Arnold & Porter

Arbitration Team of the Month #07

Introduction

Arnold & Porter Kaye Scholer LLP is a global law firm with long-standing ties to Latin America whose areas of specialty include international arbitration for the US and international clients. Practitioners also serve as advisers, advocates, and arbitrators in economic disputes between sovereign States and private investors.

Arnold & Porter’s International Arbitration team has successfully represented the Republic of Chile in the Rios v. Chile ICSID arbitration, which marks the firm’s 38^th consecutive positive result on behalf of sovereign States in investment arbitrations.

Last year, the team also secured two major victories for Chile. In a decision issued on January 8, 2020, an ad hoc committee has dismissed Victor Pey Casado’s bid to annul the 2016 re-submission award. The latest annulment proceeding was the 8^th stage of the 22-year arbitration, which was the longest-running case in the history of ICSID. A parallel arbitration under the UNCITRAL Rules and administered by the PCA similarly ended with the dismissal of the claims.

This month, Jus Mundi is pleased to bring light to Arnold & Porter’s International Arbitration team along with an interview with its partner Paolo Di Rosa.

Recent victory case analysis: Rios v. Chile

In an award issued on January 11, 2021, an ICSID tribunal dismissed a US$354 million claim against Chile. The claim was brought by Colombian investors, brothers Carlos and Francisco Rios, under the Chile-Colombia Free Trade Agreement (FTA). The dispute arose out of an investment in Santiago’s public bus transportation system.

Facts and procedural history

• In 2003, Chile put efforts to attract foreign investors in Transantiago, which was part of Santiago’s public transportation system.
• In 2004, the investors participated in a public tender process for the Transantiago urban bus transport system.
• In 2005, the investors signed concession contracts with the Ministry of Transport and Telecommunications (MTT) through their Chilean subsidiaries Inversiones Alsacia S.A. and Express de Santiago Uno S.A.
• In 2011, the economic conditions of operation were modified following legislative changes.
• In 2012, the concession agreements were amended, which altered the remuneration system.
• In 2014, the investors reportedly suffered from financial difficulties, including bankruptcy proceedings.
• In 2017, the investors filed their claim under the FTA at the ICSID.
• In 2019, a six-day hearing on jurisdiction and merits took place in London.
• On October 9, 2019, the tribunal issued Procedural Order No. 10, asking the parties’ quantum experts to submit a joint valuation model.
• On September 15, 2020, the tribunal sent a draft of its award to the parties pursuant to Article 9.20.9 of the FTA.

Tribunal constitution 

• Gabrielle Kaufmann-Kohler (President)
• Oscar Garibaldi (Appointed by the Investor)
• Brigitte Stern (Appointed by the State)

Tribunal’s decision

• The majority found it did not have jurisdiction to determine certain claims as they were time-barred. Mr. Garibaldi disagreed and issued a Partial Dissenting Opinion on this issue. The tribunal upheld jurisdiction over the indirect expropriation claim as it fell within the 39-month time limit under the FTA.
• On the merits, the tribunal reckoned that Chile had failed to satisfy the claimants’ reasonable expectations for its failure to combat fare evasion and vandalism. However, relying on the joint valuation model submitted by the parties’ experts, the tribunal decided that Chile’s failures could not have been the cause of any substantial deprivation of claimants’ investment. As a consequence, the tribunal agreed that Chile’s conduct could not amount to indirect expropriation and thus dismissed the claim.

