Category Archives: Okategoriserade

Frequent standards of protection: full protection and security (FPS)

Old and very used wooden Rubber StampOur first text about standards of protection in investment treaties is about the frequently occurring provision giving investors “full protection and security” (FPS). Most investment treaties contain this language, or wording similar to it.
In older treaties, the language is usually relatively short. These clauses have historically been interpreted to provide physical protection against interference with foreign investments, particularly during conflicts and/or in regions where the police power might interfere with foreign property.

The very first ISDS case, AAPL v. Sri Lanka, is an example of this interpretation. AAPL won its case against Sri Lanka, after the state was found to have neglected its duty to take precautionary measures in connection with a security force operation against the rebel group Tigers of Tamil. The operation, and the ensuing battle, destroyed AAPL’s shrimp farm, which the tribunal found could have been avoided if the state had acted differently.

A number of other FPS clauses have been interpreted more broadly, and even been found to encompass legal protection and legal security. Such interpretations of FPS overlap to the aspects of fair and equitable treatment (FET) which protects investors against denial of justice.

How broadly a tribunal interprets full protection and security is largely dependent on the language of the individual clause. Many new treaties therefore clarify the scope of the provision, most commonly by making clear that it only applies to physical protection.

Case Summary: Windstream Energy LLC v. Canada

River Skyline Overlooking Detroit, Michigan as seen from Windsor, OntarioThis case summary is based on the award, which was rendered on September 27, 2016 and published a few months later.

Windstream is an American company, which invested in one of the world’s largest offshore wind power parks, to be located in Lake Ontario. The park has not yet been built, however, and according to Windstream this is due to the Ontario province’s illegitimate cancellation of the project.

In 2010 Windstream received a 20-year contract with Ontario to build the park and initiated the preparatory investments. Shortly thereafter, the province launched a public consultation. In February 2011, the result of that consultation prompted the energy authority in Ontario to halt the project, in order to conduct more scientific studies into the park’s effect on its surroundings.

That paus is still in force and the park has not been built. When Windstream initiated arbitration in 2014, the company argued that Ontario de facto had cancelled the project, since Windstream no longer could meet the deadlines needed to make the project commercially viable. According to Windstream, the conduct violated NAFTA and the company therefore sued Canada, as responsible under international law for the conduct of public bodies in the provinces.

In the award, the arbitral tribunal did not find that the Windstream’s investment had been expropriated, since the company had not been deprived of its assets: the 20-year contract is still in force and could be re-negotiatied.

The tribunal did find, however, that the “fair and equitable treatment” clause of NAFTA had been violated. Although the tribunal stated that the province’s original purpose with the temporary paus seemed genuine, it found that the purpose had not been followed up over time: for example, very little scientific study seems to have taken place. In those circumstances, it was not reasonable to leave Windstream in a “limbo” for such a long time.

Canada was therefore found to be in breach of NAFTA and ordered to compensate Windstream for its losses amounting to some €21 million. This sum was significantly lower than what Windstream had asked for, but the tribunal emphasized that the investor’s contract was still in force and could be re-negotiatied, a fact which limited the losses sustained by the investor.

We have earlier published a summary of a similar dispute, which also arose out of the production of wind power in Ontario. In that case, Mesa v. Canada, the state was successful on all points.

 

Bridging the Climate Change Policy Gap

BLoggIt is clear that to fight climate change, we need to scale up green investment both in terms of amount and geographical reach. However, climate change law, in this case the United Nations Conference Framework on Climate Change and the recently-signed Paris Agreement, do not specifically include terms to promote and protect investment. This is a policy gap.

The SCC, together with the International Bar Association, the International Chamber of Commerce and the Permanent Court of Arbitration, took an initiative to discuss this gap by organising a conference, Bridging the Climate Change Policy Gap: The Role of International Law and Arbitration, in Stockholm on 21 November.

It is noted during the conference that around USD 100 billion in investment over the next fifteen years is needed to combat climate change – a target that is considered achievable. Another speaker emphasised that there is no shortage of capital to address climate change. The challenge is how to get investors to actually invest and how to match the capital with the green investments.

