Angel Samuel Seda and others v The Republic of Colombia - ICSID Case No. ARB/19/6 - Claimant's Memorial on the Merits and Damages - 15 June 2020
Reproduced from www.worldbank.org/icsid with permission of ICSID.
II. EXECUTIVE SUMMARY
This case involves a straightforward expropriation without compensation. There can be no dispute that in January 2017, Colombia illegally confiscated the Meritage Project--a large real estate development project just outside of Medellín that was to be comprised of 23 towers of over 400 units, dozens of commercial storefronts, and almost 100 houses. At the time of the expropriation, construction of seven towers was substantially advanced and over 150 units had been sold (generating revenues of over USD 34 million).13 700 people were working on the construction of the project, all of whom were forced to stop. As a result of the expropriation, Mr. Seda and a number of the Claimants immediately lost their investment (through their investment vehicle Newport) in the Meritage Project. They were not provided with a shred of compensation.
Colombia's actions went beyond simply expropriating the Meritage Project. They were unreasonable, arbitrary, unfair and discriminatory towards Claimants' investments. And Colombia's actions tainted Mr. Seda and his carefully curated hospitality and real estate development brand, such that Mr. Seda's other real estate development projects in Colombia-- in which a number of Claimants had also invested--felt an immediate adverse impact. Mr. Seda's reputation as a lifestyle brand developer was premised on his market-leading hotel, The Charlee. Shortly after choosing Colombia as the ideal location to invest, Mr. Seda built The Charlee hotel over the course of 2009-2010. The Charlee quickly gained national and international acclaim and is widely viewed as one of the top hotels in Medellín. It has been featured in The New York Times, Condé Nast, Vogue Travel and publications of similar renown.
Mr. Seda's other projects that were affected by Colombia's actions include the Luxé development--a substantially completed real estate development (with a 116-room hotel, 45 houses, 17 residential lots, 18 apartments and substantial amenities)--for which financing was pulled shortly after the Meritage Project's expropriation. Mr. Seda had several other projects in Colombia at various stages of development. Those projects also lost all prospect of being developed as a result of the expropriation of the Meritage Project.
Colombia's actions had such a devastating effect on Claimants' broader investment portfolio due to the manner in which Colombia took the Meritage Project. In taking the Meritage, Colombia egregiously misused its Asset Forfeiture Law--which allows the Government to take property or proceeds generated from illicit activity--for what appears to be corrupt purposes. The Asset Forfeiture Law allows for the Government to seize property owned by a drug trafficker on the theory that funds from the drug trafficking may have been used to buy the land and nobody should be allowed to profit knowingly from the fruits of those illicit funds. But--importantly--a cornerstone of the law is that it protects those who may acquire an interest in or purchase a tainted asset as long as they act in "good faith without fault." As such, before buying any property, purchasers generally conduct diligence on the title and owners to ensure that it is "clean." Conducting such diligence, in itself, protects investors in property as it establishes them as qualified good faith parties who are immune from asset forfeiture proceedings. Dr. Carlos Medellín--the former Minister of Justice and Law of Colombia and one of the fathers of the original Asset Forfeiture Law--has submitted an expert report explaining the background of the Asset Forfeiture Law. And Dr. Wilson Martínez, a former Deputy Attorney General and primary drafter of the Asset Forfeiture Law at issue in this case, has also submitted a report explaining how the law is meant to be applied. Both find that the law--and, in particular, the concept of qualified good faith--was misapplied here.
There was no legitimate basis for the taking of the Meritage Project. The original basis given for Colombia's taking was a false story told to the Attorney General's Office by a drug trafficker, Iván López Vanegas. Upon returning to Colombia after having been extradited and jailed in the United States, and then having been released from jail after successfully appealing his conviction on jurisdictional grounds, Mr. López Vanegas sought to extort Mr. Seda for substantial payments. Mr. López Vanegas approached Mr. Seda in 2014 alleging that in 2004--a decade earlier and eight years after Mr. Seda acquired an interest in the property-- his son had been kidnapped and forced to transfer the property. He demanded a payoff. When Mr. Seda spurned his extortion demand, Mr. López Vanegas returned two years later, this time with a lawyer, Victor Mosquera Marín. They threatened to cause trouble for the Meritage Project with the assistance of individuals within the Attorney General's Office if Mr. Seda failed to pay them the money they were demanding. Mr. Seda refused to be extorted, especially since he had done nothing wrong.
But Mr. López Vanegas made good on his threats. Despite senior Colombian government officials--and the U.S. government--acknowledging that López Vanegas's kidnapping story was fabricated, the Colombian Attorney General's Office issued "precautionary measures" against the property. On 3 August 2016, just days after the extortionists told Mr. Seda that the "negotiation chapter is closed," representatives of the Colombian government, including Ms. Alejandra Ardila Polo, the prosecutor assigned to the case, appeared at the property to stop construction. Mr. López Montoya, who was responsible for overseeing construction of the Project, and was present on site that day, testifies to these events, among others.
