Mamidoil v. Albania (ICSID Case No. ARB/11/24)
Summary by Natalia Charalampidou, citation details below.
The final award in these proceedings was issued on March 30, 2015. Claimant initiated an annulment proceeding on August 3, 2015. It was discontinued one year later for lack of payment of the required advances, pursuant to ICSID Administrative and Financial Regulation 14(3)(d) and (e).
Invoked instruments, purported breaches & administering institution:
This was an arbitration under the Albania-Greece BIT and the ECT, arising out of an alleged breach of the standards of expropriation (Art. 4(2) of the BIT and Art. 13 of the ECT), fair and equitable treatment, unreasonable and discriminatory measures and full protection and security (Article 10(1) of the ECT). The dispute was submitted to an ICSID arbitral tribunal according to Art. 26(4)(a)(i) of the ECT. A remarkable feature of this case was that in the Request for Arbitration claimant based its claim on Art. 25(1) of the ICSID Convention and Art. 10 of the Albania - Greece BIT (¶¶ 261 - 263). In the Memorial, claimant also referred to the ECT as "an additional ground" for bringing this arbitration (¶ 265).
Any third parties or parallel proceedings:
Claimant was Mamidoil Jetoil Greek Petroleum Products Societe S.A. ("Mamidoil"), a joint stock company registered in Greece, and respondent was the Republic of Albania ("Albania") (¶¶ 1, 3).
After June 1995 and before 1998 claimant, who maintained business relations with Albania since the 1980s (¶ 60), made proposals to local authorities to build a tank farm in the port of Durres, which is situated close to a residential area (¶ 68), and to rehabilitate part of the existing infrastructure to discharge vessels. It further proposed to create company operated petrol stations in the country (¶ 65). Said proposals were based on a business plan which described installation of the tank farm and a network of gas stations operating under the Jetoil sign (¶ 66). In several occasions, claimant was indeed encouraged to invest in Albania and was able to obtain some support from respondent. The precise timing of said occasions was undeterminable, albeit it was affirmed that one of them took place in 1998 (¶ 70). At the same time respondent established contacts with international public institutions for the modernization and development of its public infrastructure. In fact, Albania executed a credit agreement for an amount of USD 17 million for the financing of the "Durres Port Project" with a member of the World Bank Group (¶ 71), which among others included a study (¶ 75). On January 6, 1999 respondent approved in principle the establishment of a center of reservoirs in the technological zone of the port and agreed to grant a lease to claimant (¶ 79). On March 15, 1999 claimant established its Albanian subsidiary, which entered into the lease agreement with respondent on June 2, 1999. On September 1, 1999 respondent handed the site over to claimant's subsidiary "free cleared and ready for the investment of a fuel storage center". Claimant proceeded with construction of the tank farm and the rehabilitation of the infrastructure (¶¶ 80-83), whereas written warnings of respondent dated November 17, 1999, February 15, 2000 and March 3, 2000 regarding suspending the works until the completion of said study (¶¶ 86, 88, 89) were not followed (¶ 87). This study, which was endorsed by both the World Bank and the European Commission (¶¶ 92, 94), resulted into the land use plan of March 2000 recommending the transformation of the port of Durres into a container terminal and the relocation of the oil tanks to a less-populated area (¶¶ 76, 92, 95). As a consequence of the land use plan of March 2000, all petroleum companies active in Durres abandoned their sites between July and December 2000. Following an intervention of the Greek government, Albania enacted "temporary trading permits" for entities conducting their activity in trading petroleum and their by-products in Durres. Claimant, along with other subsidiaries of Greek corporations were granted on February 16, 2001 a "trade permit" of type "A", which was valid for ten years. Claimant did not start a second application and the trade permit expired on February 15, 2011 (¶¶ 97-100). In addition to the trade permit, it was noted that claimant was granted an environmental permit on May 31, 2007 and a customs warehouse authorization on October 17, 2006, but neither construction site permit, nor construction permit, nor exploitation permit (¶ 103). In years 2002 onwards, respondent brought its standards regarding security reserve of fuel in line with the ones prescribed within the EU (¶ 111). It further allowed the refining of a lower diesel quality and its marketing (¶ 113), albeit only for six months, as the relevant legislation was later annulled by the Constitutional Court of Albania (¶ 115). In addition, respondent taxed imported fuel based on the bill of landing quantities and not based on the quantities that left warehouses. Claimant complained about this practice, due to evaporation and loss during storage. Finally, Albania was facing a problem of smuggling and adulteration of fuel (¶¶ 116-118), and aiming to combat this, it made a series of efforts in cooperation with the European Commission and UNCTAD and by entering into a bilateral "Agreement on Deployment and Naval Assistance in the Customs Sector" with Italy (¶ 256).