It appeared to be a consensus among the speakers that good policy is key to attracting sustainable investments. Policy needs to be long-term and stable. Short-term policies, often associated with government’s turnover, caused bad impacts, from high transaction costs to the fact that the industry had to fire and re-hire employees depending on how policy is.

A panel of lawyers discussed how litigation has been used to fight climate change, directly and indirectly. Among other things, renewable energy investors have resorted to international arbitration to bring a claim against government for unstable policies and revocation of incentives. Another case being discussed in depth was Urgenda Foundation v. the Netherlands where a Dutch district court ruled that the government has breached its duty of care to its citizens by not doing enough to address climate change.

It may be foreseen that these types of cases, both in domestic and international fora, will propel the right type of government actions.

A report from the conference with more details will be published soon.

 

Practical guide: information about ISDS

Books close up are on the tableIt could be difficult to get an overview of what happens in the ISDS world. This is because the international nature of this field and the fact that it lacks centralized information system. However, things are happening fast – new arbitral awards are rendered and states are concluding and terminating international investment agreements (IIAs)

We offer some practical guides to ISDS through the following sources.

 

Free services:

Italaw

The website, which has been around for a long time, publishes arbitral awards and other documents from ISDS proceedings. Researchers at the University of Victoria are managing the website. If you search for a particular ISDS dispute on the internet, it is often that Italaw comes first, which may indicate that the website has been visited a lot.

UNCTAD

The website of the United Nations Conference on Trade and Development provides user-friendly search functions for both arbitral awards and IIAs that contain ISDS as dispute settlement mechanism. In addition, it publishes reports on new updates and statistics on IIAs and ISDS.

PluriCourts Investment Treaty Arbitration Database (PITAD)

PITAD is a database project of all known ISDS cases, currently under construction by the University of Oslo. The database can be accessed via a request to the responsible researchers.  The researchers behind the project takes empirical approach and uses coded variables to classify hundreds of well-known arbitral awards.

ICSID and PCA

ICSID administers most ISDS cases and automatically publishes information about them (as long as the parties do not actively object to it). PCA, on the other hand, publishes information with the consent of the parties. Both organizations have searchable databases.

 

Service with paid subscription

Investment Arbitrator Reporter

This website publishes news and information about ISDS. IAReporter engages in ongoing investigative reporting, which leads to their reporting on many cases, awards and developments that are otherwise confidential. IAReporter also offers in-depth summaries and analysis of awards and decisions, which could be helpful for those who do not want to read the hundred-pages awards. In principle, one must pay for subscription, however IAReporter also provides free trials and discounts for those who cannot gain access otherwise.

Global Arbitration Review

This publication primarily targets legal practitioners in the arbitration field – but often publishes interesting interviews and summaries of proceedings for those interested in learning more about the practical sides of ISDS work.

Investing for sustainable development

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The World Investment Forum was held on 17 – 21 July in Nairobi with the theme ”Investing for Sustainable Development”. Hosted by the United Nations Conference on Trade and Development, this year’s forum brought together more than 6,000 participants from Heads of States, government officers, intergovernmental organizations, academia and civil society.

The UN Secretary General, Ban Ki-Moon, opened the conference with an important message. “The global trade slowdown and a lack of productive investment have sharpened the deep divides between those who have benefited from globalization, and those who continue to feel left behind,” he said.

One of the focuses of the conference was how fill annual USD 2.5 billion investment gap in developing countries. Businesses voiced that policies are hampering investment, for instance in some countries policy cycles follow election cycles. Further, they viewed that policies are not catching up with the rapid progress in technology.

The conference also discussed investment issues beyond financial policies and market structure – such as gender inequality and knowledge gap. Governments asserted that it is still more difficult for women entrepreneur to obtain loans for their business which hampers more participation of women in trade. On the other hand, businesses voiced that it could be difficult to find the right talent to fill different roles within their business activity because of the lack of quality in the education system.

