Investment Treaty Arbitration

Investment Treaty Arbitration: East Timor

Overview of investment treaty programme

1. What are the key features of the investment treaties to which this country is a party?

East Timor

BIT Contracting Party or MIT

Substantive protections

Procedural rights

Fair and equitable treatment (FET)

Expropriation

Protection and security

Most-favoured-nation (MFN)

Umbrella clause

Cooling-off period

Local courts

Arbitration

Germany (not in force)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Portugal (7 April 2004 )

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Kuwait (not in force)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Qualifying criteria - any unique or distinguishing features?

2. What are the distinguishing features of the definition of “investor” in this country’s investment treaties?

East Timor

Issue

Distinguishing features in relation to the definition of ‘investor’

Seat of the juridical person

The Portugal BIT provides that juridical persons with seat in, and incorporated according to, the laws of a Contracting Party are investors1 .

The Germany BIT allows for entities without legal personality to be considered German investors2 .

The Kuwait BIT provides for the Governments of the contracting States to be considered as investors 3 .

Permanent residence/nationality

All three BITs provide that individuals who have the nationality of a Contracting Party according to the laws of that Contracting Party are investors4 .

The Germany BIT also states that individuals who have a passport issued by the competent authorities of a Contracting Party are nationals of that country, without prejudice to other mechanisms to establish nationality 5 .

3. What are the distinguishing features of the definition of "investment" in this country’s investment treaties?

East Timor

Issue

Distinguishing features in relation to the concept of ‘investment’

Eligible assets

All BITs define ‘investment’ to include every kind of asset invested in a territory of a Contracting Party by a national of the other Contracting Party6 .

Compliance with national law

The Portugal BIT includes compliance with the laws of the host party in the definition of ‘investment’7 .

Substantive protections - any unique or distinguishing features?

4. What are the distinguishing features of the fair and equitable treatment standard in this country’s investment treaties?

East Timor

Issue

Distinguishing features of the fair and equitable treatment standard

Illustrations of FET standard

All BITs simply provide that each Contracting Party shall ensure fair and equitable treatment to investments8 .

5. What are the distinguishing features of the protection against expropriation standard in this country’s investment treaties?

East Timor

Issue

Distinguishing features of the ‘expropriation’ standard

Right to regulate for a public purpose

All BITs provide protection against expropriation and state that expropriation can only occur in accordance with the law, in the public interest and with swift compensation9 .

The Portugal and Kuwait BITs also state that such measures can only occur on a non-discriminatory basis 10 .

The Kuwait BIT adds that those measures have to be taken in accordance with due process of law of general application 11 .

Indirect expropriation

Both BITs refer to measures tantamount to expropriation12 .

Judicial or other review

The Portugal and Germany BITs recognise a right to investors to a judicial or other review of the expropriation13 .

Compensation

All BITs require that the investor be provided with compensation equivalent to the market value of the expropriated asset before the date of expropriation or the time in which it was publicly known14 .

The Kuwait BIT provides that the compensation shall be calculated in a freely convertible currency be chosen by the investor, on the basis of the prevailing market rate of exchange for that currency on the valuation date 15 .

6. What are the distinguishing features of the national treatment/most-favoured-nation treatment standard in this country’s investment treaties?

East Timor

 

Issue

Distinguishing features of the ‘national treatment’ and/or ‘most favoured nation’ standard

Common exceptions to MFN treatment

All BITs expressly provide that the provision of ‘most favoured nation’ and/or ‘national’ treatment to an investment does not extend to the benefits of membership of a customs union, monetary union or free trade area, nor to taxation agreements and/or taxation legislation16 .

Limitations

The protocol of the German BIT provides that a treatment given to an investor is not considered to be ‘less favourable’ if it is taken on the basis of public safety, public order, public health reasons, or public moral17 .

7. What are the distinguishing features of the obligation to provide protection and security to qualifying investments in this country’s investment treaties?

East Timor

Issue

Distinguishing features of any ‘umbrella clause’

Umbrella clause 19

The umbrella clause included in the Portugal BIT provides the following:

1. If in addition to this Agreement, the provisions of the domestic law of a Party or obligations under international law in force or hereafter between the two parties establish a system, general or special, conferring investments made by investors of the other Party a more favorable treatment than that provided for in this Agreement, the more favorable treatment will prevail.

