International Investment Law - 8

1. International Investment Law - 8 Settlement ofinvestmentdisputes

2. Possible Disputes

3. No real protectionofinvestorswithoutenforceabledecisionsofcourtsortribunals

5. Dispute Settlement between States • Arbitration clauses in BITs (orothermethodsofdisputesettlementbetweenstates) • Ad hoc - procedure • Nomination ofarbitratorswhothenchoose a president • The tribunalisboundbytheproceduralandsubstantiveprovisionsoftheparties, elseitisfreetochooseitsownprocedurallaw • Noenforcementprocedure, applicationoftherulesofstatesresponsibility • Negotiations • Countermeasures (withorwithoutpreviousprocedure) • proportionality • e.g. economicsanctions

6. DS State - State • Divergence in procedurepossible • Diplomaticprotection • BIT rights • Parallelism, nopriority • Italy v. Cuba (2008) • Exhaustion oflocalremediesbytheinvestor? • Necessaryforclaim out ofdiplomaticprotection • Not necessaryforthe BIT claim • I.e. two different procedures

7. Investor – State - DS

8. Problems of national jurisdiction

9. Advantage of international jurisdiction • De-politicizationofthedispute • Protectionofthehoststatefromthepressureofthehomestate • Legal procedurewithbindingdecisionandenforcement • Efficiency andflexibility • Confidentiality • Incentive for an attempttoresolvethedisputeamicably

10. Dispute Settlement between Investors and States • In modern relationsbetweenstatesandinvestorsthemost innovative and also importantprocedure, thatmakestheinvestorindependentfromthepoliticalassessmentofitshomestate. • Tobefound in Art. 10 MT, 1115 ff. NAFTA, 26 EnChT • First negotiations, thenarbitration • Different methods • Ad hoc arbitration • UNCITRAL rules • ICC Rules • ICC arbitrator • ICSID tribunal (mostfrequently) withspecialrulesfor ISA

11. Jurisdiction

12. ICSID jurisdiction (art. 25 ICSID) • Investment dispute • Of a legal nature • Between a statepartytothe ICSID • And an individual private investor • Fromanotherstate also partytothe ICSID • If ICSID jurisdictionhasbeenacceptedby mutual consent (not onlyadherencetotheconvention) • Self – containedproceduresw/o involvementof national courts. Binding and final decisions • Partiescannot block theprocedure • Non-implementationleadsto a newstate-statedispute

13. ICSID Additional facility • Createdbydecisionofthe ICSID Administrative Council in 1978 • Onlyonesideis an ICSID memberor a national of such a member • See particulary NAFTA • Cases thatare not investmentdisputes • Not ICSID, but AddFacilrules • Not: recognitionandenforcementlike in ICSID. • Scrutinyof national courts

14. ISA institutions • ICSID: specialrulesparticularlyfor ISA • Washington conventionof 1965 • Standardizedclauses, proceduralrules, institutionalsupport (legal secretary etc.) • Other International fora • ICC Paris („international courtofarbitration“, but nocourt). „Terms ofreference“, Final proofofformalities • London Court of International Arbitratio (LCIA) • UNCITRAL rulesof Arbitration • UNCITRAL Model Law on International commercialarbitration • UNCITRAL Notes on OrganizingArbitralProceedings (1996) • Iran – US Claims tribunal (1981, Algiers Convention: about 3800 cases • Permanent Court of Arbitration (since 1907) fordisputesofstates, individualsand international organizations

15. P.R.I.M.E. financearbitration • Panel ofrecognized international marketsexperts • Seat: The Hague • Aim: SpecificityandTransparency • Based on the UNCITRAL modelruleswithsomeexceptions • Nomination ofthepanelbythepresidentofthe permanent courtofarbitration • Lists offinancialanddisputesettlementexperts • Sole arbitratororthreearbitrators • Provisionalmeasures, but also an expeditedprocedureand a „refereearbitralproceedings“ thatdoes not preclude a final decision (andrequires a seat in theNetherlands) • Rightofat least anonymizedpublicationofthedecisions (transparencyforthedevelopmentof a jurisprudence) • Possibleadvantages • Specialization • Lessreluctanceofdeveloping countries‘ actors • Speedy, also preliminaryprocedurepossible • Predictabililty • Administrator andarbitrationrules

16. Other institutionalsettings • BITs oftenleave a choicetotheparties • Localarbitrationcenters in London, Frankfurt, Vienna, Cairo, Kuala Lumpur, Hong Kong, Beijing • Usingoftenthe UNCITRAL Arbitration Rules (1976, revised 2011) • Tribunals decide on theirown power ofjurisdictionand – ifthepartiesare not doing so – abouttheirprocedurallaw.

