Investment Treaty Arbitration: Colombia

Belgium-Luxembourg Economic Union

(not in force)

Yes

Yes

Yes

Yes

No

7 months

Yes

Yes

Brazil (not in force) 2

No 3

Yes

No

Yes

No

No

No

No 4

China (2 July 2012)

Yes

Yes

Yes

Yes

No

9 months

Yes

Yes

France (not in force)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

India (3 July 2012)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Japan (not in force)

Yes

Yes

Yes

Yes

Yes

7 months and 15 days

No

Yes

Peru (30 December 2010)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Republic of Korea (not in force)

Yes

Yes

Yes

Yes

No

9 months

Yes

Yes

Singapore (not in force)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Spain (22 September 2007)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Switzerland (6 October 2009)

Yes

Yes

*⁵

Yes

Yes

6 months

Yes

Yes

Turkey (not in force)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

United Kingdom

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Canada (15 August 2011)

Yes

Yes

Yes

Yes

No

No⁷

No

Yes

Chile (8 May 2009)

Yes

Yes

Yes

Yes

No

No⁸

No

Yes

Costa Rica (not in force)

Yes

Yes

Yes

Yes

No

6 months⁹

No

Yes

Israel (not in force)

Yes

Yes

Yes

Yes

No

6 months¹⁰

Yes

Yes

Mexico (1 January 1995)

No

Yes

No

Yes

No

No¹¹

No

Yes

Northern Triangle (Guatemala, Honduras, El Salvador) (Guatemala: 12 November 2009; El Salvador: 1 February 2010; Honduras: 27 March 2010)

Yes

Yes

Yes

Yes

No

9 months¹²

No

Yes

Pacific Alliance (Colombia, Chile, Mexico, Peru) (not in force)

Yes 13

Yes

Yes

Yes

No

6 months

No

Yes

Panama (not in force)

Yes

Yes

Yes

Yes

No

3 months¹⁴

No

Yes

Republic of Korea (not in force)

Yes

Yes

Yes

Yes

No

8 months¹⁵

Yes

Yes

United States of America

(15 May 2012)

Yes

Yes

Yes

Yes

Yes

No¹⁶

No

Yes

Seat of the investor / business activities

Under all Colombian international investment agreements (IIAs), legal entities qualify as investors if they have been constituted or organised in accordance with the law of the Contracting Party (a country that is a party to such IIA). Some treaties have additional requirements:

The Switzerland, China, BLEU, UK, France, Brazil and Turkey BITs and the Northern Triangle FTA require that the legal entity have its seat and conduct substantial business activities in the territory of the Contracting Party.¹⁷

The Chile FTA requires that business activities be carried out in the territory of the Contracting Party.

The India, Japan and Korea BITs and the Israel and Panama FTAs require that substantial business activities be carried out in the territory of the Contracting Party.

The Spain BIT requires the legal entity to have its seat in the territory of the Contracting Party.

Entities controlled by an investor of a Party

Several Colombian IIAs include under the definition of ‘investor’ legal entities not established under the law of the Parties but effectively controlled by an investor of a Party (the China, Switzerland and France BITs and the Israel, Panama and Northern Triangle FTAs). The France BIT provides that such control may be direct or indirect.

Other persons that qualify as investors

In the Peru and Japan BITs and the Chile, Mexico, US, Canada, Korea, Costa Rica and Panama FTAs, the definition of ‘investor’ includes the Contracting Party or a state enterprise thereof.

Certain IIAs also include as an investor a branch located in the territory of a Party and carrying out business activities there (the US, Canada, Korea and Costa Rica FTAs and the Mexico and Chile BITs).

Permanent residents

Concerning natural persons, most Colombian IIAs only include as ‘investors’ nationals of the Parties. However, the Singapore and Brazil BITs and the Canada, Panama and Israel FTAs include permanent residents of a Party as investors. In case a person is a national of one Party and a permanent resident of the other, such person is deemed to be exclusively a national of the Party of which it is a citizen.

Dual nationals

Natural persons who are nationals of both Contracting Parties are not afforded protection under several Colombian IIAs (the BLEU, China, India, Singapore, Turkey and U.K. BITs and Israel and Panama FTAs). The Korea, US, Canada, Northern Triangle, Pacific Alliance and Chile FTAs and the Peru, Costa Rica, Spain and Korea BITs contain clauses whereby dual nationals are deemed nationals of the State of their dominant and effective nationality.¹⁸ Under the Switzerland, Brazil and Japan BITs, a dual national qualifies for protection as long as it has, at the time of the investment and ever since, been domiciled outside the territory of the Party in which the investment was made.

