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Session 1: Introduction to the subject matter
and course/regulatory and institutional
Framework
Foreign Direct Investment Arbitration agreements found in treaty documents. Characteristics: Long term contracts Element of risk on both sides Commitment on the side of the state Profit comes over several years Investment relevant/significant for development of host state Lauder invested in a Dutch company which invested in the Czech Republic in creating a private TV channel called Telenova. Czech government felt channel was getting powerful and doing propaganda so wanted to shut them down. This was a classic action of expropriation, so tried to change the management and insisting it should be Czech and not foreign. Brought forth two cases: Lauder v Czech Republic and CME v Czech Republic. Czech won the first and lost the second case. Revocation of broadcasting licence can be a trigger of investment protection. Canadian investor wanted to invest in southern states of the US. He got in touch with franchises but decided not to go ahead with investment. The franchises brought a case against for failure to go ahead with the case. Franchises were awarded punitive damages. Investor appealed but under criminal procedure rules, he had to deposit the amount of money awarded to the successful claimant in the first instance plus 25%. He claimed he had not access to justice and sued the US in a NAFTA case. He was unsuccessful. Regulatory Infrastructure International instruments - any international document (soft law/treaty) e.g. multilateral treaties NAFTA, ICSID, bilateral treaties (BITS (bilateral investment treaty), FTA), Instruments e.g. UNCITRAL arbitration rules. National laws - investment protectional laws, trade policy documents and constitutional law. Ireland does not have an investment agreement with any state but still attracts FDI e.g. Apple. Domestic laws can be attractive to FDI e.g. Greece developed a law for investment protection before becoming a member of ICSID. The concessions given by the Greek government were for 40 years. Constitutional law - Ecuador started receiving claims for
investment protection so changed the constitution and declare any arbitration agreement or any agreement to take out of Ecuadorian courts unconstitutional/illegal. But this didn’t work due to sunset clauses in contracts. ICSID I nternational C entre for the S ettlement of I nvestment D isputes. Natures of ICSID -A centre where agreements under ICSID convention or where parties have asked for ICSID to provide support. -ICSID Convention is the treaty that creates the Centre as a focal point for the administration of investment cases. -An international organisation within the World Bank Group (5 international organisation) which has its own administrative structure. ICSID Convention - 153 countries have ratified it. For the convention to operate, arbitration will happen only if a dispute involves a state party or a state designated agency. There has been a substantial increase in case law Conciliation option - Involves a more active third party and tries to get conciliation between the disputing parties. But these are very few. Nigeria has tried conciliation where 6/10 cases on conciliation involved Nigeria. ICSID Jurisdiction Article 25 Washington Convention (WC) - legal dispute arising out of an investment between a contracting state and a national of another contracting state which has been consented by both to be submitted to the Centre. Autonomous regime Article 53 WC - award binding on parties and not subject to appeal or remedy outside of the convention. Only recourse is annulment through a separate committee which partially or totally annuls the award. Art 54 WC - contracting states give the award legal status but they don’t have to enforce the awarded. BIT Treaty between two countries creating binding legal obligations under PIL
Foreign Affairs signs a treaty, it is binding on the UK, if the ambassador sings the treaty, it is binding on the UK. Relevant cases SPP v Egypt – South Pacific Properties signed an agreement with a state agency to promote tourism in Egypt. This agreement was supposed to build a big resort. On the first page of the contract, there was a stamp by the Ministry approving the contract. The government decided that for cultural reasons, it wasn’t appropriate to have this resort. The agreement had an arbitration clause conferring jurisdiction to an ICC tribunal. SPP prevailed in the arbitration. The Egyptian government applied to the same courts to have the award set aside because they argued the tribunal breached public policy because they didn’t understand that the agreement was an administrative contract (governed by state law). The General Counsel of the WB was Egyptian. There was a BIT which was relevant to this case and ICSID gave consent a priori to arbitration under ICISID. The ICSID consent given under domestic Egyptian law helped SPP go forward to arbitration proceedings where they prevailed again. The question of privity in this case was discussed. It had a positive impact for the investor. National City Bank v Cuba – an American bank had a claim against the government of Cuba. After the diplomatic relationship between US and Cuba, it was difficult for them to enforce in Cuba. The question here was enforcement against financial assets in the US. Cuba had a bank for international commerce which had a presence in the US and had assets there. The US court said there is integrity between the state and state owned bank, so there was enforcement. Western Helicopters Ltd v AOI – Arab Organisation for Industrialisation was an attempt by Arab states to create a regional defence organisation. A number of states joined and paid contribution. The organisation procured defence contracts one of which was Westland. This company delivered the helicopters but was not fully paid. The company wanted to recover the rest of the money they were expecting. Egypt felt that despite being an alliance, Arab states don’t have the same interests and had left the organisation. The organisation was about to collapse but Egypt had clearly left. Could the company go against the organisation or against the member states as parties to the contracts? The tribunal said they can. The states were the founders and successors of the obligations of the organisation. Arbitration without privity
