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Home International Tribunals Archive for category "Investor-State Arbitration Tribunals"

Déjà vu? Investment Court Proposals from 1960 and Today

Published on May 15, 2018        Author:  and
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It is not business as usual in investment dispute resolution these days. In late April 2018 in New York, governments and experts met under the auspices of UNCITRAL Working Group IIIto continue vigorously debating how investor-state dispute settlement (ISDS) should be reformed or replacedby an investment court. This is not the first investment court proposal, however.

In the 1950s and 1960s, eminent international lawyers from around the world — Martin Domke, George Haight, F A Mann, Gunnar Lagergren, Elihu Lauterpacht, Raisa Khalfina, and Ignaz Seidl-Hohenveldern, to name a few — discussed an international investment court, notably at International Law Association conferences in 1958, 1960, and 1962. In 1960, ILA participants compared a court and arbitration directly, discussing “Draft Statutes of the Arbitral Tribunal for Foreign Investment” and “Draft Statutes of the Foreign Investments Court.”

Views in 1960, like today, varied sharply. No expert consensus existed that arbitration was better than a court for resolving investor-state disputes. This lack of consensus echoed even earlier debates: in 1905, when ASIL was founded, it was directed “exclusively to the interests of international law as distinct from international arbitration” (as Mark Mazower notes, page 92) because arbitration involved a compromise between interests rather than fidelity to the law. For ASIL founder Elihu Root, arbitration was an advance toward peace, but “the next advance to be urged along this line is to pass on from an arbitral tribunal…to a permanent court composed of judges who devote their entire time to the performance of judicial duties.” (Root might smile if he could see European officials coming to ASIL to discuss why an investment court should replace arbitration.) Unlike ASIL’s founders, arbitration’s supporters in 1905 praised the modesty of its procedures and goals—it was imperfect but feasible.

Feasibility was emphasized again in the 1960s, by attendees at the 1960 ILA conference and at the ICSID Convention’s drafting a few years later. This perception of feasibility stemmed in large part from assumptions made about arbitration in the 1960s, including that arbitral tribunals would not be agents of legal development, that appointing arbitrators was simple, and that arbitration was low cost. One can no longer make these assumptions about investor-state arbitration.

Today, reforming arbitration and creating a court are not mutually exclusive, nor are they only options under consideration at UNCITRAL. They are “elephants in the room” at UNCITRAL, however, so it’s interesting to compare how these two dispute resolution mechanisms look to participants today with how they looked in 1960. In this post, we cover three issues: legal development, appointments, and costs. Read the rest of this entry…

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Crimea Investment Disputes: are jurisdictional hurdles being overcome too easily?

Published on May 9, 2018        Author: 
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In February-March 2014, Crimea experienced what is here neutrally referred to as a ‘change of effective sovereign’ (as conceded by Ukraine itself). Subsequent events have given rise to at least nine investment claims by Ukrainian nationals against Russia in connection with their investments in Crimea made prior to the ‘change of effective sovereign’. Substantively, all cases pivot on alleged violations of the expropriation and FET (fair & equitable treatment) clauses of the 1998 Russia-Ukraine BIT. Before getting there, however, a series of jurisdictional hurdles need to be overcome. Firstly, whether the scope of the BIT covers also de facto (as opposed to de jure) territory. Thus, whether under the BIT, Crimea may be understood as Russian territory. Secondly, the BIT’s temporal and personal ambit of application. That is to say, whether Ukrainian nationals and their businesses existing in Crimea prior to the ‘change of effective sovereign’ may qualify, respectively, as foreign Ukrainian investors and investments in Russia. It is doubtful that these questions which, are inevitably intertwined with the public international issue of the legality of the ‘change of sovereign’, can be satisfactorily answered through ‘effective interpretations’ and/or drawing analogies from human rights law. The scope and rationale of investment law differs from that of the latter; the promotion and protection of bilateral business is pursued for the benefit of economic growth, while the protection of fundamental rights and freedoms of persons is undertaken for the good of human kind.  In fact, it is reflected in the standard dispute settlement mechanism envisaged i.e. private ad hoc arbitration v standing international court.

