Category Archives: Transparency

ISDS transparency in draft SCC Rules 2017

BloggReglerThe Arbitration Institute at the Stockholm Chamber of Commerce (SCC) turns 100 years in 2017. During this year, the SCC will update its rules for arbitration, and a draft version of those updated rules has now been published. Among the novelties is an annex applicable only to ISDS disputes, which expressly allows for non-parties to participate in an arbitration.

Among the arbitration institutions which administer ISDS cases under their own rules, the SCC is second only to ICSID. These SCC cases are currently governed by the 2010 version of the SCC Rules, but a committee has now published the updated draft version.

The committee consists of in-house counsel, academics and practicing lawyers from both Sweden and nine other jurisdictions. The proposal contains a number of new elements, but from an ISDS perspective it is noteworthy that the new draft rules include a special annex for ISDS disputes. Under this annex, non-disputing parties are expressly given an avenue to provide the tribunal with written submissions. This applies to both third parties and to the investor’s home state.

The proposed provisions on submission by third parties mirror the UNCITRAL Transparency Rules from 2014.

The draft rules will be presented and discussed at a public hearing 9 June in Stockholm.

Ban Ki-Moon commends international arbitration

Ban-Ki Moon”I ask all of you to use the great power of arbitration to help the world overcome conflict and hatred and build a future of dignity for all on a healthy planet.”

This was the powerful message of United Nations Secretary General Ban Ki-Moon at the 23rd ICCA Congress in Mauritius earlier this month.

According to Ban Ki-Moon, international arbitration has been a fundamental pillar in the United Nation’s work, going back to the organization’s predecessor the League of Nations.

He emphasized the importance of international arbitration for peaceful resolution of disputes – for both states and private parties – and welcomed the deepening partnership with the business community to meet global challenges of the future.

“The United Nations is proud to have contributed to the development of international arbitration” the Secretary General said, commending in particular the work by UNCITRAL to “create a favourable environment for resolving disputes.” He especially emphasized UNCITRAL’s work with new rules for transparency and pointed out that increased transparency is extra important in disputes between investors and states, where public interests may be involved.

The full speech is available here. Other speakers included Nobel laureate Mohammaed ElBaradei.

Case summary: Nykomb v Latvia

Latvia_Nykomb

This summary is prepared based on the publicly-available award rendered in December 2003. The case concerned an alleged discriminatory treatment by Latvian state, through its state-owned company, against a foreign investor in electricity industry.

Nykomb Synergetics Technology Holding AB (“investor”) is a Swedish company that had a business in electricity generation. It wholly-owned Windau, a Latvian subsidiary company.

In 1997, Windau and Latvenergo, a Latvian state-owned company, concluded a contract in which Windau was to build a plant that will produce electric power. Latvenergo, in turn, was to purchase the power from the plant.

The dispute revolved around electricity pricing, where the investor claimed that Latvian law guaranteed Windau a multiplier of two (double tariff) for the first eight years of the plant operation. The law was changed in 1998 to provide a 0.75 tariff. Latvenergo refused to pay double tariff to Windau and contended that the correct multiplier was 0.75.

The investor brought an ISDS claim against Latvia under the Energy Charter Treaty (ECT), claiming among others that this treatment was discriminatory.

The tribunal sided with the investor and held that according to Latvian law and the contract between Windau and Latvenergo, Windau had a right to a double tariff in the first eight years of the plant’s operation. In this case, the Latvian state was responsible for Latvenergo’s refusal to pay double tariff because Latvenergo was “clearly an instrument of the State in the highly regulated electricity market”.

Further, the tribunal found that Windau has been subject to a discriminatory treatment since Latvenergo were paying double tariff to two Latvian companies. It went on to say that there was no legitimate reason to treat Windau differently than those two companies.

The tribunal ordered Latvia to compensate the investor for the loss suffered before the award was rendered and to pay double tariff for the remainder of the eight years. However, it refused to award compensation for future loss on grounds that this was too uncertain and speculative.

