01 November 2017

Interim measures in energy and resource investor state disputes

This article was written by Dorothy Murray, Wilson Antoon and Patrick O’Grady.

Interim measures provide a useful tool for foreign investors seeking to protect their ongoing interests in pending disputes with sovereign states. This is particularly relevant for those foreign investors in the energy and natural resource sectors where mitigating the risks associated with often politically‑sensitive and highly regulated investments is a key concern.

Sovereign states that are party to investment treaties or investment agreements containing arbitration clauses should also pay close attention to the potential impact of such measures on domestic policy, the ability to implement regulatory measures and domestic court proceedings.

The ‘terms ‘interim measures’ or ‘provisional measures’ cover a wide range of interim awards or orders that may be granted under the rules of the major arbitral institutions, including the most commonly used rules for investment disputes - the International Centre for Settlement of Investment Disputes Rules (ICSID Rules) and the Rules of the United Nations Commission on International Trade Law (UNCITRAL Rules).

This article outlines current practices and procedures for interim measures and considers the rise of interim measures in investment treaty disputes by reference to two recent examples.

The rise of emergency arbitrations

The recent introduction of emergency arbitrator procedures in the rules of certain arbitral institutions also gives investors the opportunity to obtain relief even before a tribunal has been constituted. In the context of investment disputes, neither the ICSID Convention nor the UNCITRAL Rules contain emergency arbitrator provisions, while the 2012 International Chamber of Commerce (ICC) Rules exclude treaty claims from the relevant provisions.[1]

However, the emergency arbitrator procedure is available under the provisions of the Stockholm Chamber of Commerce (SCC) Rules, and this procedure has been used in five investment disputes since its introduction in 2010.[2]  This is significant for investors, given that the SCC Rules are available under numerous BITs and, importantly, under the multilateral Energy Charter Treaty.

Preconditions for interim measures

A request for interim measures must typically fulfil the following five requirements:[3]

  • the tribunal has prima facie jurisdiction over the dispute;
  • the claimant establishes a prima fade case on the merits;
  • urgency;
  • imminent danger of serious prejudice (necessity); and
  • the balance of hardships weighs in favour of interim measures (proportionality).

The threshold for establishing prima facie jurisdiction in international arbitration is relatively low, and tribunals are reluctant to assess the merits of claims in order to avoid prejudging the outcome of the proceedings before evidence has been heard. Consequently, investors may often be able to satisfy the first two limbs of the test for interim relief without much difficulty. This means that interim measures can provide a valuable tool for investors to challenge in short order the most harmful conduct of the host state, and to protect rights pending the outcome of the arbitration.

When might a party seek interim measures?

In an investment context, interim relief is most commonly sought to:

  • suspend domestic civil or criminal court proceedings commenced by state bodies;
  • prevent the state from imposing or collecting increased or new taxes, royalties or penalties;
  • prevent the state from imposing regulatory measures such as environmental protection regulations;
  • prevent the state from publicising criminal investigations;[4]
  • require the parties to cooperate in the proceedings or preserve evidence;[5] or
  • require the state to preserve disputed contractual rights.[6]

Tribunals acknowledge that interim measures should not be granted lightly. Nevertheless, the potential benefits for investors are significant, particularly where the conduct of the state threatens to prejudice the solvency of the investor or the entire investment. Investment disputes often span several years and interim measures can prove vital in preserving an investor’s rights pending a final award.

Maintaining the status quo

In JKX Oil & Gas plc v Ukraine, the claimant, a UK‑based oil and gas company (JKX), challenged legislation adopted by Ukraine in 2014 that raised royalties on gas production from 28% to 55%.[7]  JKX and two of its subsidiaries initially filed three separate claims: JKX brought a claim under the UK‑Ukraine bilateral investment treaty (BIT); its Dutch and Ukrainian subsidiaries brought claims under the Netherlands‑Ukraine BIT; and all three entities filed a claim under the Energy Charter Treaty.

In January 2015 and before the tribunal was constituted, JKX used the SCC emergency arbitrator procedure to obtain an emergency award ordering Ukraine to refrain from increasing royalties on gas production above the 28% rate, The three claims were consolidated into a single case and in July 2015, the newly‑constituted UNICTRAL tribunal issued interim measures reflecting the ruling of the emergency arbitrator, which remained in place until the final award in February 2017. The measures were temporary as Ukraine ultimately prevailed on a full hearing of the merits.

Suspension of domestic proceedings

In Centerra Gold Inc. of al v The Kyrgyz Republic and Kyrgyzaltyn JSC, Kyrgyz state bodies commenced domestic proceedings against the gold miner in respect of alleged environmental damage.[8]  The investor sought to prevent the state from pursuing the local claims, in effect using the arbitral proceedings to challenge several environmental claims brought by Kyrgyz state agencies in respect of the Kumtor gold mine.

While the sole arbitrator did not make an order to stay the domestic court proceedings as the investor failed to establish a risk of insolvency, the Kyrgyz Republic was ordered to give notice if state agencies intended to resume the litigation in the future in order to avoid the aggravation of the dispute.

Conclusion

Interim measures ordered by arbitral tribunals are becoming increasingly common place. Recent cases demonstrate an increasing willingness of tribunals to grant such relief especially in investor‑state disputes in the energy and resources sector. As with final awards, interim awards are widely enforceable under the New York Convention, which makes interim measures a potential useful tool for investors seeking to preserve rights and assets while an investment dispute is ongoing.


[1]    15 ICC Rules 2012 Article 29(5).

[2]    www.sccinstitute.com/statistics/.

[3]    Serge, Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v The Government of Mongolia, Order on Interim Measures, para. 45.

[4]    Teinver SA v. Argentina, ICSID Case No. ARB/09/1, Decision or Provisional Measures, 8 April 2016.

[5]    AG1P SpA v People’s Republic of the Congo r 979) 1 ICSID Reports 306, p.317.

[6]    Perenco v. The Republic of Ecuador, ICSID Case No. ARB/C8/8, Decision on Provisional Measures, 8 May 2009.

[7]    PCA Case No. 2015‑11.

[8]    PCA Case Nos. 2016‑31, 32 & 33.

How to resolve disputes on the Belt and Road

Discover our ten recommendations in this practical Belt and Road guide.

Belt and Road
Share on LinkedIn Share on Facebook Share on Twitter Share on Google+
    You might also be interested in

    Proposed new legislation to publish a report on steps taken to eradicate modern slavery

    21 November 2017

    Until very recently, for directors and creditors alike Australia’s insolvent trading regime had been failing.

    21 November 2017

    The Queensland Government has recently passed legislation which will introduce Project Bank Accounts to certain construction projects from the beginning of 2018.

    20 November 2017

    CIETAC's new rules intend to support the independent and impartial resolution of international investment disputes between investors and host countries.

    15 November 2017

    This publication has been downloaded from the King & Wood Mallesons website. It is provided only for your information and does not constitute legal or other advice on any specific matter. If you require or seek legal advice you should obtain such advice from your own lawyer, and should do so before taking, or refraining from taking, any action in reliance on this publication. If you have any questions, please contact King & Wood Mallesons. See www.kwm.com for more information.