Tag Archives: SCC

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

Bridging the Climate Change Policy Gap

BLoggIt is clear that to fight climate change, we need to scale up green investment both in terms of amount and geographical reach. However, climate change law, in this case the United Nations Conference Framework on Climate Change and the recently-signed Paris Agreement, do not specifically include terms to promote and protect investment. This is a policy gap.

The SCC, together with the International Bar Association, the International Chamber of Commerce and the Permanent Court of Arbitration, took an initiative to discuss this gap by organising a conference, Bridging the Climate Change Policy Gap: The Role of International Law and Arbitration, in Stockholm on 21 November.

It is noted during the conference that around USD 100 billion in investment over the next fifteen years is needed to combat climate change – a target that is considered achievable. Another speaker emphasised that there is no shortage of capital to address climate change. The challenge is how to get investors to actually invest and how to match the capital with the green investments.

It appeared to be a consensus among the speakers that good policy is key to attracting sustainable investments. Policy needs to be long-term and stable. Short-term policies, often associated with government’s turnover, caused bad impacts, from high transaction costs to the fact that the industry had to fire and re-hire employees depending on how policy is.

A panel of lawyers discussed how litigation has been used to fight climate change, directly and indirectly. Among other things, renewable energy investors have resorted to international arbitration to bring a claim against government for unstable policies and revocation of incentives. Another case being discussed in depth was Urgenda Foundation v. the Netherlands where a Dutch district court ruled that the government has breached its duty of care to its citizens by not doing enough to address climate change.

It may be foreseen that these types of cases, both in domestic and international fora, will propel the right type of government actions.

A report from the conference with more details will be published soon.

 

ISDS transparency in draft SCC Rules 2017

BloggReglerThe Arbitration Institute at the Stockholm Chamber of Commerce (SCC) turns 100 years in 2017. During this year, the SCC will update its rules for arbitration, and a draft version of those updated rules has now been published. Among the novelties is an annex applicable only to ISDS disputes, which expressly allows for non-parties to participate in an arbitration.

Among the arbitration institutions which administer ISDS cases under their own rules, the SCC is second only to ICSID. These SCC cases are currently governed by the 2010 version of the SCC Rules, but a committee has now published the updated draft version.

The committee consists of in-house counsel, academics and practicing lawyers from both Sweden and nine other jurisdictions. The proposal contains a number of new elements, but from an ISDS perspective it is noteworthy that the new draft rules include a special annex for ISDS disputes. Under this annex, non-disputing parties are expressly given an avenue to provide the tribunal with written submissions. This applies to both third parties and to the investor’s home state.

The proposed provisions on submission by third parties mirror the UNCITRAL Transparency Rules from 2014.

The draft rules will be presented and discussed at a public hearing 9 June in Stockholm.

UNCTAD at the Stockholm Energy Charter Treaty Forum

summer meadow with high-voltage towers rowThe need to scale up energy investment was address by Deputy Secretary-General of the United Nations Conference of Trade and Development (UNCTAD), Joakim Reiter, at the recent Stockholm Energy Charter Treaty Forum, In his speech, Mr Reiter also remarked that international investment agreements (IIAs) can play a critical role in achieving this objective.

The Deputy Secretary General emphasized that energy poverty is the immense challenge of our time, when almost a fifth of the world’s population today have no access to electricity of any kind.  The amount of investment needed to address this problem is staggering, where for sustainable energy alone, the required amount reaches USD 800 billion. In this respect, he pointed out that the Energy Charter Treaty, as the only multilateral investment agreement in the field of energy, can play an important role in fostering sustainable energy future.

DSG Reiter remarked that international investment agreements (IIAs) have the potential to reinforce investor confidence by fostering predictability and transparency. It can also foster good governance and therefore improving the host country climate. However, he viewed that the new IIAs should strike a better balance between investment protection and the right to regulate of host government.

When it comes to ISDS, he noted the increasing number of ISDS has raised concerns. However, he asserted that the choice is not between having ISDS and not having ISDS. The choice is between having ISDS that works for sustainable development and ISDS that does not.

Read our previous posts about ISDS in support of climate change mitigation, about more environmental languages in IIAs and also about ISDS at COP 21.

Stockholm Energy Charter Treaty Forum was held on 8 February 2016 as a result of collaboration between the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), Energy Charter Secretariat, the International Centre for Settlement of Investment Disputes (ICSID) and the Permanent Court of Arbitration. The theme of this year’s forum was how to boost energy investment as well as to remove related barriers and risks. Among the speakers were high-level government officers from Asia, South America and Africa as well as energy investors, law practitioners and academics.

