School of International Arbitration, Queen Mary, University of London
International Arbitration Case Law Academic Directors: Ignacio Torterola & Loukas Mistelis*
ALASDAIR ROSS ANDERSON, ET AL. V. REPUBLIC OF COSTA RICA (ICSID CASE NO. ARB(AF)/07/3) AWARD Case Report by Kenneth Juan Figueroa** Edited by Fernando Cantuarias ***
Award on Jurisdiction rendered on 19 May 2010, under the Agreement between the Government of the Republic of Costa Rica and the Government of Canada for the Protection and Promotion of Investment (the “BIT”) and in accordance with the ICSID Additional Facility. Tribunal:
Dr. Sandra Morelli Rico (President), Prof. Jeswald W. Salacuse, and Prof. Raúl E. Vinuesa.
Claimant’s counsel:
Mr. François G. Tremblay and Ms. Natacha Leclerc of Cain Lamarre Casgrain Wells and Mr. Robert Wisner and Mr. W. Brad Hanna of McMillan LLP.
Defendant’s Counsel:
Mr. Esteban Agüero Guier, Ms. Mónica C. Fernández Fonseca, and Mr. Luis Adolfo Fernández López of the Costa Rican Ministry of Foreign Trade and Mr. Stanimir A. Alexandrov, Ms. Marinn Carlson and Mr. Patricio Grané of Sidley Austin LLP.
Directors can be reached by email at
[email protected] and
[email protected] ** Kenneth Juan Figueroa is a senior associate in the International Litigation and Arbitration Group of Foley Hoag LLP, with substantial experience in international commercial and investment treaty arbitration matters, particularly in Latin America. *** Fernando Cantuarias is the Dean of the Law School of Universidad del Pacífico in Lima, Peru. He is a member of the Board of Reporters of the Transnational Arbitration Institute, the Latin American Group of Arbitration of the International Chamber of Commerce, the American Association of Private International Law, the Association for International Arbitration and the Argentine Committee of National and Transnational Arbitration *
INDEX OF MATTERS DISCUSSED 1. 2.
3.
Facts of the Case ................................................................................................ 3 Legal Issues Discussed in the Decision .......................................................... 3 (a) Whether Claimants owned or controlled investments as defined in the BIT (¶¶ 43-47) ..................................................................................................... 4 (i) Claimants’ deposits constituted “assets” (¶¶ 48-50) ............................. 4 (ii) Claimants did not own or control their assets in accordance with the laws of Costa Rica (¶¶ 51-58) .................................................................................. 4 Decision 5
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Digest 1.
Facts of the Case
Claimants, consisting of 137 individual Canadian nationals, asserted separate claims, joined in the same Request for Arbitration, against Costa Rica for the loss of individual cash deposits made with two Costa Rican nationals, Luis Enrique Villalobos Camacho and Osvaldo Villalobos Camacho (the “Villalobos Brothers”), who operated an illegal Ponzi scheme. Individual cash deposits, in amounts of a minimum of US$10,000 up to more than US$100,000, were taken from Claimants with the promise of high returns. These deposits were structured as high-interest rate personal loans to Enrique Villalobos. No effective guarantee was offered and no information was provided concerning the use or investment of the deposited funds. These funds were never actually invested, but rather were used to pay earlier depositors in the scheme. Depositors often deposited money based on recommendations from friends and acquaintances with relatively little due diligence and, in certain instances, even after it was public knowledge that the Villalobos Brothers were the subject of an investigation by Costa Rican authorities. (¶¶ 15-22, 24) Following this investigation, Costa Rican authorities closed a company owned by the Villalobos Brothers, Casa de Cambio Ofinter S.A., seized the Villalobos Brothers’ assets, and arrested and convicted Osvaldo Villalobos for fraud and engaging in unauthorized financial intermediation (Luis Enrique Villalobos evaded arrest and became a fugitive of the law). Few of the Claimants availed themselves of the opportunity to assert civil claims for compensation with Costa Rican authorities. However, by the time the scheme ended, few assets remained to satisfy the claims of all depositors. (¶¶ 24-27) Claimants thereafter submitted their Request for Arbitration, in which they alleged that Costa Rica failed to provide proper vigilance and governmental regulatory supervision over its national financial system, causing the loss of Claimants’ investments in violation of the BIT provisions of full protection and security, fair and equitable treatment, due process of law, and protection against expropriation. (¶¶ 3, 28) As Canada is not a party to the ICSID Convention, Claimants’ asserted their claims under the Additional Facility. Costa Rica asserted an admissibility objection and five jurisdictional objections, including that none of the deposits made by the Claimants with the Villalobos Brothers constituted an “investment” under the terms of the BIT. The Tribunal declined jurisdiction over Claimants’ claims because it concluded that Claimants’ deposits did not constitute investments under the BIT. The Tribunal found it unnecessary to address Costa Rica’s other jurisdictional and admissibility objections. (¶¶ 59-60) 2.
