Local Companies and Foreign    Shareholders’ rights               University of Dundee, CEPMLP                        June...
Foreign investments are often made through thecreation of local companies because foreigninvestors :-are legally compelled...
In International law, at least since the BarcelonaTraction case (ICJ, 1970), the difference betweena company and its share...
PlanI) Evolution of the legal context since theBarcelona Traction caseII) Is a foreign investor entitled to act against aS...
I)   Evolution of the legal context since the     Barcelona Traction caseA)   Barcelona Traction and Elsi casesB)   Applic...
Barcelona TractionBelgium’s submission (Case concerning the Barcelona Traction, Lightand Power Company, Ltd (Belgium v. Sp...
Barcelona TractionICJ decision (judgment at § 88) :“Where it is a question of an unlawful act committedagainst a company r...
Barcelona TractionHowever, the Court suggested that internationallaw may provide for exceptions in which theshareholders’ ...
Elettronica Sicula S.p.A.A decision that :-fits into one of the exception enunciated in BarcelonaTraction (because the Sta...
Article 25 (2)(b) in fine of the ICSID ConventionB) Application of Article 25(2) (b) in fine of theICSID ConventionArticle...
Article 25 (2)(b) in fine of the ICSID ConventionIn Amco Asia v. Indonesia, Soabi v. Senegal, Vacuum Salt v. Ghana or Auco...
International Investment TreatiesC) International Investment Treaties and the possibilitygiven to shareholders to have a d...
International Investment Treaties« ARTICLE 1 DefinitionsFor the purposes of this Agreement:1.”Investment” means, … , any k...
II) Is a foreign investor entitled to act against aState because of an injury allegedly caused tothe company in which he/s...
Impregilo v. Argentina (ICSID Case N° ARB/07/17)Argentina’s submission (Award dated June 21, 2011, at § 112) :« There is n...
Impregilo v. Argentina (ICSID Case N° ARB/07/17)Decision of the arbitral tribunal :« It follows from Article 1(1)(b) of th...
A) Shareholders rights are distinct from   company’s rights, both in municipal and   international lawB) Under some circum...
A) Shareholders rights are distinct from   company’s rights, both in municipal and   international law
Municipal LawsUnited States, Model Business Corporation ActSubject to the specific rights granted in corporation’s charter...
Municipal LawsUnder the US Model Business Corporation Actshareholders are normally not entitled to bring asuit on behalf o...
Municipal LawsThe same rights and the same limits may be   found in :-United Kingdom, in the Companies Act 2006 (c 2006);-...
International LawBarcelona Traction :   « Separated from the company by numerous   barriers, the shareholder cannot be ide...
International LawBarcelona Traction :   «It is a basic characteristic of the corporate   structure that the company alone,...
International LawElettronica Sicula :    the Elsi judgement does not deal with the    distinction between alleged infringe...
International LawAhmadou Sadio Diallo, (Republic of Guinea v. DRC):“Having reached the conclusion that Mr. Diallo was, bot...
=> both in domestic and in international law, acompany is distinguished from its shareholdersand rights and obligations of...
B) Under some circumstances, the measuretaken by the host State against the localcompany may also affect the rights of its...
-De jure infringement (law modifying companies   status)-De facto infringement (measure making useless the   holding of sh...
« [it] is recognized in international law that measures     taken by a state can interfere with property rights to     suc...
Investment Protection for Oil         Companies During Ongoing              Armed Conflicts                             Ju...
OverviewIntroductionI. Foreign Investor’s Rights of Protection and Security    A. Investment Treaty Provisions    B. Contr...
IntroductionSudanese soldiers celebrate their victory at the Heglig oilfield in Sudan, July 2011. Source: www.ekantipur.com
Introduction Armed Conflicts  Source: Data Aviation Week 2012Oil Reserves Source: Wikipedia updated until 2011
Introduction                         Effect of giant oil field discovery on               oil production, oil export, and ...
I. Foreign Investor’s Rights of    Protection and Security     Libyan rebels defend an oil refinery at Ras Lanuf. Source: ...
I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• Most Investment Treaties guarantee...
I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• Bilateral Investment Treaty (BIT) ...
I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• War Destruction Clause / National ...
I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• WDC/NT/Compensation/State Armed Fo...
I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• WDC/NT &MFN/Compensation/State Arm...
I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• Interpretation of Protection and S...
