1. MOST FAVORED NATION TREATMENT OF SUBSTANTIVE RIGHTS & INVESTMENT ARBITRATION IN CHINA

2. Lluís Paradell Provisional Measures in Investment Arbitration: Can they freeze the adverse State conduct?

3. Introduction Question: can provisional measures have a conservatory effect on the subject matter of the dispute, or freeze the underlying legal and factual situation? Some investment treaties expressly exclude enjoining the disputed State action by provisional measures (eg Article 1134 NAFTA Chapter 11) Claimants in investment treaty arbitrations do not usually seek a final award of specific performance or injunctive relief Compelling a State to perform a contract or derogate legislation adverse to the claimant investor may be regarded as impractical, materially unviable or legally impossible The issue may be framed in terms of the non-irreparability of damage But general principle of non-aggravation of the dispute and preservation of the status quo

4. Analysis Article 47 of the ICSID Convention “Except as the parties otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of the parties” Rule 39 of the ICSID Arbitration Rules Note to Rule 39 (1968 Rules) “This Rule is […] based on the principle that once a dispute is submitted to arbitration the parties should not take steps that might aggravate or extend their dispute or prejudice the execution of the award”

5. Analysis Plama v. Bulgaria (6 September 2005), paras 40, 41, 45 and 46 “The rights to be preserved by provisional measures [...] must be related to the specific disputes in arbitration, which, in turn, are defined by the Claimant’s claims and requests for relief to date” “Because the claims and relief which the Claimant seeks are limited to damages, the scope of the ‘rights relating to this dispute’ which deserve protection by provisional measures is necessarily limited to the damage claims” “[...] the Tribunal considers that the right to non-aggravation of the dispute […] is a right to the maintenance of the status quo, when a change of circumstances threatens the ability of the Arbitral Tribunal to grant the relief which a party seeks and the capability of giving effect to the relief”

6. Analysis Plama v. Bulgaria (cont.) “The Tribunal accepts Respondent's argument that harm is not irreparable if it can be compensated for by damages, which the case in the present arbitration and which, moreover, is the only remedy Claimant seeks”

7. Analysis Occidental v. Ecuador (17 August 2007), paras 79, 84 and 92 “It is well established that where a State has, in the exercise of its sovereign powers, put an end to a contract or license, or any other foreign investor’s entitlement, specific performance must be deemed legally impossible” “To impose on a sovereign State reinstatement of a foreign investor in its concession, after nationalization or termination of a concession, license or contract by the State, would constitute a reparation disproportional to its interference with the sovereignty of the State when compared to monetary compensation” “Any prejudice suffered as a result of the termination of the Block 15 contracts, if subsequently found illegal by the Tribunal, can readily be compensated by a monetary award”

8. Analysis City Oriente v. Ecuador (17 November 2007), para. 57 “In the opinion of this Tribunal, the provisional measures requested by Claimant are necessary to preserve Claimant’s rights and the claims it has asserted in this arbitration. Indeed City Oriente is seeking to have the Contract performed pursuant to its original terms and conditions […] pending a decision on this dispute, the principle that neither party may aggravate or extend the dispute or take justice into their own hands prevails. Consequently, Ecuador and Petroecuador are required to continue to comply with the obligations voluntarily undertaken through the Contract, as it was executed, and they are required to refrain from declaring its termination or otherwise modifying its content” —Basis of jurisdiction: contract

9. Analysis Paushok v. Mongolia (2 September 2008) paras 68 and 77 “[…] in international law, the concept of ‘irreparable prejudice’ does not necessarily require that the injury complained of be not remediable by an award of damages.” “[…] the Tribunal has come to the conclusion that the claimants are facing, in this case, very substantial prejudice unless some interim measures are granted. Immediate payment of the WPT [mining tax] allegedly owing to Mongolia would likely lead to the insolvency and bankruptcy of GEM (Mongolia’s second largest gold producer) and the complete loss of Claimants’ investment in that company” —Indications that the Government itself was not to require payment

10. Analysis Perenco v. Ecuador (8 May 2009) para. 50 “It is pertinent to recall that in any ICSID arbitration one of the parties will be a sovereign State, and where provisional measures are granted against it the effect is necessarily to restrict the freedom of the State to act as it would wish. Interim measures may thus restrain a State from enforcing a law pending final resolution of the dispute on the merits […] While the enactment of a law by a sovereign State, upheld as constitutional in that State, is a matter of importance, it cannot be conclusive or preclude the Tribunal from exercise of its power to grant provisional measures” —Contractual/treaty claim

11. Analysis Burlington v. Ecuador (29 June 2009) paras 60 and 82-83 “In the Tribunal’s view, the rights to be preserved by provisional measures are not limited to those which form the subject-matter of the dispute or substantive rights as referred to by the Respondents, but may extend to procedural rights, including the general rights to the status quo and to the non-aggravation of the dispute. These latter rights are thus self-standing rights” “In the circumstances of the present case, this tribunal finds it appropriate to follow those cases that adopt the standard of ‘harm not adequately reparable by an award on damages’ to use the words of the UNCITRAL Model Law [….] The risk here is the destruction of an ongoing investment and its revenue-producing potential which benefits both the investor and the State” —contractual/treaty claim

12. Analysis Quiborax v. Bolivia (26 February 2010) para. 117 “In the Tribunal’s view, the rights to be preserved by provisional measures are not limited to those which form the subject matter of the dispute or substantive rights as referred to by the Respondents, but may extend to procedural rights, including the general right to the preservation of the status quo and to the non-aggravation of the dispute. As stated by the Tribunal in Burlington v. Ecuador, these latter rights are self-standing rights” In the Tribunal’s view, the applicable criterion is that the right to be preserved bears a relation with the dispute […]”

13. Analysis Cemex v. Venezuela (3 March 2010) para. 65 “[…] Article 47 of the ICSID Convention does give ICSID Arbitral Tribunals power to recommend measures directed at the preservation of the rights of the parties. In exercising these power, ICSID Tribunals may recommend measures in order to avoid the aggravation or extension of the dispute. But those ‘non-aggravation’ measures are ancillary measures which cannot be recommended in the absence of measures of a purely protective or preservation kind”

14. Analysis Chevron and Texaco v. Ecuador (14 May 2010) “The Claimants and the Respondent are both ordered to maintain, as far as possible the status quo and not to exacerbate the procedural and substantive disputes before this Tribunal, including […] the avoidance of any public statement tending to compromise these arbitration proceedings”

15. Conclusions Recent investment arbitration tribunals seek to distinguish the Plama/Occidental case law There remains some considerable uncertainty as to the circumstances in which interim relief may be available There is a recent tendency to grant temporary interim relief

16. © Freshfields Bruckhaus Deringer 2010 The information and opinions contained in this presentation are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations. This presentation speaks as of its date and does not reflect any changes in law or practice after that date.