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Timestamp: 2013-05-23 03:26:45
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Posts Tagged ‘Investment Arbitration’
I. Bureau Veritas v. Republic of Paraguay In the recent Further decision on objections to jurisdiction dated October 9, 2012 the tribunal in Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v. Paraguay (ICSID Case No. ARB/07/9) dismissed BIVAC’s claim based on violation of the fair and equitable standard by reasoning that the dispute relates to mere refusal to pay invoices under a pre-shipment inspection contract and that, in doing so, Paraguay has not acted “in a manner that is qualitatively different from an ordinary contracting party.” The tribunal thus upheld the traditional distinction between mere breach of contract and treaty breach stating that “[s]omething more than mere breach of contract is needed.” (para. 246)
II. The traditional conception of the contract-treaty divide Under the dogmatic conception of the contract-treaty divide, “the breach by a State of a contract does not as such entail a breach of international law. Something further is required… such as a denial of justice by the courts of the State…” (Comm. 6 to Art. 4 ILC’s Articles on State responsibility; Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentina, ICSID Case No. ARB/97/3, Decision on annulment, 3 July 2002, para. 95; etc.) In this regard, the BIVAC tribunal noted that it does not exclude the possibility that: “a substantial breach of a contract could, as such, give rise [sic] a breach of [the FET standard]… [but] even [assuming that such a situation could] arise, the continued unhindered availability of a contractually agreed forum… would be a significant factor imposing an additional hurdle for a claimant to overcome.” (para. 246)
III. Can the investor succeed on a claim for expropriation or breach of the FET standard based on the host State’s refusal to pay? The authors do not deny the traditional view of the contract-treaty divide. However, we find it more intellectually challenging to argue here for the investor who is faced with such an “additional hurdle”. Can he succeed on a claim of expropriation or breach of the FET standard that is a treaty claim? Moreover, it turns out that under the dogmatic view, a State may escape international responsibility by merely refusing to pay under a contract instead of taking covert measures which fall squarely into the definition of expropriation. At the outset, we make the clarification that we are dealing here with the scenario in which the underlying contract qualifies as protected investment under the applicable BIT, the BIT does not contain an umbrella clause and the contract contains a forum selection clause referring all disputes to the host State’s courts. (Cf. Siemens A.G. v. the Argentine Republic, ICSID Case No. ARB/02/8, Award, 6 February 2007, para. 249)
3.1. The test of puissance publique is irrelevant Previous tribunals dealing with the question of whether breach of contract may amount to expropriation or breach of the FET standard have applied a test of puissance publique, that is, they have sought to satisfy themselves that the State, in breaching the contract, acted in sovereign capacity (by e.g. enacting a law or decree attempting to expropriate or annul the debt) rather than as mere contracting party. (SGS Société Générale de Surveillance S.A. v. Philippines, ICSID Case No. ARB/02/6, Decision on jurisdiction, 29 January 2004, para. 161; etc.) In the words of the Consortium RFCC v. Morocco tribunal:
Similarly, in Impregilo S.p.A. v. Pakistan, the tribunal determined that: “Only the State in the exercise of… puissance publique and not as a contracting party, may breach the obligations assumed under the BIT.” (ICSID Case No. ARB/03/3, Decision on jurisdiction, 22 April 2005, para. 260)
3.2. The intention of the host State shall be taken into account Some tribunals have looked to the intention of the State. Thus, the investor’s claim in Waste Management could have succeeded had it shown evidence of “sectoral or local prejudice.” (para. 115; see also, Impregilo S.p.A. v. Argentina, ICSID Case No. ARB/07/17, Award, 21 June 2011, para. 278; Eureko B.V. v. Poland (Netherlands-Poland BIT ad hoc arbitration) Partial Award, 19 August 2005, para. 233) Be that as it may, our main proposition is that, even without providing evidence of the State’s motivation, the investor may overcome the aforesaid jurisdictional hurdle. 3.3. Recourse to local courts is not a pre-condition for treaty claims Under the dogmatic view as above described, “[a] mere refusal to pay a debt is not an expropriation of property… where remedies exist in respect of such a refusal.” (SGS v. Philippines, para. 161) The problem with this proposition is that, absent contrary stipulation in the BIT, the exhaustion of local remedies is not a prerequisite to an ICSID tribunal’s jurisdiction, rather the idea was to dispose of this requirement. (See Article 26 ICSID Convention)
Similarly, the tribunal in Alpha Projektholding GmbH v.Ukraine observed: “Whether Claimant could have enforced its rights in local courts… is not relevant… Claimant chose to seek a remedy through international arbitration instead, as it is entitled to do.” (ICSID Case No. ARB/07/16, Award, 8 November 2010, para. 411)
As to the FET standard, in finding no arguable case under it, the BIVAC tribunal noted that “the Claimant has not been able to cite any authority for the proposition that international law imposes any obligation as such on a State to pay moneys owing under a contract.” (para. 270) Such a sweeping statement shall be measured against other decisions in which there is support for the proposition that observance of contracts falls into investor’s legitimate expectations. Thus, the tribunal in Toto Costruzioni Generali S.P.A. v. Lebanon observed that “[l]egitimate expectations may follow from… representations made by the host state, or from its contractual commitments.” (ICSID Case No. ARB/07/12, Award, 7 June 2012, para. 159) Moreover, the tribunal in Noble Ventures, Inc. v. Romania stated:
Further, the tribunal in Impregilo S.p.A. v. Argentina dismissed Impregilo’s claim based on the FET standard stating that “the existence of legitimate expectations and the existence of contractual rights are two separate issues.” (para. 292) But the sole reason upon which the tribunal based its pronouncement was the test of puissance publique (para. 294) and we already showed above why this reasoning is not persuasive. IV. The need for reconsideration
The above survey of arbitral practice shows that the existing inconsistency of decisions and the preconception that a host State’s refusal to pay under a contract does not amount to expropriation or breach of the FET standard deserve further clarification. This will also affect the question of admissibility of claims and stay of proceedings in cases such as SGS Société Générale de Surveillance S.A. v. Pakistan (ICSID Case No. ARB/01/13, Decision on jurisdiction, 6 August 2003), SGS v. Philippines and BIVAC. The preferred approach is that in SGS v. Paraguay where the tribunal held that treaty claims are not co-extensive with contract claims “they are not necessarily disposed of by the four corners of the Contract.” (SGS Société Générale de Surveillance S.A. v. Paraguay, ICSID Case No. ARB/07/29, Decision on jurisdiction, 12 February 2010, para. 173) The tribunal, therefore, declined to stay proceedings awaiting the decision of the national court, otherwise it would be “at risk of failing to carry out its mandate” (para. 172) which is a ground for annulment under Article 52(1)(b) ICSID Convention. V. Conclusion
As the tribunal in Robert Azinian, Kenneth Davitian, & Ellen Baca v. The United Mexican States (ICSID Case No. ARB(AF)/97/2, Award, 1 November 1999) noted “[l]abelling is… no substitute for analysis… The egregiousness of any breach is in the eye of the beholder…” (para. 90) This analysis shows that neither the test of puissance publique, nor the existence of available local remedies is a good reason to dismiss claims for expropriation or breach of the FET standard based on the State’s ‘mere’ refusal to pay. It is hoped that arbitrators will keep an open eye and more importantly, an open mind, when facing such claims in the future. Inna Uchkunova wishes to thank Oleg Temnikov for the little conversations which have instilled great inspiration for this and other projects. • Leave a comment on In the Eyes of the Beholder: Host State’s Refusal to Pay under a Contract as Breach of a BIT More from our authors:
• Leave a comment on In the Eyes of the Beholder: Host State’s Refusal to Pay under a Contract as Breach of a BIT	Posted in Kluwer Arbitration Blog | Tags: BIT, ICSID Convention, Investment, Investment agreements, Investment Arbitration, Investment protection | Comments Closed
by Deyan Draguiev In Part I it was argued that the proper law applicable in the investor-State disputes under Article 42 (1) ICSID Convention depends on the substantive grounds of the investor’s claim. In support of this, I have outlined three factual scenarios and types of claims with evidence from case law. Part I dealt with host State domestic law and the direct relationship between investor and State. The ICSID case law on the latter supporting the analysis from Part I is as follows:
• Leave a comment on Rationalizing applicable law in investor-State disputes in absence of express choice of law under Article 42 (1) of ICSID Convention – Part II
• Leave a comment on Rationalizing applicable law in investor-State disputes in absence of express choice of law under Article 42 (1) of ICSID Convention – Part II	Posted in Kluwer Arbitration Blog | Tags: Applicable Law, BIT, ICSID Convention, Investment, Investment agreements, Investment Arbitration | Comments Closed
by Deyan Draguiev Rationalizing applicable law in investor-State disputes in absence of express choice of law under Article 42 (1) of ICSID Convention
Paragraph 1 of the Article has been subject of varying interpretation in both practice and doctrine, especially as to the determination of applicable law in cases of absence of express choice of law. The interpretation of the Article oscillates from absolute focus on national law of host State to complete preference of international law. However, it is possible to rationalize the scope of applicable law under Article 42 (1) in light of the model factual scenarios which may be brought to the ICSID dispute resolution mechanism. The present diversity of views as to the proper understanding of Article 42 (1) is engendered by the attempt to reach an overarching and absolute interpretation of applicable law “wrapping” domestic law and international law in an indivisible package. However, it is hereby proposed that Article 42 (1) should rather be interpreted as delimiting the general array of powers provided to ICSID tribunals, i.e. the law that may be applied, while the concrete law applicable to a particular case would depend on the circumstances of this case and, most of all, the legal basis of the aggrieved investor’s claim so that the tribunals may apply either domestic or international law, or both. The substantive grounds for the Investor’s claim lie in a substantive law already tightly linked to the facts of the case. Hence, there is a trigger prior to the stage where the tribunal exercises its powers under Article 42 (1) in the absence of express choice of law and this is the claim brought by the investor and its cause of action, its substantive law basis – which actually incorporates his substantive rights that the investor claims to be prejudiced. Below follows an analysis of three factual situations which predetermine what would be the proper law determinable under Article 42 (1).
• Leave a comment on Rationalizing applicable law in investor-State disputes in absence of express choice of law under Article 42 (1) of ICSID Convention
• Leave a comment on Rationalizing applicable law in investor-State disputes in absence of express choice of law under Article 42 (1) of ICSID Convention	Posted in Kluwer Arbitration Blog | Tags: Applicable Law, BIT, ICSID Convention, Investment, Investment agreements, Investment Arbitration | Comments Closed
There is a Taoist fable of the three stupid men who were traveling together from one village to the next. They rested for the night under a banyan tree. In the morning, it turned out that the travelers have forgotten whose shoes are whose. Because none of the three men was able to walk in another man’s shoes or to recognize his own their journey ended under the banyan tree.
