Tag Archives: Report

New report on investment arbitration

invstatesccnews

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

Practical guide: information about ISDS

Books close up are on the tableIt could be difficult to get an overview of what happens in the ISDS world. This is because the international nature of this field and the fact that it lacks centralized information system. However, things are happening fast – new arbitral awards are rendered and states are concluding and terminating international investment agreements (IIAs)

We offer some practical guides to ISDS through the following sources.

 

Free services:

Italaw

The website, which has been around for a long time, publishes arbitral awards and other documents from ISDS proceedings. Researchers at the University of Victoria are managing the website. If you search for a particular ISDS dispute on the internet, it is often that Italaw comes first, which may indicate that the website has been visited a lot.

UNCTAD

The website of the United Nations Conference on Trade and Development provides user-friendly search functions for both arbitral awards and IIAs that contain ISDS as dispute settlement mechanism. In addition, it publishes reports on new updates and statistics on IIAs and ISDS.

PluriCourts Investment Treaty Arbitration Database (PITAD)

PITAD is a database project of all known ISDS cases, currently under construction by the University of Oslo. The database can be accessed via a request to the responsible researchers.  The researchers behind the project takes empirical approach and uses coded variables to classify hundreds of well-known arbitral awards.

ICSID and PCA

ICSID administers most ISDS cases and automatically publishes information about them (as long as the parties do not actively object to it). PCA, on the other hand, publishes information with the consent of the parties. Both organizations have searchable databases.

 

Service with paid subscription

Investment Arbitrator Reporter

This website publishes news and information about ISDS. IAReporter engages in ongoing investigative reporting, which leads to their reporting on many cases, awards and developments that are otherwise confidential. IAReporter also offers in-depth summaries and analysis of awards and decisions, which could be helpful for those who do not want to read the hundred-pages awards. In principle, one must pay for subscription, however IAReporter also provides free trials and discounts for those who cannot gain access otherwise.

Global Arbitration Review

This publication primarily targets legal practitioners in the arbitration field – but often publishes interesting interviews and summaries of proceedings for those interested in learning more about the practical sides of ISDS work.

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.

How investment protection affects the “right to regulate”

Green paragraph between black paragraphsIn discussions of investment protection provisions in the context of the Transatlantic Trade and Investment Partnership (TTIP), issues have been raised regarding the risk of such investment provisions affecting the signatory states’ “right to regulate”.

A report from the Swedish National Board of Trade seeks to bring clarity to these issues by examining how two of the most commonly used investment protection provisions affect states’ “right to regulate”. At the outset, the report explains that the term itself is misleading, for an investment protection agreement never entails a waiver of the states’  right to regulate. Rather, the “right to regulate” in this context refers to the state’s ability to legislate and adopt administrative acts without running the risk of having to pay damages to investors.

Using the concluded trade agreement between the EU and Canada (CETA) and the US model bilateral investment treaty, the report analyzes two investment protection articles that frequently occur in investment disputes, and which also have the greatest potential impact on the state’s “right to regulate”. These two articles relate to (1) fair and equitable treatment and (2) expropriation without compensation.

The “fair and equitable treatment” article protects investors against, inter alia, fundamental breach of due process in judicial and administrative proceedings, manifest arbitrariness, and targeted discrimination. The article is often interpreted to include protection of investors’ “legitimate expectations”, based on the laws, regulations and government commitments that attracted the investment. According to the Swedish National Board of Trade, foreign investors in Sweden already enjoy this type of protection under Swedish law. The article on “fair and equitable treatment” in an investment protection agreement will thus not affect Sweden’s “right to regulate”.

The article regarding “expropriation without compensation” prevents states from nationalizing private property (direct expropriation), or by legislation or other means causing the investor to lose control of the investment or rendering the investment worthless (indirect expropriation). The provision again direct expropriation is broadly consistent with Swedish law; while the provision against indirect expropriation provides investors with some additional protection beyond that offered by Swedish law. According to the National Board of Trade, the expropriation article on the whole has only a slight, if any, impact on Sweden’s “right to regulate”.

The report concludes that, because the protection that these articles provide foreign investors in Sweden is already largely covered by Swedish law, they have a very small impact on Sweden’s “right to regulate”.

ISDS key figures and findings

worldisdsA report by Notre Europe Jacques Delors Institute, a think-tank working on European Union issues, summarizes important numbers related to bilateral investment treaties (BITs) and ISDS.

The report puts numbers into perspective – with some of its findings as follows:

  1. The number of BITs increased five-fold between the late 1980s and the end of 1990s.
  2. In parallel, the external stock of FDI demonstrates a ten-fold increase over 20 years with a growth from USD 2,400 billion in 1992 to USD 23,600 billion in 2012.
  3. There is now a total of 3,200 investment agreements worldwide, 93% of them provides an ISDS clause.
  4. Out of the 98 countries who have been a respondent in an ISDS proceeding, about three-quarters were developing countries or economy in transition. Less than one-third of claims were brought against developed countries.
  5. The average compensation claimed was USD 343.5 million, however the average amount awarded was USD 10.4 million.

The European Union member states have signed a total of 1,356 BITs with non-EU member states, in addition to around 190 BITs between themselves.

With regards to the EU – United States relationship, the report notes that nine member states have signed investment agreements with the U.S – all include ISDS as dispute resolution mechanism. These member states consist of Bulgaria, Croatia, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia. There have been so far 9 known ISDS claims between the U.S and the EU, all submitted by US investors (4 against Poland, 3 against Romania, 1 against the Czech Republic and 1 against Estonia).

