EFFECTIVE USE OF PROVISIONAL MEASURES IN ARBITRATION ARISING FROM OIL AND GAS NATIONALIZATION

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development and Investment
(Apr 2009)
CHAPTER 13C
EFFECTIVE USE OF PROVISIONAL MEASURES IN ARBITRATION ARISING FROM OIL AND GAS NATIONALIZATION¹
D. Brian King
Freshfields Bruckhaus Deringer
New York

D. Brian King is a partner at Freshfields Bruckhaus Deringer in New York. He headed the international arbitration group in the firm's Amsterdam office for seven years before relocating to the New York office in 2007. Brian's practice focuses on acting as counsel and arbitrator in international arbitrations before the ICSID, ICC, LCIA, ICDR and other arbitral institutions. Matters that Brian is handling or has recently handled include: acting for ConocoPhillips in an ICSID arbitration asserting precedent-setting claims arising from the expropriation of hydrocarbon and refining assets by Venezuela; representing a Chilean construction consortium in a substantial ICC arbitration arising out of the construction of an industrial plant; acting for a State in three Energy Charter Treaty arbitrations, in which the combined claim value exceeds US$ 15 billion; acting for Total SA in two arbitral proceedings involving multi-billion Euro claims relating to its petrochemicals business in Spain; representing a Permira company in an ICC arbitration involving claims arising from a share purchase agreement for the acquisition of a Spanish food and beverage business; and serving as chairman, co-arbitrator or sole arbitrator in a number of institutional arbitrations involving disputes in the energy, consumer and construction sectors. Brian graduated first in his class at the New York University School of Law in 1990, having received a degree in politics and economics (summa cum laude) from Princeton University in 1985. Brian regularly lectures and publishes on arbitration-related topics. He speaks English and Dutch and reads Spanish and French.

"Open investment will never return. We are sealing up that open investment area and burying it deep down in the Orinoco oil reserve."

— Hugo Chávez, President of Venezuela ²

I. Introduction

The last years have seen a new wave of disputes spring up across Latin America. Governments in several countries have moved to nationalize their oil and gas industries, or have used taxation, forced contractual changes or other measures to lay claim to a greater share of the income from private investors' oil and gas operations. Faced with these developments, some foreign investors have consented to renegotiate their agreements with the host state or have accepted settlements and left. Others have sought recourse through the dispute resolution mechanisms contained in their contracts with the host state, or those offered in the state's foreign investment law or in bilateral investment treaties.

In most instances, the recourse offered by these instruments will be to arbitration - and generally international arbitration - rather than to the national courts. Such will normally be the case under bilateral investment treaties, which typically give the investor a choice between arbitration under the auspices of the International Centre for Settlement of Investment Disputes (ICSID), or pursuant to the Arbitration Rules of the United Nations Commission on International Trade Law (the UNCITRAL Rules). Both systems offer the investor a neutral international forum and the promise of a binding award at the end of the process. The end of the process may, however, take considerable time to reach. International arbitrations with sovereigns will not infrequently be divided into two or more distinct phases -jurisdiction, merits and/or quantum - and may takes years to run their course.

In the meantime, events on the ground do not stand still. The state may initiate proceedings against the investor in its national courts; it may move to seize the investment, or take further measures against it; pressure may be brought to bear on the investor's in-country personnel, or on witnesses in the proceeding. The investor, with a view towards ultimate enforcement of an award, may seek to attach property outside the host state. Problems may also crop up in the

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arbitration proceeding itself: evidence may need to be secured, the tribunal's ability to render an effective award may need to be protected, or self-help actions by the parties may need to be dissuaded.

When such circumstances arise, the availability of provisional measures - i.e., temporary relief granted during the pendency of the arbitral proceedings - can be an important weapon in the investor's arsenal. Knowing whether, when and how to use them may be critical in achieving a successful result.

