First ICSID Award against Moldova: Things to Note
→ Anna Cuşnir
In 2011 Moldova ratified the ICSID Convention,1 thus, opening the gateway to an important venue for investment protection. The first and so far the only ICSID case against Moldova was brought the same year and was crowned with an award in 2013.2 This article briefly discusses certain issues addressed in the award that foreign investors might be interested to note.
The dispute concerned an investment in the duty-free sector. Le Bridge, a Moldovan company owned by Mr. Arif, won a local governmental tender and was awarded an exclusive right for the creation of a network of duty-free stores in specific geographic areas. Le Bridge’s competitor challenged in court the results of the tender and agreements signed by Le Bridge. This resulted in the loss of exclusivity and delays or prevention of opening of certain border stores. In ICSID arbitration commenced on the basis of the French-Moldovan Bilateral Investment Treaty (BIT), the investor argued that the Moldovan court judgments amounted to a breach of several international standards of investment protection.
Exhaustion of local remedies
To be fit for ICSID arbitration, a dispute must be ripe. One of the issues addressed by the arbitral tribunal in this case is whether the investor must exhaust all local remedies (ie, go through all levels of the judicial system) before having recourse to the ICSID mechanism. The general answer is no. Such a prerequisite is enshrined neither in the ICSID Convention nor in the relevant BIT. Hence, even one individual action of an organ of the state that could possibly amount to unlawful expropriation is enough to render the dispute ripe for ICSID arbitration.
This general rule, however, does not apply to claims of denial of justice. In this type of claims, the whole domestic court system, including all its levels, is tested; thus, exhaustion of local remedies is required.
Fair and equitable treatment: legitimate expectations
The undertaking by a state to ensure fair and equitable treatment of investments, coupled with a hospitable investment climate and good faith, create a fertile soil for generating certain expectations in investors, before the investments are made, as to their future treatment. If these expectations “have an objective basis, and are not fanciful or the result of misplaced optimism,” [532 ICSID Case no. ARB/11/23] they are described as legitimate expectations. Regardless of the inherent separation of powers within the domestic legal system, in the international arena a state is viewed as a homogeneous player having a unitary nature. A foreign investor thus expects consistency of decisions taken by various organs of the state in respect of its investment.
Numerous decisions of public authorities taken in the form of licenses, permits, contracts, etc. giving the green light to a particular investment create and, over time, solidify investor’s expectation of a secure legal framework. Invalidation of such decisions by the state’s other branch of power, and failure of the state to take a remedial action, thus causing paralysis and destruction of the investment it earlier encouraged, amounts to a breach of the standard of fair and equitable treatment of investment.
The arbitral tribunal differentiates between a situation in which the domestic law on expropriation has a flaw or is unfair and a situation of purported misapplication of the domestic expropriation law. In the latter case, the investor should bear in mind that the arbitral tribunal is not a court of appeal of last resort and the international arbitral tribunal does not conduct a legal analysis anew of what has already been examined by the domestic courts. If the local courts have held that the investor’s rights are invalid, the taking of such rights does not constitute expropriation. Furthermore, if the investor currently uses its investment and extracts profits from it, significant legal insecurity with regard to that investment does not amount to expropriation.
Denial of justice
Denial of justice, as a manifestation of unfair and inequitable treatment of a foreign investor, implies fundamentally unfair proceedings guided by a spirit of bias and partiality and outrageously wrong final and binding decision produced by a grossly incompetent and dishonest judicial system. Mere procedural errors such as delays and even an ultra petita decision committed by the judiciary that “do not amount to such a manifest disrespect of due process that they offend a sense of judicial propriety” and are not “so void of reason that they breathe bad faith” [447 and 482 ICSID Case no. ARB/11/23] do not constitute a procedural denial of justice.
Likewise, arguably incorrect interpretation of the domestic law by local courts, which decisions are overall reasoned, per se does not amount to a substantive denial of justice. While bringing a claim, investor should not expect that the international arbitral tribunal has competence to retrace and reappraise the facts or that it would substitute its “own application and interpretation of national law to the application by national courts”; otherwise “it would blur the necessary distinction between the hierarchy of instances within the national judiciary and the role of international tribunals.” [441 ICSID Case no. ARB/11/23]
ICSID arbitration is certainly a powerful, but not omnipotent, international instrument of investment protection. While evaluating the reasonableness of bringing a claim under this quite expensive mechanism, the investor should clearly understand the limited scope of the arbitral tribunal’s authority. The growing stock of ICSID jurisprudence, including the above award, should help in taking a rational decision in this regard.
The ICSID arbitral tribunal does not play the role of appellate court of last resort.
- Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature on 18 March 1965 and entered into force on 14 October 1966, ratified by the Law of the Republic of Moldova no.28 dated 24 February 2011.
- Mr. Frank Charles Arif against the Republic of Moldova, ICSID Case no. ARB/11/23 brought under the Bilateral Investment Treaty between France and Moldova, Award dated 8 April 2013.