ISDS is included in the EU’s upcoming agreements, including free trade agreements with Canada and Singapore – the negotiations of which have been concluded. According to the report, ISDS is also mentioned in agreements currently negotiated between the EU and China, Myanmar, Morocco, Thailand and Vietnam.

UNCTAD’s Review of ISDS Developments in 2014

Row of european flags against blue sky backgroundThe United Nations Conference on Trade and Development (UNCTAD) recently released a report on ISDS developments in 2014.

Below are some interesting points:

  • In 2014, 60% of the ISDS cases were brought against developing and transition economies.  A quarter of the cases are intra-EU cases.
  • The two types of State conduct most commonly challenged by investors in 2014 were cancellations or alleged violations of contracts and revocations or denials of licenses.
  • The most frequent home States of investors in 2014 were the Netherlands (seven cases), followed by the United States and the United Kingdom (five cases each).
  • As of the end of 2014, the total number of concluded cases become 356, with 37% decided in favour of the State, 25% in favour of investor and 28% of cases settled.
  • Five decisions were rendered in 2014 on applications for annulment of ISDS cases under the ICSID Convention, all of them unanimously rejected the applications.
  • The U.S Supreme Court overturned a ruling by the U.S Court of Appeals for the District of Columbia that has set aside an ISDS award in favour of BG Group Plc. against Argentina. This means that the original award stands.

2014: A Strong Year for New Investment Protection Regimes

sustainabledevA lot of new development took place last year in the investment protection regime. This is demonstrated for example by a yearly report from the United Nations Conference on Trade and Development (UNCTAD), which summarizes statistics and development surrounding the regime and ISDS.

States, to a large extent, continue to display interest and trust in the investment protection regime. This year’s finding shows that States have concluded 27 international investment agreements (IIAs), which means one every other week.

Sustainable development is at the heart of the newly-adopted IIAs. Most treaties concluded in 2014 include sustainable-development oriented features, for examples by preserving regulatory space for public policies of host countries and discouraging parties to relax environmental standards in order to attract foreign investments.

States maintain control in investment treaty-making and the design of ISDS provisions. In parallel to the adoption of new IIAs, 45 countries are revising their model Bilateral Investment Treaties. New model agreements have been concluded, notably by Brazil and India. This trend may also open up opportunities to include carefully-drafted investment protection in the IIA in support of sustainable development.

The total number of known ISDS claims decreased in 2014, from 54 cases in 2012 and 59 cases in 2013 to 42 cases last year.

What caused the rise of ISDS claims?

In a recent report by the European Centre for International Political Economy, Demystifying Investor-State Dispute Settlement, the history of the rise of investment protection and ISDS claims is analyzed.

The report responds to the question whether the increasing use of ISDS is a signal that investors have too much power in challenging actions by States.

It concludes the following:

a. At its core, the number of ISDS cases reflects the amount of investment in the world. The growth of ISDS cases and the growth of foreign direct investment (FDI) largely follow the same trend.

b. The key explanation behind the rise of cases is that the volumes of FDI have grown enormously. A portion of such FDI is made in developing countries and transition economies, hence resulting to greater problems faced by investors.

c. There is a growing support of the principle of international rule of law in commerce, demonstrated by the rising numbers of Bilateral Investment Agreements (BITs), as well as the WTO agreements.

d. The most active claimants in ISDS are investors from EU countries. This is not surprising as the EU is by far the biggest source of FDI in the world, representing 43% of all global outward FDI.

e. ISDS cases are concentrated to specific sectors that are highly dependent on public buyers or political support, for example the electricity sector. This is also not surprising since sectors with significant government involvement naturally have a greater degree of political and regulatory risk.

The increasing number of ISDS cases may be described as an increase of trust and reliance on international law in general, and to international arbitration specifically, both by investors and States.

Positive Impact of Investment Agreement and ISDS on Foreign Investment

The United Nations Conference on Trade and Development (UNCTAD) recently released a paper on the relationship between International Investment Agreement (IIA) and Foreign Direct Investment (FDI). The research concludes the followings:

a. The majority of empirical studies found that IIA does have a positive impact on the flow of FDI.

b. IIA plays a complementary role among several factors which may boost FDI, among others economic, political and social stability as well as protection of property rights.

c. The existence of ISDS was associated with a positive impact of IIA on FDI.

The roles of IIA, however, have to be seen within the context. The report notes that since its role is complementary; it cannot substitute for the need of sound domestic policies, regulatory and institutional frameworks. IIA is not an insurance that more FDI will come, if the country’s domestic policies are not favorable and stimulating enough for foreign investors. Similarly, we may not expect that IIA can turn a weak domestic policy into a strong one.

Let’s take renewable energy as an illustration. Investment in renewable energy is of great importance since it is seen as one of the solutions to tackle climate change. Many countries have great potentials for renewable energy, but not all have favorable domestic policy to support its development. It would be hard to imagine that foreign investment will come just because of the fact that a country has an IIA in place; domestic policy is also a necessary prerequisite.

As addressed in the paper, attracting FDI is neither the prime nor the only role of IIAs. Its key role is to contribute to predictability, stability and transparency in investor relation. IIA thus ensures that for example a renewable energy investor can reasonably rely on the laws and regulations currently in place when making the investment,  and also that the investor should be able to rely on permits and contracts with government. This stability allows foreign investors to plan its investment – which in the end will boost investor’s confidence.

The fact that IIA has a positive impact on the flow of FDI opens up opportunities for governments to boost investment in a particular area, such as for example sustainable development. ISDS, in turn, safeguards the implementation of the IIA by providing an efficient enforcement mechanism for the terms of the treaty.