Category Archives: Transparency

Investment Treaty Forum in Stockholm

ITFSeminarThe Investment Treaty Forum was recently held for the first time in Stockholm.

The British Institute of International and Comparative Law, in cooperation with the SCC, Mannheimer Swartling and Uppsala University, organized Investment Treaty Forum in Stockholm on 12 June 2015.

The Investment Treaty Forum was founded in 2004 with the aim to provide a global centre for serious high level debate in the field of international law. The theme of the meeting – Europe as an Investment Treaty Actor – brought together speakers and participants from government, legal practitioners, academia, politicians and business. See the full program here.

The importance of investment treaty for European economic development was one of the topics discussed. Investment treaty contributes to predictability, stability and transparency in investment relation. It was further highlighted that investment treaty will benefit not only the industry, but also governments and consumers. Investment treaty has the potential to open up new market opportunities for European investors abroad and also to make Europe a more attractive place for investment. But there were also critical voices raised, questioning the need for investment protection.

The evolution of substantive terms of investment treaty was equally addressed. States retain full control of the regime, among others by issuing interpretation of the treaty and by introducing new provisions of investment protection. The former has been done by the state parties to the North American Free Trade Agreement and the latter by, among others, the European Commission.

The seminar ended with the well-anticipated discussion on the roles of the European Commission in investment law regime. In addition to its role as negotiator of future investment treaty, the Commission has also emerged as litigator and enforcer in the regime.

More pictures and presentation materials from the seminar will be published here shortly.

 Photo: Björn Leijon

 

 

 

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.

Sweden signs Mauritius Convention on Transparency

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Sweden is among the first eight countries to sign the Mauritius Convention on Transparency in Investor-State Arbitration when it opened for signature on 17 March 2015 in Port Louis, Mauritius. The Convention represents a significant multilateral reform on ISDS.

The Convention creates a level of transparency that is unprecedented in international arbitration as we have written in our previous blog post. Not only most documents in an ISDS proceeding as well as the hearings will be made public, the public will also have the opportunity to participate by writing submission to the tribunal. ISDS will therefore be more transparent than most domestic courts in Europe.

Other countries that also signed the convention at the signing ceremony are Canada, Finland, France, Germany, Mauritius, the United Kingdom and the United States.

Who are the arbitrators?

One of the salient features of ISDS is the use of independent arbitrators. This begs the question, who they are and how they are appointed.

As the main function of ISDS is to have investment disputes resolved in a neutral international forum, neutrality should underpin the whole arbitration proceeding, starting from the appointment of arbitrators by both investors and States.

The first and most important consideration in the arbitrators’ appointment is that parties have to choose an arbitrator whose independency and impartiality cannot be second-guessed. Second, they are free to appoint individuals whom they trust to have the expertise in the area of the dispute.

In the event parties or arbitrators appointed by parties failed to appoint the chairperson of a tribunal, a third party can make the appointment. For instance, in SCC arbitration, the SCC Board, which consists of arbitration experts, makes the appointment.

Arbitrators are not beyond the law and there are strict consequences if they fail to maintain their independency and impartiality. An arbitrator may be challenged if there is a reasonable doubt about their competence or impartiality and when this is proven, he or she can be dismissed. Further, an arbitral award may be annulled for reasons of, among others; the Tribunal has exceeded its powers or has committed corruption.

ISDS has a greater transparency compared to commercial arbitration. Transparency allows parties and arbitration institute to access and peruse the awards rendered by potential arbitrators, which will guide them in assessing their independency and impartiality.

To prevent bias, the ICSID Convention provides that the majority of arbitrators should not be the nationals of the parties having dispute. According to a recent article, while mostly lawyers act as arbitrators in ICSID arbitration, non-lawyers, including architects, maritime experts and an economist have been appointed in some instances. ICSID’s appointed arbitrators come from more than seventy different nationalities.

