28 April 2003

Response By Jack Caine (Class Action Center)

To the Commentaries By Jose Miguel Villalobos

& John Manners (UCCR)

We told John Manners, the President of UCCR (not incorporated), to tell Jose Miguel Villalobos that he and JMV should not throw rocks in a glass house and that if they threw a rock at us, that we’d throw 10 rocks back at them.  Now we are forced to show the world that Jose Miguel Villalobos knows little about international arbitration and that the UCCR strategy and intentions should be suspect.  After reading our response, both Jose Miguel Villalobos and John Manners may wish that they had stayed with what they know best and had listened to our advice to put a sock in it.

POINT ONE.     John Manners and Jose Miguel Villalobos aren’t qualified to give an expert opinion on international arbitration.

John Manners :

John Manners, the President of the UCCR, isn’t an attorney, but he has told several people that he was paid commissions to sign up investors with the now defunct Savings Unlimited.  So we know that he is very good in fundraising.  What a paradox!  Who’s interests are really being served in this fundraising?

The comments of John Manners are suspect for many reasons, including:

• UCCR will not be incorporated.  This was presented as one of the major milestones to joining investors.

• The board of directors of the UCCR does not include very many original board members.  Investors joined based on who was on the board.  Investors paid money based on who was on the board.

• Since the UCCR is not incorporated, investors that became “members” are not members in a legal sense and do not have any rights including the right to ask to see the financial records and calling for new elections if they don’t like the results of the current UCCR leadership.  These are basic rights under incorporation.

Jose Miguel Villalobos:

Professional Resume of Qualifications (taken from UCCR website)

• Graduated with Honors, University of Costa Rica, 1986

• Parliamentary Advisor in the Congress, 1982-1989

• Law Clerk of the Constitutional Court, 1990

• Litigation lawyer since 1990

• Presidential Advisor, 1998-2002

• Minister of Justice, May-November, 2002

• International Consultant, World Bank Financial Reform Projects, and Inter-American Development Bank for Latin America, 1990-2001

• Professor of Constitutional Law, University of Costa Rica, 10 years

There is no doubt that Jose Miguel Villalobos considers himself as an expert in Costa Rican constitutional law, but his resume shows little experience in an international setting.

POINT TWO.    Mr. Martin St.-Amant is a real expert in international law.

Mr. Martin St.-Amant, a partner with CAIN LAMARRE CASGRAIN WELLS, who is the partner in charge of our arbitration case.  Mr. St.-Amant is a real expert in international law.

Mr. St.-Amant has the following credentials:

• Mr. St.-Amant has a PhD in International Commercial Law from the University of Paris (Sorbonne).

• Mr. St.-Amant was a visiting researcher in the Graduate Program at Harvard Law School.

• Mr. St.-Amant has a Masters degree in law from the University of Paris.

• Mr. St.-Amant made additional studies at the Ecole des Hautes Etudes Internationales in Paris.

• Mr. St.-Amant has been a member of the Quebec bar since 1989.

• Mr. St.-Amant studied law at the University of Ottawa.

• Mr. St.-Amant  is a published authority on international law.

• Mr. St.-Amant has assisted in the negotiations for the OMC and ALENA treaty and in NAFTA disputes between Canada and the United States.

• Member of the Political Commission of the Liberal Party of Quebec.

• Member of the Foreign Affairs Committee for the Bar of Quebec.

Mr. St.-Amant’s publications include:

• International Commerce - Chronique de droit économique international en 1988, Annuaire canadien de droit international (ACDI) / The Canadian Yearbook of International Law - Volume XXVII - 1989 - University of British Colombia Press - pp. 339-357;

• International Commerce - Chronique annuelle de droit économique international en 1989, Annuaire canadien de droit international (ACDI) / The Canadian Yearbook of International Law - Volume XXVIII - 1990 - University of British Colombia Press - pp. 433-437;

• International Commerce - Chronique annuelle de droit économique international en 1990, Annuaire canadien de droit international (ACDI) / The Canadian Yearbook of International Law - Volume XXIX - 1991 - University of British Colombia Press - pp. 416-428;