Legal rationale

• The majority found that certain fair and equitable treatment (FET), no less favorable treatment, and full protection and security (FPS) claims (based on measures before February 2014) were time-barred because the claimants had not raised them within 39 months of becoming aware of the alleged breach as required by the FTA. The majority reasoned that in accordance with Article 9.18.1 of the FTA, the time limit for continuous breaches begins to run when the claimants first acquired knowledge of the alleged violations and the damages suffered.
• As for the expropriation claim, the tribunal held that, under the FTA, for the State’s conduct to constitute an expropriation, it must have caused a substantial deprivation of the investment. The claimant could not fulfill their financial obligations after February 2014, indicating that the expropriation measure could not have occurred before the said date. Therefore, the tribunal concluded that it had jurisdiction over the expropriation claim.
• On the merits, the tribunal started its expropriation analysis from the applicable standard under the FTA, which indicates three elements to determine an indirect expropriation:
  • the economic impact of the governmental act,
  • the degree to which the government act interferes with unequivocal and reasonable expectations of the investment, and
  • the nature of the governmental action.
• The tribunal then applied the said standard to each of the measures alleged as expropriation:
  • First, it analyzed whether or to what extent each of the measures was undertaken in the State’s sovereign capacity and interfered with the unequivocal and reasonable expectations of the claimants,
  • Then, it determined whether the economic impact of those measures has caused a substantial deprivation of the value of the claimants’ investment, and
  • Finally, it verified whether the acts of the State caused the substantial deprivation of the investment.
• The tribunal found that Chile had failed to satisfy the claimants’ reasonable and unequivocal expectations by failing to combat fare evasion and vandalism.
• However, the tribunal relied on a joint valuation model submitted by the parties’ quantum experts in deciding that Chile’s failures could not have been the cause of the damage to the claimants’ investment. Consequently, the tribunal concluded that there was no causal relationship between the measures and the alleged damage and that the expropriation claim, therefore, had to be dismissed.
• The tribunal also dismissed the remaining FET, no less favorable treatment, and FPS claims (as of February 2014) since the contested measures were not the product of the State’s sovereign conduct.
• In conclusion, the tribunal found that Chile did not violate its obligations under the FTA and international law.

Interview with Paolo Di Rosa (head of the firm’s global International Arbitration group)

Congratulations on the Rios v. Chile case – the 38th consecutive favorable result for sovereign States! What does this remarkable achievement mean for the firm?

This latest victory further demonstrates the effectiveness of the formula that the Arnold & Porter team has developed for the defense of States in investment arbitrations, including in especially complex cases such as Rios. We are proud of our ongoing streak and pleased to be able to contribute in this manner to our firm’s tradition of excellence. We also find it gratifying that we have now won all four of the investment arbitrations that we have handled for Chile, and also that we have been compiling a significant string of awards of costs and legal fees in favor of our sovereign clients (including most recently 100% of costs and 40% of legal fees in the Rios case).

What do you think of Rios Tribunal’s approach interpreting “indirect expropriation” by applying the joint valuation model established by the parties’ financial experts?

For purposes of its determination on the indirect expropriation claim, the Tribunal needed to assess whether the alleged acts or omissions by Chile had substantially deprived the Claimants’ investment of its value. For this assessment, the Tribunal felt that it needed to parse more finely, with the help of the valuation experts, what specific financial impact (if any) the investment had suffered as a result of two specific alleged acts of omission. Based on that analysis, the Tribunal correctly concluded that, by the time of the alleged measures, the Claimants’ investment already had a negative value (i.e., insufficient value to cover debts), due to factors other than any conduct by the Chilean State, and that therefore the alleged measures had not effected any expropriation of the investment. Accordingly, it made sense in the context for the Tribunal to request a joint model from the valuation experts, even though it was in connection with a merits issue rather than a quantum one.

Congratulations also on the Pey Casado annulment decision, which finally ends the 22 years old dispute! What are the key challenges the team faced in the annulment proceedings?

The principal challenge in the ICSID annulment proceeding, as well as in the parallel UNCITRAL Rules arbitration, was distilling the key facts, legal issues, and procedural aspects of an unusually complex dispute that had been ongoing for over two full decades, and marshaling them in a way that would render them digestible for a new panel of arbitrators who had no background knowledge of the case. The other key set of challenges was posed by the highly contentious nature of the dispute, combined with the aggressive litigation tactics of opposing counsel, which yielded sharp procedural skirmishes throughout the proceeding.

You have overseen the expansion of the international arbitration group. What do you reckon is the most crucial aspect for the firm to continue to branch out globally?

