Espíritu Santo Holdings, LP and L1bre Holding, LLC v Mexico:¹A New Piece of the Corpus of Interim Measures Orders in Relation to Criminal Proceedings

I. INTRODUCTION

On 3 June 2022, a tribunal composed of Eduardo Zuleta Jaramillo (President), Charles Poncet, and Raúl Emilio Vinuesa issued the first in a series of procedural orders in Espíritu Santo Holdings, LP and L1bre Holding, LLC v Mexico (the ‘First Procedural Order’). Those decisions addressed the Claimants’ requests for interim measures in respect of ongoing criminal proceedings in Mexico. In the first of those decisions, the Tribunal rejected the bulk of the measures that the Claimants had requested, but recommended limited interim measures aimed at ensuring that two of the Claimants’ key witnesses would be able to give testimony.³ It later issued two follow-on procedural orders on 29 September 2022 (the ‘Second Procedural Order’) and 5 November 2022 (the ‘Third Procedural Order’), which largely confirmed the findings in the First Procedural Order.⁴

These Procedural Orders are the latest in a series of decisions issued by ICSID tribunals regarding ongoing criminal procedures. The Procedural Orders, like those earlier decisions, reflect a largely coherent approach in which tribunals have aimed at preserving the integrity of the arbitral proceedings without impinging upon a State’s sovereign police powers. This case comment reviews the background to the dispute (Section II), addresses the findings in the Procedural Orders (Section III) and comments on the tribunal’s decision to order only limited interim measures (Section IV).

II. BACKGROUND

A. The Claimants’ Case on the Merits

The Procedural Orders come after the Claimants, Canadian and American companies, initiated the arbitration seeking upwards of US$2 billion under the North American Free Trade Agreement (NAFTA). The Claimants alleged that the Secretaría de Movilidad of Mexico City (the ‘Semovi’) granted their company, Lusad S. de RL de CV (‘Lusad’), a concession for the operation of a digital taximeter system (ie an application that would, among other things, allow users to request a taxi remotely) for taxis in Mexico City,⁵ but that the Semovi subsequently suspended the concession indefinitely after Claudia Sheinbaum (then a candidate for Mayor and now the President of Mexico) became Mayor of Mexico City in 2018.⁶ According to the Claimants, Ms Sheinbaum was an ardent opponent of Lusad’s concession and campaigned against private investment, including Lusad’s concession.⁷ After she was elected Mayor, Mexican authorities suspended the concession indefinitely, according to them, due to a ‘political change’.⁸ Thereafter, the government began to develop its own digital taximeter system that allegedly appropriated the Claimants’ ideas, intellectual property, and plans.⁹ The Respondent, however, claimed that the Semovi’s actions did not constitute a breach of the NAFTA because Lusad obtained the concession illicitly, arguing that the two individuals behind Lusad’s initiative, Santiago León Aveleyra (‘Mr León’) and Eduardo Zayas Dueñas (‘Mr Zayas’), lacked the experience or expertise to carry out the concession in the first place.¹⁰

B. The Criminal Investigations against Mr Léon and Mr Zayas

Messrs León and Zayas appear to have been the subject of at least three separate criminal investigations. At least one of those criminal investigations, which, the Claimants suggested, was initiated by the Semovi, addressed the legality of Lusad’s concession.¹¹ That investigation was not the basis for the suspension of the concession (and thus not the basis for the treaty breach claim). Other investigations, however, were admittedly unrelated to Lusad and its concession.¹² The Respondent noted that all of these investigations began prior to the filing of the Request for Arbitration,¹³ although the Claimants argued that they were ‘revived’ after the Request for Arbitration was filed.¹⁴ The Respondent also noted that the Semovi (which initiated the investigation in respect of concession) was obliged to report possible illicit acts¹⁵ and that all of the investigations were commenced by purported third-party victims, not the Respondent.¹⁶ According to the Respondent, in pursuing these investigations, Mexican authorities were only fulfilling their obligations to report and investigate possible illicit acts.¹⁷

