Tag Archives: Investment 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.

 

 

ISDS in support of climate change mitigation

Environment concept. Glass globe lying on green leaf surfaceThe challenges and future of ISDS was discussed at length recently in Warsaw at an international event organized by Lewiatan Court of Arbitration.

One of the topics addressed was how the investment protection regime can contribute to a better environment. SCC Secretary General Annette Magnusson, who have spoken and written on this topic on several occasions before, addressed the audience on the need for visionary treaty terms in future treaties.

-  If we can combine treaty terms that truly reflect the role played by private investments for a better environment, and the existing enforcement mechanisms of international arbitration, I believe true progress for the environment could be achieved on a global level, Annette Magnusson said.

The full speech is available here.

Read more about ISDS and sustainable development:

Environment Needs Visionary Treaty Drafting

Climate Change Justice Calls for Enhanced Legal Regimes

Investment Law Reform and Sustainable Development

Case Summary No. 5

GlamisGold

The ISDS blog continues with another case which reflects the interplay between international investment law and environmental protection. This was a central issue in our fifth case, Glamis Gold Ltd. v. the United States of America. The summary is prepared based on the facts as described in the award rendered in June 2009.

The investor was planning to mine gold in California through open-pit mining techniques. California adopted several measures, among others requiring the investor to conduct complete backfilling of the pits for environmental protection reasons.

The new measure did not impede the development of the mining project, however, according to the investor, it impacted the level of anticipated profits. The investor claimed, among others, that the measure constituted an expropriation of its investment.

After conducting a thorough analysis, the tribunal found that the project still had a great value even after the extra costs caused by California’s backfilling requirements. Therefore, in the tribunal’s view, the measure did not cause a sufficient economic impact to constitute an expropriation. The tribunal dismissed all claims by the investor and ordered the investor to pay two-third of the arbitration costs.

The tribunal accepted at least three amicus curiae in this case, one by a coalition of non-governmental organization, one by a business association and one by the locally-based tribe whose sacred sites were affected by the proposed mining project.

 

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.