Tag Archives: International investment

Guest blog in Swedish: The first award in solar panel cases against Spain

Solar panels behind fenceIn a guest blog in Swedish this week, Jonas Hallberg, an analyst at the Swedish National Board of Trade, has written about Charanne B.V. & Construction Investments S.A.R.L v. Spain. The award is the first that has been rendered among at least 26 disputes regarding Spain’s measure to reduce incentives for solar panel sectors.

The award is published and can be downloaded in Investment Arbitration Reporter website.

The investors brought the claim under the Energy Charter Treaty, arguing that the measure violated fair and equitable treatment standard and that it constituted indirect expropriation.

The tribunal rejected the investors’ claims in its entirety and ordered the investors to pay Spain’s legal costs which is equivalent to EUR 1.3 million.

Peter Allard vs. Barbados: Investor argues breach of environmental laws

KingfisherPeter Allard, a Canadian investor who owns a nature sanctuary in Barbados, has brought an ISDS claim against Barbados. In a nutshell, he grounds his claim on the failure of the government of Barbados to enforce its own environmental law which, as a result, has polluted his sanctuary. He is also accusing Barbados of refusing to abide by its international obligations under the Convention on Wetlands and Convention on Biological Diversity.

The actions and inactions by Barbados, according to the investor, have destroyed the value of his investment in the sanctuary. The claim is brought under Canada – Barbados Bilateral Investment Treaty (BIT).

The sanctuary, which is an eco-tourism facility, consists of almost 35 acres of natural wetlands situated on the Graeme Hall wetlands, a site protected under the Convention of Wetlands of International Importance in the south coast of Barbados. Mr Allard, as written in his notice of dispute, made investment in this sanctuary with the purpose to conserve the environmental heritage of Barbados.

The investor claims that Barbados has failed to accord him full protection and security under the BIT. Among other things, the investor points out that Barbados has failed to prevent the Barbados Water Authority, a state agency, from repeatedly discharging polluted substances from a sewage treatment facility into the Graeme Hall wetlands. The investor also asserts that Barbados has failed to operate drainage structures into the wetlands that regulate its biological health.

In addition, the investor argues that Barbados has violated fair and equitable treatment standard protection under the BIT due to a change of land use that allows run off of pollution into the sanctuary. The investor underlines that he made the investment in the sanctuary because of Barbados’ previous regulatory frameworks that he believed will protect the environment.

The case is still pending and administered by the Permanent Court of Arbitration in the Hague. Barbados’ reply to this claim is not publicly available and therefore the response of the state is still unknown.

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.

The New York Convention – a success from 1958 serving ISDS

Central Park with Manhattan skyline in New York CityISDS is established and ruled by international agreements. 159 states have submitted to the World Bank’s ICSID system, which is designed specifically for disputes between foreign investors and states. Many ISDS proceedings are conducted outside the ICSID system and for those proceedings, other instruments are in control. The most important of these is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.

The New York Convention began to be discussed in the mid-50s because it was necessary to support the emerging international trade. The system at that time simply lacked an effective way to enforce arbitral awards across borders. A judgment of a national court was then, as now, difficult to enforce outside the court’s home jurisdiction, which meant that it was fairly easy for the losing parties to international disputes to avoid paying (it has become somewhat easier since the 1950s particularly in the EU, but it is still difficult to get, for example, a Swedish court judgment executed abroad and vice versa).

Arbitration is an important piece of the puzzle for international trade to function, it is by far the most common way to resolve international disputes. The New York Convention guarantees that whoever wins the dispute has not only the right but also gets the right in practice. By signing the Convention, states agree to enforce arbitral awards rendered in another state that is party of the Convention. The Convention has provisions to ensure the rule of law, for example, enforcement of an arbitration award can be rejected if it was rendered with a procedural deficiency.

Most of the states in the world have signed the New York Convention. It is the UN Commission of International Trade Law secretariat in Vienna (UNCITRAL), which takes care of the practical issues when new states accede. According to the UNCITRAL, Andorra is the latest country to ratify the Convention, and this means that the Convention is an applicable law in 156 countries.

The Convention is widely considered to be the most successful international convention ever. Although there are international agreements that have been signed by more states, they rarely contain any direct commitments. The New York Convention requires courts of the state parties to effectively apply the provisions of the Convention, and such strong support from the world’s countries is a major success story for international law and international trade.

ISDS AT COP21: ENFORCEMENT OF CLIMATE COMMITMENTS

Globe between two pairs of clasped handsIn a speech in Paris during the COP21 summit, the president of the International Bar Association David Rivkin expressed hope that ISDS could bridge the current enforcement gap in international environmental law.

Specifically, Rivkin highlighted the role of neutral and accessible dispute resolution mechanisms in enforcing commitments and underlying pledges made by state parties to the UNFCCC negotiations. He also noted that the existence of mechanisms for resolving disputes between investors and states is crucial to incentivizing foreign investment in renewable energy.

Noting that the fiercest critics of ISDS tend to focus on the system’s purported chilling effect on a state’s regulatory ambitions, Rivkin explained that this “regulatory chill” relates to the substantive terms of the treaties rather than to ISDS procedure.

Rivkin remarked that in the “new wave” of investment treaties and agreements, “environmental issues are being considered increasingly by states at the outset of drafting investment chapters”. Today, most BITs include some environmental language, and many contain a general reservation of policy space for environmental regulation. Rivkin emphasized that a number of recent BITs have included specific obligations to promote sustainable development, to encourage trade in environmental products, or to facilitate FDI in environmental technologies or eco-labeled goods.

