Will a recent English High Court decision lead investors away from ICSID and into the arms of English-seated investment treaty arbitration?

Will a recent English High Court decision lead investors away from ICSID and into the arms of English-seated investment treaty arbitration?

Paul Baker of Clyde & Co reflects on GPF GP S.à.r.l. v Republic of Poland [2018] EWHC 409 (Comm), a recent judgment in which the English High Court (somewhat controversially) set aside parts of an investment treaty arbitration tribunal's award on jurisdiction, after the claimant challenged that tribunal's decision under section 67 of the Arbitration Act 1996 (AA 1996). The judgment highlights a perhaps little-used avenue for the quasi-appeal of English-seated arbitral, and could encourage investors to opt for arbitral forums other than ICSID (where investment treaties provide a choice) when bringing an investment treaty claim.

What was the background to the investment treaty arbitration?

The arbitration arose out of a dispute between GPF GP S.a.r.l (Griffin) and the City of Warsaw over a development project in which the former had invested. In 2001, a company called 29 Listopada had acquired usufructuary rights over a property in Warsaw, pursuant to a Perpetual Usufruct Agreement (PUA). The PUA was intended to develop the land into residential apartments. It provided deadlines for commencement and completion of the works, in February 2002 and February 2004 respectively, although it also permitted extensions.

In 2007, an expansion of the development was proposed, and the Warsaw Monuments Conservator gave a recommendation supporting it. The development was also approved by the National Centre of Monument Research and Documentation.

In 2008 Griffin financed the purchase of 100% of the shares in 29 Listopada by another company, Parkview Terrace. Demolition works commenced in 2009.

However, in early 2009 the Conservator reversed its first decision, on the basis that the development was unacceptable from a conservation perspective. Griffin alleged that the City had a hidden agenda in that it wanted to provide the land to a neighbouring museum rather than permit the development. In addition, Griffin pointed out that the City had not terminated a separate PUA with Polski Holdings (a state-owned company), even though the construction deadlines under that PUA had not been satisfied.

In November 2010, the Conservator ordered that the demolition works be halted. In December 2011 the City of Warsaw requested the termination of the PUA, and in June 2013 the Warsaw Regional Court ordered the termination for failure to develop the property within the time limits.

The dispute

Griffin commenced SCC arbitration (seated in London) against the Republic of Poland on various grounds arising out of the City's termination of the PUA. Specifically, Griffin relied on various provisions of the Treaty between Poland, Belgium and Luxembourg dated 2 August 1991 (the BIT).

Griffin had two separate claims in the arbitration:

  1. violation of the fair and equitable trade (FET) standard in Article 3 of the BIT on the grounds that Griffin's legitimate expectation had been violated by the reversal of the Conservator's decision; that the City had acted in bad faith; and that Griffin had been discriminated against by comparison with Polski Holdings; and
  2. that the prior measures taken by the Polish authorities, culminating in the Court's decision to terminate the PUA, constituted expropriation in breach of Article 4 of the BIT.

What did the tribunal decide?

Crucially, the tribunal considered that it did not have jurisdiction to hear the majority of Griffin's claims. This was based on Article 9(1)(b) of the BIT, which conferred jurisdiction over:

…disputes relating to expropriation, nationalization or any other similar measures affecting investments, and notably the transfer of an investment into public property, placing it under public supervision as well as any other deprivation or restriction of property rights by state measures that lead to consequences similar to expropriation.”

First, the tribunal decided that it did not have jurisdiction over Griffin's FET claims, disagreeing with Griffin's argument that the wording "consequences similar to expropriation” encompassed a breach of the FET standard. The tribunal determined that this wording referred to expropriation rather than any other protection. While certain measures may be a breach of the FET standard, they were not "similar to expropriation" and so the tribunal had no jurisdiction over them.

The tribunal decided that the only measure that had, in fact, deprived Griffin of the property was the final decision of the Warsaw Court. Griffin argued that the prior measures constituted "creeping expropriation" (a form of indirect expropriation). However, the tribunal considered that these acts were neither sufficiently definitive or permanent for a finding of creeping expropriation, nor sufficient to deprive Griffin of title to (or the value of) the property.

As a result, the tribunal determined that it only had jurisdiction over the claim that the Polish Court's termination of the PUA amounted to direct expropriation.

Griffin's section 67 challenge

As the seat of the arbitration was London, Griffin made an application to the High Court under AA 1996, s 67, challenging the Tribunal's award on jurisdiction.

A re-hearing of the issues

In the High Court, Bryan J made his view clear that any AA 1996, s 67 application necessitated a complete re-hearing of the issues. This meant not only was he not bound by the tribunal's reasoning, but also that he could hear new evidence and new arguments as to jurisdiction that were not before the tribunal. Perhaps unsurprisingly, the Republic of Poland argued that this was unjustified, and that Griffin had waived its right to present arguments not before the tribunal. However, Bryan J found no authority supporting this position.

