Author: Amr Jomaa*
| Jurisdiction: Lebanon |
Topics: BITs Investment Disputes |
I. INTRODUCTION
On August 4, 2020, 2,500 tons of ammonium nitrate stored in the port of Beirut exploded, causing colossal damage to the capital of Lebanon.[1] The explosion killed 204 people, injured thousands, and destroyed countless houses in a 10-kilometer radius surrounding the blast.[2] The cost of repair to the infrastructure could reach $15 billion.[3] The ammonium nitrate was stored, alongside fireworks and bomb detonators in the port near residential areas.[4] Even though the Lebanese government knew of the danger the material posed, it failed to dispose of the chemicals or store them in a safe location.[5] In essence, a timebomb was stored in the port, in unsafe conditions, for six years.[6]
Lebanese officials’ negligent actions unquestionably expose them to criminal liability under domestic law.[7] Furthermore, negligence on the part of state officials could also expose the Lebanese government to investor-state disputes arising from the investment treaties Lebanon has ratified. Failing to grant full protection and security to investors will undoubtedly discourage potential and future investors from investing in Lebanon. Attracting fresh foreign capital will be impossible as long as Lebanon fails to prove that it can protect foreign investments. As victims of the explosion and their families await an unlikely court decision naming those responsible for their grievances, investor-state arbitration might be a more conducive avenue for accountability. Arbitral awards might illuminate the chain of events that led to the blast and expose those responsible, unless such proceedings are kept confidential.
II. LEBANON’S INTERNATIONAL OBLIGATIONS STEMMING FROM INVESTMENT TREATIES
Since 1994, Lebanon has ratified 52 bilateral investment treaties (BIT), 43 of which are currently in force.[8] Lebanon is also a state party to two multilateral investment treaties: the Arab Investment Agreement[9] and the Organisation of Islamic Cooperation (OIC).[10]
Most of Lebanon’s international investment agreements contain a full protection and security (FPS) clause.[11] These provisions have received relatively little attention by arbitral tribunals compared to the Fair and Equitable Treatment (FET) standard.[12] As a relic of the protection that customary international law awards to the safeguarding of aliens, these provisions were traditionally read as an assurance of protection granted to investors by host states against physical harm (including damage to property), i.e., protection of physical rights.[13] More recently, however, some tribunals have read the protection to extend to legal rights.
III. THE FULL PROTECTION AND SECURITY TRADITIONAL STANDARD: PHYSICAL SECURITY OF ALIENS
By ratifying investment treaties containing FPS provisions, Lebanon has agreed to guarantee full protection and security to foreign investors and their property in its territory. However, when it comes to the Beirut port explosion, the Lebanese government failed to take any appropriate measures to curb the known risks of storing ammonium nitrate in poor conditions. In all likelihood, Lebanon failed to exercise the standard of due diligence and vigilance it owed investors under its investment treaties.
Though some debate exists about the standard’s threshold, it is generally understood as one of due diligence.[14] In other words, when an investor alleges that a host state violated a treaty’s FPS provision, the state must demonstrate that it took all measures within its capacity to protect the investment.[15] The arbitral tribunal in Pantechniki v. Albaniaclarified that the standard is an obligation of means, assessed in relation to the host state’s ability and available resources.[16] In CME v. Czech Republic, the tribunal explained that a violation of the FPS provision might also arise from a state’s inaction.[17]
Furthermore, unless otherwise provided by treaty, the host state’s failure to protect other investors is irrelevant.[18]Therefore, a non-discrimination argument lacks merits when it merely asserts that the investor’s property damage was not the result of discrimination against the investor. For example, in 1991, crowds in Egypt attacked a hotel, evicting its guests and staff. In Wena Hotels v. Egypt, the arbitral tribunal found that Egypt violated the FPS provision of the UK-Egypt BIT, as the state was aware of the seizures but did nothing to prevent them and to protect the investment, even if the damage did not result from discrimination against the investor.[19] Similarly, the Lebanese government knew that dangerous materials were stored in the port and was aware of the risk the chemicals posed, but did nothing to prevent the foreseeable catastrophe. The damage likewise did not result from a discrimination against foreign investors as it targeted domestic and foreign persons alike. Nevertheless, failing to take action to protect foreign investors and their investments could constitute a violation of FPS protection contained in investment treaties ratified by Lebanon.
IV. EXTENDING THE FPS STANDARD, LEGAL SECURITY GRANTED TO FOREIGN INVESTORS
Lebanon’s mishandling of the crisis also extends to the aftermath of the explosion. Even though the President promised to promptly investigate the causes of the blast and name those responsible within five days, the government consistently obstructed any serious investigation.[20] The Government’s devotion to impunity since the blast and its failure to deploy the state’s prosecutorial function to safeguard investor rights could constitute a violation of the standard of “legal security.”