ISDS costs – how much and who pays?

Ukrainian small coins on black tableHow much does ISDS dispute cost? Firstly, we have to be clear which costs are being referred to.

ISDS costs typically consist of three elements: the arbitrators’ fee, the administrative fee of the arbitral institution administering the case (not in every case) and the cost of legal representation. In some cases, there can also be additional costs relating to legal experts and an administrative secretary.

Arbitral institutions, such as the SCC, usually have rules on arbitrators’ fees and the administrative fee. The SCC sets these fees based on the amount in dispute.

Legal fees of counsel who represent the party depends on the complexity of the case and time spent. It may not necessarily reflect the amount in dispute, but rather whether facts and other matters in dispute have been complex or not.  In this context it deserves pointing out that the first generation of international investment agreement typically contained relatively broad and vague provisions, which may in itself create complexity in the adjudication of the claims.

A study by the OECD concludes that legal counsel fees and experts are the largest cost component in ISDS, estimated to average 82% of the total cost of a case. Arbitrator fees average about 16% of costs. Administration costs of arbitral institutions are relatively low, generally amounting to about 2% of costs.

The above numbers are interesting for the assessment of an appeal mechanism in ISDS. If the purpose of an appeal is to have the case reheard on its merits, effectively have a re-trial of the case, there is strong reason to believe that the cost of legal fees will double, as the case moves through the procedure for appeal.

Now, who pays? The SCC Rules provides that the tribunal may apportion the administrative fee and the arbitrators’ fee between parties, depending to the outcome of the case. The Rules further mention that the tribunal may order a party to pay reasonable legal representation of another party.  Under UNCITRAL Arbitration Rules, the costs of the arbitration shall in principle be borne by the unsuccessful party, even though the tribunal may allocate the cost between parties should it finds it reasonable.

In Glamis Gold v. USA, the tribunal dismissed all claims by the investor and ordered the investor to pay two-third of the arbitration costs. In Methanex v. USA, the tribunal also dismissed all claims by the investor and went further by ordering the investor to pay all the costs of the arbitration.

This practice has further been incorporated into recent free trade agreement. The TPP specifically provides that tribunal may award the state reasonable costs and attorney’s fees if it determines the investor’s claims to be frivolous.

Arbitrators’ Independence and Impartiality

ArbitratorsBlogThe parties in an ISDS case select the arbitrators that resolve their dispute. Arbitration law and institutional rules provide layers of control mechanisms to ensure the impartiality and independence of these arbitrators.

The SCC Arbitration Rules require that every arbitrator must be impartial and independent. This requirement extends from the outset and throughout the proceeding. Prior to appointment, an arbitrator must disclose any circumstances which may give rise to justifiable doubts as to his or her impartiality or independence. Further, a party to a dispute may challenge an arbitrator during the course of the proceedings, if new circumstances arise or facts come to light that lead the party to doubt the arbitrator’s independence or impartiality.

Most institutions, including the SCC, evaluate challenges to arbitrators under an objective standard – that is, the arbitrator is disqualified if the circumstances, from the point of view of a reasonable third person, give rise to a conflict of interest. In other words, it is not necessary to show that the challenged arbitrator in fact lacks independence and impartiality, but rather that there is an appearance of partiality.

In arbitrations administered by the SCC, the SCC Board makes the final decision on arbitrator challenges. In evaluating challenges, the Board may refer to the International Bar Association Guidelines on Conflict of Interest in International Arbitration (“IBA Guidelines”). The IBA Guidelines list specific situations in which an arbitrator should decline an appointment, or step down if already appointed.

For example, the SCC Board sustained a respondent’s challenge to an arbitrator appointed by claimant because the arbitrator’s firm had been involved in matters both for and against the respondent. The arbitrator was released from the appointment. Read this article for more information on challenges in SCC cases.

The ICSID Convention, developed by States, provides that an arbitrator can be dismissed if he or she manifests a lack of the qualities required to sit as an arbitrator. A proposal to disqualify an arbitrator was upheld in Bluebank v. Venezuela, on the ground that the arbitrator appointed by claimant worked in a law firm that represented other claimants in unrelated ICSID cases against Venezuela.

Under the ICSID Convention, an ISDS award may be annulled if the tribunal was not properly constituted. This may include situations where an arbitrator failed to disclose potential conflicts of interest before or during the arbitration.

