Category Archives: UNCITRAL

Transparency convention enters into force

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On April 18, 2017 Switzerland ratified the Mauritius Convention on transparency in ISDS. This means that the convention will enter into force six months later, October 18, 2017.

The Mauritius Convention is an instrument intended to extend the applicability of the UNCITRAL Transparency Rules. The Rules address many perceived problems with transparency in ISDS and essentially make the disputes more transparent than national courts. However, the Rules only apply to treaties entered into from April 1, 2014. By ratifying the Convention, states extend the applicability of the Rules to older treaties.

Sweden has signed the convention but not yet ratified it.

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.

Philip Morris Asia Limited v. Australia  

Cigarette on the foreground and many cigarettes on a backgroundOur next case summary is Philip Morris Asia Limited v. the Commonwealth of Australia. This summary is prepared based on the publicly-available award rendered on 17 December 2015.

The claimant in this case was Philip Morris Asia Limited (PM Asia), a Hong Kong-registered company. As a result of a corporate restructuring within the Philip Morris group in 2011, PM Asia acquired indirect ownership in an Australian subsidiary, Philip Morris Limited (PML), which sells tobacco products in Australia under different brands.

The dispute arose from the introduction of the so-called plain packaging legislation for tobacco products sold in Australia which aims to reduce smoking. The legislation in essence prohibits use of trademarks, symbols, graphic or images on tobacco products and packaging. Tobacco packaging may only display the name of the tobacco company in standard font and size and this means that it may be difficult for consumers to distinguish one brand from another.

PM Asia initiated an arbitration proceeding under the UNCITRAL Arbitration Rules at the Permanent Court of Arbitration in The Hague in 2011 on grounds that the plain packaging legislation had restricted the use of trademarks by PML on its tobacco packaging.  This restriction, according to PM Asia, constituted an expropriation under Australia –Hong Kong bilateral investment treaty (BIT).

Australia submitted jurisdictional objections, among others things, that PMA’s investment in PML was made only in order to be able to bring an arbitration claim under the BIT. PM Asia commenced the arbitration shortly after it acquired PML and therefore, according to Australia, this should be considered an abuse of rights.

In a recently-published jurisdictional award, the tribunal noted that, based on case law, an arbitration claim constitutes an abuse of rights when an investor has changed its corporate structure to gain the protection of an investment treaty at a point when a specific dispute was foreseeable.

In this particular case, the tribunal observed that PM Asia was aware that the Australian government would pursue the plain packaging policy when it acquired PML. The government had signalled its intention to introduce this policy as early as in 2008, and therefore the dispute was considered to be foreseeable to PM Asia. The tribunal further found that evidence showed that the main and determinative reason for the corporate restructuring was the intention to bring a claim under the BIT, using the Hong Kong entity as claimant.

Based on these facts, the tribunal dismissed the claim on grounds that the commencement of the arbitration by PM Asia constituted an abuse of rights.

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.

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.

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.

 

 

Case Summary No. 7

Blue chemical cans all over. Outdoors on chemical plant.We continue our series of case summaries with SD Myers v. Canada, a NAFTA dispute decided under the UNCITRAL arbitration rules. The summary is based on the facts as described in the three separate awards rendered by the arbitral tribunal between November 2000 and December 2002.

S.D. Myers, Inc. (“SDMI”) is a United States corporation that processes and disposes of polychlorinated biphenyl (“PCB”), an environmentally hazardous chemical compound used in electronics manufacturing. SDMI created a Canadian affiliate with the aim of soliciting orders for the destruction of Canadian PCBs at its U.S. facility. The U.S. had banned the import of PCB from Canada in 1980, but granted SDMI an exception in 1995. Promptly after SDMI had been granted permission from the U.S. government to import PCB waste from Canada, Canada issued an order prohibiting the export of PCB waste to the U.S. The prohibition was in effect for approximately 16 months.

SDMI filed claims against Canada under the UNCITRAL Rules in October 1998, alleging that Canada’s ban on the export of PCB waste had violated several provisions of Chapter 11 of NAFTA. SDMI claimed that it had suffered economic harm to its investment through interference with its operations, lost contracts and opportunities in Canada. Canada maintained that the ban had been motivated by environmental concerns.

In its first partial award, on liability only, the tribunal found for the investor with respect to its Article 1102 and 1105 claims, holding that Canada had violated NAFTA’s national treatment and minimum standard of treatment provisions. According to the tribunal, the evidence showed that Canada’s ban on PCB export was not driven by environmental concerns, as asserted by Canada, but intended primarily to protect the Canadian PCB disposal industry from U.S. competition. The investor’s claims regarding expropriation and performance requirements were dismissed. Canada challenged the award in its own federal court, on the grounds that the tribunal had exceeded its jurisdiction and that the award was against Canadian public policy. The court dismissed the challenge.

The tribunal issued two subsequent awards, on damages and costs, respectively. On damages, the tribunal reasoned that the investor may only be compensated for harm proximately caused by the breach of the specific NAFTA provision. According to this principle, indirect harm such as loss of opportunity or a damaged reputation are too remote to warrant compensation. The tribunal thus awarded SDMI damages of CAN$ 6 million, a fraction of the US$ 70 million claimed by the investor. 

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.

 

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.