What recourse is there for international hotel owners if a hotel in which you have invested material capital, expertise, know-how and years are suddenly taken away by the local government following a change in policy or direction, or a change in the government itself? The chances are that local courts will not be a preferred forum for you to resolve an ensuing dispute with the government. In such circumstances, investment treaty protection can prove invaluable.
These agreements, which include bilateral investment treaties (BITs), aim to promote and protect cross-border investments by establishing standards of treatment, such as fair and equitable treatment, non-discrimination, compensation for expropriation, and direct access to international dispute resolution mechanisms against the host State itself. Investment treaty protection enables foreign investors to enforce these standards against the host State, usually by initiating international arbitration proceedings before an independent international tribunal. If protected under an investment treaty, hotel owners may seek protection and compensation for any acts contrary to the relevant treaty.
Such a scenario is far from hypothetical. Indeed, there have been several cases of investment treaty arbitrations involving the hotel sector, where hotel owners have been awarded compensation for violations of their treaty rights by host States. Some notable examples include:
- A British company called Wena entered into two lease agreements for hotels in Egypt with an Egyptian State-owned company. Following disagreements about rent, Egypt evicted Wena by force. The hotels were eventually returned to Wena but it was prevented from operating them as hotels due to the government's interference with their operating licences. Wena attempted to recover its losses through local commercial arbitration in Egypt, but was only awarded a small amount and had to surrender the hotels. Wena then initiated an international arbitration under the framework of the International Centre for Settlement of Investment Disputes (ICSID), which is a World Bank institution for the resolution of investment disputes. The arbitral tribunal found in Wena's favour and held that Egypt had expropriated Wena's investment as well as breached the fair and equitable treatment standard and the full protection and security standard. The arbitral tribunal awarded Wena over USD 20 million in damages1.
- An ICSID arbitral tribunal heard a case brought by Austrian company Alpha Projektholding GmbH against Ukraine alleging interference with its agreement for Alpha to reconstruct and redevelop Hotel Dnipro in Kyiv. The arbitral tribunal found that Ukraine had breached the fair and equitable treatment and the free transfer of funds standards under the relevant treaty by imposing arbitrary and disproportionate taxes, fees, and penalties on the project, by failing to provide a stable and predictable legal framework, and by restricting the claimant's ability to repatriate its funds2.
- Italian nationals alleged that Egypt had unlawfully expropriated their land and hotel project in the Sinai Peninsula and breached the fair and equitable treatment, full protection and security, and national treatment standards under the Italy-Egypt BIT. The tribunal found that Egypt had unlawfully expropriated the claimants' property without compensation and violated the fair and equitable treatment and full protection and security standards by failing to protect their property rights, by subjecting them to harassment and intimidation, and by denying them access to justice. The tribunal awarded the claimants USD 74.5 million in compensation for the expropriation of their property, plus interest and USD 6 million in costs3.
For example, True Blue filed an ICSID arbitration claim in June 2021 under the US-Grenada BIT over the five-star Kimpton Kawana Bay resort near one of Grenada's most famous beaches, Grand Anse. The project was originally intended as a USD 53 million refurbishment of an existing hotel but, in 2017, Grenada agreed to an expanded USD 99 million project that included a luxury condominium resort. However, True Blue alleged that Grenada later reduced the budget, altered the regulations for the citizenship-by-investment programme and unilaterally limited the use of its funds to construction costs only. True Blue also contended that Grenada halted approval of any further citizenship-by-investment applications – even though these were a major source of funding for the project. In August 2023, the Grenada government announced that the case had been settled4.
These cases illustrate the importance and benefits of investment treaty protection for owners in the hotel sector. Hotel owners should be aware of the existence and scope of the investment treaties that may apply to their investments, and of the potential remedies involved in invoking them. They should also seek expert legal advice and representation before any dispute or threat to their property or rights arises to ensure their investment is as protected as possible.
Originally published by Hotel Owner's Journal in April 2024
Footnotes
1. Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award, 8 December 2000.
2. Alpha Projektholding GmbH . Ukraine, ICSID Case No. ARB/07/16, Award, 8 November 2010.
3. Waguih Elie George Siag and Clorinda Vecchi v Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009.
4. True Blue Development Limited and otrs v Grenada, ICSID Case No. ARB/21/37, Press Release of the Government of Grenada on the Agreement to Resolve Kawana Bay Arbitration, 31 August 2023.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.