• International Commerce - Chronique annuelle de droit économique international en 1991, Annuaire canadien de droit international (ACDI) / The Canadian Yearbook of International Law - Volume XX - 1992 - University of British Colombia Press;

• International Commerce - Chronique annuelle de droit économique international en 1992, Annuaire canadien de droit international (ACDI) / The Canadian Yearbook of International Law - Volume XXI - 1992 - University of British Colombia Press;

• International Commerce & Basic Commodities, Chapitre dans Notes et études documentaires, Éditions La Documentation française (Paris);

• International Organization of Normalization (ISO), Chapitre dans Accords économiques internationaux, Notes et études documentaires, Éditions La Documentation française (Paris) et Wilson & Lafleur (Montréal), 1989;

• Report of the special group of GATT concerning the Canadian restrictions on the importation of dairy ice cream and yogurt, Bulletin du Conseil canadien de droit international, Volume 16, no 1, 1989;

• Continued agricultural conference during the GATT meeting, Information SDIE, Volume 2, no 1, Mars 1989;

• Democratization of Eastern Europe – Commerce and investment repercussions, Éditorial, Bulletin de la SDIE, Volume 3, no 1, 1990;

• Value-added tax: establishment, harmonization and international regulation, Éditorial, Bulletin de la SDIE, Volume 3, no 2, 1990;

• Economic sanctions within the framework of the UN - Elements of a system of collective security to the service of the maintenance and re-establishment of peace, Éditorial, Bulletin de la SDIE, Volume 4, no 1, 1991;

• Integration and sovereignty - In the search of a unified Europe and a new balance in the relations, Québec-Canada, Éditorial, Bulletin de la SDIE, Volume 4, no 2, 1991;

• Definition of a subsidy according to the Law to the special measures of importation, Ottawa Law Review, Ottawa (Article à paraître en 1995);

Mr. St.-Amant’s Non-Published Research includes:

• Canadian Legislation and international obligations as regards to antidumping duties, Mémoire de DEA, Université de Paris 1, 1988;

• Some legal aspects of the Agreement of free trade between Canada and the United States, Université de Paris 1, 1988;

• The settlement of the disputes within the framework of the commodity agreements, Mémoire de DEA, Université de Paris, 1987;

• Self-defence and the threat of use of the force in international relations, Mémoire de DEA, Université de Paris 1, 1987;

• The interpretation of the first phase of article 19 of the Charter of the United Nations, Université de Paris, 1987;

Mr. St.-Amant international law commentaries include:

• Setting the mechanisms of settlement of disputes under the Free Trade Agreement between Canada and the United States, 34th Congress of the Association of Auditors of the Academy of International Law of the Hague, 10 – 14 June 1991, University of Montreal

• Free Trade Agreements between Canada and United States, Université Harvard, Mars 1990;

• The mechanisms for the settlement of differences under the Free Trade Agreement between the U.S. and Canada and the Free Trade Agreement between Australia and New Zealand, University of Paris, 1988.

• The Compromise of Arbitration, Université de Paris, 1988;

• Settlement of disputes in the IMF (International Monetary Fund), Université de Paris 1, 1988;

• Jurisprudence and doctrines as comman auxiliaries of determination of the legal provisions, Université de Paris, 1987.

As Mr. St.-Amant has taken our case as the lead attorney and by his remarkable experience in international law, we must take note that this arbitration case is for real.

Jose Miguel Villalobos’ credentials do not provide the same respect for his commentary on arbitration.

POINT THREE.           Knowledge requires study.

It needs to be pointed out that the writer, Jack Caine, is not an attorney, but will show through this response that he understands international law and ICSID arbitration better than Jose Miguel Villalobos.  It doesn’t take an attorney to understand international law or respond to Jose Miguel Villalobos’ unresearched commentaries.  It simply requires the effort to open up the law book and international agreements and take the time to read.  Besides, our lawyers charge $400 an hour and have better things to do than respond to an attorney of Jose Miguel Villalobos’ caliber.

POINT FOUR.  How does Jose Miguel Villalobos find the time to write about arbitration?

