Evolution, Evaluation and Future Developments in International Investment Law: Proceedings of the 10 Year Anniversary Conference of the International Investment Law Centre Cologne 9781509947546, 9783848777556, 9783748923756

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Acknowledgments

Since its creation, the International Investment Law Centre Cologne is deeply grateful for being supported by distinguished cooperation partners. The establishment of the Centre was made possible by the generous support of the following institutions: Santander Universities (since 2018) Stifterverband für die Deutsche Wissenschaft The Association of Friends and Supporters of the IILCC Generali Zukunftsfonds (2009-2017) The 10 Year IILCC Anniversary Conference and the publication of its proceedings would not have been possible without the generous support of the following partners: Cologne Chamber of Commerce and Industry Latham & Watkins LLP Borris Hennecke Kneisel PartmbB Herbert Smith Freehills LLP Hogan Lovells LLP Clifford Chance LLP Dr. Richard Happ

The Centre is also thankful to all IILCC staff members for their outstanding work in preparing the conference and the publication of its proceedings. Particular thanks are due to the student assistants Jana Jochem, Dejan Rakanovic, and Eva-Maria Wettstein.

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Abbreviations

AAA

American Arbitration Association

ADR (AF)AR

Alternative Dispute Resolution Additional Facility Arbitration Rules ICSID Convention

AG

Advocate General

AR(s) Art(t).

Arbitration Rule(s) ICSID Convention Article(s)

ASA BEPS

Swiss Arbitration Association Base Erosion and Profit Shifting

BIT BVerfGE CAFTA-DR

Bilateral Investment Treaty Bundesverfassungsgerichtsentscheidungen Dominican Republic-Central America Free Trade Agreement

CEDR CETA CIDS

Centre for Effective Dispute Resolution Comprehensive Economic and Trade Agreement Geneva Centre for International Dispute Settlement

CIETAC CJEU cp.

China International Economic and Trade Arbitration Commission Court of Justice of the European Union compare

D.C. DIS

District of Columbia Deutsche Institution für Schiedsgerichtsbarkeit

Doc. e.g. ECHR

Document exempli gratia European Convention of Human Rights

ECtHR

European Court of Human Rights Energy Charter Treaty editor(s) Europe, Middle East and Africa et alia et sequentes/ et sequentia et cetera European Union EU-Viet Nam Investment Protection Agreement Foreign direct investment Fair and Equitable Treatment Full Protection and Security Free Trade Agreement

ECT ed(s). EMEA et al. et seq(q). etc. EU EUVIPA FDI FET FPS FTA

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Abbreviations FTC

Free Trade Commission

GAR GATS

Global Arbitration Review General Agreement on Trade in Services

GATT I.C.J. Reports

General Agreement on Tariffs and Trade International Court of Justice Reports

i.e.

id est

I.L.R. IBA

International Law Reports International Bar Association

ibid. ICC

ibidem International Chamber of Commerce

ICCA

International Council for Commercial Arbitration

ICJ

International Court of Justice

ICS ICSID

Investment Court System International Centre for Settlement of Investment Disputes

IDLO IIA

International Development Law Organization International Investment Agreement

IILCC IISD ILA

International Investment Law Centre Cologne International Institute for Sustainable Development International Law Association

ILC incl.

International Law Commission inclusive

IPA ISDS ITLOS

Investment Protection Agreement Investor-State Dispute Settlement International Tribunal for the Law of the Sea

LCIA LDC lit. M&A

London Court of International Arbitration Least Developed Countries littera Mergers and Acquisitions

MENA MERCOSUR MFN MIC MIGA NAFTA Non-governmental No. OECD op cit p(p). para(s) PCA

Middle East and North Africa Mercado Común Del Sur (Southern Common Market) Most-favoured-nation Multilateral Investment Court Multilateral Investment Guarantee Agency North American Free Trade Agreement Non-governmental organisation Number Organisation for Economic Cooperation and Development opere citato page(s) paragraph(s) Permanent Court of Arbitration

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Abbreviations REIO

Regional Economic Integration Organisation

SADC SCC

Southern African Development Community Stockholm Chamber of Commerce

SIAC UCP

Singapore International Arbitration Centre Uniform Customs and Practice for Documentary Credits

UK

United Kingdom

UN UNCITRAL

United Nations United Nations Commission on International Trade Law

UNCTAD US

United Nations Conference on Trade and Development United States

USA

United States of America

USD

United States Dollar

USMCA v

United States-Mexico-Canada Agreement versus

VCLT VIAC

Vienna Convention on the Law of Treaties Vienna International Arbitral Centre

Vol. WTO

Volume World Trade Organization

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Contributors (in alphabetical order)

Francisco Abriani

Francisco Abriani is Legal Counsel at the International Centre for Settlement of Investment Disputes (ICSID), where he acts as secretary of arbitral tribunals and conciliation commissions in investor-State proceedings organized under the auspices of the Centre. Before joining ICSID, Francisco worked eight years in the international arbitration and public international law groups of Freshfields Bruckhaus Deringer in Paris and New York. He acted as counsel for private companies and states in investor-State and commercial arbitrations, as well as in proceedings before the International Court of Justice. Francisco is qualified in Argentina and France. He holds a bachelor’s degree in law from Universidad Católica Argentina and a master’s degree in economic law from the Institut d’Études Politiques de Paris.

Claudia Annacker

Dr. Claudia Annacker is a partner at Dechert. Her practice focuses on international dispute settlement, in particular investor-State arbitration and other public international law matters. She has represented States and investors in more than 30 investment treaty arbitrations, including Greece in an ICSID arbitration concluding in 2016 with a landmark award dismissing all claims for lack of jurisdiction over sovereign bonds. She received a PhD and venia legendi (habilitation) in public international law from the University of Vienna, where she teaches seminars in international dispute settlement and international responsibility, and has also been a visiting professor at the University of Paris X (Nanterre). She is a member of the SIAC Court of Arbitration and acted as the chair of the SIAC Subcom-

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Contributors (in alphabetical order)

mittee that drafted the 2017 SIAC Investment Arbitration Rules. Berta Boknik

Dr. Berta Boknik is a graduate research fellow at the International Investment Law Centre Cologne (IILCC) and conducts her legal clerkship at the Higher Regional Court of Cologne. She studied law at the Universities of Cologne and Paris I (LL.B./maîtrise en droit, 2014; first state law examination, 2016; Dr. iur., 2020) and wrote her doctoral thesis on the relationship between the CJEU and arbitral tribunals based on intra-EU BITs. Before joining the IILCC, Berta worked as a legal assistant in the antitrust, competition and trade group of Freshfields Bruckhaus Deringer in Cologne and Dusseldorf.

Christian Borris

Prof. Dr. Christian Borris is founding partner of Borris Hennecke Kneisel, a law firm specialised in commercial dispute resolution with a particular focus on arbitration. He has acted as an arbitrator and represented parties as counsel in numerous international and national arbitrations, including investment arbitrations. Having started his career as assistant to the then President of the Iran-United States Claims Tribunal, Karl-Heinz Böckstiegel, in 1987, Christian in 1989 joined Cologne based law firm Deringer Tessin Herrmann & Sedemund, which in 2000 merged with Freshfields to become Freshfields Bruckhaus Deringer LLP. He was a partner of Freshfields Bruckhaus Deringer LLP and a member of the firm’s International Arbitration Group until 2014. As an honorary Professor at the University of Cologne, he lectures on International Arbitration.

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Contributors (in alphabetical order)

Karl-Heinz Böckstiegel

Prof. Dr. Karl-Heinz Böckstiegel is an independent Arbitrator. Until 2001, he held the Chair of International Business Law and was Director of the Institute for Air and Space Law at the University of Cologne. He practiced as mediator and as arbitrator and president of arbitration tribunals in many national and international arbitrations of the ICC, LCIA, ICSID, NAFTA, CAFTA, UNCITRAL, AAA, DIS, SCC, Swiss Rules, VIAC, Ad-Hoc arbitrations, and in disputes between states. Honorary Chairman (Chairman 1996-2012) of the German Institution of Arbitration (DIS); President, International Law Association (ILA) 2004-2006; The Patron, Chartered Institute of Arbitrators 2008-2010; President, German Association for International Law 1993-2006; President of London Court of International Arbitration (LCIA) 1993-1997; Panel Chairman of the United Nations Compensation Commission 1994-1996; President of Iran-United States Claims Tribunal, The Hague, 1984-1988.

Markus Burgstaller

Dr. Markus Burgstaller is a partner at Hogan Lovells in London. He combines experience in public international law and EU law at the highest level of government with many years of experience in private practice. Markus acts for States, international organizations and investors in international disputes, mainly arbitrations under ICSID and UNCITRAL rules, and in proceedings before the Court of Justice of the European Union. He guest lectures at universities such as the University of Cambridge, the London School of Economics and Political Science, Queen Mary University of London, Humboldt University in Berlin, and University of Hamburg and is nominated to the ICSID Panel of Arbitrators by the Austrian Government.

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Contributors (in alphabetical order)

Nadia Darwazeh

Nadia Darwazeh is partner and Head of Arbitration of Clyde & Co's Paris office. Nadia has extensive experience acting as counsel and sitting as arbitrator in commercial and investor-State arbitrations. Before joining Clyde & Co, Nadia practiced for nearly two decades in the International Arbitration Groups of leading international law firms in Paris, Shanghai, Frankfurt and London and as Counsel at the ICC, where she headed up the MENA team. Nadia is dual-qualified in England & Wales (Solicitor-Advocate) and Germany (Rechtsanwältin). She earned her LL.M. in International Public Law from the University of Cambridge and her LL.B. from the University of Warwick. She conducts arbitrations in French, German and English and speaks Dutch and Mandarin Chinese.

Rudolf Dolzer (1944 – 2020)

Prof. Dr. Dr. Rudolf Dolzer was a pioneer and thought leader in the field of international investment law and investor-State dispute settlement. From 1992 to 1996 he was Director General of the Chancellery. He taught at the Chinese Academy of Social Sciences, Michigan Law School, Cornell Law School, Massachusetts Institute of Technology, Yale Law School, Paris 1 University (Sorbonne), Instituto de Empresa Business School. From 1996 to 2009 he was Director of the Institute for International Law at the University of Bonn. In 2010 he taught at the Academy of International Law in The Hague. In addition, he published several books on foreign investment law and about 200 articles on investment law, public international law and comparative law. In 2018, he published a monograph on „Petroleum Contracts and International Law”.