Does the BIT, MIT or national law give consent to be sued in international arbitration? Applicable laws Importance of topic There is a distinction between procedural issues and substantive issues. Roman law did not distinguish between these two; there was only the concept of right/procedural address of right. Procedural v substantial law is a consequence of development in academic law. There’s a different set of rules and laws that deal with both. In an investment case, everything that concerns the organisation and contact of the arbitration Is procedural, anything that determines the rights and obligations of the parties is substantive. Procedural matters are governed by the arbitration rules. They are rarely governed by the BIT. Substantive law will be governed by the BIT. Applicable law will be relevant when choosing the arbitral institution. In ICSID, where there’s a conflict between domestic law and international law, the international law prevails. Under UNCITRAL, the law applicable is whatever the parties have agreed or whatever the tribunal finds applicable. In non-ICISD cases, the wrong application of the law does not have detrimental consequences unless a case can be made that this is a disregard of the law which will infringe on public policy or the tribunal has exceeded its jurisdiction. In ICSID, this can be a basis to challenge the award under the ICSID convention. Therefore, ICSID awards are longer and more reasoned because they know that it’s important to defend their reasoning. Some BIT’s have a ‘fork in the road’ provision, where if you decide to go to national court/ICSID/ICC, you cannot after taking one option, go back and try another one. In the SPP case, the ICC process was a claim by SPP against EGOTH, the second SPP case was against the Egyptian state. There wasn’t a similar identity of parties in both cases, so there was no res judicata. In France, if you have a case against a state-owned company, it has a separate legal personality, so you could claim against the company or a claim against the republic because there’s no similar identity of parties. An umbrella clause allows treaty claims and investment claims (PIL and domestic law) to be under one roof. Determination of applicable laws
protection of treaties Taxation – allows a taxation regime to be stabilised over the conception of investments Transfer of payments – money can be repatriated Expropriation – classical protection, any taking by the state directly/indirectly. The state has the sovereign prerogative to expropriate but they must pay fair compensation for what they took. Compensation for losses – attached to expropriation normally in older treaties. Subrogation – a state/designated agency makes a payment in respect of an investment made in the territory. Settlement of disputes – state-state, investors-investors. Cooling off period ( months), ICSID/ICSID Additional Facility, ICC arbitration, Ad-hoc arbitration. US model BITs – consultation + negotiation, 6 months cooling off period, ICSID, ICSID Additional Rules, UNCITRAL rules, any other institution. Additional content Scope of the Agreement – how far the BIT covers Labour issues – standards of labour protections, important for the US model of BIT. Applicable Laws – US BITs always has provisions saying that the US respects customary international law. Umbrella clause Transparency – this is a movement responding to discussions on the legitimacy of the system. Environment – environmental standards Denial of benefits – this provision controls how far one can go allowing an opportunistic forum shopper to be protected. The US reserves the right to deny benefits to companies which are created for the purpose of forum shopping. Security – national security, defence etc.
Finance Procedural provisions Annexes Treaty interpretation All treaties must be interpreted using the standard view which is the Vienna Convention (1969). Interpretation emerge from the cases: -clear and convincing evidence -mutuality and balance of benefits -protection of covered investments -cannot introduce words of limitation not found in text -most favourable investor -need to have regard to object and purpose of the ICSID system Importance of treaty interpretation Consistency – there is no doctrine of precedent. If we have case law going constantly down one direction, it could create a case for precedent where tribunals would have to justify why they are going down a different route. Appellate bodies have previously been called for by countries such as Argentina. Essentials about treaty interpretation Art 31 of the Vienna Convention calls for good faith interpretation, look at the language, context, object and purpose. Art 32 – if we can’t find meaning looking at the above, recourse may be had to supplementary means of interpretation including preparatory work of the treaty and the circumstances of its conclusion. This does not replace the meaning but only confirms it according to article 31. This happens where the meaning is ambiguous or obscure or leads to a result which is manifestly absurd. BITs, IIA and Future Where BITs are not terminated, they are automatically extended. Reform Substantive protection – fair and equitable treatment is too broad and is therefore meaningless. We may need a tighter concept. ISDS – make arbitration more difficult or add an exhaustion of local remedies.
