Tag Archives: Investors

UNCTAD updates ISDS statistics for 2016

Blogg_v9United Nation Conference on Trade and Development (UNCTAD) is the UN body responsible for investment issues. It regularly publishes reports and analyses about ISDS, as well as on about general investment treaty trends, including an annual update on recent developments. We have written about the reports from 2014 and 2015, but recently UNCTAD also updated its database with information from 2016.

 

Examples of statistics from this latest development include:

  • There were 62 new ISDS cases in 2016, a relatively high number compared to earlier years, with the exception of 2015, when 74 cases were initiated.
  • Colombia, India and Spain were the most frequent respondent states (with four cases each) but the cases were spread over 49 different host states.
  • The United States and the Netherlands were the most common investor nationalities.
  • Roughly two thirds of the cases were brought under bilateral treaties, but 10 were based on the multilateral Energy Charter Treaty.

All UNCTAD data, including the updates from 2016, are available in a searchable database here.

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

Host states’ legitimate expectation

Scenic landscapes of Northern ArgentinaThe investor’s legitimate expectations are often a key question in ISDS cases. Such expectations can be based on, for example, the host state’s laws, policies, or contractual commitments – such as when a host state granted the investor mining rights for a certain number of years. A violation of these expectations can be a ground for the investor to bring an ISDS claim against the host government. Several tribunals have ruled that a host country cannot act contrary to the investor’s legistimate expectations.

Karl P. Sauvant and GüneşÜnüvar have written an article published by Columbia Center for Sustainable Investment, introducing the question of whether or not states can also have legitimate expectations towards the foreign investor. According to the article, such expectations may arise from, for instance, the investor’s statements of its contribution to the host country.

As an example, the article points to Sempra v Argentina, where Argentina argued that it “had many expectations in respect of the investment that were not met or otherwise frustrated … (such as)… work diligently and in good faith…”. The article also notes, however, that since governments currently cannot initiate ISDS proceedings against foreign investors, their reliance on legitimate expectations is limited to counterclaims brought in response to investors’ claims. See our previous post about counterclaims here.

Finally, the article proposes that future international investment agreements (IIAs) could explicitly stipulate that host states’ legitimate expectations are protected, thereby establishing a right for host states to bring a claim on this basis.

Examples of national courts acting in ISDS

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National courts play important roles in safeguarding the rule-of-law outcome of ISDS proceedings. Under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a party to an ISDS proceeding may request a national court to set aside an arbitral award. This can be done however on limited grounds, among others, if one of the parties was unable to present its case and if the arbitral procedure was not in accordance with the agreement of the parties. In addition, arbitration laws of a country also may provide grounds for setting aside an award.

Let’s take a look when this actually happened in practice.

In CME Czech Republic v Czech Republic, the tribunal found that the country’s media authority had destroyed the investor’s exclusive position as services provider for a private Czech TV channel, which left the company with assets but without business. In this case, the tribunal sided with the investor that the actions constituted an expropriation under the Netherlands – the Czech Republic Bilateral Investment Treaty.

The Czech Republic further requested the Svea Court of Appeal in Sweden to set aside the award under the Swedish Arbitration Act, on the grounds that, among others, one of the arbitrators had been excluded from the deliberations and that the award violated Swedish public policy. The Court of Appeal rejected this claim and found that the tribunal had given the arbitrators reasonable time to submit comments. Further, the Court viewed that the Czech Republic had failed to show that the award violated public policy. The Court therefore rejected the request on all grounds.

Meanwhile, in Metalclad v. Mexico, the tribunal found a violation of Chapter 11 of the North American Free Trade Agreement since the investor was denied fair and equitable treatment by the government due to the absence of clear rules about a certain permit. According to the tribunal, this amounted to a failure by the government to ensure transparency for the investor.

Mexico submitted a request to the British Columbia Supreme Court in Canada to set aside the award, on the grounds that the tribunal had incorrectly considered that transparency requirement formed part of minimum standard of treatment and expropriation provisions of Chapter 11 of the NAFTA. The Court agreed with Mexico and ruled that the tribunal had decided a matter beyond its jurisdiction. The award was therefore partly set aside the award.

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.