I. Foreign Investor’s Rights of Protection and SecurityB. Contractual Protection Provisions• Force Majeure Provisions:Test...
I. Foreign Investor’s Rights of Protection and SecurityB. Contractual Protection Provisions• Political Insurance          ...
II. Foreign Investor’s Compliance      During Armed Conflicts      Soilders from the Revolutionary Armed Forces of      Co...
II. Foreign Investor’s Compliance During Armed ConflictsCurrent Cases. Colombia: Internal GuerrillaIssues:KidnapsAttacks a...
II. Foreign Investor’s Compliance During Armed ConflictsCurrent Cases. Sudan and South Sudan WarIssues:Boundary       andt...
II. Foreign Investor’s Compliance During Armed Conflicts A. Risk of Violation to National and International Law• Today, a ...
II. Foreign Investor’s Compliance During Armed ConflictsA. Risk of Violation to National and International Law• Legal Risk...
II. Foreign Investor’s Compliance During Armed Conflicts A. Risk of Violation to National and International LawThe Complic...
II. Foreign Investor’s Compliance During Armed ConflictsA. Risk of Violation to National and International Law• Case Law:1...
II. Foreign Investor’s Compliance During Armed ConflictsB. Compliance with Oil Industry Best Practices• International Oil ...
II. Foreign Investor’s Compliance During Armed ConflictsB. Compliance with Oil Industry Best PracticesOperating in Armed C...
II. Foreign Investor’s Compliance During Armed ConflictsB. Compliance with Oil Industry Best PracticesExample of Guideline...
II. Foreign Investor’s Compliance During Armed ConflictsB. Compliance with Oil Industry Best PracticesThe three pillars of...
Conclusion• Bilateral and Multilateral Investment Treaties offer a framework to Oil  Companies to seek compensation for th...
REFERENCES1. Yu-Hsiang Lei and Guy Michaels, Do Giant Oilfield Discoveries Fuel InternationalArmed Conflicts?. London Scho...
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Credimi @ EI Source Book

  1. 1. Local Companies and Foreign Shareholders’ rights University of Dundee, CEPMLP June 15, 2012 Dr. Sébastien Manciaux University of Bourgogne / CREDIMI Research Center on Investment and International Trade Law
  2. 2. Foreign investments are often made through thecreation of local companies because foreigninvestors :-are legally compelled to create a joint venture with localpartners;-are legally compelled to create a local company for theimplementation of a successful tender;-may choose this solution as the best one for the legalorganization of their activities.
  3. 3. In International law, at least since the BarcelonaTraction case (ICJ, 1970), the difference betweena company and its shareholders is a real issue.
  4. 4. PlanI) Evolution of the legal context since theBarcelona Traction caseII) Is a foreign investor entitled to act against aState because of an injury allegedly caused tothe company in which he/she holds an interest?
  5. 5. I) Evolution of the legal context since the Barcelona Traction caseA) Barcelona Traction and Elsi casesB) Application of Article 25(2) (b) in fine of the ICSID ConventionC) Development of International Investment Treaties (BITs)
  6. 6. Barcelona TractionBelgium’s submission (Case concerning the Barcelona Traction, Lightand Power Company, Ltd (Belgium v. Spain), February 5, 1970, ICJ, at § 45) :“ a company represents purely a means of achievingthe economic purpose of its members, namely theshareholders, while they themselves constitute thereality behind it… there exists between a companyand its shareholders a relationship describable as acommunity of destiny ».
  7. 7. Barcelona TractionICJ decision (judgment at § 88) :“Where it is a question of an unlawful act committedagainst a company representing foreign capital,the general rule of international law authorizes thenational State of the company alone to make a claim”.
  8. 8. Barcelona TractionHowever, the Court suggested that internationallaw may provide for exceptions in which theshareholders’ national State claims may bebrought, especially :-where the rights of shareholders are directly affected ;-where the State of incorporation of the company isalso the State which has caused the injury.
  9. 9. Elettronica Sicula S.p.A.A decision that :-fits into one of the exception enunciated in BarcelonaTraction (because the State of incorporation, Italy, wasalso the State allegedly liable for the injury) ?-or superseded the Barcelona Traction rulingby acknowledging the “Community of destiny”between a company and its foreign shareholders ?
