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Challenge to investor-state jurisdiction award successful

A recent ruling has highlighted the willingness and competence of courts to determine a tribunal's scope of jurisdiction over disputes between investors and nation state governments, an arbitration expert has said.12 Mar 2018

Wee Jian Ang of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind, was commenting after the High Court in London set aside an earlier award from an arbitral tribunal in a dispute between a Luxembourg-based investment company, GPF GP, and the Polish government.

It is believed to be the first time that an English court has set aside a tribunal award in an investor-state case.

In the case before the High Court, GPF GP asked for a February 2017 award on jurisdiction by a London-seated arbitral tribunal to be set aside. The company argued that the tribunal had wrongly ruled on the scope of its jurisdiction to hear claims it has raised in relation to Poland's compliance with a bilateral investment treaty (BIT) between Poland, and Belgium and Luxembourg.

The treaty, signed and authenticated in French, Dutch and Polish, provides for fair and equitable treatment of investors from each of the countries, and lays out conditions relating to expropriation, which is where there is state seizure of property or other measures taken that rob property owners of their rights in that property. One condition of expropriation under the BIT is payment of compensation to the property owners. Provision is also made for disputes to be heard in arbitration under the terms of the treaty.

GFP GP's main claims relate to its investment in property in Warsaw. In 2008, GFP GP provided financing to a Polish property group to allow it to acquire another company with rights to land and buildings in Warsaw. There were plans to redevelop the property into residential apartments. However, those plans were delayed amidst a dispute over the scope of the site's historical significance and the restrictions on how it might be redeveloped.

A long legal dispute ensued before the courts in Poland terminated the lease that had been granted for development of the property. GPF GP claimed that the ruling wiped out the entire value of its investment.

GFP GP has argued that Poland, through decisions taken by its courts and the local authorities in Warsaw, breached the 'fair and equal treatment' standard outlined in the BIT. It pointed to a similar leasing agreement held by a state-backed company in Poland which had not been terminated by the Polish authorities, despite the Polish company's failure to meet the construction deadline under that agreement.

The Luxembourg business further argued that there was a "hidden agenda" in Warsaw to transfer ownership of the property it had invested in to a neighbouring museum to enable new parking facilities to be installed. The company claimed that there was both direct and indirect expropriation by Poland which had occurred in breach of the BIT.

However, the London arbitral tribunal had ruled that the terms of the BIT only provided it with the jurisdiction to hear one specific claim of expropriation raised by GPF GP – a specific ruling by Warsaw's Court of Appeal in 2014, later upheld by the Polish Supreme Court in 2016, which resulted in the termination of the leasing agreement for the property which GPF GP invested in. The tribunal thus disregarded the other events which GFP GP claimed constituted evidence of indirect expropriation.

In its ruling, though, the High Court first held that it is entitled to conduct a full re-hearing of the jurisdiction issue "unfettered by the reasoning of the arbitrators”.

It then said that the tribunal had erred and that it actually has much broader jurisdiction to hear GFP GP's claims, including its case that Poland breached the 'fair and equitable treatment' standard outlined in the BIT and its further claims of indirect expropriation.

Upon analysing various international law authorities, the High Court explained, in short, that indirect expropriation claims involve linking a number of different decisions and events together to demonstrate expropriation has occurred in the aggregate. The High Court said that an indirect expropriation claim is not precluded even if a specific event in the chain of events constitutes a form of direct expropriation.

When considering matters of jurisdiction, tribunals should not assume that certain events will be established as direct or indirect expropriation, so as to foreclose their consideration when they later come to considering the merits of the case., the High Court said. That determination of whether an event constitutes direct or indirect expropriation should be considered only at the merits stage, it said.

Ang said: "Two things stand out from this judgment. One, it is clear that courts are starting to embrace their role in dealing with investor-state disputes, which involve complex and intriguing questions of international law. It is heartening that courts are willing and competent to deal with these issues, given the rise in investor-state disputes around the world. In recent times, Singapore too has seen investor-state matters brought before its courts."

"Second, as a comparison, Singapore follows the English High Court's approach in dealing with jurisdictional challenges – both adopt a fresh review of jurisdictional issues and are not constrained by a tribunal’s own view of its jurisdiction," he said.