CHAPTER 1: INVESTMENT & INTERNATIONAL LAW

A. Introduction
a. Focus on legal protections available for direct investors of tangible or intangible assets in foreign
country and procedures used to settle disputes
B. Evolution of Foreign Direct Investment Law
a. Historical Context
i. Development of international law is a post-colonial response to the new global
geopolitical reality (Jxs not based on colonizing powers’ jurisprudence)
b. Doctrine of State Responsibility
i. Initial approach to protecting investors came from state responsibility doctrine which:
1. defines circumstances in which a state has breached its international obligations,
plus the justifications and defenses states can use to avoid responsibility
2. covers the consequences of the breach, including the central obligation to make
full reparation and stop wrongful acts.
3. deals with the way the responsibility arising from breach of an international
obligation is implemented, in particular governing which states may invoke the
responsibility of the wrongdoing state, as well as the means by which
responsibility may be implemented, in particular through the adoption of
countermeasures.
c. Minimum Standard of Treatment
i. Doctrine of State Responsibility requires states to observe a ​minimum standard​ in
treatment of foreign persons & their property ​irrespective of the treatment they give to
their own nationals
ii. ​ So state is not able to apply its domestic law alone, if that is below the minimum
standard
iii. If investor is mistreated, then investor’s country of origin has basis to sue the state of
investment and seek damages on behalf of investor
1. Essentially, no country is required to admit foreign investors, but once you’re in,
you can’t be mistreated.
iv. Barcelona Traction, Light, and Power Co.​ (Belgium v. Spain) (1970)
d. Sources of International Law
i. Article 38​ (ICJ statute) ​ ​ ​starting point for international law
1. International Court of Justice (ICJ): the highest court in the world to adjudicate
international disputes
a. Operates on basis that domestic law is subject to international law in
those areas where relevant international law exists and ca be applied
2. Identifies sources of international law: conventions, treaties, & customary law
ii. Customary Law​: legal norms that have developed through exchanges b/w states over time
1. Governs question of legal nationality of international corp. and is starting point
for matters relating to nationalization by another state
a. In ​Havana​, SCOTUS set out how the court determined whether
customary law is applicable law
2. Customary law > treaty because is general in application and applies to every
state
iii. Treaty​: law b/w two or more states
1. Treaty may no longer be needed if it evolves into customary law
a. ​ this is desirable development because then broadens to every
sovereign)
2. Ex: World Trade Organization (WTO)
iv. Other sources​: case law and general principles of international law
e. Definition of Investment
i. Foreign Investment​: involves the transfer of tangible or intangible assets by one country
in to another, for the purpose of use in that country to generate wealth under the total or
partial control of the owner of the assets. W/ 4 characteristics:
1. Actual investment generating wealth in country
2. Transfer of assets into country
 3. Relatively difficult to withdraw investment from country
4. Significant element of control retained by owner of assets
C. Relationship of Domestic & International Law
a. Domestic law alone may not be enough to protect an investor at the required minimum standard
i. Ex: US corp. investing in Venezuela might be at liberty to bring a claim against the
Venezuelan state in the domestic courts of Venezuela, but may consider that it will not be
assured of the expected minimum standard of treatment
b. Many host countries have passed laws designed to attract investment
i. But what is the relationship b/w guarantees and other domestic law/public policy
decisions of the country
ii. Dispute settlement can raise issue of enforceability
c. Where individual or corp. wants to bring an investment case in an international law forum it has
two potential areas of consideration:
i. Litigation
1. Home state could bring a case for violation of customary law and/or treaty law
against host state in relevant domestic or international forum, ​up to ICJ
ii. Arbitration
1. Corp. could take case to arbitration at the International Centre for Settlement of
International Disputes (​ICSID​) or any other forum to which state parties are
signatory and corp. has given consent

CHAPTER 2: ATTRACTION OF FOREIGN INVESTMENT, GUARANTEES TO INVESTORS,

INVESTMENT CODES & EFFORTS TO REGULATE FOREIGN INVESTMENT
A. Current Regulatory Framework for FDI
a. There is ​no single​ global investment agreement that covers all aspects of investment
i. Some existing WTO agreements contain provisions re. to investment:
1. WTO’s Agreement on Trade-Related Investment Measures (TRIMS)
a. Protect investments from certain performance requirements such as
local content and trade-balancing
2. WTO’s General Agreement on Trade in Services (GATS)
a. Provisions including: notification, transparency, Most Favored Nation
(MFN) treatment, National Treatment, market access, subsidies, foreign
exchange restrictions on capital account and current account
transactions
b. International Codes
i. Organization for Economic Coordination and Development:
1. Codes for Liberalization of Current Invisible Transactions and of Capital
Movements
2. Declaration of International Investment and Multilateral Enterprises
ii. Include commitments for: transparency, not to relax health, safety, environmental
regulations, minimize performance requirements
c. Regional Approaches
i. North American Free Trade Agreement (NAFTA) – CA, MX, US
ii. Asia-Pacific Economic Cooperation (APEC) Non-Binding Investment Principles
d. BITs
i. 1959: Germany-Pakistan first BIT
ii. **principal international legal instrument for promotion and protection of private foreign
investment
e. Recent Attempts
i. Trans Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership
(TTIIP) ​ ​ ​But Trump w/drew US from TPP and may negotiations may not continue in
US’s absence
B. Attraction of Foreign Investment
a. Investment Incentives
i. Direct Subsidies​ (investment grants) and ​Corporate Income Tax Credits​ (investment
credit)
 b.Seid: ​Global Regulation of FDI
i. Incentives as cost to host country
1. Financial and admin. burdens
2. Distort productive structure which results in less efficiency
a. Ex: Incentivize manufacturing so disincentivize agricultural production
​ lower ag. incomes ​ ​ increasing rural-urban migration ​
unemployment
ii. Tax Holidays
1. Standard: allow corp. to be fully/partially exempted from income or corp. tax for
certain time period with full taxation applying after tax period
iii. Where to Invest?
1. Incentives​: Tax holidays, customs duty exemption, allowance, externalization of
fund
2. Other:​ advantages of production, marketing, transportation, exchange rate and
price stability, quality of public management or monetary/fiscal/social policy,
political and social stability
C. Guarantees to Investors
a. Strong investment climate often ​more important​ than investment incentives for attracting FDI
i. Specifically: strong tax policies, protection of phys./intellectual property, rule of
law/govt.
b. National Treatment​: requires that foreign controlled enterprises be treated by host country same
as domestic enterprises
i. Standard of ​“fair and equitable treatment”​ comprises
1. Non-discrimination
2. Internal minimum standard
3. Duty to protect foreign property by host state
ii. Currently:
1. NT mainly is regulated after the entry of foreign investment, though some
countries wish to see it applied to the pre-establishment phase
2. Arguable whether has desired effect, especially in countries where standard of
treatment of its own nationals is low
D. Investment Codes and Efforts to Regulate Foreign Investment
a. Host States’ Laws on FDI
i. Host countries can introduce legislation to promote/protect FDI
ii. More and more comes in form of code or single legislation that states rules re. FDI
1. Policy: Transparency ​ ​ allows potential investors to learn laws more easily
iii. Ex: ​Republic of Namibia Foreign Investment Act​ (1990), pg. 16
1. “foreign national shall be in no different position than any Namibian” minus
exceptions like for exploitation of natural resources
b. WB Guidelines on Treatment of Foreign Direct Investment
i. “Soft law” and “as good as binding” on states
1. **But NOT a treaty and NOT binding as international law
ii. Goal: “represent desirable overall framework which embodies essential principles”
iii. Pros:
1. Benchmark for investors to test investment climate of host country and
2. Complements, not substitutes, BITs and conventions
iv. Content:
1. Scope: favors broad interpretations so covers all kinds of investments (indirect
and direct)
2. Admission
a. Host states shouldn’t make it hard to invest but has right to make
necessary regulations
b. Host states can restrict investment if: 1) national security risk or 2)
industry reserved for nationals
c. States should publish code/legislation of investment guidelines
3. Treatment ​ ​ “fair and equitable” standard
 4. Expropriation of FI by state (basically refers to nationalizations)
a. ***Not allowed ​unless l​ egal, in good faith, without discrimination and
adequately compensated (FMV)
5. Settlement of investment disputes
a. Negotiations ​ ​ court/arbitration
b. For arbitration, use ICSID
E. International Law Related to Political Risk
a. Once investment is made, then investor is subject to domestic laws of host state and is exposed to
the political environment and public policy of the host country. But when there is an issue with
equitable treatment by host state, then may consider recourse to public international law
b. Doctrine of Restrictive Sovereign Immunity
i. ​ ​Sovereign immunity prohibits 1 state from exercising Jx over another state or its agents
or instrumentalities
1. Based on idea that sovereign cannot commit a legal wrong
2. Justifications: State sovereignty and dignity
3. Developed into “restrictive sovereign immunity” first by Europe then by US
a. Restrictive immunity = commercial exceptions
b. Trend of ​nationalization​ made countries uncomfortable with idea that
business activities would be protected under sovereign immunity
i. *Immunity was intended to protect govt. when it functions as a
govt., NOT govt. that functions as a corporation
ii. Ex: Govt. can’t own an airline and then be immune from suit
ii. Sovereign immunity is a ​procedural bar​ which prevents the court from considering the
merits of the case
1. Always raised before court agrees to hear the case
iii. Foreign Sovereign Immunities Act​ (1976)
1. Codified ​restrictive sovereign immunity​ in US (and essentially, international
law)
a. Western states have generally adopted, but many developing states
have not adopted
2. Sets forth criteria for determining whether US ct. may assume Jx over sovereign
state or agency of sovereign state
a. 1605(a): Immunity of a Foreign State from Jx ​unless
i. (1) waived its immunity implicitly or explicitly
ii. (2) commercial exception
iii. (3) property taken in violation of international at issue
1. Siderman de Blake v. Argentina
b. 1609: immunity from attachment and execution of property of foreign
state
i. ​ Demonstrates comprehensiveness of the Act
iv. Exceptions​ to the Foreign Sovereign Immunities Act
1. Waiver of Immunity Exception​ ​ ​ Most direct and effective way for an
investor to ensure that a foreign sovereign will be subject to Jx is to negotiate a
waiver of sovereign immunity clause into the K b/w the state and investor
a. Weltover, Inc. v. Republic of Argentina​ (2d Cir., 1991):
2. Commercial Activity Exception​: for commercial activity based in US
a. Requirements of foreign state (must meet at least 1)
i. undertakes commercial activity in US, ​or
ii. performs act in US in connection with foreign activity of the
state elsewhere, ​or
iii. performs an act outside the state in connection with
commercial activity elsewhere, which ​causes direct effect on
US
1. Weltover, Inc. v. Republic of Argentina​ (2d Cir.,
1991): an act is direct if it follows as an immediate
consequence of D’s activity
 b. Ndulo:​ ​In determining whether it is a commercial exception, ask
yourself, is the state engaging in commercial operation as distinguished
from a ​public act
i. Profit is ​not essential​ to commercial operations ​ ​ purpose
does not matter, it is the NATURE of the act
ii. And, if activity is outside of the United States, does that act
have a direct effect (i.e. ​direct economic impact​) on the US?
3. Other Exceptions to FSIA
a. Absent an international agreement providing otherwise, FISA affords
Jx immunity from the criminal Jx of US courts
v. Th Act of State Doctrine​ ​ ​ ​POLICY: separation of power
1. ​ ​Courts will not inquire into the acts of a foreign state ​- ​ Underhill v.
Hernandez
a. Policy:
i. Separation of powers ​ ​ Might interfere with the foreign
policy concerns of the executive branch
ii. Broader principles and comity
2. Underhill v. Hernandez​ ​(1897)
a. Rule:​ ​Establishes Act of State doctrine
i. “every sovereign state is bound to respect the independence of
every other sovereign state, and the courts of one country will
not sit in judgment on the acts of the govt. of another done
within its own territory. Redress of such acts must be obtained
through the means open to be availed of by sovereign powers
as b/w themselves.”
b. Facts: ​American citizen detained in VZ under VZ laws; Underhill
sought intervention from US courts to try and declare the detention
illegal
c. Ct: ​It is up to the US and VZ to resolve their issue as sovereign states,
it’s not up to the courts
3. Banco Nacional de Cuba v. Sabbatino​ (​ SCOTUS, 1964):
a. Rule: ​Act of state doctrine applies **​even if the taking violates
customary international law.​
b. Facts: ​Cuba-US in fight and Cuba issued decree nationalizing US
property or enterprises; dispute arose over who owned the sugar
c. Ct:​ Yes taking was probably nationalization in violation of
international law but we refuse to rule on it bc of Act of State Doctrine
4. Exception ​ ​ ​ ​ ​interpreted narrowly to only apply to cases where property has
been taken into US so AoS survives!!!
a. Second Hickenlooper Amendment​ ​(1977): legislature passed in
response to ​Sabbatino​; added exceptions to AoS:
i. 1) AoS does not apply if the expropriation violates a treaty
b/w the US and expropriating state, in which case US cts may
grant relief
ii. 2) requires US cts to adjudicate claims based on certain
expropriations by a foreign state if the foreign state does not
compensate for property take
iii. Ndulo: ​amendment represents belief that threat to suspend
foreign aid to countries which expropriate American property
w/out just compensation is a sound and effective method of
protecting private foreign investment.
c. Alien Tort Statute​ (or Alien Tort Claims Act)
i. "The district courts shall have OJx over any civil action by an alien for a tort only,
committed in violation of the law of nations or a US treaty.”
 1. ​ Since 1980 cts have interpreted ATS to allow foreign citizens to seek
remedies in US cts for human rights violations (international law) for conduct
committed outside US
2. Farratega​: t​ orts covered under ATS are those that violate international law
(genocide, war crimes, etc.)
ii. Argentine Republic v. Amerada Hess Shipping Corp.​ (1989):
1. Rule: ​The ATS does not confer Jx over foreign states
a. ​ ​the only way to get Jx over a foreign state is via the Foreign
Service Immunity Act exceptions​!
2. Facts: ​Amerada (Liberian corp.) sued Argentina under ATS for damage to its
ship during the Falkland Islands War
3. Ct: ​Jxover foreign states is not conferred under the Alien Tort Statute.
a. ATS confers Jx in district courts over suits brought by aliens’ tort
b. FSIA: states shall be immune from U.S. courts’ jurisdiction (minus
exceptions)
c. ​ Hence, the FSIA can only be the source of Jx over a foreign state
since it doesn’t repeal the Alien Tort Statute to the extent that it may
confer jurisdiction over a foreign stat
iii. Jesner et all v. Arab Bank, PLC.​ ​ (2018)
1. Rule:​ ​foreign corps. may not be Ds​ in suits under the ATS, which is “strictly
jurisdictional” and does not provide or define a cause of action for international
law violations
2. Facts:​ P sought compensation for terrorist attacks committed in Middle East,
arguing that bank accounts in US paid families of suicide bombers
3. Issue: ​Whether the judiciary has the authority, in an ATS action, to determine
violation of international law and enforce that liability without explicit
congressional authorization.
4. Ct:​ dismissed case ​ ​ this is a question for congress!