  10. 10. Article 25 (2)(b) in fine of the ICSID ConventionB) Application of Article 25(2) (b) in fine of theICSID ConventionArticle 25 (2)(b)in fine of the ICSID Conventionconsiders as National of another Contracting State“any juridical person which had the nationality of theContracting State party to the dispute … which, becauseof foreign control, the parties have agreed should betreated as a national of another Contracting State forthe purpose of this Convention”.
  11. 11. Article 25 (2)(b) in fine of the ICSID ConventionIn Amco Asia v. Indonesia, Soabi v. Senegal, Vacuum Salt v. Ghana or Aucovenv. Venezuela, two issues were principally at stake:-does foreign control within the meaning of Article25(2)(b) in fine require or imply any particularpercentage of share ownership ?-must the agreement with the host State to treat thelocal company as a national of another contractingState be express, or can it be tacit or implied?
  12. 12. International Investment TreatiesC) International Investment Treaties and the possibilitygiven to shareholders to have a direct recourse againstthe State in which they made their investment
  13. 13. International Investment Treaties« ARTICLE 1 DefinitionsFor the purposes of this Agreement:1.”Investment” means, … , any kind of asset invested orreinvested by an individual or a legal entity of one ContractingParty in the territory of the other Party, in conformity with thelaws and regulations of the latter.Within this general framework, it includes, in particular thoughnot exclusively:---b) shares of stock, interests or any other form of participation,including minority or indirect interest, in a company establishedin the territory of each Contracting Party».
  14. 14. II) Is a foreign investor entitled to act against aState because of an injury allegedly caused tothe company in which he/she holds an interest?
  15. 15. Impregilo v. Argentina (ICSID Case N° ARB/07/17)Argentina’s submission (Award dated June 21, 2011, at § 112) :« There is no doubt that a corporation is a legal entityseparate from its shareholders, with rights and liabilitiesentirely distinct from theirs. Likewise, it is well established thata shareholder does not have an individual cause of actionagainst third parties for wrongs or injuries to the corporationin which he or she holds stock, even if he or she suffers harmfrom the damage to the corporation, such as a reduction inthe value of his or her stock. The BIT does not modify the rulethat shareholders are not entitled to bring claims for damagessuffered by the company in which they have shares.»
  16. 16. Impregilo v. Argentina (ICSID Case N° ARB/07/17)Decision of the arbitral tribunal :« It follows from Article 1(1)(b) of the Argentina-ItalyBIT that Impregilo’s shares in AGBA were protectedunder the BIT. If AGBA was subjected to expropriationor unfair treatment with respect to its concession– an issue to be determined on the merits of the case –such action must also be considered to have affectedImpregilo’s rights as an investor, rights that wereprotected under the BIT ». (award at § 138)
  17. 17. A) Shareholders rights are distinct from company’s rights, both in municipal and international lawB) Under some circumstances, the measure taken by the host State against the local company may also affect the rights of its foreign shareholders
  18. 18. A) Shareholders rights are distinct from company’s rights, both in municipal and international law
  19. 19. Municipal LawsUnited States, Model Business Corporation ActSubject to the specific rights granted in corporation’s charter andby-laws, shareholders generally enjoy the following types ofrights pertaining to their ownership:- Voting rights on issues that affect the corporation as a whole ;- Rights to sell their shares ;- Rights to receive dividends as declared by the board ofdirectors of the corporation.
  20. 20. Municipal LawsUnder the US Model Business Corporation Actshareholders are normally not entitled to bring asuit on behalf of the company.But there is one exception: shareholders maybring suit as representatives of the corporationin a derivative action.
  21. 21. Municipal LawsThe same rights and the same limits may be found in :-United Kingdom, in the Companies Act 2006 (c 2006);-France, in the Civil code (Article 1832 and followings) and in the Commercial Code (Article L. 210-1 and followings);-etc.
  22. 22. International LawBarcelona Traction : « Separated from the company by numerous barriers, the shareholder cannot be identified with it. The concept and structure of the company are founded on and determined by a firm distinction between the separate entity of the company and that of the shareholder, each with a distinct set of rights. » (Judgement of 5 February 1970, at § 41 )
  23. 23. International LawBarcelona Traction : «It is a basic characteristic of the corporate structure that the company alone, through its directors or management acting in its name, can take action in respect of matters that are of a corporate character. … . Ordinarily, no individual shareholder can take legal steps, either in the name of the company or in his own name. » (Judgement of 5 February 1970, at § 41 )
  24. 24. International LawElettronica Sicula : the Elsi judgement does not deal with the distinction between alleged infringements of the companies’ rights and those concerning the shareholders rights.
