Investment Treaty Arbitration

1. Investment Treaty Arbitration Valentina Vadi, PhD Lecturer, University of Maastricht China University of Political Science and Law, 31 March 2011

2. Synopsis • The settlement of investment disputes - introductory remarks; - historical background; • Main characteristics of investor-state arbitration • The arbitrator: profile and ethics

3. Are BITs Successful?  Do they secure protection for investments once made?  Yes; • massive increase in the number of arbitrations conducted under the dispute settlement provisions of BITs • compliance • out-of-court settlements

4. Breach of Treaty Guarantees: Procedural Level

5. Fork in the Road • Some BITs contain such a provision: • A choice of a particular dispute resolution procedure, once taken, forecloses the possibility of electing any other dispute resolution procedures potentially available

6. Investment Treaty Arbitration • Revolution- Diagonal Relationship • Main Characteristics: - depoliticised; - outcomes based on law; -automatic right to initiate proceedings; -juridical equality; -confidentiality; -lack of central courts; -ad hoc or institutionalised;

7. Objectives • To move beyond war, gunboat diplomacy; • To move beyond politicized forms of dispute resolution; • neutral forum; • To counter opportunistic behaviour by the host state; • To compensate structural inequalities between the investor and the host state

8. What type of Arbitration? • Ad hoc tribunal under UNCITRAL Arbitration Rules • Institutionalized arbitration: • Stockholm Chamber of Commerce; • ICSID; • ICC (Paris); - PCA (the Hague) Peace Palace, the Hague

9. I C S I D • International Centre for Settlement of Investment Disputes • NOT a court but an administrative facility! • Based in Washington D.C. • Established in 1965 as an affiliate of the World Bank; • 155 states parties • First case in 1972; • Over one hundred cases pending before its tribunals • Additional Facility (1978)ICSID party and non ICSID state

10. I C S I D • Skilled legal staff; clear arbitral rules • Comprehensive, self-contained • Very limited grounds for challenge; ad hoc annulment panels; • ICSID Awards are given the same recognition and enforcement in ICSID Member states that would be given to a final judgment of a court in that state • Good record of compliance • Reputation

11. The Mechanics of Arbitration • Request of Arbitration • Establishment of the Arbitral tribunal • The investor selects one arbitrator; • The respondent state selects another arbitrator; • The presiding arbitrator: • [ICSID] The parties agree on the appointment of the presiding arbitrator; If they cannot agree  ICSID makes the final appointment. • [UNCITRAL] party appointed arbitrators agree on the presiding arbitrator

12. The Presiding Arbitrator • Influences the style of the arbitration • Makes critical procedural decisions • Resolves disputes between party appointed arbitrators (!) • If no majority decision seems possible, the chair’s vote is decisive

13. Jurisdiction-Article 25 ICSID Convention 1) a legal dispute 2) Arising directly out of an investment 3) Between a contracting state; and 4) the national of another contracting state; and 5) which the parties to the dispute consent in writing to submit to ICSID

14. Choice of ICSID • The choice of the ICSID Arbitration  excludes any other dispute resolution remedy, even diplomatic protection

15. Choice of Law-Article 42 (1) • The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the tribunal shall apply the law of the state party to the dispute… and such rules of international law as may be applicable.

16. Choice of Law-Article 42 (2)(3) • The tribunal may not bring in a finding of non liquet on the grounds of silence or obscurity of the law. • The provisions of paragraphs 1 and 2 shall not prejudice the power of the tribunal to decide a dispute ex aequo et bono if the parties so agree.

17. The Applicable Law • VCLT Article 31.2.(c) provides for the application of ‘any relevant rules of international law applicable in the relations between the parties’ • Customary international law applies generally to the economic relations between the states, to the extent they do not contract it out.

