INTERNATIONAL INVESTMENT LAW - 8

Settlement of investment disputes

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Possible Disputes

Dispute about

BIT

Investment Contract

Dispute Settlement Mechanisms in Investment

LAW

State - State Investor - State

No real protection of investors without enforceable decisions of courts or tribunals

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State-State DS

Diplomatic Protection: Violation of Minimum

Standard

Other PIL violation: treaty / customary Law

BITVia

Umbrella ClauseInvestment Contract

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• Arbitration clauses in BITs (or other methods of dispute settlement between states)

• Ad hoc - procedure• Nomination of arbitrators who then choose a president• The tribunal is bound by the procedural and substantive

provisions of the parties, else it is free to choose its own procedural law

• No enforcement procedure, application of the rules of states responsibility– Negotiations– Countermeasures (with or without previous procedure)

• proportionality• e.g. economic sanctions

Dispute Settlement between States

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• Divergence in procedure possible– Diplomatic protection– BIT rights

• Parallelism, no priority• Italy v. Cuba (2008)– Exhaustion of local remedies by the investor?

• Necessary for claim out of diplomatic protection• Not necessary for the BIT claim• I.e. two different procedures

DS State - State

National Courts / Tribunals

Host State

Home State

International Fora

Human Rights Courts

Arbitration

Investor – State - DS

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State immuni

ty

• State immunity

Political questio

n doctrine

• Political question doctrine

Judicial self-

restraint

• Judical self-restraint

Reliability of

national courts

• Reliability of national courtsPosition

of internat

ional law in

national law

• Position of PIL in national law

Problems of national jurisdiction

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• De-politicization of the dispute• Protection of the host state from the pressure of the

home state• Legal procedure with binding decision and

enforcement• Efficiency and flexibility• Confidentiality• Incentive for an attempt to resolve the dispute

amicably

Advantage of international jurisdiction

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• In modern relations between states and investors the most innovative and also important procedure, that makes the investor independent from the political assessment of its home state.

• To be found in Art. 10 MT, 1115 ff. NAFTA, 26 EnChT• First negotiations, then arbitration• Different methods

– Ad hoc arbitration– UNCITRAL rules– ICC Rules– ICC arbitrator– ICSID tribunal (most frequently) with special rules for ISA

Dispute Settlement between Investors and States

Jurisdiction

Juris

dicti

on Ratione personae

Juris

dicti

on Ratione materiae

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• Investment dispute• Of a legal nature• Between a state party to the ICSID • And an individual private investor• From another state also party to the ICSID• If ICSID jurisdiction has been accepted by mutual

consent (not only adherence to the convention)

• Self – contained procedures w/o involvement of national courts. Binding and final decisions

• Parties cannot block the procedure• Non-implementation leads to a new state-state dispute

ICSID jurisdiction (art. 25 ICSID)

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• Created by decision of the ICSID Administrative Council in 1978–Only one side is an ICSID member or a

national of such a member• See particulary NAFTA

–Cases that are not investment disputes• Not ICSID, but AddFacil rules–Not: recognition and enforcement like in

ICSID.– Scrutiny of national courts

ICSID Additional facility

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• ICSID: special rules particularly for ISA– Washington convention of 1965– Standardized clauses, procedural rules, institutional

support (legal secretary etc.)• Other International fora– ICC Paris („international court of arbitration“, but no court).

„Terms of reference“, Final proof of formalities– London Court of International Arbitratio (LCIA)– UNCITRAL rules of Arbitration

• UNCITRAL Model Law on International commercial arbitration• UNCITRAL Notes on Organizing Arbitral Proceedings (1996)

– Iran – US Claims tribunal (1981, Algiers Convention: about 3800 cases

– Permanent Court of Arbitration (since 1907) for disputes of states, individuals and international organizations

ISA institutions

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• Panel of recognized international markets experts• Seat: The Hague• Aim: Specificity and Transparency• Based on the UNCITRAL model rules with some exceptions– Nomination of the panel by the president of the permanent court of arbitration

• Lists of financial and dispute settlement experts

– Sole arbitrator or three arbitrators– Provisional measures, but also an expedited procedure and a „referee arbitral

proceedings“ that does not preclude a final decision (and requires a seat in the Netherlands)

– Right of at least anonymized publication of the decisions (transparency for the development of a jurisprudence)

• Possible advantages– Specialization– Less reluctance of developing countries‘ actors– Speedy, also preliminary procedure possible– Predictabililty– Administrator and arbitration rules

P.R.I.M.E. finance arbitration

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• BITs often leave a choice to the parties• Local arbitration centers in London, Frankfurt,

Vienna, Cairo, Kuala Lumpur, Hong Kong, Beijing– Using often the UNCITRAL Arbitration Rules (1976, revised

2011)

• Tribunals decide on their own power of jurisdiction and – if the parties are not doing so – about their procedural law.