Eligible assets

Most of Colombia’s IIAs refer to a non-exhaustive list of eligible assets, often using the phrase ‘every kind of asset’.

Minimum characteristics of an investment

Many Colombian IIAs set out that an investment is an asset having the characteristics of an investment, including: (i) the commitment of capital or other resources; (ii) the expectation of gain or profit and (iii) the assumption of risk.¹⁹ The France and UK BITs and the Israel FTA do not include an expectation of gain or profit as a characteristic of an investment. Some treaties qualify the risk (eg, the BLEU BIT refers to ‘reasonable risk’).

Exclusion of certain assets

A large number of Colombian IIAs explicitly exclude the following items from the definition of ‘investment’: (a) public debt operations and (b) claims to money arising solely from (i) commercial contracts for the sale of goods and services or (ii) credits granted in connection with commercial transactions.²⁰

Additionally, the Peru and Japan BITs and the Chile, Panama, US, Canada, Pacific Alliance and Costa Rica FTAs explicitly exclude orders or judgments in a judicial or administrative procedure from the definition of ‘investment’. Investments made with money or assets linked to illegal activities are denied protection under the France BIT. The Switzerland BIT and the Mexico and Costa Rica FTAs exclude payment obligations or credits to States or State enterprises.

Under the Korea BIT and FTA market share, market access, expected gains and opportunity for profit-making are not, by themselves, investments.

Changes in the manner in which assets are invested or reinvested

Several Colombian IIAs explicitly provide that ‘any change in the form in which assets have been invested or reinvested does not affect their character as investment, provided such change is in accordance with the law of the Contracting Party’ (the Spain, Peru, China, BLEU, India, U.K., Japan, Singapore, France, Brazil and Turkey BITs and the Northern Triangle, Costa Rica and Israel FTAs).

Direct and indirect control of assets by investors

Under many Colombian IIAs, the definition of ‘investment’ explicitly refers to assets ‘owned or controlled, directly or indirectly’ by an investor of a party.²¹ The Spain BIT refers to investments made by a domestic company, but owned or ‘effectively’ controlled by an investor of a party.

Accordance with local laws

Many Colombian IIAs explicitly require that the investment be made ‘in accordance with the law’ of the host state in the definition of ‘investment’, including the Spain, China, BLEU, India, UK, Korea, Brazil and France BITs and the Israel FTA.

Illustrations of the FET standard

The majority of Colombia’s IIAs provide that each party shall accord fair and equitable treatment (FET) to investments in accordance with customary international law. Several treaties specify that FET includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world.²² Many treaties link the FET standard with full protection and security (FPS), and some with the obligation not to impair the exercise of certain rights in connection with the investment through arbitrary and/or discriminatory measures (the Spain, UK, Korea23, France and Turkey BITs and the Israel FTA).

Customary international law /minimum standard of treatment

Most Colombian IIAs require that the host State provide FET ‘in accordance with customary international law’. Moreover, many treaties specify that the FET concept does not require additional treatment to that required under the minimum standard of treatment of aliens in accordance with the standard of customary international law,²⁴ and some add that the FET standard does not create additional substantive rights.25 Also, some treaties include an annex or a footnote defining customary international law or the customary international law minimum standard of treatment.26

Regulatory powers

The U.K. and Singapore BITs include an understanding with regard to FET whereby the Contracting Parties state that, without wishing to narrow the meaning of the concept of FET as it is interpreted in international law, they do not understand this term to incorporate a stabilisation clause and thus, a Contracting Party is not prohibited from exercising regulatory powers, so long as these are exercised in a fair and equitable manner. Under the Japan BIT a change in regulation does not constitute by itself a violation of the FET standard, and the France BIT clarifies that the FET standard does not include a stabilisation clause nor does it impede a Contracting Party from adapting its legislation in accordance with the standard. Other treaties mentioning the States’ regulatory powers are the Turkey BIT and the Panama and Israel FTAs.

Other features

Following the 2009 Colombian Model BIT, many Colombian IIAs specify that a determination that there has been a breach of another provision in the treaty or in other international instruments, does not establish that there has been a breach of the FET standard.²⁷ Under the France BIT, FET includes the obligation to act in a transparent, non-discriminatory and non-arbitrary manner, and it is deemed consistent with the principle of predictability and legitimate expectations.

Right to regulate for a public purpose

The right to regulate for a public purpose is expressly included in many of Colombia’s IIAs.

These generally provide that except in rare circumstances,²⁸ non-discriminatory regulatory actions that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute expropriations.

Some of these treaties expressly clarify that the list of public welfare objectives is non-exhaustive, and some add other objectives such as public morals, public order and the protection of natural treasures (the Japan BIT) or real estate price stabilisation (the Korea FTA).