Jurisdictional decisions in five proceedings have recently been rendered. To date, none of these have been made public. Nevertheless, important passages of their reasoning have been uncovered by trusted sources. These allow for a preliminary review of the tribunals’ assessment of the key legal issues involved. Read the rest of this entry…

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Achmea: The Fate and Future of Intra-EU Investment Treaty Awards under the New York Convention

Published on May 8, 2018        Author: 
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On March 6, 2018, the CJEU rendered its judgment in the long-awaited Slovak Republic v. Achmea case (Case C-284/16). This case involved a preliminary reference from the German Bundesgerichtshof in the context of setting aside proceedings initiated by Slovakia against a 2012 award, which was rendered by an investment tribunal in accordance with the UNCITRAL Rules under the BIT between the Kingdom of Netherlands and Czech and Slovak Federative Republic, in force since 1992. Based on its analysis of certain provisions of the EU Treaties (TEU and TFEU), the CJEU ruled that an Investor-State Dispute Settlement (“ISDS”) provision in an intra-EU is not valid under EU law.

Thus far, the academic discussion surrounding the case has focused on the fate and future of Intra-EU BITs (see here and here) but has not ventured into the consequences of the decision for the arbitral awards rendered under these BITs. Since the Achmea decision forms part of EU law and is binding on the national courts of all EU Member States, it reasonably follows that national courts within the EU must now refuse to recognize and enforce non-ICSID awards based on ISDS provisions in intra-EU BITs. However, under Article III of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“New York Convention”), national courts within the EU also have an obligation to recognize and enforce arbitral awards except where one or more of the seven grounds under Article V apply. This piece utilizes this legal conflict that courts within the EU now face as its starting point and explores the practical implications of the Achmea decision through the lens of Article V of the Convention, focusing on two grounds in particular: violation of public policy and invalidity of the arbitration agreement. Read the rest of this entry…

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Remaking the World towards ‘Fair and Reciprocal Trade’? The Case for (More) Interdisciplinarity in International Economic Law

Published on November 17, 2017        Author: 
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Geopolitical changes were on full display last week at multiple economic summits in Asia, where red carpet pageantry converged with the dramatic publicity of States brokering new deals at the regional meetings for the Asia-Pacific Economic Cooperation (APEC) in Viet Nam, the Association of Southeast Asian Nations (ASEAN) Heads of State Summit and the 12th East Asia Summit (EAS) in the Philippines, the side meetings of the China-led 16-country bloc drafting the Regional Comprehensive Economic Partnership (RCEP), the Japan-led Trans-Pacific Partnership-11 (recently renamed into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), with considerable focus on United States President Donald Trump’s 12 day tour in Asia for these meetings as well as for bilateral trade talks with Japan, South Korea, and the Philippines.  In Viet Nam, US President Trump suddenly renamed the Asia-Pacific into the “Indo-Pacific”, a deliberate policy strategy to define Asia beyond China’s growing hegemony into a sphere of alliances built with India, Japan, and other Southeast Asian countries.  

The Asia economic summits conveyed the implicit assumption that international trade and investment treaties had to be revised or rewritten towards “fair trade”, even if there were differing understandings of what that fairness meant.  US President Trump’s address at APEC demanded “fair and reciprocal trade” as part of his ‘America First’ policy, blaming trade agreements for serious US trade deficits with China and other countries. Canadian Prime Minister Justin Trudeau delayed agreeing to renew the TPP partnership under the aegis of the CPTPP, pushing for Canadian interests in ensuring strict environmental and labour standards in the agreement, and succeeding in suspending the problematic provisions in the intellectual property chapter which the US had originated in the TPP draft.  Newly-minted New Zealand Prime Minister Jacinta Ardern claimed victory with the suspension of investor-State dispute settlement clauses from the CPTPP, in favour of compulsory domestic court adjudication for any investment disputes.  In contrast, China took up the cudgels for globalisation and the established institutions and processes of the multilateral system, with Chinese President Xi Jinping firmly declaring at APEC that “economic globalisation is an irreversible historical trend…in pursuing economic globalisation, we should make it more open and inclusive, more balanced, more equitable and beneficial to all.”

