Nicaragua Investment Protections

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1. INTERNATIONAL INVESTMENT PROTECTION FRAMEWORK

The ICSID Convention was signed by Nicaragua on 4 February 1994; ratified by the National Assembly on March 20, 1995; and came into force on April 19, 1995.[1]

The Government of Nicaragua has signed at total 19 bilateral investment treaties ("BITs") with the following countries: Germany[2], Argentina[3], Belgium and Luxembourg[4], Chile[5], Czech Republic[6], Denmark[7], Ecuador[8], El Salvador[9], Finland[10], France[11], Italy[12], Republic of Korea[13], Netherlands[14], Spain[15], Sweden[16], Switzerland[17], Taiwan[18], United Kingdom[19], and United States of America[20]. The BIT with Ecuador was renounced in 2008 by Ecuador and the BIT with Italy has not been ratified by the National Assembly and thus has not yet entered into force. The remaining BITs, however, extend investment protections to covered investors as outlined in each respective BIT.

Nicaragua is also party to bilateral trade agreements, including with Mexico[21] and Taiwan[22], and a notable multilateral trade treaty known as the Dominican Republic-Central American Free Trade Agreement (“DR-CAFTA”)[23]. These treaties all have chapters specifically dedicated to investment.

The DR-CAFTA establishes reciprocal investor protections under Chapter X of the agreement, which creates traditional investor protections, such as most favored nation, national treatment, and sets a minimum level of treatment that "[e]ach Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security."[24] An Annex of the treaty further defines customary international law as "general and consistent practice of States that they follow from a sense of legal obligation."[25] The inclusion of customary international law in the treaty is notable for Nicaragua in that it is the first express reference to international common law in the Nicaraguan legal system.

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2. INVESTMENT DISPUTES PRECEDENTS & TRENDS

International Arbitration is the preferred dispute resolution mechanism provided in the BITs executed by Nicaragua, with arbitration at ICSID or under the UNCITRAL rules being the most common.

In addition to arbitration as provided in Nicaragua's BITs, arbitration clauses are increasingly being used in agreements executed between investors and the Nicaraguan State. Recent cases have provided for arbitration under the UNCITRAL rules and arbitration at the International Chamber of Commerce (ICC). The Republic of Nicaragua v. Standard Fruit was conducted under UNCITRAL rules, while Neptune Mining Company v. Republic of Nicaragua was conducted in Venezuela under UNCITRAL rules. Empresa Nicaraguense de Alimentos Básicos (ENABAS) v. Cargill involved the Nicaragua State suing a US multinational in an arbitration under ICC rule. Nicaragua v. Empresa Nicaraguense de Acueductos y Alcanarillados (ENACAL) was conducted before arbitral tribunal at the International Chamber of Commerce. All of these proceedings and those discussed in the next section were concluded via settlement prior to the arbitral tribunals issuing awards.

[Examples of Nicaraguan cases before ICSID include] Shell v. Nicaragua[26] and Nicaragua v. Grupo Barceló[27]. Only one of the two was registered, and both settled at early stages. Shell v. Nicaragua was the first .. case … brought by an investor against Nicaragua before ICSID. Shell brought its case in 2006 under the Netherlands-Nicaragua BIT, alleging expropriation of intellectual property. The dispute arose out of Nicaragua's seizure of trademarks of the investors after a local court issued a US$489 million judgment against Shell Oil in a class action suit by former banana workers. The plaintiffs in the local case alleged damages arising from banana pesticides allegedly supplied by Shell Oil. While a lower Nicaraguan court had ordered the seizure of the trademarks to enforce the award that decision was reversed on appeal. In 2007, the investors were satisfied that their rights were reinstated and the ICSID arbitration was discontinued prior to constitution of the tribunal.

Nicaragua v. Grupo Barceló is unique in its procedural posture in that it is one of the rare cases where a State has brought a claim against an investor. Grupo Barceló purchased a resort complex from the Government in the early 1990s, pursuant to a privatization agreement. In April 2008, the General Prosecutor of the Republic of Nicaragua sued Barceló, demanding the rescission of the purchase-sale agreement and the return of the Montelimar hotel complex, claiming that Barceló had failed to comply with the obligations and commitments emanating from the agreement. In the alternative, the Government sought US$30 million. On June 24, 2008, the government notified Barceló and invoked the Investment Protection and Mutual Protection Agreement with the intention of submitting to arbitration before ICSID.

Before the claim was registered by ICSID, the negotiation process led to an agreement entitled, "Frame Agreement between the Government of Nicaragua and Grupo Barceló," which was signed on June 1, 2009. The settlement agreement included the following provisions:[28]

• The Government of Nicaragua recognizes that the purchase of the hotel complex was lawful and no obligations or non-compliances exist on the part of Grupo Barceló.
• The Government will discontinue the judicial and arbitral actions initiated given that misunderstandings have been overcome.
• Both parties will cooperate for the development of tourism in the zone.
• A State-Barceló joint investment project will be created, whereby Grupo Barceló will contribute the landing strip and buildings that currently exist at the Hotel Montelimar resort.
• To that end, a mixed-capital corporation will be constituted with the State as the majority shareholder.

Interestingly, the settlement agreement provided that "All disputes, controversies and claims arising from this frame agreement in relation thereto or compliance thereof shall be resolved through arbitration before the International Chamber of Commerce,” as opposed to ICSID as was provided in the original agreement.

[1] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (Washington, D.C., 18 Mar. 1965), entered into force 14 Oct. 1966 ("ICSID Convention").