CHAPTER 3: INVESTMENT INSURANCE, FEATURES, CONCEPTS

A. Globalizing the Investment Insurance Approach to Development
a. Introduction
i. FDI benefits​: input of financial resources, managerial skills and know-how, material
contribution to economic growth, stimulate local entrepreneurship by increasing
competition and opportunities for subcontracting by local suppliers
ii. BUT ​significant risks​: requires acquisition of a ​lasting interest​ ​in a host country
1. ​ ​ more exposure to public policy and political environment of host country
iii. Availability of political risk insurance via various schemes is so important!!
1. Types:
a. Private Insurers
b. Country specific schemes (OPIC – US, Treuarbeit – Germany)
c. Multilateral schemes
b. Political Risk Insurance (PRI): Institutions, Incentives, and Development​ (pg. 48)
B. MIGA​: The World Bank Group’s Multilateral Investment Guarantee Agency
a. MIGA Convention
i. Est. 1988 by international convention as newest member of WB group
ii. Original 29 members included USA and UK
iii. Principal purpose​: encourage flow of investment to and among developing countries by
means of investment guarantees ​ ​ designed to ​eliminate non-commercial, governmental
risks​ for investor
iv. Policy of ​subrogation​: to enforce the rights of the insured against a 3​rd​ party
v. Pros​:
1. States can’t sue MIGA directly
2. MIGA’s rights are valid everywhere & MIGA property can’t be seized before
the delivery of the final judgment or award against the agency
 3. Result: state has strong incentives to conform to protection of MIGA’s backed
investment
b. MIGA Structure & Functions
i. Subrogation​: ​MIGA has the legal right to legally pursue a third party that caused an
insurance loss to the insured; done to recover the amount of the claim paid by the
insurance carrier to the insured for the loss
1. ​Involves the ​transfer of any associated rights and duties​.
2. ​Subrogation is most powerful weapon bc the multilateral nature of MIGA
means that its subrogation is ​globally recognized (​ v. bilateral)
3. MIGA is thus entitled to the insured’s rights in the host country, which cannot
say no because it is a member of MIGA. (Plus it is enforced by every other
member country)
ii. Eligible investments​: abilities to insure: can include stocks, loans, etc.
iii. Cover risks​: expropriations, breach of K, war/civil disturbance, currency transfer
c. MIGA Eligibility​ (pg. 56)
i. Individual can seek insurance from MIGA, but more commonly it’s a corporation
ii. Eligible Corporations ​ ​ 1. ​incorporated member states​ 2. engaged in ​business operation
(not just incorporated) 3. in a ​host country​ (not your own)
1. 13(c) exception: MIGA board can agree to make an exception to allow a
national to invest in their own country
2. If corporation has 2 nationalities, then nationality of member state will prevail
d. MIGA Dispute Settlement
i. Negotiation ​ ​ Conciliation ​ ​ Arbitration
ii. Arbitration: can’t litigate matters re. MIGA in court due to MIGA’s internal conflict
resolution mechanisms
iii. MIGA includes an internal and thus immunizes itself against any sanctions
e. MIGA & Development
i. The higher the risk, the more insurance premiums will be
1. High-risk country ​ ​ higher cost of insurance
2. **And the country pays for this in the end via tax
C. Overseas Private Investment Corp. (OPIC)
a. What is OPIC?
i. Founded by the Foreign Assistance Act (FAA) in 1971
1. Based under Marshall Plan of 1948; prior to 1971, comparable tasks were
administered by USAID
ii. Profit-based agency of the US govt.
iii. Objective: promote American investments and free markets in the world economy
iv. Typical investment projects are in developing and post-conflict countries
1. Asia, Sub-Saharan Africa, Eastern Europe
b. OPIC Eligibility
i. **​Must be an A​ merican​ enterprise​ ​ ​ major distinction from MIGA
1. US citizen, corporation
2. Can insure foreign corps but must be 95% American owned foreign corp.
ii. Sometimes will ​co-insure ​w/ MIGA when want to spread risk
1. But still requires American involvement
iii. Insurance policy can extend a maximum of 20 years; OPIC will only pay and insure
claims on 90% of a loss; maximum amount of coverage per project is $100 million
1. OPIC does not calculate insurance rates based on political risk
iv. OPIC’s insurable risks are the same as MIGA’s (political & economic)
c. Governmental Nexus​ ​ ​ cases where investors seek recovery of losses from USAID/OPIC,
demonstrating that a ​high threshold​ is set for ​causation​ attributable to govt. action.
i. Webster Publ’g Co.​ (​ 1966)
1. Facts: ​Publishing co. was insured from expropriation and paying premiums;
Iran govt. nationalized the school text-book market and wrecked Webster’s
business
 2. AID:​ No expropriation here bc it was an “​ordinary and reasonable exercise of
govt. authority​” and so won’t pay for losses.
a. Essentially saying that Iran has a free market system and this reflects a
normal business risk
3. Takeaway​: In order to recover on your claim, you must attribute the problem to
the government, but here it was regular market competition
ii. Central Soya, Inc.​ ​ (1967)
1. Facts: ​employees took control of a mill for 5 days w/ no evidence that it was
linked to the Venezuelan govt. Resulted in a tremendous loss from the riots.
2. AID:​ claim rejected because 1) seizure not politically inspired, 2) a claim would
only be entertained if the police had gone there and done nothing
3. Takeaway:​ Lack of causation was key here ​
a. Where the govt.’s role isn't clear, insurance agencies insist on political
risk (govt.) causation. Normal business activity is no causation.
iii. W.E. Belcher Lumber Co.​ ​(1971)
1. Facts: ​By time export permit was approved by Costa Rican govt., 45% logs
ruined. ​ ​ ​seems unfair says Ndulo
2. AID:​ claim denied for failure to establish a causal relationship b/w the govt.
action and the investor’s loss
d. Inconvertibility
i. Caterpillar Fin. Servs. Corp.​ (​ 2006)
1. Facts: ​Caterpillar invested in passenger ferry in VZ but scheduled payments
were inconvertible
2. AID:​ claims were valid and insured entitled to compensation in exchange for
eligible local currency
e. Expropriation
i. OPIC will compensate for creeping expropriation so long as it has the effect of directly
depriving the investor of fundamental rights in the insured investment.
1. Fundamental = denial substantially deprives the investor of the benefits of the
investment
a. Includes forcing an enterprise into bankruptcy or an unfavorable
settlement w/ authorities designated to achieve indirect nationalization
2. Common claims: violations of concession or development Ks, construction
agreements
a. OPIC requires that a loss suffered by a construction enterprise
constitutes a substantial impediment to its ability to proceed at all with
the project
3. Generally, amount of compensation is based on the ​net book value​ of the
insured investment (determined via financial statements under GAAP)
ii. Northern Indiana Brass Co​. ​(1973)
1. Facts: ​NIBCO asserted that Chile govt. expropriated them by exercising
effective control over the management
2. AID: ​I don’t get this case
iii. Fearn Foods Int’l Inc.​ ​ (1973)
1. Facts: ​After military coup in Somalia, shit got dark (harassment, arrest,
deportation, etc.) ​ ​ impossible to operate
2. AID: ​Agreed that expropriation took place wherein the US Embassy took the
position that a private profit-seeking operation could not be reasonably expected
to continue to operate
iv. Ponderosa Assets, L.P. Argentina​ (​ 2005)
1. Facts: ​Enron-Ponderosa invested in pipeline company in Argentina and had
applied for political risk insurance.
2. AID​: provided full compensation of $50 million on basis that expropriation w/in
the meaning of the OPIC contract had occurred (i.e. even if enactment of
Emergency Laws was justified, govt.’s actions constituted repudiation.
f. Political Violence
 i. Sector Resources, Ltd​. ​(2005)
1. Facts: ​Company filed political violence claims with OCID pursuant to its
investment in a Colombian mine
a. Violence included soldiers hijacking trucks, seizing property
2. AID: ​Agreed to compensate for losses sustained
g. Contract Renegotiation: The Dabhol Power Project in India
i. Bechtel International (Bermuda), etc. vs. Overseas Private Investment Corp. (​ 2003)
1. Facts:
a. Enron, General Electric, and Bechtel made Dahbol Power Company
under Indian law to construct/operate a power station in Maharashtra
i. They got financing and political risk insurance from OPIC
b. Public discontent grew ​ ​ project was shut down and put in the hands of
a ct-appointed receiver
i. OPIC agreed to co-finance the project with both Indian-based
financial institutions (IFIs) and non-Indian Lenders.
c. The equity owners of DPC had insured their investments via OPIC
contract insurance and initiated arbitration proceedings at AAA
International Centre for Dispute Resolution
2. Issue​: OPIC had agreed to provide $200 million in political risk insurance and
further $160 million loan guarantees.
h. United States International Development Finance Corp.