Since the explosion, Lebanese state officials consistently disrupted the investigations into the causes of the calamity.[21] These actions could be attributed to Lebanon under international law, as they emanate from persons representing the legislative and executive branches of Government.[22] On December 10, 2020, the Lebanese investigating judge charged the Prime Minister and three ministers with “negligence and carelessness.”[23] However, all four declared that they would not comply with the judge’s order to appear for questioning.[24] Furthermore, the Interior Minister stated that he would not “ask the security forces to arrest the accused ministers, even if warrants were issued.”[25]
A modern debate exists about extending the FPS standard to legal rights. Some experts believe that the standard includes guarantees “by the host state against infringements of the investor’s rights by the operation of laws and regulations of the host state; in other words, the investor’s legal security.”[26] The host state is considered to be obliged to deploy prosecutorial functions to ensure that the investor can exercise quiet enjoyment of its investments.[27] In the same vein, the arbitral tribunal in Suez v. Argentina recognized that the FPS standard “may also include an obligation to provide adequate mechanism and legal remedies for prosecuting the State organs or private parties responsible for the injury caused to the investor.”[28]
As Lebanese state officials continue to stonewall investigations, they weaken the chances of success of any action for reparation of damages incurred. Absent a credible investigation, judges will struggle to allocate responsibility for injuries suffered by investors. Lebanon is unquestionably failing to provide adequate mechanisms and legal remedies for prosecuting any party responsible for the blast.
V. CONCLUSION
As Lebanon battles a crippling financial crisis accompanied with the Covid-19 pandemic, it may also be exposed to costly investor-state arbitration disputes arising out of the government’s mishandling of public funds[29] and its actions in relation to the Beirut port blast. There is no quick fix to Lebanon’s multiple crises. More than half of the Lebanese population has fallen into poverty,[30] so the government should prioritize curbing the effects of the financial collapse. Protecting what little foreign investments are left in Lebanon is a herculean task. A good place to start, however, might be to show a commitment to accountability.
[1] Beirut explosion was one of the largest non-nuclear blasts in history, new analysis shows, Univ. of Sheffield (Oct. 5, 2020), https://www.sheffield.ac.uk/news/nr/beirut-explosion-what-happened-impact-force-analysis-investigation-engineering-blast-study-1.916971.
[2] Arwa Ibrahim, Beirut’s “homeless” after the deadly port blast, al Jazeera (Aug. 24, 2020), https://www.aljazeera.com/news/2020/08/24/beiruts-homeless-after-the-deadly-port-blast/.
[3] Leila Hatoum, Lebanon’s $15bn blast repair bill adds to economic misery, Arab news (Aug. 6, 2020), https://www.arabnews.com/node/1715336/business-economy.
[4] Samaneh Moafi, The Beirut Port Explosion, Forensic Architecture (Nov. 13, 2020), https://forensic-architecture.org/investigation/beirut-port-explosion.
[5] Beirut blast: Lebanese president was informed about dangerous stockpile nearly three weeks ago, euronews (Aug. 8, 2020), https://www.euronews.com/2020/08/07/beirut-blast-could-have-been-due-to-negligence-a-missile-or-a-bomb. See also Samia Nakhoul & Laila Bassam, Lebanon’s leaders were warned in July about explosives at port, Reuters (Aug. 10, 2020), https://www.reuters.com/article/us-lebanon-security-blast-documents-excl-idUSKCN2562L7.
[6] Larry Kaplow et al., Beirut Explosion Looks Like an Accident – And a Sign of the Country’s Collapse, NPR (Aug. 7, 2020), https://www.npr.org/2020/08/07/899776352/beiruts-explosion-looks-like-an-accident-and-a-sign-of-the-country-s-collapse.
[7] See e.g., Timour Azhari, Intelligence probe into Beirut explosion lays out liabilities, Al Jazeera, (Nov. 16, 2020), https://www.aljazeera.com/news/2020/11/16/beirut-blast-intelligence-probe-lays-out-liabilities (explaining that officials were charged with “willful negligence – a crime punishable by a maximum five-year prison sentence” under Lebanese law).
[8] International Investment Navigator, Lebanon, Investment Policy Hub https://investmentpolicy.unctad.org/international-investment-agreements/countries/116/lebanon (last visited Feb. 5, 2021).
[9] Unified Agreement for the Investment of Arab Capital in the Arab States, Nov. 26, 1980, https://investmentpolicy.unctad.org/international-investment-agreements/treaties/otheriia/3087/arab-investment-agreement-1980-.
[10] Member States, Organization of Islamic Cooperation https://www.oic-oci.org/states/?lan=en (last visited Feb. 5, 2021).
