discussed above, Colombia has not been a party to any international arbitration claims brought by foreign investors pursuant to an international investment treaty.
109
For the latest figures, refer to the Colombian government’s website for prospective foreign investors, available at www.investincolombia.com.co (accessed 7 July 2010).
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III. Survey of International Investment Treaty Protections A. Investor Nationality The nationality provisions in Colombia’s various bilateral investment treaties (BITs) and free trade agreements (FTAs) generally have similar rules. The nationality of natural persons is determined in accordance with the laws of each Party.110 The nationality of juridical persons is determined by the place of incorporation.111 There are, however, some differences worth noting, mainly relating to dual nationality of natural persons and ownership or control of juridical persons by nationals of non-parties to the agreement or treaty, who do not have substantial business activity in the country of incorporation. The specific differences are as follows: (1) The Colombia – Mexico Free Trade Agreement (G-2 Treaty) includes a denial of benefits provision for juridical persons owned in their majority or controlled by third party nationals who have no substantial business activity in the country of incorporation.112 The denial however, must be notified and consulted with the investor’s home country. (2) The Colombia – Spain Bilateral Investment Treaty protects the investments of dual nationals which are not located in the country of the dual national’s effective nationality, defined in the treaty as the country where the investor maintains full political links and habitual residence.113 (3) The Colombia – Chile Free Trade Agreement similarly only protects the investments of dual nationals which are not located in the country of the dual national’s effective and dominant nationality.114 The Agreement also has a denial of benefits provision covering juridical persons owned or controlled by third-party nationals or nationals of the investment’s host country, who have no substantial business activity in the country of the juridical person’s nationality.115 The denial is subject to consultations with the investor’s home country.
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111
112 113 114 115
In Colombia, nationality is governed by Article 96 of the Constitution and Law No. 43 of February 1, 1993. The country allows its nationals to be nationals of other countries as well. According to Law 43, the nationality of adults is evidenced by the government-issued citizenship card (Cédula de Ciudadanía). In Colombia, certificates of existence and representation (Certificados de Existencia y Representación) issued by the chamber of commerce of the relevant jurisdiction are prima facie evidence of a legal person’s incorporation and standing. G-2 Treaty, Arts. 17–11. Colombia – Spain Bilateral Investment Treaty, Arts. 11(4), (5). Colombia – Chile Free Trade Agreement, Art. 9.28. Colombia – Chile Free Trade Agreement, Art. 9.12.
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(4) The Colombia – Peru Bilateral Investment Treaty protects the investments of dual nationals which are not situated in the country of effective and dominant nationality.116 The treaty also has a denial of benefits provision for juridical persons owned or controlled by third-party nationals or nationals of the investment’s host country, who have no substantial business activity in the juridical person’s place of incorporation.117 The denial is subject to a requirement of notification to the investor’s home country. (5) The Colombia – Switzerland Bilateral Investment Treaty denies benefits to dual nationals, except those domiciled outside the investment’s host country since the investment was made.118 In addition, the treaty defines “Investor” to include juridical persons of either party who engage in “true” business activity in the country of nationality.119 Finally, the Treaty also protects juridical persons which, although not incorporated in either country, are controlled by their nationals, whether natural or juridical.120 (6) The Colombia – El Salvador, Guatemala, and Honduras Free Trade Agreement protects the investments of dual nationals except in the country of the investor’s effective and dominant nationality.121 In addition, the agreement defines “Investor of a Party” to include juridical persons of either Party that engage in substantial economic activity in the country of nationality.122 The agreement expressly denies benefits to juridical persons owned or controlled by third-party nationals or nationals of the investment’s host country who have no substantial business activity in the juridical person’s country of nationality.123 Finally, the scope of the agreement also covers juridical persons not incorporated in either country, but are controlled by their nationals, whether natural or juridical.124
116 117 118
119 120 121
122
123 124
Colombia – Peru Bilateral Investment Treaty, Section E (defining “Investor of a Party”). Colombia – Peru Bilateral Investment Treaty, Art. 14. Colombia – Switzerland Bilateral Investment Treaty, Protocol, addition to Art. 1, paragraph (2)(a). Colombia – Switzerland Bilateral Investment Treaty, Art. 1(2)(b). Colombia – Switzerland Bilateral Investment Treaty, Art. 1(2)(c). Colombia – El Salvador, Guatemala, and Honduras Free Trade Agreement, Art. 12.1, No. 2 under “Investment.” Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.1–, No. 1(b) under “Investment.” Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.11. Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.1, No. 1(c) under “Investment.”