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Contributors (in alphabetical order)

Markus Gabbert

Markus M. Gabbert is General Counsel and Chief Compliance of DEG-Deutsche Investitionsund Entwicklungsgesellschaft mbH, one of the major development finance institutions for private companies in developing countries. In addition to his GC & CCO Function Markus holds a board seat at the EDFI Management Company (EDFIMC), an asset management company established in 2016 on behalf of European Development Finance Institution members (EDFI), as a full subsidiary of the EDFI Association in Brussels. Markus has more than 20 years of banking and emerging market experience and is a member of the German-South African Lawyers Association. He is regularly invited to speak on international conferences on financing related issues. Before joining DEG, Markus worked in international law firms and for a chartered accountant firm in Hamburg, Cologne and London. Markus is admitted to the Regional Court of Cologne in Germany and studied macroeconomics, political science and law.

Stephan Hobe

Prof. Dr. Dr. h.c. Stephan Hobe is Professor for Public International, European, International Economic Law, Air Law, Space Law and Cyber Law at the University of Cologne. He is Deputy President of the German Society of International Law and in the Executive Board of the German Association of International Law (ILA). Furthermore, he is Managing Director of the International Investment Law Centre Cologne (IILCC). Stephan has published 50 books and approximately 300 articles on Public International Law, European Law, International Economic Law, Air Law, Space Law and Cyber Law, as well as International Investment Law.

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Contributors (in alphabetical order)

Moritz Keller

Dr. Moritz Keller is partner at Clifford Chance based in the Frankfurt office. He acts in arbitration proceedings under the ICSID, ICC, UNCITRAL, DIS, Austrian Chamber and other arbitration rules, where he focuses on the energy, infrastructure, construction and banking sectors. Moritz is lecturer for investment protection arbitration and EU law at the University of Passau and has been a visiting professor at the University of Wisconsin. In addition he is a part of the ICC Commission on Arbitration and ADR and the ICC Commission on Energy and the Environment. Moritz is mediator in the Energy Community Panel of Mediators.

Corinne Montineri

Corinne Montineri is a Legal Officer in the International Trade Law Division of the United Nations Office of Legal Affairs, the Secretariat of the United Nations Commission on International Trade Law (UNCITRAL). She joined the United Nations Office of Legal Affairs in 2003. Prior to joining the United Nations Office of Legal Affairs, Corinne, a national of France, worked as a senior legal officer with multi-national companies, mainly on matters relating to merger and acquisition and international contracts, both in Europe and Asia-Pacific.

Patricia Nacimiento

Dr. Patricia Nacimiento is the Head of the German dispute resolution practice and member of the EMEA Leadership Team. Patricia is an expert in dispute resolution with a special focus on international and German arbitration and all forms of alternative dispute resolution, including mediation. She has extensive experience both as a party representative and as an arbitrator. She also has considerable expertise in cross-border litigation and arbitration-related litigation. Her main areas of practice are in energy, construction and post M&A disputes. Patricia has extensive experi-

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Contributors (in alphabetical order)

ence in managing large strategic dispute resolution proceedings and leading cross-border teams including the fight against corruption and money laundering. She further focuses on investment arbitration and the law of nations, also in the field of business and human rights. As a party representative, Patricia has conducted over 140 arbitration proceedings under the rules of numerous arbitration institutions – including ICC, ICSID, SCC, CIETAC, DIS, LCIA, ICDR, Swiss Chamber of Commerce, Indian Council of Arbitration, and the Danish Institution of Arbitration as well as ad hoc proceedings. She is also regularly appointed as an arbitrator and has led numerous international ICC-, DIS- and ad hoc arbitration proceedings as a chairperson, sole arbitrator or party-appointed arbitrator. The German government has appointed Patricia in 2007 as one of four arbitrators to the panel of arbitrators at the International Centre for Settlement of Investment Disputes (ICSID). Patricia has also a proven academic track record and publishes regularly in leading publications. She is co-editor of leading arbitration handbooks ‘Arbitration in Germany - The Model Law in Practice’ (Boeckstiegel, Kroell, Nacimiento (eds.) Kluwer 2nd ed 2015) and ‘Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention’ (Kronke, Nacimiento, Otto, Port Kluwer, 2010). August Reinisch

Prof. Dr. August Reinisch is Professor of International and European Law at the University of Vienna. From 2004 to 2006 and 2010 to 2016 he was Dean for International Relations of the University´s Law School. From 2016 to 2019, he had been a Member of the Senate of the University of Vienna. Since 2017 he has been serving as a Member of the International Law Commission

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Contributors (in alphabetical order)

of the United Nations for the quinquennium 2017-2021. His professional experience also includes: Associate Member of the Institut de droit international/Institute of International Law (since 2015), Member of the Permanent Court of Arbitration in The Hague/Netherlands (since 2014), Member of the Panels of Conciliators and of Arbitrators maintained by the International Centre for Settlement of Investment Disputes (ICSID) in Washington D.C./USA (since 2002). Currently, he serves on various investment arbitration tribunals. Julian Scheu

Dr. Julian Scheu is Junior Professor of Public Law, International Law, and International Investment Law at the University of Cologne and head of management at the International Investment Law Centre Cologne (IILCC). He studied law at the Universities of Cologne and Paris I (LL.M./ maîtrise en droit, 2009; Dr. iur., 2016) and is qualified to practice law in Germany. Prior to joining the IILCC in 2018 he worked as legal assistant with the German Arbitration Institute (DIS). His practical experience includes acting as arbitral secretary and assistant to counsel, arbitrators, and legal experts in international commercial and investment arbitration proceedings.

Christoph Schreuer

Prof. em. Dr. Christoph Schreuer is an independent expert and arbitrator in investment cases. He is a graduate of the University of Vienna (Dr. iur. 1966), the University of Cambridge (LL.M. 1970), and the Yale Law School (J.S.D. 1979). After receiving Venia legendi (University of Salzburg, 1976), he was a professor at the University of Salzburg, Johns Hopkins University (Washington) and the University of Vienna. Since 1992 he has concentrated on international investment law and has written many articles on the subject. The main product of this activity is a

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Contributors (in alphabetical order)

commentary on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States under the title ‘The ICSID Convention: A Commentary’. Sebastian SeelmannEggebert

Dr. Sebastian Seelmann-Eggebert is partner in the London and Hamburg offices of Latham & Watkins. He has represented numerous States and investors in investment arbitrations conducted under ICSID, UNCITRAL and SCC Rules. Most recently, he successfully represented Strabag in an ICSID (Additional Facility) arbitration against Libya relating to several infrastructure projects. Sebastian has also conducted prominent proceedings before German courts, including the Federal Constitutional Court. In 2013 he was nominated to the German ICSID Panel.

Anke Sessler

Dr. Anke Sessler is a partner at Skadden, Arps, Slate, Meagher & Flom LLP in Frankfurt. From 2008 to 2014, she was chief counsel litigation at Siemens AG in Munich. Prior to her tenure at Siemens, she was a partner at another top international law firm in Frankfurt for over 10 years. Anke holds positions in various arbitration institutions. Among others, she is a member of the International Court of Arbitration of the ICC, the ICC Commission on Arbitration and the ICC National Committee Germany. In addition, she serves on the Advisory Board of the German Arbitration Institute (DIS), the ICCA Governing Board and the board of the American Arbitration Association (AAA).

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Contributors (in alphabetical order)

Bruno Simma

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Prof. Dr. Bruno Simma is a judge at the IranUnited States Claims Tribunal in The Hague. Before his appointment to the Tribunal, Bruno served as a judge at the International Court of Justice from 2003 until 2012. From 1987 to 1996, he was a member of the UN Committee on Economic, Social and Cultural Rights; from 1997 to 2002, he served on the UN International Law Commission. From 2012 to 2015 he was a member of the Advisory Committee on Nominations of the Assembly of States parties to the International Criminal Court. He is currently appointed a judge ad hoc in two cases before the International Court of Justice. Before his tenure at the Hague Court, Bruno was Co-agent and Counsel for Germany in the LaGrand Case against the United States as well as Counsel for Cameroon in its Land and Maritime Boundary Case against Nigeria. He has served, and is currently serving, as an arbitrator in a number of inter-State and international foreign investment arbitrations as well as in international commercial and sports law (CAS) arbitrations. Bruno has also had a long and distinguished academic career, as Professor of Law at the University of Munich for over 30 years, where he remained despite numerous offers from other universities, and as Visiting Professor and currently Professor of Law (on leave during his tenure at the IUSCT) at the University of Michigan Law School. He is a co-founder and co-editor of the European Journal of International Law, a co-founder of the European Society of International Law, and an associate member of the Institut de droit international. Together with Alfred Verdross, he co-authored Universelles Völkerrecht, one of the most influential textbooks in international law and, more recently, he edited the leading Commentary on the Charter of the United Nations. He has published and edited or co-edited several other books and is the author or co-author of around 150 academic contributions. In

Contributors (in alphabetical order)

2009, Bruno offered the General Course at the Hague Academy of International Law. He has received honorary degrees from the Universities of Macerata, Glasgow and Innsbruck. Christian J. Tams

Prof. Dr. Christian J. Tams is Professor of International Law at the University of Glasgow and an academic member of Matrix Chambers, London. He studied law in Kiel and Lyon, before completing an LL.M. and a PhD at the University of Cambridge (2000, 2004). Christian‘s research focuses on international courts and tribunals, the law of treaties and State responsibility. On these and other areas, he has published widely, including most recently, The Statute of the International Court of Justice (3rd edition, Oxford 2019), SelfDefence against Non-State Actors (Cambridge 2019) and Investment Law and History (Elgar 2018). Christian is regularly instructed in interState and investment disputes; in recent years, he has appeared before the International Court of Justice, the Iran-US Claims Tribunal, ITLOS and investment tribunals. Christian is a member of the Council of the German Society of International Law, sits on the appointment committee of the German Court of Arbitration for Sports and is the Review Editor of the European Journal of International Law.

