The International Journal of Public and Private Arbitration
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The Arbitration Review of The Americas 2008
Section 2: Country Overviews
Bolivia's Withdrawal from ICSID
p>On 2 May 2007 the International Centre for the Settlement of Investment Disputes (ICSID) received from the Bolivian Ministry of Foreign Affairs Bolivia's notification of its withdrawal ('denunciation') from the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States. As a result Bolivia formalised its prior statements of withdrawing from the ICSID and its rejection of international arbitration as a means of resolving controversies between foreign investors and the Bolivian government. This action by the Bolivian government is consistent with the policies of President Evo Morales and his cabinet, towards greater government control over Bolivia's natural resources.Since its democratic election victory in January 2006, the Bolivian government has 'nationalised' the hydrocarbons sector by passing Supreme Decrees that grant the Bolivian state the ownership at the well head and grant the exclusive right to market natural gas and other hydrocarbons. This led to an aggressive renegotiation of former shared risk contracts to operating contracts with the foreign upstream hydrocarbons producers. The government also negotiated the transfer to the Bolivian state of the privatised refineries and is negotiating the transfer of shares in the hydrocarbons transportation companies. Many of these companies threatened to resort to international arbitration provided for under different bilateral investment treaties to resolve such disputes with the government. None of these companies actually filed ICSID arbitration claims.
This year the Bolivian government announced that it would seek the nationalisation of the privatised telecommunications company ENTEL; and issued a Supreme Decree creating a special government committee for this purpose. In response to these actions the controlling shareholders of ENTEL delivered a letter to the Bolivian government requesting amicable negotiations. Six months thereafter the controlling shareholders filed a request for arbitration before ICSID, which would be permitted under the bilateral investment treaty between Italy and Bolivia. The government has stated that it does not believe the international arbitration will prosper as it has already withdrawn from ICSID.
Our research has demonstrated that there is no precedent of any other country denouncing the ICSID Convention and thus, there is room for theoretical analysis, different interpretations and different conclusions could be arrived at with the same set of facts and elements of analysis.
According to article 71 of the Convention any contracting state (as defined in the Convention) may denounce the Convention by means of written notice and such denunciation shall take effect six months after the receipt thereof. In the case of Bolivia the denunciation took effect on 3 November 2007.
Article 72 of the Convention complements the statement contained in article 71 by stating that notice by a contracting state pursuant to article 71 shall not affect the rights or obligations under the Convention of that state or of any national of that state "arising out of consent to the jurisdiction of the Centre" (as defined in the Convention) given by one of them before such notice was received.
Another important element in the analysis is the fact that Bolivia has entered into a series of bilateral investment treaties (BITs) with several countries, the US among them. It is difficult to generalise about the different BITs as their wording varies as they relate to the treatment of disputes among contracting states and investors of other states. However, most BITs follow a model similar to that of the USﾖBolivia BIT as it relates to the treatment of disputes, as a result we shall analyse how that treaty is affected by Bolivia's withdrawal from the ICSID.
The USﾖBolivia BIT states that disputes related to investments may be submitted to several dispute resolution procedures, including ICSID. In this case it is essential to examine carefully the actual drafting of section IX(3) which provides that the dispute can be submitted to binding arbitration before ICSID "if ICSID is available".
As a result the mere withdrawal from the ICSID facility does not preclude international arbitration from resolving disputes among foreign investors and the Bolivian government as international arbitration may still proceed through ad hoc arbitration pursuant to UNCITRAL rules.
The effects of Bolivia's denunciation of the ICSID Convention are limited by the ICSID Convention itself, which states that notice of denunciation by a contracting state shall not affect the rights or obligations under the Convention of that state or of any national of that state "arising out of consent to the jurisdiction of the Centre" (as defined in the Convention) given by one of them before such notice was received.
Two concepts are noteworthy in this text. The first one is that the denunciation does not affect the obligations of the denouncing state. It is, therefore, possible to deduce that, subject to the condition stated in the text following the initial statement, an obligation of the denouncing state under the Convention would be to allow applicable disputes to be resolved by means of arbitration before ICSID. This is because every right granted to one party to an agreement, carries with it the corresponding obligation to honour that right by the counterparty and vice versa. Thus, to the right granted in favour of investors in the denouncing state to make use of ICSID arbitration, corresponds the obligation, on the part of that state, to abide by such choice and, in turn, the obligation of the state gives rise to the right of the investors.