CHAPTER 4: THE PROTECTION OF INVESTMENTS THROUGH BILATERAL TREATIES

1. Introduction
a. Currently there are nearly 3,000 BITs worldwide
b. First iteration during the18-19​th​ century as Friendship, Commerce, and Navigation Treaties
c. 1959: 1​st​ BIT b/w Pakistan and Germany
1. Legal Status of BITs
a. Main goal​: signal that a country is open to foreign investments
b. Function​: Designed to encourage investment and to est. reciprocal rules governing investments,
through setting rules for treatment of firms and the protection of investment related risks
i. Generally cover ​non-commercial risks ​ ​ political risks like expropriation
ii. BITs provide clarity of legal norms and expectations with the agreement of both parties
c. Structure​: Treaty b/w 2 countries
i. All treaty law (including BITs) governed under the Vienna Convention
d. BITs are strong source of ​substantive law ​that c​ an vary customary international law
i. So important to investors because states can change domestic law at any time but NOT
international law
1. Essentially displace relevant domestic law
ii. Most BITs provide ​greater protection​ to foreign investors than is available under
customary international law
e. Especially significant for ​dispute resolution​ b/w two countries
i. Recently, include provision for direct investor-to-state arbitration
ii. ​ meaning investor can bring suit in its own right against the state, typically via ICSID or
UNCITRAL
f. Other provisions include: Investment protection, repatriation of profits and non-discriminatory
treatment
i. US trading partners also include investment chapters in their FTA (free trade agreements)
that closely resemble BIT
g. Risks​: Obligations made b/w 2 parties could become “binding against all” bc:
i. Broad interpretation of principles like MFN
ii. Change standard of compensation in nationalization
iii. Host states by and large accept the Hull Formula as favored by the US BIT model
iv. Allow foreign investors access to ICSID and other international investment tribunals
1. ​ HUGE concession bc prior investors had to rely on home state before could
be brought in front of international tribunal
1. Reach of BITs
a. Barcelona Traction, Light, and Power Co., Ltd.​ (​ ​Belgium v. Spain​) (ICJ, 1970) ​ ​ 2​nd​ half of
opinion
i. Rule:​ ​Shareholders have an ​interest N​ OT a​ right, ​so can’t sue on behalf of a country
1. Differentiates shareholders from the corporation itself.
2. Whenever shareholder is harmed, it must look to the corporation to take action,
but can’t do so unilaterally.
ii. Rule:​ ​The corporation’s nationality is its ​place of incorporation​ and that state alone can
make a claim on the corporation’s behalf
1. Leaves ​loophole​ ​ ​Can protect shareholders via BITs​ b/w the private investor
and the state in which the investment is placed
1. Treaty Violation – Use of BITs to Overcome ​Barcelona
a. Elettronica Sicula S.p.A (ELSI)​ ​(​US v. Italy​) (ICJ, 1989)
i. Rule:
1. Must always exhaust local remedies before go to ICJ
2.
ii. Facts: ​US initiated proceedings in ICJ, claiming that Italy breached BIT via
nationalization and unfair and unequitable treatment; Italy raised preliminary issue ​ ​ not
exhausting “local remedies”; US: treaty breaches means that can sidestep local remedies
and go to ICJ
iii. ICJ:
1. Per the “local remedies” issue: must always pursue local remedies re. of treaty
or not, BUT in this case, Italy did not prove it had any local remedies to offer so
case not dismissed
b. Sumitomo Shoji America, Inc. v. Avagliano​ (1982) ​ ​ ​benchmark case involving
non-discrimination by foreign-owned US companies
i. Rule: ​US incorporated, foreign-owned companies are American and subject to domestic
law > BIT
ii. Facts: ​Sumitomo was incorporated in US despite being a wholly owned subsidiary of a
Japanese general trading company; Class action sued in US fed ct arguing that
Sumitomo’s hiring practices of only hiring male Japanese execs violated Title VII;
Sumitomo argued that its practices were protected under the US-Japan BIT “of their
choice”
iii. SCOTUS: ​US Constitution intended to cover locally incorporated subsidiaries of foreign
companies, so the BIT language does not protect Sumitomo from Title VII scrutin
iv. Takeaway:​ mirrors B ​ arcelona​ ​ ​ shareholders don’t matter, it is the place of
incorporation!
1. Causation
a. Asian Agric. Prod. Limited v. Sri Lanka​ (​ ICSID, 1990)
i. Rule: ​Breach of BIT “full protection and security” clause is based on international
customary law’s ​Due Diligence Test ​(not strict liability), and thus requires a finding that
the State caused damages
ii. Facts:
1. ​UK-Sri Lanka BIT​: “full protection and security” general provision (article 2);
another clause (article 4) included compensation for losses suffered due to war,
armed conflict, or insurrection
2. AAPL (Hong Kong corp.) had joint venture of a shrimp company in Sri Lanka;
the shrimp company was destroyed from civil war and APPL lost its investment
3. APPL brought dispute before ICSID tribunal alleging that:
a. Sri Lanka had breached Article 2 “full protection and security” +
b. Article 2 established ​strict liability​ standard—no need prove that
damages were ​caused​ ​by the state
i. Ndulo: ​Here, APPL was alleging that Sri Lanka should be
held to a higher standard (strict liability) than the international
standard (due diligence)
 c. Article 4 did not apply bc a subsequent Switzerland-Sri Lanka BIT did
not contain such provision and thus violated Sri Lanka’s obligation to
provide UK with “most favored nation treatment” (but submitted
alternate claim under Article 4)
iii. Issue: ​Interpretation of BIT ​ ​ does it really hold Sri Lanka to a higher standard and
justify a departure from customary international law?
iv. ICSID:
1. Rejects strict liability standard. In absence of ​clear, explicit language,​ will apply
Due Diligence​ standard.
a. Test: In coming to this determination, look at the plain language of the
BIT and the surrounding facts
2. Rejects MFN argument (didn’t think Swiss BIT was favored over UK)
3. However, Sri Lanka did fail the Due Diligence standard and thus liable to pay
under Article 4
a. But limits recovery to value of AAPL’s shareholding in JV, not
property
v. Takeaways:
1. Raised issue of Jx as regards the right of a 3​rd​ party to rely on BIT to make claim
against a state (​ ​ ​AAPL could sue Sri Lanka directly bc ICSID member
countries agree to be sued by corporations as prerequisite for membership)
2. Illustrates the extent to which tribunals will go to protect foreign investors even
in situations of insurgency that may demand extraordinary measures from host
states
1. Definition of Investment
a. Mr. Saba Fakes v. Republic of Turkey​ ​(ICSID, 2010)
i. Rule:
1. ICSID does NOT bar dual nationality. You must only sue a member state other
than your own.
2. ICSID’s own definition of investment (outlined in Article 25 of the Convention)
is applicable – not the BIT’s
ii. Facts:
1. Turkey-Netherlands BIT​: “fair and equitable treatment” standard
2. Mr. Fakes (Dutch-Jordanian) brought claim against Turkey for alleged
expropriation and failure to ensure “fair and equitable treatment”
3. Turkey: raised issue of nationality ​
a. 1) Fakes’ nationality was Jordanian (not member of ICSID) so couldn’t
sue in ICSID and
b. 2) Fakes was a dummy shareholder for Uzans (Turkish) and who, being
Turkish, couldn’t bring claim against their own state in ICSID
iii. Issue:
1. How do we define ​nationality​ for the purpose of ICSID?
2. Did Mr. Fakes make an​ investment i​ n Turkey?
iv. ICSID: ​dismisses case bc Mr. Fakes did not “invest” in Turkey under ICSID definition
1. Nationality​ ​ ​ Mr. Fakes nationality is Dutch for the purpose of the tribunal
a. ICSID Convention only bars dual nationals from suing their home state
i. So Mr. Fakes would be barred from suing Netherlands)
b. Plus, passes the Nottenbohn Effective Nationality Test, although that is
limited to state v. state situation.
i. NEFT: national must prove a meaningful connection to the
state in question.
2. Investment​ ​ ​ Use ICSID’s definition of investment, not the BITs
a. “Parties to the dispute cannot by K or treaty define as investment, for
the purposes of ICSID Jx, something which does not satisfy the
requirements of Article 25 of the Convention”
b. Under ICSID’s definition, there is no investment
1. Rationale, elements, and Expanding Scope of BITs
a. BITs are broadly comprised of​:
i. Definitions of​ investment​ ​ ​ ​construe investment ​broadly​ so as to cover as many
situations as possible
ii. Set out ​substantive obligations​ for host countries
1. Including non-discrimination principles, fair & equitable treatment, and MFN
iii. Protect investments against ​expropriation
iv. Provisions on settlement of investment disputes providing for ​international arbitration
under western-based institutional arbitration center or ICSID
b. **Distinctive feature of BITs is that they allow for alternative dispute resolution mechanism
via international arbitration
c. Benefits of BITs for Investors​:
i. Investors and covered investments are entitled to be treated as favorable as the host
nation treats its own investors and investors from any 3​rd​ country
1. NT or MFN for full duration of investment
ii. Limits on expropriation and provide for payment of prompt, adequate, and effective
compensation when expropriation takes place
iii. Provide transferability of funds into and out of the host country without delay
iv. Strictly limit situations where performance requirements can be impose
v. Allowed to engage top managerial personnel of their choice regardless of nationality
vi. Does away with “local content” in affairs of investors
vii. **Distinctive feature of BITs is that they allow for alternative dispute resolution
mechanism via ​international arbitration
1. ICC, London Ct. of Arbitration, Stockholm Chamber of Commerce or ICSID
2. Typically no requirement to use host country’s courts
3. ICSID preferred because: self-contained w/ own enforcement mechanisms and
awards can be enforced in all member states
d. (Possibly negative) Impact of BITS on Domestic Policy Space​: Many developing countries are
turning away from BITs bc of perceived limitations and unbalanced protection of international
corps for following reasons:
i. Power imbalance at time of negotiation
ii. **The lack of “​exhaustion of local remedies​” (that is required under BITs) frustrates
development and rule of law in the host state
1. ​ diverts cases from domestic public justice system to internationals system
iii. BITs don’t distinguish b/w performance requirements that are designed to extract
concessions from foreign investor and those used to promote economic development
objectives or social, economic, or environmental problems
iv. Promote idea of ​rights without responsibilities
1. Ex:​ most BITs don’t include obligations re. to environment, corruption, good
governance, human rights, illicit payment, corporate governance, disclosure
requirements and marketing rules
2. & often arbitration tribunals won’t rule on these matters because they aren’t
in the definition of investment (re. human rights)!!
v. Some BITs have started to include provisions on environment and labor standards
1. Ex:​ South Africa’s Protection of Investment Act (2015) balances public interest
with rights of investors
2. Criticism​: can be changed unilaterally by parliament so isn’t secure from change
e. Key Provisions and Areas of Discussion in 2012 ​US Model BIT
i. Comprehensive Definition of​ Investment
1. Extremely broad definition in order to cover a large number of assets, includes
licenses and permits
ii. National Treatment​ – Addressing Discrimination on the Basis of National Ownership of
an Investment
iii. Most Favored Nation Treatment​ – Preventing Competitive Disadvantage ​(always
included)
iv. Minimum Standard​ of Treatment – F ​ air and Equitable Treatment​ Provision
 1. Noble Venture Inc. v. Romania​ (​ ICSID, 2005) ​ ​ ​f&e is tricky to define
a. Rule:
i. Full protection & security​: applies Due Diligence of Sri
Lanka
ii. Discrimination​: c​ laimant must demonstrate that measure was
directed against an investor specifically ​because of his
nationality (​ differentiation based on nationality)
iii. F&E​: defined as ​general standard​ of customary intl law;
dependent on facts/circumstances of each case
1. Arbitrary would not be fair
b. Facts: ​US-Romania BIT; Privatization K b/w Noble and Romania was
terminated due to failure by investor to pay 2 consecutive installments
i. Noble claimed: 1) no f&e and 2) discrimination
c. ICSID: ​dismissed - no discrimination
i. No discrimination bc no indication this was directed against
US national because of the US
2. ICSID: ​Inequitable standard​ occurs when one (or more) following factor is
met:
a. Failure to protect
b. Arbitrary actions
c. Discrimination
d. failure to observe Ks
v. Expropriation and Compensation
1. Unless carefully interpreted, BITs dealing with creeping expropriation are likely
to conflict w/ policy making bc refers to regulatory actions by the state
vi. Questions of Management
vii. Environment and Labor
viii. Dispute Settlement
1. BITs allow investors to circumvent domestic courts and bring claims against
host govt. directly before an international arbitral tribunal ​without exhausting
local remedies
a. Big difference from customary international law and human rights
treaties!!!
2. Results in tons of arbitration awards against host states! And one of the big
reasons why developing countries are becoming so scared of BITs
1. Internal Investment Protection Violates EU Law: Slovakia-Netherlands Treaty
a. Slovakia v. Achmea
i. Rule: ​Can’t be in a BIT b/w 2 EU countries (violation of EU law)
ii. Facts: ​Slovakia contested a decision by the treaty’s arbitration tribunal which had
ordered Bratislava to pay 22 million euros to Dutch co. Achmea for partly revoking the
liberalization of Slovakian sickness insurance market
iii. EU Court of Justice​: private arbitration clause in Slovakia-Netherlands BIT was
incompatible with EU law
1. ​ BIT dispute settlement provision did not ensure that disputes would be
decided by a court within the EU justice system & only an EU court is able to
ensure full effectiveness of EU law
2. BIT is not part of the judicial system of the EU and EU law is not provided for
in the treaty, so by entering BIT w/ member state you are ousting the EU
Treaty
iv. Takeaway:
1. Win for European Commission which has been urging EU countries to annul
similar investment protection treaties
2. Loss for Germany, France, Netherlands, Austria and Finland who argue that
arbitration clauses are compatible with EU law
3. Effects Eastern European countries that need to attract investments via BITs
1. Move Towards “Next Generation” BITs
 a. Morocco-Nigeria BIT 2016
i. Sustainable development is key ​ ​ move toward more socially responsible form of
investment
ii. Balance b/w investor protection and state sovereignty
1. State’s right to regulate is relatively broad but not absolute and lies within the
broader framework of the balance of rights and obligations contained in the BIT
iii. Foreign investors have series of obligations, dealing with anti-corruption, environment,
etc.
b. Model Text for the Indian BIT (2015)
1. Protection Under Regional Trade and Investment Treaties

CHAPTER 5: NATIONALIZATION AND PROBLEMS OF COMPENSATION; INTERNATIONAL LAW

OF EXPROPRIATION AND INVESTMENT PROTECTION
A. Introduction
a. Nationalization/Expropriation are interchangeable terms to discuss the transfer of an investor’s
assets to the state (often by legislative act)
b. Indirect Expropriation​: infer that the state is involved in nationalization despite not having done so
by legislative act
i. NAFTA: “tantamount to nationalization”
ii. Tribunals consider this question and make a determination.
iii. If yes, then rules discussed in previous classes (like ​Chorzow Factory​) apply
c. Historically, state would announce nationalization
i. Ex: oil companies in the 1970s
B. Legality in the Context of International Law

TEST FOR NATIONALIZATION

a. Rule: Nationalization is ​de facto legal

b. BUT​ must check for:
i. Discrimination​: ​Jus Cogens​ norm
ii. Public Purpose​ (Typically not invalidated on grounds of purpose – though )
iii. Treaty​: If outlaw nationalization via treaty, then that trumps de facto legalization
of nationalization (​Chorzow​)
c. Once establish legality ​ ​ ​Obligation to compensate ​(customary international law)
i. Hull Principle – Full
ii. Cowell Principle – Appropriate

**US BITs require compensation at full market value from specific date (i.e. more than full). Disagreement
bc other states think “appropriate” means less than full compensation.

d. Case Concerning the Factory at Chorzow​ ​(​Germany v. Poland​) (1927)