The recent pronouncements by world leaders should be of considerable interest to international lawyers, given the heightened political and economic expectations placed on international economic agreements (trade and investment treaties), and what social outcomes they should (or should not) produce beyond the traditionally narrow objectives of liberalising foreign market access.  The international economic system is moving towards a multi-speed configuration of States oscillating between competing economic ideologies (e.g. resurgent new forms of “mercantilist protectionism”, revised ‘mainstream’ neoclassical economics, ‘new’ behavioural economics, among others); changing philosophies of government (e.g. the revival of authoritarianism and ‘illiberal’ democracies, leaning away from liberal democracies); evolving theories on the regulation of property, competition, and information given rapidly-developing technologies (e.g. artificial intelligence and the explosion of automation in supply chains, the domestic and transnational social impacts of the digital ‘sharing’ economy, climate change-driven restructuring to consumption patterns and production processes); and expanding understandings of domestic and transnational challenges to global public goods (e.g. environment, health, peace and security, among others).  Accordingly, there is an even greater burden for international lawyers (especially those that assist or advise States drawing up their respective visions for a new global economic architecture), to clarify and be transparent about how the political, economic, and social ends sought will be effectively met through the current and future mechanisms of international economic law and its institutions for governance and coordination.  Beyond the fog of press publicity, are we candidly and accurately communicating to the politicians the actual limits of international economic treaties, along with their potentials?  

In this post, I argue that international lawyers – especially international economic lawyers tasked with drafting, revising, critiquing, and building the new bilateral, regional, and global constellation of economic treaties – increasingly have to deepen interdisciplinarity, and not just in the sense persuasively observed by Tom Ginsburg and Gregory Shaffer as the “empirical turn in international legal scholarship” (106 American Journal of International Law (2012), pp. 1-46. Perhaps more fundamentally, international lawyers need even more interdisciplinarity, because we are at present hard-pressed to approximate, if not achieve, an idea of “fairness” in the international economic system’s treaties and institutions (no matter how contested that sense of “fairness” is, to begin with).  If we accept that the “fairness of international law” is legitimately our concern as international lawyers and scholars (as Thomas Franck famously argued), we should be more open to readily engaging the interdisciplinary assumptions marshalled in the reform and remaking of international economic treaties and institutions today.  

While we may not of course be the experts in these other disciplines, and we should, indeed, preserve the “relative autonomy” of international law (as Jan Klabbers cautions), some sharpening of our interdisciplinary sensibilities can nevertheless be useful in helping us to test the “good faith” nature of any postulation or assertion on the desired weight, form, content, and structure of our international economic treaties and institutions.  I use three examples of unstated assumptions in the debate over international economic treaties today that illustrate where interdisciplinarity is sorely lacking: 1) that international economic treaties can somehow erase trade deficits and permanently prevent trade imbalances; 2) that international economic treaties can anticipate and provide the most appropriate and suitable dispute resolution mechanism for the particular States parties to these treaties – for the entire life of these treaties – which is problematic with the growing depiction of a supposed ‘binary’ choice between investor-State dispute settlement mechanisms (ISDS) and local court adjudication (and/or political risk insurance); and 3) that international economic treaties can be designed to fully create desired social, environmental, labor, health, education, and all public interest outcomes.  I posit that while interdisciplinarity may show us that international economic treaties could be a correlative, if not possibly one of the causal, factors for desired outcomes, and that we can probably design them with sensitivity and vigilance towards controlling the negative externalities they cause and encouraging positive distributive consequences, the international economic treaty-writing (and rewriting) exercise is complex. We cannot – as politicians do – simplistically oversell or lionise these treaties as somehow the definitive “one size-fits all” solution to remake the world towards “fair and reciprocal trade”.

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The MERCOSUR Protocol on Investment Cooperation and Facilitation: regionalizing an innovative approach to investment agreements

Published on September 12, 2017        Author:  and
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The States Parties of the MERCOSUR (Argentina, Brazil, Paraguay and Uruguay) signed in April 2017 the Protocol on Investment Cooperation and Facilitation (“MERCOSUR Protocol”).

As discussed in this post, the Protocol draws significantly on the Brazilian model investment agreement (the Agreement on Cooperation and Facilitation of Investments – ACFI), which stands out for departing from the traditional design of Bilateral Investment Treaties (BITs), particularly – but not only – by excluding the possibility of investor-State dispute settlement (ISDS).

The emergence of the MERCOSUR Protocol has implications at the level of investment policy, as it represents a step towards the regionalization of the Brazilian model. It reflects the attempt to include in a single document the realities of four countries with important political, economic and investment policy differences, as expressed by the varying trajectories of Argentina and Brazil in the investment area.

It also raises interesting questions from an international law perspective. It highlights the legal challenges faced by Brazil, which not only joined the network of international investment agreements (IIAs) as a late-comer but also opted for embracing a particular approach to investment treaties. Accordingly, aside from provisions that innovate in investment law-making, the MERCOSUR Protocol incorporates provisions whose intention seems to be to insulate Brazil from applying protection standards often found in the over 3,000 treaties that now comprise the network of BITs, but which have been deliberately absent in the ACFI.

