Legal Aspects of Foreign Direct

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 Legal Aspects of Foreign Direct Powered By Docstoc
					International Investment

   III. State Contracts
            23 November 2007
      Christian Campbell, LLB, LLM

 Course Materials:
   Useful Websites:,
   Who are the subjects of international law
    (legal personality) ?
   Treaties may be concluded between …?
   5 Principles of International Treaty Law ?
   Rules of Treaty interpretation ?
   What are reservations ?
   Name two binding multilateral instruments in
    international investment law ?
   Where are most binding, substantive rules of
    international investment law found ?
State ~ Investment Contracts
   governments, government agencies or
    state-owned companies
   “long-term economic development
   Great variety, but historically mainly
    natural resource sector
   Are they subject to international law?
    LIAMCO Arbitration
Oil & Gas
   Concessions
   Production Sharing Contracts
   Licenses
   Risk Service Contracts
Oil & Gas: Early Concessions
   William D’Arcy/Shah of Persia 1901
       500,000 square miles, 60 years,
   Standard Oil/Saudi Arabia 1933
       Ca. 500,000 square miles, 66 years,
        50,000 pounds of gold
   Abu Dhabi (1939) and Kuwait >
       Entire country, 75 years
Oil & Gas: Early Concessions
   No obligation to drill or release lands
   No management participation
   Only royalty
       Often flat fee per ton
   Often tax free
Oil & Gas: Modern
   Some renegotiation in 1950s and 1960s
   Most in 1970s
       "the exclusive rights to explore, search, and drill
        for, produce, store, transport, and sell petroleum"
        within the designated concession acreage for a
        specified number of years (35-50)
   Work program
   Relinquishment clauses
   Higher royalties
Oil & Gas: Production Sharing
   1950s … Indonesia (Pertamina), Iran…
   Now the norm
   with State oil corporation
       Investor can recover costs and a specified
        (diminishing) profit/share of production
       No discovery no profit
       State corp. retains bulk of production
Oil & Gas: Licenses - United
   government regulations, exploratory
    (onshore=exclusive, offshore) and
    production licenses
   work program
   approve the commencement,
    abandonment, and plugging of wells
   license can be revoked
Oil & Gas: Licenses - United
 Up front bonus/delay rentals increasing
  1st term, 2nd term, annual per km2
 Royalties (cash) 1/8biannually, and is

  on the value of the petroleum relating to
  the preceding six months, or
 Oil in kind at option of government
Oil & Gas: Risk Service
   contractor provides capital for
    exploration and development
   All production belongs to government
   Contractor recovers costs and gets fee
    based on percentage of remaining
   misnomer
Joint Ventures
   Operate
        various factories, hydroelectric dams, or
        hotels, etc.
   commonest agreement in foreign
    investment transactions
Joint Ventures
 Local laws/policy
       Relational investment
       Prevent capital flight during crisis (e.g.
        Asian economic crisis)
   Investor preference
       Local partner/local skills
       Pooling of resources
   Concession:
        Compañía de Aguas del Aconquija S.A. &
        Vivendi Universal v. Argentine Republic
        (ICSID Case No. ARB/97/3)
       Telenor Mobile Communications AS v.
        Republic of Hungary (ICSID Case No.
   JV
       Société d'Investigation de Recherche et
        d'Exploitation Minière v. Burkina
        Faso (ICSID Case No. ARB/97/1)
       Holiday Inns S.A. et al v. Morocco (Case No.
        ARB/72/1) to build and operate hotels
   infrastructure and utility agreements
   transportation systems, potable water
    and sewage systems
   toll roads, telephone systems, airports,
    port facilities
   natural gas distribution or transportation
    systems, and
   see
BOTs …
   Usually regulated by host state
   Distinguish turnkey contract
   Contractor secures project finance
   Local company sometime JV with local
   Ministerial/agency supervision
   … due to wide definitions of investment …
       Construction, equipment leasing, distribution …
       Finance
   Tension between
       MNC – profit, protection
       Government – development, policy autonomy
Key Contract Clauses
   Choice of Forum
   Choice of Law
   Force Majeure
   Stabilization
   Waiver of Sovereign Immunity
   Others
Choice of Forum
   Choice of Court
   Arbitration Clause
   Possible corollaries:
       amicable settlement, negotiation,
        mediation, good offices, …
Choice of Court
Avoid biased or inefficient forum
 Choice of Court

     Exclusive or non-exclusive (permissive,
     Enforceability
          Forum court accepts, other courts decline
          Validity of consent, reasonableness of choice, forum non
           conveniens, fairness of foreign forum
     samples
Arbitration Clause
avoid bias, sovereign immunity, ease
 In
       Investment Contract (negotiate) and/or
       BIT
   Treaty requirements
       New York Convention
       Inter-American Convention
Arbitration Clause
   Pathological clauses:
       Equivocation as to bindingness, appointment and
        administration issues, too much specificity re
        qualifications, conflicting or unclear procedures
   Key elements:
       Agreement to arbitrate; scope; institution and
        rules; situs; appointment mechanism; language(s);
        formalities capacity and validity; choice of law
   Model Clauses: 1, 2 + Rules, ICSID more
Choice of Law
   Absent clause host state law likely
    proper law of contract
   Choice may relate to:
       Conflicts rules, substantive law, procedural
        law or validity (lex arbitri)
   Implied choices – situs, lex arbitri,
    language …
Choice of Law
   What law to choose?
       3rd state …?
       international law
       “law of the agreement itself” … supplemented by
        the laws of the host state, international law or the
        common rules of host state and international law
       “general principles of law common to civilized
        nations”, lex mercatoria … but lacunae?
       ex aequo et bono … but how?
       samples
    Force Majeure
   1. beyond control of parties 2.
    unforeseeable, 3. performance absolutely
   based on applicable law?
    expanded/restricted by clause
   Acts of Man, Nature, Acts of State
   See more samples
Stabilization - see
   Tax in Oil & Gas … licenses, permits, …
   State party or approves investment
    containing clause?
   Types: freezing, “intangibility”,
    interpretation, indemnity, adaptation and
    renegotiation … samples
   Effect/necessity?
Waiver of Sovereign Immunity
   Absolute vs. limited
       European Convention on State Immunity
       United Nations Convention on
        Jurisdictional Immunities of States and
        Their Property
   Jurisdiction and enforcement
   Limited waivers
   Sample clauses
   Damages Clause
   No Exhaustion of Local Remedies
   Conversion of Currency Clause
   Offshore Account Clause
   Interest Rate Clause
Implied Civil Law Clauses
   Good Faith
   Imprévision

Thank you!