Tag Archives: UNCITRAL

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.

Ban Ki-Moon commends international arbitration

Ban-Ki Moon”I ask all of you to use the great power of arbitration to help the world overcome conflict and hatred and build a future of dignity for all on a healthy planet.”

This was the powerful message of United Nations Secretary General Ban Ki-Moon at the 23rd ICCA Congress in Mauritius earlier this month.

According to Ban Ki-Moon, international arbitration has been a fundamental pillar in the United Nation’s work, going back to the organization’s predecessor the League of Nations.

He emphasized the importance of international arbitration for peaceful resolution of disputes – for both states and private parties – and welcomed the deepening partnership with the business community to meet global challenges of the future.

“The United Nations is proud to have contributed to the development of international arbitration” the Secretary General said, commending in particular the work by UNCITRAL to “create a favourable environment for resolving disputes.” He especially emphasized UNCITRAL’s work with new rules for transparency and pointed out that increased transparency is extra important in disputes between investors and states, where public interests may be involved.

The full speech is available here. Other speakers included Nobel laureate Mohammaed ElBaradei.

The New York Convention – a success from 1958 serving ISDS

Central Park with Manhattan skyline in New York CityISDS is established and ruled by international agreements. 159 states have submitted to the World Bank’s ICSID system, which is designed specifically for disputes between foreign investors and states. Many ISDS proceedings are conducted outside the ICSID system and for those proceedings, other instruments are in control. The most important of these is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.

The New York Convention began to be discussed in the mid-50s because it was necessary to support the emerging international trade. The system at that time simply lacked an effective way to enforce arbitral awards across borders. A judgment of a national court was then, as now, difficult to enforce outside the court’s home jurisdiction, which meant that it was fairly easy for the losing parties to international disputes to avoid paying (it has become somewhat easier since the 1950s particularly in the EU, but it is still difficult to get, for example, a Swedish court judgment executed abroad and vice versa).

Arbitration is an important piece of the puzzle for international trade to function, it is by far the most common way to resolve international disputes. The New York Convention guarantees that whoever wins the dispute has not only the right but also gets the right in practice. By signing the Convention, states agree to enforce arbitral awards rendered in another state that is party of the Convention. The Convention has provisions to ensure the rule of law, for example, enforcement of an arbitration award can be rejected if it was rendered with a procedural deficiency.

Most of the states in the world have signed the New York Convention. It is the UN Commission of International Trade Law secretariat in Vienna (UNCITRAL), which takes care of the practical issues when new states accede. According to the UNCITRAL, Andorra is the latest country to ratify the Convention, and this means that the Convention is an applicable law in 156 countries.

The Convention is widely considered to be the most successful international convention ever. Although there are international agreements that have been signed by more states, they rarely contain any direct commitments. The New York Convention requires courts of the state parties to effectively apply the provisions of the Convention, and such strong support from the world’s countries is a major success story for international law and international trade.

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.

ISDS and the Rule of Law

Wooden judge's gavel and calculator over some financial documentsISDS is governed by international rules, established by states. The governing rules can either be the Convention on Settlement of International Investment Disputes (the ICSID Convention) or other sets of arbitration rules, to name one is the UNCITRAL Arbitration Rules. These rules ensure the proper and fair functioning of the mechanism. Let’s take a look at these rules.

The ICSID Convention has been signed by 159 states and it has governed most ISDS cases. It provides, among others, that an arbitrator in an ISDS case can be disqualified if he or she shows lack of the qualities required to sit as an arbitrator. Awards rendered under this convention may be annulled, among others if arbitrators manifestly exceeded their authority.

The UNCITRAL Arbitration Rules is a result of the work of the United Nations Commissions on International Trade Law (UNCITRAL) which commenced in 1973. The General Assembly of the United Nations adopted the first version of UNCITRAL Arbitration Rules in 1976. The rules provide, among other things, that arbitrators can be challenged if there is any doubt about their impartiality and independence.

