Analysis of UK Inter-nation Investment Law

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Question 1

Hamlet Bank ('Hamlet') is proposing to enter into a 5-year bilateral $500 million loan agreement with Lear Ltd ('Lear') as Borrower. The loan agreement will be governed by English law and will be entered into on standard London Loan Markets Association (LMA) terms.

The terms of the loan agreement include a two-year availability period (the 'Availability Period') permitting Lear to draw down the loan within a period of two years from the date of the loan agreement.

Hamlet is concerned that circumstances may arise during the Availability Period which may make the loan much less attractive from its perspective and it seeks your advice on the terms typically included in such a loan agreement to protect the lender in the event it does not wish to satisfy a drawdown request delivered by Lear during the Availability Period.

Advise Hamlet.

In providing your advice to Hamlet you should consider the terms typically included in a loan agreement entered into on standard London Loan Markets Association terms. You should also advise Hamlet of the potential liabilities in the event that it fails to comply with a compliant drawdown request.

Question 2

White Rose Bank ('White Rose') is a syndicate lender in a $750 million loan (the 'Syndicated Loan') made available to Yorkie Ltd ('Yorkie'), a company incorporated in England. The Syndicated Loan was arranged by Red Rose Bank ('Red Rose'). Red Rose is Yorkie's 'house bank' and has made numerous loans to Yorkie over recent years. The Syndicated Loan was made available to Yorkie to finance its acquisition of Lancopia Inc ('Lancopia'), a company incorporated in Ruritania.

That acquisition was completed shortly after execution of the Syndicated Loan. Prior to execution of the Syndicated Loan agreement, Red Rose was made aware of concerns regarding the audited financial statements of Lancopia, including a possible failure to identify material contingent liabilities in those statements. Red Rose did not pass that information to White Rose nor did it include it in the information memorandum relating to the syndicated loan.

It now transpires that the quantum of the undisclosed contingent liabilities is likely to lead to the insolvency of Yorkie.

White Rose seeks your advice on whether it is possible to bring a successful claim against Red Rose and the nature of the claims it may be able to bring.

Law Assignment Solution

Regulatory Instruments

1.     Investment treaties

The foremost legal regime that governs international investment laws in the United Kingdom is the Bilateral Investment Treaties (BITs). There are numerous bilateral treaties that are entered by the United Kingdom with several countries. The number of bilateral treaties is amongst hundreds and all the treaties that are currently active can be located from the web link of Foreign and Commonwealth Office.  It is in 1975 that the first BIT was formulated between the United Kingdom and Egypt. The same was entered by the government of Northern Ireland and Great Britain with the government of Egypt and the main aim of the BIT was the protection and promotion of Investments. When compared to the other European countries, it can be submitted that the BIT concept was much prolonged and delayed[1]. Though in the latter half of 1970 there are few BITs that were entered by the United Kingdom with Indonesia, Singapore, Jordan, and Thailand.

It is around in mid 1990 that the expansion of BIT took place and the United Kingdom has entered into such treaties with the other countries. The main reason for the expansion is the disintegration of the Soviet Union and numerous prospects that were available in the Eastern and the Central Europe market[2]. The investment agreements that were entered by the United Kingdom were mainly based on the Performa that was established by it in 1990 when an investment agreement was entered by it with country X which was entered for the promotion and protection of investments[3].

When the Bilateral Investment Treaties are analyzed it is submitted that the investment treaties have granted significant protection and safeguard to the investors however a very limited effect has been analyzed within the legal framework of the United Kingdom. This can be specified by stating that the approach that is adopted by the United Kingdom while integrating its international treaty obligations in its domestic law is a dualistic approach[4]. This implies that the opportunities that can be availed by the investors are very limited by relying on the bilateral investment treaty in the national courts of the United kingdom unless and until such bilateral investment treaty is put into service a statutory enactment or instrument.