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Introduction Stephan Hobe*

It is an immense pleasure for me to write these introductory remarks for the book that reflects the proceedings at the occasion of the anniversary symposium of the International Investment Law Centre Cologne. Yes – it is true, the IILCC is only 10 years old – but all familiar with international investment law know, these were ‘wild’ years with tremendous developments. International investment law is probably the field of international law with the fastest development – it often transcends the watershed between private and public law and is currently at the forefront of political discussion. In view of these developments it was probably a good decision 10 years ago to open a new Centre for International Investment Law at the University of Cologne. But without the help of sponsors this would not have happened. We are indebted to Generali Insurance Company as well as to Santander Bank for their generous support throughout this time. Moreover, we are grateful to the Faculty of Law for its help as well. So it is not without pride that we have organized this international conference and look now on its proceedings. The idea was of course, to give an overview over doctrinal developments through the lens of those who are in a theoretical and practical way involved with international investment law and international investment arbitration. And – special focus was laid on the German speaking community in international investment law. Thus, the first panel under the moderation of our Cologne ‘champion’ Karl-Heinz Böckstiegel looked into the evolution of international investment law through the contributions of Christoph Schreuer and Claudia Annacker. Thereafter, panel two had a look on the relationship on international investment law and general international law. Moderated by Patricia

* Prof. Dr. Dr. h.c. Stephan Hobe is Professor of Public International, European, International Economic Law, Air Law, Space Law and Cyber Law at the University of Cologne and Managing Director of the IILCC.

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Introduction

Nacimiento, Christian Tams and Bruno Simma were best equipped to give guidance in this field. Panel three, chaired by Christian Borris, dealt with the drafting of Investor-State contracts. Anke Sessler and the late Rudolf Dolzer presented their interesting experiences. Much to our regret Rudolf Dolzer has meanwhile passed away – his speech is reported by Berta Boknik – and special tribute is given to him below. The fourth panel looked into the challenge of climate change and its repercussion on investment law. Under the chairmanship of Markus Gabbert, Markus Burgstaller laid down his ideas on this delicate subject. Panel five dealt with the amendment process of the ICSID arbitration rules. Nadia Darwazeh shared the panel with contributions of Francesco Abriani and Sebastian Seelmann-Eggebert. And finally, the sixth panel, chaired by Moritz Keller, covered the UNCITRAL reform process on ISDS, containing contributions of Corinne Montineri and August Reinisch. Even with a distance of more than 15 months this still looks like a good overview on topical issues for international investment law and arbitration. And this is exactly what the IILCC is committed to do in the future as well: To provide a contribution to doctrinal discussion and its practical repercussions in the field of international investment law. It is hoped that in 10 years from now at the occasion of the 20th anniversary of our Centre we can make such a praising conclusion of the past work. As we all know: ‘The future has begun – right now!’ Let’s hope for a promising perspective for the International Investment Law Centre Cologne!

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Introduction

In memoriam Professor Dr. Dr. Rudolf Dolzer (1944 – 2020)

Rudolf Dolzer is not any longer with us. His elegant paper at the 10 years anniversary symposium of the IILCC did not let it appear likely that he would not witness any more the appearance of the proceedings of the symposium. Rudolf Dolzer was a master in many areas of the law. I still remember his brilliantly written short articles on current problems of international law as a fascinated reader of the daily newspaper Frankfurter Allgemeine Zeitung. After his habilitation at the University of Heidelberg as one of the disciples of the late Karl Doehring and some time as a research professor in the United States and at Heidelberg University, he became professor at the University of Mannheim, where he also acted as Vice-Rector. The next four years saw Rudolf Dolzer in a different role – practicing law as Director General of the Federal Chancellery under the then Federal Chancellor Helmut Kohl. His special area was the coordination of the secret services. And as of 1996 he went back to academia as a co-director of the Institute of International Law at the University of Bonn, succeeding Christian Tomuschat. Rudolf Dolzer belonged to the small circle of German investment lawyers of the first generation. We in Cologne could profit from it twice. Before his 2019 lecture we had invited him to give a IILCC investment law lecture which he did on the topic ‘Fair and Equitable Treatment’. Since his habilitation thesis of 1985 on ‘Property, Expropriation and Compensation in Current International Law’ his interest was particularly focused on questions of foreign investment and its protection. In 1995 he 29

Introduction

published, together with Margaret Stevens, a standard work on ‘Bilateral Investment Treaties’ and in 2008 (2nd edition in 2014) together with Christoph Schreuer ‘Principles of International Investment Law’ – both belonging to the fundamental literature of international investment law. Moreover in 2018 he published ‘Petroleum Contracts and International Law’. Rudolf Dolzer acted as counsel, expert, arbitrator, and president of numerous tribunals under ICSID and other arbitration rules. Out of this rich practical experience he gave us the honour in 2019 to present his brilliant thoughts which are now published posthumously in this volume. We remember Rudolf Dolzer as one of the great figures of German international investment law, a noble person with a nice sense of humour! Stephan Hobe Managing Director of the IILCC

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Chapter 1: Evolution of International Investment Law

Introduction Karl-Heinz Böckstiegel*

My introductory remark will be short in order not to use up much of the time allocated to our panel. First of all, let me congratulate Prof. Hobe and his team for the impressive list of speakers and participants they have managed to attract to this conference. When, many years ago, I dealt with investment law in my early publications, one would not have predicted the rise of this area of the law to what it is today: with thousands of BITs, started by Germany in 1958, and with globally accepted multilateral treaties such as the ICSID Convention and the ECT. And I still remember that Aaron Broches, then Vice-President of the World Bank, after he had initiated the ICSID-Convention, told me of his disappointment that, in the early years of the Convention, so few actual cases were started. What a difference to today, when hundreds of investment cases are pending every year, particularly at ICSID and at the PCA at The Hague. Let me turn to the eminent speakers on this first panel at our conference and just add very short notes to the detailed biographies you have in your conference folder. Prof. Schreuer and I have been acquainted for many years starting from the time we met in Washington when he was writing his famous commentary on the ICSID Convention, and later, though we never were on the same tribunal as arbitrators, when he provided valuable assistance by expert opinions to our tribunals in several cases. Dr. Annacker and I, as well, have met at many occasions, particularly in arbitration cases where she acted as a very efficient lead counsel. But I also have to pay tribute to her academic career, doing not only a doctorate, but also a habilitation, and teaching at several universities. It is an honor and a particular pleasure to moderate the panel session with these colleagues.

* Prof. Dr. Karl-Heinz Böckstiegel is an independent arbitrator.

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Evolution of Investment Law in Treaty Making and Arbitral Practice Christoph Schreuer*

I would like to address three themes: 1. the evolution of consent in investment arbitration, 2. the evolution of tribunal practice concerning the applicable law, and 3. the trend towards restriction of investor rights

1. The Evolution of Consent in Investment Arbitration Two developments seem particularly significant in the context of consent in investment arbitration: a) a shift of the basis of consent from contract to treaty, b) the distinction between treaty claims and contract claims. Essentially, consent can be given in different forms: through a direct agreement between the host State and the investor, through an offer in legislation accepted by the investor, and through an offer in a treaty accepted by the investor. The drafting of the provision on consent in the ICSID Convention was strongly dominated by the idea of a contract of the investor with the government. There was some mention of legislation as a possible basis for jurisdiction. This found entry into the Report of Executive Directors (para 24).1 But there was practically no mention of treaties offering consent to arbitration. This is hardly surprising. At the time of the Convention’s draft* Prof. em. Dr. Christoph Schreuer, J.S.D. is an independent expert and arbitrator practicing as of counsel at Zeiler Floyd Zadkovich in Vienna. 1 Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, para 24: Consent of the parties must exist when the Centre is seized (Artt. 28(3) and 36(3)) but the Convention does not otherwise specify the time at which consent should be given. Consent may be given, for example, in a clause included in an investment agreement, providing for the submission to the Centre of future disputes

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Christoph Schreuer

ing, the practice of concluding bilateral investment treaties (BITs) had only just started. Moreover, early BITs did not yet provide for investor-State arbitration. Today, only in 16 % of the cases do claimants rely on contracts as basis of consent to arbitration. In 9 %, host State legislation is invoked as the source of consent. In 75 % of all cases the basis of consent is found in treaties, mostly in BITs (60 %).2 Even today, contracts still play an important role and their significance may increase if the pushback on BITs continues. The planning for major long-term investments includes a carefully crafted arbitration clause in investment agreements between States and investors, despite the existence of an applicable BIT or other treaty. These investment agreements are designed not only to supplement the BITs. Investors also plan for the scenario of treaty termination. The discussion of consent through legislation has centred mainly on the question whether the specific piece of legislation did indeed contain a firm offer. References to investment arbitration in national legislation vary. Some pieces of legislation contain clearly mandatory language. This would be the case where the reference to arbitration is supported by formulae such as ‘may submit’, ‘shall be entitled to request’. On the other hand, the mere possibility of a future agreement does not amount to a firm offer. The series of cases surrounding the enigmatically phrased Article 22 of the Venezuelan Investment Law is illustrative of this point. All tribunals dealing with that piece of legislation denied the existence of a binding offer to arbitrate. The language in treaties varies. Most BITs and several multilateral treaties contain a clear expression of consent like ‘hereby consents’ or ‘shall be submitted’. There are, however, some borderline cases. For instance, some BITs say that the host State ‘shall assent’. With respect to these unclear references to consent, there has been a shift of practice over time. At one point, the ICSID Secretary-General did not even register a request for arbitration that relied on a treaty of this type. Nowadays, these requests are

arising out of that agreement, or in a compromis regarding a dispute which has already arisen. Nor does the Convention require that the consent of both parties be expressed in a single instrument. Thus, a host State might in its investment promotion legislation offer to submit disputes arising out of certain classes of investments to the jurisdiction of the Centre, and the investor might give his consent by accepting the offer in writing. 2 See ICSID, The ICSID Case Load Statistics – Issue 2020–2, p. 11.