I’m amazed that Jose Miguel Villalobos has time to write about our arbitration case and also run for President, but doesn’t have time to read the Villalobos case file, file any documents with the Costa Rican courts or achieve anything else listed under the UCCR plan-of-the-week-and-as-the-wind-blows or under his contract with the UCCR (other than get paid).  What exactly has he done other than “talk” and get paid and now write a commentary on arbitration?  His actions seem to be more like those of a politician than an attorney who has been paid to get things done.  Could he be talking against arbitration because the flow of money to the UCCR to pay him has slowed, while more and more investors are signing up with CAIN LAMARRE CASGRAIN WELLS for representation in the arbitration?

POINT FIVE.     JMV needs to study up on the Bilateral Investment Protection Agreements.

An important thing that one must understand (and that Jose Miguel Villalobos fails to understand) is that the ICSID Convention was written in the 1960s as a multi-lateral treaty for all of the ICSID member States and ratified by Costa Rica in 1993 and that the bilateral investment protection agreements were ratified between Costa Rica and 16 countries (to date) after the ICSID Convention.  Jose Miguel Villalobos quoted from the ICSID Convention without taking into account the bilateral agreements at all.  That’s kind of like quoting from the Magna Carta without taking into context the Costa Rican Constitution.  He should have known better being a constitutional law expert!  But that would have required that he do his homework first and read the bilateral agreements before writing his commentary.  I guess he was too busy campaigning and fundraising.

In the bilateral investment protection agreement between Costa Rica and Canada, published in La Gaceta Number 100 – 25 May 1999, Article XII (3) clearly states:

An investor may submit a dispute as referred to in paragraph (1) to arbitration in accordance with paragraph (4) only if:

(a)               the investor has consented in writing thereto;

(b)               the investor has waived its right to initiate or continue any other proceedings in relation to the measure that is alleged to be in breach of this Agreement before the courts or tribunals of the Contracting Party concerned or in a dispute settlement procedure of any kind;

(c)               not more than three years have elapsed from the date on which the investor first acquired, or should have first acquired, knowledge of the alleged breach and knowledge that the investor has incurred loss or damage; and

(d)               in cases where Costa Rica is a party to the dispute, no judgement has been rendered by a Costa Rican court regarding the measure that is alleged to be in breach of this Agreement.

We will consent in writing, fulfilling section (a).

We will waive our right to initiate or continue any other proceedings (…) before the courts or tribunals of the Contracting Party <Costa Rica>…in section (b).

Since the loss occurred when the Villalobos brothers stopped paying in September 2002 and we knew shortly afterwards via documentation that Costa Rica had been in breach of the ICSID Convention and bilateral investment protection agreements, we must initiate the arbitration quickly to be in accordance with section (c).  It would be ridiculous to wait until the Costa Rican court system finished with the Villalobos brothers in who knows how many years (certainly more than three).

Is Jose Miguel Villalobos telling the investors that they should wait beyond the 3-year limit and give up their right to arbitration?  Will he guarantee that the investor will be repaid in the next three years through the Costa Rican court system?

Investors from 6 countries with bilateral investment protection agreements with Costa Rica have already hired CAIN LAMARRE CASGRAIN WELLS, a highly respected Canadian law firm with an international law department and experts, to represent them in ICSID arbitration.  We expect that investors from additional countries with bilateral agreements with Costa Rica will hire the Canadian law firm for representation soon as well (e.g. from Argentina, Belgium, Spain, Switzerland, etc.).  In addition, investors from countries currently under negotiation with Costa Rica (e.g. USA, Sweden) to sign bilateral investment protection agreements have also hired the Canadian law firm to represent them in arbitration.

If Costa Rica decides to change the wording of a bilateral agreement after it is ratified or come up with a law issued by the legislature after the bilateral agreement is ratified that is in direct conflict with the bilateral agreement, Costa Rica would thereby be in breach of this agreement.

Since free trade agreements include investment protection and procedures to go to arbitration within a specified time regardless of court proceedings in country, changing this agreement would in effect be a breach in the free trade agreement as well.

So, Jose Miguel Villalobos is completely wrong when it comes to investors that come from countries with bilateral investment protection agreements with Costa Rica and needs to study up.