[A1]

2.     Membership of European Community and the investment protection

The fundaments of the international investment laws of the United Kingdom were further complicated and made complex when the United Kingdom was made a member of the European Community.  The complication was not only for the investors but also affected the member states of the European Community and the third states that were willing to make the investment within the markets of the United Kingdom.

The basic principle of which the European Union work was mentioned in Article 2 of the European Committee Treaty as amended by the Rome Treaty and is grounded on monetary and economic union and common market. The aim is inclusive of the fundamental that the protection must be granted to the international investments as well. The main principle of European Community Treaty is that it promises a right to the nationals for establishment between the member states. Further, Article 43 of the European Community Treaty allows the movement of capital amid the states that are a member of the community. Also, Article 56 of the European Community Treaty submits that the provisions of the treaty are allowed in the domestic courts however when there is a conflict between the national laws and the laws of the treaty then the latter will prevail over the former. The concept was rightly established in the leading case of R v Secretary of State for Transport, ex p Factortame Ltd (No 2)[5].[A2]

When the investment protections that are granted within the European Community is compared with the protection that is granted in the Bilateral Investment Treaties it was found that the protection granted by the EC Treaty supersedes the protection granted in the Bilateral Treaty. For example, there are numerous treaties that had been entered by the United Kingdom with other countries prior to their becoming member of the  European community, such as, the Bilateral Investment Treaty was entered with Poland, Malta, Lithuania, Hungary, Estonia, Latvia, Slovenia, and Bularia. When such states become a member of the European Community then all the Bilateral Investment Treaties that are entered by them become redundant and the provisions of the European Community supersedes the provisions of the bilateral treaty. In the leading case of Eastern Sugar BV v Czech Republic, the European Committee has urged the member states that they must cancel the bilateral treaties that had been entered by them since it has no legal effect[6].

When the provisions of European Community is compared in the context of investment it is submitted that there are not much provisions or enactments that had been framed by the European Community Treaty in the context of investments. It has the external ability to deal with the investment matters but no internal regulations that had been framed by the community[A3] . However, there are few authors who are of the view that the European Community has an implied authority to deal with the international investments issues concerning the member states[7]. For example, as per article 57, 59 and 60 of the European Community Treaty, there are several powers that had been attributed to the committee trough which it can influence the foreign investments at the European level. Rather it is submitted that the European Committee is the main guiding force that lays down the foundation for the negotiations that takes place while executing the international agreements which comprises of important rules concerning investment protection.  For example, the energy Charter Treaty which was adopted in 1994, both the United Kingdom and the European Community are part of the same. The treaty contains numerous investment protection provisions and is mainly governed by Article 1 (5) of the Energy Charter Treaty.

But, the exact scope of the European Committee on the international investment is not clear.

Thus, to exactly understand as to how the international investment laws in the United Kingdom work and how it affects the Foreign Direct Investment to and from the United Kingdom, it is necessary to critically evaluate the same.

[1] FA Mann, 'British Treaties for the Promotion and Protection of Investments' (1981) BYIL 241.
[2] UNCTAD 'International Investment Rule- Making: Stocktaking, Challenges and the Way Forward' (October 2008) UNCTAD/ITE/IIT/2007/3, 14Z15.
[3] UNCTAD (2013) <http://www.unctad.org/sections/dite/iia/docs/Compendium//en/69%20volume%203.pdf>.
[4] R Higgins 'United Kingdom', in F Jacobs and S Roberts (eds) The Effects of Treaties in  Domestic Law (Sweet & Maxwell, London 1987).
[5] (1991) 1 AC 603.
[6] H Wehland 'IntraZEU Investment Agreements and Arbitration: Is European Community Law an Obstacle?'(2009) 58 ICLQ 297,307
[7] T Eilmansberger, 'Bilateral Investment Treaties and EU Law'(2009) CML Rev 383, 391Z392

[A1]The background has been nicely detailed. Well Done!!
[A2]Appropriately referenced
[A3]Well analysed and elucidated on important points

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