Investment Treaty Arbitration: Latvia

Armenia (21 April 2007)

Yes

Yes

Yes

Yes

No

3 months

Yes

Yes

Austria (1 May 1996)

Yes

Yes

Yes

Yes

No

3 months

No

Yes

Azerbaijan (10 May 2006)

Yes

Yes

Yes

Yes

No

3 months

Yes

Yes

Belarus (21 December 1998)

Yes

Yes

Yes

Yes

Yes

3 months

No

Yes

BENELUX (4 April 1999)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Bulgaria (23 July 2004)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Canada^{1 (27 July 1995)}

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Canada (24 November 2011)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

China People’s Republic (1 February 2006)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Croatia (25 May 2005)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Czech Republic (1 August 1995)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Denmark (18 November 1994)

Yes

Yes

Yes

Yes

Yes

3 months

No

Yes

Egypt (3 June 1998)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Estonia (23 May 1996)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Finland (7 December 1992)

Yes

Yes

Yes

Yes

Yes

3 months

No

Yes

France (1 October 1994)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Georgia (5 March 2006)

Yes

Yes

Yes

Yes

No

3 months

Yes

Yes

Germany (9 June 1996)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Greece (9 February 1998)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Hungary (25 August 2000)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Iceland (1 May 1999)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

India (27 November 2010)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Israel (9 May 1995)

Yes

Yes

Yes

Yes

No

3 months

No

Yes

Italy^{2 (2 March 1999)}

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Kazakhstan (21 April 2006)

Yes

Yes

Yes

Yes

No

3 months

Yes

Yes

Kirgizstan (11 February 2009)

Yes

Yes

Yes

Yes

No

3 months

Yes

Yes

Republic of Korea (26 January 1997)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Kuwait (21 March 2004)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Lithuania (23 July 1996)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Moldova (14 April 2000)

Yes

Yes

Yes

Yes

Yes

6 months

No

Yes

Netherlands (1 April 1995)

Yes

Yes

Yes

Yes

Yes

No

No

Yes

Norway (1 December 1992)

Yes

Yes

Yes

Yes

No

3 months

No

Yes

Poland (19 July 1993)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Portugal (17 July 1997)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Romania (22 August 2002)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Singapore (18 March 1999)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Slovakia (30 October 1998)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Spain (14 March 1997)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Sweden (6 November 1992)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Switzerland (16 April 1993)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Taiwan^{3 (8 October 1993)}

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Turkey (3 March 1999)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

Ukraine (30 December 1997)

Yes

Yes

Yes

Yes

No

6 months

No

Yes

United Kingdom^{4 (15 February 1995)}

Yes

Yes

Yes

Yes

Yes

3 months

No

Yes

USA (26 December 1996)

Yes

Yes

Yes

Yes

Yes

6 months

Yes

Yes

Uzbekistan (29 January 1997)

Yes

Yes

Yes

Yes

No

No

No

Yes

Vietnam (20 February 1996)

Yes

Yes

Yes

Yes

No

6 months

Yes

Yes

Seat of the investor/place of business

In most investment treaties for a legal person to qualify as an investor, a simple establishment of the legal person under the laws of the contacting state is required. Rarely it is defined that the investor as a legal person includes also non-profit companies, trusts, joint ventures and other forms of legal persons.

Few investment treaties (Germany BIT, Austria BIT, and Egypt BIT) emphasise that in the contracting state there must be a permanent place of business, or a head office. Poland BIT and Switzerland BIT require the legal person not only to have a seat in the contracting state, but also to have ‘real economic activities’ there.

Some investment treaties (Vietnam BIT, Poland BIT) extend the definition and include also those entities or organisations that are established in accordance with laws of third states but are controlled, directly or indirectly, by nationals of the contracting state. Kuwait BIT and USA BIT explicitly provide that an investor may be a government of a contracting state, or owned or controlled by it.

Permanent residents

As regards natural persons, most of Latvian investment treaties require the person to have the nationality of the contracting state under its laws. Germany BIT and Spain BIT emphasise in respect of natural persons that they must be the permanent residents of Latvia. Canada BIT states that the natural person must either possess the citizenship of Canada or permanently reside in Canada to be protected under the BIT.

Dual nationals

Israel BIT and Canada BIT explicitly exclude dual nationals from protection under the investment treaty.

