“The Latin American Mythical Legends in Investment Arbitration,” a summary of remarks by Jonathan C. Hamilton at ICCA Miami 2014, in “Investment and International Commercial Arbitration in Latin America: Hottest Issues, Country by Country,” by Ricardo Dalmaso Marques (2015)

According to Jonathan C. Hamilton, to adequately assess if there are any arbitration legitimacy concerns in the region, particularly concerning investment arbitration, one should first understand the era before the investment protection system that exists, and then look at paradigmatic cases that demonstrate how investment has been promoted and protected. 

            Jonathan Hamilton, partner and head of Latin American arbitration at White & Case LLP, in Washington, D.C., chose to describe the historical background of the region in respect of foreign investment and international arbitration by portraying what he called “the Latin American mythical legends” (los legados míticos de la América Latina) in international arbitration.  Che Guevara, for instance, “is a mythical legend in Latin America; someone whom everyone has their own views or myths about,” and we are at a stage in which Latin American arbitration may also hold some myths “depending on whom you ask,” said Hamilton.

            Accordingly, Hamilton expressed his view that, to adequately assess if there are any arbitration legitimacy concerns in the region, particularly concerning investment arbitration, one should first understand the beginning of this process (i.e., the era before the evolvement of the investment protection system that exists today).  “[T]o understand investment in Latin America, you must understand La Brea y Pariñas,” he affirmed, evoking the classic investor-State dispute over hydrocarbon properties in Peru that was submitted to ad hoc arbitration almost a century ago, and that in the 1960s emerged as a major international dispute with respect to the La Brea y Pariñas oil field.[1]

            For him, the problems that arose in that dispute — such as the “veiling” of the compensation agreed to be paid by Peru to the investors, which allegedly contributed to the fall of the Belaúnde administration and the installation of a military government, and the recovery (nationalization) of the oil fields by the Peruvian government[2] — illustrate both (i) the cycles between private sector and State control over natural resources for a long period of time in the region, and (ii) “the complications we used to live in” — a world that had no investment arbitration system or international arbitration mechanisms the way they exist today.  By quoting former United Kingdom Prime Minister Winston Churchill's famous dictum, “democracy is the worst form of government, except for all those other forms that have been tried,” Hamilton contended that the same applies to the current investment and international arbitration systems in Latin America.

            Furthermore, he mentioned the 1990s as a turning point for the region, which was previously comprised mostly of closed economies but then underwent through some drastic legal framework changes “as an element of overall market and economic reform.”[3]  More specifically, according to Hamilton, the adoption of modern arbitration laws, the ratification of bilateral investment treaties and the adhesion to the ICSID Convention put into place an entirely new legal framework in Latin America, which can be seen as part of an overall political and macroeconomic evolution experienced by the region between 1990 and 2000.[4]  The relationship between investors, States and the economies was drastically changed, he contended.[5]

            To illustrate where the region stands today with respect to the legitimacy of the investment arbitration system, as well as to depict a world and an era that now have access to those mechanisms, Hamilton focused on three paradigmatic cases pertaining to particularly stirring subjects for those who have an interest in learning about arbitration in the region.

(1)       Sovereign debt

Latin American politics for many years concerned issues of sovereign finance and sovereign debt.  For Hamilton, the Abaclat v. Argentina ICSID case[6] — an arbitration in which the claimants alleged that Argentina's sovereign debt restructuring amounted to expropriation and violated the fair and equitable treatment standard established under the Argentina-Italy BIT[7] — is reflective of  how investment arbitration interacted with that reality.  Accordingly, remembering that in the 1990s, Argentina was perhaps the most prolific issuer of sovereign bonds in the world, he noted that the bilateral investment treaties and the ICSID system successfully grew into a new forum for addressing sovereign default.

