Honduras Denounces the ICSID Convention; Investors with Potential Claims Should Quickly Analyze Their Options
Honduras denounced the ICSID Convention via a written notice received by the World Bank on February 24, 2024. Under Article 71 of the ICSID Convention, such denunciations take effect six months from the date of receipt of the notice. Thus, Honduras’s notice will take effect on August 25, 2024. After that date, ICSID arbitration may no longer be available to some investors to resolve their disputes with Honduras. As a result, investors should quickly assess whether they can perfect consent to ICSID jurisdiction or determine what arbitration alternatives for investment protection may be available.
Background
Honduras joins Bolivia (which denounced the ICSID Convention in 2007), Ecuador1 (which denounced it in 2009), and Venezuela (which denounced it in 2012). Honduras’s decision to denounce the ICSID Convention comes in the wake of reports that it threatened to denounce the ICSID Convention in August 2023 following a seventh case registered by ICSID against the state in that year alone. Honduras has argued that it had made a reservation to the ICSID Convention requiring the exhaustion of local remedies.
Pending Arbitrations
Currently, Honduras faces 10 pending ICSID arbitrations, nine of which were registered in 2023. Under the ICSID Convention, Honduras has an obligation to appear in these pending cases given that they were registered before its notice of denunciation. But Honduras may decline to participate, as indicated in its refusal to participate in the constitution of the tribunal in the JLL Capital arbitration, which required the ICSID Secretary-General to step in and appoint two arbitrators to the three-member tribunal.
Options for Investors
Even though Honduras has denounced the ICSID Convention, investors who submit notices of dispute before that denunciation takes effect may still be able to obtain ICSID jurisdiction. Following Venezuela’s denunciation of the ICSID Convention, the tribunal in Valores Mundiales and Consorcio Andino v. Venezuela examined the issue of the timing of the state’s consent to arbitration as implicated by its notice of denunciation. Claimants in that case submitted their notice of dispute on November 9, 2011, two months before Venezuela submitted its notice of denunciation to ICSID. The tribunal found that the state’s consent was perfected when Venezuela received the notice of dispute, not when ICSID registered the request for arbitration. Therefore, claimants who had submitted their notices of dispute to the government before the state’s denunciation were able to bring their claims in ICSID arbitration, despite those claimants submitting their requests for arbitration almost a year after the state’s notice of denunciation. The tribunal also rejected Venezuela’s contention that the mandatory six-month negotiation period in the applicable Spain-Venezuela Bilateral Investment Treaty (BIT) must be satisfied before the state’s notice of denunciation.
Under the tribunal’s reasoning in Valores Mundiales, investors may be able to perfect consent by submitting notices of dispute before Honduras’s denunciation takes effect later this year on August 25. Perfecting that consent may be particularly important for claims that have already arisen and where the applicable investment treaty only provides for ICSID arbitration, such as the Honduran BITs with Chile, Korea, and Germany. Other treaties to which Honduras is a party provide access to alternative arbitral forums. For example, the CAFTA-DR treaty and the Spain-Honduras BIT provide that investors may pursue claims in UNCITRAL Arbitration. Thus, investors whose investments are currently protected under those treaties may not need to take any action at the moment unless they prefer to rely on the specific advantages of ICSID arbitration. And investors whose investments are protected under investment treaties that only provide for ICSID Arbitration may want to consider restructuring their investments to obtain investment treaty protection under a different investment treaty for future potential disputes.
Mayer Brown has lawyers with deep experience in investment arbitration who can help parties with investments in Honduras assess their options.