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(7) The Colombia – China Bilateral Investment Treaty expressly excludes from its protections investments of dual nationals.125 The treaty defines “Investor of a Party” to include juridical persons of either party that engage in substantial economic activity in the country of their nationality.126 The treaty’s definition of “Investor” also includes juridical persons not incorporated in either country but controlled by their nationals, whether natural or juridical.127 (8) The Colombia – US Free Trade Agreement in Chapter 10 protects the investments of dual nationals which are not located in the country of the investor’s effective and dominant nationality.128 The Agreement denies benefits to juridical persons (and their investments) when they are owned or controlled by nationals of a third-party with which a Party to the agreement does not maintain diplomatic relations, or with respect to which a Party has adopted or maintains measures that prohibit investment transactions.129 The agreement also denies benefits to juridical persons owned or controlled by third-party nationals who have no substantial business activity in the place of incorporation.130 (9) The Colombia – Canada Free Trade Agreement protects, in Chapter Eight, the investments of dual nationals which are not located in the country of the investor’s effective and dominant nationality. On the other hand, with regards to investors who are nationals to one Party only, the agreement protects the investments of such investors even if they reside permanently in the investment host country.131 Similar to its US counterpart, the Colombia – Canada free trade agreement denies benefits to juridical persons owned or controlled by nationals of a third-party with which a Party to the agreement does not maintain diplomatic relations, or with respect to which a Party has adopted or maintains measures that prohibit investment transactions.132 Finally, the Agreement denies benefits to juridical persons owned or controlled by third-party nationals who have no substantial business activity in the place of incorporation.133
125 126 127 128 129 130 131 132 133
Colombia – China Bilateral Investment Treaty, Art. 2.2. Colombia – China Bilateral Investment Treaty, Art. 2.1(b). Colombia – China Bilateral Investment Treaty, Art. 2.1(c). Colombia – US Free Trade Agreement, Art. 10.28 (defining “Investor of a Party”). Colombia – US Free Trade Agreement, Art. 10.12(1). Colombia – US Free Trade Agreement, Art. 10.12(2). Colombia – Canada Free Trade Agreement, Art. 838 (defining “Investor of a Party”). Colombia – Canada Free Trade Agreement, Art. 814. Colombia – Canada Free Trade Agreement, Art. 814.
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B. Definition of Investment Colombia’s BITs and FTAs employ an inclusive definition of “investment.” With time, that definition has become increasingly complex, including more categories of illustrative investments but also expressly excluding others. Some earlier treaties defined “investment” in terms of “every type of asset.”134 In one instance, “investment” was defined in terms of “transferred resources,” including but not limited to goods or rights transferred with the purpose of producing an economic benefit.135 The more recent treaties and agreements have introduced additional definitional conditions. For example, the Colombia – Chile Free Trade Agreement defines an “investment” as any type of asset “with the characteristics of an investment, including, at least, the commitment of capital or other resources, the expectations of earnings or profits, and the assumption of risk.”136 This has been echoed by a number of recently negotiated treaties, including the Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, the Colombia – China Bilateral Investment Treaty, and the Colombia – US Free Trade Agreement.137 Some treaties expressly exclude certain transactions from qualifying investments. In some cases, the exclusions are narrow. The Colombia – US Free Trade Agreement, for example, excludes only orders or judgments entered in a judicial or administrative action.138 For its part, the Colombia – Canada Free Trade Agreement also excludes claims to money resulting from cross border sales of goods or services, commercial transaction credits, and public debt operations by a Party or one of its State enterprises.139 Finally the parties to the Colombia – United Kingdom BIT have confirmed their intent to exclude government debt from the definition of “investment.”140
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135 136 137 138 139
140
See, e.g., Colombia – Switzerland Bilateral Investment Treaty, Art. 1(1); Colombia – Spain Bilateral Investment Treaty, Art. 1(2). G-2 Treaty, Art. 17–01. Colombia – Chile Free Trade Agreement, Ch. 9, Art. 9.28. A notable exception is the Colombia – Canada Free Trade Agreement. Colombia – US Free Trade Agreement, Ch. 10, Art. 10.28, n. 15. Colombia – Canada Free Trade Agreement, Art. 838, 838 n. 11. See also Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.1. In contrast, the Colombia – US Free Trade Agreement states that “some forms of debt, such as bonds, debentures, and long-term notes, are more likely to have the characteristics of an investment, while other forms of debt, such as claims to payment that are immediately due and result from the sale of goods or services, are less likely to have such characteristics.” See Art. 10.28 n. 12. May 19, 2009, letter exchanged during negotiation of the Colombia – United Kingdom BIT (signed in March 2010).
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Colombia’s treaties and agreements also indicate that minority interests and indirect ownership or control of local companies are qualifying investments.141 From early on, the G-2 Treaty included as protected investments both shares or interests “in any proportion” of locally-incorporated companies, and local companies owned or “effectively controlled” by the investor.142 Though these issues have lately been the subject of controversy in other jurisdictions, Colombia’s recently negotiated instruments make clear that the country’s views mostly remain unchanged. For example, on the issue of minority interests as qualifying investments, the Colombia – Canada Free Trade Agreement provides that an investment means “an interest in an enterprise that entitles the owner to a share in income or profits of the enterprise.”143 As for indirect investment, a number of treaties concluded by Colombia use similar languages to define “investment” as an asset “owned or controlled, directly or indirectly, by the investor.”144 • Treaty Limitations to Scope of Protected Investments A considerable number of Colombia’s investment protection treaties have a limited scope with respect to investments already existing at the time of the relevant instrument’s entry into force. That scope is already limited by customary international law and treaty principle of non-retroactivity to cover only acts or facts taking place or continuing to exist after a given treaty’s entry into force.145 This is the case with the G-2 Treaty. More recently, the
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Decree 2080 of 2000, Colombia’s foreign investment statute, also provides that the acquisition of interests in a company is an example of direct investment. Decree 2080 of 2000 (Colombia), Art. 3. G-2 Treaty, Art. 17–01, in definition of “Investment,” Letters b), c). Colombia – Canada Free Trade Agreement, Art. 838. See also Colombia – US Free Trade Agreement, Art. 10.28; Colombia – El Salvador, Guatemala and Honduras, Free Trade Agreement, Art. 12.1. Colombia – Chile Free Trade Agreement, Art. 9.28; Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.1; Colombia – US Free Trade Agreement, Art. 10.28. See also Colombia – Canada Free Trade Agreement, Art. 838 (defining “investment of an investor of a Party” to mean “an investment owned or controlled directly or indirectly by an investor of such Party”). See, e.g., Vienna Convention on the Law of Treaties (Vienna, 23 May 1969) 1155 U.N.T.S. 331, entered into force 27 Jan. 1980 (“Vienna Convention”), Art. 28.