Unlike other international law firms, our firm has not made it a strategic objective to expand aggressively by opening offices abroad. We do have a few strategically placed offices in certain countries, but our focus has been primarily to gain market share through the excellence of services and favorable results for our clients, and also by fostering a strong network of contacts with local law firms and lawyers in various jurisdictions. To illustrate, our firm is headquartered in the U.S., and yet none of our clients in the approximately 25 investment arbitrations that we currently have ongoing is a U.S. company or individual. We attribute this to the fact that governments and companies throughout the world resort to our firm’s services on the basis of our expertise and track record of success in the specialized sub-area of international law that is international arbitration.

Although the opening of foreign offices has therefore not been a priority for us, we have nevertheless been keen on a judicious expansion of our team by means of selective hires. We are always alert to opportunities to attract talented practitioners, and in that manner, to broaden and deepen the services that we offer to our clients.

Do you have any examples (work ethic/case related experience) from your early career or recent experiences in arbitration that you think might be useful for new practitioners?

Based on my professional and life experience so far, my advice to new practitioners would consist mainly of the following six points:

a- Work hard (this is probably the most important factor for success in any field);

b- Keep developing your writing skills and vocabulary (a life-long endeavor for lawyers);

c- Treat superiors, peers, and subordinates in the same way (preferably, well) (nobody likes obsequiousness, and even mean people don’t like mean people);

d- You don’t need to be disagreeable to be successful (lawyers in Hollywood movies and the more provincial U.S. courts tend to be pitbulls, but that doesn’t play well in the more genteel field of international arbitration);

e- (Corollary to c and d) Be confident but not arrogant. (Remember in that regard, (i) that no matter how good you are at something, there is always someone better than you at it; and (ii) that, in the larger scheme, we are all just transitory specks on a second-rate planet (which is why the Romans wisely had characters named aurigas whose job it was to whisper in the ear of victorious generals during military parades, reminding them that glory is fleeting, and that they too would die someday.)

f- Sheer luck plays a far bigger part in professional advancement than anyone likes to concede (so work hard, but cut yourself some slack if things don’t work out quite as you had hoped).

How do you spend your free time? Can you tell us about your hobbies?

Although I consider myself fortunate to practice law in a field that I find extremely interesting and stimulating, and even though I enjoy doing the substantive work and finding ways to address the various challenges posed by real-life cases, I do not pursue international arbitration as an academic or extracurricular endeavor. As a result, I do not spend too much time on international arbitration-related matters in whatever free time I manage to carve out for myself (and I tend to think that such demarcation enables me to maintain a somewhat healthier perspective on my work).

My hobbies and interests include motorcycling, chess, music, world soccer, reading novels, and playing guitar (the latter of which I hesitate to even mention due to its spottiness). Once upon a time, I also participated heavily in athletic endeavors (mainly soccer and basketball, and to a lesser extent tennis). In more recent years, my physical activity has been limited to hiking and carrying my laptop from room to room. I am also learning to play golf (which never particularly interested me in the past, although during the many years that I lived in Boston, I watched it on TV from time to time just to see good weather, and more recently my twin sons have persuaded me to pick it up.)

Presentation of the firm

Arnold & Porter’s International Arbitration team is widely renowned for its record of success in defense of States in investment arbitrations, and they specialize in sensitive, complex, and high-stakes cases. The group has secured 38 consecutive positive outcomes for sovereign States in investor-State arbitrations in which they have served as lead counsel or principal international counsel. Notably, they have obtained complete victories for the following States: Argentina, Bulgaria, Chile, Costa Rica, the Czech Republic, the Dominican Republic, El Salvador, Hungary, Panama, and Venezuela. For some of these States, they have achieved victories in multiple cases, as for instance with Chile, the Czech Republic, the Dominican Republic, Hungary, Panama, and Venezuela.

Although they have especially broad experience defending states, they also represent foreign investors and have done so with considerable success. In recent years, they have represented investors from Austria, Chile, France, Greece, Luxembourg, Turkey, and the United States (among others) in investment arbitrations against sovereign states around the world and have obtained awards and settlements for hundreds of millions of dollars.