i. Rule​:
1. Nationalization is ​de facto legal ​but requires ​adequate compensation
2. But if a treaty b/w 2 nations prohibits nationalization, then damages must be
punitive + compensatory
a. Damages = the ​full value of the property taken
ii. Facts: ​After WWI, German factory was located in part of the newly annexed Polish state
and Poland nationalized the factory. Germany sued in ICJ claiming violations of the
Treaty of Versailles and the Geneva Convention. Poland preliminarily objected to Jx.
iii. Ct: ​Overruled Poland’s objective arguing no Jx
1. Treaty of Versailles prohibited nationalization ​ ​ treaty is binding on states and
thus constitutes violation of international law (*Not arguing against customary
international law here)
 iv. Takeaway: ​If no treaty, then customary international law would govern and then
nationalization would have been legal.
e. Norwegian Shipowners’ Claims​ ​(​Norway v. United States​) (1922)
i. Rule: ​full compensation for expropriation ​ ​ fundamental customary international law
rule
ii. Facts:​ Norway nationals had shipping Ks w/ US shipyards. When US declared war on
Germany in 1917, the US Shipping Board Emergency Fleet Co. was formed and seized
the Norwegian ships for its own use. Norway sued before the Permanent Ct. of
Arbitration.
iii. Ct: ​Ruled in favor of Norway and ordered ​just compensation w/ interest​ for the seized
property (​full compensation​ for taken property)
1. In the absence of a treaty b/w US and Norway, the Norwegian shipowners were
protected under the 5​th​ Amendment’s “Takings Clause” and deserved just
compensation.
f. Anglo-Iranian Oil Co. Case​ ​(​United Kingdom v. Iran​) (1952)
i. Rule: ​Requires treaty between states ​ ​ in ICJ, corps. can’t sue states!
ii. Facts: ​UK argued that the 1951 nationalization of Iran’s oil industry violated a 1933
concessionary agreement for the exploration/exploitation of oil by the Anglo-Iranian Oil
Co. Iran disputed the ICJ’s Jx over the case.
iii. ICJ: ​The ICJ did not possess Jx over Iran and dismissed the case.
1. Iran had only accepted Jx under the ICJ for treaties established ​after 1932​, not
those prior to 1932.
2. The agreement was not a treaty b/w Iran and UK but a contract ​ ​ It was b/w
Iran and Anglo-Iranian Oil Co., which was a foreign corp. and not the UK state
itself. Thus there was no Jx.
C. History and Sources of Law of Expropriation
a. Full​ ​compensation for expropriation ​is a fundamental principle of customary international law
b. US Approach ​ ​ ​Hull Formula​: “prompt, adequate, and effective” compensation for
expropriation of foreign owned property
i. Interpreted to mean the amount of the ​full fair market value​ of an investment
ii. Expressed in the modern US BIT
c. Argentina ​ ​ ​Calvo​ ​Doctrine​: ​If invest in the country, only the domestic law is applicable
because you have subjected yourself to the domestic law
i. *Prominent in South America
D. Customary International Law and Breach of State Contracts​ k
a. Upton Case, Mixed Claims Commission​ ​(​US v. Venezuela​) (1903)
i. Rule: ​No compensation for harms resulting from voluntary assumption of risk of living
in X country (war)
ii. Facts: ​Venezuela granted $1 million concession to Jose Madriz and next day assigned
same K and concession to Jose Ricart. US citizen (claimant) then bought same
concession from Ricart. Claimant made 2 claims to Mixed Claims Commission:
1. Recover for damages incurred in Venezuela for steam boat ($3,500)
2. Compensation for damage to a steel hull and boiler ($4,002) and other smaller
items like coffee, chattels, money.
iii. Ct:
1. Under international law, Venezuela has a right to expropriate private property
for a public use. But it still has an obligation to compensate the owner.
2. However, the excess damages “were not different from those of other
inhabitants of the country. He must be held, in going into a foreign country, to
have voluntarily assumed the risks as well as the advantages of his residence
there.”
b. Walter Fletcher Smith Claim​ ​(​Cuba v. US​) (1929)
i. Rule: ​Expropriation must be for public purpose or else illegal.
ii. Facts: ​Smith’s house expropriated in Cuba and got judgment in Cuban cts that it was
illegal but was denied judgment for restoration of possession. Then went to arbitration
1. Cuba: expropriation was legal under the Constitution of Cuba
 iii. Arbitrator:​ Expropriation was illegal and went against Cuba’s Constitution
1. The taking was for amusement ​ ​ not for “in good faith” public utility
2. Awarded compensation to Smith
E. Quantification of Compensation for Expropriation: Approaches
a. Norwegian Shipowners’ Claims​ ​(​Norway v. United States​) (1922)
i. Damages: ​US standard of net value of property taken (full compensation)
b. Case Concerning the Factory at Chorzow​ (​ ​Germany v. Poland​) (1927)
i. Imposes a standard ​ ​ “wipe out all the consequences of the nationalization and put in
position as if nationalization had not taken place”
1. Suggests ​full compensation​, although in the actual case it was not possible to
provide full.
c. Kuwait v. American Independent Oil Co. (AMINOIL)​ (​ ​Kuwait v. US​) (1982)
i. Facts: ​1948: 60 year oil concession; 1961: Amended K, increasing Kuwait’s profit share;
Early 1960s: Kuwait became independent in early 1960 but concession continued; 1973:
amended again, increasing Kuwait’s profit share
1. Abu Dhabi Formula: recommended by oil producing countries for charging
royalties
a. Aminoil did not consent ​ ​ breakdown of negotiations
2. 1977: Kuwait terminated the concession by decree, seized Aminoil’s assets, and
stated that Aminoil should get “fair” compensation
a. Effectively nationalized Aminoil
3. Aminoil alleged:
a. Discrimination​ ​ ​ there are other oil companies operating in Kuwait
(specifically Saudi Arabia)
b. Violation of stabilization clause of 60 year
ii. Ct:
1. No discrimination
a. Customary international law: if there is discrimination then
nationalization is illegal
b. BUT ​ ​ Did not distinguish American nationality as reason for
expropriation
i. The Saudi Arabia concession was unique, complex, and also
b/w Kuwait and Saudi Arabia
2. Stabilization clause arg invalid
a. Bc even after Kuwait’s independence the govt. affirmed the concession
in 1961 and again in 1973
b. It is okay that the stabilization clause was breached here, because
Kuwait should be able to legislate on its behalf
c. BUT the stabilization clause must represent something ​ ​ ​it creates
legitimate expectations
3. Damages: ​Appropriate Compensation Standard (not US Hull formula – full)
a. Court awarded compensation but ​not the anticipated lost profits​ for 60
years
b. Cites 1962 UN Resolution & numerous factors to consider on a
case-by-case basis
iii. Takeaway: ​Even though reject Hull Formula here, US BITs require full compensation so
had there been a treaty, it would have been used.
d. Metalclad Corp. v. United Mexican States​ ​(ICSID, 2000)
i. Takeaway: ​example of indirect nationalization and how ICSID handled it
1. Compare and contrast damages here (hadn’t been operating) w/ Aminoil
(had been operating)
ii. Facts: ​ICSID adjudication stemming from NAFTA dispute
1. Metalclad intended to construct a waste disposal site in Mexico and federal
approval to proceed with construction. But after construction was complete, the
inauguration was met w/ local protests.
 2. Then the construction permit for the municipality was denied (despite having
received federal approval)
a. Fed. govt. backtracks and said permissions should have come from the
municipality, so there was actually none
3. Mexico then declared the land “Natural Area”
4. Metalclad claimed both: 1) ​nationalization​ and 2) violation of ​fair and equitable
treatment
a. Note: claim is indirect nationalization bc created conditions that renders
the investment completely useless despite not seizing it
iii. ICSID:
1. Applicable law: NAFTA and Geneva Convention
a. Here NAFTA mirrors a BIT situation
b. Wherever NAFTA is silent, ICSID will apply international law
i. Consistent w/ view that treaties make explicit changes and
gaps are filled with international law
c. **Extremely important on issue of damages where there are gaps in
NAFTA
2. Yes there was nationalization
a. ​ acts of Mexico (federal and municipality) rendered the investment
useless and thus constituted nationalization.
b. Rejects argument that wasn’t a breach of treaty bc at the municipal
level (no – treaty binds all levels of govt.)
3. Rejects arg about fair and equitable treatment
4. Compensation: ​applies ​Chorzow ​ ​ “wipe out the consequences”
a. Inappropriate to calculate future profits here bc ​unless company had
actually begun operation, future profits were purely skeptical
b. Awarded 16 million or so vs. the 90 million the company initially asked
for
e. Noble Ventures, Inc. v. Romania​ (​ ​US v. Romania​) (ICSID, 2005)
i. Rule: ​Can only include future profits if the operation was a “going concern”
1. ​ only if it has a recent history of profitability from which to project future
profits with reasonable degree of certainty
ii. ICSID: ​Quotes C ​ horzow “​ wipe out the illegality”
1. Here, will not calculate future profits because operation was not a “going
concern”
iii. Takeaway: ​once there is a BIT then ​Chorzow Factory r​ ules may be modified depending
on the content of the BIT. BITs are treaties that can modify customary law unless the
customary law is jus cogens.
f. ADC Affiliate, Ltd. and ADC & ADMC Mgmt. Ltd. v. Hungary​ (​ ICSID, 2006)
i. Facts:
1. Cyprus company w/ Canadian shareholders contracted to renovate, build, and
operate two terminals at Budapest airport
2. Hungary issued a decree that nationalized the company ​ ​ set up a
state-corporation
3. Hungary invokes its sovereignty to regulate its economy
4. BIT b/w Cyprus-Hungary and Cyprus claimed nationalization requiring
compensation
ii. Issues:
1. Due Process​: ADC: not given any chance to express their views re. the
nationalization
2. Compensation
a. Hungary: BIT is the law re. compensation.
b. ADC: ​Chorzow Factory​ is the law. Nationalization was illegal and BIT
dealt with legal nationalization. Under ​Chorzow,​ illegal nationalization
calls for different/additional compensation that is not addressed under
the BIT.
 3. Sovereignty
4. Discrimination
5. Calculation of Compensation
a. How to handle the dramatic increase in value of property between time
of nationalization and the arbitration
b. Hungary: compensation should be calculated from date of
nationalization
c. ADC: should be from time of arbitration
iii. ICSID:
1. Compensation
a. Customary international law must apply here because BIT does not
have a provision dealing w/ illegal nationalization
2. Sovereignty
a. Court rejects Hungary’s argument re. its sovereignty because the
exercise of sovereignty is NOT unlimited.
i. ​ limited by 1) treaties and 2) customary international law
ii. And treaties/customary international law are itself limited by
jus cogens norm
3. Due Process
a. Must allow companies to express its grievances and inform the
company appropriately
b. Same idea as ​Metalclad
4. Discrimination​: YES!
a. Must look at the investor and the company that will benefit from the
nationalization.
i. i.e. state company compared to ADC
b. Court finds discrimination here ​ ​ ​important because then
nationalization becomes illegal
c. Ndulo: ​case law focuses on discrimination based nationalization, but
here the tribunal seems to diverge from this analysis
5. Calculation of Compensation​: ​Apply actual value of enterprise from date of
arbitration
a. Chorzow should apply ​ ​ date that arbitration made its decision
i. **Actual value of the enterprise (which had increased
tremendously)
F. Creeping Expropriation​ ​ ​ ​risks ordinarily related to a business venture may not constitute
nationalization
a. Business Venture Risks
i. Oscar Chinn Case​ (​ ​UK v. Belgium​) (1934)
1. Rule: ​No illegal nationalization when risks taken are inherent to doing business
a. Regulation does not always mean illegal nationalization!
2. Facts: ​UK sued Belgium alleging nationalization; Belgian govt. had given
subsidies to Belgian company​; ​Mr. Chinn (UK national) lost business bc he was
unable to compete w/ subsidized Belgian boats
3. Ct:​ No illegal nationalization ​ ​ the risk is inherent to doing business
b. NAFTA Cases
i. In SD Myers, Inc. v. Canada​ (​ UNCITRAL-NAFTA, 1934)
1. Rule: ​Nationalization requires a permanent loss and this was temporary
2. Facts:​ US company in OH doing good business importing waste from Canada;
Canada then banned export of this type of waste resulting in the corporation’s
collapse
a. Canada: free to regulate Canadian exports on Canadian soil
3. UNCITRAL: ​This was temporary regulation not nationalization
ii. Marvin Feldman v. Mexico​ (​ ICSID, 2002)
1. Facts: ​Marvin sued Mexico arguing Mexico’s tax breached NAFTA
 2. ICSID: ​Not every business problem is a nationalization; this was a valid
regulation by Mexico to tax cigarettes