POINT SIX.         JMV needs to read up on the Santa Elena case.

Jose Miguel Villalobos needs to read the Santa Elena award because he is very mis/uninformed.  Like we said before, he should read and do his homework before he speaks or writes commentaries.

The American that owned the Santa Elena farm (via a Costa Rican corporation) could not force Costa Rica into arbitration until 1995 for the following reasons:

• Costa Rica did not become a member of ICSID until 1993.  The Santa Elena farm was expropriated in 1978, leaving the American owner with no other option except Costa Rican civil courts until then.  But, the American was stubborn and fought all those years in Costa Rican civil courts.

• No bilateral investment protection agreement was signed between Costa Rica and the U.S.  CAFTA, the Central American Free Trade Agreement, will provide multi-lateral investment protection for U.S. investors in Central American countries and is expected to be signed by the end of 2003 or early 2004.  By the way, a free trade agreement with the U.S. cannot be signed (per U.S. laws) if there is an outstanding investment dispute between a U.S. citizen and the Costa Rican government.  That’s probably one of the reasons why Harken Energy, an American company (George W. Bush was once on the board of directors), is also considering filing a complaint for ICSID arbitration.

• Not having a bilateral investment protection agreement with Costa Rica, the U.S. investor did not have a vehicle to force Costa Rica into arbitration until 1994, when the U.S. Congress passed the Helms Amendment to the 1961 Foreign Aid Act.  Under this amendment, the U.S. government used it’s veto authority in the World Bank to post-pone a $145 million loan from the Inter-American Development Bank to Costa Rica until Costa Rica came to arbitration.  This process took a year before Costa Rica came to arbitration.  If Costa Rica had not gone to arbitration, the U.S. could have imposed the second part of the Helms Amendment – and cut them off from all foreign aid from the U.S.  By the way, the Helms Amendment was originally intended for use against Cuba (Congress was thinking about giving humanitarian aid to Cuba during the early 1990s and Jesse Helms really had a beef with that), but was written in a broad way so as to be used with other countries that might try to steal from Americans.

Jose Miguel Villalobos really should have read the Santa Elena case award on the ICSID website (www.worldbank.org/icsid) before talking about something he knows little to nothing about.
 

POINT SEVEN.            There are no required internal administrative or legal procedures to do.

The next thing that one must understand is that there are no required internal administrative or legal procedures for the investors to do in Costa Rica.  Jose Miguel Villalobos can’t be paid if he believes otherwise.

Jose Miguel Villalobos and the UCCR’s “current” strategy is to meddle in a case between the Costa Rican government and the Villalobos brothers as a 3^rd party.  Actually, their strategy-of-the-week-and-as-the-wind-blows is to force the court to finalize the investigation now.

Jose Miguel Villalobos’ strategy is weak for several reasons:

• The prosecutor is going to get this case named complex because of the large number of corporations and holdings involved, the time needed to look into tax evasion on the part of these corporations and the owners, managers and individual employees of these corporations, the need for time to coordinate with foreign governments in the search for the Villalobos brothers’ foreign bank accounts, the fact that 600 investors have filed various types of legal proceedings with the court, and the 6289 names on the 2002 Client List seized in the 4^th of July raid.  If he had read the Villalobos case file like I have, he would already know this.  The case will also be named complex because of political pressure.  Individuals in the government are probably worried that coming to a quick closing of the case will mean law suits by the Villalobos brothers or others for abuse of power, etc.  Plus, the prosecutor’s job isn’t to protect the investors…it’s to prosecute!

• If the case comes to a quick close, how will Jose Miguel Villalobos get to be paid more by the investors to fuel his race for President?  I’m not saying that Jose Miguel Villalobos has planned this, but one might think that this might be a strong motivator for not wanting to win the case quickly!

• Jose Miguel Villalobos’ strategy centers on being able to do what Osvaldo Villalobos’ attorneys were unable to do (supposedly because Jose Miguel Villalobos is a constitutional law expert), but don’t you think that he should first read the case file before saying what his strategy is?