The SCC does not maintain a panel of arbitrator and this allows the SCC to choose arbitrators from different geographic areas, from younger generation as well as to provide more gender balance. The SCC has appointed not only lawyers but also law professors. For more information on the SCC arbitration procedure, see this link.

Infographics: Facts on ISDS

The Stockholm Chamber of Commerce has created an infographics guide with facts on the dispute resolution mechanism Investor-State Dispute Settlement (ISDS).

The ISDS infographics guide presents core facts and statistics about ISDS in a quick, clear and creative manner.

What industries have brought claims to ISDS? Who are the investors in ISDS cases and who administers them?

Learn more about ISDS through the downloadable infographics guide below!

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Click image to enlarge and to download PDF-version.

The UN adopts Convention to enhance ISDS transparency

On 10 December 2014, the United Nations General Assembly adopted the Convention on Transparency in Treaty-based Investor-State Arbitration. The Convention will be open for signature on 17 March 2015.

The new Convention is to take into account the public interest involved in an ISDS by giving the public access to documents and the opportunity to participate in the ISDS proceeding. It has been globally recognized that transparency will promote predictability and accountability.

Previously, in 2013, the United Nations Commission on International Trade Law (UNCITRAL) adopted Rules on Transparency in Treaty-based Investor-State Arbitration.

As a general rule, the Transparency Rules are set to apply to ISDS proceeding under future investment treaties, concluded after 1 April 2014. However, thanks to the newly adopted Convention, the impact of the UNCITRAL Transparency Rules will become more far-reaching, by making it possible for States to apply the rules to ISDS cases arising also under any of the 3,000 investment agreements concluded also before 1 April 2014. The Transparency Rules may also apply to ISDS cases decided under arbitration rules different from the UNCITRAL Arbitration Rules.

Salient features of the Transparency Rules:

  1. All documents related to the arbitration proceedings shall be made public, including notice of claims, submissions by parties, transcript of hearings and the award.
  2. Hearings should be open to the public; the public may also attend through video links.
  3. The tribunal may allow written submission of a non-party to the dispute about a matter within dispute.

It may be noted that also before the adoption of this Convention, transparency and public participation have existed in ISDS. For instance, the NAFTA countries United States, Canada and Mexico have agreed that all ISDS cases under the NAFTA shall be made transparent, and that tribunals should provide opportunities for submissions from non-disputing parties.

However, the new Convention forwards a level of transparency that is unprecedented in international arbitration. With the new rules, ISDS will be more transparent than most domestic courts.

The adoption of the Convention demonstrates how ISDS reform is entirely possible – and under way.

Controversial Editorial in The Economist

The usually well-informed, pro-trade newspaper The Economist recently published an editorial that has been used by anti-globalization voices as a victorious proof that also “market friendly” voices question ISDS. This is not an accurate reading of the editorial, which, as the sub-heading states, argues that investment protection “is not the horror critics claim, but could be improved”. This is a relatively moderate – and arguably uncontroversial – approach that should not be understood as an attack on investment protection.

That being said, the text echoes many of the common misconceptions thrown around in the debate surrounding ISDS. The newspaper claims that the clauses defining the scope of ISDS are “insufficiently precise”. By claiming this, the Economist fails to make the crucial distinction between substance and procedure. The substantive protections can very well be said to be imprecise in some cases, which has indeed been done repeatedly and also led to more recent agreements including more detailed regulations of the scope of substantive protection. ISDS is, however, a whole other matter and only concerns the procedural tools to enforce the substantive clauses.

Furthermore, the newspaper criticises the confidential ISDS proceedings. This is indeed something that can be questioned in an investment dispute context. But the simple fact is that TTIP is likely to include the most transparent ISDS proceedings in history (as we discuss in Swedish here ) through the application of the UNICTRAL Rules on Transparency in Treaty-based Investor-State Arbitration.

Very few court systems in Europe, if any, can demonstrate the same level of transparency as the UNCITRAL Rules on Transparency, adopted in 2013 and in force as of 1 April this year. UN member states spent three years drafting these rules. They spent another year drafting a convention on the same topic, to expand the scope of the Rules on Transparency. Yet, in the public debate, it is as if none of these events ever took place.