CHAPTER 6: INTELLECTUAL PROPERTY PROTECTION & TRANSFER OF TECH TO

DEVELOPING COUNTRIES
A. General Intro
a. Intellectual property moves across borders with international trade or investment
i. ​ So IP embedded in foreign investment may be exposed to particular risks
b. Protection for IP is available under international law
c. World Intellectual Property Org.​ (WIPO): Principle international agency for protection of IP
i. Specialized agency of the UN and hosts the International Patent System, the International
Trademark System, and the International Design System
ii. Does not have an adjudicatory/enforcement function, just develops convention
d. IP violations often will be outside of domestic Jx, thus requiring an international regime
B. WIPO Paris Convention for the Protection of Industrial Property​ (1883)
a. First treaty regulating international IP, almost whole world was party to the treaty
b. Protection Entitlement​ under Paris Convention
i. Concept of Priority​: If a discovery has already been registered, it is protected ​even over
another actor who independently discovers the same patent
1. Courts adjudicate based on who is first to register
2. 2 systems:
a. First to file​: US adopted in 2011
b. Inventor
ii. National Treatment​: All Paris member states were entitled to rights, specifically National
Treatment, as articulated in the Paris Convention
c. Compulsory Licensing under Paris Convention
i. Under compulsory working, a state may instruct a patent holder to make IP available for
use by another country, although ownership of IP remains with patent holder
ii. Paris Convention recognizes compulsory working and mandates that each member
country makes its own rules
1. Bc Paris Convention is based on mandate of ​national treatment​, ​rights w/ respect
to compulsory working are determined under domestic law
2. This is crucial to understanding the limits of Paris and the subsequent transition
to multilateral rights and obligation set out under TRIPS
d. Madrid Convention and International Registration​ (1891)
i. Early attempt to provide international trademark protection through facilitating a
“bundled” approach in multiple Jxs
1. Before, under Paris, had to physically go to each country to register and
therefore protect your patent/trademark
ii. But Madrid developed ​international registration​ by which you could indicate which
countries you want to be registered at time of initial registration
1. Result: efficiency and time saving
iii. But, many important countries (including US, UK, and Japan) never acceded to Madrid
system ​ ​ ​but in 2011 when US switched to “first to file” it acceded to Madrid
1. Reason: registrations under different national rules would apply multilaterally
and put US inventors (for example) at disadvantage
2. Ex: ​first to file without investigation as to “true inventor” could put US
inventors at disadvantage
e. US Patent Reform: ​Leahy-Smith America Invents Act ​(2011)
i. US federal statute that brought significant changes to Patent Act of 1952 including:
1. Switched the US from “first to invent” approach for patents to “first to file”
system
2. Expands definition of “prior art” used in determining patentability
ii. Proponents: changes simplify application process and bring US patent law closer to other
countries’, most of which use “first to file”
C. Limitations of Paris and Motivation for TRIPS
 a.
Diversity of Laws, Reliance on National Legislation and Weaknesses of Paris
i. Paris provides formal procedures for multi-Jx registration and requires National
Treatment to be applied
ii. But:
1. Does not deal w/ substantive law​ of intellectual property rights, which are
subject to enormous national diversity
a. Demand for standard of protection higher than National Treatment
2. Problems of enforcement, which is wholly dependent on national provisions
a. Paris is silent on compensation and doesn’t set procedure/standards
3. Compulsory working: ​Under national legislation, countries generally have the
right to order compulsory working of a patent or trademark, which raises the
public policy concern that a firm has registered in order to prevent local
production (which may be cheaper for consumers and increase local
employment)
4. Concerned about dispute settlement because processes differed depending on the
country
b. Importance of an International Arrangement in the Context of Patents
i. McDonald’s Corp. v. Joburgers Drive-Inn Restaurants​, Supreme Ct. of South Africa
(1996) ​ ​ ​shows limitation of Paris Convention
1. Facts: ​McDonalds was totally covered via patent and trademark registration in
SA; Joburgers began using “MCDONALDS,” “BIG MAC,” and golden arches
in its design; Owner of Joburgers applied to register these marks arguing that
McDonalds did have a shop in SA and didn’t work its registrations; McDonalds
also re-registered
2. Ct:
a. Trial judge ruled against McDonalds on basis that McDonalds was not
a well-known trademark and therefore was not protected under Paris
b. McDonalds then appealed to the South African Supreme Court’s
Appellate Division and the court reversed ​ ​ held that McDonald’s
registrations should be protected
i. **Used South African domestic law
3. Takeaway: ​Under Paris, if South Africa was not a member to the Convention,
then McDonalds could not protect its trademark in South Africa
a. ​ Demonstrates the value of registration and the big changes that
occurred under move to TRIPS
i. Everything is much more specific under TRIPS, and marks a
major departure from IP regime
D. WTO Agreement:​ ​Trade Related Aspects of International Property Rights (TRIPS)​ ​- 1994
a. Substantive Law Standards​:
i. First time that IP Agreement was negotiated under WTO
1. Different timeframes for compliance (2005 for developed and 2016 for
developing)
ii. Incorporates Paris and Berne Conventions and therefore ​universalizes ​them
1. Legal consequence: ​if country is member of WTO but has never acceded to
Paris, TRIPS nonetheless brings the country under Jx of Paris
iii. Major shift: put in place ​common, minimum international standards​ for IP protection
vs. dependence on domestic law in Paris
1. Extent and duration of IP is determined under the Agreement
2. Compulsory working required
iv. Registration is NOT dealt with under TRIPS ​ ​ so Paris and Berne still important
v. Other changes:
1. States must revise their domestic laws so that they meet TRIPS standards ​
states can only deviate by giving ​better protection a​ nd must comply with
specific rights conferred on patent owners under Article 28
b. Enforcement Standards
i. When there is a dispute, ​must first seek local remedies
 ii. Members must ensure enforcement procedures are available under their domestic law in
compliance with TRIPS
iii. Enforcement standard being “fair and equitable”
c. Subject to WTO Dispute Settlement Mechanisms
i. If violate TRIPS, then sued as violated WTO
ii. After first exhausting local remedies
E. Implications of Article 31 of TRIPS
a. Article 31​: regulates circumstances under which a country may order compulsory working and the
conditions applicable to compulsory working
i. Compulsory working (definition): When a govt. allows someone else to produce the
patented product or process without consent of the patent owner
ii. Article 31(f): ​“any such use shall be authorized predominately for the supply of the
domestic market of the Member authorizing such use”
1. This becomes a problem for developing countries because they do not
necessarily have ​capacity​ to compulsorily work a patent
2. Ex:​ Ecuador can’t ask Brazil to take some of the TB drugs under Brazil’s
compulsory working because Brazil can only use predominately for domestic
purposes. And Ecuador itself doesn’t have the capacity to develop/produce the
drug. Also problematic because Brazil wants Ecuador to have the drug because
it can’t combat TB without also making sure its neighbor is combatting TB.
a. ​ ​TRIPS thus prevents less developed countries from accessing these
drugs when they are the ones who need them most!!!
b. Drug owners become pissed bc will undermine their market over the
drugs by making generics ​ ​ but brand drugs are so expensive, ​the less
developed countries will never be their market anyways.​
b. Result of Article 31​: Ends the approach to compulsory working as seen in​ McDonalds, B ​ ut
leaves ​relatively little room​ for discretion by state concerned
c. Conditions Applicable to Compulsory Working
i. Natco Pharma, Ltd. (NATCO) v. Bayer Corp.,​ CLA (2012)
1. Facts: ​Bayer registered its cancer drug in India; NATCO applied w/ Bayer for
voluntary license to produce and sell the drug a lot cheaper (less than 1% of
Indians could afford Bayer’s), but request was denied; NATCO then filed grant
for compulsory working, which was granted.
2. Issue​: Registration must conform to Article 31
3. Ct: ​Used Indian law to grant compulsory working
4. Takeaway:​ Case brings into focus the balance b/w patent holders’ rights and
national health care & access to medicine requirements
d. WTO Declaration on TRIPS Agreement and Public Health​ (Nov. 14, 2001)
i. TRIPS doesn’t want to be seen as impeding public health; there is a real tension b/w
ii. DOHA Declaration sought to address the public policy and humanitarian case for
medicines to be made available to address epidemic disease in developing and least
developed countries
1. TRIPS “should not prevent members from taking measures to protect public
health”
iii. Recognized that each member has 1) the right to grant compulsory licenses (5b) and 2)
the right to determine what constitutes a ​national emergency​ (5c)
1. ​ ​specifically pinpoints HIV/AIDS, TB, malaria and “other epidemics”
2. Issue is whether the above list is exhaustive (Ebola and Zika weren’t problems at
the time)
e. Main Proposed Solutions in Comparison
i. 3 Proposals (pg. 204)
1. Amend ​TRIPS, specifically 31(f) and deal w/ problem of capacity
a. Not adopted because major drug exporting countries (like USA) were
against any amendment of TRIPS
2. Interpret ​limited exceptions clause of Article 30 to allow production for export
to countries with no (or inefficient) capacity
 a. This wasn’t tenable because it required ¾ of members to vote yes
b. Plus it is sketchy to re-interpret the law when it hasn’t actually
changed. To be binding, a real change is required.
3. Moratorium​ on WTO disputes/complaints
a. Not a solution, as such, because it would only be temporary
b. Would allow no enforcement of 31(f) for affected countries for X
number of years
f. Implementation of Paragraph 6 of Doha Declaration on TRIPS and Public Health – Decision
of the General Council (​Aug. 30, 2003)
i. Waiver on 31(f) w/ Conditions ​ ​ current state of law right now!
1. Lists the countries that are considered for exemption:
a. Least developing states are automatically exempted (re. World Bank
assignments)
b. Developing states have to prove they need exemption
2. Process:​ for both developing and least developing countries
a. Notify WTO
b. Specify​ desired quantities for importation and other details
i. Must be very specific​. ​ ​ ​troubling because a country without
capacity may not be able to be so exact re. the amount needed
1. Can’t ask for more or less than necessary
ii. Goal is to make sure that the patent owner remains in control
of the greater market
c. Get​ confirmation​ from state from which want compulsory working
i. Ex: Brazil ​ ​ Ecuador. Brazil must agree.
ii. Brazil must export the exact amount that is asked for
d. Must notify all members of TRIPS
e. Product must bear ​different packaging​ from product produced
typically, etc.
f. Prior to shipping, must post info on WTO’s website.
3. **​Compensation ​must be paid from the country with the compulsory working
for the value of the drug to the patent holder
a. Ex:​ Brazil ​ ​ Ecuador. Brazil has license so must pay compensation to
patent holder, bc Brazil is main beneficiary of the compulsory working.
4. No time limit for the waiver!
ii. Criticisms of Waiver:
1. Why do we assume that all developing/developed states have capacity? They
may not have economies of scale (money).
2. Why make distinction b/w least developed states and developing states?
3. **Ndulo:​ But it appears that at the moment this is the best solution
g. Future of Doha Negotiations​ – Recent Developments
i. Extends waiver for least developed countries until 2033
F. International Tech. Transfer Contracts
a. In General​:
i. Manufacturing and services in many countries of the world are moving increasingly into
higher value-added sectors such as pharma and IT
ii. Foreign investors express deep concern about tech. transfer and the protection of their IP
iii. Ex: ​China
1. China has policies requiring the transfer of tech. by foreign companies selling
products or services to Chinese companies in higher tech. sectors
2. Issues that are commonly litigated involve: misappropriation or infringement of
IP, stealing of tech, breaching of IP rights and counterfeit
iv. “​Forced” Technology Transfer​:
1. Although there is usually prior agreement with foreign company re. tech to be
transferred, pressure can increase over time for more tech to be included
2. Resulting from govt. policy intention to accelerate the transfer of certain tech.
 3. Where foreign investment is through JV or minority holding, there can be
particular risk of handing over more tech. than planned w/out appropriate
compensation via licensing
a. Big deal in automobile, telecom, aerospace, computer software, and
green tech sectors
b. International Tech Transfers
i. ITT Predominately driven by national policies and is difficult to regulate effectively at
international level
1. Ex: ​Company from X country invests in manufacturing plant in Y country,
provisions for the transfer of tech. will often be requested by Y. The investor
must be comfortable that national patent protection in Y is sufficient. Often
parties will enter into a K w/ specific focus on transfer of tech.
c. Provisions and Conditions for Transferring
i. Part I: Explains subject-matter (description of the technology and the mode of transfer)
1. Implications deal with tension b/w confidentiality and need to be
detailed/transparent
ii. Part II: Conditions restricting the use of technology
1. Must also look at country where technology is going and coming from (ex:
Philippines)
iii. Part III: Payment of technology
iv. Part IV: Guarantees related to the tech.
1. Technology must do X ​ ​ important for the buyer
2. Becomes a ground for alleging breach of K
v. Part V: Third party claims
1. Don’t want to be sued by other parties after obtaining the tech.
2. Want to ensure that you are free to use technology without 3​rd​ party coming in
and claiming their ownership of the tech.
vi. Additional provisions:
1. Account for situations in which the purchaser ​actually improves​ the technology
while using it
a. Some suppliers claim that is their tech. and should benefit from it,
while others agree to share in benefit or pay some compensation to a
buyer
b. Philippines’ legislation prohibits K terms that give exclusive ownership
to supplier
2. Confidentiality
3. Supplier agrees to provide necessary documentation
4. Training
d. Case Study: Philippines
i. Dispute settlement
1. Arbitration must be under Philippines law or UNCITRAL rules
2. Big Idea: When making ITT contract, must look at ​law of both countries
because almost every country has regulations re. technology transfer and all
countries are seeking to benefit from the tech.
ii. Inherent tension in ITT Ks ​ ​ supplier is concerned about buyer about creating a
substandard good vs. buyer wanting to adapt tech. to country conditions
1. Ex​: Philippines rejects Ks that prohibit adaptation
e. Fostering Tech. Transfer for Econ. Development
i. Come back if have time

CHAPTER 7: PROCESS AND VALUE OF UNIFICATION OF COMMERCIAL LAW TO

INTERNATIONAL TRADE & INVESTMENTS
A. Traditional Approach and Reliance on Conflict of Laws Rules
a. Commercial activities in a country are governed by national legislation but this does not have
extra territorial application to the non-national aspects of international commercial transaction
 b. UNCITRAL Limitation Convention​ (1974) and ​UN Convention on Contracts for International
Sale of Goods ​(1980) effectively created a ​“global sale of goods”​ law
i. Before this, US relied on US Commercial Code and domestic K law
c. For international Ks, used ​conflict of law​ rules
i. Problems​: unpredictability and uncertainty for businesses; provided incentives for govt.
to seek better way; discouraged international Ks
B. Movement to Adopt Common Rules for International Contracting
a. UN Sales Convention​ (1980) sought to reconcile substantively different approaches to commercial
law under common law and civil law Jxs
i. It acts as an additional source of law to domestic K law when dealing w/ international Ks
b. The Hague Uniform Laws (1964) was only adopted by a small number of countries
C. Universal Approach: UN Convention on Contracts for the International Sale of Goods (UNCITRAL)
Sales Convention (1996)
a. UNCITRAL Sales Convention creates substantive law for Ks w/ international dimension
i. Where it applies, it replaces conflict of law rules and becomes source of applicable law
for international sales K
1. US has adopted it and enacted into US law ​ ​ ​automatically applies in
international sales Ks originating in US
2. All major economies (minus UK, Hong Kong, India, South Africa) have ratified
3. Even if not ratified, can still be chosen as a choice of law
ii. Convention addresses full range of issues including: passing of risk, transportation of
goods, and acceptance and obligations of the buyer and seller in international K
b. Main Provisions of the Convention
i. Conditions of Applicability​:
1. Article 1: Convention applies b/w parties whose places of business are 1)
different member states ​or​ 2) **when ​rules of conflicts of law​ lead to
application of contracting state’s law
a. Ex: Italy and Country Z (non-member). Court determines via conflict
of law that applicable law is US law. Then law applied by court will be
the Convention.
2. Nationality is not relevant, only the place of business
ii. Scope
1. Article 2: lists situations where the Convention does not apply like sales of
stocks, shares, electricity.
iii. Offer and Acceptance
1. Articles 14, 16-20
iv. Obligations of Seller & Buyer
1. Articles 30, 35, 50, 53, 55, 64,
2. Ex: Article 35 ​ ​ seller must deliver goods that are the quantity, quality, and
description required by the K
v. Exemptions
1. Article 79
c. Distinguishing Features of the Convention
i. Language​ features compromise from multiple Jxs and especially ​b/w common and civil
law
1. Traditional common law approaches are not referred to by name but described
as intended and not labeled
ii. Article 9: Usage
1. Abandons traditional common law approach to usage
a. Reflection of criticism that common law developed by western
countries without participation of developing states
2. **Instead recognizes trade usage that is “​agreed to​” ​ ​ Quite radical idea that
Narrows usage a lot
iii. Article 11: Writing
 1. Some Jxs don’t recognize oral contracts (Eastern Europe), so Convention
implements a common law approach but ​balanced w ​ / that of non-common law
Jxs
2. Article 96: states can opt out of Convention on that issue
iv. Article 79: Doctrine of Frustration
1. Completely avoided use of common-law “Doctrine of Frustration,” but 79 deals
with the question of conditions under which a party is exempt from discharge of
its K obligations
2. Again, this intention is to create a neutral approach, accommodating the
different Jx approaches to the issue
v. Preservation of Goods​ ​ ​ ​very contentious
1. There was much debate with UNCITRAL process on whether a preservation of
goods provision should be included in Convention
2. In the end of Convention introduced the concept that a seller has an ​obligation
to preserve goods even when the buyer is rejecting​ because they don’t conform
to the order.
3. Policy: prevent unwarranted abandonment of goods and especially perishable
goods in international trade
vi. Remedies for Breach of K by Seller
1. UN Sales Convention provision is generally less detailed and specific than
Hague Uniform Laws
vii. Passing of Risk​: another area where Hague Uniform Laws and UN Sales Convention
differ significantly
1. Structures obligations on both buyers and sellers
D. UN Convention on Limitation Period in International Sale of Goods (UNCITRAL Limitation
Convention)
a. Relates to the time within which a party can bring an action arising from a certain K
i. Periods differ from one area of law to another and from one country to another, which
may create substantial difficulties at the international level
b. Convention seeks to eliminate effect of these Jx variations through short and clearly-stated
approach ​ ​ Article 8​: Limitation period is ​4 years
c. Also different approaches from Jx to Jx over when an action can start
i. Some: can’t be brought til limitation period has expired
ii. Others: action can be brought unless an objection is raised
iii. *Quite common for K parties to agree on shorter limitation period for initiating of dispute
settlement procedures under the K
E. UNCITRAL Addressing Legal Barriers to Trade

