Parallel proceedings in investment arbitration: moving forward after Orascom TMT investments v. Algeria.

Author:Carroll, Lee
Position::2017 International Centre for Settlement of Investment Disputes Arbitral Tribunal decision
 
FREE EXCERPT

I Introduction

Bilateral investment treaties typically include within the definition of "investment" shares or participation in companies. As a result shareholders are given direct rights of action against host States through the investment treaty (subject to any nationality requirements that the shareholder must fulfil to qualify as an investor). Investments are frequently carried out through locally incorporated companies often because the host State requires the establishment of a local company as a precondition for foreign investment. The locally incorporated company is in effect an instrumentality through which the foreign investor realises the investment. This means the participation in the locally incorporated company becomes the requisite investment and the foreign shareholder can claim damages resulting from the host State's treatment of the local company (eg diminution in value or shareholding). The current practice of arbitral tribunals does not distinguish between majority and minority shareholders. Likewise, the claimant may not be the immediate shareholder of the local company but may own shares indirectly through the intermediary of another company. This is because typically the definition of investment does not distinguish between direct and indirect shareholding and does not exclude indirect investment from its remit.

As a result, in the case of a vertically integrated group of companies, the locally incorporated company, its direct foreign shareholder and its indirect foreign shareholder may each have a legitimate claim against the host State. Increasingly, different shareholders at different levels of a vertically integrated corporate chain are initiating parallel arbitration proceedings. (1) In May 2017, an eminent ICSID arbitral tribunal decided, for the first time, that the initiation of multiple proceedings by an investor, who controls several entities in a vertical chain of companies, to recover for essentially the same economic harm could amount to an abuse of right (namely, the right to treaty protection).

The decision in Orascom TMT Investments Sarl v People's Democratic Republic of Algeria (2) is a significant one. It is a welcome extension to the doctrine of abuse of rights, which prohibits the exercise of a right for purposes other than those for which the right was established and which, to date, has found limited application in investment jurisprudence. The decision in Orascom is also significant for what the Tribunal says (indirectly) in relation to the tools available to tribunals to guard against double recovery in international law.

II Orascom TMT Investments v Algeria

The claimant, Orascom TMT Investments (or OTMTI), of Luxembourg, claimed that, from 2008, Algeria began an unlawful campaign of harassment against Orascom Telecom AJgerie SPA (OTA), who operated the telecommunications system in Algeria and in whom OTMTI had an indirect controlling shareholding. In May 2001, Orascom Telecom Holding SAE (OTH), an Egyptian company, won Algeria's public bid to develop a mobile telecommunications network in Algeria. OTH began operations through its Algerian subsidiary OTA.

The alleged governmental actions included a series of tax reassessments for hundreds of millions...

To continue reading

REQUEST YOUR TRIAL