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A Possible Approach to Transitional Double Hatting in Investor-State Arbitration

Published on July 31, 2017        Author: 
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In a recent ESIL Reflection, Malcolm Langford, Daniel Behn and Runar Hilleren Lie examine “The Ethics and Empirics of Double Hatting” in investor-state arbitration. (For the full article, see the Journal of International Economic Law). They found that a total of 47% of the cases they studied involved at least one arbitrator simultaneously acting as legal counsel. They also showed that the practice of double hatting is dominated by many of the most powerful and influential arbitrators in the system (who are often referred to as forming the system’s “core”). In some cases, double hatting occurs as a younger counsel transitions into being an arbitrator. But, “empirically, double hatting is more a norm than transition,” they conclude.

To me, there is a difference between the argument against double hatting in the core and in the periphery of the system. In the core of the most well established arbitrators, I think that the argument against double hatting in investor-state arbitration is strong. But in the periphery, when dealing with relatively new arbitrators or those with few appointments who are transitioning within the system, I think that a more nuanced approach is required. Why? Read the rest of this entry…

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Rising Legal Costs Claimed by States in Investor-State Arbitrations: The Test of ‘Reasonableness’ in Philip Morris v. Australia

Published on July 12, 2017        Author: 
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The Final Award Regarding Costs in Philip Morris v. Australia recently became public this July 2017 (although dated as of 8 March 2017), in (somewhat surprisingly) redacted form, signed by arbitrators Professor Karl Heinz-Bockstiegel (President), Professor Gabrielle Kaufmann-Kohler (Co-Arbitrator) and Professor Donald Mc Rae (Co-Arbitrator). Reasons were not given for the redaction of virtually all monetary amounts from the Final Award Regarding Costs, and the actual numerical figure of costs awarded to Australia was likewise redacted.  The Financial Times reported, however, that legal costs and fees that Australia claimed against Philip Morris will likely run to AUD $50 Million, or approximately USD $37 Million. For sure, according to the redacted Final Award, the figure that Australia claimed as legal costs and fees incurred defending against Philip Morris is much higher than the maximum legal fees and costs that have been claimed by the United States (USD $3 Million) and Canada (USD $4.5 Million) (Final Award Regarding Costs, para. 74.).

Assuming that the reported USD$37 Million/AUD$50 Million claim of Australia for legal costs and fees is correct, these would amount to almost 1% of Philip Morris’ USD $4.2 Billion claim against Australia, quite in contrast to around 1/10 of 1% of legal fees that Russia was ordered to pay (around USD$60 Million in legal fees) in the famous US$50 Billion Yukos arbitration.  Clearly, the alleged Australian US$37 Million claim for legal fees and costs against Philip Morris would be a staggering outlier against a trend observed in the last five years of ICSID arbitrations, where: “a study of ICSID arbitrations concluded between FY2011 and FY2015 reveals that costs incurred, on average, by claimants were US$5,619,261.74, and US$4,954,461.27 by respondents.”  This post examines the Philip Morris v. Australia tribunal’s reasoning on legal costs and fees to identify variables and considerations deemed relevant by the tribunal in reaching its conclusion awarding full costs to Australia (with the caveat that the exact figures of the costs are redacted from the Final Award).  After all, rising legal costs and fees should be a concern for largely self-regulated international lawyers, whose duties of professionalism include “avoiding unnecessary expense or delay” (The Hague Principles on Ethical Standards for Counsel Appearing before International Courts and Tribunals, Principle 2.3).   Read the rest of this entry…

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The Shifting Landscape of Investor-State Arbitration: Loyalists, Reformists, Revolutionaries and Undecideds

Published on June 15, 2017        Author: 
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The investor-state arbitration landscape is shifting under our feet. The utility and legitimacy of traditional investor-state arbitration have come under fire, but states have not converged on a viable alternative. In simplified terms, three main camps are developing, which I call the “loyalist,” “reformist,” and “revolutionary” camps. The vast majority of states, however, are yet to take a public position on whether and, if so, how to reform investor-state dispute settlement. These “undecided” states are not a homogenous group, nor are they necessarily passive. Many states within this group are actively watching these developments and debating the various reform proposals.