• If Jose Miguel Villalobos is able to pull off a miracle and the Costa Rican government allows the Villalobos brothers to come back to Costa Rica, there is still no guarantee that the Villalobos brothers will be able to pay the investors.  In my book, Luis Enrique Villalobos paid on time, all the time.  But, his business has been damaged by this whole affair and at this point, he may not be able to repay his investors in full, even if he wanted to.

We’re not going to meddle in a Costa Rican case and politics.  Many of us have already submitted documentation to the court to show the cleanliness of our investment as 3^rd parties of good faith (which the court will use to now make this case “complejo” and extend the time for Osvaldo to be in jail to 18 additional months), only to be told in writing by the judges that 3^rd parties of good faith do not have ultimate rights in this case and that the assets are the product of illegal activities that will eventually be forfeited to the State.  And of course, the judge has already ordered the transfer of the bank accounts into the name of the court.

POINT EIGHT. Our complaint to ICSID is against the Government of Costa Rica.

Our complaint to ICSID will not be against the Villalobos Brothers, it will be against the Costa Rican government itself for its negligence over the last 20 plus years.  Because of this, there is nothing to pursue in Costa Rican courts.

Recent stories in La Nacion and on Canal 7 have indicated that the Costa Rican court system, even at the Supreme Court, has not been able to overcome corruption.  A Costa Rican court cannot make a decision concerning their own negligence or abuse of power, especially when the court and it’s officers itself have been negligent and abusive of power.  And of course, the Costa Rican government would certainly not ever pay a judgment issued by a Costa Rican civil court to foreigners for negligence because of State Immunity. 

Having the Costa Rican courts judge itself and the Costa Rican government would be like asking a wolf to guard a hen house.  The Costa Rican courts simply don’t have jurisdiction in our case.  ICSID does.  It is for cases like ours that an international court of arbitration, the ICSID Convention, and bilateral investment protection agreements were created in the first place. 

It is also for this reason that Article 39 of the ICSID Convention exists.  Article 39 requires a balanced arbitration tribunal meaning that all three of the tribunal members (judges) couldn’t be Canadians, for example, in a case involving Canadian investors or the Canadian government.  ICSID arbitration requires fairness and justice, something Costa Rican courts refuse to provide for foreigners.

SUMMARY.       The Costa Rican government failed in their responsibilities as outlined by the ICSID Convention and bilateral investment protection agreements.  It is a case in which there has been a breach of contract in an international setting.

We suggest that in addition to reading the Villalobos case file, that Jose Miguel Villalobos also read all of the bilateral investment protection agreements, ICSID case awards listed on the ICSID website (www.worldbank.org/icsid), and study up a little more before making comments in areas of law he knows little about.  It’s never to late too learn new things.  Or maybe he will just put a sock in it like we suggested before and leave the arbitration to the experts.

Jose Miguel Villalobos, Commentary:  April 23, 2003

Some persons have suggested that the matter involving the freezing of funds in the Villalobos case cannot be resolved in the Costa Rican courts and should instead be brought to international jurisdiction in the form of arbitration.  They propose bringing this matter into the mechanism of conflict resolution foreseen in the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, signed in Washington, D.C. the 18th of March, 1965, and which at its time resolved the case involving the expropriation of the Hacienda Santa Elena.


The problem with this strategy is that in the case of Costa Rica, one can only turn to the arbitrage procedures established under that Convention when all internal administrative and legal procedures have been fully exhausted, in other words, one must first resort to an administrative claim followed by a legal suit against the government.  This clause is established in an Interpretive Declaration added by Costa Rica when it signed the Convention, the 29th of September, 1981 and ratified by Congress with the approval of Law 7332, the 30th of March, 1993, and the Constitutional Court on its review of the law.

Therefore, those who wish to follow this procedure must first exhaust all internal mechanisms, under penalty of not accepting the validity of the request for arbitration.  In the famous Santa Elena case, at the time the international arbitration procedure was applied, the injured party had already exhausted all internal processes in Costa Rica, and therefore was able to apply the procedure of the Convention.  I do not believe this path is appropriate at this time since the procedure is slow and would not seem the answer we look for at this moment.  The internal processes are very lengthy and expensive, and cannot be avoided by the very terms of the Convention.


 (end of statement by Jose Miguel Villalobos)