UNCTAD at the Stockholm Energy Charter Treaty Forum

summer meadow with high-voltage towers rowThe need to scale up energy investment was address by Deputy Secretary-General of the United Nations Conference of Trade and Development (UNCTAD), Joakim Reiter, at the recent Stockholm Energy Charter Treaty Forum, In his speech, Mr Reiter also remarked that international investment agreements (IIAs) can play a critical role in achieving this objective.

The Deputy Secretary General emphasized that energy poverty is the immense challenge of our time, when almost a fifth of the world’s population today have no access to electricity of any kind.  The amount of investment needed to address this problem is staggering, where for sustainable energy alone, the required amount reaches USD 800 billion. In this respect, he pointed out that the Energy Charter Treaty, as the only multilateral investment agreement in the field of energy, can play an important role in fostering sustainable energy future.

DSG Reiter remarked that international investment agreements (IIAs) have the potential to reinforce investor confidence by fostering predictability and transparency. It can also foster good governance and therefore improving the host country climate. However, he viewed that the new IIAs should strike a better balance between investment protection and the right to regulate of host government.

When it comes to ISDS, he noted the increasing number of ISDS has raised concerns. However, he asserted that the choice is not between having ISDS and not having ISDS. The choice is between having ISDS that works for sustainable development and ISDS that does not.

Read our previous posts about ISDS in support of climate change mitigation, about more environmental languages in IIAs and also about ISDS at COP 21.

Stockholm Energy Charter Treaty Forum was held on 8 February 2016 as a result of collaboration between the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), Energy Charter Secretariat, the International Centre for Settlement of Investment Disputes (ICSID) and the Permanent Court of Arbitration. The theme of this year’s forum was how to boost energy investment as well as to remove related barriers and risks. Among the speakers were high-level government officers from Asia, South America and Africa as well as energy investors, law practitioners and academics.

EU and OPEC contribute to increase transparency in ISDS

TranparencyISDSLast year marks an important milestone with regards to ISDS reform. The  Mauritius Convention on Transparency in Investor-State Arbitration opened for signature on 17 March 2015. The convention makes it possible for States to apply the UNCITRAL Transparency Rules in Treaty-based Investor-State Arbitration to ISDS cases arising under any of the 3,000 investment agreements concluded before 1 April 2014. This represents a level of transparency that is unprecedented in international arbitration.

One of the rules’ salient features is that most documents in an ISDS proceeding will be made public. To this end, the UNCITRAL Secretariat acts as transparency registry and publishes the information through its website.

Now international institutions are contributing to ensure that the registry is fully operational.

The European Union will contribute EUR 100,000 to finance this registry as a part of its commitment to enhance transparency in ISDS. Among other things, the European Commission writes in its website that the availability of information brings consistency between awards and predictability necessary for investors, stakeholders, states and arbitral tribunals.

In addition, OPEC Fund for International Development also will provide grants in the amount of USD 125,000 to the transparency registry. According to a press release by the United Nations, the organization is supporting the project as part of cooperation to stimulate economic growth and alleviate poverty in all disadvantaged regions of the world.

The Mauritius Convention has now been signed by 16 countries, which are Belgium, Canada, Congo, Finland, France, Gabon, Germany, Italy, Luxembourg, Madagascar, Mauritius, Sweden, Switzerland, Syria, the United Kingdom and the United States.

JUST PUBLISHED: Predicting the Outcomes of ISDS

StatisticJan2016The research uses data from 159 cases where arbitrators rendered awards that resulted in a determination of damages. The awards examined were those that are publicly-available as of 1 January 2012.

Here are some key findings:

  1. States were successful in 60.4% of the cases, and investors won approximately 39.6% of the cases.
  2. In cases when investors won, they generally obtained roughly one-third of the compensation claimed.
  3. Focusing exclusively on the small subset of cases where investors obtained damages, investors obtained a mean award of US$45.6 million.
  4. For the eight largest claims, only one case was successful.
  5. The vast majority of investors bringing billion-dollar claims obtained nothing.

Arbitrators’ Independence and Impartiality

ArbitratorsBlogThe parties in an ISDS case select the arbitrators that resolve their dispute. Arbitration law and institutional rules provide layers of control mechanisms to ensure the impartiality and independence of these arbitrators.