One of the big strategic questions for the investment treaty system in the next few years will be whether the loyalists, reformists or revolutionaries will be able to attract a critical number of the undecideds to their cause in order to create a reasonable measure of convergence on a particular approach. The alternative is that the undecideds will split among the existing camps and/or develop their own distinct or hybrid positions. Another question is whether any members of the existing camps will shift their alliances. It is unclear how this will ultimately play out. What is clear, however, is that the tide appears to be turning against the traditional model of investor-state arbitration as it has few – if any – real supporters among states.

Loyalists, Reformists and Revolutionaries Read the rest of this entry…

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Foreign control and ICSID jurisdiction on Energy Charter Treaty Claims of Local Companies: The Eskosol Case

Published on June 12, 2017        Author: 
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The ICSID tribunal in Eskosol in liquidazione v. Italy rejected Italy’s Rule 41.5 application to have the claim thrown out for being “manifestly without legal merit.” I offer a summary and some reflections on two interesting aspects on the tribunal’s jurisdiction.

Background

The claimant challenged, under the Energy Charter Treaty (ECT), Italy’s 2011 regulatory rollback regarding a feed-in tariffs (FIT) scheme (check this report by the claimant’s lawyers). Investment connoisseurs are familiar with the topic, litigated in Charanne, Eiser and other exhausted or pending cases, some confidential. The claimant is an Italian company, Eskosol in liquidazione (bankruptcy receivership). Eskosol claims to have invested in a 120-megawatt photovoltaic energy project, expecting to benefit from the 20-year FIT scheme. At the time of the rollback, the Belgian company Blusun held 80% of Eskosol. Eskosol alleged that this change rendered its business unviable. It abandoned its projects, became insolvent and entered bankruptcy receivership in November 2013. In December 2015, the tribunal-appointed receiver brought the ICSID claim, on the company’s behalf.

Blusun, the Belgian company controlling 80% of Eskosol, had brought ICSID proceedings  in 2014, under the ECT, against the same measures. Eskosol attempted to file a non-party submission in that arbitration, asserting that Blusun had usurped its claim and sought damages owed to Eskosol alone. Blusun’s abusive claim would prejudice the rights of Eskosol, its creditors and its minority (non-Belgian) shareholders, since Blusun showed no intention to channel any potential gain to Eskosol. Eskosol’s request was denied. Blusun’s claim failed on the merits in December 2016, and in May 2017 Blusun launched annulment proceedings.

The Decision 

In Eskosol, Italy raised four Rule 41.5 objections for expedite consideration (i.e., invoking glaring legal impediments and not hinging on disputed facts [36; 98]; see Álvarez y Marín [95]). The tribunal considered Eskosol’s claim not “manifestly” meritless. This conclusion does not prejudge the defendant’s full preliminary objections, which the tribunal shall examine, jointly with the merits, in the next phase. Read the rest of this entry…

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A Turning of the Tide against ISDS?

Published on May 19, 2017        Author: 
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The Court of Justice for the European Union fired a significant shot at investor-state dispute settlement (ISDS) this week, and the result is likely to be much more than just a flesh wound. In deciding that the European Union did not have exclusive competence to enter into agreements including ISDS clauses, the Court made it significantly more likely that the EU would jettison these clauses from its Free Trade Agreements (FTAs) and seek to conclude separate, parallel agreements dealing with dispute resolution. Along with a series of other developments, this may mark a turning of the tide against the inclusion of ISDS clauses in trade and investment agreements.

Background to the European Court’s Opinion

This week’s landmark case concerned the European Union’s competence to enter into the EU-Singapore Free Trade Agreement. This is a newer style FTA that, in addition to covering classic trade issues, like reductions in customs duties, includes provisions on a range of other trade-related matters, such as intellectual property protection, investment, public procurement, competition and sustainable development. This FTA also included investor-state arbitration.

The question that the Court had to grapple with was whether the European Union had exclusive competence to enter into such agreements, or whether this competence was shared between the EU and the Member States (or even fell within the exclusive competence of the Member States), at least with respect to certain issues. The European Commission and Parliament wanted EU exclusive competence, but this received pushback from many of the Member States.

In many ways, the Court handed a significant victory to the European Union on these issues. Going further than had been suggested by the Advocate General’s Opinion in that case, the Court found that the European Union had exclusive competence over almost all aspects of the EU-Singapore FTA, which paves the way for them to enter into such agreements without requiring the approval of all of the Member States. But this general ruling was subject to two notable exceptions. Read the rest of this entry…

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