Non-citizens

Latvian investment treaties that have entered into force after 2004 in the sphere of their protection include also non-citizens of Latvia, a specific category of inhabitants of Latvia who are former citizens of the USSR and who are not citizens of Latvia or any other country but, who in accordance with Latvian law are entitled to certain rights.

Seat of the investor/place of business

In most investment treaties for a legal person to qualify as an investor, a simple establishment of the legal person under the laws of the contacting state is required. Rarely it is defined that the investor as a legal person includes also non-profit companies, trusts, joint ventures and other forms of legal persons.

Few investment treaties (Germany BIT, Austria BIT, and Egypt BIT) emphasise that in the contracting state there must be a permanent place of business, or a head office. Poland BIT and Switzerland BIT require the legal person not only to have a seat in the contracting state, but also to have ‘real economic activities’ there.

Some investment treaties (Vietnam BIT, Poland BIT) extend the definition and include also those entities or organisations that are established in accordance with laws of third states but are controlled, directly or indirectly, by nationals of the contracting state. Kuwait BIT and USA BIT explicitly provide that an investor may be a government of a contracting state, or owned or controlled by it.

Permanent residents

As regards natural persons, most of Latvian investment treaties require the person to have the nationality of the contracting state under its laws. Germany BIT and Spain BIT emphasise in respect of natural persons that they must be the permanent residents of Latvia. Canada BIT states that the natural person must either possess the citizenship of Canada or permanently reside in Canada to be protected under the BIT.

Dual nationals

Israel BIT and Canada BIT explicitly exclude dual nationals from protection under the investment treaty.

Non-citizens

Latvian investment treaties that have entered into force after 2004 in the sphere of their protection include also non-citizens of Latvia, a specific category of inhabitants of Latvia who are former citizens of the USSR and who are not citizens of Latvia or any other country but, who in accordance with Latvian law are entitled to certain rights.

Illustration of the FET standard

Most Latvian investment treaties state that each contracting state must ensure fair and equitable treatment. Kuwait BIT also states that each contracting state must promptly publish its laws, judicial decisions and international agreements which pertain to or may affect the operation of the provisions of the BIT or investments. The BIT moreover states that the contracting states must effective means of asserting claims and enforcing rights with respect to investments by ensuring right to access the courts etc.

Customary international law

Canada BIT contains a reference that the contracting states must ensure fair and equitable treatment in accordance with principles of public international law.

Standard of expropriation

All Latvian investment treaties provide that investments cannot be expropriated or subjected to other measures having similar effect except if: (a) the expropriation is done for public interest, (b) on non-discriminatory basis and under due process of law, and (c) for effective and adequate compensation.

Protocol to India BIT provides that the article on expropriation is intended to reflect customary international law concerning the obligation of states with respect of expropriation.

Value of compensation

The Compensation must amount to the market value (or must be at genuine value, see Canada BIT and UK BIT) of the expropriated investment immediately before the expropriation or before the impending expropriation became public knowledge, and most investment treaties provide that the compensation must include an interest. The interest must usually be at normal commercial rate (Egypt BIT), or LIBOR (Ukraine BIT, Denmark BIT, and Lithuania BIT).

The compensation must be effectively realisable – normally within 3 months (Italy BIT, Uzbekistan BIT), and freely transferable.

Few investment treaties (Italy BIT, Kuwait BIT) specifically provide that in case of dispute regarding the amount of the compensation, it must be based on the same reference parameters taken into account in the documents for the constitution of the investment, or on equitable principles taking into account all relevant factors and circumstances, such as the capital invested, the nature and duration of the investment, replacement value, appreciation etc.

Most Latvian investment treaties provide that the investor is entitled to verify the legitimacy of the expropriation with the authorised governmental agency that has initiated the expropriation process, or with the arbitration court.

Italy BIT provides that in case if, after the dispossession as a consequence of expropriation, the assets concerned have not been utilised, wholly or partially, for that purpose, the owner or his assignees are entitled to the repurchasing of the assets at market price.

Indirect expropriation

Latvian investment treaties protect also against indirect expropriation, and few of them tend to provide a more detailed definition of an indirect expropriation. Eg, Italy BIT states that any measure towards an investment which subtracts financial resources or other assets from the investment or causes substantial prejudice to the value of the same investment, as well as any other measure having equivalent effect, will be considered as measure equivalent to expropriation. Canada BIT and India BIT even has a special annex regarding indirect expropriation where the elements for determining indirect expropriation are listed.