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Evolution of Investment Law in Treaty Making and Arbitral Practice

not only registered but there is also some authority that the ‘shall assent’ language is functionally equivalent to ‘hereby consents’. Some treaties mention arbitration, but clearly do not offer consent. This would be the case where they hold out ‘sympathetic consideration’ of consent. Many treaties foresee different forms or arbitration. Often, they offer a choice of ICSID, UNCITRAL and possibly ICC, LCIA or SCC arbitration. Typically, the choice is with the investor. Some treaties do not offer a choice of different forms of arbitration but provide for their subsidiarity. For instance, the Spain-Venezuela BIT provides primarily for ICSID arbitration and if that is not available for UNCITRAL arbitration. When Venezuela was a party to the ICSID Convention, ICSID arbitration was available in principle. That excluded dual nationals of the two countries: Article 25 of the ICSID Convention excludes from the definition of ‘National of Another Contracting State’ ‘any person who … also had the nationality of the Contracting State party to the dispute.’ This is also referred to as the negative nationality requirement. After Venezuela had denounced the ICSID Convention in 2012, ICSID arbitration became unavailable and this opened access to UNCITRAL arbitration. Since neither the BIT nor the UNCITRAL Rules has a negative nationality requirement, this opened the door for actions by dual Spanish Venezuelan nationals. By denouncing the ICSID Convention, Venezuela had unwittingly exposed itself to a new and sizeable category of claimants. The shift from contract-based to treaty-based arbitration has had several consequences. The number of potential claimants has increased dramatically. Investors benefitting from arbitration clauses are not individually determined as in contracts, but generically described in the treaties. At the same time, the possibility for States to proceed has been reduced. Since investors must accept the offer of arbitration in the treaties, the treaty-based system of investment arbitration, in effect, provides for investor claims against States but not vice versa. The investor can calibrate its acceptance of consent towards a specific dispute, thereby reducing the likelihood of a counterclaim. It is important to realize that the seemingly one-sided nature of investment arbitration as benefitting the investor but not the host State is not inherent in investment arbitration as such. It is primarily a consequence of the drafting of consent clauses in treaties as offering access to arbitration to foreign investors. The scope of consent to arbitration offered in BITs varies. Some treaties restrict consent to disputes involving their substantive provisions. Tri37

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bunals operating under these restrictive clauses have found that they can only entertain claims alleging violations of the substantive standards contained in these treaties. Multilateral treaties like the NAFTA and the ECT also restrict consent to arbitration to violations of the substantive standards of these treaties. Some BITs are even more restrictive and limit jurisdiction to expropriation or to the amount of compensation due after an expropriation. Other treaty clauses providing consent are wide and unlimited. Many BITs in their consent clauses contain phrases such as ‘all disputes concerning investments’ or ‘any legal dispute concerning an investment’. These provisions do not restrict a tribunal’s jurisdiction to claims arising from the BIT’s substantive standards. By their own terms, these consent clauses cover claims that arise from contracts in connexion with the investment, from customary international law and from other treaties. Most tribunals operating under wide jurisdiction clauses have recognized that they were not limited to claims alleging the treaty’s substantive standards. There is, however, a persistent, and in my view erroneous, perception in a minority of tribunals (following SGS v Pakistan3) that they are restricted to treaty claims since jurisdiction was based on a treaty. Wide jurisdictional clauses referring to ‘all disputes concerning investments’, or the like, also have inter-temporal implications. Wide jurisdictional clauses cover events that may have taken place before the respective treaty’s entry into force. Jurisdiction over events that occurred prior to the BIT’s entry into force is not contrary to the principle of non-retroactivity as enshrined in Article 28 of the Vienna Convention on the Law of Treaties. The law in force at the time of the relevant events will have to be applied to the merits of the case. In other words, jurisdiction may exist in respect of a dispute that arises from facts that are not subject to the treaty’s substantive standards. This leads me to the distinction between treaty claims and contract claims. This distinction is a recurrent feature in many investment arbitrations. The respondents’ objection that the cases only involved contract claims and the claimants’ insistence on their treaty rights have become routine arguments in these cases. A clear-cut separation of treaty claims, and contract claims is often difficult and hinges on the facts of each case.

3 SGS Société Générale de Surveillance S.A. v Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction, 6 August 2003.

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1. The origin of the distinction between treaty claims and contract claims can be traced back to Vivendi v Argentina 4. In that case, the ad hoc Committee found that the existence of a domestic forum selection clause in a contract pointing to domestic courts did not affect the international Tribunal’s jurisdiction over claims alleging a treaty violation. The Decision on Annulment in Vivendi established the principle that a forum selection clause in a contract pointing to domestic courts will not oust jurisdiction based on a treaty. The decisive reason is that contract claims, and treaty claims have different legal bases. A failure by an ICSID tribunal to exercise its jurisdiction under these circumstances amounts to an excess of powers and is a ground for annulment of the award. 2. Whether a case involves a contract claim or a treaty claim ultimately depends on how a claimant presents its case. The analysis of whether there has been a treaty breach or a contract breach or both may relate to the same facts, but it is based on different standards. The situation is complicated by umbrella clauses. An umbrella clause is a State’s promise, given by way of a treaty, to honour obligations assumed towards foreign investors. The original obligation is normally governed by domestic law and is often contained in a contract. A breach of the underlying contract as such is a breach of domestic law. But a breach of the umbrella clause is, of course, a breach of the treaty containing the clause. But even the mere existence of a contract breach would not necessarily oust a tribunal’s jurisdiction. As mentioned, it is incorrect to assume that the jurisdiction of a treaty-based tribunal is necessarily restricted to violations of the treaty’s substantive provisions. An investment tribunal may well have jurisdiction over contract claims. This may be the consequence of a broadly worded jurisdiction clause covering all types of investment disputes. Under a widely phrased jurisdiction clause a tribunal is authorised and bound to entertain both treaty claims and contract claims. Some tribunals have found otherwise. For instance, in SGS v Philippines 5 the tribunal relied on the lex specialis principle to give precedence to a contractual forum selection clause. It said that the BIT provision, on which ICSID jurisdiction was founded, was general and as such could not be presumed to override a specific provision in a particular contract.

4 Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002. 5 SGS Société Générale de Surveillance S.A. v Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004.

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Even if lex specialis is appropriate in a situation of this kind, I wonder if it was correctly applied in that case. The BIT’s clause on investor-State arbitration is only a standing offer that requires the investor’s acceptance to become an arbitration agreement. The arbitration agreement, as perfected through the institution of proceedings, applies to the specific dispute only. The contractual clause refers to any dispute arising from the contract and is hence more general. Therefore, the treaty-based arbitration agreement was more special and the SGS v Philippines Tribunal’s analysis in this respect is faulty.

2. The Evolution regarding the Applicable Law in Tribunal Practice Two developments concerning the applicable law seem particularly significant: a) the shift over time from domestic law to international law, and b) the creation of special regimes that are subject to their own systems of law. The respective roles of domestic law and international law in investment arbitration have undergone considerable change. The negotiations over what eventually became Article 42(1) of the ICSID Convention, show a strong focus on domestic law. Upon the insistence of delegates from developing countries, the law of the host country received its prominent position in the Convention’s choice of law provision. A reference to rules of international law was hotly contested. The representatives of capital-importing countries were against the application of international law. They insisted that a foreign investor, by making the investment, submitted to the host State’s law, that the host State’s sovereignty required the exclusive application of its law and that reliance on international law might actually contribute to the perpetuation of an unjust system. Representatives of capital-exporting countries insisted on the necessity to retain international law as part of the applicable law. At one point, representatives of capital-importing countries suggested that international law be used only in cases of alleged discrimination or in order to fill lacunae in the host State’s law. Eventually, Mr Broches achieved a compromise which preserved the applicability of international law but yielded to demands of developing countries that the national law to be applied, in the absence of agreement on choice of law, would be that of the host State. 40

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The relationship of international law to the host State’s domestic law has turned out to be a complex question. In early practice there was widespread consensus that international law would come into play in the case of a lacuna in domestic law and in the case of any inconsistency between the two. This was referred to as the supplementary and corrective function of international law. Over time, the theory of the supplementary and corrective function of international law attracted increasing criticism by tribunals but also in academic writings. An important step was an article published in 2003 by Emmanuel Gaillard and Yas Banifatemi on the meaning of “and” in Article 42(1).6 They rejected the idea that international law would come into play only in cases of lacunae in domestic law or in case of its inconsistency with international law. They argued that international law may be applied independently of any prior scrutiny of domestic law and may be directly applicable to resolve the dispute: ‘and means and’7. Tribunals have followed this approach giving international law a more prominent and independent role. Treaties offering consent to investment arbitration have reinforced this approach. Some BITs contain choice of law clauses. Most of these clauses incorporate references to the BIT itself, to other treaties, to the law of the State party to the dispute, including its rules on the conflict of laws, and to the rules and principles of international law. Other BITs do not provide for an express choice of law. The trend towards treaty-based arbitration and towards the assertion of claims based on treaty standards has shown its impact also on the law applied in cases under these treaties. Tribunals have treated cases of treaty claims based on BITs as involving an implicit choice of international law. In investment treaty arbitration, claimants regularly assert violations of the substantive treatment standards contained in the applicable investment instrument. Even in the absence of any express choice of law provisions, it is generally accepted that the substantive provisions of these treaties constitute (at least part of) the rules of law applicable to the dispute. Some treaties have gone one step further. They choose international law exclusively thereby implicitly excluding domestic law. For instance, the Energy Charter Treaty in its Article 26(6) says: ‘A tribunal established un6 Emmanuel Gaillard and Yas Banifatemi, The Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention: The Role of International Law in the ICSID Choice of Law Process, ICSID Review – Foreign Investment Law Journal, 18 (2), p. 375. 7 P. 403, ibid.

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der paragraph (4) shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law.’ This shift from domestic law to international law has culminated in the recent draft agreements of the EU with Third Countries. The CETA (Article 8.31) provides that the Tribunal shall apply ‘this Agreement … and other rules and principles of international law applicable between the Parties.’ The provision specifically relegates domestic law to a subordinate position: domestic law is to be considered ‘as a matter of fact’, and ‘the Tribunal shall not have jurisdiction to determine the legality of a measure alleged to constitute a breach of this Agreement, under the domestic law of the disputing Party.’ Parallel provisions can be found in the EU’s draft agreements with Singapore, Vietnam and Mexico.8 Therefore, there is a clearly perceptible evolution from an emphasis on domestic law towards international law as the applicable law. Treaties as well as tribunal practice have contributed to this development. The strongest factor was, of course, the rise of treaty arbitration and the development of standards of protection in treaties. My second observation on the evolution of the applicable law concerns the creation of special regimes for certain issues. In terms of the ICSID Convention Article 42(1) only governs the merits. It does not govern certain ancillary questions. One such question is procedure. Procedure is typically governed by a special set of rules. In proceedings under the ICSID Convention, these are contained in the Convention, in the Institution Rules and in the Arbitration Rules. Domestic law comes into play only under very limited circumstances such as enforcement and immunity. Another special regime for purposes of the applicable law is jurisdiction. Tribunals have resisted attempts to subject declarations of consent to arbitration to domestic law. This applied even where jurisdiction was based on domestic legislation. In these cases, tribunals have found that not only rules on statutory interpretation but also principles of international law governing unilateral declarations were applicable. Where jurisdiction is based on a treaty, obviously the rules on treaty interpretation apply. At the same time, it must be kept in mind that the treaty is not the consent agreement. It merely contains an offer of arbitra-

8 Art. 3.13(2) Draft EU-Singapore IPA; Art. 3.42(2) Draft EU-Vietnam IPA; Art. X.15(2) Draft EU-Mexico Global Agreement.

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tion to investors. The acceptance of the offer leads to an agreement between a state and the investor which is not a treaty but a mixed agreement. Another point, not governed by the general rule on applicable law, is the investor’s nationality. Of course, nationality is important for the enjoyment of rights under treaties and access to arbitration. In the case of natural persons, primarily the law of the State whose nationality is claimed determines nationality. The nationality of a juridical person is nearly always determined by the criteria of incorporation or seat of the company in question. Sometimes control also plays a role. In many cases the details of corporate nationality are determined by definitions in treaties or in legislation. A related issue is the legal status and capacity of the investor. The existence and capacity to act of a juridical person are determined not by the law governing the dispute but by the lex societatis, normally the law of its incorporation. Another specific question of the proper law concerns the existence of proprietary rights. Investment law presupposes the existence of an investment. The definitions of the term ‘investment’ in treaties, enumerate various types of proprietary rights but do not deal with their creation and existence. Municipal laws, particularly those of host States, create them. Therefore, the host State’s law but possibly also another State’s law is important to establish the existence and extent of the rights upon which the investor relies.