In the course of these investigations, Mexican authorities sought arrest warrants against both Messrs Zayas and León in December 2021.¹⁸ Mr Zayas was arrested on 22 December 2021 and held in pre-trial detention.¹⁹ The Claimants argued that this was irregular because, under Mexican law, defendants are entitled to pre-trial release; they also argued that Mr Zayas was unable to provide instructions to the Claimants’ counsel in the arbitration during his incarceration.²⁰ While Mr León does not appear to have been incarcerated at the time of the Request for Interim Measures, he was the subject of an extradition request.²¹

C. The Claimants’ Request for Interim Measures

Against this backdrop, the Claimants sought a broad array of interim measures ordering the Respondent:

• to take all actions necessary to immediately stay the criminal actions during the pendency of the Arbitration and refrain from taking any further related actions against Messrs Zayas and León during the pendency of the Arbitration;

• to take all actions necessary to end the pre-trial detention of Mr. Zayas and ensure his freedom during the pendency of the Arbitration;

• to take all measures necessary to immediately suspend all criminal investigations against Mr. León until the tribunal issues a final award in this Arbitration, including withdrawing all requests for Mr. León’s extradition;

• to refrain from engaging in any conduct that may directly or indirectly affect the legal or physical integrity of Mr. Zayas and Mr. León;

• to refrain from initiating any other criminal proceedings against Mr. Zayas and/or Mr. León, or otherwise relating to the present Arbitration or the Concession;

• to suspend and/or refrain from initiating any legal proceedings in which it seeks the determination of issues by the Mexican courts that fall to be determined exclusively in the present Arbitration (including, without limitation, with respect to the validity of the Concession);

• to refrain from engaging in any other course of action that might aggravate the dispute between the parties or jeopardize the procedural integrity of this Arbitration;

• to pay the Claimants’ costs associated with this Application; and

• any further or alternative interim relief that the tribunal considers just and appropriate [the ‘Requested Measures’].²²

In the course of their submissions, the Parties agreed on the legal standard: in order to succeed, the Claimants would need to show (i) that the Tribunal had prima facie jurisdiction; (ii) that there was a right that could be affected; and (iii) that the Requested Measures were necessary, urgent and proportional.²³

The Claimants do not appear to have sought to argue that each specific measure satisfied this legal standard. Instead, they argued, most notably, that the Requested Measures (taken together) were necessary to preserve the procedural integrity of the arbitration. This, they said, was the case because, among other reasons, Mr Zayas was unable to provide instructions to counsel or provide written testimony and Mr León would not be able to participate accordingly if he were arrested.²⁴ The Respondent, however, submitted that it had neither affected the integrity of the proceedings nor the Claimants’ ability to participate in the arbitration.²⁵ It also argued that the Tribunal was ‘not competent’ to grant the Requested Measures because inter alia they would affect the rights of third parties, namely the victims who reported the criminal activity, and would set a dangerous and disruptive precedent.²⁶ No doubt in a bid to weaken the Claimants’ arguments on the necessity prong, the Respondent also undertook to request that relevant authorities ensure that Messrs Zayas and León were able to participate remotely in the hearing and that the Claimants’ counsel could work with Mr Zayas in a confidential setting.²⁷

III. THE TRIBUNAL’S DECISION

In the First Procedural Order dated 3 June 2022, the Tribunal rejected the bulk of the Claimants’ Requested Measures. Instead, it ‘formally invite[d]’ the Respondent to ‘consider in good faith’ deferring any extradition proceedings against Mr León until the award was issued.²⁸ The Tribunal also noted that it ‘expect[ed] the Respondent to take all appropriate steps’ to ensure that Mr Zayas could participate in the arbitration ‘without any fear that may affect his testimony’.²⁹

In the Second and Third Procedural Orders dated 29 September 2022 and 5 November 2022, the Tribunal rejected further requests for access to Mr Zayas. In the Second Procedural Order, however, it ‘invite[d]’ the Respondent to guarantee that the taking of Mr Zayas’s witness statement met a number of minimum requirements, notably access of counsel to Mr Zayas in circumstances where the confidentiality of the discussion would be respected.³⁰ In the Third Procedural Order, a majority of the Tribunal declined to issue any further measures, notwithstanding the Claimants’ assertions that the minimum requirements in the Second Procedural Order had not been respected and that Mr Zayas had been the subject of threats against his physical integrity.³¹

IV. COMMENTS

It has been asserted (most notably by this author) that the decisions of tribunals on requests for interim relief in relation to criminal proceedings are not the result of haphazard applications of ill-defined criteria, but that they generally respect the coherent criteria established by a corpus of decisions.³² The Procedural Orders only confirm this assertion. They recall two important factors that any prospective applicant for interim measures in relation to criminal proceedings must bear in mind.