Indirect expropriation

Many investment treaties expressly protect against indirect expropriation, and list a series of factors to be considered in determining whether there has been an indirect expropriation.²⁹

Most of these treaties provide that the determination of whether certain conduct constitutes an indirect expropriation requires a case-by-case, fact based inquiry that considers: the economic impact of the government action (although an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred), the extent to which government action interferes with investment expectations,³⁰ and the character of the government action. Certain treaties also mention other factors such as the object of the measure (the Japan and Turkey BITs and the Israel FTA), and whether the measure was discriminatory (the India BIT).

Expropriation in accordance with the ‘due process of law’

Most Colombian IIAs require that an expropriation be carried out in accordance with the due process of law.³¹

Limited application of the expropriation provision

Most of Colombia’s IIAs establish that the issuance of compulsory licences granted in accordance with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement of the World Trade Organization (WTO) may not be challenged under the expropriation provision.

Taxation and expropriation

While several Colombian IIAs exclude taxation from the treaty’s scope of application, certain IIAs allow an investor to submit a claim to arbitration relating to a taxation measure where the expropriation provision is invoked as the basis of the claim (see, eg, the Switzerland, Peru, U.K. and Japan BITs and the Chile, Northern Triangle, US, Korea, Costa Rica and Canada FTAs). These treaties usually require that the matter be preliminarily examined by the competent tax authorities of the Parties.

Other features

Several of Colombia’s IIAs clarify that the contracting parties may establish monopolies provided they are for public purposes or social interest (see, eg, the China, BLEU, Japan, Turkey BITs and the Northern Triangle FTA). Some of these treaties also expressly add that there is to be prompt, adequate and effective compensation or that the expropriation provision applies to the establishment of monopolies.

Scope

The MFN and national treatment (NT) provisions in Colombia’s FTAs generally apply to ‘investors’ and ‘covered investments’, with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments (eg, the Panama, Costa Rica, Korea, Canada, US, Northern Triangle, Pacific Alliance and Chile FTAs).

The MFN and NT provisions in Colombia’s BITs usually apply to ‘investors’ and to the investments of investors (eg, the Spain, Turkey, Singapore, Japan, India, BLEU and Brazil BITs). The MFN and NT clauses in the Korea BIT apply to investments done according to the laws and regulations, while in the France BIT they apply to investors and their investments and the activities related to their investments. The scope of application of these provisions varies in other treaties.³²

Like circumstances

The vast majority of Colombian IIAs provide for MFN and NT, ‘in like circumstances’.

Exceptions to the MFN treatment

Most Colombian IIAs provide that the treatment referred to in the MFN clause does not encompass dispute resolution mechanisms provided for in other international investment treaties or trade agreements.

Also, most Colombian BITs state that MFN treatment does not extend to any treatment or privilege resulting from any existing or future free trade area, customs union common market or monetary union.

The Israel and Mexico FTAs and the France BIT state that the MFN clause does not apply to the definitions in each treaty, and certain IIAs clarify that the MFN treatment does not apply to privileges or treatment resulting from taxation matters in double taxation agreements (Mexico FTA and the Turkey, India and Switzerland BITs).³³

Other features of MFN

Under the U.K. and France BITs, the protection under this provision does not preclude the possibility to adopt or enforce measures necessary to protect national security or public order.³⁴

Limitations to the national treatment

The China BIT provides for NT, without prejudice to the host State’s law at the time the investment is made. Under the US, Canada, Pacific Alliance and Korea FTAs, national treatment means, with respect to a regional level of government treatment no less favourable than the most favourable treatment accorded in like circumstances, by that regional or sub-national level of government to investors and to investment of investors, of the Party of which it forms part.

Non-conforming measures

Most Colombian FTAs provide that MFN and NT do not apply to any existing non-conforming measures maintained at the central or local level of government, its continuation or prompt renewals or its amendments. MFN and NT also do not apply in respect to certain sectors or activities as set out in the schedules or non-conforming measures in each treaty.

Scope

The majority of Colombia’s IIAs provide that each contracting party shall accord FPS.

The US, Chile, Korea, Pacific Alliance and Panama FTAs and the Peru and Korea BITs, require the contracting parties to provide the level of police protection required under customary international law.³⁵ Other treaties provide that the FPS standard does not imply a level of police protection³⁶ or a level of treatment³⁷ that is more favourable or better than that accorded to nationals of the party where the investment was made.

Under the France BIT, the obligation to provide FPS requires that each party accord the investors and their investments protection against physical and material damages.

