INTERNATIONAL ARBITRATION 1/3LY
SPECIAL REPORT 33
THINGS FALL APART. . .
Recent years have seen unprecedented political upheaval across the globe. Russia annexed Crimea and Ukraine is divided; regions of Sub-Saharan Africa are ungovernable or under rebel control; civil war rages in Libya, Syria and Iraq - now Libya has two governments and a “caliphate” straddles Iraq and Syria. Many of these regions are rich in natural resources or host important infrastructure, and consequently attract foreign investors. In addition to physical protection, investors seek legal protection of their assets through contracts incorporating arbitration clauses, offering an independent and neutral dispute resolution mechanism. However, current geopolitical conditions give rise to unique problems which can undermine that legal protection. RE VOLUTION AND REGIME CHANGE Investors face the prospect of contracts being terminated, or assets seized, if there is a change to those holding power in a host country. A state’s legal obligations will usually survive a change of government (even if occasioned by a coup), but today’s political scenarios aremore complex: • If one contracts with a self-proclaimed independent or self-governing region, can one bring a claimagainst that entity? Does a claim lie against the state fromwhich the region has “seceded”, and does it matter whether the “main” state refuses to recognise that state? Does it depend upon howmany other countries recognise the breakaway region? • If one owns/invests in an asset in a foreign country and the state fails to protect that asset fromdamage/destruction by insurgents, does a claim lie against the state?What if they protected the assets of another nation’s investors?Would a claim lie if the insurgents subsequently take control of the state?What if the insurgents are funded and armed by, and act according to the orders of, another state – does a claim lie against that state? While onemay assume that bilateral investment treaty protection ameliorates these risks, Russia’s annexation of Crimea has raised significant questions as to attribution under Russian and Ukrainian bilateral investment treaties (BITs).
BY RICHARD POWER, PARTNER, CLYDE & CO
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