[2] Agreement between the Republic of Nicaragua and the Federal Republic of Germany on the Reciprocal Promotion and Protection of Investments (Managua, 6 May 1996) entered into force 19 Jan. 2001 ("Nicaragua-Germany BIT").

[3] Agreement between the Government of the Republic of Argentina and the Government of the Republic of Nicaragua on the Reciprocal Promotion and Protection of Investments (Buenos Aires, 10 Aug. 1998) entered into force 1 Feb. 2001 ("Nicaragua-Argentina BIT").

[4] Agreement between the Belgo-Luxembourg Economic Union and the Republic of Nicaragua on the Reciprocal Promotion and Protection of Investments (Luxembourg, 27 May 2005) entered into force 18 Jan. 2007.

[5] Agreement between the Government of the Republic of Chile and the Government of the Republic of Nicaragua on the Reciprocal Promotion and Protection of Investments (Santiago, 8 Nov. 1996) entered into force 24 Nov. 2001 ("Nicaragua-Chile BIT").

[6] Agreement between the Republic of Nicaragua and the Czech Republic on the Reciprocal Promotion and Protection of Investments (Managua, 2 Apr. 2002) entered into force 24 Feb. 2004 ("Nicaragua-Czech Republic BIT").

[7] Agreement between the Government of the Kingdom of Denmark and the Government of the Republic of Nicaragua on the Promotion and Reciprocal Protection of Investments (Copenhagen, 12 Mar. 1995) entered into force 19 Jan. 2001 ("Nicaragua–Denmark BIT").

[8] Agreement between the Government of the Republic of Nicaragua and the Government of the Republic of Ecuador on the Reciprocal Promotion and Protection of Investments (Managua, 2 Jun. 2000) entered into force 8 Sep. 2002, denounced by Ecuador Oct. 2008.

[9] Agreement on the Reciprocal Promotion and Protection of Investments between the Government of the Republic of Nicaragua and the Government of the Republic of El Salvador (Managua, 23 Jan. 1999) entered into force 8 Jul. 2000.

[10] Agreement between the Government of the Republic of Finland and the Government of the Republic of Nicaragua on the Promotion and Protection of Investments (Managua, 17 Sep. 2003) entered into force 18 Jan. 2007.

[11] Agreement between the Government of the Republic of France and the Government of the Republic of Nicaragua on the Reciprocal Promotion and Protection of Investments (Managua, 13 Feb. 1998) entered into force 31 Mar. 2000.

[12] Agreement between the Government of the Republic of Nicaragua and the Government of the Italian Republic on the Reciprocal Promotion and Protection of Investments (Managua, 20 Apr. 2004) not in force.

[13] Agreement between the Government of the Republic of Korea and the Government of the Republic of Nicaragua for the Promotion and Protection of Investments (Seoul, 15 May 2000) entered into force 22 Jun. 2001 ("Nicaragua-Korea BIT").

[14] Agreement on encouragement and reciprocal protection of investments between the Republic of Nicaragua and the Kingdom of the Netherlands (Managua, 28 Aug. 2000) entered into force 16 Jun. 2003 ("Netherlands-Nicaragua BIT").

[15] Agreement on the Reciprocal Promotion and Protection of Investments between the Kingdom of Spain and the Republic of Nicaragua (Managua, 16 Mar. 1994) entered into force 28 Mar. 1995.

[16] Agreement between the Government of the Republic of Nicaragua and the Government of the Kingdom of Sweden on the Reciprocal Promotion and Protection of Investments (Stockholm, 27 May 1999) entered into force 17 Nov. 1999.

[17] Agreement between the Swiss Confederation and the Republic of Nicaragua on the Promotion and Reciprocal Protection of Investments (Managua, 30 Nov. 1998) entered into force 2 May 2000 ("Nicaragua-Switzerland BIT").

[18] Agreement between Taiwan Province of China and the Republic of Nicaragua on the Promotion and Reciprocal Protection of Investments (Managua 29 Jul. 1992) entered into force 8 Jan. 1993.

[19] Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Nicaragua for the Promotion and Protection of Investments (Managua, 4 Dec. 1996) entered into force 21 Dec. 2001.

[20] Treaty between the Government of the United States of America and the Government of the Republic of Nicaragua Concerning the Encouragement and Reciprocal Protection of Investment (Denver, 1 Jul. 1995) entered into force 23 Aug. 1996. CAFTA-DR has substituted this investment agreement.

[21] Free Trade Agreement Between the Government of the United Mexican States and the Government of the Republic of Nicaragua (Managua, 18 Dec. 1997) entered into force 1 Jul. 1998 (Nicaragua-Mexico FTA)

[22] Free Trade Agreement Between the Republic of China (Taiwan) and the Republic of Nicaragua (Taipei City, 16 Jun. 2006) entered into force 1 Jan. 2008 ("Taiwan FTA").

[23] Dominican Republic-Central America-United States Free Trade Agreement (Washington, D.C., 5 Aug. 2004) entered into force 1 Jan. 2009 ("DR-CAFTA").

[24] DR-CAFTA, Art. 10.5.

[25] DR-CAFTA, Annex 10-B.

[26] Shell Brands International AG and Shell Nicaragua S.A. v. Republic of Nicaragua ("Shell v. Nicaragua"), ICSID Case No. ARB/06/14, discontinued 12 Mar. 2007.

[27] This case was never registered by ICSID.

[28] Information under the custody of the authors.