Tag Archives: Arbitrators

New report on investment arbitration

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The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) has published a new report prepared by legal counsel Celeste E. Salinas Quero. She describes, among others, the economic sectors involved, the states’ measures most frequently challenged by investors, the outcomes and costs of investment disputes under the SCC Rules.

SCC is a preferred venue for investment arbitrations. Over the past 20 years, the SCC has administered and acted as appointing authority in more than 90 investment arbitrations, both in small-sized and in large-scale disputes.

The report shows that most awards have been rendered in favor of respondent states, with 21% of tribunals declining jurisdiction, 37% denying all of the investor’s claims and 42% of tribunals upholding the investor’s claims in part or in full. As regards costs, the report reveals that while “splitting the baby” is a common approach taken by tribunals, most tribunals allocate and apportion the costs between the parties in a proportion that reflects each party’s relative success and conduct throughout the proceedings.

Read the full article below.

Article: Investor-state disputes at the SCC – by Celeste E. Salinas Quero

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.

 

Arbitration throughout history

Close-up of open book and penThe Arbitration Institute of the Stockholm Chamber of Commerce will turn 100 years in 2017. As part of the celebrations in January, a book about the history of arbitration will be published, where lawyers and diplomats from all over the world each write about one particular dispute.

One of the contributions is written by the winner of a large competition initiated by the SCC and aimed at young lawyers. The competition inspired many highly qualified contributions and several were so well-written that they will now be published in a separate edition of Transnational Dispute Management Journal (TDM).

The four texts deal with four different arbitrations that affected international relations: from a border dispute between the United States and Great Britain in what is now Canada, via an early ISDS case from the year 1900 over a Portuguese railway project and a relatively recent arbitration between Singapore and Malaysia, which was concluded at the Permanent Court of Arbitration in 2014.

You can read more about the publication, including the foreword by SCC Secretary-General Annette Magnusson, here.

ISDS not used to change legislation

law concept. studio shotsIt has been perceived that States who entered into international investment agreements (IIAs) with arbitration clause risk being sued by foreign investors when they change legislation which causes negative impact on certain investments. However, a study by German and Dutch researchers have shown that foreign investors have very rarely used ISDS to seek damages due to legislative changes. Neither has ISDS been used to hamper introduction of a new law.

The study shows that most ISDS cases have targeted contracts between a State and foreign investors, or the rejection or modification of licenses. Another study by the Columbia Center on Sustainable International Investment, quoted in the German and Dutch study, shows that among all ICSID cases up to 2014, only 9% of cases dealt with legislation. Only half of the cases concerned government actions, and the rest dealt with decision-making by local governments and state-owned companies.

Previous claims under the North American Free Trade Agreement (NAFTA) for damages caused by legislative changes have all failed, according to the study. In a well-known case where investors brought a claim for damages allegedly caused by legislative changes, the recently-decided Philip Morris v. Australia, the investor’s claims were dismissed at an early stage.

In conclusion, studies have shown that it is very rare that foreign investors used ISDS to challenge States’ legislative powers in areas such as for example environment protection and public health. Instead, the study found that in the vast majority of cases, investors claim compensation on grounds that the State violated its concrete commitments in the form of contracts or licenses.

The Public Law Potential of International Arbitration

detail of historic scales with globe on it and metallic weights in dark backIn a recent lecture delivered at the University College London, Yves Fortier spoke about the potential of international arbitration to reach beyond private justice and play a greater role in public international law and the regulation of state conduct. Fortier, an international arbitrator and former diplomat, has previously been ambassador and permanent representative of Canada to the United Nations in New York and served as president of the UN Security Council in 1989.

Fortier acknowledged “the contemporary success of international arbitration and the ability it has had to influence and bend states to a system of international general principles.” He also spoke of “re-conceptualizing” international arbitration as “a tool of international governance”. Arbitration, in Fortier’s mind, has great potential to contribute positively to international law and the public good.

“There is no denying that the success of international arbitration has been limited in some measure to international economic law, where it is actively championed,” said Fortier. But “this should not, in any way, prevent experiments with the practice in other areas of international law.”

Fortier contrasted the effectiveness of international arbitration with the generally limited success of several international courts. Therefore, he urged lawyers to explore more innovative ways of adjudicating international disputes rather than seeing courts as the perfect form of dispute settlement. Fortier recognized that international arbitration sometimes falls short of the ideals of an international court. “But why”, he asked, “should this prevent us from acknowledging its effectiveness?”

A video of the lecture can be accessed here.

New Report: ICSID Cases Relating to Asia

magnifying glass on a document with columns of figures

The ICSID Secretariat recently published a statistics report focusing on the South and East Asia and the Pactific (SEAP) region.

As of 1 October 2015, a total of 539 cases have been registered with the ICSID Secretariat since 1972. Of those 539 cases, 42 involved a state party from the SEAP region—including 8 cases against Pakistan, 7 against Indonesia, 5 against Bangladesh, 4 against the Philippines, and 3 each against Korea, Malaysia and Sri Lanka. In 13 of the 42 cases involving SEAP states, the investor bringing the claim was also from a SEAP country; in the remaining cases, the investor was from a country outside the SEAP region.