Taxation and expropriation

Canada BIT provides that provisions regarding expropriation may be applied to a taxation measure unless the taxation authorities of the contracting states, no later than six months after being notified by an investor that it disputes a taxation measure, jointly determine that the measure is not an expropriation.

Scope of MFN treatment

Wording in all Latvian investment treaties is almost similar providing that the treatment must not be less favourable than that granted by each contracting state to investment made in its territory by its own investors, or that granted by each contracting state to investments made in its territory by investors of any third state.

USA BIT has a more detailed provision as to what is understood by associated activities to investments which include granting of franchises or rights under licences, conduct of market studies, marketing of goods and services etc.

Sweden BIT states that treatment granted to investment under specific existing agreements does not invoke basis of MFN treatment under the particular BIT.

Common exceptions to MFN treatment

Latvian investment treaties provide that the MFN treatment must not apply to privileges which either contracting state accords to investors of a third state because of its membership in, or association a free trade area, a customs union, common market or organisation for mutual economic assistance or to an existing or future convention on the avoidance of double taxation or an convention on other fiscal matters.

Italy BIT provides as exceptions also all the activities related to the procurement, sale and transport of raw and processed materials, energy, fuels and production means, as well as any other kind of operation related to them and linked to investment activities under the BIT.

Exceptions in specific sectors

USA BIT and Canada BIT contain annexes which list specific sectors and matters that are exempted from the MFN treatment. Such sectors and matters include: air transportation; ocean and coastal shipping; banking; insurance; government-grants; government insurance and loan programs; energy and power production; ownership of real property; manufacturing and sale of narcotics, weapons and explosives; gambling etc.

Scope

Most of Latvian investment treaties provide that each contracting state must accord to investments of investors of the other contracting state full security and protection.

Netherlands BIT emphasise that ‘full physical security’ must be provided, while Egypt BIT states that ‘adequate protection and security’ must be provided.

Customary international law on protection and security

Canada BIT contains a clarification that the concept of ‘full protection and security’ does not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens.

Scope

Only about one fourth of Latvian bilateral investment treaties contain umbrella clauses. Finland BIT and Greece BIT states that each contracting state must observe any obligation it may have entered into with regard to investments of investors of the other contracting state.

Korea BIT contains a provision that states that each contracting state must observe any obligation it may have entered into ‘consistently with this Agreement [BIT]’ which, in our opinion, does not qualify as umbrella clause.

Free transfer of payments

All Latvian investment treaties provide that each contracting state allows without restrictions or undue delay money transfers in any convertible currency, including profits, dividends, royalties, fees, returns, proceeds from liquidation or sale of any investment etc.

Latvian investment treaties with the former USSR countries (Uzbekistan, Kazakhstan, Azerbaijan, Georgia, Armenia, Kirgizstan), as well as most recent investment treaties with Kuwait and Canada provide an exception of free transfer of payments in cases regarding bankruptcy, insolvency or protection of creditors’ rights, criminal or administrative offences etc.

Non-impairment

Many Latvian investment treaties contain also a provision that neither contracting party will in any way impair by unreasonable or discriminatory measures the operation, management, maintenance, use, enjoyment or disposal of investments in its territory by investors of the other contracting state.

A common provision for Latvian investment treaties is that the contracting states must grant necessary permits in connection with investment and with the carrying out of licensing agreements and contracts for technical, commercial or administrative assistance.

In many Latvian investment treaties the non-impairment provision is supplemented with an obligation to grant the investors and their employees (in Taiwan BIT – also to family members) permission to enter and remain in the territory for purposes of operation of an investment, or to engage managerial and technical personnel of their choice, regardless of nationality.

Italy BIT provides that each contracting state must create and maintain in its territory favourable economic and legal conditions in order to permit investments of investors of the other contracting state in accordance with its legislation, including the compliance, in good faith, of all undertakings assumed with regard to each specific investor.

Armed conflict/civil unrest

All Latvian investment treaties provide that investors of either contracting state who suffer losses of their investments in the territory of other contracting state due to war or armed conflict, a state of national emergency, revolt, insurrection or riot, must be accorded a treatment which is not less favourable than that accorded to investors of any third state.

Transparency

On few occasions (Azerbaijan BIT, USA BIT, and Kuwait BIT), the investment treaties provide that each contracting party must ensure that its laws, regulations, procedures, administrative rulings and judicial decisions of general application, as well as international agreements after their entry into force, which may affect the investments of investors of the other contracting state in its territory, are promptly published, or otherwise made publicly available.

