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

A Turning of the Tide against ISDS?

Published on May 19, 2017        Author: 

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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Modifying the ICSID Convention under the Law of Treaties

Published on May 11, 2017        Author: 

Prospects for the institutional reform of investor-State dispute settlement (‘ISDS’) include superimposing an appellate mechanism onto the existing arbitration framework and, in the alternative, replacing that framework with a self-standing international court. While the latter option constitutes a more radical departure from the status quo, the former raises legal questions concerning the modification and potential breach of existing ISDS treaties. In particular, the ISDS model found in recent EU treaty texts (EU-Canada CETA, EU-Vietnam FTA, and draft Transatlantic Trade and Investment Partnership) raises the question of whether ICSID Members may establish an appellate mechanism inter se. This question’s importance extends beyond the EU model, as it concerns the broader feasibility of any appellate mechanism with multilateral aspirations. The authors consider that such modification is permitted by Article 41(1)(b) of the Vienna Convention on the Law of Treaties (‘VCLT’), under which Contracting States may agree to treaty modification inter se if:

the modification in question is not prohibited by the treaty and:

(i) does not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations;
(ii) does not relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole.

Whereas the chapeau concerns an express textual prohibition, the respective conditions in sub-clauses (i) and (ii) encompass prohibitions which may be implied in the relationship betwee the modified provision and other aspects of the treaty. The three conditions must be satisfied cumulatively. Read the rest of this entry…

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Would a Multilateral Investment Court be Biased? Shifting to a treaty party framework of analysis

Published on April 28, 2017        Author: 

I have recently been pondering a common complaint voiced against the EU and Canada’s proposal for a multilateral investment court, which is that it would be biased against investors because all of the judges would be selected by states (see, for example, the ABA’s Report here and Judge Schwebel’s speech here). In my view, this criticism is misguided because it confuses the role of states as disputing parties and as treaty parties. States have dual roles in the investment treaty system: they are treaty parties with a legitimate interest in the interpretation and application of their treaties and they are disputing parties with a desire to avoid liability in particular cases. When it comes to questions of institutional design, I think that we need to adopt a treaty party framework of analysis, not a disputing party one.

In a particular dispute, an investor can appoint one arbitrator and a state can appoint another. Once a case is filed, it is hardly surprising that both disputing parties would seek to appoint arbitrators who are broadly sympathetic to their positions. This tends to generate polarization within the field with arbitrators often being thought of (whether accurately or not) as having either a “pro-investor” or a “pro-state” bias. This division helps to explain why, when judged from the perspective of the dispute resolution framework, investors and members of the arbitral community have raised concerns that having tribunals selected by states only would lead to biased results. This is so even though neither the claimant investor nor the respondent state would appoint the particular tribunal members tasked with hearing the case.

When it comes to institutional design, however, we need to shift our focus from the disputing party framework to the treaty party framework. Read the rest of this entry…

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Stability vs. Flexibility: Can the European Union find the Balance?

Published on April 25, 2017        Author: 

To what extent can a State forego its contractual commitments, in particular those arising from a stabilization clause for human rights and environmental protection? (“under a stabilization clause, the host State commits itself either not to enact changes of the domestic law in the future, or at least, not to apply such changes to the investor”, Ohler, Concessions, Max Planck Encyclopedia, 2009.) Our assumption is that stabilization clauses and states’ rights to regulate should be integrated and not be taken as opposite obligations, considered as incompatible. In other words, if framed correctly, stabilization clauses can balance the two conflicting needs at stake: the sanctity of contract and a state’s right to regulate to protect its public interest (Leben, L’évolution de la Notion de Contrat d’État, Revue de l’arbitrage, 2003; Carbone, Luzzatto, Il Contratto internazionale, 1996; Giardina, State Contracts, national versus international law, The Italian Yearbook of international law, 1980; Fatours, International Law and International Contract, 1980; Mann, State Contracts in International Arbitration, 1967).

This post examines whether the (fairly) new European exclusive competence on foreign direct investment changes the way stabilization clauses should be framed in EU State contracts to avoid potential conflicts. There are two different kinds of possible conflicts that could arise: first involving either provisions among themselves, or second, the two different legal regimes at stake (the international and the European).

Read the rest of this entry…

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The Constitutional Frontiers of International Economic Law

Published on March 9, 2017        Author: 

The End of Mega-Regionalism?