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Colombia – Chile,146 Colombia – US,147 and Colombia – Canada free trade agreements have expressly mentioned such a restriction.148 Some of Colombia’s investment protection treaties establish additional limitations. In some cases, the relevant treaty excludes either disputes arising before its entry into force,149 or disputes resulting from facts that occurred before its entry into force.150 In other cases, the relevant treaty excludes both.151 C. National Treatment and Most-Favored-Nation Treatment The national and Most-Favored-Nation treatment provisions are, unsurprisingly, common to all of Colombia’s treaties with little variance. The relevant provisions of each treaty tend to include similar elements, such as those specifying that the treatment shall be “no less favorable” than that afforded “in like circumstances” to its own investors or investors of a third party. There are, however, some aspects to these provisions that are worth highlighting: (a) The majority of modern investment protection treaties specify that the national and most-favored-nation treatment are afforded with respect to all of the various stages of an investment, including the investment’s establishment, acquisition, expansion, management, conduct, operation, and liquidation or other disposition.152 Interestingly, the Colombia – China Bilateral Investment Treaty has excluded the establishment and acquisition phases common to Colombia’s other free trade agreements.153 (b) Some of the more recent treaties expressly state that the most-favorednation treatment does not encompass dispute resolution mechanisms.154 (c) In the Colombia – Canada and Colombia – US free trade agreements, treatment accorded by a Party with respect to a sub-national government
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Colombia – Chile Free Trade Agreement, Art. 9.1 n. 1. Colombia – US Free Trade Agreement, Art. 10.1.3. Colombia – Canada Free Trade Agreement, Art. 801.2. Colombia – China Bilateral Investment Treaty, Art. 11.1. Colombia – Switzerland Bilateral Investment Treaty, Art. 2. Colombia – Spain Bilateral Investment Treaty, Art. 11(1); Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.2.2. This, however, is not the case with the G-2 Treaty, the Colombia – Spain Bilateral Investment Treaty, and the Colombia – Switzerland Bilateral Investment Treaty. Colombia – China Bilateral Investment Treaty, Art. 3. See Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.6.3; Colombia – Canada Free Trade Agreement, Art. 804.3; Colombia – China Bilateral Investment Treaty, Art. 3.3; Colombia – US Free Trade Agreement, Art. 10.4.2 n. 2.
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means treatment no less favorable than the most favorable treatment accorded by that sub-national government.155 (d) A number of Colombia’s free trade agreements and, more recently, the country’s bilateral investment agreement with Peru contain a number of reservations in the form of schedules of non-conforming measures and non-precluded measures. Such schedules frequently encompass exemptions for procurement, subsidies or grants by a Party, including government-supported loans, guarantees, and insurance.156 Andean Community law, directly incorporated and binding in Colombia, also requires national treatment of member country investors.157 The Community Secretariat and the Andean Court of Justice have interpreted the national treatment obligation with respect to the trade of goods in manners which are worthy of attention: (a) Discrimination: Discrimination may involve either differential treatment in similar circumstances or identical treatment in dissimilar circumstances.158 (b) Less favorable treatment: National treatment is the equivalent of providing that a Party must grant imported products from other member countries possibilities to compete which are no less favorable than those afforded to domestic products.159 (c) Differential treatment must be justified: According to the Andean Community Secretariat, “[T]he analysis to determine the existence of discrimination in terms of Article 74 of the Cartagena Agreement must take into account not only the mere normative differentiation among imported and domestic products, but also the rationale for such differentiation and its actual or potential effects. Therefore we must take into account analytical criteria such as fiscal objectivity and neutrality; altered
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Colombia – Canada Free Trade Agreement, Art. 803; Colombia – US Free Trade Agreement, Art. 10.3. See, e.g., Colombia – US Free Trade Agreement, Art. 10.13; Colombia – Canada Free Trade Agreement, Art. 809; Colombia – El Salvador, Guatemala and Honduras, Free Trade Agreement, Art. 12.12. Andean Community Decision 291, Art. 2, provides as follows: “Foreign investors shall have the same rights and obligations as those to which national investors are subject, except as provided for in the national legislation of each Member Country.” Andean Court of Justice, Proceeding 4-AI-96, Official Gazette N. 308 (28 Nov. 1997). Andean Community Secretariat, Resolution No. 453. See also Andean Court of Justice, Proceeding 3-AI-97.
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competitiveness between domestic and imported goods; unfair competition; and protectionist intent, among others. . . .”160 Colombian law, for its part, has addressed the related and constitutionally sanctioned principle of equality at length.161 The country’s Constitution grants foreigners the same civil rights and guarantees that are afforded to nationals.162 The Colombian Constitutional Court has explained that persons in similar circumstances must be treated equally.163 According to the Constitution, however, the right to equal treatment may be conditioned or denied for reasons of public order.164 The Constitutional Court has specifically opined on this issue in regards to foreigners: For purposes of preserving the right to equal treatment, if the limitation is one of those which, for reasons of public order, differences between nationals and foreigners can be established as stated in Article 100 [of the Constitution], it must be specified. If not, whether the distinction drawn by the legislature is constitutionally reasonable treatment under Article 13 [of the Constitution] and in accordance with constitutional jurisprudence must be established. The public order reasons to impose special conditions or deny the exercise of certain civil rights to foreigners cannot be invoked in the abstract, but instead must be invoked specifically by the legislature as restrictions on fundamental rights, and must be (i) express, (ii) necessary, (iii) minimal, (iv) essential, and (v) directed to the achievement of constitutionally legitimate objectives in a democratic society.165
In regards to the notion of “public order,” the Court also clarified that “public order” should be understood to encompass not only “the rules necessary to preserve a peaceful social order in which people can live,” but also “the conditions necessary and essential to ensure the effective enjoyment of everyone’s rights.”166 The Court went on to distinguish “public order” from the notion of “public interest,” stating, “the regulation of economic activities such as mining, or the regulation of a profession . . . does not make them subjects of public order that would allow the legislature to subordinate or deny the rights of foreigners.”167
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Andean Community Secretariat, Resolution No. 237 of 1999. See Colom. Const. Art. 13. For purposes of national treatment of foreign investors, see Law 9 of 1991 (Colombia), Art. 15; Decree 2080 of 2000 (Colombia), Art. 2. Colom. Const., Art. 100. Constitutional Court, Ruling C-150 (2009), §5.4 (citing the Court’s Ruling C-309 of 2007). Colom. Const., Art. 100. Constitutional Court, Ruling C-1058 (2003), at ¶¶ 3.5.2, 3.5.3. Ruling C-1058, at ¶¶ 3.4.1. Ruling C-1058, at ¶¶ 3.4.3.
