Uzbek-Japanese Academic Forum

1. Uzbek-Japanese Academic Forum • CONSENT TO ARBITRATION IN INTERNATIONAL INVESTMENT LAW • Presenter: Otabek Ismailov • Master Student, GSID, • Nagoya University • September 23, 2010, Nagoya, Japan

2. Table of contents 1. Introduction 2. Problem Statement 3. Research Question 4. Research Task 5. Research Purpose 6. Fundamental Concepts of Consent to Arbitration 7. Consent to Arbitration in Legislation of Uzbekistan 8. Research methodology 9. Reference

3. Introduction

4. Problem Identification • Article 25 of ICSID Convention requires consent of both Parties for Jurisdiction of ICSID • In practice of ICSID, there is a trend of interpreting consent to arbitration for the foreign investor ‘s benefit • Unbalanced interpretation of consent to arbitration harms the States’ interests

5. Problem Statement • The trend of interpreting consent to arbitration for the foreign investor ‘s benefit creates unbalance of interests which affects the efficiency of ICSID mechanism in settling investment disputes

6. Research Question • Main: How Arbitral Tribunals can reach a balanced interpretation of Consent to Arbitration • Sub-question 1. What is a legal nature of consent to Arbitration ? • Sub-question 2. What type of consent is mostly practiced by foreign investors and host states in International law and to what extent? • Sub-question 3. To what extent the consent to arbitration in National legislation of Uzbekistan is balanced? • Sub-question 4. What concrete preconditions should be met in order to establish legitimate tribunal jurisdiction on investment dispute which corresponds to balanced interpretation of consent to it?

7. Research Purpose • To work out conclusions and recommendations on balanced interpretation of consent to arbitration in investment disputes by analyzing both theoretical and practical legal aspects of international as well as Uzbekistan’s experience.

8. Research Task • Research the legal meaning and essence of consent to arbitration from the view point of international law as well as national law. • Comparative analysis of consent to arbitration in national laws and bilateral investment treaties of different countries • Review hard cases in respect of interpretation of consent to arbitration

9. Investment Arbitration • Investment Arbitration is based on agreement • Consent to arbitration by Host State and the Investor is indispensible

10. Methods of Expressing Consent • Direct agreement between parties • Dispute Settlement Clauses in Contracts A National Legislation of the Host State • Investment Code, Law Treaty between the Host State and the Investor’s State of nationality - Arbitration Clauses of BITs

11. Forums for Investment Arbitration • ICSID – International Center for Settlement Investment Disputes • ICC – International Chamber of Commerce • LCIA – London Court for International Arbitration • Arbitration Institute of Stockholm Chamber of Commerce

12. Statistical Data on Investor-State Disputes • In 2009 – 32 cases (Total- 357) • 202 (57%) cases initiated during the last 5 years • 225cases filed with ICSID • 91 cases – UNCITRAL • 19 cases – Stockholm Chamber of Commerce • 8 cases – Permanent Court of Justice • 5 cases – ICC • 4 cases – Ad Hoc

13. Consent by Direct Agreement • Compromissory Clause in Investment Agreement • - An Agreement on Consent need not be recorded in a single instrument • - Investment Application made by investor may provide for arbitration • - Need the approval of competent authority of Host State • An Agreement may record consent by referring to another legal instrument (BIT) • - Incorporation of BIT’s consent into contract

14. Host State Legislation • Consent in general terms to foreign investors • Consent to certain categories of foreign investors • However, • Not every reference to International Arbitration amounts to consent to arbitration • Therefore, • It needs to be studied carefully

15. Investment Laws • Unequivocal provision of Dispute Settlement by International Arbitration • - Albanian Law on Foreign Investment of 1993 Art.8(2) ‘…the foreign investor may submit the dispute for resolution and the Republic of Albania hereby consents to the submission thereof, to ICSID’. Unclear provisions. Art.8 of Egypt’s Law N.43 of 1974

16. Investment disputes in respect of the implementation of the provisions of this law shall be settled in a manner to be agreed upon with the investor, or within the framework of the agreements in force between Arab Republic of Egypt and investor’s home country, or within the framework of the Convention for the Settlement of Investment Disputes between the State and nationals of other countries to which Egypt has adhered by virtue of Law N.90 of 1971, where such Convention applies. • Egypt’s arguments: it needs separate implementing agreement with the investor and it only informs about one of a variety of dispute settlement methods

17. Acceptance by Investor • Legislative provision of consent is an offer by the state to investors • Investor may accept the offer simply by instituting arbitration

18. Scope of Consent • Broad – refer to disputes concerning foreign investment • Narrow : • - the dispute must be in respect of an approved enterprise; • - certain issues: expropriation, compensation for expropriation, discrimination

19. Bilateral Investment Treaties • In most cases jurisdiction is established through BITs • Arbitration clauses offer unequivocal consent • - each contracting party ‘hereby consents’ or the dispute ‘shall be submitted’ to arbitration • Arbitration clauses with alternative choices: • -Domestic courts, procedures agreed by the parties to dispute, ICSID Arbitration, ICC arbitration or Ad Hoc arbitration under UNCITRAL rules • All of these require a subsequent agreement of parties to select one

20. Acceptance by Investor • Investor may accept an offer of consent by instituting ICSID proceedings – by filing Notice of Arbitration at the ICSID Center • Nothing in BIT to suggest that the investor must communicate its consent in a different form directly to the State • Once the arbitration agreement is perfected through the acceptance of the offer contained in the treaty, it remains in existence even if the State Parties to the BIT agree to amend or terminate the treaty

21. Scope of Consent • “All disputes concerning investments” or “any legal disputes concerning investment” • Different interpretations: • Salini v Morocco and SGS v Philippines cases: • The Tribunal found that the term included a dispute arising from both the BIT and an investment contract • In SGS v Pakistan case – no jurisdiction with respect to contract claims

