THE AUTHORS:
Andrés Moreno Gutierrez, partner at Moreno Baldivieso
María Fernanda Veremeenco, associate at Moreno Baldivieso
The arbitration landscape in Bolivia in 2022 is quite particular. Arbitration, as a general concept, has been slowly evolving in domestic law, making increasingly influential appearances within the national legal order.
In 2009, the New Political Constitution of the Plurinational State of Bolivia (the “Constitution”) was enacted. These new provisions allowed the creation of new laws in the investment and arbitration regimes, among others. The Constitution establishes, in matters of investment, that all foreign investment shall be subject to Bolivian jurisdiction, laws, and authorities, and no one may invoke a situation of exception, nor appeal to diplomatic claims to obtain more favorable treatment.
This disposition does not prohibit arbitration on investment matters and it does not even mention arbitration. Although at first glance it could refer only to procedural matters, in its essence, it stipulates much more than that as it subjects foreign investments to the Bolivian system. It also refers to substantive matters when it refers to the submission to Bolivian laws.
The Constitution further stipulates that foreign participation in the Bolivian hydrocarbons production chain, will be, once again, subject to Bolivian jurisdiction, laws, and authorities. This obliges foreign investors to be subject to Bolivian rules, and its courts, thus taking full control of the situation.
The Continued Impact of Bolivia’s Withdrawal from ICSID
The result of the new dispositions related to investment in Bolivia was the denunciation of the International Centre for Settlement of Investment Disputes Convention (“ICSID Convention “) and its subsequent withdrawal from the same. On 2 May 2007, Bolivia sent a notification to ICSID of its denunciation of the ICSID Convention pursuant to Article 71. This made Bolivia the first country to withdraw from ICSID Convention in history.
Bolivia based its exit from ICSID on the following:
- To tilt the balance as there was a view that “ICSID is an absolutely unbalanced Tribunal that always takes sides with the transnationals”.
- To leave an undemocratic system as there was a view that “ICSID is undemocratic because it deliberates behind closed doors and its decisions are unappealable”.
- To not be subject to high costs as there was a view that “ICSID is extremely expensive for countries like Bolivia”.
- To not adhere to a system of millionaire compensations as there was a view that “transnational corporations take advantage of the Tribunal to extort millionaire compensations from the States”.
- To not accept a system of judge and party as there was a view that “the World Bank acts as judge and party in ICSID proceedings”.
- To renounce an openly unconstitutional system as there was a view that “the ratification of this Tribunal openly violates the Political Constitution of Bolivia”.
The next step for Bolivia was obvious: the denunciation of the Bilateral Investment Treaties (“BITs”). In consideration of the dispositions established in the Constitution, and due to its transitory provision, the government decided to take measures with respect to the BITs in force at the time. Accordingly, Bolivia denounced a total of 21 BITs, including those it had signed with China, the United States, Spain, France, and the United Kingdom.
Within the Constitutional Transitory Provision, Bolivia could renounce the international treaties or not renew them. Under the latter option, BITs signed with the United States, Spain, Netherlands, and Sweden were denounced on their expiration date. The Partial Scope Economic Complementation Agreement with Mexico, which included a section on investment, and indicated arbitration as a method of dispute resolution, was also denounced.
For Bolivia, maintaining domestic dispute resolution mechanisms involving the State is a clear priority. The denunciation of ISDS mechanisms has also been accompanied by more restrictive reforms to the mechanisms that remain in force.
Investment Dispute Resolution
Based on this legal framework, the Congress of Bolivia enacted Law No. 708 of Conciliation and Arbitration (“Law 708”) on 25 June 2015, which is the arbitration law currently in force. Law No. 708 regulates investment disputes with the State, thus applying to any contractual or extra-contractual dispute where the State is a party and arises from or is related to an investment made under Law No. 516 for the Promotion of Investments (“Law 516”).
The main purpose of Law 708 was to provide new rules for the application of conciliation and arbitration as alternative methods for dispute resolution within Bolivian territory. This legislation incorporated modifications and introduced specific rules concerning investment dispute resolution involving the Bolivian state. For example, the investment arbitration chapter of Law 708 establishes several mandatory provisions that will be applied to investment cases, thus limiting the right of the parties to freely determine the characteristics of the procedure in their arbitration agreement.
The most relevant restriction in the investment arbitration chapter is that related to the lex arbitri, whereby any investment arbitration shall have its seat in Bolivia. Further, Bolivia reserves the competence to resolve the appeal for annulment of the award to the Bolivian Judiciary. The result of this is that it submits to Bolivian jurisdiction the trial of the validity of the arbitral decisions. This is far from ideal for a foreign investor.
Investment Arbitration in 2022
Law 516 and Law 708 have domesticated investment arbitration, giving it a purely national character. The goal clearly is to keep arbitration proceedings, even investment arbitrations involving foreign investors, inside the country and subject to Bolivian law and its authorities.
Although the law is broad in terms of the appointment of arbitrators, the applicable rules, nationality of the arbitrators, and the place of hearings, the law is very rigid in establishing that the seat of investment arbitration will always be the territory of Bolivia. By establishing this obligation, the Bolivian courts will always have the last word in matters of nullity of the award, permanently tipping the scales towards the state itself. As a result, Bolivia has effectively dismantled the mechanisms of international investment arbitration.
Through the new investment regulations and the massive denunciation of international agreements, many in the arbitration community believe that Bolivia is making a mistake. There are no real benefits of establishing Bolivia as the only possible venue for investment arbitration, and this would only discourage foreign investment. More importantly, the current Bolivian investment arbitration regime is detrimental and unnecessary for a correct, efficient, and impartial treatment of foreign investments.
ABOUT THE AUTHORS:
Andrés Moreno Gutierrez is a partner at Moreno Baldivieso, where he heads the international arbitration, M&A and insurance practices. In the field of arbitration, he has extensive experience in proceedings under the ICSID, ICC, CIAC and CAINCO rules. His experience includes having represented the interests of private investors in the most important investment arbitration in the history of Bolivia (a US$1.5 billion claim). He is currently a member of the International Court of Arbitration of the ICC in Paris. Andrés is highly recognised by Chambers and Partners, The Legal 500, Who’s Who Legal and GAR 100.
María Fernanda Veremeenco is an associate and part of Moreno Baldivieso‘s international arbitration team. María Fernanda specializes in domestic and international commercial arbitration and investment arbitration. Her experience includes a wide variety of institutional and ad-hoc proceedings administered by the International Chamber of Commerce (ICC), the Permanent Court of Arbitration (PCA) and CAINCO Arbitration Center. María Fernanda also provides legal advice to companies on corporate matters.
