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INTERNATIONAL ARBITRATION 1/3LY
TECHNICAL 15
Making any investment requires consideration of a myriad of factors and it is difficult to generalise about making foreign investments. That said, there are common dispute themes that should be considered in all investments, including in both the ‘emerged’ and ‘emerging’ markets in Latin America. Investment in Latin America has grown dramatically even since the millennium and, by way of example, China’s investment alone into Latin America has grown almost twentyfold over the past 15 years. From a dispute resolution perspective preparations for the mechanism to resolve any dispute and the enforcement of any resulting judgment or award should start as soon as the project is conceived. WHO ARE YOU CONTRACT ING WI TH? It is important to understand the nature of the body you are contracting with. In many jurisdictions ‘the government’ is not a straight-forward concept and the authority of any ‘government entity’ needs to be considered and confirmed. Whoever the contracting parties are, but more so when linked to any government entity, the investor needs to be protected from any complicity in corruption, breaches of international law or human rights violations and to take into account security risks. It is important to think ‘beyond’ the investment and to protect both the investment and the investing party. Investments tend to be long-term projects and some change of government or leadership is likely. So far as possible, protections need to be put into the contract and, as appropriate, national legislation to protect the investment being made. Knowledge of your contracting party does not stop once the agreement has been reached – it is important to keep ‘an ear to the ground’ about political or legal changes that may be taking place in order to adapt and protect as necessary. Have in mind that not all political change is bad. By way of example, Brazil’s recent change to more business-friendly political leadership endorsing new investment opportunities in concession projects, infrastructure, logistics and labour reforms has buoyed investors. Similarly, peace negotiations in Colombia may open previously- closed doors and make investment cheaper due to reduced security, defence and logistics costs – with change, can come opportunity.
WHAT LEGAL S TRUCTURES ARE IN PL ACE? While an investor can put protections into a contract, it is important in any jurisdiction to understand the applicable domestic and international laws that may come into play. This is where advice from those with combined global and local experience becomes invaluable. Many jurisdictions will have local domestic laws aimed at attracting foreign direct investment (FDI). These will usually offer protections to an investor and protections for the investment. When considering such legislation, think forwards to how a dispute would be dealt with under that law – would any dispute be determined by a local court? Would that court be neutral as between the investor and the state? How would the dispute resolution provisions in the legislation interact with the contracts governing the investments? Are they compatible? While some laws do aim to attract foreign investment, investors should also have in mind laws that restrict investment, for example limitations on the amount of an asset that can be foreign-owned. Investors need to have a 360 degree view of the landscape they will be working in. There may also be bilateral (BIT), multilateral (MIT) treaties or other international agreements between the country of the party making the investment and the country receiving it. These treaties commonly provide protections for the investor in the form of guarantees of fair and equitable treatment and compensation in the case of expropriation. While BITs may have been negotiated, it is important to see that they have been signed and ratified. Brazil has a history as an objector to the international investment system but since 2015 has notably signed a flurry of new treaties. However, note that not all contain all of the investment protections we would advise an investor to seek as they may be more focussed on Brazil’s outward rather than foreign-inward investment. For example, Brazil’s new investment treaties signed in 2015, but still not in force, do not provide for investor-State arbitration clauses. Also consider the structure through which the investment is made and the country through which the investment is routed. In two cases concerning Venezuela the question of when the investor restructured through a Dutch company (i.e. before or after the dispute arose) became key to the ability to claim protection under the relevant BIT.
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