17. ICSID • Jurisdiction (25.1 ICSID) • Dispute between a stateand a foreigninvestor (naturalor legal person, nationalityaccordingtothegeneralrules, controltheorymaybeagreed, but control on a foreign legal personbydomesticpersonsdoes not removeitsforeigncharacter(25.2) • Relatingto an investment (asdefined in theinvestmentagreement) • Ifbothpartieshaveacceptedthisjurisdiction in writing (Art. 10.2 MT, 1122 NAFTA, 26.3 EnChT) • This isirrevocableandexcludesother DS foraaswellasdiplomaticprotection (ifthestatedoes not disregardthedecision, see Art. 26.1, 27 ICSID) • Accordingto additional requirements in theinvestmenttreaty, e.g. a cooling off period (10.2 MT) orexhaustionoflocalremedies (onlyifexpresslyrequired in thetreaty). • Also: „fork in theroadprovisions“ mayofferalternatively national or international procedures on the same subject matter. These requirementsmay not becontrarytothe ICSID convention.

18. Investor • Article 1 no. 3 GMT • The term "Investor" means • With respect to the Federal Republic of Germany, • - Germans within the meaning of the Basic Law of the Federal Republic of Germany, • - any juridical person as well as any commercial or other company or association with or without legal personality having its seat in the territory of the Federal Republic of Germany, irrespective of whether or not its activities are directed at profit, • Article 1.7 a) ECT • i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law; • a company or other organization organized in accordance with the law applicable in that Contracting Party

19. Investor - 2 • Art. 1139 NAFTA • ………. investment of an investor of a Party means an investment owned or controlled directly or indirectly by an investor of such Party; • investor of a Party means a Party or state enterprise thereof, or a national or an enterprise of such Party, that seeks to make, is making or has made an investment; • investor of a non-Party means an investor other than an investor of a Party, that seeks to make, is making or has made an investment …. • Art. 25.2 ICSID • “National of another Contracting State” means: • (a) any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute; and • (b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.

20. Dispute of a legal nature • Jurisdictionrationemateriae • Dispute: conflictingviewsaboutlaworfacts • Legal nature • About legal rightsorobligationsoftheparties • Arisingdirectly out of an investment • Not: a directinvestment • But: arisingdirectly out ofanyinvestment (Fedax 1997, Siemens 2004) – lease, tax, purchase, loan? Integral partsof an investment? Public policyactivitieswithdirectandconcreteeffects on theinvestment (Argentina)? • Investment • Substantial commitment, certainduration, elementofriskand (?) significanceforthehoststate‘sdevelopment

21. Jurisdictionrationepersonae • Investor vs. hoststate • Investor: private national of a contractingstateof ICSID (andthe BIT) • Atthe time ofconsentandoftherequest • Companies: creation, seat, control (?) • Consentbeforetherequestforarbitration • Not: publicbodyperformingsovereignpowers • Not: (also) nationalsofthehoststateatbothtimes (evenifitis not theeffectiveone) • Host state • Contractingpartyof ICSID (andthe BIT) • Consentingtoarbitration • Also: a constituentsubdivisionofthestate (provinces, municipalities) or an agencydesignatedtothe ICSID Centre • Withconsentapprovedbythehoststate • Atthedateoftheregistrationoftherequestforarbitration

22. ForeignControl • Art. 25.2 (b) ICSID • National ofanothercontractingstate • „(b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention“ • Loses ist importanceiftheinvestment in a companyitselfis an investmentaccordingtomany BITs

23. Additional Facility • Appliesifonlyoneofthestates (home/host) ispartytothe ICSID convention • Ifbotharepartiesto ICSID, theycannotrely on the Additional Facility • Ifnoneis a partythey also cannotrely on the AF

