Documente Academic
Documente Profesional
Documente Cultură
Arbitration Report
2004:2
Contents:
Articles
The Neutrality of Arbitrators in International Commercial
Arbitration • Estelle Dougier
The New York Convention:The Practice of Swedish Courts • Hans Danelius
Recent Practice from the Arbitration Institute of the Stockholm Chamber
of Commerce. Prima Facie Decisions on Jurisdiction and
Challenges of Arbitrators • Annette Magnusson & Hanna Larsson
When Has a Party Received an Arbitral Award? - A Presentation of
Three Swedish Supreme Court Decisions • Emilia Skog
Arbitral Awards
Court Decisions on Arbitration
Notes & Information
ARBITRATION INSTITUTE
OF THE STOCKHOLM CHAMBER OF COMMERCE
Findings:
(1) The Tribunal found that it had jurisdiction under the Sweden-
Latvia Bilateral Investment Treaty, because:
(a) a dispute exists between the Swedish claimant and Latvia;
(b) SwemBalt is an investor in the sense of Article 1 (3) (b) of the
BIT, as a legal person having its seat in Sweden.
(2) There is no basis for doubt about SwemBalt’s ownership of the
ship that is the subject of the dispute, which constitutes an
investment under the treaty, and SwemBalt showed that, in all
likelihood, it complied with Latvian law. Latvia failed to
demonstrate that the investment was not made in accordance with
Latvian law; and, in any event, Latvia’s actions were out of
proportion with any non-compliance that may have existed.
(3) By taking SwemBalt’s ship, preventing SwemBalt from using it, and
by auctioning it without any compensation to SwemBalt, Latvia
breached its obligations under the BIT and general international
law.
While the BIT contains no provision directly requiring Latvia to
compensate SwemBalt for its expropriated investment, such right
can be found in the condition of “prompt, adequate and effective
compensation” required for expropriation to be legal under the
BIT. In addition, the right to compensation for breaches of
*
For an account of the challenge and enforcement proceedings of the award, cf. Stockholm
Arb. Rep. 2003:2, p. 261 ff.
97
Copyright © 2004 by the Arbitration Institute of the Stockholm Chamber of Commerce & JurisNet, LLC
SWEMBALT AB v. REPUBLIC OF LATVIA
Decision
Swembalt v. Latvia
2 For a presentation of the facts of the case, see Noah Rubins’ observations above.
119
STOCKHOLM ARBITRATION REPORT 2004:2
First, the respondent asserted that the Swedish company was not the
owner of the ship in dispute. As the arbitrators noted, “the Respondent has
expressed doubts on Swembalt’s ownership of the ship,”3 and “the
Respondent contends that Swembalt does not own the ship.”4 At first blush,
such questioning is astonishing. Indeed, in any arbitral (or even judicial)
proceedings, when a claimant asserts interference with its assets or goods,
the first exhibit he produces before the tribunal is a document that
establishes legal title to the asset or good in question.5 In the case at hand, all
Swembalt would have had to do to successfully defeat the Latvian objection
was to produce a document establishing the prima facie existence of a right of
ownership (title of property, registering certificate, extract from the Swedish
ship register, etc.). From a procedural standpoint, inasmuch as for arbitrators
the determination of a right claimed by one party is a mere question of fact,
such an attitude would have been in full compliance with Article 24.1 of the
UNCITRAL Arbitration Rules, which governed the proceedings. Article
24.1 provides that: “Each party shall have the burden of proving the facts
relied on to support his claim.” Furthermore, in order to eliminate any
doubts that might have remained with regard to the ownership of the boat,
the arbitral tribunal could also have asked Swembalt to produce additional
documents or evidence in support of its claim (Article 24.3 of the
UNCITRAL Rules). Had the Tribunal chosen to do so, it could have easily
checked the regularity of the documents produced in sight of Swedish
and/or Latvian laws, and then decided whether the right claimed by
Swembalt was opposable to the respondent State at the international level.