Canada BIT states that the Contracting Parties must, within a 2-year period, exchange letters listing existing measures that do not conform to certain obligations under the BIT, eg regarding the existing national requirement to achieve a given level or percentage of domestic content.

Access to justice

Kuwait BIT and USA BIT provide that in respect to investment, investment agreements and investment authorisations the states must provide effective means of asserting claims and enforcing rights with respect to investments, ie to ensure the right of access to its courts of justice, administrative tribunals and agencies etc.

General exceptions

Latvian investment treaties with former USSR countries (eg Azerbaijan, Georgia, and Armenia) and with Singapore, USA, and Canada provide that application of prohibitions or restrictions is not limited in cases of protection of the essential security interests, the public health, or prevention of diseases and pests in animals or plants.

Kuwait BIT and Canada BIT provide that the contracting states may not impose as a condition for the acquisition, expansion, use, management, conduct or operation of investments by investors mandatory measures, which may require or restrict the purchase of materials, energy, fuel or of means of production, transport or operation of any kind etc., or any other measures having the effect of discrimination against investments in favour of investments by its own investors or by investors of third states. Moreover, no requirements to export a given level or percentage of goods, or to achieve a given level or percentage of domestic content, or similar, are allowed.

Tax

USA BIT and Canada BIT explicitly state that nothing under the BIT applies to taxation measures. Moreover, under USA BIT, with respect to its tax policies, each Party should strive to accord fairness and equity in the treatment of investment of nationals and companies of the other Party.

ICSID or ad hoc arbitration

More than one third of Latvian investment treaties provide dispute resolution by means of ad hoc arbitration or the ICSID arbitration or conciliation. About one third of Latvian investment treaties provide also courts of the host state as forum for dispute resolution.

Spain BIT, UK BIT, and Croatia BIT provide also an option to refer to the ICC, Poland BIT – also to the SCC, but Egypt BIT – also to the Regional Centre for International Commercial Arbitration in Cairo.

Israel BIT and Kirgizstan BIT provide only ad hoc arbitration as means of dispute resolution, although Israel is a signatory to the ICSID Convention.

A significant part of the Latvian investment treaties provide that in case the investor and one of the contracting states have stipulated an investment agreement, the procedure foreseen in such agreement, or a more favourable provision under other international agreement, if any, applies.

Fork-in-the-road

Fork-in-the-road provisions are not a common constituent of Latvian investment treaties. Only India BIT provides that, once local court, ad hoc arbitration, or the ICSID is chosen, it precludes referring to any other forum.

Turkey BIT provides that the investor may refer to the ICSID or ad hoc arbitration if it has already referred to a local court and it has not rendered a final award within one year.

Three other investment treaties (with China People’s Republic, Georgia, and Armenia) provide that once the dispute is submitted to the court or to the ICSID, such choice is final. However, the case from a local court may be withdrawn prior the court renders the judgment on merits, thus allowing the investor to refer to the ICSID.

Exhaustion of local remedies

China People’s Republic BIT requires the investor to exhaust the domestic administrative review procedure before referring to the ICSID. However, China People’s Republic has declared that such a procedure will take a maximum of 3 months.

Bulgaria BIT and Iceland BIT provide that certain disputes under the BIT must be referred to local courts, but certain others (eg regarding compensation, expropriation, transfers, and subrogation) may be subject only to ad hoc or the ICSID arbitration.

Time limits

Canada BIT states that the investor may not make a claim if more than 3 years have elapsed from the date on which the enterprise first acquired, or should have first acquired, knowledge of the alleged breach and knowledge that it has incurred loss or damage.

Applicable law

Most Latvian investment treaties provide that the award of the arbitration court must be based on the investment treaty provisions, national law of the host state, including private international law norms, and the rules and the universally accepted principles of international law.

Preliminary issues

Kuwait BIT, which prescribes ad hoc and ICSID arbitration as means of dispute settlement, explicitly states that the investor may seek an interim injunctive relief, provided it does not include request or payment of any damages.

Confidentiality

Canada BIT states that the arbitration court hearings all arbitration documents are public. In cases where the confidential information must be protected, hearings may be closed, or the information omitted in the documents.

Government entity to which claim notices are sent

The notice should be addressed to the Cabinet of Ministers of Latvia, Brivibas bulvaris 36, Riga, LV-1520. The state institution in charge of investment disputes concerning Latvia is the State Chancellery, which is directly subordinated to the Prime Minister.