3. The Movement towards the Restriction of Investor Rights In the early years of investment protection, as we know it, there was a certain euphoria for the rights of investors. The high-water mark of this development was perhaps the Award in TECMED v Mexico9 and its description of the treaty standard of fair and equitable treatment (FET). The Tribunal gave an exacting definition of what the host State was expected to do: ‘The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relation with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of

9 Técnicas Medioambientales Tecmed S.A. v The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003.

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the relevant policies and administrative practices or directives, to be able to plan its investment and comply with such regulations.’10 To some, TECMED and other cases set impossibly high standards. Observers and tribunals feared a backlash from States who were at the receiving end of some of these unfavourable awards. After all, the States are the ultimate masters of the system and have the power to do away with it. The reactions have come from tribunals as well as from treaty makers. Tribunals started showing realism and restraint in the application of standards of protection. Treaty makers tried to contain these standards by adding limiting interpretations and definitions. Let me illustrate the point with the help of two examples. One concerns protection against expropriation, especially indirect expropriation. Under classical international law, expropriation is not per se illegal but there are certain requirements for its legality. Apart from non-discrimination, compensation and due process of law, the expropriation must be for a public purpose. Therefore, public purpose would be a requirement for the expropriation’s legality in addition to compensation. At the same time, under the police powers doctrine, States have a right to regulate in the public interest. Starting with Methanex11, tribunals have stated that a measure taken for a public purpose that is non-discriminatory and is accomplished under due process of law is not an expropriation but a lawful regulation and hence does not require compensation.12 Investment treaties have picked up on this theme. The US Model BITs of 2004 and 2012 as well as BITs following them provide: ‘Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.’13 Similar definitions of expropriation, excluding regulatory action to protect legitimate public welfare objectives, are contained in the EU’s (draft) agreements with third States (CETA Annex 8-A, Vietnam, Mexico).14

10 Para 154, ibid. 11 Methanex Corporation v United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005. 12 Part IV Chapter D, para 15, ibid. 13 Art. 4(b) Annex B – Expropriation, United States Model BIT of 2012 and 2004. 14 Annex 4 – Understanding on Expropriation, Draft EU-Vietnam IPA; Annex on Expropriation, Draft EU-Mexico Global Agreement.

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This is a paradoxical development. A lawful expropriation requires a public purpose and full compensation. This is so under traditional international law and the recent treaties say so. Under these circumstances it is difficult to see how a legitimate public purpose can mean that there is no expropriation but just regulation and that therefore no compensation needs to be paid. My other example concerns fair and equitable treatment (FET). FET is contained in most investment treaties. It is the standard most often invoked by investors and the standard with the highest rate of success. Over the years, tribunals have developed an elaborate practice that gives meaning to the somewhat vague and enigmatic concept of FET. The most important aspect of this practice is the development of the concept of legitimate expectations. The adaptability and the high success rate of the FET standard have made it a formidable weapon in the hands of counsel for investors. This has led to attempts to put the genie back into the bottle. An early attempt was the official interpretation of Article 1105 (containing the FET standard) by the NAFTA Free Trade Commission of 2001. The official interpretation attempted to reduce FET, as reflected in the NAFTA, to the international minimum standard required by customary international law. That attempt at tying FET to the international minimum standard was unlikely to yield the desired result. The attempt to harness FET by equating it with customary international law may well have the opposite effect. Tribunals will project the detailed practice on FET into customary international law. Put differently, rather than customary international law having a restraining effect on the fair and equitable treatment standard, FET may be perceived as advancing the meaning of customary international law. Consequently, investors will invoke the detailed case-law developed by tribunals in the context of FET as part of customary international law – and that even in situations not subject to a treaty that guarantees FET. In this way, FET including the practice developed under it may become part of the international minimum standard. A more effective way to contain the meaning of FET was to restrict the circumstances under which the tribunal would accept the existence of legitimate expectations. For instance, some tribunals have demanded the existence of a specific undertaking directed at the investor. This would exclude reliance on the stability of an existing legal framework as a basis for legitimate expectations. Another more recent attempt to restrain the dangerously successful FET standard is to circumscribe it with the help of limiting definitions. The CETA does provide for FET but attempts to cut it down to size. Apart 45

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from a general clause that guarantees the State’s right to regulate, regardless of the investor’s expectations, it offers an exhaustive definition by way of a list of violations.15 These include denial of justice, fundamental breach of due process, manifest arbitrariness and targeted discrimination. Notable in this list are the restrictive adjectives: fundamental, manifest and targeted. An important element of the definition is specific representation made to the investor to induce an investment. Let me finish with a word of caution. It is tempting to take the past as an indicator of future developments. Of course, that is the best we have, to make predictions. But it is a very imperfect tool. Ultimately, we simply don’t know how the evolution will continue.

15 See Art. 8.10(2), CETA.

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Evolution of Investment Law in Treaty Making and Arbitral Practice: Comment from Counsel’s Perspective Claudia Annacker*

1. Evolution of the Contracting Parties’ Consent to Arbitrate Most of the more than 2,650 bilateral investment agreements and other treaties with investment protections (IIAs) in force1 include offers by the contracting States to consent to international arbitration. More than 900 investment treaty arbitrations are reported to have been brought against more than 120 respondent States pursuant to such consent clauses.2 There is however a trend in investment treaty making to restrict access to investor-State arbitration. In contrast to the broad, unqualified consent clauses contained in many pre-2010 IIAs, more recent IIAs typically limit the contracting parties’ offer of consent to arbitrate to violations of the IIA that contains the offer, or only certain treaty provisions.3 Many post-2010 IIAs also subject the offer of consent to conditions precedent, time limits, and procedural requirements. Some IIAs, such as the 2016 Morocco-Nigeria BIT, make exhaustion of local remedies a condition of consent.4 A significant number of recent IIAs, such as the 2018 Belarus-India BIT, condition consent on the investor first litigating in the host State’s courts for a certain period of time.5 Other recent IIAs, such as the 2018 SingaporeKazakhstan BIT, exempt from the contracting parties’ consent to arbitrate specific policy areas, such as public health, or measures in respect of tobacco or tobacco-related products.6 Most recent IIAs, such as the 2018 Argenti-

* Dr. Claudia Annacker is a partner at Dechert LLP in Paris. 1 UNCTAD, International Investment Agreements Navigator, [https://investmentpolicy.unctad.org/international-investment-agreements, accessed 23 October 2020]. 2 UNCTAD, Investment Dispute Settlement Navigator, [https://investmentpolicy.unctad.org/investment-dispute-settlement, accessed 23 October 2020]. 3 See e.g. Art. 20, Canada-Tanzania BIT, 9 December 2013; Art. 14.21, Indonesia-Australia FTA, 4 March 2019; Art. 3.14, Armenia-Singapore Agreement on Trade in Services and Investment, 1 October 2019. 4 See e.g. Art. 26(5), Morocco-Nigeria BIT, 3 December 2016. 5 See e.g. Art. 15(1), Belarus-India BIT, 24 September 2018. 6 See e.g. Art. 11(2), Singapore-Kazakhstan BIT, 21 November 2018.

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na-Japan BIT, specify that their most-favoured-nation (MFN) clauses do not apply to dispute settlement.7 A few States have eliminated altogether investor-State arbitration from recently negotiated IIAs.8 Because almost 95 percent of all IIAs currently in force were concluded before 2010, and most investment treaty claims have been brought under these earlier IIAs, there is little experience interpreting and applying the more recent, restrictive consent clauses. It is therefore difficult for investors and host States, and their counsel, to predict how arbitrators will apply these limitations. In the past, investment treaty tribunals have not infrequently deprived treaty provisions designed to limit access to investor-State arbitration of much of their limiting effect. For example, fork-in-the-road clauses have had little, if any, practical impact. Only two investment treaty tribunals are reported to have found that a fork-in-the-road clause was triggered.9 Similarly, to date, only two investment treaty tribunals have dismissed claims based on a denial-of-benefits clause.10 Clauses that require the investor to resort to the local courts prior to initiating arbitration have likewise been emptied of much of their effect. One tribunal expressly stated that it sympathizes with ‘attempts to neutralize such a provision that is nonsensical from a practical point of view.’11 Another tribunal felt free to disregard the requirement, reasoning that it would be ‘unfair to deprive the investor of its right to resort to arbitration based on the mere disregard of the […] requirement’ because ‘such disregard would not have caused any real harm to the Host State.’12 The restrictive trend in recent investment treaty practice seems a response to inconsistent interpretations of consent clauses, as well as inter-

7 See e.g. Art. 3(3), Argentina-Japan BIT, 1 December 2018. 8 See e.g. Australia-Japan Economic Partnership Agreement, 8 July 2014; Agreement Amending Annex 1 of the Protocol on Finance and Investment of SADC, 31 August 2016. 9 Pantechniki S.A. Contractors & Engineers v The Republic of Albania, ICSID Case No. ARB/07/21, Award, 30 July 2009, paras 63–68; H&H Enterprises Investments, Inc. v Egypt, ICSID Case No. ARB/09/15, Award, 6 May 2014, paras 356–378. 10 Pac Rim Cayman LLC. v Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on Jurisdictional Objections, 1 June 2012, paras 4.60 – 4.92; Guaracachi America, Inc. and Rurelec PLC v Bolivia, PCA Case No. 2011–17, Award, 31 January 2014, paras 366–384. 11 Plama Consortium Ltd. v Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, para 224. 12 Abaclat and others v The Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011, para 583.