On February 8, 2013 the tribunal in Tidewater and ors v. Venezuela (ICSID Case No. ARB/10/5) issued its Decision on jurisdiction. To the present authors it was of particular interest for the following passage:
“[Investment treaties] … may provide for investor-state arbitration, but only for a class of claims that is more limited ratione materiae than the total corpus of substantive rights vouchsafed under the treaty.” (para. 128)
Using this decision as an occasion, we here join in the debate as to whether the investor has substantive rights under a BIT or he is rather only permitted to step “into the shoes and asserting the rights of the home State”. (Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID Case No. ARB(AF)/04/05, Award, November 21, 2007, para. 169) The roots of the debate: Investor’s substantive rights and countermeasures The debate as to whether investors possess individual rights under BITs was brought to the forefront by the three “sweetener” cases which dealt with the question whether Mexico can rely on a defence of countermeasures against the United States to justify its breach of the NAFTA. To understand the matter, consider Comm. 5 to Art. 49 of the ILC’s Articles on State responsibility: “[C]ountermeasures may […] incidentally affect the position of third States or indeed other third parties […] If they have no individual rights in the matter they cannot complain.”
It follows that if investors have individual rights under BITs, the host State cannot rely on a defence of countermeasures. The first tribunal in Archer Daniels denied that investors have individual rights under the NAFTA and found that investors are permitted to enforce what are in essence inter-State rights: “Chapter Eleven sets forth substantive obligations which remain inter-State, without accruing individual rights for the Claimants.” (para. 168; See also paras. 169-180) As a result, the tribunal held that the Respondent State can rely on countermeasures. (para. 180)
The second tribunal in Corn Products International, Inc. v. The United Mexican States (ICSID Case No. ARB(AF)/04/01, Decision on responsibility, January 15, 2008) took exactly the opposite view: “In the case of Chapter XI of the NAFTA, the Tribunal considers that the intention of the Parties was to confer substantive rights directly upon investors.” (para. 169)
Therefore, it rejected the defence of countermeasures:
“A central purpose of Chapter XI… was to remove such claims from the inter-State plane and to ensure that investors could assert rights directly against a host State. The Tribunal considers that, in the context of such a claim, there is no room for a defence based upon the alleged wrongdoing not of the claimant but of its State of nationality, which is not a party to the proceedings.” (para. 161; See also paras. 176, 192)
Finally, the third tribunal in Cargill, Incorporated v. United Mexican States (ICSID Case No. ARB(AF)/05/2, Award, September 18, 2009) also supported the position that countermeasures may not preclude the wrongfulness of an act in breach of obligations owed to nationals of the ‘offending State’. (para. 422, See also para. 429)
None of the three tribunals discussed the possible implications of the Monetary Gold principle. According to said principle, whether legal interests of a third State (in the above cases the United States) not participating to the proceedings “would not only be affected by a decision, but would form the very subject-matter of the decision”1 the judicial or arbitral body before which the claim is presented shall decline to exercise jurisdiction since the consent of the third State is a necessary precondition. This is another ground on which the defence of countermeasures must fail.2 Further support for the view that investors have substantive rights under BITs Other arbitral awards3 as well as national court decisions4 recognize that investors have substantive rights. The International Law Commission has also supported this view in its study on the MFN clause:
“While the obligation to accord most-favoured nation treatment is undertaken by one State vis-à-vis another, the treatment promised thereby is one actually given in most cases to persons…” (Comm. 2 to Article 5 1978 Draft Articles on most-favoured-nation clauses with commentaries) It is therefore submitted that the rights of investors are substantive and that they cannot be stripped of those rights by the host State’s exercise of countermeasures.5
This proposition is further supported by the fact that home States have no control over the investor’s claims. Likewise, the tribunal in Corn Products mentioned that: “The individual may even advance a claim of which the State disapproves… That occurred in GAMI, in which the United States filed a submission that the Tribunal lacked jurisdiction…” (para. 173)
Other implications of the direct/procedural rights debate
The other implications of the debate turn on issues such as the continuous nationality rule6 and waiver of rights. As to the continuous nationality rule it suffice to mention that since the rights under BITs accrue to investors and are not constrained in the inter-State diplomatic protection model7 there is no requirement that the claimant shall have the nationality of the home State continuously from the date of the injury to the date of the award, but need only establish that it had the nationality of the home State on the two dates specified in Article 25(2)(a) of the ICSID Convention, namely “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.” (Corn Products, para. 172)
As to waiver, it shall be stated that investors may make valid waiver of their rights, if it is explicit and unambiguous8 contrary to the view once expressed by the tribunal in SGS Société Générale de Surveillance S.A. v. Philippines (ICSID Case No. ARB/02/6, Decision on jurisdiction, January 29, 2004, para. 154). We do not go so far as to suggest that due to the direct nature of the investor’s rights a defence based on necessity would be unsuccessful.9 Notably, in 2007 the German Constitutional Court held that:
“currently no rule of general international law can be ascertained entitling a State, vis-à-vis private individuals, to suspend the performance of due obligations for payment arising under private law by invoking necessity based on an inability to pay”.10
However, this topic deserves further research.
Are individuals subjects of international law?
Finally, one last and more general implication of the debate concerns the status of individuals as subjects of international law. The most authoritative definition of subjects of international law given so far is that provided by the ICJ in the Reparation for injuries Advisory Opinion: “a subject of international law [is] capable of possessing international rights and duties, and… it has capacity to maintain its rights by bringing international claims.”11 The theory of international legal personality has some inherent ambiguities. Firstly, it is not clear whether subjectivity is acquired a posteriori; that is, it follows the conferment of rights and duties, or, on the contrary, the latter flows from the recognition of international personality. Secondly, under the theory that individuals are subjects of international law since they are capable of possessing rights and duties under international law, it turns out that only certain individuals – and not the whole class of individuals or their formations – would qualify as subjects. For example, only protected investors have rights under BITs, as suggested above, or, in the field of human rights, only those nationals of States parties to the First Optional Protocol to the ICCPR are capable of bringing individual communications.
