IBTBlog

The International Business Transactions Blog

Human Right Violation Found in Italy’s Refusal to Correct Arbitral Injustice

By BethEl Nager, Law Student Editor
& Aaron Fellmeth, Faculty Co-Editor

The European Court of Human Rights (ECtHR) has recently held that Italy violated Article 6 of the European Convention on Human Rights, when Italian courts rejected a complaint regarding an arbitrator who had failed to disclose a conflict of interest. Article 6 of the European Convention provides for the right to a fair trial before an independent and impartial tribunal in both civil and criminal cases. The case before the ECtHR arose after the Italian company Becchetti Energy Group S.p.A. (BEG) entered into a contract with Enelpower S.p.A., a subsidiary of the largest Italian power company, to construct a hydroelectric plant in Albania. BEG held a concession from the Albanian government, but because both companies are Italian, the agreement provided for arbitration of all disputes in Rome under Italian law.

After Enelpower withdrew from the project, BEG initiated arbitration, seeking €130 million in damages. The chair of the tribunal and the arbitrator appointed by Enelpower, Natalino Irti, formed a majority to render an award in favor of Enelpower, effectively dismissing BEG’s claims. Irti never disclosed to BEG a major conflict of interest—he had been a past board member of Enel S.p.A, Enelpower’s parent company, and concurrently served as Enel’s attorney in an unrelated litigation.

Since 2002, BEG has been struggling for the award to be invalidated in multijurisdictional litigation in Italy, Albania, and New York. Regarding the conflict of interest, the Rome trial courts declined to disqualify Irti, arguing mootness because the arbitration proceeding had terminated. In 2009, the Rome Court of Appeals affirmed on the surprising theory that an undisclosed conflict of interest did not necessarily affect the arbitrator’s impartiality. Nonetheless, the revelations prompted an Italian prosecutor to indict Irti for forgery (by signing documents that falsely omitted his conflict of interest) and to indict the president of the tribunal for perjury, although these charges were eventually dropped. BEG also pursued the matter before the ECtHR, which in May 2021 rendered a decision.  The Court found that BEG had suffered a human rights violation by the denial of an impartial and independent tribunal, despite the private character of the arbitration, because Italian courts had ignored the conflict of interest.

BEG to recover compensation in the ECtHR, including material damage and lost profits, that it believed it would have received from an award following an impartial arbitral proceeding. The Court was unwilling to speculate on the damages BEG would have obtained, if any, in an impartial arbitration, however. It instead awarded BEG non-pecuniary damages and nominal costs and expenses arising from the Italian and ECtHR proceedings. Regardless, the ECtHR’s ruling established that Italian courts violated a business organization’s human rights by ratifying a tainted arbitration.

One message of these cases is that arbitrators should disclose their connections and potential conflicts of interest, and that municipal courts considering international arbitral awards should take conflicts of interest seriously.  Municipal courts in particular should not ignore apparent conflicts of interest merely because there is no evidence that the interests of the arbitrator and a party align in the specific dispute before the tribunal.

Customs Penalties for Evading Antidumping & Countervailing Duties

By BethEl Nager, Law Student Editor
& Aaron Fellmeth, Faculty Co-Editor

In 2016, Congress adopted the Enforce and Protect Act of 2015 (EAPA) as Title IV of the Trade Facilitation and Trade Enforcement Act of 2015, Pub. L. 114-125, 130 Stat. 122. EAPA created a Trade Remedy Law Enforcement Division within the U.S. Customs and Border Protection (CBP) to investigate and penalize importers who evade anti-dumping duties (ADDs) or countervailing duties (CVDs) imposed by the U.S. International Trade Commission and Department of Commerce on imports. ADDs and CVDs may be levied on import shipments deemed dumped on the U.S. market or unfairly subsidized by a foreign government. Importers are responsible for determining whether their goods are subject to U.S. ADDs or CVDs and for paying the additional duties upon importation.

Under the EAPA, CBP is authorized to initiate a public administrative proceeding against importers that have allegedly failed to pay ADDs and CVDs and to penalize them. In addition, soon after beginning its investigation, CBP may impose “interim measures” obligating importers to pay cash deposits on all future imports while the proceeding is pending, in order to cover the cost of any ADDs or CVDs for which the importer is found liable. CBP may only impose prospective ADDs or CVDs on importers that make a material and false statement to CBP regarding ADDs or CVDs owed to the U.S. Treasury in relation to a shipment of imported goods. However, the EAPA does not require that the false statement be made intentionally or knowingly.

