Angel Samuel Seda and Others v. Republic of Colombia, Award, ICSID Case No. ARB/19/6

Background and claims

Angel Samuel Seda and others (claimants) are a group of American investors who invested in a luxury real estate development project (Meritage Project) in Medellín, Colombia (Meritage Property). Although the Anti-Money Laundering and Asset Forfeiture Unit at the Attorney General’s Office of Colombia had affirmed that the Meritage Property was unencumbered, the claimants faced legal issues. The presumably previous owner of the property, Iván López Vanegas (a convicted drug trafficker), alleged that he had been extorted by local cartels to forfeit the Meritage Property. Consequently, the Attorney General’s Office of Colombia attached the Meritage Property as a precautionary measure under Colombian Asset Forfeiture Law. The Attorney General’s Office of Colombia imposed such precautionary measures due to a reasonable inference of the “illicit origins” of the Meritage Property based on the evidence gathered during the investigation that the property had been subject to a series of irregular property transfers, and the stated purpose was to prevent further property transfers and unrelated parties (unit buyers) from continuing to purchase lots.

Because the court proceedings of Angel Samuel Seda’s challenge of this action are still pending, claimants initiated arbitral proceedings under the United States–Colombia Trade Promotion Agreement (TPA or Treaty), claiming that the essential security interest exception (ESI) was not applicable in this case and that Colombia committed several breaches of the TPA entitling claimants to compensation and moral damages. As Colombia had only invoked the ESI in its rejoinder, the tribunal first had to deal with the claimants’ objection that this “new defense” was belated and hence compromised the principles of fairness and equality of arms between the parties and should, therefore, be dismissed on procedural grounds. Claimants argued that Colombia should have already identified the ESI at stake when implementing the contested measures. In addition, Colombia used the ESI as a jurisdictional objection.

Tribunal analysis concerning the ESI provision under Article 22.2(b) of the TPA

In analyzing the ESI provision under Article 22.2(b) of the TPA, the tribunal considered five main aspects.

1. Timing of the invocation of Article 22.2(b) of the TPA by Colombia

The tribunal concluded that the invocation of Article 22.2(b) of the TPA by Colombia was not untimely for three reasons (para. 615):

First, the tribunal found that Article 22.2(b) of the TPA does not contain any reference to a point in time at which it must be invoked. The plain reading of Article 22.2(b) of the TPA does not align with the claimants’ suggestion that Colombia ought to have identified its ESI as such in connection with implementing the measures against claimants (para. 616). In that sense, claimants’ reference to the prospective invocation of the denial of benefits clauses by Colombia is inapposite (para. 617). Second, the tribunal was entitled to consider its jurisdiction at any time during the proceedings pursuant to Arbitration Rule 41(2) and ICSID Arbitration Rule 26(3) (para. 618). Third, the tribunal considered that with several rounds of submissions and a separate third hearing held in April 2023, both parties’ right to be heard was preserved (para. 619).

2. Article 22.2(b) of the TPA

Colombia provided three alternative cases concerning Article 22.2(b) of the TPA with three distinct legal outcomes. Colombia’s primary case was that the ESI provision is non-justiciable, i.e., as soon as it is invoked, the tribunal cannot conduct any further inquiry into its invocation or the effects thereof and must dismiss the case. Alternatively, Colombia argued on the proposition that the ESI provision deprives the tribunal of its jurisdiction to hear the claims stemming from the measures covered by the ESI provision. Lastly, the tribunal may review the invocation of the ESI provision by Colombia, but that review must be limited in scope, given that the elements of the exception are self-judging.

In contrast, the claimants’ primary case has been that Article 22.2(b) of the TPA has no effect on either the tribunal’s power or its jurisdiction or Colombia’s liability. The basis for this argument was that the ESI provision only allows the states to maintain the measure introduced for the protection of their ESI.

The tribunal disagreed with Colombia’s primary interpretation of Article 22.2(b) of the TPA as they stated that even if the ESI provision is non-justiciable, the tribunal could only determine that through interpreting said article (para. 627). Therefore, the tribunal based its analysis primarily on Articles 31 and 32 of the VCLT, as such rules rendered the TPA operable.

3. Interpretation of Article 22.2(b) of the TPA

3.1 Interpretation according to Article 31 of the VCLT

First, the tribunal concluded that the ESI provision is a self-judging exception to the TPA, which allows a contracting state to invoke an interest that it judges to be critical for its security as a justification for the measures—which may otherwise be in violation of the substantive provisions of the TPA—that it considers necessary to further that interest, with some connection between the former and the latter (para. 662).

Second, the tribunal concluded that the object and purpose of the TPA serve as a reflection of the balanced approach between the sovereign interests of the contracting states and the protection of investors’ rights that the TPA—and, consequently, the tribunal—sought to strike (para. 667).

Third, the tribunal considered that in the context of the TPA the ESI provision should be understood as an exception to the coverage of the treaty that is placed hierarchically above the provisions regulating investors’ substantive rights and dispute resolution provisions of Chapter 10 of the TPA (para. 672).