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D. Fair and Equitable Treatment and Full Protection and Security Colombia does not seem to initially have had a particular policy in regards to the “minimum standard of treatment” provisions in its earlier agreements. The Colombia – Peru Bilateral Investment Treaty, signed in April 1994, provided “fair and equitable treatment,” “full protection and security,” and freedom from “arbitrary and discriminatory measures in accordance with the principles of international law. . . .”168 In contrast, the country’s free trade agreement with Mexico, signed shortly thereafter in June 1994, did not have a “minimum standard of treatment” provision at all. The policy appears to have changed subsequently. In 2005, the country concluded the bilateral investment treaty with Spain, under which investments are to be given “fair and equitable treatment” and “full protection and security,” and unobstructed by “arbitrary and discriminatory measures.”169 A year later, in March 2006, Colombia entered into the investment treaty with Switzerland, under which investments were again accorded “protection” and “fair and equitable treatment,” and shielded from arbitrary and discriminatory measures.170 A new articulation of the noted provision emerged in November 2006, when Colombia signed the free trade agreement with the United States. The Colombia – US Free Trade Agreement accorded covered investments a minimum standard of treatment in accordance with customary international law. The relevant provision states, “[E]ach Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.” The provision further explains that customary international law provides the “minimum standard of treatment required for investments,” and clarifies that “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that standard, or create additional substantive rights.171 That same approach was subsequently replicated in the Colombia – Chile Free Trade Agreement,172 in Colombia’s trade agreement with Guatemala, Honduras and El Salvador,173 in the Colombia – Canada Free Trade Agreement,174 and in the Colombia – China Bilateral Investment Treaty.175 A May 19, 2009, “Understanding” between the UK – Colombia for 168 169 170 171 172 173
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Colombia – Peru Bilateral Investment Treaty, Art. 3. Colombia – Spain Bilateral Investment Treaty, Art. 2(3). Colombia – Switzerland Bilateral Investment Treaty, Arts. 4(1), (2). Colombia – US Free Trade Agreement, Art. 10.5.1, 2. Colombia – Chile Free Trade Agreement, Art. 9.4. Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.4, Nos. 1, 2. Colombia – Canada Free Trade Agreement, Art. 805. Colombia – China Bilateral Investment Treaty, Art. 2.
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its part, stated “fair and equitable treatment” should not be understood as incorporating a stabilization clause.176 Colombian law provides further insight into government conduct that may trigger the liability of the State and constitute a breach of the “fair and equitable” provision in the country’s bilateral investment treaties. To start with, Article 90 of the Constitution provides that the State is financially liable for wrongful conduct attributable to it, caused by acts or omissions of public authorities. It is well established that, in addition to conduct by the administration, Article 90 also encompasses conduct both by the legislative and judicial branches of government,177 and may result both from contractual and extra-contractual activity.178 The State responsibility regime under Article 90 of the Constitution has been explained by the Colombian Constitutional Court as follows: The central elements of the liability regime enshrined in the Constitution are the notions of unlawful damage and its attribution to the State, which is why constitutional jurisprudence has concerned itself with conceptually defining them . . . [U]nlawful damage [has been] defined as one that is not the product of an illegal activity by the State, but instead the harm that is caused to a person who has no legal duty to bear it . . . As a result, ‘the source of the financial responsibility of the State is the damage, which is unlawful not because the author’s conduct is contrary to the law, but because the subject who suffered it does not have a legal duty to bear the injury, which is why it is deemed compensable . . .’179
The Constitutional Court has also explained how this regime would apply in practice, in the face of legitimate government action carried out in the public interest:
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“Understanding on Fair and Equitable Treatment,” joint declaration, 19 May 2009, exchanged during negotiation of the Colombia – United Kingdom BIT (signed in March 2010). The Colombian Constitution, for example, provides that the State shall compensate persons affected by laws (i.e., statutes enacted by Congress) that: expropriate private property (Art. 58), create State monopolies for revenue (Art. 336), or that reserve, for the State in the name of public interest, strategic activities or public services (Art. 365). For an explanation of the differences between the latter two categories, see Constitutional Court, Ruling C-318 (1994). For a more detailed explanation of State responsibility as a result of legislative measure, see Constitutional Court, Ruling C-038 (2006). For its part, Law No. 270 (Colombia) (7 Mar. 1996), Art. 65, in similar terms as the Constitution, provides that the State is financially liable for wrongful conduct attributable to it, caused by acts or omissions of its judicial officers. See also Constitutional Court, Ruling C-285 (2002), §5. See, e.g., Constitutional Court, Ruling 038 (2006). This ruling cites to other rulings of the Constitutional Court and the Council of State (Consejo de Estado). Constitutional Court, Ruling C-038 (2006), §3 (citing the Court’s previous Ruling C-333 (1996)). See also Constitutional Court, Ruling C-285 (2002), §4.