22. Procedural Requirements • Waiting Periods for Amicable Settlement • Domestic Remedies • Fork – in- the- Road Provisions

23. Waiting Periods • Before instituting arbitration proceedings – amicable settlement should be attempted • - Consultations and Negotiations • - Time limit: from 3 to 12 months (Average 6) • Some tribunals found that non-compliance with waiting periods did not affect their jurisdiction (Ethyl v Canada, Wena Hotel v Egypt, SGS v Pakistan) – waiting periods is a procedural requirement not jurisdictional • Contrary in Goetz v Burundi, Enron v Argentina

24. Domestic Remedies • Art.26 of ICSID Convention excludes the requirement to exhaust remedies ‘unless otherwise stated’ • A Venue for a host State to make the exhaustion of local remedies a condition of its consent is open (In older BITs) • Mandatory attempt to settle the dispute in the host state’s domestic courts for a certain period of time – not the exhaustion of local remedies rule. Ex. Argentina-Germany BIT (18 months)

25. Domestic Courts of Host Countries • It will delay a definitive decision • Increase investors’ costs • Discourage investors from the pursuit of their claims • In contrast, strengthening the role of domestic courts is a good strategy for host state that wish to limit its exposure to investment Arbitration than outright withdrawal(Bolivia 2007, Ecuador 2010)

26. Fork in the Road Provisions • Offer the investor a choice between the host State’s domestic courts and International Arbitration • The choice is final • Domestic Courts – No International Arbitration • Vise Versa

27. Is it possible to rely on consent to Arbitration in a treaty of the Respondent State with a third Party??? • Maffezini case – the consent clause in the Argentina-Spain BIT required prior resort to domestic courts for 18 months • Argentinian claimant relied on the Chile-Spain BIT which did not contain such a requirement • The Tribunal concluded – Claimant had the right to arbitration without first accessing Spanish Courts • Gas Natural v Argentina – ‘…MFN provisions in BITs should be understood to be applicable to dispute settlement’

28. Restrictive Attitude towards MFN • Not procedural obstacles to arbitration but the scope of consent clauses in question • Salini v Jordan – consent in Italy-Jordan BIT extend to contract claims as well as treaty claims (refusal) • ‘does not apply insofar as dispute settlement clauses are concerned ’ • Plama v Bulgaria - Bulgaria-Cyprus BIT had no access to arbitration, but MFN clause referring to Bulgaria-Finland BIT to establish ICSID jurisdiction • Telenor v Hungary – Consent was limited to compensation or other consequences of expropriation

29. Consent to Arbitration in Uzbekistan’s Legislation • Law of the Republic of Uzbekistan "On guarantees and measures of protection of foreign investors' rights" dated April 30, 1998, Article 10 • Dispute associated with foreign investments (investment dispute) directly  or  indirectly,  can  be  settled  on agreement of the parties by  consultation  between  them.  If  the  parties  will  not be able to achieve agreed settlement,  than such dispute  should be settled  either by an economic court of the Republic of Uzbekistan or by arbitration in accordance with  the rules  and procedures  of international agreements conventions)  on  settlement  of  investment  disputes,  to which  the Republic of Uzbekistan has been joined.

30. The issue of investment dispute settlement in International Arbitration • CONVENTION ON THE • SETTLEMENT OF INVESTMENT DISPUTES • BETWEEN STATES AND NATIONALS • OF OTHER STATES • Chapter II • Jurisdiction of the Centre • Article 25 • (1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre.When the parties have given their consent, no party may withdraw its consent unilaterally.

31. The final decision of Constitutional Court of Uzbekistan • Article 10 of the Law defines possible alternative ways of settling investment disputes, but does not contain any written consent of parties to settle the dispute by any of these alternative ways. • According to part 1 Article 25 of the abovementioned Convention , International Center for Settlement International Disputes only examines the dispute when there is an obligatory written consent of parties. • Article 10 of law does not include in the true sense the notion of “Consent of the Party” and is not considered as an expression of Uzbekistan’s consent to settle investment disputes by the Center.

32. Experts’ comment • The main deficiency of investment laws of Uzbekistan is that they do not clearly define provisions and the reader can interpret in different ways what the law actually means by that provision. • That’s why many experts in investment law consider that the reason for making laws with such unclear provisions leaves Uzbekistan government a wide discretion to interpret in a way that is advantageous for itself.

33. Methodology • Inductive and Deductive Analysis • Comparative approach • Case study

34. References • Ian A.Laird, Todd J.Weiler, Investment Treaty Arbitration and Internatioonal Law, 2010 • Jeswald W. Salacuse, The Law of Investment Treaties, 2010. • M.Sornarajah, The International Law on Foreign Investment, 2004 • M.Sornarajah, The Settlement of Foreign Investment Disputes, 2001 • Dugan, Walace, Rubbins, Sabahi. Investor-State Arbitration, 2008 • S. Subedi, International Investment Law: Reconciling Policy and Principle, 2008 • Zachary Douglas, The International law of Investment Claims, 2009 • R. Dolzer＆Ch.Schreuer, Principles of International Investment Law, 2008 • Ch.Schreuer, The ICSID Convention: A Commentary, 2009 • P.Muchlinski, F.Ortino, Ch.Schreuer, The Oxford Handbook of International Investment Law, 2008 • www.unctad.org. UNCTAD, World Investment Report, 2005 • Latest Developments in Investor–State Dispute Settlement, IIA Issues Note No. 1 (2010)

35. Thank You for your attention! • For your additional questions and comments • Contact information • E-mail: isotabek2006@yahoo.com • Tel: 080 3060 7007