However, the Swembalt Tribunal did not adopt this approach. It preferred
to emphasize the behavior of host State authorities. In particular, it
underlined the fact that the Riga port authorities had used the former name
of the ship—Feeder Chief, as listed on the Swedish ship register when it was
Swembalt’s property, to conclude that, in the eyes of the Latvian State, the
ship had remained Swembalt’s property. A few days before, Swembalt’s
subsidiary—Swedebalt SIA—had asked that the ship’s name be changed and
obtained a new certificate of nationality from the Swedish authorities. This
was not considered sufficient to raise doubts as to the existence and
regularity of Swembalt’s title of ownership. Thus, the arbitrators held:
“[W]ith regard to Claimant’s ownership of the ship, there is no basis for
doubt about Swembalt’s ownership of it. It is correct that its earlier name
3 Swembalt at ¶ 22.
4 Id. at ¶ 29.
5 The question of the existence of the ownership right is to be distinguished from that of the
120
SWEMBALT AB v. REPUBLIC OF LATVIA
6 Swembalt at ¶ 30.
7 Middle East Cement Shipping & Handling Co. SA v. Arab Republic of Egypt, ARB/99/6,
ICSID Award of 12 April 2002, published at 18 ICSID Rev.–FILJ 602 (2003).
8 Middle East Shipping at ¶135.
9 Swembalt at ¶ 23.
121
STOCKHOLM ARBITRATION REPORT 2004:2
parties had entered into no contract for the exploitation of the ship, the
question could indeed be raised whether the said ship was an “investment”
or a mere “good,” owned by a foreigner and brought to Latvian territory for
only a limited period of time. In fact, it was this very question of the
distinction between an “investment” and a “good” that was raised. In
rejecting the respondent’s argument, the Arbitral Tribunal first
acknowledged that “it is correct that no written agreement about the lease has been
submitted.” Indeed, the claimant produced no contract for the lease of the
boat signed with its local subsidiary, Swedebalt SIA, or any other companies.
However, this fact was not considered decisive by the Tribunal, which
underlined that:
“[I]t is clear from the evidence that the ship was bought by Swembalt for
the purpose of a floating trade center in Riga, that it was renovated and
converted for this purpose, that land was leased in Riga in the name of the
Latvian subsidiary to create a basis for the center and a quay for the ship,
and that space aboard the ship was rented or was about to be rented to
various traders”…“in these circumstances we find that there is an
investment that is covered by Article 1(1) and/or Article 1(2).”11
10 Id. at ¶ 31.
11 Id. at ¶ 31.
12 Agreement Between the Government of the Kingdom of Sweden and the Government of
the Republic of Latvia on the Promotion and Reciprocal Protection of Investments, signed on
10 March 1992, came into force on 6 November 1992, U.N.T.S., vol. 1823, I-31209.
12 Swembalt at ¶ 22.
13 Fedax NN v. The Republic of Venezuela, ARB/96/3, ICSID Decision of the Tribunal on
Objections to Jurisdiction of 11 July 1997, published at 37 I.L.M. 1378 (1998); Salini Costruttori
122
SWEMBALT AB v. REPUBLIC OF LATVIA
Once the Arbitral Tribunal had held that Swembalt’s ship qualified as an
investment within the meaning of Article 1.1 of the Sweden/Latvia BIT
(which refers to “movable property”), it seems unusual that the arbitrators
took the additional precaution to find jurisdiction also on Article 1.2 of the
BIT. This article lays down the principle of equality of treatment between
investments and goods put at the disposal of host State nationals under
leasing contracts by citizens of other contracting States.19 It seems that the
SpA & Italstrade SpA v. Kingdom of Morocco, ARB/00/4, ICSID Decision on Jurisdiction
of 23 July 2001, published at 42 I.L.M. 609 (2003); Joy Mining Machinery Ltd v. The Arab
Republic of Egypt, ARB/03/11, ICSID Award on Jurisdiction of 6 August 2004, published at
http://www.asil.org/ilib/JoyMining_Egypt.pdf.