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

SCC seminar on ISDS & TTIP at the European Parliament

isdsbloggbrysselThe Stockholm Chamber of Commerce took an initiative to organize a seminar on ISDS at the European Parliament on 5 May 2015. The aim was to discuss the importance of the mechanism in support of the global economy – with a special focus on the Transatlantic Trade and Investment Partnership (TTIP).

Participants came from the Members of the European Parliament offices, governments’ representatives including the European Commission and different NGOs. The panel consisted of experts from different backgrounds and was moderated by Andreas Hatzigeorgiou, Chief Economist at the Stockholm Chamber of Commerce.

ISDS comes in the form of international arbitration and it is therefore essential to understand how the mechanism has been used. Annette Magnusson, the Secretary General of the Arbitration Institute of Stockholm Chamber of Commerce explained that historically, arbitration served as a neutral dispute resolution venue in times of geopolitical crisis, among others during the fall of the Soviet and Iran-U.S crisis. Today, ISDS plays an even more important role. In recent years, investors in the renewable energy sector have used ISDS to enforce investment protections in IIAs. This demonstrates that ISDS has the potential to protect investment in sustainable development efforts.

Rikard Wikström, a partner at White & Case in Stockholm, explained that rule of law and legal principles underpin ISDS as a procedural mechanism. The disputing parties in ISDS have equal rights to present their case, arguments are made based on the law and due process should exist throughout the process.

ISDS reform is underway, among others by the adoption of international rules to enhance transparency in ISDS proceedings. Timothy Lemay, the Principal Legal Officer of the United Nations Commission on International Trade Law (UNCITRAL) explained how the UNCITRAL Transparency Rules work in practice. By the application of these rules, most documents in an ISDS proceeding will be made public, the public will be able to access the hearings through video-streaming and participate in the proceedings by submitting amicus curiae.

Turning to the question of ISDS in the TTIP, Christofer Fjellner, a Member of the European Parliament, emphasized that having investment protection in the TTIP is a matter of rule of law. It is a matter of ensuring that foreign property will not be expropriated without fair compensation and that investors are treated without discrimination. ISDS is just a mechanism to enforce this protection.

Finally, Freya Baetens, associate law professor of the Leiden University, conducted a cost-benefit analysis of including ISDS in the TTIP. She concluded that the TTIP may benefit from some improvements in the ISDS system, among others by invoking a loser-pays principle and ensuring that frivolous claims are dismissed at an early stage of the proceedings.

Above all, ISDS in the form of international arbitration is a well-established mechanism to resolve international disputes. It is governed by both international law and domestic law – which means that States maintain full control in the functioning of the system.

The European Commission Concept Paper on ISDS

bloggkommissionisds

The European Commission has published a concept paper on proposals for a potential future ISDS-mechanism in the TTIP.

According to the paper, a new approach in the EU investment policy is needed, where “a major part of the challenge is to make sure any system for dispute settlement is fair and independent”.

It may be observed that the paper contains no clear elaboration on how the current system is unfair and not independent. In contrast, in our experience the current system in the vast majority of cases does represent the values of fairness and independence.

As a starting point, the paper asserts that the EU has achieved a certain level of ISDS reform as embodied in the EU free trade agreements with Canada and Singapore. The paper addresses “what should be further improved”.

Firstly, the paper proposes an exclusive roster of arbitrators pre-established by State parties of the investment agreement. Several arguments could be raised against such practice. It is impossible to foresee what future disputes under an agreement will look like and what specific expertise will be required. A pre-established roster may constitute an obstacle for the dispute to be resolved by the most suitable arbitrator.

Secondly, the paper proposes an appellate mechanism “to ensure correctness and predictability”. It deserves pointing out that the ICSID Convention or the provisions of New York Convention already serves this purpose. Under the ICSID system, an award can be annulled on procedural grounds, among others if the tribunal manifestly exceeded its powers.

If what is desired is to try the whole case again at the appeal stage, it will significantly increase the time and costs associated the dispute. An appeal mechanism in itself is no safeguard to enhance predictability – this is best achieved by well formulated substantive terms.

Finally, the paper foresees the creation of “a permanent multilateral system for investment disputes”. The Commission seems to ignore that such system is already in place through the Washington Convention and the ICSID system, which has been endorsed by more than 150 states.

The impression is that the reform proposals were made based on “perception”, or more precisely, misperception on the system. A stronger emphasis on empirical evidence would better serve a higher standard in the decision-making process ahead.

For more information, read the SCC’s remarks on the Concept Paper here.

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.