CHAPTER 8: INTERNATIONAL COMMERCIAL ARBITRATION AND INTERNATIONAL

SETTLEMENT OF DISPUTES
A. Out of Court Dispute Settlement
a. Negotiation, Conciliation and Mediation
i. Foreign investor will often seek first to resolve via voluntary negotiations, recognizing
that formal court proceedings in host country may be unpredictable and costly
ii. Best/most effective outcome​ for investor is the n​ egotiated settlement
1. Mediation and conciliation procedures may also be considered, if provided for in
the K or if parties agree
iii. If above options don’t work, parties can either move forward with formal court
proceedings or, if provided for in the agreement b/w the parties, to binding domestic or
international arbitration
b. International Arbitration
i. Contract provision often include dispute resolution clause w/ international arbitration
being the selected forum
1. But option is only available if counterparty has agreed to include such a
provision in the relevant agreement
2. ​ it can be hard to convince counterparty of this
 ii. Common choices for venue: Stockholm, NY, London, Hong Kong, Singapore
iii. Arbitration types:
1. Ad hoc​: arranged by parties without involvement of organizing or rule setting
institution
a. UN Commission on International Trade Law (UNCITRAL) has
elaborated arbitration rules to help these proceedings
a. Must look for enforcement to the NY Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (1958)
2. Institutional​: organized and administered by institution specializing in
international dispute resolution
a. International Centre for Settlement of Investment Disputes (ICSID)
plays an ​important reference role
b. Like ad hoc, also must look to NY Convention for enforcement
3. Treaty-based:​ ICSID, NAFTA, other regional treaties
iv. ICSID​ (1966)
1. Multilateral treaty formulated by the Executive Directors of the World Bank to
further the Bank’s objective of promoting international investment
2. ICSID seeks to act as an independent and depoliticized dispute-settlement
institution
3. Public policy objective: promote international investment via strengthening
investor and host state confidence in dispute resolution processes
4. Also available for state-state disputes under investment treaties and free trade
arrangements and as an administrative registry
5. Crucial feature​: ​provisions for enforcement are self-contained​ within the treaty
obligations and the ICSID process
a. ​ Ad hoc and other institutional arbitrations must look for enforcement
to the NY Convention
b. **Successful enforcement of award under ad hoc or institutional
arbitration relies on the existence and observance of international
treaty provisions
B. Arbitration in Settlement of Investment Disputes
a. Advantages and Disadvantages
i. Pros:
1. Enforceability!​ ​ ​ more than 145 states are party to the NY Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (1958)
2. Avoids issues of unpredictability when dealing w/ foreign court systems and
potential political interference
a. **Designed as an acceptable ​neutral f​ orum
3. Procedural flexibility may represent a particularly attractive feature for parties
from different Jx environments
4. Rules are streamlined, flexible, and less complex than most national rules for civ
pro
5. Flexible in terms of practical arrangements
a. Ex: where and when to convene the dispute settlement proceedings
6. Less need for discovery (pre and post-trial paper work)
7. Ability to choose arbitrators for their technical expertise in the relevant business
sector but also to ensure knowledgeable and fair hearing
a. Selected for familiarity with the relevant commercial practices, trade
usages, legal structures, and comparative law issues
8. Parties can design dispute resolution process in accordance w/ specific issues at
stake via ​selecting governing law​ (substantive law), place of arbitration,
relevant aspects of arbitral procedure (rules), and arbitrators
9. Privacy ​of arbitral awards ​ ​ NOT published unless agreed by parties
10. No hierarchy of courts and no formal case law ​ ​ speed and clarity of
determination
 ii. Cons:
1. Cost is perceived to be less than litigation, but not necessarily the case
a. Required experts may be in demand and difficult to hire
2. Lack of binding precedent and relative uncertainty in predicting outcomes
3. Delays may occur w/ scheduling
4. Evidence ​ ​ no coercive power equal to that of the courts to subpoena witnesses
and order them to appear
5. No means of appeal (concern that there is no correction of errors in law or fact)
b. Choice of Arbitration Rules
i. Many countries have arbitration laws which provide legal framework for conduct of
commercial arbitration
ii. **But, subject to mandatory requirements of applicable law, parties can agree b/w
themselves re. the arbitration procedures
1. Usually: parties adopt a set of ​tried and tested standard ​arbitration rules, which
are then interpreted in the context of arbitration law of the seat of arbitration
iii. Widely used applicable rules:
1. Ad hoc arbitration: respective lawyers need to agree to procedure (typically
UNCITRAL or ICSID)
2. UNCITRAL rules
3. ICSID rules
a. Note: ICSID deals exclusively w/ disputes arising directly between
contracting state and investor of another contracting state
4. ICC rules in Paris
5. Rules of other international arbitration centers
a. ​ London Ct of Arbitration (LCIA), Arbitration Institute of the
Stockholm Chamber of Commerce (SCC), the Singapore International
Arbitration Centre (SIAC), and the China International Economic and
Trade Arbitration Commission (CIETAC)
iv. Centerra Gold, Inc. and Kumtor Gold Company v. The Kyrgyz Republic​ (​ UNCITRAL,
2007
1. Facts: ​Dispute over exploration/development of mining sites in Kyrgyz;
Centerra argued that Kyrgyz violated a set of agreements; the agreement
included a dispute resolution clause which provided that UNCITRAL would
govern disputes
2. Takeaway​: ​Illustrates how choice of law applies to the dispute
v. International investors may also consider the use of national arbitration provisions that
may be accessible for foreign parties
1. Ex:​ China’s CIETAC
c. Arbitration Agreement
i. Arbitration clause or agreement in the K is ​crucial ​and the parties will often use model
clauses selected from an institutional source like ICC
ii. Will provide: the procedural and institutional rules to be used, the applicable law, the
place of arbitration, number of arbitrators appointed, etc.
1. Number of arbitrators is typically 1 arbiter or a party of 3 (each party choosing 1
and these two choosing the 3​rd​)
2. Parties may negotiate to determine applicable law and seat of arbitration
C. Substantive Law
a. Applicable law will usually be specified in the agreement
i. Arbitrators are bound to apply this law to the dispute
b. ICSID default: ​Where agreement is silent on choice of law, then arbitration will use law of that
state
c. Biloune and Marine Drive Complex Ltd. v. Ghana Investments Centre and the Govt. of Ghana
(1990)
i. Facts: ​No BIT b/w investor’s state (Syria) and host state (Ghana); investor then initiated
an ad hoc tribunal using UNCITRAL rules
1. Biloune built a hotel in Ghana but it was nationalized – breach of agreement
 a. Also wanted to argue human rights violations
ii. Issue: ​what choice of law applies
1. Ghana: Ghana’s law applies
2. Biloune: international law should apply bc Ghana would manipulate its own law
in its favor
iii. Ct: ​Ghana’s law applies
1. Because Ghana’s law does not conflict with international law re. nationalization
and compensation
2. Tribunal would not address human rights claims as it was beyond their Jx
3. Ultimately awarded Biloune with compensation for expropriation against Ghana
iv. Takeaway: ​Illustrates what happens when no choice of law is added in the agreement ​
the tribunal will decide; here it was the law of that state (in this case, Ghana’s)
D. UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NY Convention)
a. Enforcement of Awards
i. The NY Convention is a treaty open to accession by any UN member states and any other
state that is either a member of any specialized agency of the UN or a party to he ICJ
1. Est. uniform international standards for the enforcement of arbitration
agreements
2. Purpose: make arbitral awards (institutional or ad hoc) rendered in a foreign
state ​enforceable​ in any state that is party to the Convention
ii. NY binds its members to observe ​2 key principles​:
1. To ​respect parties’ agreements​ to arbitration
a. ​ e.g. their national courts must decline to hear disputes that parties
have validly agreed to submit to arbitration, and
2. To recognize and enforce awards resulting from arbitration in the ​same way they
would enforce a judgement of their own national courts,​ subject only to being
permitted a limited judicial review of the existence of an arbitration agreement
and the observance of due process
iii. When acceding to the Convention states ​may elect to restrict​ its application:
1. To a ​reciprocity reservation
a. i.e. the recognition and enforcement of awards made only in the
territory of any Contracting State; and
2. To a ​commercial reservation
a. i.e. difference arising out of “commercial” relationships (whether K or
not)
3. US has ratified the Convention w/ both reservations!​
iv. US Arbitration Act​ (1925)
1. More commonly referred to as the Federal Arbitration Act (FAA)
2. Provides for judicial facilitation of private dispute resolution through arbitration;
a. ​ once an award is declared by an arbitrator or arbitration panel, it
must be confirmed in a court of law ​within​ ​one year
3. NY Convention has been incorporated into Chapter 2 of the FAA:
a. This governs how US courts should enforce arbitration agreements or
arbitral awards in disputes b/w US citizen and non-US citizen of
another country signatory to the Convention
b. Contracting states are to give effect to agreements to arbitration and
also to recognize and enforce awards made in other states subject to
limited, specific exceptions
v. Scope of Public Policy Exception
1. Mitsubishi Motors Corp. v. Soler Chryser-Plymouth, Inc.​ (​ 1985)
a. Rule: ​Upholds arbitration for claims arising under statutory, as well as
contractual claims ​ ​ can’t avoid arbitration if it is a contractual term
b. Facts:
i. Soler had a JV w/ Chrysler to sells cars in Japan and the
agreement included an arbitration clause. Soler cancelled
orders and Mitsubishi sued under FAA to compel arbitration.
 Soler counterclaimed based on anti-trust statutes including the
Sherman Act.
c. SCOTUS:
i. FAA requires a court to determine whether there has been an
agreement to arbitrate a dispute – and if so, we uphold it!
ii. Public policy can be upheld in arbitration, not just litigation!
iii. It makes no difference that a claim one party seeks to enforce
against the other party is based on statutory rights creating a
private cause of action
iv. Exception: only if it is a criminal matter is arbitration not
enforced
d. Takeaway:
i. FAA is broad enough to require enforcement of arbitration
awards arising from ​statutory as well as contractual claims
ii. SCOTUS explicitly accepted the need to recognize and
strengthen international arbitration as an effective means of
international commercial dispute resolution!
iii. Ct. considered that the national cts of the US would still have
the opportunity, at the enforcement stage, to ensure that the
legit. public policy interest represented by the US anti-trust
laws would be adequately addressed
vi. Challenges to the Legality of a Contract as a Whole
1. Buckeye Check Cashing, Inc., Petitioner v. John Cardegna et al​ ​(SCOTUS,
2006)
a. Rule: ​A contract challenged as illegal is still subject to the arbitration
provisions contained in the alleged illegal contract
b. Facts: ​P and D had various deferred payment Ks where P received cash
in exchange for personal check. For each transaction there was a
separate agreement that provided for arbitration in case of dispute. P
sued D in FL state ct. to make K illegal and criminal. D motioned to
compel arbitration pursuant to the agreement. Trial ct. denied on basis
that courts not arbitrators should resolve a claim that a contract is
illegal and void.
c. SCOTUS:​ Regardless of whether it is brought in state or federal ct, the
question of a K’s validity must go to the arbitrator if there is a valid
arbitration clause.
i. **Congress intended the FAA to encompass both state and
federal Jx.
ii. Must go to arbitration even if K isn’t valid due to ​Doctrine of
Separability
d. Thomas Dissent​: No - FAA does not apply in state courts
e. Takeaway​: Even if the issue is the illegality of K itself, it is still
subject to arbitration ​ ​ bc it does make the clause that stipulates
arbitration irrelevant
vii. Judicial Review of Arbitral Awards at the Place of Arbitration
1. Article V(1)(e)​: ​deals w/ an additional ground for refusing to enforce a foreign
arbitral award, namely​ ​where the award has been challenged in the country
where the award was made​.
a. “Recognition and enforcement of an award ​may be refused​, at the
request of the party against whom it is invoked, only if that party
furnishes proof that the award has not yet become binding on the
parties, or has been set aside or suspended by a competent authority of
the country in which, or under the law of which, that award was made.”
b. This is a matter of the ​court’s discretion​ as seen in Chromalloy
2. Chromalloy Aeroservices Corp. v. Arab Republic of Egypt​ (​ 1996)
a. Rule: ​Up to court’s discretion whether to apply Article V(1)(e)
 b. Facts:​ US asked to enforce arbitral award although it had been set
aside by a court at the place of arbitration
i. Based on military procurement K b/w US corp. Chromalloy
and Egypt. Egypt terminated the K and then Chromalloy won
an award in arbitration.
ii. Egyptian cts then nullified the award, though Chromalloy had
sought enforcement of award in US cts
c. Ct: ​Award of the arbitral panel is valid as a matter of US and it will not
give res judicata effect to the Egyptian ct.’s nullification of the award
