Tag Archives: Neutrality

Who are the investors?

Investors from a wide range of industries and company sizes have resorted to ISDS to enforce States’ obligations under international investment agreement.

As a recent study concluded that in general ISDS cases are concentrated in sectors like electricity and mining.

ISDS however have not only been used by investors from those sectors. From sustainable development perspective, ISDS has shown the potential to protect investment in climate change mitigation efforts. In the past three years, renewable energy investors such as wind power and solar power investors have brought claims to ISDS alleging, among others, breach of host government’s specific commitment regarding incentives for their investments.

Further, an investor who owns an environmental sanctuary have also recently brought a claim to ISDS, arguing that the host government has failed to enforce its own environmental law which harms the sanctuary.

In addition, many other investors are represented in ISDS, from producers of biscuit, ice cream and paper to eco-tourism businesses. For example, the investor in paper business brought a case arising from government’s ban to import a certain raw material, contrary to a previous authorization that the investor was allowed to do so.

The above has shown that ISDS as an efficient dispute resolution is important not only for rule of law but also for the functioning of the global economy. Foreign investors who have obtained specific promises from a government with regards to their investment, typically in the form of government contracts or permit for certain period, may enforce this promise through ISDS, as an international neutral venue.

Small and medium size enterprises benefit from ISDS procedural efficiency; it is usually faster and less costly compared to proceedings in domestic court.The importance of ISDS for SMEs is also confirmed by an OECD survey according to which 22% of ISDS claimants are either individuals or very small corporations with limited foreign operations. Extremely large multinationals only account for 8% of the claimants in the survey.

Who are the arbitrators?

One of the salient features of ISDS is the use of independent arbitrators. This begs the question, who they are and how they are appointed.

As the main function of ISDS is to have investment disputes resolved in a neutral international forum, neutrality should underpin the whole arbitration proceeding, starting from the appointment of arbitrators by both investors and States.

The first and most important consideration in the arbitrators’ appointment is that parties have to choose an arbitrator whose independency and impartiality cannot be second-guessed. Second, they are free to appoint individuals whom they trust to have the expertise in the area of the dispute.

In the event parties or arbitrators appointed by parties failed to appoint the chairperson of a tribunal, a third party can make the appointment. For instance, in SCC arbitration, the SCC Board, which consists of arbitration experts, makes the appointment.

Arbitrators are not beyond the law and there are strict consequences if they fail to maintain their independency and impartiality. An arbitrator may be challenged if there is a reasonable doubt about their competence or impartiality and when this is proven, he or she can be dismissed. Further, an arbitral award may be annulled for reasons of, among others; the Tribunal has exceeded its powers or has committed corruption.

ISDS has a greater transparency compared to commercial arbitration. Transparency allows parties and arbitration institute to access and peruse the awards rendered by potential arbitrators, which will guide them in assessing their independency and impartiality.

To prevent bias, the ICSID Convention provides that the majority of arbitrators should not be the nationals of the parties having dispute. According to a recent article, while mostly lawyers act as arbitrators in ICSID arbitration, non-lawyers, including architects, maritime experts and an economist have been appointed in some instances. ICSID’s appointed arbitrators come from more than seventy different nationalities.

The SCC does not maintain a panel of arbitrator and this allows the SCC to choose arbitrators from different geographic areas, from younger generation as well as to provide more gender balance. The SCC has appointed not only lawyers but also law professors. For more information on the SCC arbitration procedure, see this link.