The tribunal in addressing its jurisdiction, asked the question whether, to the extent the arbitration had not been brought on the basis of the ECT, claimant could rely thereon as the international instrument providing for respondent's consent to arbitration and the standards of protection, against which the conduct of respondent would be addressed (¶ 274). Claimant, aiming to circumvent the difficulty of relying on an instrument which was not invoked at the time the arbitration began, purported that the ECT was applicable to the dispute as substantive law (¶ 268). The tribunal noted that this issue was of significance, as the Greece - Albania BIT and the ECT contain different standards of protection, such as the standard of fair and equitable treatment, the standard of unreasonable and discriminatory measures and the standard of full protection and security (¶ 271). It was not convinced by the clarifications given during the hearing and stressed that an investor cannot import the standards of protection of a different treaty by simply referring to that treaty as the "law applicable" to the merits under another treaty and rejected in the present case the application of the notion of applicable law as a most-favored-nation clause (¶¶ 270, 276). Yet, having regard to the lack of respondent's objection on the basis of tribunal's jurisdiction per se, and to the extent the parties both took position as to the propriety of respondent's conduct under the ECT, the tribunal decided to consider the ECT when addressing the existence and legality of an investment (¶¶ 277-278).
Regarding the objection ratione materiae, the tribunal determined that the tank farm, the shares and the lease agreement constituted a unity (¶ 285). It then noted the parties' agreement that those constituted an investment within the meaning of Art. 25 of the ICSID Convention, Art. 1 of the BIT and Art. 1(6) of the ECT (¶ 287). Turning to the legality of the investment, the tribunal determined that this requirement is enshrined in Art. 2 of the BIT (¶ 292), whereas the ECT does not contain such a provision (¶ 293). Nevertheless, citing Plama, the tribunal held that the ECT does not protect investments made illegally (¶ 293), albeit it accepted that the specifics of each case impose thorough scrutiny as to its applicability in specific circumstances, both in jurisdiction and merits (¶ 294). The tribunal, in alignment with Phoenix, it affirmed that an investment made illegally, due to violation of substantive law, is not protected under international law (¶ 372). In the present case, it ruled that the decisive moment for the appreciation of the investment's substantive legality was when the investment was planned and made. Hence, in view of the fact that when the lease was executed and the land was transferred to claimant's possession, neither party expected changes and restrictions (¶ 375), it found that the investment was not tainted by illegality (¶ 377). When examining the second source of possible illegality, that being violation of procedural rules (¶ 378), the tribunal assessed the applications for the various necessary permits under Albanian law. It agreed with respondent that Albania took a lenient good faith stance towards respondent's subsidiary (¶ 416), and in view of the lack of permits, it found that the construction was illegal and not legalized (¶¶ 434, 461). Yet, despite claimant's failure to build and operate the tank farm in accordance with domestic law, the tribunal decided that this finding was not sufficient to bar its jurisdiction to decide the dispute based on the general assumption that states for not consent to the arbitration of disputes relating to illegal investments (¶¶ 479-480). Having regard to respondent's willfulness to disregard the illegality for the past, to suspend it for the present and to repair it for the future, the tribunal chose to determine the legal significance of the permits as a question of merits (¶¶ 493-494).