Clients entrust Arnold & Porter’s highly ranked international commercial arbitration team with their most sensitive and complex commercial disputes. They are widely known for their experience, industry knowledge, and effective written and oral advocacy. Their team members are highly ranked practitioners and thought leaders in the field of arbitration, hailing from a broad range of cultural, linguistic, and legal backgrounds.

Arnold & Porter’s international arbitration group is unaware of any other law firm in the world that, over the course of ICSID history, has had a larger number of attorneys on the ICSID Panels of Arbitrators and Conciliators. Arnold & Porter’s presence on the ICSID panels began with the designation in the 1960s of one of the founders of their law firm, Thurman Arnold, to the very first ICSID Panel of Arbitrators, by President Lyndon Johnson on behalf of the United States Government. Currently, three of their attorneys are members of ICSID’s Panel of Arbitrators (Paolo Di Rosa, Whitney Debevoise, and Dmitri Evseev), and one is also on ICSID’s Panel of Conciliators (Whitney Debevoise).

Paolo Di Rosa chairs Arnold & Porter’s International Arbitration team in Washington DC.

Key clients

• Sovereign States: South Korea, the Philippines, Czech Republic, Panama, Chile, Costa Rica, Dominican Republic, Bulgaria, Hungary, Kyrgyzstan, Slovakia, Turkey, Egypt, Thailand, India, Colombia, El Salvador, Guatemala, Panama, Peru, and Venezuela
• Supranational organizations: the Caribbean Community and the European Commission
• Corporate clients: Owens-Illinois, Hana Financial, Karkey Karadeniz Elektrik Uretim A.S., Mercer International, Électricité de France, and AbitibiBowater

Track-record highlights

The firm’s State-side work in investment arbitration:

• In 2021, the firm has successfully defended the Republic of Chile against a US$354 million claim brought by Colombian investors.
• In 2020, the firm defended the Republic of Panama against a US$20 million arbitration claim filed by US subsidiaries of Bridgestone Corporation.
• In 2020, the firm also secured a double victory for Chile in ICSID and UNCITRAL cases brought by Spanish publisher Victor Pey Casado.
• In 2019, the firm helped the Dominican Republic knock out a US$41 million DR-CAFTA claim brought by dual US-Dominican nationals, Michael and Lisa Ballantine.
• In 2019, the firm defended Bulgaria against an €80 million ICSID claim brought by the State General Reserve Fund of Oman.
• In 2019, the firm secured four victories for the Czech Republic in investment treaty claims brought by WA Investments-Europa Nova Ltd (Cyprus), ICW Europe Investments Ltd (UK), Voltaic Network GmbH (Germany), and Photovoltaik Knopf Betriebs-GmbH (Germany).
• In 2018, the firm helped the Czech Republic defeat a US$14.5 million Energy Charter Treaty claim by German-registered Antaris Solar and its founder Michael Göde.
• In 2017, the firm also helped the Czech Republic defeat a US$22 million claim brought by German investors Jürgen and Stefan Wirtgen and their company JSW Solar.
• In 2017, the firm helped Costa Rica defeat a US$345 million ICSID claim brought by a Spanish company Supervision.
• In 2016, the firm represented the Republic of Panama in a US$400 million ICSID claim brought by US company Transglobal Green Energy and its Panamanian affiliate Transglobal Green Energy Panama.
• In 2016 the firm knocked out a US$100 million DR-CAFTA claim brought by a US company Corona Materials, on behalf of the Dominican Republic.
• In 2015, the firm helped Hungary defeat a US$700 million Energy Charter Treaty claim brought by Belgian power company Electrabel.

The firm’s claimant-side work in investment arbitration:

• In 2017, the firm secured an US$800 million ICSID award for Turkish energy company Karkey Karadeniz against Pakistan.
• In 2016, the firm secured a victory for EDF and its affiliates in an annulment decision, thereby upholding a US$136 million ICSID award rendered in 2012 against Argentina. The firm already obtained a US court ruling on enforcement of US$219 million with interest.
• In 2010, the firm helped AbitibiBowater settle a NAFTA dispute with Canada and obtain a $130 million (CAD) Consent Award.