i. Whether to refuse to enforce the award based on nullification
by the ct. in which the arbitral award is made is up to the ct’s
discretion
ii. But here: 1) ​the award was not made in “manifest disregard
of the law”​ and 2) the E​ gyptian ct actually acted outside the
agreement by allowing it to go to appeal
iii. So will not apply RJ to its nullification
viii. Limited Defenses to Recognition and Enforcement of Arbitral Award
1. Procedure​:
a. An action to enforce an award must commence ​within 3 years​ of an
award’s origin
b. A party seeking to enforce an arbitration award can est. a prima facie
case by providing the original or certified copy of the arbitration
agreement and award
c. **Once a party has made a case for enforcement, the district ct. “shall
confirm” the arbitration award ​unless​ one of the grounds for refusal
specified in the NY Convention exists
d. Article V​: lists 7 grounds for refusal to recognize or enforce an
arbitration award including ​
i. V(2)(b): Enforcement of the award violates US public policy
ii. V(2)(a): award represents arbitration of matters not
appropriately decided by arbitration
iii. V(1)(b): tribunal denied the corp. an adequate opportunity to
present its case
2. Parsons Whittemore Overseas Co. Inc. v. Societe Generale De L’Industrie Du
Papier ​(​1974)
a. Rule: ​Basically, there is a high bar to non-enforceability of arbitral
awards based on Article V exceptions
b. Facts:​ American corp. constructing mill in Egypt; 6 Day War with
Israel broke out; US and Egypt broke diplomatic relations so the
company stopped the construction.
i. Egyptians argued that American corp. was obligated to
construct the mill but company said it couldn’t go forward due
to American foreign policy
ii. Went to arbitration and Egypt got award for damages
iii. Then Parsons argued in ct that award shouldn’t be enforced
under Article V exceptions listed above and
1. Article I(c): award predicated on a resolution of
issues outside the scope of the K agreement to submit
to arbitration
2. Common law: award in manifest disregard of the law
c. Ct: ​Affirmed the award​ by rejecting the arguments posed by Parsons
i. But did NOT say that the arguments were frivolous so did not
double costs payable by Parsons
ii. Specifically ​
1. Per public policy argument​: cannot construe the
exception so broadly; rather, must be very narrow
 a. Only would consider non-enforcement in
cases where doing so would violate most
basic norms of morality and sense of
justice!!
2. Per non-arbitrability argument​: Mere fact that
national interest may enter into the dispute does not
make the issue non-arbitrable
3. Only way they wouldn’t have enforced is had there
been a “​manifest disregard of the law​” meaning that
the arbitrators had understood and correctly stated the
law but ignored it
d. Takeaway: ​illustrates five grounds to refuse enforcement but all were
rejected in favor of enforcement!​ Strong ability of enforcement is one
of the reasons that arbitration is proper
ix. Permitting Attachments Pending Arbitration Proceedings
1. NY seeks to provide for reliable enforcement of arbitral awards on an
international basis.
2. One remaining area of contention is ​whether attachments (interim measures
like injunctions) should be permissible​ pending proceedings under the
Convention
3. Cooper v Ateliers de la Motobecane SA​ (​ 1982)
a. Rule: ​No attachments permissible (but this is still contentious)
b. Facts: ​Pending arbitration, Cooper sought attachment of a debt owed
by Motobecane’s American subsidiary
c. NY Ct of Appeals (4-3):​ reversed allowance of attachment
i. Interprets NY to determine that it does not allow attachment
(interim measures)
1. Would inject uncertainty into the proceedings
because a foreign business would be subject to laws
that it is unfamiliar with
2. Also may cause unnecessary expense and delays
ii. Ndulo: ​Court ignores the fact that interim measures are crucial
in that they ensure that assets can’t be hidden, and instead
focuses more on NY Convention
4. But ​Carolina Power​ t​ akes alternate view
a. Says that allowing interim measures is okay because it will strengthen
arbitration and make recovery possible
b. ^^This is perhaps more consistent with the general international
interpretation of the NY Convention and the views of other signatory
countries
c. Policy arg​: parties to a K will be more likely to enter into and adhere to
an arbitration agreement when they know that the award in their favor
will be enforceable – attachment will provide that desired security
E. Direct Investor to State Dispute Settlement: International Centre for Settlement of Investment
Disputes (ICSID)
a. What is Dis?
i. ICSID is an example of a treaty-based system of international arbitration
ii. Created by the WB and IMF in 1965 as a response to the void in the legal framework for
resolution of international disputes b/w states and foreign investors
1. Before ICSID, if you were an investor involved in a dispute with another state,
then you had to get your home state to sue on your behalf (customary
international law as reflected in ​Barcelona)​
2. But w/ ICSID, corporations can sue states directly​!
iii. 161 states have signed on to ICSID, and of these, 153 have ratified it and become
contracting parties
b. Structure
 i. Ch. 1 of the Convention establishes ICSID
ii. Ch. 2: establishes Jx
iii. Ch. 3 and 4: set out the provisions for dispute settlement
c. Jurisdiction of ICSID
i. Convention of Settlement of Investment Disputes B/w States and Nationals of Other
States
1. Article 25:​ Jx extends to any ​legal dispute​ ​arising directly out of an ​investment
b/w Contracting State and national of another Contracting State, which the
parties ​consent​ ​in writing.
a. Investment: concerns movement of capital for profit with management
2. Article 26: ​Consent to ICSID arbitration. A Contracting State (but not ICSID)
may require exhaustion of local remedies as a condition.
ii. Twofold Consent​ ​ ​ members of existing are ​not automatically signing on​ to use ICSID
1. Consent is fundamental to ICSID and is granted in a 2-fold manner:
a. First by states consenting to ICSID by signing the treaty
b. And then the ​written​ consent of both state and private parties to use
ICSID
i. Such consent can be found in BITs, legislation, licenses, etc. –
it doesn’t HAVE to be in the agreement itself, but often is (see
Amco)​
iii. Establishing Jx: Foreign Nationality at Time of Consent
1. 25(b)(2) exception:​ when can you deem a company foreign for Jx purposes (it
must also be externally foreign controlled)
a. Holiday Inn v. Morocco:​ o​ verturned
i. Rule: ​Narrow view of 25(b)(2) that required explicit consent
to treating party as a foreign national in the agreement itself
b. Amco v. Indonesia:​ G ​ OOD LAW!
i. Rule: ​Can find consent to foreign nationality in any
document, (BIT, legislation, etc.) as long as you have it in
writing
ii. Facts:
1. Indonesia: argued that Amco was not party to the
ICSID arbitration clause and thus Amco could not be
designated as a foreign national under 25(2)(b) be
treated as foreign
iii. ICSID: ​Indonesia had agreed to treat Amco as a foreign
national when Indonesia approved its investment license
application (and the ISID clause in it).
iv. Takeaway: ​very l​ iberal view​ of 25(2)(b) exception
2. **If you agree to ICSID arbitration in the agreement, then you are implicitly
consenting to treat the national as foreign.
iv. Establishing Jx: Foreign Control at Time of Consent
1. Foreign control is DIFFERENT ​ ​ it cannot be implied but must actually exist in
order to establish ICSID Jx
a. You can use an agreement on foreign nationality to create a
presumption that factual condition of foreign control exits, but no more.
2. Vacuum Salt Products v. Govt. of Ghana​ ​(ICSID, 1994)
a. Rule: ​Foreign ​control ​at time of consent is an objective requirement ​
must be actual foreign control not just an agreement to treat as foreign
b. Facts: ​Vacuum (incorporated under Ghanaian statute) and for most of
the time, Ghanaian guy operated it and had all the shares. Greek guy
had 20%.
i. Ghana objected to ICSID Jx on ground that Claimant was
essentially Ghanaian and therefore not foreign controlled and
that conditions of Article 25(b)(2) weren’t satisfied
 c. ICSID: ​declined to hear case (lack of Jx) because corp. was Ghanaian
controlled
v. Establishing Jx: “Investment Requirement”
1. Toto Construzioni Generali SpA v. Republic of Lebanon​ ​(ICSID)
a. Rule: ​Check for 5 factors to weigh whether it is an investment under
Article 25
b. Facts: ​Toto (Italian) sought ICSID arbitration pursuant to
Lebanon-Italy BIT. Toto claimed that Lebanon delayed expropriation
of private property causing substantial delays to highway construction.
i. Toto alleged breach of BIT provision for non-discrimination
and f&e
ii. Lebanon objected ​ ​ Toto hadn’t made an “investment” within
Article 25(1)
c. ICSID: ​It ​was an investment​ based on following requirements of an
investment: 1) Economic activity, 2) Financial risk, 3) Profit objective,
4) Investor uses its own financial means (investor contribution), 5
Completed over specific but long term period of time (duration of 2
years)
d. Takeaway: ​Point is that we must consider whether each issue going to
ICSID is an investment. Ndulo isn’t sure that this was actually an
investment ​ ​ seems more like a sales contract (Toto is being paid to
provide the service of building the road)
d. Energy Charter Treaty and Provision for Compuslory Arbitration
i. First multilateral treaty to provide as a general rule for the settlement of investor-state
disputes by international arbitration – ​specific to the energy sector
1. Signed by 54 states and by Euratom and the EU
2. 113 cases have been arbitrated since 2013
ii. Structure​: clear provisions for settlement of investment disputes
1. Article 26 ECT: investor to state disputes
2. Article 27 ECT: state to state disputes
iii. Yukos v. Russia​ (2014):
1. Facts: ​Tribunal came down on Russian corruption and awarded Yukos over $50
billion in damages for expropriation by Russia
a. ​ largest award in arbitration history!
2. Takeaway:​ demonstrates that ECT tribunal will apply ECT in good faith to
prevent abusive and expropriatory behavior, though enforcement is an issue
iv. Criticism​: Post-Yukos, ECT seen as a free-ride to investors because the $50 billion award
was considered obscene
1. But recent judgments in favor of Hungary over investors show that this is not the
case and that tribunals will carefully weigh legit. regulatory consideration with
discretion allowed by the ECT
v. Plama Consortium Limited v. Republic of Bulgaria​ (​ 2005)
1. Rule: ​Claims brought under ECT still require two-fold consent for ICSID Jx
2. Facts: ​Plama (Cyprus) brought claim under ECT against Bulgaria for problems
w/ manufacturing unit.
a. Plama: Bulgaria-Cyprus BIT should be applicable as selecting ICSID
as the forum, although not being explicit, on the basis of MFN
treatment
3. ICSID: ​Rejects use of MFN clause as not amounting to explicit written
agreement to go to ICSID​ ​under 2-fold consent requirement
a. Not persuaded by Plama’s argument to imply consent via MFN because
consent to ICSID must be explicit
e. ICSID Rules of Procedure for Arbitration Proceedings​ (Arbitration Rules)
i. “Arbitration Rules” provide for:
 1. est. of the Tribunal; the working of the Tribunal; general procedural provisions;
written and oral procedures; the Award; and the post-Award remedies of
interpretation, Revision, and Annulment of Award
ii. Hrvatska Elektroprivreda, d.d. v. Republic of Slovenia​ (2008)
1. Rule: ​Integrity and fairness of the arbitration process is main focus!
2. Facts:​ One of Slovenia’s counsel shared chambers in UK w/ President of
Tribunal; Croatian co. argued conflict of interest
3. ICSID: ​The lawyer has got to go!
4. Takeaway:​ When arbitrators/lawyers are appointed, it is important that they are
independent and there is integrity to the process; upon any suspicion of conflict
of interest then the arbitrator must leave!
f. Enforcement of Mechanism under ICSID
i. Section 6 (Article 53-55) of the Convention deals w/ enforcement
​ iberian East Timber Corp (LETCO) et al v. Liberia​ (1986):
ii. See ​Liberia L
1. Rule:​ ​US courts will enforce arbitral awards in line with Article 54
2. Facts: ​LETCO won an award against while Liberia and then came to US to
enforce award (seize Liberian assets) in US fed ct.
3. US Dist. Ct: ​Yes US has Jx bc under Article 54 US is obligated to recognize
and enforce judgment by ICSID tribunal
a. Liberia ​waived its sovereign immunity​ in US When it entered into
concession K w/ LETCO that provided for ICSID arbitration
b. it invoked ​Article 54 provision​ which requires enforcement by
contracting states
4. Takeaway: ​illustrates the futility of not cooperating with an ICSID award and
the strength of ICSID judgment enforcement
g. Annulment under ICSID
i. Section 6 (Article 51 and 52) of the Convention
1. Similar to Article 5 of NY Convention
ii. Article 52:​ Grounds for annulment are:
1. Tribunal not properly convened,
2. Tribunal manifestly exceeded its power
3. Corruption
4. Serious departure from fundamental rule of procedure
5. Tribunal didn’t give reason for its decision
iii. CGE v. Argentine Republic​ ​(ICSID, 2002)
1. Facts:
a. CGE argued Article 52 grounds for annulment: 1) failure to state
reasons, 2) departure from procedure, 3) abuse of power
b. Based on termination of concession K by Argentina in violation of
France-Argentina BIT
2. ICSID​:
a. Dismissed most of the grounds but does find departure from procedure
i. Tribunal ignored role of procedure by deciding that the
domestic courts, not the tribunal, should decide the issue
b. So annulled the part of the award that dealt with this issue
3. Takeaway: ​Courts are s​ uper careful about annulment​ and really want to avoid
perception of having to revisit cases!
a. Are more likely to annul for failing to follow procedure than actually
substantive decision
b. Remember: no appeals in arbitration so can’t reverse wrong ruling on
the merits