Commenting on these developments, Rivkin noted:

It is clear that we are entering a new era of BITs/FTAs, in which states are delineating more specific obligations in the negotiation of these agreements, both as to standards of investor protection and regulatory autonomy. As we are seeing in the context of TTIP, CETA and TPP, ‘self-calibration’ of the ISDS system is already evident. In the future we may also see more movement in the areas of state counterclaims, which would be particularly relevant for environmental claims.

Rivkin also discussed the recent report by the IBA Task Force on Climate Change Justice and Human Rights, which provides a comprehensive coverage of pro-environment clauses included in investment chapters.

Read the full speech here.

The U.S is sceptical of the European Commission’s ISDS proposal

?????????????????????????????????????????????????????????????????????????????In mid-September, the European Commission presented its proposal on dispute resolution in the TTIP, as we have previously discussed on this blog. In our previous post, we find it promising that the Commission’s proposal is built on existing practices but we also note that the proposal raises many questions.

The Commission’s proposal is only a proposal. It must first be accepted at home within the European Union and later be put on the negotiating table with the U.S counterpart. There has been some suspicions that the U.S would have doubted the proposed changes and this suspicion has now been confirmed.

The U.S Trade Representative Michael Froman especially expresses scepticism about the proposal of appeal mechanism in which the entire case will be reheard (in the current system, an award may only be appealed on procedural grounds). The U.S is among the countries that has been sued the most in ISDS nevertheless it has never lost a case, and the U.S Trade Representative is hesitant to give investors a second chance in the proceeding. As he puts it, “It’s not obvious to me why you would want to give companies a second bite of the apple”.

Another aspect of the proposal that has been widely criticized is the closed list of arbitrators to be pre-appointed unilaterally by states, in contrast to the current system in which each party in dispute may appoint an arbitrator.

Michael Froman would prefer that the investment chapter of the TTIP has provisions closer to those in the U.S model investment agreement of 2012. This model agreement is considered to be the most progressive of its kind and is based on international “best practices”.

The text of the completely negotiated TPP, which has recently been released, is based largely on such American model agreement. Froman believes that this should be the starting point of the TTIP.

ISDS CASE SUMMARY: Maffezini v. Spain

GaliciaBlogOur next case summary is Emilio Augustin Maffezini v. The Kingdom of Spain (ICSID Case No. ARB/97/7). The summary was prepared based on the award rendered on 9 November 2000.

The claimant was an Argentinian individual who established and invested in a corporation named EAMSA, for the purpose of building a production facility for chemical products in Galicia, Spain. The project was a joint venture with the Sociedad para el Desarrollo Industrial de Galicia(SODIGA), a public-private entity with a mandate to encourage industrial development in Galicia. SODIGA provided the investor with assistance in the form of advice and financing.

The project eventually failed due to surging costs, and the investor filed for arbitration under the Argentina-Spain BIT. The investor claimed (1) that the project failed because SODIGA had given flawed advice underestimating the costs of the project, and (2) that SODIGA was responsible for the additional costs resulting from the Environmental Impact Assessment (EIA) because it had pressured EAMSA to begin construction before the EIA process was finalized. Spain contested the allegations, stating that SODIGA was a private company whose acts were not attributable to the state, and that the investor had assumed any risk relating to the feasibility and profitability of his investment.

On the issue of state attribution, the tribunal found that some of SODIGA’s functions were governmental in nature while others were commercial. Accordingly, the tribunal found that it was necessary to categorize the various acts or omissions giving rise to the dispute. On the investor’s main claim – that SODIGA’s bad advice was responsible for the project’s failure – the tribunal found that even though SODIGA officials had provided certain assistance relating to the project’s costs and returns, that assistance did not amount to a public function attributable to the state. Moreover, the investor was, simply put, responsible for his own investment. The tribunal explained:

“Bilateral Investment Treaties are not insurance policies against bad business judgments. While it is probably true that there were shortcomings in the policies and practices that SODIGA and its sister entities pursued in the here relevant period in Spain, they cannot be deemed to relieve investors of the business risks inherent in any investment.”

The claimant also contended that SODIGA was responsible for the additional costs resulting from the EIA, which lead to the investor’s decision to stop the construction work and call off the project. In this regard, the tribunal concluded that the investor should have known that the project – a chemical plant – would require an EIA. According to the tribunal, the investor had known about the EIA requirement from the beginning of the project, but had tried to minimize it so as to avoid additional costs or technical difficulties.

For these reasons, the tribunal found that Spain could not be held responsible for the investor’s losses.

TPP is signed with ISDS provision

Two globes of EarthOn 4 October 2015, twelve countries representing 40% of the world’s economy signed the Trans-Pacific Partnership agreement. These countries consist of the United States, Mexico, Canada, Chile, Peru, Japan, Singapore, Brunei, Vietnam, Malaysia, Australia and New Zealand.

The text is yet to be released but official information about the agreement can be found among others on the U.S government website and the Canadian government website.

The signing of the TPP means that twelve countries with significant share in the world’s economy have been able to agree on one set of investment protection rules. As summarized on the U.S Trade Representatives website, the investment chapter will replicate the terms in the US 2012 Model Bilateral Investment Treaty. The rules require non-discriminatory investment policies and provide terms that assure basic rule of law protections. At the same time the rules ensure governments’ ability to achieve legitimate public policy objectives.

According to the Department of Foreign Affairs, Trade and Development of Canada, the investment chapter provides access to “an independent ISDS mechanism that is prompt, fair and transparent, and subject to appropriate grounds”.

This means that signing countries find ISDS to be relevant and necessary, not least between developed states. It may be noted that ISDS under the US 2012 Model Bilateral Investment Treaty includes a transparent proceeding and a possibility of a third party to participate in the proceeding. There is a good reason to guess the TPP will include these features too.

[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.