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Indeed, if the Administration undertakes a legitimate [public] work in the public interest (Constitution Art. 1) but does not compensate a person or an identifiable group of persons to whom it has caused clear damage as a result of the work, then the State would be denying the equality of persons with respect to public burdens (Constitution Art. 13), for those who have suffered such a harm should not have to bear it, and [consequently the damage] must be borne jointly by society (Constitution Art. 1) through compensation of the person who has been exceptionally injured. It is therefore a particular damage suffered by the victim in the general interest, requiring consequently that it be borne not by the person but by society through its attribution to the responsibility of the State.180
The Colombian Congress has identified some of the conduct that may trigger the responsibility of the State.181 In similar terms as the Constitution, Law 270 of 1996, on the administration of justice,182 provides the State is financially liable for wrongful conduct attributable to it caused by acts or omissions of its judicial officers.183 The law goes on to identify three scenarios: (a) Defective functioning of the administration of justice: situation in which a person has suffered unlawful damage as a result of the judicial function.184 (b) Judicial error: an act, committed by a person vested with judicial power, that occurs in the exercise of that capacity and in the course of a judicial proceeding, and that materializes in a judgment contrary to law.185 The Constitutional Court has stated that the error at issue must be one part of a “subjective, capricious, arbitrary act that blatantly violates due process; that demonstrates without any shadow of doubt that the principle by which a judge is called to decide in conformity with the nature of the process and the evidence in accordance with the criteria established in law (and not following his or her own will ) has been ignored.”186 The Constitutional Court has ruled that judicial errors by Colombia’s high
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Ruling C-333, at ¶ 9. Indeed, as has been explained above, the responsibility of the State can be triggered by legal conduct that does not involve either intent or negligence on the part of its officials and agents. This proposition has also been explained by the Constitutional Court; see Ruling C-285 (2002), section 4 of the Court’s reasoning. Law No. 270 (Colombia) (7 Mar. 1996). Law 270 of 1996 (Colombia), Art. 65. Law 270 of 1996 (Colombia), Art. 69. Law 270 of 1996 (Colombia), Art. 66. Constitutional Court, Ruling C-037 (1996). Law 270 of 1996 (Colombia), Art. 67, expressly qualifies a judicial error that attracts the responsibility of the State as one in which: 1) the interested party has exhausted available recourses, and 2) the judgment at issue is final.
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courts cannot attract the responsibility of the State, though they may still be judicially reviewed.187 (c) Unjust deprivation of liberty: a situation in which a person has been unjustly deprived of his or her liberty may claim damages against the State.188 While it is not meant to be dispositive of State Responsibility or a comprehensive description thereof, Law 270 of 1996 further suggests intentional or grossly negligent conduct by judicial officers may give rise to State responsibility. It does so by describing the grounds upon which the State may attempt to recover damages from the very officials whose conduct gave rise to the responsibility of the State:189 (1) The violation of rules of substantive or procedural law, resulting from inexcusable error; (2) The issuance of any decision that restricts the physical freedom of persons, other than in cases expressly provided by law, without proper justification; and (3) The arbitrary refusal or unjustified failure to observe the time limits provided in procedural law for the exercise of the duty to administer justice or to perform acts inherent to the post, unless the injury could have been avoided through recourse that the [affected] party failed to exhaust.190 Law 678 of 2001 was also enacted to identify conduct by governmental officials or agents that may attract State responsibility.191 As with Law 270 of 1996, Law 678 of 2001 describes the instances in which the State may recover damages from officials or agents whose conduct has been attributed to the State and has resulted in the State’s payment of compensation. Pursuant to the law, such instances may arise when the official or agent:192 (1) Has abused its power; (2) Has issued a defective administrative act on the basis of a lack of factual assumptions or of an applicable legal rule;
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Ruling C-037. Law 270 of 1996 (Colombia), Art. 68. Law 270 of 1996 (Colombia), Art. 71. The State’s right to recover damages from officials and agents is founded on Article 90 of the Colombian Constitution. Law 270 of 1996 (Colombia), Art. 71. Law No. 678 (Colombia) (3 Aug. 2001). Law 678 of 2001 (Colombia), Arts. 5, 6 (author’s translation). The Spanish text is not clearly drafted, as a result the translation is but an attempt to balance accuracy with clarity.
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(3) Has issued an administrative act under false purposes, deviating from reality or concealing facts that serve as the basis for the decision; (4) Has been found criminally or administratively liable for intentionally causing damages that gave rise to the liability of the State; (5) Has issued in a judicial process a resolution, order or ruling which is manifestly contrary to law; (6) Has manifestly and inexcusably violated the law; (7) Has issued by inexcusable error a decision lacking or abusing the power to do so and that is later annulled; (8) Has omitted, by inexcusable error, the substantial or essential procedures for the validity of administrative acts; (9) Has violated due process with regard to arbitrary detentions and to delay procedural time limits through physical detention. E. Free Transfer of Capital Free transfer of capital provisions appear in every international investment protection treaty signed by Colombia. The relevant provisions generally provide for the free transfer of capital without delay, in freely convertible currency at the market exchange rate. The provisions also frequently allow the host State to restrict the transfer of capital for macroeconomic circumstances, often under the heading of balance of payment difficulties, and for a number of particular scenarios related in most cases to the protection of creditor rights, criminal offences, security market transactions, or the payment of judicial or arbitral proceedings. There are some notable exceptions. For example, neither the Colombia – US Free Trade Agreement nor the Colombia – Canada Free Trade Agreement provides for a balance of payments exception.193 The Colombia – China Bilateral Investment Treaty does not provide for any general or specific exceptions.