As part of the conference, a seminar on reform on international investment agreements (IIA) was held. Government representatives voiced different ideas on reform proposals, including making the substantive terms more specific, inserting corporate social responsibilities in new treaties, and ensuring ISDS is accessible for small and medium enterprises.

The SCC was invited to contribute in the discussion and SCC statement can be found here.

ISDS at the Peace Palace

PeacePalaceFinalYear 1899 marks the beginning of the Philippines – American war. In the same year, the Spanish-American war ended. It also marks the first international peace conference in the Hague, which represents an important point of time for international arbitration.

The Hague Peace Conference was an initiative of Czar Nicholas II of Russia, the aim of which was to ensure a lasting peace and to limit armaments. One of the proposals that was put forward in this conference was to create an institution for international arbitration to settle international disputes in order to replace institution of wars.

One of the biggest achievements of this conference was the signing of the Convention for Pacific Settlement of International Disputes (“Convention”). The Convention created the Permanent Court of Arbitration (PCA) which is housed in the Peace Palace in the Hague.

Since then, the PCA has administered a large number of high-profile arbitration between states. In Grisbådarna Case between Sweden and Norway, the dispute on the maritime boundary between the two countries was resolved. Another case concerned a bloody conflict between Eritrea and Ethiopia. The two countries submitted to the PCA to settle the delimitation of their borders and to settle claims arising out of violations of international law during the conflict.

Today, the roles of the PCA and international arbitration have moved beyond maintaining peace. It continues to contribute to rule of law by administering ISDS cases – which in the end plays a role in promoting economic development and international trade.

One of the high-profile cases is Chemtura v. Canada, in which a U.S investor brought a claim against Canada due to Canada’s decision to ban sale of a pesticide produced by the investor. The tribunal found that there was a legitimate public health reason behind this ban and therefore it rejected the claim of the investor in its entirety.

Further, the PCA is currently administering a case in which a Canadian investor brought a claim against the government of Barbados for, among others, failure to implement the environmental laws and to abide by its environmental treaties commitments. The investor claimed that this failure has damaged natural sanctuary owned by the investor. The case is still pending however it shows that environmental protection is an important question that may appear in ISDS.

Two centuries after the Hague Peace Conference, international arbitration is still highly relevant as a rule of law mechanism to solve international disputes. This is a value that should be appreciated, not undermined.

 

ISDS and the Rule of Law

Wooden judge's gavel and calculator over some financial documentsISDS is governed by international rules, established by states. The governing rules can either be the Convention on Settlement of International Investment Disputes (the ICSID Convention) or other sets of arbitration rules, to name one is the UNCITRAL Arbitration Rules. These rules ensure the proper and fair functioning of the mechanism. Let’s take a look at these rules.

The ICSID Convention has been signed by 159 states and it has governed most ISDS cases. It provides, among others, that an arbitrator in an ISDS case can be disqualified if he or she shows lack of the qualities required to sit as an arbitrator. Awards rendered under this convention may be annulled, among others if arbitrators manifestly exceeded their authority.

The UNCITRAL Arbitration Rules is a result of the work of the United Nations Commissions on International Trade Law (UNCITRAL) which commenced in 1973. The General Assembly of the United Nations adopted the first version of UNCITRAL Arbitration Rules in 1976. The rules provide, among other things, that arbitrators can be challenged if there is any doubt about their impartiality and independence.

On the enforcement front, ISDS is safeguarded by the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. The Convention demands that all state parties enforce decision rendered in the other state parties. This means that ISDS decision is enforceable in 154 states, who are parties to this Convention.

Finally, domestic law is also one of the pillars which safeguards the functioning of ISDS. Domestic law may provide grounds for a domestic court to refuse enforcement of ISDS award, for example if a party to the dispute was unable to present its case in an arbitration proceeding.

ISDS supports and governed by rule of law. It is not a “private justice system” outside the legal system, as is sometimes incorrectly referred to. As explained above, states have always had strong involvement in establishing the rules governing the mechanism.

Case Summary No. 8

 

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Our next case summary is Parkerings-Compagniet AS v. Republic of Lithuania. The summary is based on the facts as described in the award rendered by the arbitral tribunal in August 2007.