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pretations that were not anticipated at the time of treaty negotiation. Investment treaty tribunals are constituted ad hoc to decide particular disputes inter partes under a particular investment treaty. There is no system of precedent. As a result, investment treaty tribunals have rendered decisions that are inconsistent on key issues, including on consent clauses. For example, major inconsistencies exist in the application of MFN clauses to dispute settlement. Some investment treaty tribunals have declined to apply MFN clauses to dispute settlement.13 Other tribunals have interpreted MFN clauses to allow investors to bypass conditions to consent14 or even to expand consent clauses to disputes that are outside their scope.15 Such inconsistencies, and others, have created legal uncertainty and increased time and cost, requiring counsel to argue recurring issues without being able to rely on a settled jurisprudence. Such inconsistencies have further prompted practitioners to remark: ‘[e]xperienced practitioners too often can predict the outcome of an investor-State arbitration based upon the composition of the tribunal, not the merits of the case.’16

2. Evolution of Applicable Law Clauses International investment law is highly fragmented. It consists of thousands of bilateral, plurilateral, regional, and sectoral treaties with widely varying scopes of application and differing protections. International investment law is also highly specialized. Investment treaty tribunals predominantly cite other investment treaty decisions and awards, with only sporadic refer-

13 Salini Costruttori S.p.A. and Italstarde S.p.A v The Hashemite Kingdom of Jordan, ICSID Case No. ARB/02/13, Decision on Jurisdiction, 9 November 2004, paras 102–119; Telenor Mobile Communications A.S. v The Republic of Hungary, ICSID Case No. ARB/04/15, Award, 13 September 2006, paras 95–100. 14 Emilio Agustín Maffezini v The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Jurisdiction, 25 January 2000, para 64; Gas Natural SDG, S.A. v The Argentine Republic, ICSID Case No. ARB/03/10, Decision of the Tribunal on Preliminary Questions on Jurisdiction, 17 June 2005, paras 30–31; National Grid PLC v The Argentine Republic, UNCITRAL, Jurisdictional Decision, 20 June 2006, para 93. 15 RosInvestCo UK Ltd. v The Russian Federation, SCC Case No. V 079/2005, Award on Jurisdiction, 1 October 2007, paras 124–139; UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v Hungary, ICSID Case No. ARB/13/35, Decision on Preliminary Issues of Jurisdiction, 3 March 2016, paras 203–205, 213. 16 George Kahale III, Is Investor-State Arbitration Broken?, Transnational Dispute Management, 9 (7), p. 3.

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ences to ICJ, WTO or ECtHR jurisprudence. A considerable number of arbitrators and counsel in investment treaty arbitrations are investment law specialists. As the 2006 ILC Report on Fragmentation of International Law emphasizes, fragmentation and specialization have the potential for isolation from and conflicts with non-investment rules: ‘[S]uch specialized law-making and institution-building tends to take place with relative ignorance of legislative and institutional activities in the adjoining fields and of the general principles and practices of international law. The result is conflicts between rules or rule-systems, deviating institutional practices and, possibly, the loss of an overall perspective on the law.’17 While the majority of IIAs do not provide guidance on the applicable law, almost all contemporary IIAs contain choice of law clauses. Most of these clauses direct tribunals to apply, in addition to the IIA, applicable or relevant rules and/or principles of international law.18 Commentators have noted that such applicable law clauses could serve as a tool to prevent international investment law from becoming more isolated.19 A few investment treaty tribunals have incorporated non-investment treaties into the applicable law of the IIA pursuant to choice of law clauses referring to rules and/or principles of international law.20 However, investment treaty tribunals have generally been reluctant to apply non-investment rules as the applicable law. They have interpreted references to ‘such

17 Report of the Study Group of the ILC, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, 13 April 2006, UN Doc. A/CN.4/L.682, para 8. 18 Art. 26(6), Energy Charter Treaty, 17 December 1994 (“applicable rules and principles of international law”); Art. 27, Chapter 11, ASEAN-Australia-New Zealand FTA, 27 February 2009 (“relevant rules of international law”); Art. 11(5), FranceMexico BIT, 12 November 1998 (“other relevant rules of International Law”); Art. 9(1)(5), Korea-Morocco BIT, 27 January 1999 (“the principles and rules of international law”). 19 Bruno Simma, Foreign Investment Arbitration: A Place for Human Rights?, International & Comparative Law Quarterly, 60 (3), p. 581; Eric De Brabandere, Investment Treaty Arbitration as Public International Law. Procedural Aspects and Implications, 2014, p. 133. 20 See e.g. Belenergia S.A. v Italian Republic, ICSID Case No. ARB/15/40, Award, 28 August 2019, para 292 (with respect to EU law); Blusun S.A. et al. v Italian Republic, ICSID Case No. ARB/14/3, 27 December 2016, para 278 (with respect to EU law).

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rules of international law as may be applicable,’21 or even ‘any treaties in force between the Contracting Parties’22 or ‘other relevant agreements between the Contracting Parties,’23 to exclude non-investment treaties.24 Most recently, in rejecting any impact of the Achmea Judgment25 on the jurisdiction of arbitral tribunals constituted under intra-EU IIAs, the tribunal in Eskosol v Italy interpreted the phrase ‘applicable rules and principles of international law’ as being limited to general rules of international law, i.e., customary international law and general principles of law, to the exclusion of other treaties in force between the contracting parties.26

3. Trend Towards More Restrictive Treatment of Investor Rights Substantive investment treaty protections in recent IIAs tend to be increasingly more detailed, complex and subject to general exceptions, a trend that seems to respond to unpredictable or inconsistent outcomes under the broad, vague substantive standards of earlier investment treaties. The diverging approach of investment treaty tribunals to the interpretation of umbrella clauses is a prime example. Investment treaty tribunals have disagreed on the interpretation of nearly every aspect of this clause: whether an umbrella clause elevates purely contractual breaches to treaty breach-

21 22 23 24

Switzerland-Zimbabwe BIT, 15 August 1996. Art. 10(5), Germany-Zimbabwe BIT, 29 September 1995. Art. 11(5), Netherlands-Romania BIT, 19 April 1991. See e.g. Pezold v Zimbabwe, ICSID Case No. ARB/10/25, Procedural Order No. 2, 26 June 2012, para 57; Rompetrol Group N.V. v Romania, ICSID Case No. ARB/06/3, Award, 6 May 2013, para 172. 25 Slovak Republic v Achmea BV, Case C-284/16, CJEU, Judgement, 6 March 2018. 26 Eskosol S.p.A. in liquidazione v Italian Republic, ICSID Case No. ARB/15/50, Decision on Termination Request and Intra-EU Objection, 7 May 2019, para 121; see also Corona Materials LLC v Dominican Republic, ICSID Case No. ARB(AF)/14/3, Award, 31 May 2016, para 185 (limiting “rules of international law as may be applicable” in Art. 10.22(2)(b)(ii) CAFTA-DR to “general international law”).

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es,27 whether an umbrella clause only protects against sovereign conduct,28 whether the host State and the investor must be in privity,29 whether the umbrella clause applies to unilateral and general statutory commitments, 30 and whether contractual dispute resolution clauses bar umbrella clause claims.31 There is now a clear trend to eliminate umbrella clauses from IIAs.32 Investment treaty tribunals are also divided on key aspects of the fair and equitable treatment standard33 and where to draw the line between

27 Cp. e.g. SGS Société Générale de Surveillance S.A. v Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004, paras 113, 129; Oxus Gold v Republic of Uzbekistan, UNCITRAL, Final Award, 17 December 2015, paras 364–371, on the one hand, with SGS Société Générale de Surveillance S.A. v Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction, 6 August 2003, paras 163–173; Joy Mining Machinery Ltd. v The Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction, 6 August 2004, paras 71–82, on the other hand. 28 Cp. e.g. Impregilo S.p.A. v Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005, paras 259–262; CMS Gas Transmission Company v The Argentine Republic, ICSID Case No. ARB/01/8, Award, 12 May 2005, paras 299–301, on the one hand, with SGS Société Générale de Surveillance S.A. v The Republic of Paraguay, ICSID Case No. ARB/07/29, Decision on Jurisdiction, 12 February 2010, paras 166–170; Garanti Koza LLP v Turkmenistan, ICSID Case No. ARB/11/20, Award, 19 December 2016, para 330, on the other hand. 29 Cp. e.g. Bosh International, Inc. and B&P, LTD Foreign Investments Enterprise v Ukraine, ICSID Case No. ARB/08/11, Award, 25 October 2012, para 246 with Limited Liability Company Amto v Ukraine, SCC Case No. 080/2005, Final Award, 26 March 2008, paras 110–112. 30 Cp. e.g. Khan Resources Inc., Khan Resources B.V. and CAUC Holding Company Ltd. v The Government of Mongolia, UNCITRAL, Decision on Jurisdiction, 25 July 2012, para 438, with CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the Ad Hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, paras 95–98. 31 Cp. e.g. Garanti Koza LLP v Turkmenistan, ICSID Case No. ARB/11/20, Award, 19 December 2016, para 245 with Toto Costruzioni Generali S.p.A. v Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction, 11 September 2009, para 202. 32 UNCTAD, World Investment Report (2015): Reforming International Investment Governance, 2015, p. 133; see also UNCTAD, World Investment Report (2019) Special Economic Zones, 12 June 2019, p. 102 (noting that among 29 IIAs signed in 2018, 28 do not contain an umbrella clause). 33 For example on the question whether an unqualified FET standard grants protection equivalent to that of the customary international minimum standard, cp. e.g. Saluka Investments BV v Czech Republic, UNCITRAL, PCA No. 2001–04, Partial

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non-compensable regulation and indirect expropriation.34 In response to these inconsistencies, as well as expansive interpretations that allow investors to challenge core domestic policy decisions regarding environment, financial regulation, energy and public health, many FET clauses of post-2010 IIAs limit the treatment to be accorded to investments to the customary international law minimum standard of treatment35 and/or specify the obligations owed by the contracting parties to clarify the scope and meaning of the FET standard.36 Likewise, many expropriation clauses of recent IIAs specify the factors to be taken into account by tribunals in determining whether conduct is expropriatory.37 Recent IIAs also frequently provide for general exceptions, such as the protection of human, animal or plant health or life, or the protection of natural resources, similar to those contained in Article XX GATT and Article XIV GATS.38 IIA jurisprudence on detailed IIA standards and general exception clauses is still embryonic. The parties and their counsel currently face substantial uncertainty as to how arbitral tribunals will interpret and apply such provisions. In particular, it is uncertain whether arbitral tribunals will interpret such provisions as providing more or less regulatory space for the host State than is available under traditional IIA standards,39 or as merely reflecting exceptions previously recognized by tribunals.