Be that as it may, it appears generally agreed that individuals qualify as subjects of international law. This view is supported by the two latest treatises on the subject.12 Similarly, the tribunal in Plama Consortium Limited v. Bulgaria (ICSID Case No. ARB/03/24, Decision on jurisdiction, February 8, 2005) prominently held that: “By any standards, Article 26 is a very important feature of the ECT which is itself a very significant treaty for investors, marking another step in their transition from objects to subjects of international law.” (para. 141)
The majority of arbitral tribunals have opined that investors possess substantive rights under BITs and this has important implications as above described. To return to the leitmotif contained in the beginning of this post, the investor is now able to walk in the field of international investment law comfortably on his own legs and in his own shoes. • Leave a comment on In Someone Else’s Shoes: Are the Investor’s Rights His Own or Those of the Home State?
Monetary Gold Removed from Rome in 1943, Judgment, I.C.J. Reports 1954, pp.32-33. ↩
Although the question whether the Monetary Gold principle applies in investment disputes is still unsettled its applicability has not been denied by a tribunal which recently faced this problem. (Chevron Corporation & Texaco Petroleum Company v. Ecuador, PCA Case No. 2009-23, Third Interim Award on jurisdiction and admissibility, February 27, 2012, paras. 4.60, 4.64) ↩
SGS Société Générale de Surveillance S.A. v. Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, January 29, 2004, para. 154; Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on jurisdiction, February 8, 2005, para. 141; Camuzzi International S.A. v. Argentina, ICSID Case No. ARB/03/7, Decision on Jurisdiction, June 10, 2005, para. 44; Gas Natural SDG, S.A. v. Argentina, ICSID Case No. ARB/03/10, Decision on Jurisdiction, June 17, 2005, para. 34; BG Group Plc. v. Argentina (UNCITRAL Arbitration Rules) Final Award, December 24, 2007, para. 145. ↩
Occidental Exploration & Production Company v. Ecuador, UK Court of Appeal, Judgment September 9, 2005, (2005) EWCA Civ 1116, para. 20; British Caribbean Bank Limited v. The Attorney General of Belize (Civil Appeal No. 6 of 2011) Court of appeal of Belize, Decision, August 3, 2012, para. 153. ↩
See Douglas, Z., The Hybrid Foundations of Investment Treaty Arbitration in 74 BYIL 151(2003) p. 182. ↩
See Schreuer, C. et al., The ICSID Convention: A Commentary (Cambridge: 2009) p. 276. Cf. The Loewen Group, Inc. and Raymond L. Loewen v. The United States of America, ICSID Case No. ARB(AF)/98/3, Award, June 26, 2003, para. 220. ↩
See Arts. 5 and 10 ILC’s draft Article on diplomatic protection with commentaries and references there. ↩
Aguas del Tunari, S.A. v. Bolivia, ICSID Case No. ARB/02/3, Decision on Jurisdiction, October 21, 2005, para. 118. ↩
See Reinisch, A., Necessity in Investment Arbitration, 41 Netherlands YBIL 137 (2011), pp. 151 ff. ↩
Schill, S., German Constitutional Court Rules on Necessity in Argentine Bondholder Case, 11:20 ASIL Insight (2007). ↩
Reparation for injuries suffered in the service of the United Nations, Advisory Opinion: I.C.J. Reports 1949, p. 179. ↩
Portmann, R., Legal Personality in International Law 276 (Cambridge: 2010); Parlett, K., The Individual in the International Legal System. Continuity and Change in International Law 371 (Cambridge: 2011). ↩
• Leave a comment on In Someone Else’s Shoes: Are the Investor’s Rights His Own or Those of the Home State?	Posted in Kluwer Arbitration Blog | Tags: BIT, ICSID Convention, Investment, Investment Arbitration | Comments Closed
by Andrew Newcombe University of Victoria Faculty of Law
At a conference a few years back, a well-known and respected arbitrator was speaking on the topic of predictability and consistency of arbitral decision making in investment treaty arbitration. The arbitrator asked whether arbitrators should fly solo or in flocks. He made a strong and persuasive case for the independence of the arbitrator, to fly solo—perhaps into uncharted territory. The arbitrator used the example of the condor—flying high in the sky, with clear-sighted vision taking in the expanse of the territory below it.
Using animal and bird metaphors for arbitrators and arbitral tribunals has its dangers. The condor is a member of the Vultur genus. According to Wikipedia, a “vulture is primarily a scavenger, feeding on carrion. It prefers large carcasses”. It nests “at elevations of up to 5,000 m…. generally on inaccessible rock ledges”. Particularly in light of the publication of the controversial report Profiting from Injustice, most arbitrators probably do not wish to characterized as inaccessible scavengers feeding on large carcasses. (The report, in any event, only uses the ignominious term “legal vultures” to refer to law firms!)
Canada is well known for its iconic animals, many of which are featured on our currency: the hard-working beaver on the five cent coin, the majestic polar bear on the two dollar coin, the migrating Canada goose on the silver dollar and the great northern loon on the dollar coin. But as animal metaphors for arbitral tribunals, there are some troubling public relations issues. We have a nocturnal, large semi-aquatic rodent, a hunter and carnivore, a bird that makes an annoying honk and, truth be told, is not very smart and, finally, the loon is now immortalized on our one dollar coin, known as the loonie—enough said.
