Investment arbitration news in America: the use of discovery, Ecuador's return to the ICSID Convention and Colombia's success in investment disputes

Alberto Acevedo, partner at Garrigues Litigation and Arbitration Department.

Investment arbitration has not been without its critics in recent years. Following the Achmea decision, which it has been said drove a stake through the heart of investment arbitration in the European Union, this mechanism has prompted criticism and the Latin American context is not exception.

The region has seen a few very important debates, of great interest to all the parties involved, on the subject of investment arbitration, including the use of discovery in investment arbitration, Ecuador's return to the ICSID Convention, and Colombia's success in investment disputes, all explained below.

a. Use of discovery in investment arbitration

A first debate arose in connection with the future decision by the Supreme Court of the United State on discovery and its effects on investment arbitration. This fundamental element for the parties in private arbitration has become a strategy, for both American investors in other countries, and foreign investors in the U.S., which besides allowing them to access information before a lawsuit also allows them to make an assessment of the risk before placing the dispute in the hands of an arbitral tribunal. Now, however, its use in investment arbitration proceedings appears to have its days numbered.

On the one hand, the District Court for the Southern District of New York, in the Russian Fund v Lithuania case granted an application for discovery to the claimant, and extended the term “foreign or international tribunal” to include investor-state tribunals. According to this court, investment arbitrations fulfill the requirements specified by the law to permit the use of discovery so its use should be allowed in investment arbitration. Although, at the same time, the U.S. government submitted an amicus brief expressly asking for the term not to include disputes having their origin in an international treaty.

Although the U.S. Supreme Court has not yet made a final decision on the use of discovery at international arbitral and investment tribunals, allowing the investor to access information is indeed a guarantee that could change expectations at the time of investing. This would give the investor a starting point if expropriation or unequal treatment issues arise under international law, so, although it seems obvious, this decision could shake up expectations in investment arbitration in America, precisely at a time when even the most conservative nations appear to have their sights on investment arbitration.

b. Ecuador: new signatory of the ICSID Convention

The decision discussed above arose in a context in which even the most conservative nations appear to have their sights on investment arbitration to boost their economic development. An example of this is Ecuador's return to the ICSID Convention, as a result of “Ecuador, a Meeting Place” (“Ecuador del Encuentro”) the government plan of new president Guillermo Lasso. It is hoped that signing this convention will again make the country an attractive environment for investments, as well as strengthening relations with its trading partners which have stayed despite the crisis.

Ecuador's return marks a new step towards strengthening Latin America as an excellent scenario for investment, and also as a region under progressive development. The step was not straightforward, however, because it was accompanied by the now familiar red tape, a characteristic of the legal systems in the area.

Indeed, Ecuador’s Constitutional Court had to hear the case, to confirm whether the signing of the ICSID Convention required legislative approval. In a decision delivered on June 30, 2021, the constitutional court ruled that this approval was not required, although the government notified the legislative authority on June 5, 2021, to ensure that every element needed to make that decision had been covered.

It must be underlined that, although the inclusion of these nations has all the makings of a challenge in political terms, Ecuador's return does represent a starting point on the path to confirming the real advantages of the ICSID Convention in emerging economies. Moreover, the success of this decision could prompt other nations in the region to sign, such as Bolivia, Brazil or Venezuela even.

c. Colombia: a success story for investment disputes

Despite steps like that taken by Ecuador, it is worth asking whether confronting the challenges of investment arbitration requires the region’s countries to take measures to confront the economic impacts that the decisions could have. Colombia has been a success story in relation to these tools, by reaping rewards from strengthening its National Agency for Legal Defense of the State. According to the recent submission of accounts by the entity and several press releases, the country has saved itself from being ordered to pay an approximate aggregate figure of $1.609 billion dollars in investment arbitrations. This was achieved by imposing strategic goals seeking to reduce the impact those disputes have on state funds in the country.

Leaving aside the challenges posed by centralizing the judicial defense of the state at a specialized entity, this appears to have reaped rewards for Colombia. A country that is positioning itself as a strong contender in disputes, by combining willingness to actively participate in the development of arbitral tribunals, with readiness to defend the country’s funds against unfounded claims. This could, without a doubt, change the landscape for investors, although it is even more likely to save considerable sums of money for a country which, like others in the region, is confronting the economic crisis left by COVID-19 and social conflicts.