The Economist also makes the populist mistake of using a few controversial cases as benchmarks for an entire procedural regime. But the very fact that a controversial case is brought does not mean that the procedural system as such is defect: neither in international law nor in domestic courts.

When national courts render decisions we do not approve of, perhaps in favor of parties we do not approve of, we do not say “Close the court!”.

We may say “change the law!”, or “that was a poorly drafted agreement”. We may even say that “the court got it wrong”, “the judge didn’t understand the case”. But we do not say that the court should be closed every time we disagree with one of its decisions. That would be an unacceptable principle in any system governed by the rule of law.

The real focus of discussion should be the substantive commitments by states. Once these commitments have been made, most sensible commentators find it reasonable that there should be a way to hold states accountable for them.

More than anything, the fact that even a normally moderate voice succumbs, at least in some aspects, to over-simplified rhetoric is a worrying sign that the entire discussion about ISDS has been tilted in a worrisome direction.

Ignoring the facts – again

The Swedish Trade Union Confederation (Sw. LO) is arguing that ISDS is “characterized by a lack of transparency, high costs, un-justified lawsuits and also carry the risk that human rights are violated.”

The arguments once again illustrate the careless treatment of facts in the ISDS-debate. This is what LO failed to mention.

ISDS is becoming more transparent than courts

In 2013, UNCITRAL adopted transparency rules for ISDS.  ISDS-proceedings under the new UNCITRAL Transparency Rules will be more transparent than proceedings in domestic court. For example; (i) information about the case will be promptly made available as soon as the case has been initiated; (ii) the public will as a general rule have access to all documents from the proceeding; (iii) non-disputing parties will be allowed to file submissions; (iv) hearings may be open to the public, including through video link.

Governments have also agreed to more transparency, even before the adoption of the UNCITRAL Transparency Rules. As a result, documents from ISDS proceedings can easily be accessed online now, including almost 300 ISDS decisions.

ISDS is not more costly than proceeding in domestic court

Any dispute can be costly, depending on the complexity of the case, and complex cases naturally will result in higher legal counsel fee. A study by the OECD has found that legal counsel fees and experts is the largest cost component in ISDS, estimated to average 82% of the total cost of a case.

Legal fees being the decisive factor, costs would not necessarily be lower in a public court proceeding. It is more likely that they run higher. This is so because litigation in domestic court can be subject to one or two stages of appeals. In such cases, counsel fees will triple. In contrast, international arbitration is a one instance procedure.

ISDS is not characterized by unjustified lawsuits

The statement that ISDS is characterized by un-justified lawsuits is completely unsubstantiated. There is not support for such statement from any of the institutions or organs involved in investor-state dispute settlement.

In a democratic society, any person who is of the opinion that its rights have been violated should be entitled to initiate a legal procedure to defend this right. This is an inherent element of rule of law.

It is for the arbitration tribunal to decide whether the claim bears merit, depending on the evidence presented, i.e. exactly the same as for litigation in domestic court.

The character of lawsuits does not define a system.  The quality of the awards does.

ISDS does not increase the risk of human rights violations

The protection of human rights is an important element of international law. It is defined for example by the European Convention of Human Rights, and alleged human rights violations are decided by the European Courts of Human Rights.

The European Court of Human Rights received 65,900 applications – in 2013 alone. As of 31 January 2013, there were a total 568 known ISDS cases – in the last 20 some years.

Risks of human rights violations are very high in some parts of the world, illustrated not least by the applications to the European Court of Human Rights in one year only. This is of course worrying.

The ISDS system however is designed to enforce rights in accordance with international law. These rights will in most cases include the protection against expropriation and non-discrimination, rights also protected under the European Convention of Human Rights.

Risks of human rights violations should always be mitigated. But removing the one mechanism which truly enforces treaty rights under international law is not the way forward.