Imagine a U.S.-based olive oil company that has established a subsidiary in Croatia — a Mediterranean country ideal for growing olives and processing their oil — for its supply and processing needs. Olive oil consumption has boomed in the U.S. in recent years, and Croatia can offer less expensive resources than Spain and Italy, its olive-rich competitors. Sounds like a solid investment decision.

But what will the U.S. company do if it encounters legal problems with the Croatian government? What if — to protect domestic growers during a poor harvest — the government imposes an unfair tax or operating restrictions on foreign investors? What if it decides to nationalize all olive groves or seize all exports due to allegations of fraudulently labeled extra-virgin olive oil? Is the U.S. company forced to challenge such measures before Croatian courts?

Fortunately, U.S. companies and individuals that own investments in Croatia have a better, and arguably more neutral, option. Under the terms of the bilateral investment treaty between the U.S. and Croatia, U.S. investors operating in Croatia can bring their disputes to the International Centre for Settlement of Investment Disputes (or “ICSID”), a branch of the World Bank in Washington, D.C.¹

That treaty — like the hundreds of other investment treaties in force today — offers broad protections to U.S. investors in Croatia. The substantive protections require host states to:

• “at all times accord to covered investments fair and equitable treatment and full protection and security”
• refrain from “in any way impair[ing] by unreasonable and discriminatory measures the management, conduct, operation, and sale or other disposition of covered investments”
• “accord treatment no less favorable than that it accords, in like situations, to investments in its territory of its own nationals or companies (hereinafter ‘national treatment’) or to investments in its territory of nationals or companies of a third country (hereinafter ‘most favored nation treatment’), whichever is most favorable.”

The treaty contains a dispute resolution mechanism whereby, after a three-month settlement period, a harmed investor can bring an investment dispute to international arbitration at ICSID, which allows the dispute to be decided by a three-member arbitral tribunal. Typically in such disputes, the U.S. investor would appoint one arbitrator, Croatia would appoint a second arbitrator, and the parties together would agree on the third arbitrator to serve as the tribunal president and tie-breaking voice. The decisions are binding and enforceable in more than 170 countries. There are no appeals, but only very limited grounds on which an award can be annulled (in whole or in part). All told, it is a much better option than navigating a foreign court system, with foreign lawyers, in a foreign language.

Surprisingly, although there are hundreds of cases filed every year and firms like King & Spalding maintain specialized teams to handle these cases, few multinational companies are aware of this option. Don’t be one of them.

And what if your company’s operations are not in Croatia, but another foreign country? Is there a similar investment treaty that can protect your business and give you this opportunity to avoid foreign courts?

Most likely. As mentioned, there are hundreds of investment treaties in force today. If one does not already cover your business operations, it may be possible to structure your business so that you gain the protection of one of those investment treaties, so that your operations are protected if and when problems arise.

For more information on ensuring that your business operations are protected by one or more of these treaties, contact us or be on the lookout for the next article, “Restructuring Investments to Obtain Treaty Protection,” in the next edition of the Gazette.

¹ Treaty between the U.S. and Croatia Concerning the Encouragement and Reciprocal Protection of Investments, available at http://investmentpolicyhub.unctad.org/Download/TreatyFile/897. Note also that ICSID maintains hearing facilities in Paris, France, for parties needing the convenience of a European venue.