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Interestingly, paragraph 1 of Annex 810 of the Colombia – Canada FTA does not provide an exception, but merely states that “Colombia reserves the right to maintain or preserve the value of its currency.” The provision goes on to add that, “[t]hese measures shall not affect outward transfers or foreign direct investment transfers.” Similarly, Article 2203, paragraph 1 provides that “[n]othing in this Agreement shall be construed to prevent a Party from adopting or maintaining measures that restrict transfers where the Party experiences serious balance of payments difficulties . . .,” and subparagraph 5(c) then adds that, “where imposed on transfers covered by Article 810 (Investment – Transfers) and transfers related to trade in goods,” “[r]estrictions imposed on transfers, other than on cross-border trade in financial services” “may not substantially impede transfers from being made in a freely usable currency at a market rate of exchange. . . .” The Colombia – US FTA does however provide special conditions for the dispute settlement provisions for measures
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Colombian law validates the free transfer of capital provisions included in the country’s international treaties. In particular, Law 9 of 1991 provides the following general rule with regards to foreign capital investment: Having made an investment of foreign capital in the country in due manner, the investor shall be entitled to transfer abroad the profits from the investment and to repay the invested capital and capital gains, subject to the limits and conditions specified by the National Government.194
The cited provision is also to some extent more precise than those provided in Colombia’s investment treaties, stating investors are protected from adverse changes but only with respect to the regime in force at the time of the making of the investment: The terms of repayment of the investment and the remittance of profits legally in force at the date of registration of foreign investment cannot be changed in a way that adversely affects the foreign investor, except temporarily when international reserves are equivalent to less than three months of imports.195
F. Expropriation Expropriation provisions, not surprisingly, are ubiquitous in Colombia’s international investment protection agreements.196 From its earliest articulations, the expropriation provisions have been broadly articulated to encompass both direct and indirect expropriation, and to condition the expropriatory measure to international standards. For example, the relevant provision in the G-2 Treaty, negotiated in 1994, established a limitation to the State’s ability to “nationalize or expropriate, directly or indirectly, an investment in its territory, to adopt measures against covered investments, or to adopt
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claimed as restrictive to payments and transfers. See Colombia – US Free Trade Agreement, Annex 10-E. Law 9 of 1991 (Colombia), Art. 15. See also Decree 2080 of 2000 (Colombia) by which the government regulates Law 9 of 1991. Article 10(c) of the Decree restates the same protection as Law 9 of 1991, but qualifies the right to transfer abroad “in freely convertible currency.” Law 9 of 1991, Art. 15, also authorizes the creation of special regimes, including those for the hydrocarbon, mining, and financials sectors. Importantly, however, foreign investors are in all cases afforded national treatment. Law 9 of 1991 (Colombia), Art. 15. See also Decree 2080 of 2000 (Colombia), Art. 11. The country’s earlier agreements containing expropriation allowing for non compensable expropriations provisions were either never ratified (bilateral investment treaties with United Kingdom, Cuba), put on hold (bilateral investment treaty with Peru), or signed with a reservation as a result of constitutional objections. For the last point, see, e.g., G-2 Treaty, Annex to Art. 17.08. As stated above, Article 58 of the Colombian Constitution at the time (later amended for this precise reason) authorized expropriation without compensation by law in exceptional circumstances.
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any measure tantamount to expropriation or nationalization, except: a) for public purpose; b) in a non-discriminatory manner; c) in accordance with the principle of legality [due process of law]; and d) upon the payment of compensation . . .”197 Colombia’s subsequent treaties, including the country’s recent BIT with the People’s Republic of China, have followed similar articulations.198 Colombia’s Constitutional Court has notably opined that rules governing indirect expropriation finds its Constitutional basis not in Article 58 of the Constitution (which deals with expropriation), but in the constitutionally sanctioned principle of legitimate expectations: [Rules limiting] indirect expropriation find their constitutional basis in the principle of legitimate expectations . . . in essence, a legitimate expectation is that the citizen must be able to operate in a stable and predictable legal environment in which he can rely. . . . It is, therefore, necessary that the individual be protected against sudden and unexpected changes made by public authorities . . . Hence the State is, in these cases, under the obligation to provide the affected [person] a reasonable period as well as the resources to adapt to the new situation.199
There are other aspects worth highlighting as follows regarding the expropriation standard: (a) Public purpose: The scope of “public purpose” has shifted over time, but does not seem to reflect a clear policy on the part of the Colombian State. While the G-2 Treaty (signed in 1994) did not provide any guidance to its meaning, the Colombia – Peru Bilateral Investment Treaty, signed that same year, conditioned expropriatory measures to “motives expressly established in the Constitution of each country.”200 Subsequent bilateral investment treaties with Spain and Switzerland also do not provide guidance on treaty terms such as “public use,” “social interest,” or “public interest.”201 The Colombia – Chile free trade agreement merely clarifies that public health, security and the environment were legitimate objectives of “public well being.”202 In contrast, the FTAs signed by Colombia with the United States and Canada reflect a clear policy to link the scope of public purpose to public international law. With similar articulations, the relevant provision
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Colombia – Mexico FTA, articles 17–08:1. Authors’ translation. Colombia’s 1994 bilateral investment treaty with Peru has a different articulation, but similar elements are present. Ruling C-031, § 3.6.10 (finding the Colombia – Chile Free Trade Agreement constitutional). Colombia – Peru Bilateral Investment Treaty, Art. 7(1), Protocol, Ad to article 7(1). Colombia – Spain Bilateral Investment Treaty, Art. 4; Colombia – Switzerland, Art. 6. Colombia – Chile Free Trade Agreement, Ch. 9, Annex C, cl. 3(c) n. 20.