24. Consent • Bybothparties in advance (requestandinstitution) • By an agreement • Compromissaryclause • Host state • also in advance in the national legislation • Not sufficientif „mayagree“ clause • Offertotheotherparty, thathastobeformallyaccepted • Oralready in the BIT withthehomestate • Forexistingand/orfuturedisputes • For „anydispute“ or „all disputes“ • Orrestrainedtoparticlardisputes (positive of negative list) • Normallybroadinterpretation: to all disputesarising in an entireoperationofinvestment („unityoftheinvestment“) • A choiceofforamaybegiventotheparties (national and different international fora)

25. Consent - 2 • Or in multilateral treaties (NAFTA, Energy Charter) • Ifaccepted also fortreatiesthatareformallyterminatedlater on • An umbrellaclausemayextendtheconsentto BIT disputes • Exhaustion oflocalremedies: onlyifthehoststaterequiresthat in advance • Generally or • During an initialperiod, often 18 months • Ifthe national procedureis not finishedbythen, ISA maycommence • Applicationofthe MFN clause? • Previousattemptof an amicablesettlement • Fork in theroadclause

26. Fork in theroadclause • E.g. Art. 8 ofthe BIT Argentina-France: • „Once an investorhassubmittedthediputeeithertothejurisdictionsofthecontractingpartyinvolvedorto international arbitration, thechoiceofoneortheotheroftheseproceduresshallbe final“ • But onlyifthedisputeisthe same in substanceandinvolvesthe same parties • Contractualclaimsare different fromtreatyclaims

27. MFN relatingtorules on jurisdiction • Not, ifthisisexpresslyexcludedbythe BIT • Maffezini v. Spain • The MFN clause must bebroadenoughtocover also proceduralquestions • Possible, ifthereisno „disruptivetreaty-shopping“ • Not ifthereareoverridingpublicpolicyconsiderations • Salini v. Jordan • Presumtionagainsttheextensionof MFN toproceduralquestions • Plama v. Bulgaria • Nocreationof an ICSID jurisdictionby MFN • Pick andchoose? • Siemens v. Argentina: yes (localremediesruleabolished) • Hochtief v. Argentina: nomanufacturing a syntheticsetofconditionstowhichnoState‘snationalswouldbeentitled • Localremediesduring 18 months. MFN does not giverightsofclaimthat do not existotherwise

28. ICSID Mass Claims? • Abaclatandothers, ARB/07/5 • Massclaimof 60.000 holdersofdefaultedargentinianbond, decision 2:1 • Forthefirst time: admissibleunderthe BIT Italy/Argentina, sincethereis not merebreachofcontract, but also a breachofthe BIT • Question not necessarytobedecided: applying an umbrellaclauseunderthe MFN principle • Protectionof individual rightsmoreimportantthanthe relative generalityof a massprocedure • Tribunal decidesaboutadaptionofprocedurallaw • Consolidationofproceduresbyagreementor power ofthetribunal • Same tribunal, but individual cases

29. Jurisdiction: Illegal Investments • Clause in manyagreements: investments must be „in accordancewithhost State law“ • Illegalityremovesthejurisdictionofthe Tribunal, but onlyifit was ab initioandifit was specificillegalityoftheinvestment (per se) • Not clear, whetherjurisdictionrationemateriaeorrationevoluntatisisbeingdenied. • Illegalitybythestatecannotremovetheprotectionoftheinvestor • The government must haveknowntheillegalityiftheinvestorclaimsestoppel. • Whataboutcases, wherethisclauseislacking, but theinvestment was unlawfulfromthebeginning on? • This may not removejurisdiction, but play a role in thestageofmerits (ifitis not manifest ??)

30. MFN gegen die Exklusivität nationaler Jurisdiktion • Vivendi I case: choiceof national forumonlybindingforcasesconcerningtheconcessioncontract • BIT casesallowresortto international arbitrationbyreferenceto MFN • But ifclaimsarecloselyrelatedtothecontract, localremediesshouldbeexhausted bevor referringto international arbitration (Tribunal) • In BIT cases, thatare not preventedby national forachoices, the Tribunal also hastoconsidertheclaimsthatarecloselyrelatedtothecontract (ad hoc Committee) • Settledjurisprudence: contractclaimsmayberestrictedto national fora, BIT claimsalwaysare open tointerntionaljurisdiction • Separate claims (sometimes in parallel) are not economicalnorefficient. • Theymaybecounterproductiveifoneclaimistheretaliationfortheotherclaim