Interpretation of article 9(1)(b)

Departing from the tribunal's reasoning, Bryan J held that Article 9(1)(b) of the BIT was in fact split into two parts:

  1. the "first clause" related to expropriation of investments, and ran up to the words "…under public supervision"; and
  2. the remaining words ("as well as any other deprivation or restriction of property rights by state measures that lead to consequences similar to expropriation") constituted the "second clause", which provided wider protections.

The result was that the BIT conferred protection from expropriation under the first clause, and protection of various other rights (including from a breach of the FET standard) under the second clause.

Bryan J's conclusion involved a close analysis of the wording of the Article. He considered that the first clause covered all forms of expropriation, as it clearly stated "expropriation, or nationalization". By contrast, he noted that the second clause began an entirely separate legal definition, and so must relate to a separate protection. He further distinguished the second clause by the fact that it only related to "property rights", whereas the first clause concerned "investments".

Bryan J therefore held that all expropriation claims fell under the first clause of Article 9(1)(b), while Griffin's FET claim fell under the scope of the second. In respect of the latter, the Republic of Poland had (arguably) interfered with Griffin's property rights which led to termination of the PUA and consequences similar to expropriation, in that Griffin was ultimately deprived of its property rights.

Definition of "creeping" expropriation

Bryan J also provided some guidance on the definition of "creeping" expropriation, disagreeing with the Tribunal's conclusion that it could not consider the prior measures before the final decision of the Warsaw Court. He found that there could be indirect or creeping expropriation where, as here, there was a series of events followed by a specific action "at the end of the chain" that arguably constituted expropriation in and of itself (ie the decision of the Warsaw Court). In this respect creeping expropriation is similar to "the straw that breaks the camel's back".

What did the High Court decide?

Bryan J held that the tribunal had jurisdiction over all of the factual matters relating to Griffin's claims for direct and indirect expropriation, as well as over Griffin's claims for breach of the FET standard.

He submitted his own judgment in place of that in the original award on jurisdiction, and held that the tribunal had jurisdiction over all of the factual matters, actions, allegations and/or measures relied upon by Griffin both in respect of their claims of direct and indirect expropriation, and of their claim for breach of the FET standard.

What are some of the implications of the judgment?

Bryan J noted that his interpretation benefited investors, as it allows them to draw on multiple factors in establishing expropriation. The tribunal's interpretation prevented an investor from relying on the preceding chain of events, while Bryan J's decision "ensures that all potentially relevant facts are capable of being relied upon". In this respect, his definition of creeping expropriation would appear to seek to provide greater recourse to a BIT's protections for investors, in general.

A purposive approach

As well as reviewing the specific wording, Bryan J also appeared to take a purposive approach to interpreting the BIT. He commented that his conclusion "provides recourse to international arbitration in a wider variety of circumstances than on the Tribunal's interpretation", which, he considered, was consistent with one of the BIT's objectives of providing investor protection to investors.

In this respect, again, Bryan J's judgment appears to be investor-friendly. However, it must be remembered that AA 1996, s 67 applications are available to either party, and so the door is, in theory, equally open to a State to seek potentially to narrow a tribunal's jurisdictional ruling using this same mechanism (so long as the arbitration is seated in England and Wales). The potential success of such an approach will, of course, be fact, treaty and tribunal-jurisdictional-ruling specific.

An outcome such as this would not have been possible in an ICSID arbitration, as awards rendered under ICSID are not capable of review by any national court. Similarly, had the arbitration been seated in a jurisdiction applying the UNCITRAL Model Law, no jurisdictional challenge would have been possible. This was an SCC arbitration seated in England, and thus, irrespective of England's well-deserved pro-arbitration stance, AA 1996, s 67 provided Griffin with a second bite at the jurisdictional cherry.

Many bilateral and multi-lateral investment treaties provide various choices of forum for investor-state arbitrations. The choice adopted by investors will always be a critical consideration for any number of reasons. However, as this case shows, for investor-state arbitrations seated in England and Wales, AA 1996, s 67 can provide, for either investors or states, a quasi-appeal against Jurisdiction rulings.

Whether this judgment and its associated attention leads to a greater uptick in non-ICSID investor-state arbitration in favour of English-seated arbitration will be interesting to observe over the coming years.

Paul is a senior associate in the Global Arbitration Group at Clyde & Co. Paul has worked on disputes across numerous sectors including energy, telecoms and insurance in Europe, the Middle East, Africa, and North and South America.

For Lexis®PSL’s coverage of this judgment, see: AA 1996, s 67 challenge to investment treaty jurisdiction award succeeds (GPF GP v Poland).

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