A. A Decision on Interim Measures Flows from the Measures Sought

It is only natural that a tribunal’s decision on interim measures will flow from the specific measures that are sought. This makes even more sense where the measures sought relate to criminal proceedings as those measures will ask a tribunal to interfere with the justice system of a sovereign State. A broad request to suspend ongoing criminal proceedings will thus give rise to a different type of analysis than a more tailored request, for example, to provide access to an incarcerated individual. An applicant, therefore, would be well advised to seek relief that is as targeted as possible. Where multiple measures are sought, it should argue that each specific measure meets the legal standard. As Espíritu Santo shows, a tailored request for specific measures may be better placed to meet at least two prongs of the legal standard: the jurisdiction prong and the proportionality prong.

First, the specific measure in question will be relevant to whether the tribunal has prima facie jurisdiction over the request for that measure. Tribunals do not require an applicant to show that it has a likelihood of success on the merits, but they do require (i) a prima facie showing of jurisdiction over the claims in the arbitration as well as (ii) some nexus between the criminal proceedings and the merits of the dispute.³³ Without such a showing, an applicant would be free to request relief in respect of criminal proceedings unrelated to the arbitration (for example, suspension of a criminal investigation of a violent crime unrelated to the arbitration committed by a witness simply to allow a witness to participate in the hearing). Where the criminal proceedings are the conduct that is alleged to have breached the relevant treaty (and thus are relevant to the merits), tribunals have found that the nexus exists de facto.³⁴ However, where (as in Espíritu Santo) the criminal investigations pre-date the arbitration, the claimant must establish that there is a nexus between the arbitration and the criminal proceeding for which a measure is sought³⁵—ie in the words of the Espíritu Santo Tribunal, which cited the decision in Pugachev v Russia: ‘Claimants must prove, not only that this tribunal has prima facie jurisdiction over the general dispute, but also that it has prima facie jurisdiction for the requested interim measures’.³⁶

The Espíritu Santo Tribunal found that no such nexus existed with respect to some of the criminal investigations for two reasons. First, the criminal proceedings in respect of Mr Zayas were ‘wholly unrelated to the NAFTA claim’.³⁷ This may have been critical to the measures sought in respect of Mr Zayas’s incarceration as Mr Zayas’s arrest warrant does not appear to have resulted from the criminal investigation in relation to the concession.³⁸  Second, the Tribunal explained that it ‘cannot turn a blind eye’ to the fact that some of the criminal investigations ‘appear to involve third-party victims and were initiated in response to criminal complaints by third parties’.³⁹ The Tribunal, however, did not fully address the fact that the Semovi is ultimately a Mexican State entity, and thus not technically a ‘third-party victim’.

Second, the specific measures may have an impact on the legal standard that must be met under the proportionality requirement (ie whether the requested measures are sufficiently specific to protect the rights that are threatened), a requirement often tied to the necessity requirement.⁴⁰ Tribunals have been reluctant to find that broad measures seeking to suspend present or future criminal proceedings are necessary or proportionate unless (i) the criminal proceedings are found to be a retaliation for starting the arbitration (and thus a threat to the claimant’s right to the non-aggravation of the dispute)⁴¹ or (ii) the criminal proceedings threaten the collection of evidence (and thus the claimant’s right to the procedural integrity of the arbitration).⁴²

The Espíritu Santo Tribunal found that the broad relief sought by the Claimants met neither of these conditions. First, the Tribunal could not conclude that the various criminal investigations were ‘a retaliation for the initiation of the NAFTA arbitration’, as the Claimants alleged, given that the investigations were initiated months before the Request for Arbitration was filed.⁴³  Second, the Tribunal found that ‘[i]t has not been established that pending criminal proceedings would preclude [Messrs León and Zayas] from providing testimony’.⁴⁴ An incarcerated witness may nonetheless give evidence in an arbitration. On that basis, the Tribunal rejected the bulk of the measures requested by the Claimants.