Parkerings-Compagniet AS (“Parkering”) is a Norwegian corporation with principal business activity consists in the development and operation of parking facilities. Parkering wholly owns Baltijos Parkingas (“BP”), a Lithuanian subsidiary.

BP entered into an agreement with Vilnius Municipality to construct and operate car parks in the city. The city rejected BP’s proposed project on the Gedimino site because the project was situated in the Old Town, a culturally protected area designated by the UNESCO. However, according to Parkering, the city authorized another investor, a Dutch company, to build parking facilities in the Old Town.

Parkering brought a claim under Norway-Lithuania BIT. It claimed, among other things, that it was treated less favourably than the Dutch investor, a violation of most-favoured nation treatment (MFN) clause.

According to the tribunal, the essential condition of a violation of MFN clause is the existence of a different treatment accorded to another investor in a similar situation. However, the situation of the two investors will not be similar if the different treatment is justified.

The tribunal found that Parkering and the Dutch investor were not in similar situation. Even though both projects were located in Old Town, BP’s project extended significantly more into the Old Town near the culturally sensitive area of the Cathedral. This was not the case with the Dutch investor’s project.

The tribunal reasoned that the refusal of BP’s project was justified by historical and archaeological conservation and environmental protection reasons. It went on to say that refusal of one site did not deprive the investor of the possibility to propose other locations.

The tribunal rejected other claims by Parkering in their entirety.

 

SCC seminar on ISDS & TTIP at the European Parliament

isdsbloggbrysselThe Stockholm Chamber of Commerce took an initiative to organize a seminar on ISDS at the European Parliament on 5 May 2015. The aim was to discuss the importance of the mechanism in support of the global economy – with a special focus on the Transatlantic Trade and Investment Partnership (TTIP).

Participants came from the Members of the European Parliament offices, governments’ representatives including the European Commission and different NGOs. The panel consisted of experts from different backgrounds and was moderated by Andreas Hatzigeorgiou, Chief Economist at the Stockholm Chamber of Commerce.

ISDS comes in the form of international arbitration and it is therefore essential to understand how the mechanism has been used. Annette Magnusson, the Secretary General of the Arbitration Institute of Stockholm Chamber of Commerce explained that historically, arbitration served as a neutral dispute resolution venue in times of geopolitical crisis, among others during the fall of the Soviet and Iran-U.S crisis. Today, ISDS plays an even more important role. In recent years, investors in the renewable energy sector have used ISDS to enforce investment protections in IIAs. This demonstrates that ISDS has the potential to protect investment in sustainable development efforts.

Rikard Wikström, a partner at White & Case in Stockholm, explained that rule of law and legal principles underpin ISDS as a procedural mechanism. The disputing parties in ISDS have equal rights to present their case, arguments are made based on the law and due process should exist throughout the process.

ISDS reform is underway, among others by the adoption of international rules to enhance transparency in ISDS proceedings. Timothy Lemay, the Principal Legal Officer of the United Nations Commission on International Trade Law (UNCITRAL) explained how the UNCITRAL Transparency Rules work in practice. By the application of these rules, most documents in an ISDS proceeding will be made public, the public will be able to access the hearings through video-streaming and participate in the proceedings by submitting amicus curiae.

Turning to the question of ISDS in the TTIP, Christofer Fjellner, a Member of the European Parliament, emphasized that having investment protection in the TTIP is a matter of rule of law. It is a matter of ensuring that foreign property will not be expropriated without fair compensation and that investors are treated without discrimination. ISDS is just a mechanism to enforce this protection.

Finally, Freya Baetens, associate law professor of the Leiden University, conducted a cost-benefit analysis of including ISDS in the TTIP. She concluded that the TTIP may benefit from some improvements in the ISDS system, among others by invoking a loser-pays principle and ensuring that frivolous claims are dismissed at an early stage of the proceedings.

Above all, ISDS in the form of international arbitration is a well-established mechanism to resolve international disputes. It is governed by both international law and domestic law – which means that States maintain full control in the functioning of the system.