Art 25 – basis of jurisdiction. There is no definition in the convention/report of the exec directors of world bank that drafted the convention as to what a ‘legal dispute’ is. It must be a legal assessment of the action/inaction of the state or a measure taken against international standards. ( Eureko v Poland ). Investment is also not defined in the convention. The Convention, in the last 15 years, a number of tribunals started to distinguish between admissibility and jurisdiction. International law does not have a concept of limitation of actions. Admissibility may have aspects which are external to the treaty whereas jurisdiction is tied to the treaty. ICSID Jurisdiction Five requirements of jurisdiction: -Legal dispute -Arising directly out of an investment -Contracting state -National of another contracting state -Consent Both parties must consent to ICSID arbitration. A consent to arbitration is often seen as an investment incentive. Consent can be given before and after the dispute. If consent comes after the dispute, it’s called a compromis (state and investor agree to debate, terms and conditions of jurisdiction set out in agreements and entered into after dispute arises). Time of consent Consent can be confirmed before or after the dispute but must be effective/exist when ICSID receives the request for arbitration. BITS Each BIT is different and may not contain a clear consent. It may provide for ICSID arbitration but may only apply to investors who have set foot in the country after the BIT has entered into force, or it could be retroactive. MFN – you may borrow better terms of consent in BITs. Consent to mass claims Abaclat and ors v Argentina – a number of Italian bond holders who bought argentine bonds through Italian banks. They brought a case collectively and the tribunal felt that maybe all of them collectively can be investors.
Argentina argued that mass claims cannot be a matter of IA because no express consent was given. Sovereign debt restructuring cannot be a matter of IA because it’s counterproductive. Tribunal – the mass aspect of the claim is a procedural challenge but has nothing to do with jurisdiction. Therefore it relates to the question of admissibility and not jurisdiction. Limitations Consent can only relate to certain type of investments e.g. Ecuador and petrochemical cases. Some jurisdictions don’t want tribunals to have the power to decide on state liability, they just want tribunals to quantify the damages. Conditional consent You can also have conditional consent to ICSID arbitration e.g. in Canada. Toto SPA v Lebanon – Italy Lebanon BIT. The Convention entered into force in Lebanon on 2003 and Toto accepted the offer made in the BIT in ’04 so they could bring up the case 3 years after consent. ICSID Rules The second date (Acceptance) is critical for ICSID. Tradex v Albania – Albania felt that they shouldn’t participate in the proceedings. Once the decision had been made, Albania decided to participate and later won the case. Can consent be revoked? Kaiser Bauxite v Jamaica – Kaiser had mined in Jamaica for a while, at the time of the acceptance of the investment, Jamaica made an undertaking that the taxation of the facility will be at the time of the investment. The concession agreement provided for ICSID arbitration. In 1974, Jamaica enacted a Bauxite production levy act increasing the taxation and revoked their consent under ICSID. Kaiser started ICSID proceedings. Tribunal – consent could not be withdrawn. Any change in domestic law was for future investments. Expansive/restrictive interpretation Consent can be done restrictively because states believe that the fact that they agreed to arbitration, they chipped away at their sovereignty.