14 Noah Rubins, “The Notion of ‘Investment’ in International Investment Arbitration,” in N.
Requirement? Some ‘Un-Conventional’ Thoughts on Salini, SGS & Mihaly,” T.D.M, Oct.
2004, http://www.transnational-dispute-management.com.
16 Franz Sedelmayer v. The Russian Federation, Award of 7 July 1998, published at
http://www.iisd.org/pdf/2004/investment_sedelmayer_v_ru.pdf.
17 Sedelmayer at ¶ 2.2.4.
18 Id. at ¶ 3.4.3.
19 Article 1(2) of the Latvia/Sweden BIT provides that: “Goods that under a leasing agreement are
placed at the disposal of a lessee in the territory of one Contracting Party by a lessor being a national of the
123
STOCKHOLM ARBITRATION REPORT 2004:2
On the first objection, the Arbitral Tribunal noted that “the activity of the
Claimant in Latvia only began after the ship had been towed to its berth in
Kipsala. Until then, the ship was under renovation at a Latvian shipyard in
Riga, which according to Article 2 of the Foreign Investment Law cannot be
regarded as activity undertaken by Swembalt.”23 In the eyes of the
arbitrators, Swembalt could not have violated the host State’s investment
legislation, since when the ship entered Latvian territory it was not yet being
used for commercial purposes.
other Contracting Party or a legal person having its seat in the territory of that Contracting Party, shall be
treated not less favourably than an investment,” U.N.T.S., vol. 1823, I-31209.
20 Middle East Shipping at ¶ 136.
21 Article 1(1) provides that: “The term ‘investment’ shall mean every kind of asset, invested by an investor
of one Contracting Party in the territory of the other Contracting Party, provided that the investment has been
made in accordance with the laws and regulations of the other Contracting Party […].”
22 Swembalt at ¶ 29.
23 Id. at ¶ 32.
124
SWEMBALT AB v. REPUBLIC OF LATVIA
125
STOCKHOLM ARBITRATION REPORT 2004:2
does not seem, at the outset, to have caused any objections from the Russian authorities […]
it is worth noting that, as far as has been shown, [local vehicle] operated quite openly. The
evidence submitted by the Claimant gives room for the assumption that the activities of [local
vehicle] were accepted by several authorities […].”
34 Compare with Generation Ukraine Inc. v. Ukraine, ARB/00/9, ICSID Award of 16
126
SWEMBALT AB v. REPUBLIC OF LATVIA
Swembalt or its local subsidiary to contest the validity of the lease contract or
the regularity of the ship’s berth in the port. Had it done so, the Tribunal’s
ultimate ruling might have been different.
Such a conclusion would be hardly justified for at least two reasons. First,
it is worth recalling that, in the case at hand, the respondent State did not
develop any detailed argumentation on this issue of investment legality, since
it was absent from most of the proceedings. It may well be the case that
Swembalt’s ship represented a menace to the security of the Latvian port. If
the arbitrators “had been provided with the text of the legal instrument,” they might
also have decided that the contract, if one existed, was illegal. We will
probably never know. However, the peculiarity of the facts of the case
deserves notice, to avoid any general conclusions. Secondly, under cover of
flexibility, a liberal interpretation of the requirement of investment legality
under host State law could simply lead to the neglect of another requirement
contained in a majority of BITs, related to the admission of foreign
investments. Article 2 of the Sweden/Latvia BIT contains the following rule:
“Each Contracting Party shall, subject to its general policy in the field of
foreign investment, promote in its territory investments […] and shall
admit such investments in accordance with its legislation.”