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in each treaty respectively states: “For greater certainty, for purposes of this article, the term ‘public purpose’ refers to a concept in [customary/ public] international law. Domestic law may express this or a similar concept using different terms, such as ‘public necessity,’ ‘public interest,’ or ‘public use.’”203 Other treaties signed by Colombia around the same time do not follow this precedent. The Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, for example, conditions expropriatory measures to reasons expressly provided in the Constitutions of each party. That said both this treaty and the US – Colombia and Colombia – Canada FTAs provide that non-discriminatory measures designed to protect legitimate public welfare objectives, such as public health, security, and the environment protection, may be considered capable of resulting in an indirect expropriation only in exceptional circumstances.204 In terms of municipal law, Article 58 of the Colombian Constitution requires that “public use” (utilidad pública) or “public interest” (interés social) be invoked as a precondition to expropriation. The Constitution also grants Congress the discretion to define the specific circumstances in which such concepts may arise. Law 388 of 1997,205 on land use and planning, is perhaps the primary example of Congress’ exercise of that discretion. Article 58 of that law lists numerous activities which are deemed to be undertaken with public purpose, including public works for health, education, recreation, security, urban renewal, and environmental protection. (b) In accordance with due process of law: As a general rule, Article 58 of the Constitution requires that expropriations be undertaken by court order and upon the prior payment of compensation.206 The Constitutional Court has recently reiterated that it interprets due process of law
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Colombia – US Free Trade Agreement, Art. 10.7.1(a) n. 5; Colombia – Canada Free Trade Agreement, Art. 811, subparagraph 1(a) n. 7. Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.8(1), (3); Colombia – US FTA, Annex 10-B, numeral 3(b); Colombia – Canada FTA, Annex 811, numeral 2(b). See also Colombia – China Bilateral Investment Treaty, Art. 4(2)(c). Law No. 388 (Colombia) (18 July 1997). Article 58 of the Constitution provides an exception to this general rule for situations expressly provided in a legal statute. Law 388 of 1997 (Colombia) on land use and planning is a salient example of such a statue, as it sets forth conditions of “urgency” for administrative expropriation. See Law 388 (Arts. 63–65). Article 59 of the Constitution also relieves the government from payment of prior compensation during a war.
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in an international investment protection treaty to incorporate these requirements.207 (c) Upon the payment of compensation: Every treaty in force in Colombia embraces, in one form or another, “prompt, adequate and effective compensation” for expropriated investments in accordance with “fair market value” (or other determinable value) before the expropriatory measure is taken. Article 58 of the Constitution further requires that compensation be determined after “consulting the interests of the community and those of the affected party.” The Constitutional Court has interpreted these conditions to require the payment of “fair” compensation.208 In the Court’s opinion, as a general rule, “fair” compensation includes both direct economic damages (daño emergente) and loss of profits (lucro cesante), but not moral damages.209 G. Contracts and Obligations Observance Colombia’s international investment protection agreements generally do not contain a contracts or obligations observance clause.210 The only exception is the country’s bilateral investment treaty with Switzerland, which provides: “Each Party shall observe any obligation arising from a written agreement, which concerns a specific investment and which may be relied upon in good faith for the establishment, acquisition or expansion of that investment, between the Party’s central government or agency and an investor of the other Party.”211
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Constitutional Court Ruling C-150, ¶ 5.6 (declaring the Colombia – Switzerland Bilateral Investment Treaty constitutional ). See also Constitutional Court, Ruling C-294 (2002) (declaring the Colombia – Chile FTA constitutional ). Constitutional Court, Ruling C-1074 (2002), §1.1.1.1. There are exceptions to this general rule, including those involving legal expropriations affecting specially protected persons or illegal expropriations. See Constitutional Court Ruling C-1074, §§3.3.1.4, 3.3.1.3. respectively. An illegal or unlawful expropriation under Colombian law gives rise to an entirely different legal regime than that in Article 58 of the Constitution. Specifically, Article 90 of the Constitution provides that the State will be financially liable for the unlawful conduct, and under this regime, the State is required to provide full compensation – including moral damages – to the affected party. As a result, strictly speaking, qualified “investors” under these treaties cannot claim for breach of contract or other specific obligations. This is expressly established in the Colombia – Chile Free Trade Agreement, Art. 9.16.3, and is implicit in other agreements under which investors can only claim for the violation of other substantive protections that have been afforded to them in the relevant agreement. Colombia – Switzerland Bilateral Investment Treaty, Art. 10(2). Authors’ translation of the Spanish original.
