Yesterday, I wrote that there were some additional aspects of the Cargill v. Mexico award under NAFTA that were notable that I hadn't covered in my original post last week.
Another dimension of the Cargill v. Mexico arbitration worth mentioning is that Mexico lauched a case in Canadian courts to have the NAFTA award set aside, on the grounds that the ICSID panel erred and exceeded its jurisdiction. Mexico argued that it should only have to compensate Cargill for the damages it suffered in Mexico proper, not for the loss of revenue to the U.S. parent company as a result of not being able to export HFCS to Mexico.
The Ontario court refused to set aside or reduce the damages, and stated that national courts must show a high degree of deference to NAFTA investor-state awards. There were several quotes from U.S. and Canadian courts related to international arbitration that I had not seen before, but which were surprisingly blunt. See this quote from Supreme Court Justice Blackmun from the Mitsubishi v. Chrysler case:
"As international trade has expanded in recent decades, so too has the use of international arbitration to resolve disputes arising in the course of that trade. The controversies that international arbitral institutions are called upon to resolve have increased in diversity as well as in complexity. Yet the potential of these tribunals for efficient disposition of legal disagreements arising from commercial relations has not yet been tested. If they are to take a central place in the international legal order, national courts will need to 'shake off the old judicial hostility to arbitration.'... and also their customary and understandable unwillingness to cede jurisdiction of a claim arising under domestic law to a foreign or transnational tribunal. To this extent at least, it will be necessary for national courts to subordinate domestic notions of arbitrability to the international policy favoring commercial arbitration..."
The Ontario court also favorably cited an argument from the Mexico v. Feldman Karpa case under NAFTA that "the dispute settlement mechanism and the need for expertise, all combine to indicate that the statutory purpose is to take resolution of these disputes out of the hands of domestic courts..." (This argument was made by counsel for Feldman in Mexico's request to have the NAFTA arbitration set aside in Ontario courts in 2005.)
The Blackmun quote has been primarily invoked in U.S. courts with reference to private commercial arbitration, not investor-state cases that relate to public law. However, that has changed in the last year. On March 16, 2010, the U.S. District Court Southern District of New York wrote inthe Ecuador v. Chevron case that,
Chevron and Texaco (hereinafter referred to as “Chevron”), have commenced an arbitration proceeding before a tribunal pursuant to the Bilateral Investment Treaty between the United States and Ecuador...
Numerous cases have held that there is a strong presumption in favor of arbitration. See, e.g., Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogenerational Int'l, Inc., 198 F.3d 88, 92 (2d Cir.1999). We believe that this is particularly true where the arbitration is pursuant to an international treaty, here a treaty between Ecuador and the United States. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (Federal policy favoring arbitration “applies with special force in the field of international commerce.”). The explicitly stated purposes of the treaty were to encourage investment by Americans in Ecuador and Ecuadorians in the United States by assuring investors that an independent, neutral tribunal exists to arbitrate claims such as the claim here that Ecuador is seeking to impose liability unlawfully. See Treaty Between The United States of America and The Republic of Ecuador Concerning the Encouragement and Reciprocal Protection of Investment, U.S.-Ecuador, Aug. 27, 1993, S. Treaty Doc. No. 103-15. It is Chevron's claim that this is what Ecuador is now in the process of doing. Thus, a motion to stay here strikes at the core purposes of the treaty between Ecuador and the United States...
Ecuador's motion for summary judgment and motion for a preliminary injunction are denied. The Yaiguaje Plaintiffs' motion for summary judgment is denied. Chevron's motions to dismiss Ecuador's petition and the Yaiguaje Plaintiffs' petition are granted.
Finally, the same court made a virtually identical conclusion citing the Blackmun language on Jan. 21, 2011, in Argentina's application to vacate an arbitral award under the UK-Argentina BIT. Argentina made the argument that U.S. courts should not side with the British investor BG Group PLC because...
Argentina argues that the arbitral panel should have appraised the value of BG Group's investment on “the day before the [emergency] measures” were taken, Tr. 17:7, Sept. 28, 2010, when the Argentine economy had already collapsed, Pet'r's 3d Supp. Mem. at 18, instead of assessing “the value of BG [Group's] stake in MetroGAS in 1998 .... when the Argentine economy was at its peak,” id. at 18, by relying on the July 12, 1998 transaction involving the sale of Gas Argentino, S.A. shares, Award ¶ 441. Argentina asserts that the arbitral panel's valuation of BG Group's investment resulted in Argentina being “held responsible ... for the effects of the economic crisis it suffered between 1998 and 2001,” and thus the arbitral panel's ruling conflicts with both the principle that “[a]ctual pecuniary loss sustained as a direct result of the wrong is the measure to be applied in fixing damages,” Pet'r's 3d Supp. at 22 (citing Ainger v. Michigan General Corp., 476 F.Supp. 1209, 1233 (S.D.N.Y.1979)),15 as well as the Fifth Amendment's guarantee of entitlement to only “just compensation” for the taking of property, see Tr. 15:21-25, Sept, 28, 2010 (asserting that “the guiding principle of just compensation and the [T]akings [C]lause of the Fifth Amendment is that the owner of the condemned property must be made whole[,] but is entitled to no more”). These arguments are without merit...
To the extent Argentina is asserting that the arbitral panel's issuance of the Award itself violates the Takings Clause and contravenes the public policy of the United States, that position is also without merit. Of course, the arbitral panel is not an arm of any government, and thus any decision rendered by it could not constitute a “government taking.” But even assuming that the arbitral panel, as a quasi-judicial body, see, e.g., Portland Gen. Elec. Co. v. U.S. Bank Trust Nat'l Assoc., 218 F.3d 1085, 1090 (9th Cir.2000) (observing that an “arbitrator plays a quasi-judicial role” in conducting an arbitration), could be viewed as a governmental entity, the Supreme Court noted in Stop the Beach Renourishment, Inc. v. Florida Dep't of Environmental Protection, ---U.S. ----, ----, 130 S.Ct. 2592, 2604, 177 L.Ed.2d 184 (2010), that no clear standard exists for what constitutes a “judicial taking, or indeed whether such a thing as a judicial taking even exists.” It cannot be said, therefore, that the arbitral panel's issuance of the Award was an act that “violate[d] some explicit public policy that is well defined and dominant.” Banco de Seguros Del Estado, 344 F.3d at 264 (quoting United Paperworkers Int'l Union, 484 U.S. at 43) (emphasis added). Accordingly, if Argentina's position is that the issuance of the Award itself offends the Takings Clause and precludes confirmation of the Award, that argument also fails.
This ruling comes pretty close to examining the compatibility of international investment law obligations with U.S. constitutional norms. My blood started racing a bit as I read this. But the court veered away from anything very conclusive because of the muddled way in which Argentina raised the takings defense.
Folks waiting for a serious U.S. judicial look at whether and how well FTA/BIT indirect expropriation obligations match up with regulatory takings clauses must wait for another day.