There is no dearth of views on the question of whether arbitrators should go solo or fly in flocks. The Freshfields lectures by Professor Kaufmann-Kohler in 2006 and by Professor Reisman in 2012 are reflective of two very different approaches. In articles and a series of arbitral decisions, Professor Kaufmann-Kohler has expressed the view that arbitrators have a duty to strive for consistency and predictability, and thus to follow a consistent line of cases. This view is reflected in the oft-quoted statement by the tribunal in Saipem v. Bangladesh, which postulates two duties on tribunals: (i) a duty to adopt solutions established in a series of consistent cases; and (ii) a duty to seek to contribute to the harmonious development of investment law. In contrast, in his Freshfields lecture in November 2012, Professor Reisman is reported as saying that investment arbitrators “best serve the system by being case specific”, while acknowledging three exceptions: (i) thoughtful consideration of previous awards, (ii) interpretation of the object and purpose of an investment treaty and (iii) “occasional” supplementary interpretation.
Professor Kaufmann’s Kohler’s and Professor Reisman’s lectures highlight two different approaches to the role of arbitrators and to the question of whether predictability and consistency of arbitral decision-making is important. Few would argue that predictability and consistency are not important aspects of the rule of law. If the application of legal standards is so unpredictable and inconsistent that results become arbitrary or depend on the personal views of the judge, there is little left of the rule of law. Further, few would argue that decision makers should not have at least an eye to the harmonious development of the law. Having a collection of inconsistent and contradictory rules is antithetical to the rule of law. But, in the context of investment treaty arbitration, aspirations for predictability, consistency and harmonious development of the law should not be viewed as imposing a duty on arbitrators to adopt the solution in a consistent line of cases. Rather, the overriding duty of arbitrators is one of providing clear reasons for their decisions. Where there is a jurisprudence constante (the development of doctrine through the accretion of a consistent line of cases), arbitrators do not have a decisional duty to adopt the solution in the doctrine, rather, I agree with other commentators who argue that arbitrators have a duty to provide cogent and detailed reasons for not following jurisprudence constante (see Irene Ten Cate, “The Costs of Consistency: Precedent in Investment Treaty Arbitration” on decisional burdens). The duty is not one of result (adopting the solution) in a consistent line of cases. The duty is one of means—there is a persuasive or argumentative burden on the arbitrator to demonstrate why jurisprudence constante should not be followed (see Stephen Schill, “From Sources to Discourse: Investment Treaty Jurisprudence as the New Custom” on argumentative burdens).
In a number of decisions, Professor Stern has written that the duty of the arbitrator is to decide each case on its own merits independently of any jurisprudential trend. This approach goes too far if it is interpreted as meaning that the arbitrator has a duty to decide the case without any reference to jurisprudential trends. Where there is a jurisprudential trend, the arbitrator has the duty to confront that jurisprudence in his or her reasons. And certainly, this is what Professor Stern has done in practice, as exemplified by her 32 page dissenting opinion in Impregilo v. Argentine on the question of the application of an MFN clause to investor-state arbitration provisions. (To be clear, I not arguing that there is jurisprudence constante on whether a “garden variety” MFN clause applies to dispute settlement. I am simply using Prof. Stern’s opinion as an example of the type of thoroughly reasoned decision that arbitrators have a duty to provide if they are going to depart from jurisprudence constante.)
In Glamis v. The United States, the Tribunal stated at para. 8 that: “a NAFTA tribunal, while recognizing that there is no precedential effect given to previous decisions, should communicate its reasons for departing from major trends present in previous decisions, if it chooses to do so.” [emphasis added]. That proposition should be reframed to say that a tribunal must communicate its reasons for departing from major trends. From where does this duty arise? It arises from the arbitrator’s duty to apply the applicable law and the duty to provide reasons, particularly in the context where the parties have made extensive submissions referring to previous cases.
The predictability and consistency challenge faced in a number of areas of investment law is, of course, that there is no jurisprudence constante and that there may be conflicting jurisprudential trends. This can been seen most obviously on the question of the interpretation of MFN and observance of undertakings clauses. I am not optimistic that predictability and consistency is attainable in light of the varied approaches tribunals have taken to the interpretation of specific MFN and observance of undertakings clauses. We do not have an investment treaty system with a vertical hierarchy. We have a fragmented, horizontal network of treaties, institutions, rules and actors. Further, just like there are pathological arbitration agreements, there are pathological treaty provisions that point in multiple directions at the same time. In this disorder, arbitrators are the guardians of a process—not the gatekeepers of consistency.
By making this comment, I do not want to be understood as suggesting that there is massive inconsistency and unpredictability in international investment law. My view is quite the opposite. In Stephen Schill’s recent article on the literature and sociology of international investment law he writes that following:
The monographs on international investment law that had been published since 2007 all dealt with the theme of fragmentation as it emerged from these inconsistent arbitral decisions. Almost paradoxically, however, mainstream international investment law literature did not perceive inconsistent arbitral awards as a fundamental problem, nor did it view it as an obstacle to the doctrinal reconstruction of substantive and procedural investment law. Instead, convergence in arbitral jurisprudence is the main theme of the numerous textbooks dealing with international investment law, even though the substantive law is enshrined in a myriad of bilateral treaties and implemented by one-off arbitral tribunals.