2. Both parties shall comply with any obligations, not included in this Agreement , made in relation to investments made by investors of the other Party in its territory. 20

8. What are the distinguishing features of the umbrella clauses contained within this country’s investment treaties?

East Timor

Issue

Distinguishing features of any ‘umbrella clause’

Umbrella clause 19

The umbrella clause included in the Portugal BIT provides the following:

1. If in addition to this Agreement, the provisions of the domestic law of a Party or obligations under international law in force or hereafter between the two parties establish a system, general or special, conferring investments made by investors of the other Party a more favorable treatment than that provided for in this Agreement, the more favorable treatment will prevail.

2. Both parties shall comply with any obligations, not included in this Agreement , made in relation to investments made by investors of the other Party in its territory. 20

9. What are the other most important substantive rights provided to qualifying investors in this country?

East Timor

Issue

Other substantive protections

Non-impairment

All BITs order that the contracting parties may not impair by unjustified, arbitrary or discriminatory measures the management, maintenance, use, fruition or sale of an investment 21 .

Compensation for damages arising from war or civil strife

All BITs provide that if an investment suffers damages arising from war, revolution or other form of civil strife, the investor deserves treatment that is not less favourable than that granted to investors from the contracting party or from any other third country 22 .

The Kuwait BIT adds that, without prejudice to the above paragraph, an investor of one Contracting State who, in any of the above-mentioned events, suffers a loss in the territory of the other Contracting State resulting from: (i) requisitioning of its investments or part thereof by its forces or authorities, or (ii) destruction of its investments or part thereof by its forces or authorities, which was not caused by combat action or was not required by necessity of the situation, shall be accorded restitution or compensation, which in either case shall be prompt, adequate and effective 23 .

Transfer rights

All BITs recognise the investor’s right to transfer any profits, compensation etc, arising from his investment outside of the host country in a freely convertible currency 24 .

Procedural rights in this country’s investment treaties

10. Are there any relevant issues related to procedural rights in this country’s investment treaties?

East Timor

Issue

Procedural rights

Fork in the road

The Portugal BIT has a fork-in-the-road provision25 .

ICSID arbitration

The option of ICSID Arbitration is provided for in the Portugal and Kuwait BITs and is the only available option in the Germany BIT26 .

UNICTRAL arbitration

The option of UNCITRAL Arbitration is provided for in the Portugal and Kuwait BITs27 .

Other dispute settlement procedures

The Kuwait BIT provides for the possibility of resolution in accordance with any applicable, agreed dispute-settlement procedures 28 .

The Kuwait BIT provides for the option of an arbitral tribunal constituted pursuant to the arbitration rules of any arbitral institution mutually agreed upon between the parties of the dispute 29 .

Internal remedies

The option of local courts is provided for in the Portugal BIT30 .

The Kuwait BIT provides for the option of, prior to the institution of the arbitral proceeding or during the proceeding, seeking before the judicial or administrative tribunals of the Contracting State that is a party to the dispute interim injunctive relief for the preservation of its rights and interests, provided it does not include request for payment of any damages 31 .

Procedural rules

The BITs simply refer to the relevant arbitration rules (UNCITRAL, ICSID)32 .

Applicable law

No express rule is provided for.

11. What is the status of this country’s investment treaties?

East Timor

N/A.

Practicalities of commencing an investment treaty claim against this country

12. To which governmental entity should notice of a dispute against this country under an investment treaty be sent? Is there a particular person or office to whom a dispute notice against this country should be addressed?

East Timor

Government entity to which claim notices are sent

In the absence of an explicit provision in that regard, notice of disputes should be addressed to the President and the Prime-Minister.

13. Which government department or departments manage investment treaty arbitrations on behalf of this country?

East Timor

Government department which manages investment treaty arbitrations

To be decided on a case by case basis.

14. Are internal or external counsel used, or expected to be used, by the state in investment treaty arbitrations? If external counsel are used, does the state normally go through a formal public procurement process when hiring them?

East Timor

Internal/external counsel

External counsel would probably be used with or without a formal public procurement process.

Practicalities of enforcing an investment treaty claim against this country

15. Has the country signed and ratified the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965)? Please identify any legislation implementing the Washington Convention.

East Timor

Washington Convention implementing legislation

Timor signed the convention on 23 July 2002 and it has been in force since 22 August 2002.

16. Has the country signed and ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (the New York Convention)? Please identify any legislation implementing the New York Convention.

East Timor

New York Convention implementing legislation

No.

17. Does the country have legislation governing non-ICSID investment arbitrations seated within its territory?

East Timor

Legislation governing non-ICSID arbitrations

No.

18. Does the state have a history of voluntary compliance with adverse investment treaty awards; or have additional proceedings been necessary to enforce these against the state?

East Timor

Compliance with adverse awards

There is no track record in this regard.