Mr. Seda was repeatedly told by proxies of the Colombian government and Mr. López Vanegas, both before and after the precautionary measures, that the problem would "go away" if he made a payment. By November 2016, Mr. López Vanegas and the Attorney General's Office were seeking a payment of approximately USD 19 million. It is therefore unsurprising that the Director of the Asset Forfeiture Unit--Ms. Andrea Malagón Medina--and the prosecutor assigned to the case--Ms. Ardila Polo--are currently being investigated for corruption. Mr. Seda would not pay a bribe and refused to be extorted. He expected that the rule of law would prevail. But Mr. Seda was wrong. On 25 January 2017, the Attorney General's Office formally issued a resolution to pursue asset forfeiture proceedings over the Meritage Project. Mr. Seda provides a full account of the relevant events in his witness statement.
Colombia's basis for commencing asset forfeiture proceedings continued to evolve; no doubt Colombia has realized that it could no longer rely on the blatantly false kidnapping story that initially caused the prosecutor to act. The evolving nature of Colombia's rationale is itself arbitrary conduct and fails to accord Claimants due process. But, in any event, all of the different explanations given by the Attorney General's Office are fundamentally flawed. They all fail to appreciate that Newport is a qualified good faith party that is protected by the law.
Newport had engaged one of Colombia's leading fiduciaries, Corficolombiana, to administer the Project (as required by Colombian law if receiving deposits from 20 or more persons), and had obtained a legal study of the title by a leading Colombian law firm specializing in real estate matters, Otero & Palacio. They both undertook rigorous diligence of the property and cleared the title. Most importantly, given the scale of the investment, Corficolombiana took the extraordinary step of writing to the Attorney General's Office to confirm that there were no concerns with the prior title-holders of the property. In so doing, Corficolombiana made clear that the specific purpose of seeking such information was to gain comfort before moving forward with acquiring the property. The Attorney General's Office wrote back and confirmed that there was "no record" of criminal cases or investigations against the property or "the people or entities" appearing on the chain of title of the Meritage Property. This Certification of No Criminal Activity gave rise to a legitimate expectation that Claimants could proceed with their investment without further concern.
None of this appeared to matter to Colombia. Shockingly, Newport was not even recognized as an "affected party" by the court administering the asset forfeiture proceedings. As a result, Newport was not allowed the opportunity to be heard and to demonstrate its good faith status. Drs. Medellín and Martínez explain that this failure breached the procedural protections that the Asset Forfeiture Law provides. And it clearly breached Claimants' right to fair and equitable treatment and full protection and security.
What is more, the Meritage property had been previously subdivided from a larger piece of land, which was all tainted by the same alleged illicit conduct, and no action whatsoever has been taken against the sub-divided property, the remainder of which is now owned largely by the family of Mr. López Vanegas's half-brother, all Colombian citizens. This is manifestly discriminatory treatment, once again in violation of Colombia's treaty obligations.
As a result of Colombia's conduct, financial institutions and equity investors now fear doing business with Mr. Seda. When Colombia expropriated the Meritage Project, Mr. Seda was automatically tainted as being complicit in illegal activity, or, at the very least, having failed to conduct sufficient diligence on his projects. No one wanted to take the risk of doing business with Mr. Seda. The risk was simply too high. And so one of the leading and most important property developers in Medellín, and indeed Colombia, was effectively--though unfairly-- taken out of business.
The Government has breached Claimants rights under the United States-Colombia Trade Promotion Agreement, which entered into force on 15 May 2012 (the "TPA").14 And despite having had several opportunities over the last three-and-a-half years to fix its mistakes, Colombia has stubbornly refused to do anything. Accordingly, Colombia's breaches have resulted in substantial damages to Claimants. Ms. Bambaci and Mr. Dellepiane of BRG estimate the loss to Claimants to be USD 309.2 million as of 15 June 2020. In addition, given the emotional and reputational harm to Mr. Seda, he is entitled to moral damages in the amount of 10% of the total damages owing.
The remainder of this Memorial details the factual, legal and quantum theories upon which Claimants case is based. This Memorial proceeds as follows:
(a) Part III details the facts relevant to this dispute. Specifically, Part III describes Claimants' investment in Colombia and Colombia's wrongful treatment of Claimants' investment;
(b) Part IV establishes the jurisdiction of this Tribunal and the law applicable to this dispute;
(c) Part V addresses the legal merits of Claimants' claims;
(d) Part VI quantifies the substantial damages resulting from Colombia's breaches of the TPA; and
(e) Part VII set out Claimants' request for relief.
Footnotes omitted from this introduction