Other institutional settings

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• Jurisdiction (25.1 ICSID)– Dispute between a state and a foreign investor (natural or legal

person, nationality according to the general rules, control theory may be agreed, but control on a foreign legal person by domestic persons does not remove its foreign character (25.2)

– Relating to an investment (as defined in the investment agreement)

– If both parties have accepted this jurisdiction in writing (Art. 10.2 MT, 1122 NAFTA, 26.3 EnChT)• This is irrevocable and excludes other DS fora as well as diplomatic

protection (if the state does not disregard the decision, see Art. 26.1, 27 ICSID)

– According to additional requirements in the investment treaty, e.g. a cooling off period (10.2 MT) or exhaustion of local remedies (only if expressly required in the treaty).

– Also: „fork in the road provisions“ may offer alternatively national or international procedures on the same subject matter. These requirements may not be contrary to the ICSID convention.

ICSID

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• 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

Investor

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• 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.

Investor - 2

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• Jurisdiction ratione materiae• Dispute: conflicting views about law or facts• Legal nature– About legal rights or obligations of the parties

• Arising directly out of an investment– Not: a direct investment– But: arising directly out of any investment (Fedax 1997,

Siemens 2004) – lease, tax, purchase, loan? Integral parts of an investment? Public policy activities with direct and concrete effects on the investment (Argentina)?

• Investment– Substantial commitment, certain duration, element of risk

and (?) significance for the host state‘s development

Dispute of a legal nature

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• Investor vs. host state• Investor: private national of a contracting state of ICSID (and

the BIT)– At the time of consent and of the request– Companies: creation, seat, control (?)– Consent before the request for arbitration– Not: public body performing sovereign powers– Not: (also) nationals of the host state at both times (even if it is not

the effective one)

• Host state– Contracting party of ICSID (and the BIT)

• Consenting to arbitration• Also: a constituent subdivision of the state (provinces, municipalities) or an

agency designated to the ICSID Centre– With consent approved by the host state

• At the date of the registration of the request for arbitration

Jurisdiction ratione personae

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• Art. 25.2 (b) ICSID• National of another contracting state– „(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 importance if the investment in a company itself is an investment according to many BITs

Foreign Control

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• Applies if only one of the states (home/host) is party to the ICSID convention

• If both are parties to ICSID, they cannot rely on the Additional Facility

• If none is a party they also cannot rely on the AF

Additional Facility

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• By both parties in advance (request and institution)• By an agreement– Compromissary clause

• Host state– also in advance in the national legislation

• Not sufficient if „may agree“ clause• Offer to the other party, that has to be formally accepted

– Or already in the BIT with the home state• For existing and/or future disputes• For „any dispute“ or „all disputes“• Or restrained to particlar disputes (positive of negative list)• Normally broad interpretation: to all disputes arising in an entire

operation of investment („unity of the investment“)• A choice of fora may be given to the parties (national and different

international fora)

Consent

• Or in multilateral treaties (NAFTA, Energy Charter)• If accepted also for treaties that are formally terminated

later on• An umbrella clause may extend the consent to BIT

disputes• Exhaustion of local remedies: only if the host state

requires that in advance– Generally or– During an initial period, often 18 months

• If the national procedure is not finished by then, ISA may commence

– Application of the MFN clause?

• Previous attempt of an amicable settlement• Fork in the road clause

Consent - 2

• E.g. Art. 8 of the BIT Argentina-France:– „Once an investor has submitted the dipute either to the

jurisdictions of the contracting party involved or to international arbitration, the choice of one or the other of these procedures shall be final“

• But only if the dispute is the same in substance and involves the same parties– Contractual claims are different from treaty claims

Fork in the road clause

• Not, if this is expressly excluded by the BIT• Maffezini v. Spain– The MFN clause must be broad enough to cover also procedural

questions– Possible, if there is no „disruptive treaty-shopping“– Not if there are overriding public policy considerations

• Salini v. Jordan– Presumtion against the extension of MFN to procedural questions

• Plama v. Bulgaria– No creation of an ICSID jurisdiction by MFN

• Pick and choose?– Siemens v. Argentina: yes (local remedies rule abolished)– Hochtief v. Argentina: no manufacturing a synthetic set of conditions to

which no State‘s nationals would be entitled• Local remedies during 18 months. MFN does not give rights of claim that do not

exist otherwise

MFN relating to rules on jurisdiction

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• Abaclat and others, ARB/07/5• Mass claim of 60.000 holders of defaulted argentinian bond,

decision 2:1• For the first time: admissible under the BIT Italy/Argentina,

since there is not mere breach of contract, but also a breach of the BIT

• Question not necessary to be decided: applying an umbrella clause under the MFN principle

• Protection of individual rights more important than the relative generality of a mass procedure

• Tribunal decides about adaption of procedural law• Consolidation of procedures by agreement or power of the

tribunal– Same tribunal, but individual cases

ICSID Mass Claims?