What is most striking to me is not inconsistent jurisprudential trends, but that after 23 short years of investment treaty jurisprudence, there is such a remarkable level of jurisprudence constante in an area of international law where there has been such intense ideological divisions in the past.
I will conclude this post with a few thoughts on how to improve consistency.
Ultimately, only States can resolve deep jurisprudential divides such as whether an MFN clause in a particular treaty applies or does not apply to dispute settlement. It is unlikely that this type of issue can be resolved jurisprudentially within the existing structure of investment treaty arbitration.
States have to take a more active role in clarifying the meaning of existing treaty obligations. In future treaties, they must ensure that treaty provisions are clearly drafted to address the jurisprudential divides – for example by either clearly specifying that MFN applies or does not apply to dispute settlement.
Arbitrators should welcome, rather than be hostile to, the possibility of applying Article 31(3)(a) and (b) of the Vienna Convention, which provide that (i) any subsequent agreement between the treaty parties and (ii) and subsequent practice establishing an agreement of the parties with respect to interpretation of the treaty shall be taken into account. The concern that States will use this mechanism abusively to provide restrictive or unreasonable interpretations is exaggerated, given the practical and political difficulties of the home state of the investor agreeing to an interpretation that seriously prejudices its own investors. Claims that the NAFTA Free Trade Commission’s interpretative statement on Article 1105, Minimum Standard of Treatment were abusive, unfair, contrary to the rule of law or an unauthorized amendment of NAFTA are simply wrong and fail to recognize the mandatory rules in the Vienna Convention.
With respect to tribunals, one proposal I would like float is that whenever there is a disputed question of treaty interpretation, that the tribunal take steps to request the investor’s home state to provide its views on contested matters of treaty interpretation. This would ensure that the tribunal has the views of both treaty parties, as well as the investor, before it. Where the tribunal cannot make the request on its own initiative under the applicable rules because of duties of confidentiality, it could seek the agreement of the parties to provide for such a process. This default procedure would ensure that both State parties to the treaty are given an opportunity to provide their views on the proper interpretation of the treaty. Any agreement between the State parties regarding interpretation or subsequent practice that establishes agreement of the State parties regarding interpretation shall – must be taken into account.
More generally, state parties should take a more active role in treaty interpretation and the new generation of investment treaties should include mechanisms for the involvement of all state parties whenever there is a contested interpretation – which, of course, will likely be in every case.
Anthea Robert’s thesis in her wonderful article, Power and Persuasion in Investment Treaty Arbitration: The Dual Role of States, is compelling. Arbitral tribunals and states share interpretative powers. There should be a greater emphasis and encouragement of home state practice in the interpretation of investment treaty obligations. Although this will not necessarily result in greater predictability and consistency, there is a greater likelihood that any tribunal interpretation will be more, rather than less, consistent with the state parties’ treaty obligations.
Returning to the introduction, if I was forced to choose an animal metaphor for an arbitral tribunal it would be an owl. The owl is solitary and, of course, wise. The owl has 360 degree vision. The owl acts independently but provides wise reasons for its decisions, reasons that identify and illuminate tensions in the cases and result in a reasoned decision. One owl’s decision does not create law or jurisprudence constante. But it is different with a group of owls – the literary collective noun for a group of owls is a parliament – and parliaments have a law making function. A parliament of owls establishes a jurisprudence constante. Tribunals are key actors in the creation of law—they play a constitutive role in law creation by interpreting and applying treaties. The doctrine of legitimate expectations as an element of fair and equitable treatment is a creation of tribunals—it was not mandated by the treaty term fair and equitable treatment.
The only problem with the owl metaphor for arbitrators is that owls approach small prey silently from above, eat it whole and regurgitate the indigestible parts. But, then again, no one really wants to have to read anything indigestible in a tribunal award.
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• Leave a comment on Should Investment Treaty Tribunals Fly in Flocks? Predictability and Consistency in Arbitral Decision Making	Posted in Kluwer Arbitration Blog | Tags: Applicable Law, Arbitral Tribunal, Arbitration Awards, Investment agreements, Investment Arbitration, Uncategorized | Comments Closed
by Laurence Franc-Menget Herbert Smith Freehills LLP, for YIAG
On February 6, 2013, Achmea (a Dutch insurer, better known by its former name, Eureko) initiated UNCITRAL arbitration proceedings against the Slovak Republic on the basis of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic (the “Netherlands-Slovakia BIT“) [The Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic was signed on 29 April 1991 and came into force on 1 October 1992.] These proceedings appear to be of a new kind: aimed at preventing a likely expropriation [Achmea press release "Achmea undertakes legal steps against Slovak Republic", 6 February, 2013; L. E. Peterson, "Dutch investor seeks to test limits of investment treaty arbitration by asking arbitrators to block state from expropriating its assets", IA Reporter; K Karadelis, "Measures targeting health insurers lead to new claim against Slovakia", GAR, 7 February 2013]. The 2013 arbitration proceedings are the latest episode in a dispute between Achmea and the Slovak Republic dating back to 2006. In 2006, the Slovak Republic enacted a law banning private health insurers operating in the country from distributing profits to their shareholders. Further to Achmea’s (Eureko at the time) previous claim, an arbitral tribunal upheld jurisdiction on the basis of the BIT and found Slovakia liable for breaching the fair and equitable treatment and the free transfer provisions of the Netherlands-Slovakia BIT in December 2012 [Achmea v Slovakia, PCA Case No 2008-13, Award of 7 December 2012 (not public); Achmea press release, "International arbitration tribunal rules in favour of Achmea", 7 December 2012]. Although the Slovak Constitutional Court reversed the law as unconstitutional in 2011, the arbitral tribunal ordered Slovakia to compensate Eureko, to the amount of €22 million, for the damage suffered within the period during which the law was in force. Slovakia challenged the final award before the German courts, as it had already done, without success, in respect of the decision on jurisdiction.