Since 2016, the EAPA has launched well over one hundred investigations into a variety of industries, including wooden furniture, glycine, diamond sawblades, and wire hangers. The first EAPA determination occurred on August 14, 2017. CBP’s investigation found that an importer of wire clothes hangers had unlawfully failed to pay an ADD on imports from China. The hangers had been transshipped through Thailand, a country not subject to any ADD on wire hanger imports. By misrepresenting the country of origin of the hangers as Thailand, the importer had avoided paying the ADD on Chinese hanger imports.

After the adoption of the EAPA, CBP has initiated an annually-increasing number of trade remedies investigations and imposed ever more cash deposit requirements on importers. In 2020 alone, CBP conducted 19 investigations of importers under EAPA. Not all investigations have resulted in prospective cash deposit requirements, but in less than five years, CBP claims that it has identified more than $600 million in evaded ADDs and CVDs.

French Court Reinstates $1.6 Billion Investment Arbitration Award Against Venezuela

By BethEl Nager
Law Student Editor

Rusoro Mining is a publicly-traded gold explorer and producer headquartered in Vancouver, Canada.  In 2006, Rusoro began acquiring mining licenses in the southern region of Venezuela and actively extracted gold in the ensuing years. In 2011, the Socialist government of Hugo Chávez expropriated Rusoro’s assets in Venezuela without compensation, as part of an effort to nationalize all Venezuelan gold production. Resource nationalization has become popular recently, impacting “21 major producers of oil, gas and minerals.”  Predictably, the expropriation of a profitable investment put strong downward pressure on Rusoro’s stock.

After Rusoro failed to agree with the Venezuelan government on a joint venture, it invoked arbitration before the International Centre for the Settlement of Investment Disputes (ICSID) under the 1996 Canada-Venezuela Bilateral Investment Treaty (BIT). Rusoro claimed the full value of the expropriated investment, which it represented as $3.03 billion.

In 2016, an ICSID arbitral tribunal awarded Rusoro over $967 million, plus post-award interest, for expropriation in violation of the BIT. However, Venezuela refused to pay the award, forcing Rusoro to seek judicial assistance in several U.S. jurisdictions. During this period, the award accumulated $80 million in annual interest. For its part, Venezuela sought annulment of the arbitral award before the Paris courts.

In October 2018, Rusoro reached a settlement with Venezuela. The government agreed to pay Rusoro monthly installments over five years, starting in January of 2019. However, that same month, the Paris Court of Appeal issued a judgment finding that the arbitral tribunal’s prior calculations to determine the settlement award were improper. The Cour d’appel claimed the tribunal should have taken into account the decrease in Rusoro’s value in 2009 caused by the nationalization and held that the arbitral tribunal exceeded its jurisdiction by awarding compensation for losses that occurred prior to the three-year limitation period in the Canada-Venezuela BIT.

At the same time, in the Superior Court of Justice of Ontario and the U.S. District Court for the District of Columbia, Rusoro obtained orders to enforce the award against Venezuela. The award now amounts to $1.3 billion plus continuing interest. Venezuela began with a payment of $100 million to a Canadian bank and is expected to complete payments of the arbitral award. 

Back in France, on March 31, 2021, the Cour de Cassation, the highest civil court in France, reinstated the $1.6 billion investment treaty award against the country of Venezuela, reversing and remanding the case to the Paris Court of Appeal. The remanded proceedings were sent to a different bench of the Paris Court of Appeal, where they are currently under consideration.

The litigation between Rusoro has spanned a decade and involved arbitration as well as judicial proceedings in four jurisdictions in three different countries.  Rusoro’s experience may well be viewed as a case study of the importance of ICSID arbitration, the proper conduct of arbitral proceedings, and the judicial enforcement of arbitration awards.

Blog Editors

Faculty Editors
Prof. Aaron Fellmeth
aaron.fellmeth@asu.edu

Prof. Victoria Sahani
victoria.sahani@asu.edu

Law Student Editor
BethEl Nager
ibtblog.editor@asu.edu

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