nationality x, we have to look at whether the law sees that individual as a national or an alien of country x. Classic international law Diplomatic protection was only granted on the basis of nationality. Barcelona Traction – diplomatic protection is granted to investors but is in the discretionary power of the state. The state can therefore decide whether to grant it or not. Definitions in investment treaties Treaties often refer to domestic law. Some BITs don’t refer to a national but refer to an investor e.g. a US BIT. The UK model is concerned with registration models, even if a company doesn’t have substantial businesses in the country, it doesn’t matter. Other multilateral treaties have their own decisions too. In order to protect jurisdiction, in addition to granting protection on the basis of nationality, there may be a denial of benefits clause. Even though prima facie you have this protection, you may not be granted the protection. Natural persons We normally look for an objective determination of nationality and a negative condition (you don’t have the nationality of the host state as well). Ioan Micula, Viorel Micula, SC European Food Sa v Romania – Ioan and Viorel gave up Romanian nationality. They created businesses in the Romanian part for packaging services. When Romania became a member of the EU, they moved back to Romania. Romania was offering incentives to foreigners to establish in Romania which was legal before entry into the EU, but once Romania entered the EU it was illegal and the state aid was cut. As soon as the aid as cut, the brothers brought the case. Nationality Requirement (Art 25(2)) Soufraki v UAE – S had been awarded a concession agreement to develop ports in the UAE. He filed a claim under the Italy and UAE BIT from 1995. Was he a national of Italy and how was this proven? The tribunal rejected the claim because it felt that he had lost the Italian nationality. The ICSID convention cannot be used by dual nationals. If you invest in one of your ‘home states’ for example and an issue occurs, because you happen to also have the nationality of that country, you are not allowed to effectively
protect your rights. Juridical person - the ultimate test of foreign control is whether you can exercise influence in terms of shareholding as well as deciding what the company is going to do. If we are looking for nationality of a company, we normally look at incorporation. Dual nationality test of predominance - you can only bring a claim if your predominant nationality is different from the state you want to bring a claim against. Tokios Tokeles v Ukraine – the claimant, a Lithuanian company incorporated in Ukraine in order to use his company to reinvent in Lithuania.
SESSION 6: ICSID III – Jurisdiction – ratione
personae and wrap up
Ratione Materiae Art 25(1) – a legal dispute arising out of an investment. Siemens AG v Argentina – a dispute may arise directly out of an investment made directly/indirectly by an investor. Definition of investment The New York Convention helps protect foreign arbitral awards through enforcement. But there’s no definition of arbitration or award. In ICSID, when you bring a claim from a BIT, you have to prove you have an investment: (i) under the BIT – treaties normally have a broad definition here, (ii) comply with the definition under the convention. The official interpretation of the ICSID convention stated that there was no attempt to define the term ‘investment’. Fedax – the tribunal said that in order to fall within the scope of the Convention, an investment should have a certain duration, regularity of profit and return, assumption of risk, substantial etc, The Salini test – the project should have a certain duration, there should a certain regularity of profit and return, there is typically an element of risk for both sides, the commitment involved would have to be substantial, the operation should be significant for the host states’ development. You would need as many of these characteristics as possible in order to be classed as
Appointment of arbitrators Art 37 Washington Convention. The arbitrators must have your confidence, the capacity to resolve the dispute and appear to provide all the necessary human infrastructure to get to the right outcome of the case. There is a three-step approach: -decide number of arbitrators -select and appoint tribunal members -get arbitrators to agree to act The claimant may propose a number of arbitrators within 10 days of the filling of the request. But ICSID will still ask the parties whether they’ve agreed. If within 60 days, there’s no registration, then the default ICSID system is activated – there will be three arbitrators, one appointed by either party and the president appointment by the agreement of the parties (list and ballot). Once the arbitrators have been appointed, they must accept it formally. This requires that they make a declaration. Nationality – the majority of the arbitrators will be nationals of states other than the nationalities of the parties to the dispute unless the parties agree that their arbitrators will come from their nation state but the president has to be from a completely different jurisdiction. There have been challenges of arbitrators from earlier cases but have been intensified. For most people, the process is unsatisfactory because ICSID states that the other two members of the tribunal decide the challenge to one of their arbitrators. Depending on the timing, it is difficult to disqualify one of their colleagues. The most frequently appointed arbitrator is Prof Bridgitte Stern and there have been challenges against her. ‘should we interview arbitrators’ – ICSID protocol paper on interviewing – Party appointed arbitrator (Alfonso Gomez) ‘Issue conflicts’ – Eureko v Poland – Poland challenged two of the arbitrators. One of the challenges was to a former president of the ICJ and when he retired, he had an office in Sidley Austin. The essence of the challenge was that in another case, he was acting as counsel against Turkey and in this case, an argument was made from the claimant which was similar to the issue to be decided in Eureko. They said that he had a vested interest in having a decision which is similar to what is being held in the other case and use this award as persuasive.