With the re-election of prime-minister Robert Fico in spring 2012, the dispute entered a new stage. On July 25, 2012, the government voted unanimously in favour of a new project aiming at instituting a single, state-run health insurer and pushing out the two existing private providers by 2014 [The Slovak Spectator, "Fico targets private health insurers again", 26 July 2012]. On October 13, 2012, the Health Ministry presented a draft proposal containing three alternatives to the government: the acquisition by the state of the shares in the private health companies, the takeover of management of the private insurers’ client portfolios or the expropriation of the private health insurance companies. In order to take effect, however, the draft law still has to receive parliamentary approval. Achmea’s new notice of arbitration dated 6 February 2013 appears to be a direct reaction to the new regulation that may be enacted by the State. The request for arbitration is not publicly available and the only information available so far is based on Achmea’s press release, according to which the arbitration “seeks to avert the outright expropriation of UZP.” Assuming that there is no other claim, this arbitration thus amounts to a request for purely pre-emptive measures against a State; in other words a request that a State refrain from enacting a law that would constitute a violation of the BIT.
First, according to the press release, it seems that no pecuniary measures have been requested at this stage, since no damage has occurred. Although not uncommon in international arbitration against states (investment tribunals have on several occasions agreed to grant non-monetary relief [On non-monetary relief in investment arbitration, see for instance: C. Schreuer, "Non-pecuniary Remedies in ICSID Arbitration", AI, 2012; M. Endicott: "Remedies in Investor-State arbitration: restitution, specific performance and declaratory awards" in P. Kahn, T. Wälde, New aspects of international investment law, 2007; C. Malinvaud, "Non-pecuniary Remedies in Investment Treaty and Commercial Arbitration", ICCA Congress Series, 2009; P. Dunand, M. Kostytska, "Declaratory Relief in international arbitration", JIA, 2012] in the form of declaratory awards [See for instance: Saudi Arabia v Aramco, 27 ILR 117, 1963; Biwater Gauff v Tanzania, ICSID case n° ARB/05/22, Award of July 24, 2008], orders for specific performance [See for instance: Texaco v Libya, J.D.I, 1977, pp. 350-389], prohibitory injunctions or mandatory orders [ATA v Jordan, ICSID case n° ARB/08/2, Award of May 18, 2010. In two pending cases, the Claimant made requests for provisional injunctions: Philip Morris v Uruguay (UNCITRAL), Request for arbitration of February 19, 2010; Chevron v. Ecuador, PCA Case No 2009-23, First Interim Award on Interim Measures of January 25, 2012] ), arbitral tribunals generally favour pecuniary measures [C Dugan, D Wallace, N Rubins, B Sabahi, Investor State Arbitration, 2008, p. 569]. Furthermore, claims based solely on such measures are quite rare [To our knowledge, only the Saudia Arabia v Aramco case was entirely limited to non-pecuniary remedies in the field of investor-state. This was, however, a very specific case since the parties had agreed that the award should be only declaratory. Saudi Arabia v. Arabian American Oil Company (Aramco), see above]. Second, by contrast with existing awards ordering non-pecuniary measures, the investor’s new claim is entirely aimed at pre-emptively challenging a new regulation which has not yet been adopted, thus assuming that the contemplated expropriation would not be in the public interest, would not be implemented in accordance with due process and would be discriminatory.
This kind of action raises a number of unresolved questions. Some of these questions are at the heart of the rationale of investor-state arbitration, according to which an arbitral tribunal is only entitled to exercise jurisdiction over disputes which the parties have agreed to submit to arbitration: (1) whether there is an existing dispute where there is a threat of expropriation but none has yet occurred, and (2) whether the State’s consent to arbitration under the Netherlands-Slovakia BIT would apply to this kind of pre-emptive claim. 1. Is there a “dispute” between Achmea and Slovakia?
1.2	The pre-emptive nature of the Achmea II case raises the question of the existence of a dispute when the investor has not yet suffered any prejudice, and where expropriation is envisioned as a possibility but the conditions of its implementation remain unknown. 1.3	Under general international law, the ICJ has defined a legal dispute as a “disagreement on a point of law or fact, a conflict of legal views or interests between the parties” [See for instance: Mavrommatis Palestine Concessions, Judgment No 2, 1924, P.C.I.J.; Case Concerning certain property (Liechtenstein v Germany), Preliminary objections, Judgment of 10 February 2005, §24]. Several ICSID arbitral tribunals have used this definition [See for instance: Maffezini v Spain, ICSID Case n°ARB/97/7, Decision on Jurisdiction, 25 January 2000, §94; Tokios Tokelès v Ukraine, ICSID Case n°ARB/02/18, Decision on Jurisdiction, 29 April 2004, §106] and there appears to be no reason why an ad hoc tribunal whose jurisdiction is based on a BIT should not follow the same path. 1.4	In addition, while commenting on article 25 of the ICSID Convention, Pr. Schreuer states that “[t]he existence of a dispute may be in doubt in several ways. An open question may not have matured into a dispute between the parties. Or a difference of opinion may not be sufficiently concrete to amount to a dispute that is susceptible of conciliation or arbitration” [C. Schreuer, The ICSID Convention: A Commentary, 2009, Article 25, §41]. 1.5	Although it remains uncertain whether this commentary can be applied directly to non-ICSID arbitrations [AES v Argentina, ICSID Case n° ARB/02/17, Decision on Jurisdiction of April 26, 2005, §43], an interpretation of the “ordinary meaning” of article 8 of the BIT in accordance with general international law [Pursuant to Article 31 of the Vienna Convention on the Law of Treaties] might lead to a similar conclusion.