31. ICSIDtribunal • Normallythreemembers • Eitheragreed in common • Orchoseneachonewhichthenchoosethepresident (37) • OrchosenbythePresidentofthe World Bank (38) • Not nationalsofeitherparty, ifthepartiesare not decidingotherwise • High standardsofmoralcharacter, legal knowledgeandindependance • Tribunal maydecideaboutdisqualificationof a judge (exclusionofthejudge in question). Ifnoagreement: final decisionofthe SG or ICSID • Not automaticalifthere was orissome professional relationshiptotheparties. • Applicablerules (42.1) • As agreedbytheparties • The law of thehoststate (private andpublic) andthepertinentrules of PIL • A PIL treatyhastobeinterpretedaccordingtothegeneralrulesof PIL on theinterpretation (asevidenced in Art. 31, 32 VCLT) • Siemens v. Argentina (ICSID ARB/02/8 of August 3, 2004): neithertoo liberal nortoorestrictive, but in consideration of thegoal of an investmentagreement: promotionandprotectionofagreements • In caseofconflict, PIL prevails

32. ICSID procedure • ICSID convention, arbitrationrules, institutionalrules, administrative andfinancialregulations • Withtheexceptionoftheconvention, all theothernormsaremadebythe Administrative Council • Tribunal decidesaboutitscompetence (art. 41) • Partiesdecideabouttheapplicablelaw. If not: • Applicabilityof national lawofthestateparty • ApplicabilityofgeneralPIL includingespeciallythe BIT • Normative lacunaearefilledby PIL treatyorcustomarylaw (e.g. on expropriation, denialofjustice, nationalityorstateresponsibility) • If PIL contradicts national law, itprevails • Wheretherearenonorms: tribunalisfreetocreatetheappropriateones (art. 21 rulesofprocedure)

33. Normsabouttheapplicablelaw • 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 Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable. • (2) The Tribunal may not bring in a finding of non liquet on the ground of silence or obscurity of the law. • (3) 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

34. ICSID procedure - 2 • BeginningwiththerequestforarbitrationtotheSecretary-General • Drafted in Englisch, French orSpanish • Dispute, parties, legal bases • Lodgingfeeof 25.000 $, thenyearly 32.000$ • Writtenprocedure, followedby an oral phase • Memorial, counter-memorial, replyandrejoinder • Facts, lawandsubmissions • Evidence: witnesses, documents, expert opinions • Non-cooperationof a party: defaultjudgementpossible

35. ICSID procedure - 3 • Summary procedure • Within 30 days objection of claim being manifestly without merit (or without jurisdictional admissibility) possible (rule 42(5)). About the law, not the facts • Summary procedure evaluating the manifest character of a failing claim. Decision must nevertheless be comprehensive. • Provisional measures (art. 47) • If there is urgency and necessity • Binding upon the parties (no mere recommendation) • Discontinuation of the procedure • Amicable solution. May at the request of the parties be incorporated in the decision of the Tribunal, if the parties provide the agreement in writing • Unilateral request, if the other party agrees • If the parties fail to take any step within 6 continuing months

36. Decision • 48 (3) ICSID: The award shall deal with every question submitted to the Tribunal, and shall state the reasons upon which it is based. • Lawfulness of the measure, compensation (for expropriations) or damages (for other violations of investment law), the interest, the cost of the procedure and its distribution in the concrete case • Compensation is a reparation for the loss suffered, based of the “fair market value”, i.e. “the price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts” (CMS v. Argentina, ICSID case cited above, 399 ss. • If not decided unanimously, the disagreeing arbitrator may add a dissenting opinion. Decisionmakig is secret. • Only binding the parties, no prejudice to other cases

37. Transparency • Confidentialityoftheprocedure, thememorials, the oral argumentsandthefulltextofthedecision • Partiesmaypublishtheirmemorialsand oral presentation, ifthereisnocontraryagreement • Ifpartiesagree (ad hoc or in thepreviousagreement), thirdpersonsmayparticipate in the oral phase • Tribunals may, after consultationwiththeparties, allowamicuscuriaebriefsofthirdpersons • In non-ICSID cases (e.g. NAFTA) tribunalshaveacceptedbriefsfromthirdparties • SG of ICSID hastopublishtheexistenceandtheprogressoftheprocedure • Publicationoftheawardonlywiththeconsentoftheparties • Since 2006 the Center hastopublishexcerptsofthe legal reasoningoftheaward • Non ICSID awardsarepublishedsporadically. Nocentralregisterofthesecases