  25. 25. International LawAhmadou Sadio Diallo, (Republic of Guinea v. DRC):“Having reached the conclusion that Mr. Diallo was, both asgérant and associé of the two companies, fully in chargeand in control of them, but that they nevertheless remainedlegal entities distinct from him, the Court will now addressthe various claims of Guinea pertaining to the direct rightsof Mr. Diallo as associé. In doing so, the Court will have toassess whether, under DRC law, the claimed rights areindeed direct rights of the associé, or whether they arerather rights or obligations of the companies” (Judgement of30 November 2010, at § 114 )
  26. 26. => both in domestic and in international law, acompany is distinguished from its shareholdersand rights and obligations of the company aredistinguished from the rights and obligations ofits shareholders
  27. 27. B) Under some circumstances, the measuretaken by the host State against the localcompany may also affect the rights of itsforeign shareholders
  28. 28. -De jure infringement (law modifying companies status)-De facto infringement (measure making useless the holding of shares)
  29. 29. « [it] is recognized in international law that measures taken by a state can interfere with property rights to such an extent that these rights are rendered so useless that they must be deemed to have been expropriated, even though the state does not purport to have expropriated them and the legal title to the property formally remains with the original owner». (Starrett Housing Corporation v. Islamic Republic of Iran, Interim award, December 19, 1983, 4 Iran-U.S. C.T.R. 122 at 154).
  30. 30. Investment Protection for Oil Companies During Ongoing Armed Conflicts Julian Cardenas-Garcia Doctoral Fellow University of Bourgogne - CREDIMI Research Center on Investment and International Trade Law Dijon, France Julian.cardenas@u-bourgogne.frPresented at the H2Oil Seminar Sessions for the EI Source Book. Dundee, June 15th, 2012
  31. 31. OverviewIntroductionI. Foreign Investor’s Rights of Protection and Security A. Investment Treaty Provisions B. Contractual Protection ProvisionsII. Foreign Investor’s Compliance during Armed Conflicts A. Risk of Violation to National and International Law B. Compliance with Oil Industry Best PracticesConclusion
  32. 32. IntroductionSudanese soldiers celebrate their victory at the Heglig oilfield in Sudan, July 2011. Source: www.ekantipur.com
  33. 33. Introduction Armed Conflicts Source: Data Aviation Week 2012Oil Reserves Source: Wikipedia updated until 2011
  34. 34. Introduction Effect of giant oil field discovery on oil production, oil export, and internal armed conflicts“…discovering giantoilfields increases theincidence of internalarmed conflict by about5-8 percentage points.This increase is drivenpredominantly bycountries with recenthistories of politicalviolence – those thatexperienced coups orarmed conflicts duringthe decade prior todiscovery“Source: Do Giant OilfieldDiscoveries Fuel InternalArmed Conflicts? LEI andMICHAELS, LSE, 2011.
  35. 35. I. Foreign Investor’s Rights of Protection and Security Libyan rebels defend an oil refinery at Ras Lanuf. Source: Reuters
  36. 36. I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• Most Investment Treaties guarantee full protection and security. This standard involves an obligation by the host State to spare the investment from violent actions. It also requires a measure of protection against violent interference by private parties, and rebel forces.• The standard of protection will vary depending the scope of the clause, but generally it includes a rule for compensation in case of destruction caused by acts and omissions of the State, its organs and agencies, or even damages caused by third parties.
  37. 37. I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• Bilateral Investment Treaty (BIT) Protection and Security Clause BIT Libya – Austria BIT Libyan – Luxemburg General Clause Type Exception Clause ARTICLE 3 ARTICLE 3 Treatment of Investments Protection of investments 1. Each Contracting Party shall accord to 2. Except for measures required to investments by investors of the other maintain public order, such investments Contracting Party fair and equitable shall enjoy continuous protection and treatment and full and constant protection security, i.e. excluding any unjustified or and security. discriminatory measure which could hinder, either in law or in practice, the management, maintenance, use, possession or liquidation thereof.
  38. 38. I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• War Destruction Clause / National Treatment/ Compensation BIT Libya - BelgiumARTICLE 7. Deprivation and limitation of ownership(4) Investors of one Contracting Party whose investments suffer lossesowing to war or other armed conflict, revolution, a state of nationalemergency or revolt in the territory of the other Contracting Party shall begranted by the latter Contracting Party a treatment, as regards restitution,indemnification, compensation or other settlement, at least equal to thatwhich the latter Contracting Party grants to the investors of the mostfavoured nation.