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• Clause in many agreements: investments must be „in accordance with host State law“– Illegality removes the jurisdiction of the Tribunal, but only if it

was ab initio and if it was specific illegality of the investment (per se)

– Not clear, whether jurisdiction ratione materiae or ratione voluntatis is being denied.

– Illegality by the state cannot remove the protection of the investor

– The government must have known the illegality if the investor claims estoppel.

• What about cases, where this clause is lacking, but the investment was unlawful from the beginning on?– This may not remove jurisdiction, but play a role in the stage of

merits (if it is not manifest ??)

Jurisdiction: Illegal Investments

• Vivendi I case: choice of national forum only binding for cases concerning the concession contract

• BIT cases allow resort to international arbitration by reference to MFN– But if claims are closely related to the contract, local remedies should

be exhausted bevor referring to international arbitration (Tribunal)– In BIT cases, that are not prevented by national fora choices, the

Tribunal also has to consider the claims that are closely related to the contract (ad hoc Committee)

• Settled jurisprudence: contract claims may be restricted to national fora, BIT claims always are open to interntional jurisdiction– Separate claims (sometimes in parallel) are not economical nor

efficient. – They may be counterproductive if one claim is the retaliation for the

other claim

MFN gegen die Exklusivität nationaler Jurisdiktion

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• Normally three members– Either agreed in common– Or chosen each one which then choose the president (37)– Or chosen by the President of the World Bank (38)– Not nationals of either party, if the parties are not deciding otherwise– High standards of moral character, legal knowledge and independance

• Tribunal may decide about disqualification of a judge (exclusion of the judge in question). If no agreement: final decision of the SG or ICSID

• Not automatical if there was or is some professional relationship to the parties.

• Applicable rules (42.1)– As agreed by the parties– The law of the host state (private and public) and the pertinent rules of

PIL– A PIL treaty has to be interpreted according to the general rules of PIL on

the interpretation (as evidenced in Art. 31, 32 VCLT)• Siemens v. Argentina (ICSID ARB/02/8 of August 3, 2004): neither too liberal nor

too restrictive, but in consideration of the goal of an investment agreement: promotion and protection of agreements

– In case of conflict, PIL prevails

ICSID tribunal

• ICSID convention, arbitration rules, institutional rules, administrative and financial regulations

• With the exception of the convention, all the other norms are made by the Administrative Council

• Tribunal decides about its competence (art. 41)• Parties decide about the applicable law. If not:– Applicability of national law of the state party– Applicability of general PIL including especially the BIT– Normative lacunae are filled by PIL treaty or customary law

(e.g. on expropriation, denial of justice, nationality or state responsibility)

– If PIL contradicts national law, it prevails– Where there are no norms: tribunal is free to create the

appropriate ones (art. 21 rules of procedure)

ICSID procedure

• 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

Norms about the applicable law

• Beginning with the request for arbitration to the Secretary-General– Drafted in Englisch, French or Spanish

• Dispute, parties, legal bases

– Lodging fee of 25.000 $, then yearly 32.000$

• Written procedure, followed by an oral phase– Memorial, counter-memorial, reply and rejoinder– Facts, law and submissions– Evidence: witnesses, documents, expert opinions

• Non-cooperation of a party: default judgement possible

ICSID procedure - 2

• 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

ICSID procedure - 3

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• 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

Decision

• Confidentiality of the procedure, the memorials, the oral arguments and the full text of the decision– Parties may publish their memorials and oral presentation, if there is no

contrary agreement– If parties agree (ad hoc or in the previous agreement), third persons may

participate in the oral phase– Tribunals may, after consultation with the parties, allow amicus curiae briefs

of third persons– In non-ICSID cases (e.g. NAFTA) tribunals have accepted briefs from third

parties

• SG of ICSID has to publish the existence and the progress of the procedure

• Publication of the award only with the consent of the parties• Since 2006 the Center has to publish excerpts of the legal reasoning

of the award• Non ICSID awards are published sporadically. No central register of

these cases

Transparency

• 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 !!?

Remedies

• 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.

Interpretation

• 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.

Revision for newly known facts

• 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. the right of the parties to be heard comprehensively, lack of impartiality• Parties must immediately disagree with the procedure, otherwise waiver

– (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.

Annulment

• (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.

Annulment - 2

• 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

Enforcement etc.