The SCC Arbitration Rules require that every arbitrator must be impartial and independent. This requirement extends from the outset and throughout the proceeding. Prior to appointment, an arbitrator must disclose any circumstances which may give rise to justifiable doubts as to his or her impartiality or independence. Further, a party to a dispute may challenge an arbitrator during the course of the proceedings, if new circumstances arise or facts come to light that lead the party to doubt the arbitrator’s independence or impartiality.

Most institutions, including the SCC, evaluate challenges to arbitrators under an objective standard – that is, the arbitrator is disqualified if the circumstances, from the point of view of a reasonable third person, give rise to a conflict of interest. In other words, it is not necessary to show that the challenged arbitrator in fact lacks independence and impartiality, but rather that there is an appearance of partiality.

In arbitrations administered by the SCC, the SCC Board makes the final decision on arbitrator challenges. In evaluating challenges, the Board may refer to the International Bar Association Guidelines on Conflict of Interest in International Arbitration (“IBA Guidelines”). The IBA Guidelines list specific situations in which an arbitrator should decline an appointment, or step down if already appointed.

For example, the SCC Board sustained a respondent’s challenge to an arbitrator appointed by claimant because the arbitrator’s firm had been involved in matters both for and against the respondent. The arbitrator was released from the appointment. Read this article for more information on challenges in SCC cases.

The ICSID Convention, developed by States, provides that an arbitrator can be dismissed if he or she manifests a lack of the qualities required to sit as an arbitrator. A proposal to disqualify an arbitrator was upheld in Bluebank v. Venezuela, on the ground that the arbitrator appointed by claimant worked in a law firm that represented other claimants in unrelated ICSID cases against Venezuela.

Under the ICSID Convention, an ISDS award may be annulled if the tribunal was not properly constituted. This may include situations where an arbitrator failed to disclose potential conflicts of interest before or during the arbitration.

A quick read of the EU Commission’s Investment Court Proposal

CommissionYesterday the EU Commission presented its proposal for the investment chapter in the TTIP, which is the result of a long consultation. The text, which runs to almost 40 pages, is available here. It will now be discussed internally in the EU and then put on the negotiating table with the US.

Below we briefly go through some of the noteworthy aspects:

The dispute procedure

-        A “court system” consisting of one Investment Tribunal and one Appeals Tribunal is set up.

-        The tribunals will work under established arbitration rules: ICSID, UNCITRAL or “any other rules agreed by the parties”, depending on the choice of the investor in the particular case. Instead of reinventing the wheel, the Commission is here relying on established practice.

-        While it is positive that the proposal draws so extensively on established arbitration rules, many areas remain where the interaction between the proposal and those rules must be studied further. This is most obvious when it comes to the enforcement of awards, but also other aspects such as the Appeals Tribunal and the appointment of arbitrators need extensive analysis before being included in a treaty.

-        It is made clear that the tribunal only has the mandate to look at cases through the lens of international law. Consequently, domestic law cannot be applied or reviewed by the tribunal.

-        Mediation provisions have been introduced. While mediation is sometimes often possible under the current system (and most disputing parties so far have elected not to mediate) such a procedure makes sense for reasons of efficiency. Mediation is however a challenge from a transparency perspective as it is hard to mediate openly.

The arbitrators/the system

-        The relationship is unclear between this proposal (which is aimed only at the TTIP) and the ambitious but vague multilateral dispute settlement mechanism envisioned by the Commission (which is to set up some sort of World Investment Court in the future). Under Article 12, many parts of the current proposal will cease to apply when/if a permanent multilateral system is set up. With this solution, the Commission is kicking the can further down the road.

-        Arbitrators can only be drawn from a list established by states. This is problematic because one of the two parties (the state) will set the frames for the disputes when the other (the investor) can only appoint from a list pre-approved by the state. Under the current system, each party can freely choose its own arbitrator.

-        States have to negotiate over whom to put on the list of arbitrators. This risks a politicization of the appointments, which is exactly what investment arbitration is intended to avoid.