  39. 39. I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• WDC/NT/Compensation/State Armed Forces BIT Libya - AustriaARTICLE 5 Compensation for Losses(1) An investor of a Contracting Party who has suffered a loss relating to its investment in the territory ofthe other Contracting Party due to war or to other armed conflict, state of emergency, revolution,insurrection, civil disturbance, or any other similar event, or acts of God or force majeure, in the territoryof the latter Contracting Party, shall be accorded by the latter Contracting Party, as regards restitution,indemnification, compensation or any other settlement, treatment no less favourable than that which itaccords to its own investors or to investors of any third state, whichever is most favourable to the investor.(2) An investor of a Contracting Party who in any of the events referred to in paragraph (1) suffers lossresulting from: (a) requisitioning of its investment or part thereof by the forces or authorities of the otherContracting Party, or (b) destruction of its investment or part thereof by the forces or authorities of theother Contracting Party, restitution or compensation which in either case shall be prompt, adequate andeffective and, with respect to compensation, shall be in accordance with Article 4 (2) and (3).
  40. 40. I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• WDC/NT &MFN/Compensation/State Armed Forces/Necessity Energy Charter Treaty12. (1) Except where Article 13 applies, an Investor of any Contracting Party which suffers a loss withrespect to any Investment in the Area of another Contracting Party owing to war or other armed conflict,state of national emergency, civil disturbance, or other similar event in that Area, shall be accorded bythe latter Contracting Party, as regards restitution, indemnification, compensation or other settlement,treatment which is the most favourable of that which that Contracting Party accords to any other Investor,whether its own Investor, the Investor of any other Contracting Party, or the Investor of any third state.(2) Without prejudice to paragraph (1), an Investor of a Contracting Party which, in any of the situationsreferred to in that paragraph, suffers a loss in the Area of another Contracting Party resulting from (a)requisitioning of its Investment or part thereof by the latter’s forces or authorities; or (b) destruction ofits Investment or part thereof by the latter’s forces or authorities, which was not required by thenecessity of the situation, shall be accorded restitution or compensation which in either case shall beprompt, adequate and effective.24. (3) The provisions of this Treaty other than those referred to in paragraph (1) shall not be construedto prevent any Contracting Party from taking any measure which it considers necessary: (a) for theprotection of its essential security interests including those(i) relating to the supply of Energy Materialsand Products to a military establishment; or (ii) taken in time of war, armed conflict or other emergencyin international relations;
  41. 41. I. Foreign Investor’s Rights of Protection and SecurityA. Investment Treaty Provisions• Interpretation of Protection and Security clauses by Arbitral Tribunals1) State Responsibility for War Destruction in Investment Disputesa) ICSID Case: Asian Agricultural Products Limited (AAPL) v. Democratic Socialist Republic of SriLanka.• Strict or absolute liability under Protection Clause : Negative• Liability under duty to take reasonable measures of protection: Positive but depended on the circumstances.• Dissenting opinion: Failure to attribute harm to State forces.b) ICSID Case: American Manufacturing & Trading, Inc. v. Republic of Zaire• State liability / Reasonable measures/ Prevention of acts of violence: Positive.• State liability for acts committed by riots.Other Cases: Wena Hotels Limited v. Arab Republic of Egypt (ICSID), Amco Asia Corporationand Others v The Republic of Indonesia (ICSID); Rumeli v Kazakhstan, 2008 and DemocraticRepublic of Congo v. Uganda (I.C.J)
  42. 42. I. Foreign Investor’s Rights of Protection and SecurityB. Contractual Protection Provisions• Force Majeure Provisions:Test: (i) the event is beyond the control of the parties; (ii) the event is unforeseeable; and (iii)the event renders the performance of the contract impossible. Libyan EPSA Model 2004Article 22: “Force majeure shall include, without limitation: Acts of God ; insurrection ; riots ;war” and “any unforeseen circumstances and acts beyond the control of such Party whichrender the performance of its obligations impossible.”Other Considerations:• International Sanctions: Unilateral (U.S. Commercial Sanctions) and Multilateral (EU Sanctions and UN Security Council Sanctions)• Arbitral Jurisprudence: NOC v Libyan Sun Oil (ICC) Impossibility Test: Negative.• Municipal rules on force majeure if applicable.• UNIDROIT rules on force majeure and minimisation du dommage
  43. 43. I. Foreign Investor’s Rights of Protection and SecurityB. Contractual Protection Provisions• Political Insurance AIPN JOA Model 2012Article 4.7 Insurance Obtained by OperatorOperator shall procure and maintain for the Joint Account the types and amounts ofinsurance required by the Contract or the LawsComment: Political risk insurance policies may provide coverage for loss which is (typically)the direct and immediate result of acts of war or civil strife. The war and civil disturbanceclause of an insurance policy will often cover all losses, not only losses attributable to a state’sforces or authorities. Nevertheless, the clause may be limited to acts undertaken with theprimary intent of achieving a political objective, and may require that the loss continue for aparticular period. It is necessary to examine the particular policy to determine whether thereis a war and civil disturbance clause and, if so, to determine the scope of its coverage.