It is beneficial for an arbitrator to be a counsel or have counsel experience. The additional problem in ITA awards are being published and they have persuasive authority. Joint task force report on issue conflict. Main cases on challenges of arbitrators Amco v Indonesia – the two unchallenged arbitrators rejected the challenge proposal. Vivendi v Argentina – the standard is a ‘real risk of a lack of impartiality’. This is higher than ‘justifiable doubt’. Siemens v Argentina – Argentina requested to disqualify an arbitrator and the co-arbitrators disagreed. The complication of the challenge was that the arbitrator was an ICSID staff so the matter was referred to the Permanent Court of Arbitration. Suez v Argentina – disqualification of Kauffman-Kohler. The challenge was based on the fact that he was a member of a tribunal in Vivendi which gave an award against Argentina. The tribunal dismissed the challenge and took the view that he was impartial. The argument was that there was an improper constitution of tribunal and against the IBA guidelines. Multiple appointment cases Tidewater v Venezuela OPIC v Venezuela – a party’s choice of arbitrator involves forensic decision that is clearly related to a judgement by the appointing party and its counsel of its prospect of success. We must be guided by the IBA guidelines. Perenco v Ecuador – the arbitrator involved had done an interview addressing the subject matter of the arbitration. When the challenge was brought up, he resigned. Successful challenges Blue Bank v Venezuela – the law firm represented another firm against Venezuela. The standards of the challenge rule are described in Saint-Gobain v Venezuela: (i) It must be shown that the facts could lead a reasonable person to conclude that there’s a possibility that the challenged arbitrator is not independent and/or impartial (ii) If there are such facts, then it will be for the tribunal to decide.
to the arbitration. Written pleadings Claimants submissions, Respondents counter-submissions, claimants reply and respondent’s rejoinder. Every memorial will have all the relevant facts, the law and how it applies to the facts, the argument and any evidence the party plans to rely upon. One of the important things in the preliminary meeting is whether to bifurcate or not and this affects the length of the whole procedure. Art 43 talks about evidence. The tribunal may call upon the parties to produce evidence. Evidence will either be witnesses or documents. There is a movement to explore whether the tribunals should use witnesses or not. The argument is that it’s likely that the witness will not remember the real facts, but those fed back to the witness by the parties. However, sometimes it’s the witnesses that give you the real feel of the case and it becomes a much more human story. Arbitration rules 34 – document production This is an important stage of the arbitration because it allows parties to work on a good footing. Art 43 speaks about production of documents as well. This request has to be specific. It has to explain the documents/classes of documents requested, why are these documents relevant and material, the requesting party has to state that it doesn’t have the documents and why they think the other side has it. Provisional measures Art 47 and Rule 39. In art 47, the tribunal may recommend any provisional measures to preserve the rights of either party unless the parties otherwise agree. The tribunal cannot order interim measures like in domestic courts, but under ICSID, there’s a recommendation. A tribunal does not have coercive power, so they can only recommend. Because it’s a recommendation, the tribunal can make it of their own initiative and don’t need parties to apply, or can make recommendations different to what the parties asked for. In most of the cases, the requests for interim measures are denied. But in CSOB v Slovak Republic, the tribunal made a recommendation. Plama v Bulgaria – the tribunal argued that interim relief should not be recommended because there were other remedies the investor could pursue.
Measures to be requested are those that preserve the rights of a party. There are conditions attached to the granting of measures: -urgency -necessity – without it there would be irreparable harm -rights are in dispute – can be procedural rights. The hearing Opening by moving party, opening by responding party, moving party leads its witnesses (examination of witnesses and experts – direct, cross, re- direct), closing by moving party, closing by responding party. There is a policy of limited transparency (art 6, 15, 32, 37 and 48). There is also the possibility of open hearings because some treaties have an open hearing proposal. Unless either party objects, then the tribunal can allow parties access to the hearing. Confidentiality Proceedings are held in private unless you have access. Submissions of parties are confidential, no general obligation of confidentiality. There are different rules and expectations from ICSID, the tribunal and the parties. ICSID must publish extracts from the awards if there’s no consent to publish the full award. Arbitrators cannot discuss any of the issues in the case or the contents of the award. Parties may be under an obligation to disclose information e.g. if they’re a publicly listed company. The release of information has to be limited. In recent cases, the confidentiality has been driven by the state. States are concerned that the awards may affect their credit-worthiness. Non-disputing parties Rule 37 allows certain parties to participate e.g. a natural/juridical person, an NGO, a REIO, a state. Amicus Curiae – an independent third party intervenes in the process and produces an opinion that the disputing parties themselves cannot represent adequately and so can assist the tribunal in forming a full picture. Aguas, Suez and Vivendi were the first cases to have amicus curiae. They cannot get access to the hearings or the documents that were presented to the tribunal. Glamis Gold – this was about a concession in a gold mine granted by the US government with a level of interference. The dispute was that the investor felt that he was being discriminated against. The land where the mine was, was ancestral land of American indigenous populations. The place where