Former ICJ President Criticizes EU Investment Court Proposal

?????????????????????????????????????????????????????????????In a May 17 address, independent arbitrator and former president of the International Court of Justice Stephen M Schwebel criticised the EU proposal for the establishment of a permanent investment court in the context of the Transatlantic Trade and Investment Partnership (TTIP). Schwebel spoke in Washington, DC at a public event organized by Sidley Austin, the American Society of International Law, and the District of Columbia Bar Association. Read the full speech here.

The current system of investor-state arbitration – the standard dispute-resolution mechanism in 3,000 bilateral investment treaties – “works reasonably well”, Schwebel noted. He expressed concern that the EC is now seeking to replace that system with “a system that would face substantial problems of coherence, rationalisation, negotiation, ratification, establishment, functioning and financing.” The EU proposal for an investment court, Schwebel argued, is a mere “appeasement” of “uninformed or misinformed critics”.

ISDS critics often presume that an arbitrator appointed by an investor is biased in favor of the investor – a presumption not supported by the record of investor-state arbitration. The EU’s proposal, Schwebel notes, instead risks entrenching pro-state bias by allowing states to appoint all the judges on the investment court, and depriving investors of influence over the appointment process. If the goal is a truly fair and neutral dispute resolution, “is there reason to presume that judges appointed only by states will not be biased in favour of states?”

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.

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.

ISDS at the Peace Palace

PeacePalaceFinalYear 1899 marks the beginning of the Philippines – American war. In the same year, the Spanish-American war ended. It also marks the first international peace conference in the Hague, which represents an important point of time for international arbitration.

The Hague Peace Conference was an initiative of Czar Nicholas II of Russia, the aim of which was to ensure a lasting peace and to limit armaments. One of the proposals that was put forward in this conference was to create an institution for international arbitration to settle international disputes in order to replace institution of wars.

One of the biggest achievements of this conference was the signing of the Convention for Pacific Settlement of International Disputes (“Convention”). The Convention created the Permanent Court of Arbitration (PCA) which is housed in the Peace Palace in the Hague.

Since then, the PCA has administered a large number of high-profile arbitration between states. In Grisbådarna Case between Sweden and Norway, the dispute on the maritime boundary between the two countries was resolved. Another case concerned a bloody conflict between Eritrea and Ethiopia. The two countries submitted to the PCA to settle the delimitation of their borders and to settle claims arising out of violations of international law during the conflict.

Today, the roles of the PCA and international arbitration have moved beyond maintaining peace. It continues to contribute to rule of law by administering ISDS cases – which in the end plays a role in promoting economic development and international trade.

One of the high-profile cases is Chemtura v. Canada, in which a U.S investor brought a claim against Canada due to Canada’s decision to ban sale of a pesticide produced by the investor. The tribunal found that there was a legitimate public health reason behind this ban and therefore it rejected the claim of the investor in its entirety.

Further, the PCA is currently administering a case in which a Canadian investor brought a claim against the government of Barbados for, among others, failure to implement the environmental laws and to abide by its environmental treaties commitments. The investor claimed that this failure has damaged natural sanctuary owned by the investor. The case is still pending however it shows that environmental protection is an important question that may appear in ISDS.

Two centuries after the Hague Peace Conference, international arbitration is still highly relevant as a rule of law mechanism to solve international disputes. This is a value that should be appreciated, not undermined.

 

The IBA on ISDS

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The International Bar Association, which has a membership of 55,000 individual lawyers across the globe, recently published a paper on ISDS. It is not only fact-based, but it also brings out some unfounded claims about ISDS that have not been widely addressed.

The paper mentions that it would be incorrect to state that ISDS is biased against developing countries as data on ISDS show no correlation between the success rates against states and their income levels.

Neither does ISDS enable investor to make “a fortune” from the system. Data show that even when investors won in ISDS, they have only recovered on average, less than half of the amount they claimed.

ISDS has at times been described as a one-sided system as it only allows investor to bring a claim against States. From a legal perspective, whether or not States can equally bring a claim in ISDS entirely depends on the exact language of the international investment agreement (IIA). This means that States retain the option to include this in the IIA. Case law also demonstrate that State-owned companies have frequently used ISDS.

Above all, it is not true that ISDS is not needed when domestic courts are already sophisticated. ISDS concerns questions of international law, hence international tribunal is needed to resolve those questions.

The IBA is further taking an initiative to analyse both the benefits and criticism on ISDS to make it a better system. To this end, the IBA is engaging with governments from both developed and developing countries, arbitral institutions, corporations and the legal profession.