-        Furthermore, the arbitrators must fulfill an almost impossible list of requirements to be eligible for the list. Annex II – where the arbitrators’ code of conduct is set down – in combination with the requirements in Article 9(4), leave a very small group of people eligible. In practice, depending on how the requirements are interpreted, it is likely that only retired lawyers (and probably only retired judges) will be able to sit as arbitrators. This restricts the parties’ possibility to appoint the most suitable arbitrator and also ensures that only a small elite gets to adjudicate investment disputes.

-        The Appeals Tribunal, allowing the case to be reheard on its merits, is sure to make disputes much longer and much more expensive; the average dispute would likely be twice as expensive as under the current system, which affects both investors and states.

Transparency

-        An express reference to the UNCITRAL Transparency Rules is included. The proposal even goes further than the Rules by making clear that many documents, including everything from proceedings before the Appeal Tribunal, shall always be made public.

-        The proposal extends the possibility for third parties to intervene. While the general tendency towards transparency is desirable, Article 23 states that the tribunal “shall permit any natural or legal person which can establish a direct and present interest in the result of the dispute”. This seems to (i) restrict the tribunal’s discretion by saying that it “shall” allow such submissions and (ii) considerably widen the scope of who shall be allowed to file submissions. In comparison, the UNCITRAL Rules on Transparency states that the tribunal “may” allow such submissions, after consulting the parties and only if it finds the submission could be helpful.

 

NGO voices in ISDS

Conference table, microphones and office chairs close-up

Beginning in 2001, a number of different NGOs have been active in ISDS proceedings, most commonly in cases with public interest aspects. This includes cases referring to measures related to for example environmental protection and public health.

NGOs may apply to be “a friend of the court”, or commonly referred to as amicus curiae. This means that the organisation contributes with a written submission to assist the tribunal in the assessment of the claims.

Participation of NGOs was initially found only in ISDS cases brought under the North American Free Trade Agreement (NAFTA). The NAFTA parties have issued a joint statement which essentially says that the NAFTA does not prohibit submission of a non-party, in this case may include NGOs.

Methanex Corp v USA was the first case where the tribunal opened up for NGOs to make written submission, which included environmental organizations and research institutes. In addition, these NGOs also attended the hearing. It was followed by Glamis Gold v. USA, where the tribunal received written submission by, among others, a locally-based Quechan Indian Tribe, whose sacred sites and traditions were affected by the investor’s mining project.

Since then the ICSID Arbitration Rules have been amended to clarify that tribunals have the general authority to allow submissions by an organisation which is not a party in the dispute.

NGOs have participated not only in NAFTA cases. In Biwater Gauff v. Tanzania, the tribunal accepted written submission from NGOs with an expertise in human rights, environmental and good governance issues.

A recent development is the participation of international organization in ISDS proceeding, as shown in Phillip Morris v. Uruguay. In this case, not yet decided, the opinions of the World Health Organization (WHO) and the WHO Framework Convention on Tobacco Control Secretariat will also be heard, based on the ICSID Arbitration Rules.

In a recent development, the UNCITRAL Transparency Rules, in force as of 1 April 2014, provide that tribunal may allow submission from non-disputing parties for matters within the dispute. Read our previous post on this.

 

 

UNCITRAL at the forefront of ISDS development

UNCITRAL_BloggThe international community is constantly working in a collaborative spirit to address areas for the continued development of the international legal order. An important UN-body for this purpose is the United Nations Commission on International Trade Law (UNCITRAL). And a recent and illustrative example of how states have constructively addressed new developments through the work of UNCITRAL is the Rules for Transparency in Treaty-based investor state arbitration.

The Transparency Rules were drafted in response to the calls for ISDS transparency, but it deserves pointing out that the UNCITRAL work on transparency took its beginning long before ISDS became a hot political issue in Europe. The UNCITRAL perspective is constructive and long-term.

At its most recent session in Vienna, the UNCITRAL Commission touched upon another topical issue for investor-state dispute resolution, when it discussed the matter of concurrent proceedings. This is an area the UNCITRAL has focused on over the past year, and in which the Commission expressed a continued interest for future work.

The recent UNCITRAL report on concurrent proceedings and possible future work is available here. It illustrates the joint responsibility felt by the international community, as represented by UNCITRAL, to safeguard common values under-pinning international arbitration, while addressing the future in view of recent development.