Scholz Holding v. Morocco
ICSID · Investment (ICSID and treaty) · Morocco · 1 Aug 2022
Why it matters
This case is a significant example of an ICSID tribunal rejecting an investor's claims based on regulatory measures in the steel sector. It clarifies that legitimate expectations must be based on specific commitments, not general regulatory stability. The tribunal also applied the 'costs follow the event' principle, ordering the losing claimant to pay a substantial portion of the respondent's costs, reflecting a trend in investment arbitration.
Summary
Scholz Holding GmbH, a German company, invested in Morocco through its subsidiary Scholz Metall Marokko SARL (SMM) to operate a metal recycling and processing unit. The dispute arose from several Moroccan measures: (1) the importation of scrap metal and rebar from Spain and Denmark, which faced delays and alleged harassment by customs and other authorities; (2) the restructuring of SMM's activities; (3) changes to the regulatory and fiscal framework for steel imports/exports, including the end of a tax exemption for scrap exporters in 2009, the introduction of an export license requirement for scrap in 2009, an alleged de facto export ban from 2014, and the imposition of customs duties on rebar imports in 2013. Scholz claimed violations of the Germany-Morocco BIT, including fair and equitable treatment (FET), arbitrary and discriminatory measures, national treatment, full protection and security, and expropriation. The tribunal, composed of Alexis Mourre (President), Zachary Douglas, and Nassib G. Ziadé, first upheld jurisdiction in a bifurcated decision. On the merits, the tribunal rejected all claims. Regarding FET, it found that the measures were not arbitrary or disproportionate; the investor's legitimate expectations were not frustrated because no specific commitments were made to maintain the tax exemption or avoid export restrictions. The tribunal noted that the de facto export ban was problematic but did not harm SMM because it had already stopped exporting for commercial reasons. The claims of discrimination, full protection and security, and expropriation were also dismissed for lack of evidence. The tribunal ordered Scholz to pay 40% of Morocco's costs, totaling €763,893 and $138,269.78, with interest.
The detail
Parties: Scholz Holding v. Morocco
Case number: ICSID Case No. ARB/19/2
Outcome: All claims dismissed. Claimant ordered to pay 40% of Respondent's costs: €763,893 and $138,269.78, with simple interest at 4.52% per annum from the date of the award.
Applicable law: ICSID Convention; Germany-Morocco BIT (2001, in force 2008); international law
Issues in play: The dispute involved the balance between Morocco's sovereign right to regulate its steel industry (through export licensing, customs duties, and tax changes) and the investor's legitimate expectations under the fair and equitable treatment standard.
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