1.7	In the ICSID case of Enron v Argentina [Enron v Argentina, ICSID Case n°ARB/01/3, Award of 14 January 2004], the investor alleged that certain taxes which had been assessed but not yet collected amounted to a breach of the BIT. As here, Enron had thus not yet suffered any damage and would probably not suffer any should, ultimately, no taxes be collected. Logically, Argentina argued that the dispute between the parties was purely hypothetical, since the taxes might never be collected, or be collected only in a small amount [Enron v Argentina, §72]. The arbitral tribunal however rejected this argument on the ground that once taxes are assessed, there is, from the state’s perspective, a liability on the part of the investor and a claim seeking protection under the treaty is thus no longer hypothetical because a specific dispute can be identified [Enron v Argentina §74]. However, in Achmea’s case, the dispute is one step earlier: the act of the state at the origin of the dispute, and which is aimed at the expropriation of Achmea’s subsidiary Union, has not even been voted on by the Parliament. Furthermore, the exact conditions under which the project would be implemented do not appear clear, as three are scenarios concerning how to return to a single-insurer system but none has been selected. Accordingly, whether an arbitral tribunal will, following the same line of reasoning as Enron, consider that, from the state’s perspective, there is already, at this stage, a liability on the part of the investor remains doubtful. The context of the dispute and the previous regulations enacted by the State could, however, constitute an argument for Achmea that there is actually a dispute which is not hypothetical, in view of the state’s previous attitude.
1.8	In any event, one might also ask whether Slovakia consented to submit purely pre-emptive claims to the arbitral tribunal by signing the BIT. 2.	Did Slovakia consent to submit requests for pre-emptive claims to an arbitral tribunal under the BIT? 2.1	It is likely that Slovakia will argue that the arbitral tribunal does not have jurisdiction because, under the Netherlands-Slovakia BIT, it has not agreed to UNCITRAL’s jurisdiction for pre-emptive claims. The investor will thus have to prove that the parties’ consent to arbitration under the Netherlands-Slovakia BIT would extend to purely pre-emptive actions. It has long been established within the framework of ICSID arbitration that consent is the “cornerstone” of the jurisdiction of ICSID tribunals. The same can be said for ad hoc arbitrations in which the consent to arbitrate is based on a BIT.
As such, ordering purely pre-emptive remedies might collide with the fact that “[r]estrictions upon the independence of states cannot be presumed [Permanent Court of International Justice, Decision of September 7th, 1927, §18] “. According to this principle, the state should explicitly agree to any restriction of its legislative power. No aspect of the Netherlands-Slovakia BIT indicates any intent on the part of the contracting states to grant the tribunal powers to deal with a hypothetical future violation of the Netherlands-Slovakia BIT. Accordingly, the tribunal may also refuse jurisdiction over Achmea’s claim on the ground of lack of consent. 2.2	However, the arbitral tribunal might equally consider that the absence of any reference to claims of this sort in the Netherlands-Slovakia BIT does not necessarily mean that it has no jurisdiction over these claims, which are of a peculiar nature. For instance, the arbitral tribunal might interpret Achmea’s claim as a purely procedural question, to be solved in the course of the proceedings. This is the approach adopted when issuing injunctive orders during arbitration. However, in those cases, the arbitral tribunals are not seized solely on the basis of the non-pecuniary relief sought against a state.
The question of consent appears therefore in a specific light in the Achmea II case, and it remains to be seen which position the tribunal will adopt. In conclusion, Achmea’s claim raises jurisdictional questions in relation to the notion of an actual dispute as well as to the scope of the State’s consent to investor-state arbitration. At the same time, considering the overall context of this dispute, the practical interest of the kind of claim made by Achmea is obvious: this is a situation where the investor has already been subject to measures by the same government that have been considered by an arbitral tribunal to be a violation of the Netherlands-Slovakia BIT. An arbitral tribunal may thus be tempted to consider that this new claim is part of a broader dispute in which the investor has openly and repeatedly been targeted by Mr. Fico. On that basis, an arbitral tribunal may want to consider that there is a dispute and that as the State has agreed to submit all disputes to arbitration, without specific restriction, it has jurisdiction. Should that be the case, however, what would be the kind of award that an arbitral tribunal could then pronounce on the merits without interfering with the state’s sovereignty? It would not be acceptable to order a State not to enact a law. Could it be a declaration that, should the State enact the law in question, it will be in breach of the Netherlands-Slovakia BIT? How then would the arbitral tribunal determine the frontier between granting or refusing a pre-emptive measure and according to what criteria? How then would such an award be enforced against the State? Even assuming that an arbitral tribunal would have jurisdiction over such a claim, a number of additional open questions would remain. The author would like to thank Lisa Bohmer for her valuable assistance in preparing this blog.
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• Leave a comment on ACHMEA II – Seizing Arbitral Tribunals to Prevent Likely Future Expropriations: Is it an Option?	Posted in Kluwer Arbitration Blog | Tags: BIT, Consent, Damages, Dispute, Investment Arbitration, investor-state arbitration, Uncategorized | Comments Closed