International Investment Arbitration

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1 International Investment Arbitration Professor Loukas Mistelis School of International Arbitration Queen Mary University of London Issues Covered Introduction The course teacher students Subject Regulatory and institutional framework Dispute resolution options Subject matter Style 2

2 Foreign Direct Investment 3 Infrastructure International instruments Multilateral Treaties, e.g. ICSID, NAFTA, Energy Charter Bilateral Treaties, e.g. BITS; FTA Instruments, e.g. UNCITRAL Rules, ICSID Additional Facility, ICC Rules National laws Investment protection laws Trade policy documents Constitutional law implication 4 2

3 ICSID 5 ICSID general Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 8 March 965 ICSID Convention Washington Convention Entered into force 4 October 966 Large international membership, including several rogue states 6 3

4 Ratifications After 20 ratifications Benin, Burkina Faso, Central African Republic, Chad, Congo, Cote d Ivoire, Gabon, Ghana, Iceland, Jamaica, Madagascar, Malawi, Malaysia, Mauritania, Netherlands, Nigeria, Sierra Leone, Tunisia, Uganda and USA Status of ICSID Convention Ratification 5 Afghanistan to Zimbabwe Signature 59 7 ICSID Member States 8 4

5 Qualification Arbitration only available if DISPUTE INVOLVES A STATE PARTY or A STATE DESIGNATED AGENCY Only investors of Member States can use ICSID Mechanism Public International Law of State Responsibility 9 Increased case load Marked increase in number of cases Even current figures do not fully reflect the significant number of States that have included reference to the ICSID mechanism in Bilateral Investment Treaties or National legislation What of the future? 0 5

6 Conciliation Option ICSID Convention Chapter III Parties can apply to Secretary-General seeking conciliation proceedings Include nature of dispute and consent or parties Conciliation Commission One or three or uneven number Absent any agreement three members shall be appointed Not final and binding and information cannot be used in any subsequent arbitration/litigation Additional Facility Rules Governing the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for Settlement of Investment Disputes (Additional Facility Rules) 27 September Initially introduced for a temporary period of 5 years Updated and revised January

7 ICSID Jurisdiction Article 25 Washington Convention any legal dispute arising directly out of an investment, between a Contracting State and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. Legal Dispute and Investment not defined in Convention 3 Autonomous regime Article 53 Washington Convention () 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 Article 54 Washington Convention Contracting States will recognise an award as if it was a final judgment of a court in that State 4 7

8 No recourse to courts 5 BIT What is it? An international treaty between two countries Creating binding legal (public international law) obligations Providing for a dispute settlement mechanism Promoting foreign direct investment (FDI) and providing certain protection to foreign investors Protection in respect of expropriation, also MFN and nondiscriminatory treatment 6 8

9 Bilateral Investment Treaties 959 first modern form BIT Between Germany and Pakistan Over 3200 BITs now in place Primary aims Promotion and protection of foreign investments Dispute resolution provisions 7 BIT chart (UNCTAD) dark blue = developed countries; green = developing countries; light blue = CEE 8 9

10 Pakistan/Germany BIT 959 (962) No right for investors to take action directly against host state Article dispute resolution options States agreed to submit disputes to International Court of Justice Ad hoc arbitration BITs have changed substantially since BIT Sample Format Article 0 - Finland/Mexico BIT, 25 March 998. Disputes between an investor of one Contracting Party and the other Contracting Party shall be settled amicably. 2. If such disputes cannot be settled amicably within three months from the date of request for settlement, the investor concerned may submit the dispute to: (a) ICSID or (b) Ad hoc arbitration which unless otherwise agreed by the parties is to be established under UNCTRAL Arbitration Rules 3. The award shall be final and binding 20 0

11 Where to find BITs? bit_treaty.html (US BITs) treaties.htm (list of BITs) UNCTAD IIA Navigator: investmentpolicyhub.unctad.org/iia 2 Energy Charter membership 22

12 Energy Charter Treaty DR Article 26 ECT (extracts) ()Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former shall, if possible, be settled amicably. (2) If such disputes can not be settled according to the provisions of paragraph () within a period of three months the Investor party to the dispute may choose to submit it for resolution: (a) to the courts or administrative tribunals of the Contracting Party party to the dispute; (b) in accordance with any applicable, previously agreed dispute settlement procedure; or (c) in accordance with the following paragraphs of this Article. 23 ECT Arbitration Options Investors may choose arbitration under. ICSID 2. ICSID Additional Facility Rules 3. UNCITRAL Arbitration Rules or 4. Stockholm CC Institute 24 2

13 THE ENERGY CHARTER TREATY 994 Purpose and Effect To create an open, non-discriminatory energy market In force 6 April SIGNATORIES East, West and Central European states Including, European Community itself, Australia, Iceland and Japan Russian Federation apply Treaty provisionally Ratifications 46 Contracting Parties 26 Observers 25 NAFTA North American Free Trade Agreement 993 Entered into force 994 Largest free trade area; Canada; Mexico, USA Provides investor protection in Chapter Eleven Part A Dispute Resolution provisions set out in Chapter Eleven Part B

14 NAFTA DR Provisions Article 22 NAFTA (extracts. Each Party consents to the submission of a claim to arbitration in accordance with the procedures set out in this Agreement. 2. The consent given by paragraph and the submission by a disputing investor of a claim to arbitration shall satisfy the requirement of: (a) Chapter II of the ICSID Convention (Jurisdiction of the Centre) and the Additional Facility Rules for written consent of the parties; (b) Article II of the New York Convention for an agreement in writing; and (c) Article I of the InterAmerican Convention for an agreement. 27 National Foreign Investment Laws Found to be a basis for jurisdiction SPP v Egypt 3 ICSID Reports Egypt Investment law no 43 of 974 Article 8:- Investment disputes in respect of the implementation of the provision of this law shall be settled in a manner to agreed with the investor or within the Framework of the Convention for the Settlement of Investment Disputes between the State and the Nationals of other countries See also Kazakhstan Law on Investments 28 4

15 Question / Seminar Time Why is international arbitration seen as an attractive method of dispute resolution for disputes regarding investment? Do you think the ICSID Convention mechanism is an effective means of de-localizing disputes? Why has the number of investment agreements risen so sharply in the latter part of the 20 th Century and the beginning of the 2 st Century? 29 Question / Seminar Time Is doing business in developing countries riskier than doing it in developed countries? What factors might make it so? What are the factors investors should consider when considering whether or not to invest in a developing country? Should states be able to give authority to exploit natural resources to private companies, whether domestic or foreign? Should they retain the right to get the resources back? 30 5

16 Question / Seminar time Is there a link between economic development and development of the rule of law? How can host countries ensure that they are attracting sustainable development? 3 6