  44. 44. II. Foreign Investor’s Compliance During Armed Conflicts Soilders from the Revolutionary Armed Forces of Colombia (FARC)
  45. 45. II. Foreign Investor’s Compliance During Armed ConflictsCurrent Cases. Colombia: Internal GuerrillaIssues:KidnapsAttacks againstcivil populationAttacks againstoil facilitiesAttacks againstNational Army
  46. 46. II. Foreign Investor’s Compliance During Armed ConflictsCurrent Cases. Sudan and South Sudan WarIssues:Boundary andterritory disputesAttacks againstcivil populationsAttacks against oilfacilitiesWar South Sudan threads to cut main pipeline Conflict Zone. Source: BBC
  47. 47. II. Foreign Investor’s Compliance During Armed Conflicts A. Risk of Violation to National and International Law• Today, a vast majority of modern armed conflict are closely connected with economic interests of the belligerent parties over the control of extractive industries.• Oil Companies operating in conflicts zones may contribute to increase of tensions between parties of the conflict and their commercial relation with partner groups or entities engaged in armed conflicts may become indirectly involved in the commission of serious crimes, i.e. if foreign investors know that their resources are also used to provide armed groups with weapons subsequently used against civilians. The crimes committed may amount to international crimes such as war crimes, crimes against humanity or even genocide.• Despite personal liability has been well-established under International Criminal Law, Corporate Liability is still under discussion.
  48. 48. II. Foreign Investor’s Compliance During Armed ConflictsA. Risk of Violation to National and International Law• Legal Risk Environment to Operate in Armed Conflicts:• Weak National Juridical Systems• Weak National Rule of Law• International Criminal Tribunals Case Law on Business Man• International Humanitarian Law Rules for Armed Conflicts• Human Rights NGOs and Multinational and Compliance on Human Rights Rules.International Oil Companies Operations and Risk Complicity inViolation of National or International Law:• Hiring Private Security Forces or State Security Forces to Protect Oil Facilities• Finance State Entities or State Security Forces engaged in violations of HR
  49. 49. II. Foreign Investor’s Compliance During Armed Conflicts A. Risk of Violation to National and International LawThe Complicity Test:• When it actively assists, directly or indirectly, in human rights violationscommitted by others• When it is in a joint venture (or similar formal partnership) with a government,and could reasonably foresee (or subsequently obtains knowledge) that thegovernment is likely to commit abuses in carrying out its part of the agreement• When it benefits from human rights violations, even if it does not positively assistor cause the perpetrator to commit the violations• When it is silent or inactive in the face of human rights violationSource: International Council on Human Rights Policy, Executive Summary- Beyond Voluntarism: Humanrights and the developing international legal obligations of companies (Versoix, Switzerland: January 2002).
  50. 50. II. Foreign Investor’s Compliance During Armed ConflictsA. Risk of Violation to National and International Law• Case Law:1) ATS Case U.S.A.: Presbyterian Church of Sudan v. Talisman Energy, Inc. (2001-2010)2nd Circuit Court of Appeals: The court determined that Talisman could not be held liable foraiding and abetting violations of international law committed by the Sudanese governmentunless the plaintiffs could prove that Talisman purposefully aided the governments allegedhuman rights violations.2) Tadic Case, 1997. ICTY on Complicity Test:1. Requirement of Intent, which involves awareness of the act of participation coupledwith a conscious decision to participate by planning, instigating ordering, committing, orotherwise aiding and abetting in the commission of a crime.2. It should be prove that the participation in the conduct of the accused contributed tothe commission of the illegal act.3. The contribution, or assistance, needs “to have a substantial effect on the commissionof the crime.