34 35 36 37 38 39

Award, 17 March 2006, para 204 with Deutsche Bank AG v Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/2, Award, 31 October 2012, para 419; on the question whether the FET standard encompasses a transparency requirement, cp. e.g. Técnicas Medioabientales Tecmed S.A. v The United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para 154 with Merrill & Ring Forestry L.P. v Canada, ICSID Case No. UNCT/07/1, Award, 31 March 2010, para 231. Cp. Santa Elena v Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000, para 72 with Saluka v Czech Republic, UNCITRAL, Partial Award, 17 March 2006, para 255. Art. 8.6(2), Australia-Peru FTA, 12 February 2018; Art. 9.5(2), Central AmericaRepublic of Korea FTA, 21 February 2018; Art. 8.7(2), Argentina-Chile FTA, 2 November 2017. Art. 2.5(2), EU-Vietnam IPA, 30 June 2019; Art. 2.4(2), EU-Singapore IPA, 19 October 2018. Annex 10-A, Singapore-Sri Lanka FTA, 23 January 2018; Art. 5.3, Belarus-India BIT, 24 September 2018; Annex B, Australia-Uruguay BIT, 5 April 2018. Art. 16, Armenia-Japan BIT, 14 February 2018; Art. 11, Iran-Slovakia BIT, 30 August 2017; Art. 17, Canada-Mongolia BIT, 8 September 2016; Art. 15, Israel-Japan BIT, 1 February 2017; Art. 12.24, Singapore-Turkey FTA, 14 November 2015. See Aaron Cosbey, ‘The Road to Hell? Investor Protections in NAFTA’s Chapter 11’, in Lyuba Zarsky (ed.), International Investment for Sustainable Development: Balancing Rights and Rewards, 2005, pp. 165–166.

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Bear Creek v Peru shows that the addition of detail and inclusion of general exceptions may not necessarily expand the host State’s policy space. The Bear Creek tribunal applied the investment chapter of the Free Trade Agreement between Canada and Peru, which contains a general exception clause with a closed list of exceptions.40 Interpreting the expropriation clause in conjunction with the general exception clause, the tribunal concluded that the contracting parties’ choice to include specific exceptions precludes the application of other exceptions from general international law, including the police powers doctrine.41 The tribunal further concluded that the general exception clause does not exclude the requirements of the expropriation clause that any expropriatory measure, whether within or outside the scope of the exception clause, be taken in accordance with due process and accompanied by compensation.42 The parties and their counsel face further uncertainty about the impact of MFN clauses. Investment treaty tribunals have permitted investors to import substantive protections from other IIAs via MFN clauses.43 Many, but not all, MFN clauses of recent IIAs exclude the importation of investment protections from other IIAs,44 or from previously existing IIAs.45 Unless an MFN clause expressly precludes such importation, investors may 40 Art. 2201.3, Canada-Peru FTA, 29 May 2008, (“For the purposes of Chapter Eight (Investment), subject to the requirement that such measures are not applied in a manner that constitute arbitrary or unjustifiable discrimination between investments or between investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary: (a) to protect human, animal or plant life or health, which the Parties understand to include environmental measures necessary to protect human, animal or plant life or health; (b) to ensure compliance with laws and regulations that are not inconsistent with this Agreement; or (c) for the conservation of living or non-living exhaustible natural resources.”). 41 Bear Creek Mining Corporation v Peru, ICSID Case No. ARB/14/21, Award, 30 November 2017, paras 473–474. 42 Para 473, ibid. 43 See e.g. MTD v Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, para 104; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, paras 153–167; Mr. Franck Charles Arif v Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, para 396; CC/Devas v India, PCA Case No. 2013–09, Award on Jurisdiction and Merits, 25 January 2016, para 496. 44 See e.g. Art. 4(4), Argentina-UAE BIT, 16 April 2018. 45 See e.g. Art. 3(3), Israel-Japan BIT, 1 February 2017.

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still seek to add protections or replace restrictive standards with broader protections from earlier IIAs.

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Discussion moderated by Karl-Heinz Böckstiegel*

Böckstiegel introduced the discussion by summarizing that the two speakers had commented on three points: consent, applicable law and the protection of investors. An intervention from the audience shed the spotlight on the denial of benefits clause in the ECT.1 It drew attention to the fact that in the course of the modernization process of the ECT, this provision was closely looked at. The question was tackled whether the incorporated right of the host State should not be extended to cases in which the claimant does not sufficiently substantiate his claim. The panellists were asked for their opinion on this development. Annacker doubted that the new formulation would have a major impact. She recalled that only in two cases had tribunals rejected claims because of a denial of benefits. According to her, the key question was the manner in which the host State exercised its pertinent right. Pointing out that she was not aware of any cases in which a state had denied the benefits of an investment treaty prior to a claim being engaged, she wondered, whether the investor should not be aware of this possibility when making the investment. Eventually, she considered that it was all a question of the specific circumstances of each case.

* The discussion is reported by Dr. Berta Boknik (IILCC, University of Cologne). 1 Art. 17, ECT: Non-Application of Part III in Certain Circumstances Each Contracting Party reserves the right to deny the advantages of this Part to: (1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized; or (2) an Investment, if the denying Contracting Party establishes that such Investment is an Investment of an Investor of a third state with or as to which the denying Contracting Party: (a) does not maintain a diplomatic relationship; or (b) adopts or maintains measures that: (i) prohibit transactions with Investors of that state; or (ii) would be violated or circumvented if the benefits of this Part were accorded to Investors of that state or to their Investments.

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Schreuer took a critical stance towards the provision. He doubted that it was a good construction and questioned whether there was even a good moment for its exercise. An early exercise would be fair to the investor, but unfair to the State as it was hard to oversee all investments at this early stage. In turn, a late exercise, while being feasible for the host State, would be unfair to the investor. He therefore advocated abandoning denial of benefits clauses and achieving the envisaged control through a more detailed definition of ‘investor’ in international investment agreements.

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Chapter 2: International Investment Law and General International Law

International Investment Law and General International Law: Comments on a Special Relationship Christian J. Tams*

1. Introduction It is a real pleasure for me to be joining this event, and to celebrate the 10th anniversary of a centre that occupies a special place in the German academic setting. My birthday offerings come in the form of brief remarks about a special legal relationship, namely that between international investment law and general international law, one that is multifaceted and complex. Permit me to lead us into complexity with an example that is inspired by recent arbitral practice and that has all the makings of an investment law exam question: A foreign investor involved in the mining industry of a Central Asian State complains of government interference and considers instituting treaty-based arbitral proceedings. It soon realises that its home State has not entered into a BIT with the Central Asian State. However, in 1989, it had concluded a BIT with the Soviet Union — from which the Central Asian Republic emerged in 1991/92. Could the investor rely on this old ‘Soviet’ BIT as a basis of its claims against the Central Asian State? The codified rules of investment law help fairly little in addressing this question. The answer is to be sought — and has been found1 — in the general regime governing State succession to treaties: a challenging field considered to be ‘one of the most disputed and least secure parts of interna-

* Prof. Dr. Christian J. Tams is Professor of International Law at the University of Glasgow and an academic member of Matrix Chambers in London. 1 See e.g. World Wide Minerals v Republic of Kazakhstan, UNCITRAL, Award, 19 October 2015. While the Award is confidential, relevant information is available in a press release [https://www.italaw.com/cases/2354, accessed 23 October 2020] and in Luke Eric Peterson, In a dramatic Holding, UNCITRAL tribunal finds that Kazakhstan is bound by terms of former USSR BIT with Canada, IAReporter, 28 January 2016, [https://www.iareporter.com/articles/in-a-dramatic-holding-uncitral-tribunal-findsthat-kazakhstan-is-bound-by-terms-of-former-ussr-bit-with-canada/, accessed 23 October 2020].

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tional law’,2 and situated at the heart (some might say, at the vanishing point) of general international law. Investment lawyers called upon to decide the mineral company's claim have no choice: they must leave the relative safety of their BITs and investment case-law, and engage with general international law. The examples could be multiplied, but I leave it at one, since the starting-point for my comment will have become clear. There is no way investment lawyers can avoid general international law; the two are interrelated. So what does this interrelation look like? In the following, I will step back from the individual examples to offer a broad brush account of the interrelationship between international investment law in its contemporary era shaped by investment treaties, and general international law. I will organise this broad brush account around three slogans, which may sound cryptic now, but whose meaning will become clear: ‘special, but embedded’; ‘normative guidance’ and ‘investment law as a motor?’.

2. ‘Special, but embedded’ Investment law is ‘special, but embedded’ in general international law — this is the first point, and it describes the big picture of the interrelation. This first slogan can be broken down into two propositions, each directed at one of the constituent groups involved in the relationship, which (with much simplification, but in the interest of getting my first point across) I refer to as ‘generalists’ and ‘investment lawyers’. First, for the generalists: International investment law is special. Of course it is, and there is nothing problematic about it. Like other special fields within general international law, investment law protects particular interests, addresses particular audiences, and emphasises particular modalities for resolving disputes. In fact, at first sight, one might be forgiven for feeling that it has ‘specialty’ written all over it: in prominent respects, investment law purposefully opts out of the general international law approach to establish a special regime — to illustrate: a) In international investment agreements, investment law enshrines a set of rights benefiting investors: these are not sealed off from general international law standards, which agreements occasionally reference explicitly, and which they are at times taken to refer to. However, in the 2 This at least was the view of the German Federal Constitutional Court: see BVerfGE 96, 68, p. 79 (translation by the author).

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absence of such renvoi, it is clear that investment treaty standards exist over and above standards granted under general international law. b) By offering investors the opportunity to bring arbitral proceedings against host States, investment law offers a special mechanism for resolving investment-related disputes: this is doubly-special in fact, in its focus on binding dispute resolution (exceptional under the general international law regime) and in its empowering of a privileged set of non-State actors. c) When looking beyond these major decisions and entering the more technical fields, we see a host of further peculiarities, reflected in the text of international investment agreements. Special rules on the temporal application of BITs (under so-called sunset clauses) are one example, special provisions defining of nationality for the purposes of investment treaty claims are another. None of this, to reiterate, is a problem: special regimes are, after all, meant to be special; and the framework of general international law is no straightjacket: unless core principles of peremptory law are concerned, general international law permits opting out — in fact benefits from the attendant diversity. Opting out, however, describes only part of the picture, and perhaps the less interesting part. For it is clear — and this is the second part of my first slogan, directed more at the investment law audience — that investment law remains embedded in a framework of general international law. Again, this is neither problematic nor unusual: as an embedded sub-system, investment law shares the fate of many other special regimes. None of them can operate outside the general framework, or in the words of the ILC, ‘no regime is self-contained’.3 For public international lawyers, the point may seem trite; but perhaps it is less so for an investment law audience, accustomed to prominent and powerful claims of exceptionalism — from Jan Paulsson's ‘radical difference’ to Zachary Douglas’ ‘hybrid foundations’.4 These may have had appeal historically, and they remain helpful to describe the particular blend 3 See Report of the Study Group of the ILC, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, 13 April 2006, UN Doc. A/CN.4/L.682, para 192. 4 See Jan Paulsson, Arbitration Without Privity, ICSID Review – Foreign Investment Law Journal, 10 (2), pp. 232, 256 (“dramatically different from anything previously known in the international sphere”); Zachary Douglas, The Hybrid Foundations of Investment Treaty Arbitration, The British Yearbook of International Law, 74 (1), p. 151.

