INTERNATIONAL ARBITRATION 1/3LY
POL I T I C AL RI SK INSURANCE POL I CIES : A ROLE FOR INVESTMENT TRE AT Y TRIBUNAL DECI S IONS
Readers will be familiar with the existence of Bilateral Investment Treaties (BITs) and the wealth of arbitral awardsmade publicly available through the International Centre for the Settlement of Investment Disputes (ICSID). Given the publicity afforded to proceedings under BITs, or multilateral investment treaties such as North American Free Trade Agreement (NAFTA), onemight be led to believe that recourse to investment treaty arbitration is the sole remedy for a seemingly wronged investor. This is incorrect. While it is true that recompense for a State’s breach of its treaty obligations on account of a failure to provide full protection and security to the investor, or for treatment that was not considered to be fair or equitable, may primarily be found via the investment treaty arbitration route, alternatives are available to insure against an investor’s loss caused by the expropriation by a host state, such as political risk insurance. Political risk insurance is available fromsome of the world’s leading insurance companies, and/or insurance syndicates at Lloyd’s of London. An investor with the foresight to identify a risk of expropriationmay well buy a policy that can provide an indemnity for loss(es) caused by perils such as confiscation, expropriation, nationalisation, and/or deprivation, to name but a few. Such policies are often subject to the law of England andWales which is somewhat underdeveloped in its consideration of the concept of expropriation, certainly when compared to the body of arbitral awards rendered pursuant to BITs. But what is the positionwith respect to the rather grey area of ‘creeping expropriation’? By whichwemean a series of measures taken by a host state that, taken individually, do not amount to an expropriatory act, but when taken together, might. Various attempts have beenmade by the insurancemarket to provide coverage for creeping expropriation and we address the concept of creeping expropriation as considered in various investment treaty arbitral awards and asks whether deference to the body of such awards could assist insurers and insureds in ascertaining whether a loss is covered. THE DIFFICULT CONCEPT OF CREEPING EXPROPRIATION Political risk insurance wordings rarely go into great detail as to what is to be defined as an ‘expropriatory event’ for the purposes of coverage, often referring only to ‘loss and/or damage caused by expropriation’. In the ‘classic’ scenario – the blatant seizure of assets by a host state, often accompanied by significant rhetoric and a lack of (adequate) compensation – it can be relatively straightforward for an insured investor to establish that their loss is covered by a political risk insurance policy (subject to potential defences an insurer may have against a claim, that are beyond the scope of this article). The situation is far more complicatedwhen a claim is made on the basis of an alleged creeping expropriation. ‘Creeping’ expropriation is defined by the United Nations Conference on Trade and Development as ’a slowand incremental encroachment on one or more of the ownership rights of a foreign investor that diminishes the value of its investment’. Reference to English lawas to whether a series of incremental steps taken by a state is sufficient to collectively amount to an expropriatory act for the purpose of insurance coverage is likely to be of limited benefit. The lack of clarity surrounding creeping expropriations can often lead to a great deal of time (andmoney) being spent by all parties in establishing whether an indemnity is due. Would the addition of a clause noting that reference can bemade to publicly available investment treaty awards for the sole purpose of determining whether a creeping expropriation has occurred be of use in reducing this burden, or would it make thingsmore difficult?
BY ANDREW GRANT AND PAUL BAKER, PARTNER AND A SSOCIATE AT CLYDE & CO LLP
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