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Colombia’s investment protection agreements do not, however, place any limitation on the scope of other substantive protection provisions that may be breach by the government’s conduct. Indeed, all of Colombia’s treaties provide broad and inclusive definitions of “investment” and provide the investor with the right to claim for measures, adopted by a Party to the agreement, which breach obligations provided in the agreement and have resulted in loss or damage.212 As has been detailed previously, Article 90 of the Colombian Constitution encompasses both the contractual and non-contractual liability of the State. Specifically, for government contracts, Article 50 of Law 80 of 1993 provides the following: State entities will be liable for actions, omissions, or wrongful acts attributable to them and that have caused harm to their contractors. In such cases they shall compensate for the diminution in value of the assets, its effects over time, and the profit, benefit or advantage foregone by the contractor.213
H. Performance Requirements Performance requirement provisions (including those specific to senior management or other personnel) appear in most of Colombia’s international investment protection treaties, with some important exceptions.214 There seems to be no clear policy behind this inconsistency. For example, the Colombia – Peru Bilateral Investment Treaty signed in 1994 does not contain such a provision, while the G-2 Treaty signed that same year does. Similarly, while the Colombia – Peru Bilateral Investment Treaty, concluded in 2007, contains a performance requirement provision, the Colombia – China and Colombia – India BITs, concluded contemporaneously in 2008 and 2009, do not. In those treaties with performance requirement provisions, the formulations of those provisions are similar. They usually prohibit a Party to the treaty from establishing performance requirements related to the establishment, expansion or operation of an investment, or conditioning the receipt
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See, e.g., Colombia – Chile Free Trade Agreement, Art. 9.16.1(a). Some of the more recently negotiated agreements additionally provide the investor with the right to claim for breach of obligations adopted by the Party in other instruments, such as investment agreements, investment authorizations, or treaty chapters. See Colombia – US Free Trade Agreement, Art. 10.16.1; Colombia – Canada Free Trade Agreement, Art. 819. Law 80 of 1993 (Colombia), Art. 50. Some of the more remarkable exceptions appear in Colombia’s FTAs with Chile (Arts. 9.6, 9.7), the United States (Arts. 10.9, 10.10), Canada (Arts. 807, 808), and El Salvador, Guatemala and Honduras (Arts. 12.9, 12.10). Performance requirement provisions are absent from Colombia’s BITs with Switzerland, Spain and China.
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of advantage upon such factors. Performance requirements in these treaties are generally categorized as those that: 1) require certain export levels, 2) require local content, 3) condition the volume or value of imports to those of exports or to foreign exchange inflows, 4) require the purchase, use, or granting of preferences to goods in the local market, 5) restrict domestic sales, 6) require the transfer of technology, and, 7) require the investor to supply a regional or world market exclusively from the Party’s territory. I. Dispute Resolution Dispute resolution clauses for the resolution of disputes between the host State and an investor are fairly consistent among Colombia’s international investment protection treaties. They generally provide the investor with access to international institutional arbitration (ICSID or ICSID Additional Facility) and ad hoc arbitration (often, but not necessarily, under the UNCITRAL arbitration rules). The following aspects of the relevant dispute resolution provisions are worthy of attention: (a) Consultations and notifications of intent: Almost without exception, the relevant provisions require the parties to the dispute to exhaust a consultation and/or negotiation period.215 Most of Colombia’s treaties also require a potential claimant to notify the host State of its intent to submit a claim to arbitration.216 Finally, the relevant provisions require the notice of intent to be delivered either 90 or 180 days in advance.217 (b) Limitations periods: Colombia’s investment protection treaties frequently only allow claimants to submit a claim to arbitration once 6 months have elapsed since the events at issue. More notably, the treaties also do not allow the submission of claims if more than a certain period of time has elapsed from the date the claimant first acquired, or should have acquired, knowledge of the alleged breach and resulting loss or damage. In most cases, that period ranges from three years to 39 months.218
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A major exception is the G-2 Treaty, which does not require the parties to go through a consultation and/or negotiation period, but does mention such a step as an option for the parties. See Arts. 17–16. The Colombia – Switzerland Bilateral Investment Treaty is a conspicuous exception to this pattern. The Colombia – Canada Free Trade Agreement has an interesting exception which imposes a 9-month notification of intent requirement if the claimant has not exhausted its administrative recourses. See Art. 821, para. 2, para. 2 n. 8. A significant exception is the Colombia – Switzerland Bilateral Investment Treaty, which provides for a 5-year limitations period. See Art. 11(5).
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(c) Irrevocable choice of forum (“fork-in-the-road”) provisions: All of Colombia’s investment treaties have fork-in the-road provisions that compel a claimant to submit a claim either to arbitration or to the country’s local courts.219 Many treaties expressly allow a claimant in arbitration proceedings to request injunctive or non-monetary declaratory relief from local courts.220 The G-2 Treaty and the Colombia – Chile Free Trade Agreement have further limitations curtailing the arbitrability of claims that arise out of subject matters that have been submitted previously to local courts.221 (d) Self-judging of a non-precluded essential security measure: The Colombia – US Free Trade Agreement provides that if in an arbitral proceeding, a State party invokes an essential security interest as an exception to its treaty obligations, the tribunal or panel hearing the matter shall find that the exception applies.222 (e) The Colombia – US FTA provides special conditions for the submission of claims for measures claimed as restrictive to payments and transfers or for claims involving public debt.223
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Both the Colombia – Spain Free Trade Agreement, Art. 10.1, and the G-2 Treaty, Art. 17–17:4, make clear that administrative (i.e., non-judicial) recourse before the relevant decision-maker or government organ (vía gubernativa) does not trigger the fork-in-theprovision. See, e.g., Colombia – Chile Free Trade Agreement, Art. 9:18:3; Colombia – China Bilateral Investment Treaty, Art. 9(7); Colombia – El Salvador, Guatemala and Honduras Free Trade Agreement, Art. 12.18:8; Colombia – US Free Trade Agreement, Art. 10.18:3; and Colombia – Canada Free Trade Agreement, Art. 821, para. 2(e). See G-2 Treaty, Art. 17–17:4; Colombia – Chile Free Trade Agreement, Art. 9.18:4. This limitation is particularly relevant in cases where parallel proceeding in the local courts may be allowed because they do not involve the violation of international treaty legal standards. Colombia – US Free Trade Agreement, Ch. 22.2 n. 2. See Colombia – US Free Trade Agreement, Annexes 10-E, 10-F.
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