  51. 51. II. Foreign Investor’s Compliance During Armed ConflictsB. Compliance with Oil Industry Best Practices• International Oil Companies operating in zones of conflict has been expanding and in an hyper-connected world they can no longer assume that their business activities will not be scrutinized.• Responsible companies have begun taking steps to protect themselves against the risk of being found complicit, and international understanding about the notion of complicity has grown.• In some cases, international law (notably human rights and humanitarian law) sanctions the worst abuses; but it is rarely able to replace the function of sound domestic legislation. The weaknesses of both domestic and international law explain the emergence of numerous ‘soft law’ and the need of the petroleum industry to identify its own Best Industry Practices, a sort rules to integrate the lex petrolea.
  52. 52. II. Foreign Investor’s Compliance During Armed ConflictsB. Compliance with Oil Industry Best PracticesOperating in Armed Conflict Environments, International OilCompanies Must:• Engage on the need for human rights due diligenceIn order to:• Operate responsibly in high risk environmentsInterest to Comply: Economic and Legal consequences, i.e. economiclosses and criminal prosecution. Further, Could a violation of HumanRights committed by an Oil Company or its Executives be alleged by aState as a defend argument in an Arbitration case?
  53. 53. II. Foreign Investor’s Compliance During Armed ConflictsB. Compliance with Oil Industry Best PracticesExample of Guidelines:OCDE Guidelines for Multinational Enterprises 2011“40…in situations of armed conflict enterprises should respect the standards ofinternational humanitarian law, which can help enterprises avoid the risks of causing orcontributing to adverse impacts when operating in such difficult environments.”UN Guiding Principles on Business and Human Rights 2011“12. The responsibility of business enterprises to respect human rights refers tointernationally recognized human rights – understood, at a minimum, as those expressed inthe International Bill of Human Rights and the principles concerning fundamental rights setout in the International labour Organization’s Declaration on Fundamental Principles andRights at Work.”
  54. 54. II. Foreign Investor’s Compliance During Armed ConflictsB. Compliance with Oil Industry Best PracticesThe three pillars of the Framework are:• The state duty to protect against human rights abuses by third parties, including business, through appropriate policies, regulation, and adjudication;• The corporate responsibility to respect human rights, that is, to act with due diligence to avoid infringing on the rights of others and address adverse impacts with which they are involved; and• The need for greater access by victims to effective remedy, both judicial and non- judicial.
  55. 55. Conclusion• Bilateral and Multilateral Investment Treaties offer a framework to Oil Companies to seek compensation for the deprivation or destruction of their facilities in cases of war, armed conflicts or even civil unrest, caused by state or not state actors. The international obligation of the State of protection and security over foreign investment has been already tested in different investment arbitrations showing the enforcement of the protection and security standards.• In a hyper-connected world, international oil companies operating in conflict zones will be scrutinized in their performance by others members of the petroleum industry and others international actors. Currently there is a higher standard of compliance in respect of Human Rights by Oil Companies.• Increase of the needs of due diligence by International Oil Companies to comply with international human rights standards and oil industry best practices in case or armed conflicts.• In the coming years, more independent institutions, such as the EI Source Book, will get involved in the identification of these standards.
  56. 56. REFERENCES1. Yu-Hsiang Lei and Guy Michaels, Do Giant Oilfield Discoveries Fuel InternationalArmed Conflicts?. London School of Economics, 2011.2. C.H. Schreuer, The Protection of Investments in Armed Conflicts. OGEL, June 2011.3. Freya Baetens, When international rules interact: International investment law and the lawof armed conflict, Investment Treaty News, April 7, 20114. Sebastien Manciaux, Investissements Etrangers et Arbitrage entre Etats et Ressortissantsd’Autres Etats, CREDIMI, Litec 2004.5. Salil Tripath, Business in Armed Conflicts Zones: How to avoid Complicity and Comply withInternational Standards, IHRB, Politorbis, No. 50-3, 2010 6. Guiding Principles on Business and Human Rights. United Nations, Office of the HighCommissioner for Human Rights, 2011.7. OCDE Guidelines for Multinational Enterprises, 2011.7. Company Codes of Conduct and International Standards. Part II, Oil & Gas. World Bank,2004.

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