18. Interpretation  Investment treaties must be interpreted in accordance with customary rules of treaty interpretation- Vienna Convention on the Law of Treaties (Art. 31 VCLT, 1969); 1) text-literary interpretation 2) context- contextual interpretation 3) other norms-Systematic Interpretation 4) object and purpose- Teleological Interpretation

19. Interpretation II • Context= text, preamble and annexes • Systematic interpretation= subsequent agreement and/or practice regarding the treaty and “any relevant rules of international law applicable in the relations between the parties” Article 31.3.(c)

20. Supplementary Means of Interpretation • Article 32 of the VCLT • Preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of Article 31, or to determine the meaning when the interpretation according to article 31: • Leaves the meaning ambiguous or obscure; or • Leads to a result which is manifestly absurd or unreasonable

21. The Nature of Investment Law • Investment law is part of public international law; - Treaty law • No self-contained regime: not created in a vacuum.  the jurisdiction of arbitral tribunals is limited to claims under BITs • Arbitral tribunals may take certain int’l norms into account in the process of treaty interpretation and in the exercise of incidental jurisdictional powers.

22. Awards • Binding on the parties (Article 53 ICSID) • No binding precedent or stare decisis  However: Jurisprudence constante (Bjorklund) Persuasive precedent (Vadi) De facto precedent (McLachlan, Shore & Weiniger)  consistency

23. Overlapping Jurisdiction- Parallel proceedings • No res Judicata- Triple Identity Test: 1) Same parties; 2) Same cause; 3) Same object -tribunals constituted under different agreements! -state at disadvantage (compensation) -inconsistent decision -no consolidation in ICSID (but see: NAFTA 1126) -no int’l principle of estoppel

24. Annulment Art 52 ICSID • Very limited grounds: 1) Not properly constituted tribunal; 2) Manifest excess of power; 3) Corruption by member of the panel; 4) Serious departure from fundamental rule of procedure; 5) Failure to state the reasons on which the award is based.

25. Delocalized Arbitration • ‘the award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this convention. Each Party shall abide and comply with the terms of the award…’(Article 53)

26. Delocalized Arbitration ‘Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that state’ (Article 54)

27. Appeals • Proposals for an international arbitral court of appeal • Arbitral appeal tribunal in the US Model BIT • Towards a two-stage system? • Lowe expensive, delays, unlikely to encourage good arbitral practice.

28. Transparency • Pressure from civil society to open up investment arbitration US Model BIT: • All documents available to the public • Hearings open to the public • Arrangements to preserve confidentiality • Amicus curiae

29. ICSID and transparency • Basic details of the arbitrations are in the public domain: - parties; - Tribunal; - Nature of the dispute • Publication of the award, if the parties so consent. • Amicus curiae • Broadcasting of the hearings

30. NAFTA and Transparency • All cases, submissions, orders and awards are available on the internet • Amicus curiae • Public hearings

31. PROs: Enhancing the role of the public interest Democratic legitimacy CONs Loss of flexibility and informality compromise or settlement is unlikely Transparency

32. The Arbitrators • qualified persons of • High moral character and • Recognized competence in the fields of law, commerce, industry or finance • Who may be relied upon to exercise independent judgment

33. Western Bias? • President of Bolivia: ‘developing countries never win the cases. The transnational corporations always win’ • But: governments win 57.7% cases • The amount awarded is a fraction of what is requested by investors (Franck, Harv. I. L. J. 2009) • Shalakany: no institutional bias, but cultural patterns • “growing pains”?

34. Open Questions I • Would a return to diplomatic protection be adequate to protect investor’s rights? • Is a return to the Calvo doctrine a credible alternative? • Are contractual arrangements a valid alternative?

35. Open Questions II • Is investor state arbitration ‘a neutral means for the resolution of conflicts ..to be mastered rather than complained about’? (Paulsson) • Are investment treaties promoting the rule of law and good governance practice (Brower & Schill)? • Could a legal assistance center be created? • Would a permanent investment court with tenured judges be advisable? • Is a radical redesign of the system needed?