CHAPTER 9: LEGAL ISSUES IN JOINT VENTURES

A. Joint Ventures as Vehicle for Foreign Investment
 a. JV: ​Partnership arrangement in which two parties pool technology, manufacturing know-how,
marketing skills, capital, and management expertise in mutual business endeavor and share all the
associated risks.
i. ​ Allow investor to hold an equity interest with host country partners in the same LLC
ii. Profits and losses are distributed in proportion to ownership interests in the venture
b. Wholly Foreign Owned Enterprises​: some countries have laws in place where foreigners can
establish and operate wholly foreign owned enterprises and make independent investments
without the participation of a host-country partner
i. WFOE typically takes the form of a LLC, but the implementing rules may permit other
liability structures (subject to approval by the host country)
ii. WFOEs are preferred in China
1. Reason: greater management autonomy and less exposure to potential political
interference
2. Many large multinationals in China have been buying out or selling their JV
interests over recent yrs
c. JVs cover all business sectors but are particularly common in mining and tech.
i. Sometimes host govt. will require JVs ​ ​ common in oil and mineral sectors
d. Contributions​ ​of foreign partners​: financial resources, trained personnel, IP (patents and
trademarks), marketing, tech production or managerial know-how
e. Contributions of local partners: ​land, existing production facilities, capital, intangible
contributions (like knowledge, govt. supplier, labor and customer contacts, and political and social
goodwill)
B. Historical Developments
a. Experience of CMEA Countries
C. Establishing JVs
a. JVs can be initiated in 3 ways:
i. Foreign partner investment in an existing local company
ii. Local partner investment in an existing national operation of a foreign company
iii. Creation of an entirely new business venture
b. Equity JV v. Contractual JV
i. Equity JV​: new corporation formed – most common type
1. Governed by corporate law
2. Involves ​continuous association​ b/w developing countries and foreign investors
3. Danger: can disincentive company from joining if govt. insists on being equal
shareholder
ii. Contractual JV:​ no separate entity is formed; no actual partnership or corporate
designation
1. Regulated by contract
2. Made for the supply of capital, equipment, industrial property, and technical
assistance by the foreign partner in return for royalties
3. Common in: countries w/ centrally planned economies or in exploration and
development of natural resources where desire for national control is strong
c. In determining the structure of JV agreement, the ​desired tax consequences will most likely be
controlling
i. If possible, it is important to make sure that the taxes paid by JV company can be credited
against the partners’ home country tax liability arising when the JV company’s earnings
are repatriated
D. Structuring and Negotiating JVs
a. Who gets control and how much?
i. Typically goes to the partner with the most money, but sometimes the partner
contributing the scarcest recourse
ii. Minority must negotiate protection rights!
b. 50/50​: profits/responsibilities equally shared
i. Pro: may promote feeling of partnership and equality
c. Majority-Minority​:
 i. Foreign partners: attractive bc gain advantages of the wholly owned subsidiary and
profits are proportionately higher
ii. Host country: attractive bc reduces the use of national capital resources while giving
protection against excessive foreign control (specifically in mining industry)
1. Greater degree of flexibility and freedom of decision making
2. Foreign partners may be willing to take minority shares if they feel that the host
state is qualified and provides adequate safeguards.
iii. Note: if party in minority position, must incorporate management safeguard into the K
d. Some host govts. only allow foreign investors to operate if in JV with ​local company
i. Difficulty: finding local partner who has ability to finance
1. Ex:​ oil exploration is a hugely expensive enterprise before see any profit
ii. Govts. similarly may insist on ​employing locals
1. ​ Good for govt. because builds skills, etc.
2. But need to make sure that they are adequately trained!
E. Ideal JV Agreement
a. In general​:
i. No standard prototype, but may incorporate only facts pertinent to information and
structure of joint venture K
1. ​ other matters can be separated into ​separate legal docs
ii. Concise, flexible, and drafted by legal experts.
iii. Specific w/ definitions &dates (dissolution: when will joint venture end, or is it
indefinite?)
b. Management​: size of board, representation of each partner, election of directors, replacement of
directors, structure of exec committee, decisions of board, quorum and notice
c. Dispute clauses​: what action should be taken in case of breach?
i. Good faith negotiations or mediation (pg. 285)
ii. Most often is an arbitration provision*
d. Marketing​: Objective should focus not only on domestic market but export marketing strategy,
supplier and customer relationships, and long term pricing policies
i. ​ as a way to alleviate balance of payments problem
e. Other​: info. re payment of taxes, auditing and accounting (concerns over being taxed twice); sales
and transfer of sales; governing language and law
f. Patent Agreements​: customary for manufacturing JVs to be licensees of foreign patents
i. Must broaden scope of patent license to include room for future product development
ii. Consider: identification of product, method of payment (royalties, purchase), currency,
basis of computing royalties, supply of technical data info, assistance and know how, etc.
F. Benefits of JVs
a. Tangible contributions such as govt. land and intangible contributions including local
relationships, expertise, and industry knowledge.
b. Strategic or regulatory reasons
i. Especially in shipping or aviation sector where foreign investors are often not permitted
to hold full ownership or control and are limited to a specific % interest
ii. ​ means that local JV partner is imperative
c. Host country​: Unique opportunity to combine diverse resources and expertise; Facilitate
acquisition of expertise in production or tech; Promote managerial and marketing know-how and
expertise; Stimulate foreign capital and know-how with local resources; Transmit needed skills
more readily than wholly owned subsidiary; Help develop core of experienced management and
technical personnel of country; Training of native labor; Contribute to overall efficiency and
speeding process of new product and market development; Aid in expanding existing products and
market, Stimulate imports; Bolster exports by facilitating improved access to foreign markets;
Improve competitive domestic and external markets; Alleviate balance of payment problems;
Foster international trade relationship
G. Disadvantages:
a. Profit limitations and disputes over use and distributions over profits could breed resentment
b. Management conflicts may affect productivity
 c. Restricted marketing arrangement may be potential source of conflict (can be resolved by
anti-trust laws)
i. Ex: Nigeria joint venture to produce pharma; agreement included provision that restricted
export outside the region so to not compete with parent company
H. Dispute Resolution
a. Must ask whether dispute is under corporate law ​OR ​dispute under JV agreement (K law)
i. If corporate, then law of the country in which you are operating
ii. If JV, then the law is within the K
iii. Ex:​ Transfer of Shares provision ​ ​ sue bc JV partner has transferred shares to third
party; this is not a breach of corporate law but the JV agreement
b. Typical disputes​: management; issues such as dividend entitlements, funding or capitalization
(especially if the JV partners want the business to develop in different ways)
i. Trading and contractual disputes arise over sale and purchase of goods, commodities or
property, where non-payment is the issue
ii. Regulatory investigations by securities or banking regulators, particularly where there is
misconduct by JV company or its partners
iii. Payment and quality disputes ​ ​ result of dishonest
1. Ex: failure to disclose overdue payments; situations where companies
“disappear” after provision of valuable technical information
iv. Corruption may require criminal proceedings, in some cases
v. If cannot resolve dispute, JV might have to be wound up with ​significant risks and
exposures to the foreign investor
c. Labor issues​: the factory environment can give rise to labor related problems; causes of difficulty
include overtime, termination of K, working conditions and problems arising from local labor
regulations
I. Model Joint Venture Agreements
a. Joint Venture Agreement b/w Innovative Technologies, Inc. of Charlottesville, VA and the United
Computer and Software Enterprises of Mexico

CHAPTER 10: CURRENT ISSUES IN FDI

A. Global Comprehensive Treaty on Foreign Investment
B. Dispute Resolution
a. UNCITRAL Rules on Transparency and Investor-State Dispute Settlement Reform
b. Lessons Learnt from Investor-State Dispute Settlement (ISDS) under Energy Charter Treaty
i. Yukos Universal Ltd. v. Russian Fed’n ​(Isle of Man v. Russia) (UNCITRAL, 2014)
c. Establishment of EU Permanent Multilateral Investment Court System
d. Modifying ICSID Convention under the Law of Treaties
C. Recent Developments in Investment Promotion and Protection
a. Trans Pacific Partnership (TPP) Investment Provisions
b. Resolving Investment Disputes After Brexit
c. NAFTA Renegotiations and Investment Protection
D. Investment and Development
a. Encouraging Foreign Investment to Developing Countries
b. Role of International Community in Promotion of Investment
c. Chinese Investments in Africa: Impact on Economic Development
i. Case Study: Chinese Investment in the Zambian Economy
ii. One Belt One Road Initiative
E. Protection of Human Rights in International Investment Law
a. Towards a New Treaty on Business and Human Rights
b. Role of Human Rights in Investment Arbitration
i. Urbaser SA v. Argentine Republic (​ ICSID, 2016)
ii. Copper Mesa Mining Corp. v. Republic of Ecuador (​ Canada v. Ecuador) (UNCITRAL
2016)

CHAPTER 11: PROJECT FINANCING

A. Introduction
 a. Accelerating developing in developing countries hinges on ​closing its infrastructure gap​ which
requires innovative financing
b. Because FDI does not add to debt of country, many developing countries (and developed
countries) are turning to FDI to provide essential infrastructure without increasing the burden on
national finances
i. Plus development banks push this!
c. Project financing​ involves multiple contracts which bring together many topics discussed thus far
i. Became big after 1973’s ​oil crisis
1. Developing countries went broke, leading to structural adjustment
2. Banks were saturated with money but their business is lending
3. PF was a solution!
d. Difference b/w project finance and ordinary finance = Non-recourse
e. Types of Financing
i. If investors form a project company, the project will be based on twin-negotiations w/
govt. for concession agreements and with lenders on credit & security arrangements
ii. Common option is ​BOT – Build, Operate, Transfer ​(also known as ​private-public
partnership​)
iii. Other options:
1. Build-operate-own-transfer
2. Build-operate-own
3. Build-operate-lease-transfer
4. Rehab-operate-transfer (Eastern Europe)
5. Design-build-finance-operate-transfer
B. BOT
a. What is dis?
i. Govt. typically grants a concession to a project company under which the project
company has the right to build and operate a facility or infrastructure
1. Ex: oil refinery, power state, water treatment center, roads, or bridges
ii. Project company borrows from lending institutions in order to finance the construction
1. Loans are repaid from the “tariffs” paid by the govt. during the concession
period
2. **At the end of the concession period, ownership of the project company is
transferred back to the relevant national authority​ (ideally after it has obtained
a return for equity investors)
b. Players​:
i. Government:​ ​ initiator and facilitator of the project, conducts the process and evaluation
of tenders and grants the project company the concession;
1. Govt. will first put out a request for proposals and then companies will enter
bids (both technical and financial)
ii. Project Company:​ usually is a company, partnership/limited partnership, JV, or
combination (depending on regulatory framework of govt.)
1. The face of the enterprise (ex: X power station and incorporate it)
iii. Sponsors/Shareholders​: typically comprise reputable companies from that sector;
fundraise and promote the project, bringing together various parties and consents
necessary to get it under way
iv. Lenders/Banks:​ financing usually involves a syndicate of banks and, from within that
syndicate, an arranging bank or banks that will take the lead role in negotiating the
project or finance documents
1. Syndicate typically includes banks from the host country
c. Structure of BOT Contract
i. Shareholders agreement: b/w sponsors
ii. Lender’s agreement: b/w project company (sponsor) & the bank
1. Govt. is not involved
iii. Concession agreement: b/w govt. and project company ​ ​ extremely detailed and
important!
1. Here, sponsor is NOT involved
 2. Govt. grants rights to the project company
a. Some rights are assoc. w/ the govt (ex: right to collect tariffs or tolls)
b. ^Crucial bc this is the source of revenue
iv. Offtake/sales agreement: b/w off-taker (govt. typically) and project co.
1. Ensure that project company has a buyer for the product
2. Govt. often buys the product from project co. and will distribute it accordingly
3. Negotiating offtake agreement must be conscious of: inflation, escalation, and
general account economic factors
4. For roads, stadiums, bridges, etc. where there is no “product” per say ​
a. Govt. will calculate # of vehicles going on road, etc. to anticipate profit
for project co. and then pay for deficit
v. Other contracts:
1. Construction contract: b/w builder and project co.
2. Supply contract: b/w supplier and project co.
3. Operation & management agreement: b/w operator and project co.
a. Govt. should try to negotiate local operators w/ training programs
b. Readiness for govt. to take over ownership post-concession depends on
preparation during the concession itself
C. Benefits and Disadvantages for Host Country
a. Benefits​:
i. **Asset ultimately revers back to host country but no added debt!!!
ii. Economic efficiency
iii. Competitive bidding at concession stage can reduce total project cost
iv. Competitive market environment introduced
v. Large scale infrastructure projects that public sector couldn’t otherwise finance
vi. Transfer of advanced technology
b. Disadvantages​:
i. Net cash flow in foreign currency will be minus due to repayment of foreign loans and
repatriation of dividends
ii. Most revenue will be converted into hard currency which keeps pressure on balance of
payments situation of host country
iii. Inflation, devaluation ,and other costs will be reflected in increase in fees, tolls, tariffs
and discontent locally
D. Criteria for a Successful BOT​:
a. Generally:
i. Choose experienced and reliable sponsors with adequate financial strength
ii. Contractors must have sufficient experience and resources
iii. Project risks are rationally dispersed among parties
1. **Country’s risk must be manageable
iv. Financial structure must provide lenders adequate security
v. BOT transaction should be structured so as to be completed within a reasonable time and
at a reasonable cost
vi. Project must be financially sound, feasible, and affordable
b. Economically:
i. Anticipate and resolve currency, foreign exchange, and inflation issues
ii. BOT contractual framework must be coordinated to reflect the basic economies of the
project
c. Governmentally:
i. Strong govt. support
ii. Project must rank high on host govt.’s list of infrastructure projects
iii. Bidding process must be fair and transparent
E. Allocation of Risks
a. In PF the financial ​risk is in principle carried ​only ​by the project itself
i. (i.e. the financers can only recover money from the project and its revenues and not from
other assets or businesses of the owners)
b. Consider the risks in 3 stages:
 i. Development/financing
ii. Construction
iii. Operation
c. *Once project’s risks are identified, the likelihood of occurrence assessed and their impact on the
project determined, the risks are allocated
i. Risk must be placed on party that is willing to accept that risk!
ii. Generally, risk is allocated accordingly:
1. Sponsors: Market risk
2. Contractors: design, construction and commissioning risk
3. Project co.: residual risks including those arising from the mismatching of risks
among participants
d. Important considerations in ​assessment and allocation of risk​ are:
i. Country and political risks​: may impact investor through legal and regulatory frameworks
in tax, import controls, currency conversion, repatriation of profits, tariff policy
1. ​ so important to consider whether political risk insurance (MIGA) is available
e. Consents​: have they been obtained?
f. Change of law​: expropriation and nationalization, but also subtle changes of law or regulations
may have great impact
i. Ex: ​tariffs on imports of machinery ​ ​ increase in cost of construction and operation
g. Currency​: must address mismatch in currency b/w currency generated by the project locally and
foreign currency required to meet its commitments
h. Security​: difficulties in takin security in some emerging markets so must adapt security structure
accordingly
i. Ex: ​Malaysia restricts holding foreign currency earnings in offshore accounts thus
limiting ability to take security over those accounts without accepting country/political
risk on those moneys
ii. Ex:​ Thailand – nature of security available is very limited; no concept of general floating
charge
i. Environmental Impact Assessment​: planning for environmental approvals should start early
especially if seeking support from multilateral agencies like the WB or Asian Development Bank,
which require environmental standards as condition to their involvement
F. Dispute Resolution in International Project Finance Transactions
a. Generally provided for in ​multiple contracts​ for a project-financed development
b. International arbitration: ​most ideal due to flexibility
i. Most Ks will include arbitration clause
c. COME BACK TO PG. 356 IF HAVE TIME

CHAPTER 12: INTERNATIONAL EFFORTS AGAINST CORRUPTION IN INTERNATIONAL

BUSINESS TRANSACTIONS
A. Introduction
a. Foreign Corrupt Practices Act
B. International Framework for Tackling Corruption
a. OECD Convention for Combatting Bribery of Foreign Public Officials in International Business
Transactions (1997)
b. Inter-American Convention Against Corruption (1996)
c. UN Convention Against Corruption (2004)
C. Dodd-Frank Wall Street Reform and Consumer Protection Act (2012)
D. Actors in the Fight Against Corruption
E. Anti-Corruption Law and Investment Disputes