B. The Ability of  Witnesses to Provide Uninhibited Testimony Merits (Limited) Interim Measures

The Espíritu Santo Tribunal did, however, invite the Respondent to ‘ensure that Mr. Eduardo Zayas Dueñas […] [would] be able to meet with counsel and render testimony not only in conditions similar to the ones he would have normally experienced, but without any fear that may affect his free testimony’.⁴⁵ It drew a line at measures (it considered) ‘absolutely necessary’ to protect the ability of a witness to provide uninhibited testimony—even where the Claimants raised ‘concerns about Mr. Zayas’ health and conditions of imprisonment’.⁴⁶ In so doing, the Espíritu Santo Tribunal offered two interesting clarifications that expand the corpus of case law on this subject matter.

First, it clarified that whether the accused is himself or herself a claimant in the arbitration (rather than a mere witness or party representative of a claimant) matters. In declining to order that Mr Zayas be transferred to house arrest, the Tribunal highlighted in its Third Procedural Order that Mr Zayas was not a party in the arbitration⁴⁷—even though, according to the Claimants, both Messrs Zayas and León ‘represent and manage the Claimants’.⁴⁸ One wonders, therefore, whether the Tribunal’s analysis would have been different if Mr Zayas had in fact been a claimant in the arbitration. The Tribunal in Hydro v Albania, for example, found that incarceration of two claimants ‘would affect the ability of these two claimants and indeed other claimants to adequately put their cases and participate in the arbitration’.⁴⁹ While the Espíritu Santo did not go further in its analysis, the distinction may lie in the fact that a claimant that is a legal entity may replace its party representative—and thus its ability to give instructions to counsel and collect evidence remains (at least in theory) unhindered. This—as well as a reticence to step into (or on) the shoes of a Mexican criminal court—appears to have been the concern of the majority of the tribunal, which stated that ‘[w]hat the Claimants are asking this tribunal to do is to substitute counsel of Mr. Zayas for counsel for the Claimants and to substitute Mexican courts for this Tribunal and decide on matters related to the imprisonment of Mr. Zayas’.⁵⁰

Second, the Espíritu Santo Tribunal placed great reliance on the undertaking provided by the Respondent, which, it said in its First Procedural Order, it had ‘no reason to question’.⁵¹ This is, to this author’s knowledge, the first public decision in which such an undertaking by the State played a substantial role in the crafting of interim measures in relation to criminal proceedings. Even in the Second Procedural Order, where the Tribunal noted that it was ‘concerned with the situation of Mr. Zayas, as far as it may affect his ability to render testimony’, the Tribunal once again leaned on ‘the assurances given by the Respondent in its submissions’, which, the Tribunal said, ‘suggest that it is willing to provide the Claimants with reasonable opportunities to meet with Mr. Zayas’.⁵² Here too, however, the Tribunal’s analysis appears to have been motivated by the reality that Mr Zayas was a witness and thus that (as far as the Tribunal was concerned) only his ability to act as a witness would need to be protected. The undertakings offered by the Respondent appear to have satisfied the Tribunal (or at least a majority) that this would be the case.

The Espíritu Santo decisions offer an interesting gloss on the ever-developing corpus of case law in respect of interim measures regarding criminal proceedings. Espíritu Santo draws the limits of any request for such measures, particularly where the measures are related to criminal proceedings arguably unrelated to the arbitration and where the individuals targeted by the measures are not claimants themselves. Tribunals have always, and continue to, tread softly on the State’s most sovereign function: its ability to prosecute crimes within its territory. The Espíritu Santo’s reliance on the undertakings of the State (even if, according to the Claimants, those undertakings were ultimately ineffective) begs the question as to whether States facing future interim measures requests will not seek to control the narrative by offering similar undertakings.

Footnotes

Author notes