19. Describe the national government’s attitude towards investment treaty arbitration

East Timor

Attitude of government towards investment treaty arbitration

Neutral.

20. To what extent have local courts been supportive and respectful of investment treaty arbitration, including the enforcement of awards?

East Timor

Attitude of local courts towards investment treaty arbitration

There is no track record in this regard.

National legislation protecting inward investments

21. Is there any national legislation that protects inward foreign investment enacted in this country? Describe the content.

East Timor

National legislation

Substantive protections

Procedural rights

FET

Expropriation

Other

Local courts

Arbitration

Lei do Investimento Privado nº 14/2011, of 28 September 2011

No

Yes

National treatment; transfer rights

Yes

Yes (ICSID)

National legislation protecting outgoing foreign investment

22. Does the country have an investment guarantee scheme or offer political risk insurance that protects local investors when investing abroad? If so, what are the qualifying criteria, substantive protections provided and the means by which an investor can invoke the protections?

East Timor

N/A.

Awards

23. Please provide a list of any available arbitration awards or cases initiated involving this country’s investment treaties.

East Timor

Awards

N/A.

Pending proceedings

Lighthouse Corporation Pty Ltd and Lighthouse Corporation Ltd, IBC v. Democratic Republic of Timor-Leste (ICSID Case No. ARB/15/2), proceedings regarding a fuel supply agreement. According to the information that is publicly available, the arbitration is based on the respective contract and Law 5/2005, of 7 July 2005 (Investment Law).33

Reading List

24. Please provide a list of any articles or books that discuss this country’s investment treaties.

East Timor

N/A.

Notes

1 Article 1(3)b.

2 Article 1(3)a.

3 Article 1(2)a.

4 Article 1(3)a of the Portugal BIT. article 1(3)a of the German BIT and article 1(2)b of the Kuwait BIT.

5 Protocol, No. 1.

6 Article of 1 of the Portugal BIT, article 1 of the German BIT and article 1 of the Kuwait BIT.

7 Article 1(1).

8 Article 3(1) of the Portugal BIT, article 2(2) of the German BIT and article 2(2) of the Kuwait BIT.

9 Article 6 of the Portugal BIT, article 4(2) of the Germany BIT and article 5(1)a of the Kuwait BIT.

10 Article 6 of the Portugal BIT, Article 5(1)a of the Kuwait BIT.

11 Article 5(1)a of the Kuwait BIT.

12 Article 6 of the Portugal BIT, article 4(2) of the Germany BIT and article 5 of the Kuwait BIT.

13 Article 6(3) of the Portugal BIT and article 4(2) of the German BIT.

14 Article 6(2) of the Portugal BIT, article 4(2) of the German BIT and article 5(1)b of the Kuwait BIT.

15 Ibidem.

16 Article 4(3) of the Portugal BIT, article 3 of the Germany BIT and article 3 of the Kuwait BIT.

17 Protocol, No. 3(a).

18 Article 3(2) of the Portugal BIT, article 4(1) of the Germany BIT and article 2(2) of the Kuwait BIT.

19 Article 5 of the Portugal BIT, article 8 of the Germany BIT and article 11 of the Kuwait BIT.

20 Unofficial translation of article 5, originally in Portuguese.

21 Article 3(3) of the Portugal BIT, article 2(3) of the Germany BIT and article 2(3) of the Kuwait BIT.

22 Article 7 of the Portugal BIT, article 4(3) of the Germany BIT, article 4(1) of the Kuwait BIT.

23 Article 4(2).

24 Article 8 of the Portugal BIT, article 5 of the Germany BIT and article 6 of the Kuwait BIT.

25 Article 11(3) of the Portugal BIT.

26 Article 11(2) of the Portugal BIT, article 11 of the Germany BIT and article 8(3)a of the Kuwait BIT.

27 Article 11(2) of the Portugal BIT and article 8(3)b of the Kuwait BIT.

28 Article 8(2)a of the Kuwait BIT

29 Article 8(3)c of the Kuwait BIT

30 Article 11(2) of the Portugal BIT.

31 Article 8(4) of the Kuwait BIT

32 Article 11(2) of the Portugal BIT and article 11 of the Germany BIT.

33 In addition to the above-mentioned proceedings, an arbitration initiated in Singapore under the UNCITRAL arbitration rules by an international oil company against the Government of Timor-Leste has been made public. According to the information publicly available, said arbitration was based on a tax stability agreement entered into with that company and not on one of the above-referred BITs. It has been made public that the parties reached an agreement in which they settled a significant part of the dispute.

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