Legal Issues Discussed in the Decision
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(a)
Whether Claimants owned or controlled investments as defined in the BIT (¶¶ 43-47)
To establish jurisdiction, Claimants were required to establish that their deposits and resulting legal relationship with the Villalobos Brothers constituted “investments,” under the terms of the BIT, which required establishment that, inter alia, (1) the deposits constituted “assets”, and (2) the Claimants owned or controlled those assets in accordance with the laws of Costa Rica. (¶¶ 43-47) (i)
Claimants’ deposits constituted “assets” (¶¶ 48-50)
Claimants’ cash deposits resulted in an obligation of the Villalobos Brothers to repay the principal amount deposited under certain conditions and to pay a specific amount of interest each month. Therefore the deposits constituted “a thing of value” owned by Claimants and were thus “assets”, in accordance with that term’s ordinary meaning. (¶¶ 48-50) (ii) Claimants did not own or control their assets in accordance with the laws of Costa Rica (¶¶ 51-58) The BIT specifically includes a requirement that investments subject to treaty protection be made or owned in accordance with the law of the host state. The Tribunal concluded that this reflected the Contracting States’ intention that their respective laws concerning investments be strictly followed. Furthermore, because this requirement is set forth in the BIT in objective and categorical terms, the Tribunal concluded that the standard is an objective one and each Claimant must meet the requirement regardless of his or her knowledge of the law or intention to follow the law. (¶¶ 51-54) The Tribunal concluded that in actively seeking and accepting deposits from the Claimants in furtherance of their Ponzi scheme, the Villalobos Brothers were engaged in financial intermediation without authorization by the Central Bank, in violation of the Organic Law of the Central Bank of Costa Rica. Therefore, the entire transaction between the Villalobos and each Claimant was illegal and not in accordance with the law of Costa Rica. (¶ 55) The Tribunal rejected Claimants’ argument that the Tribunal should focus only on whether the Claimants’ ownership rights to the agreed-upon interest and principal were legal obligations under Costa Rican law. The Tribunal viewed this interpretation of the BIT as “too narrow”. It noted that in order to determine whether the ownership of a property is in accordance with the law of a particular country, it is necessary to examine whether the process by which that possession or ownership was acquired complied with all prevailing laws. The Tribunal concluded that this was not the case for Claimants. (¶ 56) The Tribunal viewed its interpretation of the BIT as supported by sound public policy and investment practice. According to the Tribunal, Costa Rica has a fundamental
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interest in securing respect for its laws, which it clearly sought to secure under the terms of the BIT. In addition, the Tribunal suggested that its interpretation would encourage prudent investment practices of due diligence by investors in order to ensure that the investments comply with all applicable law. (¶ 58) 3.
Decision
The Tribunal dismissed the Claimants’ Request for Arbitration on the ground that the Tribunal lacked jurisdiction ratione materiae to hear the dispute. Finding no evidence of procedural misconduct, the Tribunal ordered that costs, fees and expenses be shared equally by the parties. (¶¶ 59-66)
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