On the enforcement front, ISDS is safeguarded by the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. The Convention demands that all state parties enforce decision rendered in the other state parties. This means that ISDS decision is enforceable in 154 states, who are parties to this Convention.

Finally, domestic law is also one of the pillars which safeguards the functioning of ISDS. Domestic law may provide grounds for a domestic court to refuse enforcement of ISDS award, for example if a party to the dispute was unable to present its case in an arbitration proceeding.

ISDS supports and governed by rule of law. It is not a “private justice system” outside the legal system, as is sometimes incorrectly referred to. As explained above, states have always had strong involvement in establishing the rules governing the mechanism.

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.

 

 

Case Summary No. 7

Blue chemical cans all over. Outdoors on chemical plant.We continue our series of case summaries with SD Myers v. Canada, a NAFTA dispute decided under the UNCITRAL arbitration rules. The summary is based on the facts as described in the three separate awards rendered by the arbitral tribunal between November 2000 and December 2002.

S.D. Myers, Inc. (“SDMI”) is a United States corporation that processes and disposes of polychlorinated biphenyl (“PCB”), an environmentally hazardous chemical compound used in electronics manufacturing. SDMI created a Canadian affiliate with the aim of soliciting orders for the destruction of Canadian PCBs at its U.S. facility. The U.S. had banned the import of PCB from Canada in 1980, but granted SDMI an exception in 1995. Promptly after SDMI had been granted permission from the U.S. government to import PCB waste from Canada, Canada issued an order prohibiting the export of PCB waste to the U.S. The prohibition was in effect for approximately 16 months.

SDMI filed claims against Canada under the UNCITRAL Rules in October 1998, alleging that Canada’s ban on the export of PCB waste had violated several provisions of Chapter 11 of NAFTA. SDMI claimed that it had suffered economic harm to its investment through interference with its operations, lost contracts and opportunities in Canada. Canada maintained that the ban had been motivated by environmental concerns.

In its first partial award, on liability only, the tribunal found for the investor with respect to its Article 1102 and 1105 claims, holding that Canada had violated NAFTA’s national treatment and minimum standard of treatment provisions. According to the tribunal, the evidence showed that Canada’s ban on PCB export was not driven by environmental concerns, as asserted by Canada, but intended primarily to protect the Canadian PCB disposal industry from U.S. competition. The investor’s claims regarding expropriation and performance requirements were dismissed. Canada challenged the award in its own federal court, on the grounds that the tribunal had exceeded its jurisdiction and that the award was against Canadian public policy. The court dismissed the challenge.

The tribunal issued two subsequent awards, on damages and costs, respectively. On damages, the tribunal reasoned that the investor may only be compensated for harm proximately caused by the breach of the specific NAFTA provision. According to this principle, indirect harm such as loss of opportunity or a damaged reputation are too remote to warrant compensation. The tribunal thus awarded SDMI damages of CAN$ 6 million, a fraction of the US$ 70 million claimed by the investor. 

UNCITRAL at the forefront of ISDS development

UNCITRAL_BloggThe international community is constantly working in a collaborative spirit to address areas for the continued development of the international legal order. An important UN-body for this purpose is the United Nations Commission on International Trade Law (UNCITRAL). And a recent and illustrative example of how states have constructively addressed new developments through the work of UNCITRAL is the Rules for Transparency in Treaty-based investor state arbitration.

The Transparency Rules were drafted in response to the calls for ISDS transparency, but it deserves pointing out that the UNCITRAL work on transparency took its beginning long before ISDS became a hot political issue in Europe. The UNCITRAL perspective is constructive and long-term.

At its most recent session in Vienna, the UNCITRAL Commission touched upon another topical issue for investor-state dispute resolution, when it discussed the matter of concurrent proceedings. This is an area the UNCITRAL has focused on over the past year, and in which the Commission expressed a continued interest for future work.

The recent UNCITRAL report on concurrent proceedings and possible future work is available here. It illustrates the joint responsibility felt by the international community, as represented by UNCITRAL, to safeguard common values under-pinning international arbitration, while addressing the future in view of recent development.

 

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.