Law Update: CMC v. Mozambique

The International Centre for Settlement of Investment Disputes tribunal rendered its award in a dispute between three Italian investors and the Republic of Mozambique.

By: James Drueckhammer, staff member

On October 24, the International Centre for Settlement of Investment Disputes (ICSID) tribunal rendered its award in a dispute between three Italian investors and the Republic of Mozambique. Investors from the Italian construction and cement group CMC Muratori Cementisti Di Ravenna (“CMC”) entered into a €26 million contract with Mozambique’s National Road Administration to repair a major highway. This contract was financed through the European Development Fund and governed by stipulations from the 1998 Bilateral Investment Treaty (“BIT”) between Italy and Mozambique.  After unforeseen complications arose, CMC filed suit alleging that the Republic wrongly refused to pay an €8.2 million settlement to address unexpected costs. Mozambique claimed that the ICSID lacked jurisdiction, due to the European Court of Justice’s landmark ruling in Slovak Republic v. Achmea BV. CMC prevailed in the contest over jurisdiction, but lost on the merits. Nevertheless, this ruling significantly advances international arbitration jurisprudence in its application of Achmea to BITs.

Achmea, decided on March 6, 2018, challenged the jurisdiction of investment dispute tribunals in cases governed by BITs. In this case, regarding a dispute between Dutch health insurer Achmea and the Slovakian government, the European Court of Justice ruled that the arbitration clause contained in Article 8 of the 1991 Netherlands-Slovakia BIT was incompatible with EU Law and therefore unenforceable. Because the BIT’s arbitration clause placed disputes involving the interpretation of EU law outside of the legal system established by EU Member States, the Court ruled that a previous arbitral award in favor of Achmea was invalid because it had improperly ousted EU courts of jurisdiction. In order to be compatible with EU law, then, an arbitral award involving the application of EU law must be subject to review by the court of an EU Member State. By January 2019, EU Member States agreed to terminate their intra-EU BITs in recognition of the Achmea ruling. A majority of Member States agreed that this ruling was also applicable to arbitration provisions of the Energy Charter Treaty, which includes signatories outside of the EU.

In its challenge to ICSID jurisdiction, Mozambique argued that the recognition of Achmea’s applicability to the Energy Charter Treaty demonstrates that the holding is not limited to intra-EU BITs. The ICSID rejected this argument, both finding that Achmea only applied to Energy Charter Treaty arbitration between EU Member States and preventing its application outside of EU disputes. This ruling kept intact nations’ capacities to commit themselves to arbitration tribunals and facilitate an orderly disposition of investment disputes.

Mozambique then raised the issue of the Cotonou Agreement, a treaty between the EU and the African, Caribbean, and Pacific Group of States to pursue sustainable development and the eradication of poverty. Italy and Mozambique are both signatories to the agreement, which was signed in 2000 and revised as recently as 2010.  Adjudication of a dispute involving European investment in the infrastructure of an African nation involves the interpretation and application of Italy’s obligations under the Convention, which have been codified as part of EU law. However, the ICSID declined to hold that a treaty’s placement within EU law makes dispute settlement according to provisions of the treaty an interpretation or application of EU law itself. The impact of this ruling is largely confined—while a contrary holding could have stripped arbitration tribunals of jurisdiction in every instance involving EU investment, the ICSID instead distinguished Achmea and preserved the viability of arbitration agreements signed by EU Member States.

The ICSID then ruled against CMC on the merits of the dispute. The tribunal observed that CMC’s claims were predicated on an alleged settlement agreement created through an oral contract. During CMC’s settlement negotiations with Mozambique, the Italian investors had proposed a settlement amount of €8.2 million that was never accepted. The tribunal held that Mozambique’s refusal to pay the alleged settlement amount therefore never breached the “just and fair” standard of treatment required by the BIT. A tribunal ruling that began with a pronouncement preserving the authority of arbitration tribunals to hear investment disputes involving EU Member States ended in a routine contract law dismissal.

The merits of the case were not particularly significant to investment arbitration jurisprudence. However, the jurisdictional element attracted the attention of arbitration experts. A contrary ruling could have limited EU nations’ capacity to place arbitration clauses in their investment treaties. A ruling in favor of Mozambique’s jurisdictional challenge would effectively expand Achmea and place the enforceability of investment arbitration agreements in doubt.

James Drueckhammer is a second-year student at Columbia Law School and a Staff member of the Columbia Journal of Transnational Law. James graduated from Washington University in St Louis in 2018 with a B.A. in History.