Customary international law

Many of Colombia’s IIAs provide that each party shall accord FPS to investments in accordance with customary international law.³⁸

As in the case of FET, many treaties specify that providing FPS does not require additional treatment to that required under that standard, international law or the minimum standard of treatment of aliens in accordance with the standard of customary international law,³⁹ and some treaties add that the FPS standard does create additional substantive rights.

Other features

Many Colombian IIAs specify that a determination that there has been breach of another provision in the treaty or in other international instruments, does not establish that there has been a breach of the FPS standard.

In addition, several treaties specifically state that the FPS standard does not implicate providing a superior treatment to foreign investments compared to domestic investments (China, BLEU, India, UK, Singapore and Turkey BITs and the Northern Triangle, Costa Rica and Israel FTAs).

Scope

As a general rule, Colombian investment treaties reject the inclusion of umbrella clauses. The only Colombian IIAs that include umbrella clauses are the US FTA and the Switzerland and Japan BITs.

Qualification of the obligation

Under the Japan and Switzerland BITs each contracting party shall observe any obligation deriving from a written agreement concluded between its central government or agencies thereof and an investor of the other contracting party with regard to specific investments by the investor, which the investor could have relied on at the time of the establishment, acquisition or expansion of such investments. However, under both BITs the parties did not consent to investor-state arbitration when an investor argues there is a breach of the umbrella clause.

The US FTA includes an umbrella clause within the dispute-settlement section.⁴¹ A claimant may submit to arbitration the alleged breach of an ‘investment agreement’. An investment agreement is defined as a written agreement between a national authority of a party and a covered investment or an investor of another Party, on which it relies, that grants rights with respect to certain sectors (natural resources, the supply of certain services and infrastructure projects).

Free transfer of payments

All Colombian IIAs provide for the free transfer of payments. The treaties generally require that transfers relating to investments be freely made and without delays. The UK and France BITs refer to ‘investments and returns’, while the China BIT and the Northern Triangle FTA provide that the Contracting Parties shall allow free transfers, prior fulfilment of the requirements under its law. Several IIAs include a provision stating that a Contracting Party may condition or prevent a transfer through the equitable, non-discriminatory and good faith application of its laws, including those relating to bankruptcy proceedings, company restricting or insolvency, compliance with judicial, arbitral or administrative decisions or awards, compliance with labour or tax obligations and/or the issuing trading and dealing with securities, among others. Some treaties further provide that a Party may adopt or maintain measures not conforming with its obligations under this provisions in the event of serious balance of payments and external financial difficulties or where, in exceptional circumstances, movements of capital, cause or threaten to cause serious difficulties for macroeconomic management, in particular monetary and exchange rate policies.⁴²

Non-impairment

Certain Colombian BITs provide that the Contracting Parties shall not impair by arbitrary and/or discriminatory measures the management, maintenance, use, enjoyment, extension, sale and liquidation of said investments (see, the Spain, BLEU, Switzerland, India, UK BITs). The Korea BIT refers to disproportionate or discriminatory measures, while the Israel FTA provides that the FET standard includes the prohibition to impair the management, maintenance, use, enjoyment, extension or sale of said investments with discriminatory measures.

Armed conflict / civil unrest

The vast majority of Colombian BITs and the Israel FTA guarantee investors of Contracting Parties MFN and NT regarding compensation paid to other investors in case or armed conflict, state of emergency, civil disturbance or any other similar event. The Peru BIT and the Chile, US, Canada, Korea, Costa Rica FTA provide for non-discriminatory treatment regarding such compensation for loss. Certain treaties also provide for a qualified right to receive compensation for losses caused by the forces or authorities of the host State (the UK, France, Turkey and Korea BITs and the US and Israel FTA).

Fork-in-the-road

As a general rule, Colombian IIAs contain a fork-in-the-road-provision. Some IIAs provide that the election to submit a dispute to arbitration may not preclude an investor to initiate or continue proceedings in local courts to obtain interim relief, provided these proceedings do not involve payment of monetary damages and are brought for the sole purpose of preserving the investors rights and interests during the pendency of the arbitration (the Peru, China, Korea, Japan and Singapore BITs, and the Chile, Panama, Northern Triangle, U.S., Canada, Israel and Costa Rica FTAs).

Exhaustion of non-judicial administrative remedies

The exhaustion of non-judicial administrative remedies when local legislation so requires, has been included in several of Colombia’s IIAs (eg, the Spain, Peru, China, BLEU, India, UK, Korea, Japan and Singapore BITs and the Northern Triangle, Costa Rica, Panama and Israel FTAs). Under the Canada FTA, investors should make every effort to exhaust administrative recourse under Colombian law, and an investor that fails to exhaust administrative recourse where applicable shall submit its notice of intent nine months prior to submitting a claim to arbitration.