Of the 42 cases involving a SEAP state:

  • 62 percent were based on a bilateral investment treaty (BIT), and 29 percent were based on an investment contract between the investor and the host state.
  • 43 percent settled, and 57 percent were decided by an arbitral tribunal. Of the cases that were decided by an arbitral tribunal, 47 percent ended in an award declining jurisdiction, 24 percent resulted in an award dismissing all of the investors’ claims, and 29 percent ended in an award upholding the investor’s claims in part or in full.
  • 38 percent concerned the oil, gas and mining industry; 12 percent related to electric power or other energy; and the transportation, construction, and services/trade sectors accounted for 10 percent each.

A number of SEAP nationals have served as arbitrators in ICSID cases. In total, as of 1 October 2015, SEAP nationals accounted for about 11 percent of all appointments made in ICSID cases. Most of the SEAP appointees were from Australia and New Zealand, but Singapore, the Philippines and Bangladesh are also represented on the list of appointees.

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.

[ICSID GUEST POST] Appeal, Review, Annulment …. What’s it all about?

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This post is a guest contribution from Ms. Meg Kinnear, Secretary-General of ICSID.

 

The extent to which a legal decision should be reviewable is a question that all legal systems must address.  On the one hand, everyone can agree that decisions should be correct, and that getting the law, the facts and the procedure right are vital to the administration of justice. One of the ways legal systems try to ensure correct outcomes is by having a second body [and in some national systems, a third and even a fourth court!] review the first decision and correct any errors made by the original tribunal.

On the other hand, some argue that an equally important role of legal decision makers is to resolve disputes once and for all, so that the opposing parties have a final outcome, certainty, and the ability to get on with business without spending time and money on legal appeals. Balancing the goals of “correctness” and “finality” is difficult, and defining the right level of review can depend on factors such as cost, timing, the rights in question, and the goals of the legal system.

Discussion about how to balance correctness and finality has also taken place in the international investment context.  Indeed, the States drafting the ICSID Convention debated this question as early as the mid-1960s when they designed the Convention. States finally decided to provide a review called “annulment” which allowed a second look at ICSID awards, but on limited grounds.  These grounds were set out in Article 52 of the ICSID Convention and allowed a new panel [the ad hoc Committee] to annul an award if: [1] the tribunal was improperly constituted; [2] the tribunal manifestly exceeded its powers; [3] a tribunal member was corrupt; [4] there was a serious departure from a fundamental rule of procedure; or [5] the tribunal failed to state reasons for its decision [paraphrased from Article 52 of the ICSID Convention].

In 2004, ICSID issued a public discussion paper outlining possible features of an international investment appeals system.  The paper suggested that an appeal mechanism could be designed to provide a broader range of review on the basis of clear error of law, serious error of fact, or any of the five grounds of review in Article 52 of the ICSID Convention. States decided not to pursue an appeals facility at that time, however ICSID undertook to further study the matter and to offer its assistance and expertise if treaty negotiators decided to pursue this course in the future.

On September 16, 2015, the European Commission [EC] released a draft text on investment under the Transatlantic Trade and Investment Partnership [TTIP].  This draft included a proposal to create an Appeal Tribunal that could review an award issued by an investment tribunal.  The EC proposal builds on the ICSID Convention by suggesting that investment awards under the TTIP could be appealed based on the grounds in Article 52 of the ICSID Convention plus error of law or manifest error of fact [paraphrased from Article 29 of the EC text].

As investment cases grow in number and complexity, and increasingly arise out of an investment treaty, the discussion on the appropriate level of review for such awards will continue. Clearly the task of establishing the optimal level of review between correctness and finality is a difficult one, and it will be interesting to follow treaty negotiations as they grapple with this question.

Ms. Meg Kinnear, Secretary-General of ICSID

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.

Arbitrators’ expertise makes ISDS strong

???????As investment and trade develop, disputes will be more diverse. Looking back at history, the International Center for Settlement of Investment Disputes (ICSID) only registered 28 ISDS cases during the first two decades after its establishment. In contrast, there have been 38 cases registered at the ICSID in the year 2014 alone. The substantive issues of disputes have become more diverse, and therefore a wider range of expertise is needed to solve the disputes.

One cannot perceive how future disputes will look like and what expertise will be required. At the same time, the quality of ISDS outcome needs to be ensured. The current practice has served this purpose by allowing parties to the dispute and/or arbitration institutes to appoint arbitrators from a broad range of expertise, as opposed to a pre-determined list.

Let’s look at some of the cases. In Glamis Gold v. USA, the tribunal had to decide whether a requirement to conduct a certain mining technique had constituted an indirect expropriation. This case required expertise to assess the value of the mining project, including evaluation of mineral price. In fact, the tribunal contributed 100-page analysis only on this issue.

In another case, Methanex v. USA, the tribunal was faced with lengthy submissions from parties on whether or not a certain chemical for fuel production was dangerous for the environment. In addition, there have been other complicated disputes on, among other things, electricity pricing and gas pricing. The above cases are only small part in the big pool of ISDS cases which requires specific expertise.

The current system of arbitrator’s appointment has made international arbitration able to adapt with the present needs of dispute resolution. Most importantly, it can keep up with the trade development. It is therefore unwise to replace this important feature with a pre-determined list of arbitrators.