The future of ‘mega-regionals’, like the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP), has become doubtful since President Trump took office. Through decisions, such as the withdrawal from TPP, he is putting his rhetoric to ‘Make America Great Again’ in action. Yet, the idea to put national values first is not, I argue in a recent issue of the Journal of World Investment and Trade, so different from opposition to mega-regionals elsewhere. Both the ‘new America’ and opponents to mega-regionals in Europe speak in favor of disengaging from mega-regionals and replacing them with action by the nation state. At the same time, rejecting mega-regionals will result in sticking with the existing international institutional infrastructure that is widely regarded as insufficient to effectively regulate globalization for the better.

Despite similarities in their effects, there are important differences across the Atlantic. In the European Union, opposition most vocally comes from the left, not from the right. It also does not come from an elected executive, but from large numbers of citizens and opposition parties, as well as a smaller number of Member States, or even sub-divisions of Member States – think of Wallonia. And it is couched in entirely different vocabulary: Rather than speaking the language of nationalism and protectionism, opposition in the EU invokes constitutional values and rights – namely democracy, the rule of law, and fundamental rights – which are leveraged against mega-regionals and the institutions they come with, notably investor-state dispute settlement (ISDS) and regulatory cooperation.

Increasing Involvement of Constitutional Courts

Couching opposition to mega-regionals in constitutional language has important consequences: It brings in a different set of actors, namely constitutional courts. Following earlier examples in Latin America, the 13 October 2016 ruling of the German Constitutional Court on an application for an injunction against the Canada-EU Comprehensive Economic and Trade Agreement (CETA) brought by some 120,000 individuals is likely just the first of many court rulings in which international economic law encounters its constitutional frontiers head-on. Read the rest of this entry…

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The Doctrine of Indispensable Issues: Mauritius v. United Kingdom, Philippines v. China, Ukraine v. Russia, and Beyond

Published on October 14, 2016        Author: 

On 14 September 2016, Ukraine instituted proceedings against Russia under the United Nations Convention on the Law of the Sea (UNCLOS). Ukraine is requesting that an UNCLOS tribunal declare, inter alia, that Russia has violated the Convention by interfering with Ukraine’s rights in maritime zones adjacent to Crimea.

At first, there appears to be no jurisdictional problem. Aside from the exceptions laid out in Part XV of UNCLOS, the tribunal has jurisdiction over “any dispute concerning the interpretation or application of [the] Convention” (Art. 288(1) UNCLOS), which would permit a declaration that Russia has violated the Convention. Nevertheless, such a declaration would necessarily require a preliminary determination that Ukraine still has sovereignty over Crimea (under the “land dominates the sea” principle), and the tribunal does not have jurisdiction over territorial sovereignty disputes. Therefore, the tribunal must decide whether it may still exercise jurisdiction over the dispute concerning Russia’s violation of the Convention.

Ukraine v. Russia presents what one may call the “implicated issue problem.” Generally speaking, the implicated issue problem arises when an international court or tribunal has jurisdiction over a dispute, but the exercise of such jurisdiction would implicate an issue over which the court or tribunal does not have jurisdiction ratione materiae. The court or tribunal must therefore determine whether it may still exercise jurisdiction over the dispute. Read the rest of this entry…

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Philip Morris v Uruguay: an affirmation of ‘Police Powers’ and ‘Regulatory Power in the Public Interest’ in International Investment Law

Published on July 28, 2016        Author: 

In recent years there has been criticism that international investment treaties and investor-State arbitration conducted under those treaties increasingly, and unacceptably, have encroached upon the legitimate uses of States’ regulatory power. These concerns have not only been expressed in scholarship, but have also been at the forefront of State negotiations in recent multilateral and bilateral trade and investment agreements (see, for example, the recent discussion by Anthea Roberts and Richard Braddock here on the China-Australia Free Trade Agreement). The concerns have led to policy proposals from States and international organisations for greater safeguards for States to be able to enact measures in the public interest without attracting liability under investment treaties.

Investor-State arbitration tribunals appear to be alive to these concerns. On 8 July 2016, a tribunal (constituted by Professor Piero Bernardini, Mr Gary Born and Judge James Crawford) convened pursuant to the Switzerland-Uruguay Bilateral Investment Treaty (‘BIT’) delivered an award which, by majority, upheld the legality of two tobacco-control measures enacted by the Uruguayan government for the purpose of protecting public health. The award contains an extensive analysis of the interaction between States’ regulatory powers to enact laws in the public interest and States’ obligations to protect and promote foreign investment within their territory. This post will focus on two aspects of the award that considered this interaction: the claim pursuant to Article 5 of the BIT (expropriation) and the claim pursuant to Article 3(2) (fair and equitable treatment or FET).

The challenged measures

The claim, brought by the Philip Morris group of tobacco companies against Uruguay, challenged two legislative measures. First, the claimants challenged a law that mandated a ‘single presentation requirement’ on cigarette packaging, such that different packaging or variants of cigarettes were prohibited.