Turning to the merits, the tribunal addressed the claims of violation of respondent's duties: (a) not to expropriate without compensation; (b) to accord fair and equitable treatment by failing to provide a stable and transparent legal framework, to respect legitimate expectations, to abstain from exerting pressure and by denying justice; (c) to refrain from unreasonable and discriminatory measures; and (d) to provide full protection and security (¶ 496). It noted that expropriation is a notion distinct from damages (¶ 563) and stressed that the decisive criterion is that the owner has truly lost all the attributes of ownership (Santa Elena). It further noted that at least one of the essential components of the property rights must have disappeared for an expropriation to have occurred (El Paso) (¶ 566). Also, it took regard of AES (II), where it was held that for an expropriation to occur, it is necessary for the investor to be deprived, in whole or significant part, of the property in, or effective control of its investment; or for its investment to be deprived, in whole or in significant part of its value (¶ 567). The tribunal further noted that expropriation prerequisites a specific effect on the property itself, either direct taking or indirect deprivation of its essential characteristics, and hence it is different than damages (¶ 569). It also took the view that illegal conduct in itself will not give rise to a claim for expropriation, if the substance and attributes of property are left intact, whereas legal conduct may equal to expropriation, if the essence of property is touched and no compensation is paid (¶ 570). Thus, the tribunal found that no expropriation took place and rejected the claim (¶ 580). Then, the tribunal proceeded with examining the allegation of breaching the fair and equitable standard (¶ 584). Following its reference to the Tecmed standard, as applied in MTD (¶ 606), the tribunal stated that the standard creates the obligation under international law to exercise sovereign power in a way which is not atypical, surprising or specific to the treatment of investors (¶¶ 612, 634). Therefore, it concluded that the standard is orientated to the predictability of the legal system and due process (¶ 613). Furthermore, said standard guarantees the investor's even-handed access to a state's public services and infrastructure maintained in the general interest. Sustainability through stability and transparency are part of these services in a broad sense (¶ 615). The tribunal referred to Lemire v. Ukraine (¶ 619) and Bitwater v. Tanzania (¶ 631), before stating that it agreed with Continental Casualty and El Paso, where tribunals held that political statements create no legal expectations (¶ 643). Hence, it rejected claimant's assertion (¶¶ 663, 669, 675). Turning to the standard of reasonable expectations, the tribunal found that no explicit representations were made by respondent assuring Mamidoil that it would be authorized to land and discharge tankers in the port of Durres (¶ 691). It then made mention to PSEG Global, where it was clarified that legitimate expectations require a promise of the administration on which claimant relied to assert a right that needed to be observed (¶ 731). Thus, claimant had no legitimate expectations (¶ 735). Furthermore, the tribunal rejected the assertion of exertion of pressure, as it could not see in what way respondent exercised "coercion and harassment" and forced claimant to renegotiate the terms of its investment or rescind it (¶ 742). Equally, endorsing Arif, where it was held that international tribunals must refrain from playing the role of ultimate appellate court, it found no denial of justice with reference to the judgment of the Supreme Court of Albania (¶¶ 758, 764, 770). Similarly, it held that taxes were neither discriminatory nor unlawful, as they were evenly applied, and that the closing of the port of Durres bore a rational relationship to a rational policy. Hence, it found no violation of the standard of unreasonable and discriminatory measures (¶ 798). Finally, with reference to the allegation of fuel smuggling equaling to violation of the standard of full protection and security, the tribunal held that this standard does not imply strict liability. Rather, it obliges states to use due diligence to prevent harassment and injuries to investors, as decided in Electrabel (¶ 821). These problems existed in the region at the time when claimant was considering making its investment. In fact, claimant was aware thereof, as part of the general business environment and investment conditions. Nevertheless, it decided to make its investment under such conditions (¶ 823). Thus, it was decided that the present facts regarding fuel smuggling did not violate this standard (¶ 829).
This dispute concerned building a tank farm in the port of Durres (Albania) and rehabilitating part of the existing infrastructure to discharge vessels. The relevant proposal was submitted after June 1995 and before 1998. Claimant proceeded with building the tank farm and rehabilitating the infrastructure ignoring respondent's requests to suspend the works pending the completion of a study, which upon completion recommended the transformation of the port into a container terminal and relocation of the oil tanks. Importantly, claimant had not obtained a number of permits. The tribunal decided to consider the ECT, although the arbitration had not been brought thereon, since respondent did not object thereto and both parties had taken position as to respondent's conduct under the ECT. Claimant's argument that the ECT was the "law applicable" was unconvincing. Regarding the objection of investment's illegality, the tribunal accepted that the construction was in fact illegal. Still, this finding was not sufficient to bar its jurisdiction, especially in view of respondent's willfulness to disregard this illegality for the past according to the record of the case. The tribunal dismissed the claim of expropriation, as in the present case claimant continued to use, possess, control, and dispose of the property. The tribunal also found unconvincing the claim that the fair and equitable treatment standard had been breached, as political statements create no legal expectations and respondent had made no explicit representations. Further, the tribunal concluded that the standard of unreasonable and discriminatory measures had not been breached as closing the port of Durres was a measure that had a rational relationship to a rational policy. Finally, the tribunal decided that fuel smuggling did not qualify as a breach of the standard of the full protection and security, since claimant was aware of this, when it was considering to make the investment.
This summary comes from the following paper:
The paper is part of the joint OGEL/TDM/ArbitralWomen Special Issue:
TDM 7 (2018) - OGEL/TDM/ArbitralWomen - Strategic Considerations in Energy Disputes