127
STOCKHOLM ARBITRATION REPORT 2004:2
made conditional on its being approved in accordance with the laws and
regulations of the host state.”36 In certain cases, too flexible an interpretation
of the condition of legality of the investment, generally contained in the
“definitions” section of the BIT, could amount to a violation of the legality
requirement in the “admission” section of the same BIT. Furthermore, from
an economic policy standpoint, such a flexible interpretation could force host
States to install a free access regime for foreign investments. Any foreign
investment would be susceptible of being protected by a BIT, even if it had
not entirely or strictly complied with the host State’s laws and regulations. This
is not what BITs are generally designed to do. Finally, this would introduce a
form of discrimination against national investments, which remain subject to
the host States’ laws, in favor of foreign investment, which would be free to
develop at will, provided that local authorities tolerate them for a certain
period of time (the Swembalt Tribunal was satisfied with a period of four
months), whether by ignorance, negligence, or corruption of local agents. All
this seems contrary to the legitimate objectives of free competition and market
transparency. In the Sweden/Latvia BIT, the contracting parties granted
protection to investments made in accordance with their laws and regulations
(Article 1.1), and also only to investments admitted into their territory
according to their laws and regulations and in compliance with their economic
policy objectives (Article 2.1). If Latvia had objected also in the area of
admission of the investment, the decision might have been different, or at least
its reasons might have been more detailed.
36 P.T. Muchlinski, MULTINATIONAL ENTERPRISES AND THE LAW, at 620 (Blackwell, 1999).
37 Id. at ¶ 7
38 Enrique M. Ch. Bardales, “The Settlement of Disputes Under the United Kingdom-Peru
128
SWEMBALT AB v. REPUBLIC OF LATVIA
the host State to unilaterally modify its legislation and to the authority
granted in Article 25.4 of the Washington Convention to restrict the class of
disputes subject to ICSID jurisdiction, the commentator further opined that
“one possible effect of the above argument is that any unilateral decision
would amount to giving unlimited power to the state to modify the matters
expressly included in article 1(a) of the BIT. This argument would render
useless any attempt of giving certainty and predictability to the investors: the
strength of the bilateral international treaty would be seriously compromised
if no alternative interpretation was given.”39 In conclusion, he proposed that
“to shed some light on the problem, it may be pointed out that the matters
expressly listed in article 1(a) represent a de minimis guarantee, which cannot
be unilaterally modified as far as the BIT is concerned. Secondly, it could be
stated that the only possibility for modifying the subject matter of
investment is reduced to the matters not referred to expressly on that list but
contained in the national legislation.”40 In the case at hand, the Swembalt
Tribunal could have examined the effect of a change in Latvian laws on the
legality of the claimant’s investment, both at the time of its admission and
over the course of its development. At least two solutions could have been
adopted. First, it might have been held that if the investment was legal when
it was admitted into the territory of Latvia and used there, any subsequent
modification of Latvian law could not affect the “international legality” of
the investment (Latvian law being, in a sense, “stabilized”). Alternatively, the
Tribunal could have decided that any change in Latvian laws is entirely and
immediately opposable to Swembalt’s investment, which must always
conform to local law, or at least to its public policy rules.
39 Op. cit.
40 Op. cit.
41 Swembalt at ¶ 22.
129
STOCKHOLM ARBITRATION REPORT 2004:2
“[I]n the present case, we are faced with a dispute in which it is alleged that
the duties and obligations of the Respondent under general international
law and under the Investment Agreement itself have been breached.”42
42 Id. at ¶ 37.
43 Id. at ¶ 37.
44 See, in general: Ian Brownlie, PRINCIPLES OF INTERNATIONAL LAW (Oxford, 5th ed.) &
Jurisdiction of 25 January 2002 & Award of 13 November 2000, published at 16 ICSID Rev.–
FILJ 212 (2001).
130
SWEMBALT AB v. REPUBLIC OF LATVIA
responsible under international law and under a BIT.”46 Without taking any position
on whether this assumption is well founded, it bears noting that the arbitrator
neglected to mention one important reservation contained in the Award.
On this issue, as with the previous one, the Swembalt award could certainly
have been more detailed in its analysis of the facts, and more exhaustive in
its reasoning. Nevertheless, it must be recognized that the respondent State
was largely absent from the proceedings, and it was not necessarily the task
of the eminent arbitrators on this Tribunal to develop arguments in lieu of
the defaulting Latvian State.
Farouk Yala
CAPA Paris, Université de Paris (Panthéon-Assas), Lecturer—French
Petroleum Institute.
131