Secondly, the claimants challenged a law that mandated an increase in the size of health warnings on cigarette packaging from 50 to 80% of the lower part of each of the main sides of a cigarette package (‘the 80/80 requirement’). As the the amicus brief submitted by the WHO and Framework Convention on Tobacco Control (‘FCTC’) Secretariat noted, large graphic and text health warnings are increasingly common on tobacco packaging globally and a number of States have enacted (or are considering enacting) laws with the aim of preventing misleading tobacco packaging, as is required of States parties to the FCTC (including Uruguay). Read the rest of this entry…

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Arbitral Controls and Policing the Gates to Investment Treaty Claims against States in Transglobal Green Energy v. Panama and Philip Morris v. Australia

Published on June 22, 2016        Author: 

Investor-State arbitral tribunals are increasingly policing the gates to investment treaty claims against States. The initiation of investment treaty claims against States remains subject to a high threshold of good faith against possible abuse of process by investors, as recently stressed by arbitrators Dr. Andres Rigo Sureda (President), Professor Christoph Schreuer, and Professor Jan Paulsson, in their 2 June 2016 Award in Transglobal Green Energy LLC and Transglobal Green Panama S.A. v. Republic of Panama. The Tribunal upheld Panama’s objection to jurisdiction on the ground of “abuse by Claimants of the investment treaty system by attempting to create artificial international jurisdiction over a pre-existing domestic dispute.” (Transglobal Award, para. 118). The Transglobal Award was issued six months after another tribunal in Philip Morris International v. Australia [composed of arbitrators Professor Karl-Heinz Böckstiegel (President), Professor Gabrielle Kaufmann-Kohler, and Professor Donald M. McRae] issued its landmark 17 December 2015 Award on Jurisdiction and Admissibility, declaring that: “the commencement of treaty-based investor-State arbitration constitutes an abuse of right (or abuse of process) when an investor has changed its corporate structure to gain the protection of an investment treaty at a point in time where a dispute was foreseeable. A dispute is foreseeable when there is a reasonable prospect that a measure that may give rise to a treaty claim will materialize.” (Philip Morris Award, para. 585.) While to date there is scarcely any doctrinal unanimity over what comprises abuse of process, abuse of rights, or bad faith institution of investor-State claims [see for example Eric De Brabandere, Good Faith, Abuse of Process, and the Initiation of Investment Treaty Claims, 3 Journal of International Dispute Settlement 3, pp. 1-28 (2012), these recent arbitral decisions provide concrete guidance of factors that tribunals have taken into account to determine whether investor-claimants instituted investment treaty arbitration proceedings in good faith.

Read the rest of this entry…

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Protecting Public Welfare Regulation Through Joint Treaty Party Control: A ChAFTA Innovation

Published on June 21, 2016        Author: 

Anthea%20Roberts%20PhotoIf countries wish to protect legitimate and non-discriminatory public welfare regulation from investor-state claims, what options do they have? This post highlights an innovative feature in the recent China-Australia Free Trade Agreement (ChAFTA) that goes well beyond existing safeguards for protecting the regulatory autonomy of states by providing a mechanism for joint treaty party control. In doing so, ChAFTA evidences a new and controversial step in efforts to recalibrate interpretive authority between arbitral tribunals and the treaty parties acting collectively.

Richard BraddockNewer-style investment treaties often seek to protect countries’ regulatory autonomy by reaffirming the importance of public welfare regulation in the preamble; refining and clarifying core investment protections; and sometimes including general exceptions clauses. These approaches are useful but have limits. Preambular provisions are non-binding. Substantive clauses are binding, but states may not wish to allow arbitral tribunals to second-guess the permissibility of sensitive public welfare measures. Even if respondent states ultimately prevail, they are likely to expend considerable resources in time and money in defending claims.

Faced with these concerns, China and Australia broke new ground in ChAFTA by including a mechanism that protects public welfare measures through joint treaty party control. ChAFTA provides that, “Measures of a Party that are non-discriminatory and for the legitimate public welfare objectives of public health, safety, the environment, public morals or public order shall not be the subject of a claim” by an investor (Article 9.11.4). If an investor challenges a regulatory measure, the respondent state is permitted to issue a “public welfare notice” specifying why it believes that the measure falls within this exception. The arbitration proceedings are then suspended and a 90-day consultation period with the other treaty party is triggered (Article 9.11.5-9.11.6).

If the treaty parties agree that the challenged measure fits within the scope of the carve-out, the decision is binding on any investor-state tribunal and any decision or award issued by such a tribunal must be consistent with that decision (Article 9.18.3). Read the rest of this entry…

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