Fourth, the tribunal rejected claimants’ contention that the ESI provision constitutes an “affirmative defense against liability” (para. 682). Unlike Article 25 of the ILC Articles, it does not “presuppose[] that an act has been committed that is incompatible with the state’s international obligations and is therefore “wrongful.” Instead, it precludes the measures from being incompatible with the treaty in the first place.

Additionally, the tribunal found that Article XXI of the GATT operates in the same manner, i.e., without establishing the “wrongful” nature of the underlying state measure but rather treating such measures as not incompatible with the state’s international obligations in the first place (para. 685).

Fifth, Colombia and the United States (non-disputing party) argued that the congruence of their positions in this arbitration vis-à-vis the nature and the effects of the ESI provision should be decisive for the tribunal’s interpretation. However, the tribunal was not convinced that the congruence of the contracting parties’ positions in this arbitration, taken individually or together, can override the ordinary meaning of the ESI Provision (para. 693).

3.2. Interpretation according to Article 32 of the VCLT

The tribunal considered that the wording of the ESI provision in the TPA builds upon the U.S. treaty practice that has evolved following the ICJ judgements in Nicaragua and Oil Platforms cases. The tribunal found that Article 22.2(b) of the TPA stands in contrast with the language of ESI interpreted by the ICJ in Nicaragua and should be interpreted a contrario as a self-judging provision (para. 704). Thus, the tribunal considered the travaux préparatoires of the TPA together with the U.S. treaty practice conclusive as to the position of one of the two contracting states at best (para. 708). The tribunal’s analysis supported the interpretation of the ESI provision under Article 31 of the VCLT (para. 709).

3.3. Practical effect of the interpretation of Article 22.2(b) of the TPA

The tribunal found that Article 22.2(b) is not a non-justiciable provision, as the tribunal considered that said article falls short of the express language exempting the measures taken under the ESI provision from any review by a tribunal upon invocation (para. 725). The tribunal was also not convinced that Article 22.2(b) operates to exclude a tribunal’s jurisdiction, as Colombia argued that the ESI provision deprived the tribunal of its jurisdiction relying on the ordinary meaning of Article 22.2(b) of the TPA—as a self-judging provision—and the TPA’s travaux préparatoires (para. 727).

In addition, the tribunal found that Article 22.2(b) of the TPA is not merely an exception to the remedies regime under the TPA. If invoked properly, it exempts the measures taken by Colombia from the scope of the TPA, and the tribunal’s inquiry stops short of establishing the wrongfulness of Colombia’s actions (if any)—let alone awarding any compensation (para. 741). Moreover, the tribunal decided to conduct a limited review as to whether Colombia invoked the ESI provision in good faith (para. 756).

4. Application of Article 22.2(b) of the TPA

The tribunal was convinced that the interests invoked by Colombia “to fight against organized crime, money laundering, and drug trafficking, thus ultimately protecting its population from the threats of paramilitary and marginalized groups that have been ravaging the country for years” directly relate to public safety, national security, and socio-economic stability of Colombia and thus constitute ESI (para. 765).

Furthermore, the focus of the tribunal’s inquiry was Colombia’s good faith in invoking the ESI provision under the TPA. However, the question as to whether claimants acquired the property in good faith under the Asset Forfeiture Law was part of the merits and was disputed in the present proceedings. Particularly, it is currently pending before the Colombian courts in order to determine claimants’ compliance with the provisions of Colombian national law. As a result, the tribunal found no basis to conclude that Colombia identified its ESI for the purposes of the present proceedings in bad faith (para. 782).

Moreover, the tribunal concluded that their inquiry must stop as the tribunal observed that the submitted evidence, together with the undisputed facts as to the chain of title of the Meritage Lot, constitute a sufficiently plausible nexus between the measures taken by Colombia against Meritage Property and the stated ESI of fighting drug trafficking (para. 794). Hence, the tribunal considered that the ESI provision was invoked by Colombia in good faith. Consequently, the measures taken by Colombia are excluded from the scope of the TPA coverage (para. 795).

5. MFN

Claimants argued that the TPA’s MFN clause, contained in Article 10.4, can serve to import a more favourable treatment of the investors under the Colombia–Swiss BIT, which does not contain ESI similar to that of the TPA. However, the tribunal found that Article 10.4 of the TPA cannot operate to exclude the effects of Article 22.2(b) of the TPA (para. 799).

Damage and costs

The total costs of the arbitration amounted to USD 1,934,438.64. The tribunal ordered the parties to bear the costs of the arbitration in equal shares, to bear their own legal expenses and other costs incurred in the arbitration (para. 820). Since the costs have been paid out of the advances made by the parties in equal parts, each party’s share of the costs of arbitration amounted to USD 967,219.32.

Tribunal’s decision

The tribunal found that Colombia invoked the ESI under Article 22.2(b) of the TPA in accordance with the treaty and, thus, said exception applies. Consequently, the tribunal had no mandate to review further objections to its jurisdiction, dismissed claimants’ claims (a) through (d), and dismissed all other claims and requests raised by the parties (para. 823).

Note

The tribunal consisted of Klaus Sachs (president of the tribunal), Charles Poncet (appointed by the claimants), and Hugo Perezcano Díaz (appointed by the respondent).

Author

Angel Risha is a former international finance and development fellow at IISD and an LLM graduate from the New York University School of Law.