Time limits

Colombian investment treaties provide for a limitation period within which claims must be brought by the investor: three years (the Spain, China, India, Japan and France BITs and the Northern Triangle, Panama, Israel, Costa Rica and US FTAs), 39 months (the Peru and Korea BITs and the Chile and Canada FTAs), 60 months (the BLEU BIT), four years (the France BIT) or five years (the Switzerland, UK and Turkey BITs).

ICSID or ad hoc arbitration

Most Colombian IIAs provide that an investor has the choice between presenting its claim in either ICSID or UNCITRAL arbitration. Certain treaties also provide for ad hoc and/or institutional arbitration under any arbitration rules, if the parties so agree (the Peru, China, Korea, Japan, Singapore and France BITs and the Panama, Costa Rica, Northern Triangle, US, Pacific Alliance and Korea FTAs). Other treaties also provide for International Chamber of Commerce arbitration or arbitration under the rules of the Conciliation and Arbitration Centre of the Bogotá Chamber of Commerce (the BLEU and UK BITs).

Waiver of local remedies

Some Colombian IIAs provide for the waiver of the right to demand that all domestic judiciary remedies be exhausted (eg, the BLEU BIT and the Chile, Panama, Northern Triangle, Costa Rica, Canada and U.S. FTAs).

Preliminary issues

Generally, Colombian IIAs provide that the arbitral tribunal has the power to rule on preliminary questions of competence and admissibility, before ruling on the merits of the dispute, and whether the claims or objections of the parties are frivolous or not (the China, India, UK, Korea, Japan, France and Turkey BITs and the Chile, Northern Triangle, US, Korea, Costa Rica, Pacific Alliance and Panama FTAs).

Relief granted by tribunals

Certain IIAs establish that the tribunals may declare a breach of the provision of the investment treaty and award monetary damages, applicable interests, costs and attorneys’ fees, but the tribunal is not competent to rule on the legality of the measure under domestic law (eg, the China, BLEU, India, UK, France and Turkey BITs and the Costa Rica FTA). The Japan and Singapore BITs and the Chile, Korea, Costa Rica and US, and Pacific Alliance FTAs also provide that the arbitral tribunal may order the restitution of property, but that it may not award punitive damages. The France BIT and the Korea FTA provide that the tribunal may award any type of relief, subject to the agreement of the parties to the arbitration.

Government entity to which claim notices are sent

Most IIAs set forth that notices of disputes against Colombia should be sent to the Foreign Investment Division of the Ministry of Commerce, Industry and Tourism. The 2009 Model IIA (Annex 1) provides that that a notice of intent to submit a request for arbitration is to be sent to the Ministry’s Foreign Investment Division.

Government department which manages investment treaty arbitrations

The Ministry of Commerce, Industry and Tourism, with the support of the National Agency for the Legal Defence of the State.

Internal/external counsel

External counsel are selected and used by Colombia in investment treaty arbitrations, following a procurement process.

Washington Convention implementing legislation

Law 267 of 1995 (25 January 1995).

New York Convention implementing legislation

Law 39 of 1990 (20 November 1990).⁴³

Legislation governing non-ICSID arbitrations

The law applicable to international arbitrations seated in Colombia is Law 1563 of 2012 (12 July 2012), which is based in the UNCITRAL Model Law.

Legislation governing non-ICSID arbitrations

The law applicable to international arbitrations seated in Colombia is Law 1563 of 2012 (12 July 2012), which is based in the UNCITRAL Model Law.

Attitude of government towards investment treaty arbitration

The Colombian government has been generally favourable to investment treaty arbitration, as seen by its continued negotiation of IIAs including investor-state dispute resolution clauses.

Attitude of local courts towards investment treaty arbitration

To date there have been no investment treaty awards sought to be enforced in Colombia (against Colombia, or otherwise). However, Colombian courts have been generally supportive and respectful of international commercial arbitration and the enforcement of foreign arbitration awards in Colombia.

Colombian Constitution (1991)

No

Yes

No

Yes

No

Decree 2080, 18 October 2000 (General framework governing foreign capital investment in Colombia and Colombian capital investment abroad)

No

No

Non-discrimination

No44

No

Multilateral Investment Guarantee Agency (MIGA)

Colombia is a party to the MIGA Convention (Law 149, 15 July 1994). Under the MIGA Convention, investors of MIGA member countries (including Colombia) are eligible to acquire non-commercial political risk insurance in certain developing countries. MIGA’s guarantees can aid investors in obtaining access to funding with improved financial terms and conditions.