However, the right to make use of ICSID together with its corresponding obligation is subject to a condition, namely, that both right and obligation only arise to the extent that at least one of either the denouncing state or the investor have consented to ICSID jurisdiction prior to the denunciation. In light of this, two questions immediately arise: what constitutes consent to ICSID jurisdiction? And when was such consent granted?
On the first question, it is generally accepted that the inclusion in a BIT of a clause agreeing to ICSID arbitration as a method to resolve disputes can be construed as consent to ICSID jurisdiction on the part of the signatory states. However, it is just as generally accepted that said consent, in fact, is perfected only when an investor also chooses ICSID as the method to solve a dispute. Of course, it would be possible to argue that the text of the Convention clearly provides that the obligation clearly subsists when one of either the denouncing state or the investor has consented to ICSID jurisdiction prior to the denunciation, and that the execution of the BIT is therefore sufficient. But it would also be possible to argue that the BIT contains a series of choices of jurisdiction for the investor and that until it makes that choice the state's consent is only potential, but not yet perfected.
Assuming the two premises, BIT execution and one consent, are accepted, the date of the consent becomes easy to define as the date on which the BIT was ratified by the Bolivian government and came into force, all rights and obligations of the investors and of the state born after that date, would be protected even after the denunciation of the Convention.
Notwithstanding the above, the text of the BIT may itself create a problem that could lead to a circular argument, which would, in turn, complicate the possible interpretation of the consent issue.
As stated above, however, even if ICSID arbitration were unavailable, international ad hoc arbitration would not be precluded. As a result the Bolivian government would need to withdraw from and denounce the BITs that provide for international arbitration. The Bolivian government has yet to announce such action and it seems unlikely that it will proceed with such a diplomatically damaging strategy currently.
We note that even if denounced, BITs contain survival clauses protecting investors for a determined period, even after the treaty is denounced, and that investors remain protected by BITs for investments made or acquired before the end of such survival term. In the case of the USﾖBolivia BIT the survival term is ten years. It is worthwhile to note that the survival clause does not mention the need for the existence of a dispute prior to the expiration date or that the investor must have availed itself of the right to arbitration prior to that date.
The question of how the effects apply to possible disputes arising from investments in Bolivia is subject to a decision on the question of jurisdiction by the arbitral panel, before which these questions may be presented. We believe that the issues affecting the availability of ISCID as a dispute solving mechanism, include the time frame during which the investments were made. In this sense we believe that there is practically no question that all existing investments would remain protected and could be subject to ICSID arbitration. Future investments, however may not be protected given the time and term constraints detailed above. We believe all investments made during a period between the date the denunciation notice of the BIT is filed and the anniversary thereof would be protected under the combined umbrella of ICSID and BIT survival clauses. Of course, this leaves open the questions as to what exactly constitutes future investments and as to what happens with ongoing investments. As with the case of existing investments, there is little doubt that eligible existing disputes would continue to be processed under ICSID. The possibility of filing future disputes under ICSID, however, would depend, first, on the eligibility of the underlying investment and on the decision on the jurisdiction issue and, second, on whether the filing for arbitration occurs within the protection period afforded by the BIT.
As a result of the above it is clear that the Bolivian government's intention to be liberated from the prospect of being subjected to international arbitration as a result of its nationalisation policy has not been completed as a result of its withdrawal from ICSID. One could easily argue that by withdrawing from ICSID it has only changed from a type of arbitration in which there is an institution that theoretically insures an impartial proceeding to an ad hoc arbitration where no such institution exists and the arbitrators and parties are free to decide on the form of the proceeding. Further ICSID arbitration could well be available for the claims that arise out of investments that were made prior to Bolivia's withdrawal from ICSID. We are certain that these and many other similar issues will be put to the test to the extent ENTEL's controlling shareholders proceed with their intention of subjecting the Bolivian government to ICSID arbitration as currently filed before ICSID.
Guevara & Gutiérrez SC Servicios Legales
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