(2)       Infrastructure

Hamilton further triggered the issue of infrastructure disputes — a critical and vital concern in investor-State relations in Latin America — by referring to the Quiport v. Ecuador ICSID case,[8] a conflict that surrounded the denunciation of the ICSID Convention by Ecuador and the expropriation of a concession to construct and operate Quito's new international airport, both occurring in 2009.  He reported this case as having “a happy ending,” given that, after a long and intense negotiation period, the claimant (a multinational consortium), the Ecuadorian State and the Municipality of Quito entered into a “Strategic Alliance Agreement”[9] — an amicable solution taking into account the new Ecuadorian constitutional framework, concepts of strategic alliances under Ecuadorian law, and the security needed for the investors to finish construction of the airport.  For Hamilton, “in short, the Quito international airport would not exist were it not for investment protections, access to ICSID, and, critically, the affirmation of Ecuador's pre-existing consent to ICSID arbitration during the course of the negotiations.”[10]

(3)       Energy sector

Energy and electricity, in particular electricity transmission, are critical for foreign investment opportunities, as well as for social and economic development of the region.  In this regard, Hamilton made reference to a trio of cases pertaining to the Peruvian energy sector: Peru v. Caraveli, in which the third arbitration commenced was actually the first ICSID case filed by a Latin American State,[11] “an underutilized scenario in the ICSID system.”[12]  This case was resolved through an Acuerdo Integral (“Integral Agreement”), pursuant to which the Peruvian government is now being paid US$ 40 million with costs.  More importantly, according to Hamilton, the entire agreement is now completely transparent — “contrary to the La Brea y Pariñas story” and available at ICSID’s website.[13]

            Based on these cases and experiences, Hamilton firmly concluded that there is not such a thing as a legitimacy crisis in investment arbitration.  “We are just in a different stage of this process of what investment arbitration means both procedurally and substantively,” he affirmed.  For him, the criticisms that the investment arbitration system have been receiving are understandable, but should not be deemed as more than "growing pains" and some absolutely habitual legados míticos.

[1]      See Jonathan C. Hamilton, Understanding Latin American Investment (2014) (where Hamilton asserts that “[t]he La Brea y Pariñas investments and disputes spanned many decades at a time when there was no international investment protection framework, and had widespread and longstanding domestic and international consequences.  They highlight the world prior to the contemporary investment protection regime.”).

[2]      Id.

[3]      See Jonathan C. Hamilton, A Decade of Latin American Investment Arbitration, in Latin American Investment Treaty Arbitration: The Controversies and Conflicts 69 (Mary H. Mourra & Thomas E. Carbonneau eds., 2008).

[4]      The further changes, said Hamilton, depended on the individual countries and the approach taken by each of them to the economy.  For him, for instance, emphasis must be given to some efforts made to back away from the arbitration legal framework put into place in the 1990s, such as the case of Venezuela, which has been undergoing some changes in its approach to the economy, including, among other actions, announcing its withdrawal from the ICSID Convention in 2012.

[5]      See Jonathan C. Hamilton, et al., eds., Latin American Investment Protections: Comparative Perspectives on Laws, Treaties, and Disputes for Investors, States and Counsel (2012).

[6]      Abaclat v. Argentine Republic, ICSID Case No. ARB/07/5 (filed Feb. 7, 2007).

[7]      Hamilton emphasized, in this context, the "Agreement between the Argentine Republic and the Republic of Italy on the Promotion and Protection of Investments" ("Argentina-Italy BIT"), which came into force in October 1993 and concerned the issuance of bonds by Argentina to raise capital for its economic development.

[8]      Corporación Quiport S.A. v. Republic of Ecuador, ICSID Case No. ARB/09/23 (filed Dec. 30, 2009).

[9]      See Corporación Quiport S.A. v. Republic of Ecuador, ICSID Case No. ARB/09/23, Order of Discontinuance, ¶ 5 (Nov. 11, 2011).

[10]    See Jonathan C. Hamilton, Anatomy of a Deal: Expropriation, Denunciation, Arbitration, Negotiation and the Resolution of the Quito International Airport Project.

[11]    Republic of Peru v. Caravelí Cotaruse Transmisora de Energía S.A.C., ICSID Case No. ARB/13/24 (filed Sept. 19, 2013).

[12]    Andrew de Lotbinière McDougall, Jonathan C. Hamilton, et al., ICSID Growth Continues as Canada Ratifies and Cases Diversify, White & Case (2013).

[13]    Republic of Peru v. Caravelí Cotaruse Transmisora de Energía S.A.C., ICSID Case No. ARB/13/24, Procedural Order Taking Note of the Discontinuance of the Proceeding (Dec. 26, 2013), available at www.icsid.worldbank.org.

To illustrate where the region stands today with respect to the legitimacy of the investment arbitration system, as well as to depict a world and an era that now have access to those mechanisms, Hamilton focused on three of his paradigmatic cases pertaining to particularly stirring subjects for those who have an interest in learning about arbitration in the region.