This paper is devoted to a consideration of these questions. It seeks to explain what provisional measures are, and then to identify the various ways in which investors can use them effectively during the pendency of the arbitration.

II. What Are Provisional Measures?

The term "provisional measures" - also called "interim measures" - refers to orders made prior to or during the pendency of a proceeding that aim to preserve the rights of a party or the subject matter of the dispute.³ By their nature, such measures are temporary. They are designed to remain in place only until such time as a final decision or award is issued,⁴ and they may be lifted or revised by the tribunal at any time.

Recognizing the need for provisional measures, all major arbitral systems provide the tribunal with the power to order them. Of particular relevance for present purposes are the ICSID system and the UNCITRAL Rules, as these are the options most often made available to the investor in bilateral investment treaties.

Article 47 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) provides:

Except as the parties otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures

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which should be taken to preserve the respective rights of either party.⁵

This provision is implemented by Rule 39 of the ICSID Arbitration Rules, which states:

At any time during the proceedings a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal. The request shall specify the rights to be preserved, the measures the recommendation of which is requested, and the circumstances that require such measures.⁶

Article 26(1) of the UNCITRAL Rules confers a similar power. It provides:

At the request of either party, the arbitral tribunal may take any interim measures it deems necessary in respect of the subject-matter of the dispute, including measures for the conservation of the goods forming the subject-matter in dispute, such as ordering their deposit with a third person or the sale of perishable goods.⁷

The historical repository of the power to grant provisional measures is, of course, not arbitral tribunals but national courts. Indeed, some types of provisional measures - most notably, the pre-judgment attachment of assets - can only effectively be granted by a court. Furthermore, in the period prior to the constitution of an arbitral tribunal, the only available forum for seeking provisional measures will be a national court in any event.

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The ICSID and UNCITRAL Arbitration Rules differ markedly in regard to court-ordered provisional measures. ICSID arbitration is designed to be a self-contained dispute resolution system, with national courts playing no role whatsoever during the pendency of the proceedings. Accordingly, Rule 39(6) of the ICSID Rules proscribes provisional measures applications to a national court, unless the parties have expressly agreed to permit this.⁸ The UNCITRAL Rules adopt the opposite presumption: parties are free to apply to national courts for provisional measures, at any stage of the proceedings, unless they have otherwise agreed.⁹

As reflected in the quotations above, the ICSID and UNCITRAL Rules give considerable discretion to arbitral tribunals as to the types of provisional measures that may be imposed. The case law reveals a wide variety of measures sought by parties in investment disputes. These include requests for orders directing that:

• evidence be preserved or produced;¹⁰

• a party refrain from taking actions that may alter the status quo ante, or exacerbate the dispute;¹¹

• a contract not be terminated;¹²

• parallel proceedings before a national or administrative body be stayed;¹³

• conservatory attachments be lifted;¹⁴

• security for costs be posted;¹⁵

• performance bonds not be called, or disputed monies be deposited into escrow;¹⁶ and

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• a state refrain from collecting disputed taxes.¹⁷

The breadth of the provisional measures that may be granted is a testament to their strategic importance. In hotly contested disputes - as investment arbitrations in the oil and gas industry generally are - either or both parties will not infrequently see advantage in seeking provisional measures during the pendency of the arbitration.

III. What is the Standard for Obtaining Provisional Measures?

Just as they only broadly define the types of provisional measures that a tribunal may grant, the main systems of arbitration rules - including the ICSID and UNCITRAL Rules - are relatively unspecific in setting out the test that must be met in order to justify the imposition of a provisional measure. When do the "circumstances ... require" the granting of a provisional measure within the meaning of the ICSID Rules, and when is such a measure "necessary" in the UNCITRAL lexicon? Although the test is still being defined in practice on a case-by-case basis, the decisions of investment arbitration tribunals reveal three elements that the party seeking the measure generally will be required to prove.

1. A right to be protected

The party requesting provisional measures will be expected...