Government department which manages investment treaty arbitrations

Investment treaty arbitrations are managed by several state institutions which include the State Chancellery, the Cabinet of Ministers, the Ministry of Justice, the Ministry of Finance, and the Ministry of Economics. If the arbitration has been initiated due to an allegedly unlawful action of a local self-government, it is also involved in the management of the arbitration. It is Cabinet of Ministers who decides which institution will manage the particular dispute.

Internal/external counsel

Both internal and external counsel are used. In case of internal counsel the case is handled by the State Chancellery. External counsel are hired on basis of a market research which with a respective decision of the Cabinet of Ministers may be exempted from the general procedure of public procurement.

Washington Convention implementing legislation

Yes. The Washington Convention was ratified by the law of 19 June 1997 ‘On the Convention on the Settlement of Investment Disputes between States and Nationals of Other States’. The Washington Convention is in force regarding Latvia since 8 September 1997.

The procedure of recognition and enforcement of foreign arbitral awards is governed by Chapter 78 (Sections 645 – 651) of the Civil Procedure Law of Latvia.

New York Convention implementing legislation

Yes. The New York Convention was ratified by the decision of the Supreme Council of the Republic of Latvia on 11 March 1992. The New York Convention is in force regarding Latvia since 13 July 1992.

The procedure of recognition and enforcement of foreign arbitral awards is governed by Chapter 78 (Sections 645 – 651) of the Civil Procedure Law of Latvia.

Legislation governing non-ICSID arbitrations

Yes, the Law on Arbitration entered into force on 1 January 2015 replacing the existing several chapters of the Civil Procedure Law.

Compliance with adverse awards

According to the publicly available information, Latvia has voluntarily complied with one of its two adverse investment treaty awards. Pursuant to the publicly available information, in its first investment arbitration case with SwemBalt Latvia requested an interpretation of the award and further challenged it at the Danish Maritime and Commercial Court.

Attitude of government towards investment treaty arbitration

The State Chancellery is of opinion that it manages the investment disputes well and that its activities for the period 2004 – 2013 have helped to prevent investment arbitrations in the total amount of approx. EUR 710 million.^{5 According to the State Chancellery, since 2004 when it was appointed as the responsible state authority for management of investment disputes, it has concluded 7 settlement agreements without paying any compensations to the investors thus precluding significant investment claims (eg with TeliaSonera AB, Metsäliitto Group, and Vitol Group). However, there is no publicly available information if there are settlement agreements with payment of certain amount of compensation to the investors.}

At the same time in the disputes with Swembalt AB (case was handled by the Ministry of Foreign Affairs without the use of external counsel) and UAB E-Energija (case is managed by the State Chancellery without the use of external counsel) Latvia did not use its rights to appoint an arbitrator thus significantly worsening its position.

At the end of 2013 the Cabinet of Ministers considered legislative amendments according to which adverse investment arbitration awards would be compensated from the budget of the state institution that has breached the treaty, in particular, from the budget of local self-governments.

Attitude of local courts towards investment treaty arbitration

Latvian courts have never been called upon to enforce an investment treaty award against Latvia and have never reviewed an investment claim under a BIT. Generally the understanding of substantive protections under BIT as well as enforcement of foreign arbitral awards in Latvia is rather undeveloped. Latvian courts tend to issue contradictory decisions when enforcing foreign arbitral awards, which could be expected also in the context of investment treaty awards.

Multilateral Investment Guarantee Agency

Latvia has ratified the Convention establishing the Multilateral Investment Guarantee Agency (MIGA) (Seoul, 11 October 1985). Under the treaty Latvian nationals and corporates are eligible to acquire, for the payment of a premium, political risk insurance from MIGA in respect of investments made in certain developing states provided that certain conditions are met. To be eligible for assistance, the investment must be medium to long term in nature, support the host country’s development goals, comply with MIGA’s Policy on Social and Environmental Sustainability and anti-corruption and fraud standards, and also be financially viable.

SwemBalt AB, Sweden v the Republic of Latvia , UNCITRAL. Available at: http://www.italaw.com/cases/1066 and http://www.newyorkconvention1958.org/index.php?lvl=author_see&id=330.

Nykomb Synergetics Technology Holding AB, Stockholm v the Republic of Latvia . Available at: http://www.italaw.com/cases/documents/1277.

UAB E energija (Lithuania) v the Republic of Latvia (ICSID Case No. ARB/12/33) (Latvia – Lithuania BIT)