38. Remedies • Decision is binding and not subject to any appeal (53 ICSID), except the interpretation (50) revision (51) or annulment (52) within the ICSID procedures • Article 53 • (1) 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 by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention. • (2) For the purposes of this Section, "award" shall include any decision interpreting, revising or annulling such award pursuant to Articles 50, 51 or 52. • In non-ICSID cases remedies have to be brought in national courts • Modern proposal: creation of an Appellate Body for harmonizing the jurisprudence • But the basis of the decisions are differing investment treaties !!?

39. Interpretation • Article 50 • (1) If any dispute shall arise between the parties as to the meaning or scope of an award, either party may request interpretation of the award by an application in writing addressed to the Secretary-General. • (2) The request shall, if possible, be submitted to the Tribunal which rendered the award. If this shall not be possible, a new Tribunal shall be constituted in accordance with Section 2 of this Chapter. The Tribunal may, if it considers that the circumstances so require, stay enforcement of the award pending its decision.

40. Revision fornewlyknownfacts • Article 51 • (1) Either party may request revision of the award by an application in writing addressed to the Secretary-General on the ground of discovery of some fact of such a nature as decisively to affect the award, provided that when the award was rendered that fact was unknown to the Tribunal and to the applicant and that the applicant's ignorance of that fact was not due to negligence. • (2) The application shall be made within 90 days after the discovery of such fact and in any event within three years after the date on which the award was rendered. • (3) The request shall, if possible, be submitted to the Tribunal which rendered the award. If this shall not be possible, a new Tribunal shall be constituted in accordance with Section 2 of this Chapter. • (4) The Tribunal may, if it considers that the circumstances so require, stay enforcement of the award pending its decision. If the applicant requests a stay of enforcement of the award in his application, enforcement shall be stayed provisionally until the Tribunal rules on such request.

41. Annulment • Article 52 • (1) Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds: • (a) that the Tribunal was not properly constituted; • (b) that the Tribunal has manifestly exceeded its powers; • E.g. if not all the arguments are dealt with or there is a serious shortcoming of the reasoning or a deviation from the parties agreement on the scope of the case • (c) that there was corruption on the part of a member of the Tribunal; • (d) that there has been a serious departure from a fundamental rule of procedure; or • E.g. therightofthepartiestobeheardcomprehensively, lack ofimpartiality • Parties must immediatelydisagreewiththeprocedure, otherwisewaiver • (e) that the award has failed to state the reasons on which it is based. • (2) The application shall be made within 120 days after the date on which the award was rendered except that when annulment is requested on the ground of corruption such application shall be made within 120 days after discovery of the corruption and in any event within three years after the date on which the award was rendered.

42. Annulment - 2 • (3) On receipt of the request the Chairman shall forthwith appoint from the Panel of Arbitrators an ad hoc Committee of three persons. None of the members of the Committee shall have been a member of the Tribunal which rendered the award, shall be of the same nationality as any such member, shall be a national of the State party to the dispute or of the State whose national is a party to the dispute, shall have been designated to the Panel of Arbitrators by either of those States, or shall have acted as a conciliator in the same dispute. The Committee shall have the authority to annul the award or any part thereof on any of the grounds set forth in paragraph (1). • (4) The provisions of Articles 41-45, 48, 49, 53 and 54, and of Chapters VI and VII shall apply mutatis mutandis to proceedings before the Committee. • (5) The Committee may, if it considers that the circumstances so require, stay enforcement of the award pending its decision. If the applicant requests a stay of enforcement of the award in his application, enforcement shall be stayed provisionally until the Committee rules on such request. • (6) If the award is annulled the dispute shall, at the request of either party, be submitted to a new Tribunal constituted in accordance with Section 2 of this Chapter.

43. Enforcement etc. • Enforcement according to national law (54) concerning payment and cost • Article 54 • (1) 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. A Contracting State with a federal constitution may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state. • (2) A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation. • (3) Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought • Either special norms for ICSID enforcement or general norms for arbitral decisions, but no revision by national courts