Table of public international law cases involving Arnold & Porter (Recent victories/pending cases)*

Arnold & Porter is currently acting as counsel for Peru, Colombia, Costa Rica, the Philippines, South Korea, Bulgaria, Thailand, the Czech Republic, Turkey, Egypt, and Panama in several investor-State cases (mainly at ICSID).

To see all types of cases (investor-State, inter-State, and commercial arbitration) involving Arnold & Porter available on Jus Mundi, please click here.

We selected a few recent victories and ongoing cases of Arnold & Porter in the table below.

[table id=19 /]

(Note*: This table is not exhaustive.)

Spotlight – the Rios v. Chile case team

Paolo Di Rosa (Partner)

Di Rosa heads the firm’s global International Arbitration group and has long been recognized by publications such as Chambers, Legal 500, Who’s Who, Best Lawyers, and Euromoney, amongst others, as one of the world’s leading international arbitration practitioners. His practice centers on representing sovereign States and private sector companies in international arbitration, litigation, and public international law matters, including in particular disputes between investors and States under investment treaties. He specializes in complex and high-stakes disputes and has successfully represented clients in disputes worldwide and a wide variety of industries and economic sectors, including power, renewable energy, oil and gas, mining, banking and finance, transportation, fisheries, real estate, and media. Although his practice spans all geographic regions of the globe, he has pervasive experience in legal matters relating to Latin America (acquired both in the private sector and the US federal government), along with a fully bilingual (Spanish-English) and bicultural background. In 2016 he was appointed by President Barack Obama to the ICSID Roster of Arbitrators, on behalf of the United States.

Patricio Grané Labat (Partner)

Grané Labat has over 20 years of investor-State arbitration, international commercial arbitration, international trade, and public international law. He has represented sovereign States and leading multinational corporations in challenging and complex disputes across numerous geographies, sectors, and subject matters. Mr. Grané Labat has extensive experience representing both claimants and respondents in arbitral proceedings under all the major arbitration rules, institutions, and treaties, as well as in ad hoc arbitrations under bilateral investment treaties. He also acts as an arbitrator, having been appointed by several sovereign States to the roster of arbitrators and panelists for the settlement of international trade and commercial disputes under BITs and multilateral treaties.

Gaela Gehring Flores (Partner)

Gehring Flores concentrates her practice on international arbitration and litigation matters. She represents both sovereign States and multinational corporations in investment and international commercial arbitrations before the ICSID, ICC, ICDR/AAA, and litigation and appellate proceedings before US federal courts. Ms. Gehring Flores advises clients in a wide range of disputes, including energy, natural resources, construction, hospitality, transportation, sovereign debt instruments, government contracts, and intellectual property. She also provides legal services to private sectors and sovereign States on enforcement of arbitral awards, effective contractual dispute resolution clauses, and various public international law issues, including foreign sovereign immunity and discovery in international proceedings.

Claudia Taveras (Associate)

Taveras Alam’s practice focuses on international arbitration and international corporate and commercial law. She regularly represents sovereign States in international investment arbitrations, predominantly in ICSID disputes. In international commercial arbitrations, she also has experience in representing private clients under the ICC Rules.

Cristina Arizmendi (Associate)

Arizmendi’s practice focuses on advising sovereign States and corporate clients in investment and commercial disputes. She has extensive experience in proceedings conducted under the rules of the ICSID, UNCITRAL, and ICC. She also has advised clients in various sectors, including energy, mining, banking, transportation, telecommunications, oil and gas, real estate, and infrastructure.

Alexander Witt (Associate)

Witt represents sovereign States and multinational corporations in investor-State arbitrations and international commercial arbitrations under the Rules of the ICC, UNCITRAL, and ICSID. His experience includes disputes in the energy, government contracts, construction, nuclear engineering, mining, and infrastructure in Latin America, Europe, and the Middle East.

For more information on Arnold & Porter’s international arbitration practice, click here.

Congratulations to the team again, and Jus Mundi wishes them good luck for the future!