[11] See e.g., Agreement on the Promotion and Reciprocal Protection of Investments, Leb.-Switz., art. 3(1), Apr. 20, 2004 (“[i]nvestments and returns of investors of each contracting party . . . shall enjoy full protection and security in the territory of the other Contracting Party[.]”), https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/1898/download.
[12] David Collins, An Introduction to International Investment Law 138 (2016).
[13] Muthucumaraswamy Sornarajah, The Int’l Law on Foreign Investment 237 (2010); Asian Agric. Prods. Ltd v. Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final Award ¶ 72 (June 27 1990), https://www.italaw.com/sites/default/files/case-documents/ita1034.pdf.
[14] Campell McLachlan, International Investment Arbitration: Substantive Principles, ¶7.246 (2d ed. 2017).
[15] Nobel Ventures, Inc. v. Rom., ICSID Case No. ARB/01/11, Award ¶ 164 (Oct. 12, 2005), https://www.italaw.com/sites/default/files/case-documents/ita0565.pdf.
[16] Pantechniki S.A Contractors & Eng’rs v. Republic of Alb., ICSID Case No. ARB/07/21, Award, ¶ 164 (Jul. 30, 2009), https://www.italaw.com/sites/default/files/case-documents/ita0618.pdf.
[17] CME Czech Republic B.V. v. Czech Republic, Partial Award, ¶ 427 (UNCITRAL 2001), https://www.italaw.com/sites/default/files/case-documents/ita0178.pdf.
[18]Am. Mfg. & Trading, Inc. v. Republic of Zaire, ICSID Case No. ARB/93/1, Award ¶ 6.10 (Feb. 21, 2007), 36 I.L.M. 1534.
[19] Wena Hotels Ltd. v. Arab Republic of Egypt, Award, ICSID Case No. ARB/98/4, Award, ¶ 84 (Dec. 8, 2000), 41 I.L.M. 896.
[20] Lebanon: Flawed Domestic Blast Investigation, Human Rights Watch (Oct. 20, 2020), https://www.hrw.org/news/2020/10/22/lebanon-flawed-domestic-blast-investigation.
[21] Ben Hubbard et al., How a Massive Bomb Came Together in Beirut’s Port, N.Y. Times (Sep. 9, 2020), https://www.nytimes.com/interactive/2020/09/09/world/middleeast/beirut-explosion.html (detailing the events that led up to the explosion). See also Liz Sly et al., Fears Beirut port chemicals would be stolen may have contributed to blast, Wash. Post (Aug. 30, 2020), https://www.washingtonpost.com/world/middle_east/beirut-blasts-probe-ammonium-nitrate/2020/08/30/d3c20ad0-e3cd-11ea-82d8-5e55d47e90ca_story.html (explaining how officials ignored warnings of significant danger).
[22] See Draft Articles on Responsibility of States for Internationally Wrongful Acts, [2001] Y.B. Int’l L. Comm’n 26, U.N. Doc. A/CN.4/SER.A/2001/Add.1 (Part 2).
[23] Ben Hubbard, Lebanon Prime Minister Charged with Negligence in Beirut Blast, N.Y. Times (Dec. 10, 2020), https://www.nytimes.com/2020/12/10/world/middleeast/beirut-explosion-charges.html.
[24] Ben Habbard, Lebanese Officials Try to Limit Inquiry in Deadly Blast, N.Y. Times (Dec. 19, 2020), https://www.nytimes.com/2020/12/19/world/middleeast/beirut-explosion-investigation-arrests.html.
[25] Najia Houssari, Lebanese ministers refuse questioning in Beirut blast investigation, Arab News (Dec. 16, 2020), https://www.arabnews.com/node/1778491/middle-east.
[26] Collins, supra note 11, at 143.
[27] Id.
[28] Suez v. Argentine Republic, ICSID Case No. ARB/03/17, Decision on Liability ¶ 173 (Jul. 30, 2010), https://www.italaw.com/sites/default/files/case-documents/ita0826.pdf.
[29] Michael Farchakh, The Ongoing Lebanese Financial Crisis: Is there Potential for Investor-State Arbitration? Kluwer Arb. Blog (Mar. 8, 2020), http://arbitrationblog.kluwerarbitration.com/2020/03/08/the-ongoing-lebanese-financial-crisis-is-there-potential-for-investor-state-arbitration/.
[30] Over half of Lebanon ‘trapped in poverty’ even before blast: UN, Al Arabiya (Aug. 19, 2020), https://english.alarabiya.net/business/economy/2020/08/19/Over-half-of-Lebanon-trapped-in-poverty-even-before-blast-UN.
*Amr Jomaa is an LL.M. candidate at Columbia Law School graduating in May 2021. Amr has over three years of experience working in mediation and dispute resolution in the Middle East.