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of commercial arbitration and inter-State rule-making that characterises contemporary investment law. Yet when we look at the substantive rules at stake, investment law in its current era does not appear that special. Christoph Schreuer has mentioned the main development that requires us to rethink claims of exceptionalism: it is the trend of treatification, i.e. the rise, over the course of the last three decades, of treaty-making and treatybased arbitration.5 Treatification has brought investment law in its BIT generation closer to general international law. Investment law remains unusual in many ways — e.g. in its reliance on bilateral treaties and on arbitration as an agency of rule-clarification — but otherwise it has a fairly standard ‘PIL feel’ to it: investment lawyers do what most international lawyers do. In the main, they try to make sense of treaties, and in that process seek guidance (capably or not) from the Vienna Convention’s principles of treaty interpretation. Just as lawyers active in many other fields of international law, they inquire whether a particular actor qualifies for protection under the standards set out in a treaty. In ascertaining whether host State conduct breaches a treaty, and in identifying consequences flowing from such a wrongful act, investment lawyers — like international lawyers of all specialisations — work with the general rules of State responsibility as reflected in the 2001 ILC Articles: they refer to them enthusiastically, though perhaps (as James Crawford notes drily) often ‘by way of signposting rather than actually integrating the substance of the [ILC] Articles into the decision’.6 But that, too, is no exception, and nor is the fact that ‘the universe of [investment] cases is, on the whole, of variable quality’:7 like human rights lawyers, or international criminal lawyers, investment lawyers occasionally struggle with the ILC’s work on State Responsibility. And of course, the particular features of their regime require different expertise: quantum is not a big issue in international humanitarian law (but it is in investment law), while due process demands shape the international criminal process in ways that investment lawyers need not begin to fathom. But fundamentally, investment lawyers — like international criminal lawyers, international human rights lawyers or WTO lawyers, to name but a few — participate in one of the general projects of international law: that of assessing how States can be held to account under rules agreed at the

5 See Chapter 1, Schreuer at pp. 35 et seqq. 6 James Crawford, Investment Arbitration and the ILC Articles on State Responsibility, ICSID Review – Foreign Investment Law Journal, 25 (1), pp. 127, 132. 7 Ibid.

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international level and enshrined in binding rules of international law. In that sense, investment law in its treatified era is embedded in general international law, and claims to exceptionalism should be viewed with caution.

3. Normative Guidance for Investment Law What follows from investment law's ‘special but embedded’ status? In the following, I want to highlight two aspects of the relationship. ‘Normative guidance’ is the first of these: as an embedded sub-discipline, investment law operates within a general legal framework which provides normative guidance, by filling ‘gaps in the special regime and provid[ing] interpretative direction for its operation’.8 Claims to normative guidance can clash with a special regime's intention to opt out of a general framework, and — reflecting the residual nature of much of general international law — they are strongest where they come in the form of gap-filling. In relation to investment law, this indeed is the most obvious way in which general international law matters: investment law is narrow in scope — a patchwork with rather large holes — so that general international law has to fill huge gaps. For the most part, this happens quite naturally: in my introductory example, when asked to assess the relevance of an old ‘Soviet’ BIT in proceedings against a former Soviet Republic, tribunals will, without much reflection, rely on the general rules governing State succession to treaties. A moment’s reflection is sufficient to realise how commonly investment lawyers have to apply rules of general international law, simply because the particular rules of investment law cover so little ground: of course they do set out rights of investors and regulate access to a particular form of dispute resolution. But quite apart from my example of State succession (which might be said to be a bit niche), they leave core matters unaddressed: a) For example, rules of investment law say little to nothing on the operation of treaties (including on questions of interpretation) — a gap that needs to be filled by applying the general law of treaties, as set out in the Vienna Convention.

8 Report of the Study Group of the ILC, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, 13 April 2006, UN Doc. A/CN.4/L.682, para 194(2)(a).

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b) They hardly address questions of attribution of conduct, and only rarely set out defences for mis-conduct — hence frequent references to Part One, chapter II (attribution) and chapter V (circumstances precluding wrongfulness) of the 2001 ILC Articles on State Responsibility. c) Conspicuously, while formulating standards of compensation for lawful takings, rules of investment law do not explicitly regulate the consequences of a host State's wrongful conduct — as a result, the entire regime of remedies has been developed in the case-law, drawing on a handful of very broad principles formulated in international jurisprudence (including the famous Chorzow Factory case) and consolidated in Part Two of the ILC‘s Articles. d) Finally, in the course of three decades of processing investment arbitration claims, investment lawyers have come across many gaps in their procedural frameworks: What are the conditions for the imposition of interim measures? When does a ‘dispute’ crystallise? Can proceedings be conducted in the absence of indispensable third parties? What is the relationship between jurisdiction and admissibility? In addressing these and other questions, investment tribunals have gladly drawn on the jurisprudence of other international courts and tribunals (notably the ICJ), as a reflection of a general regime of dispute resolution.9 These examples illustrate the significant extent to which investment law in its BIT era is shaped by the general legal framework within which it operates. It clearly does not exist in ‘clinical isolation’,10 but benefits from being embedded in a context of general rules, which provide normative guidance. Thankfully, this is now regularly noted: the exceptionalist claims of the early debate are giving way to a more sober assessment that adopts an ‘integrationist perspective’.11 Just as Molière‘s bourgeois gentilhomme took a while to appreciate that he had been speaking prose after all, so in-

9 See pars pro toto Perenco v Ecuador, ICSID Case No. ARB/08/6, Decision on Provisional Measures, 8 May 1999, paras 55–56; Chevron Corporation and Texaco Petroleum Corporation v The Republic of Ecuador, UNCITRAL, PCA Case No. 2009–23, Third Decision on Jurisdiction, 27 February 2012, paras 4.60 – 4.71 (indispensable third parties); ICS Inspection and Control Services Limited v The Republic of Argentina, PCA Case No. 2010–9, Award on Jurisdiction, 10 February 2012, paras 252–262 (distinction between jurisdiction and admissibility). 10 Cp. Report of the Appellate Body, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, Dispute Settlement Report, 1996 (1), pp. 3, 16. 11 See Freya Baetens (ed.), Investment Law within International Law: Integrationist Perspectives, 2013.

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vestment lawyers may eventually realise that they have been working with general international law all the time.

4. Investment Law as a Motor of General International Law? What does all this do to the general international law framework? Could the general framework be shaped by investment law, and by investment lawyers’ use of it? So far, this question has been avoided or at least not studied comprehensively. Occasional claims that investment treaty practice should affect general international law have usually been rebuffed: Stephen Schwebel‘s view that ‘customary international law governing the treatment of foreign investments has been reshaped to embody the principles of law found in two thousand concordant bilateral investment treaties’ is a case in point — and the cautious response it has received significant.12 In the Diallo case, the ICJ noted the recognition of shareholder claims under contemporary investment treaties (and contracts), but firmly dismissed claims that this practice could have spilled over into the general regime of diplomatic protection.13 Academic studies draw on investment law to advance broader claims about the increased relevance of non-State claimants in international law, but for the most part they do not suggest that the rest of international law should be re-written.14 The overall impression is that of a one-way street: investment law is shaped by general international law, but there is no movement in the opposite direction. It seems to me that this is an undue limitation, and that we should broaden the perspective. In certain areas of general international law, investment law — and investment jurisprudence in particular — could in my view have significant ripple effects. It has such potential for a simple reason, which I have hinted at already and which can be condensed into two words: ‘critical mass’. More than thirty years after the first investment

12 See Stephen Schwebel, Investor-State Disputes and the Development of International Law, Proceedings of the American Society of International Law, 98, p. 27. Contrast e.g. Patrick Dumberry, Are BITs Representing the “New” Customary International Law in International Investment Law?, Penn State International Law Review, 28 (4), p. 675. 13 Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo), International Court of Justice, Preliminary Objections: Judgment, 24 May 2007, paras 88–90. 14 See e.g. Tilmann Rudolf Braun, Ausprägungen der Globalisierung: Der Investor als partielles Subjekt im Internationalen Investitionsrecht, 2012.

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treaty award, there exists now a significant body of investment jurisprudence that works with rules of general international law. Dozens, if not hundreds, of investment awards engage with rules of State responsibility and the law of treaties; others seek to give effect to the regime of intertemporal law or (as in my introductory example) State succession. We now clearly have a critical mass of arbitral pronouncements that works with general international law and seeks to make sense of it. This is significant because in the development of international law, awards and judgments have generally played an important role: the discipline lacks authoritative law-interpreters, and interpretations set out in binding decisions have often had a formative influence: international jurisprudence, in Lauterpacht’s phrase, has been a significant ‘agency of legal development’.15 This influence, to be sure, is not to be taken for granted. International law operates without the corollaries that ensure the impact of judge-made law in many domestic legal systems: outside tiered regimes, there is no doctrine of precedent, and nothing approaching stare decisis, certainly not across jurisdictional regimes. Influence is mostly a matter of persuasion — but as practising investment lawyers (used to arguing by reference to caselaw) know all too well, ‘persuasive precedents’ can have significant argumentative power. In order to produce ripple effects in general international law, investment awards need to persuade: they need to be cited in support, and their reasoning needs to be found to be persuasive outside the investment field, and adopted. So far, this seems to have happened only rarely: if we look, for example, at general international law textbooks, as proxies of the general discourse, we see relatively few references to investment awards.16 It may well be that, despite their increasing prominence, investment awards remain below the general international law radar. It may be that investment tribunals get their general international law wrong, and thus fail to persuade. It may also be that widely-shared concerns about investment law‘s biases (real or perceived) limit the ‘appeal’ of investment awards, even where they address questions of general international law. Or it may be a combination of all these factors. Over time, though, I believe that general international lawyers would benefit from opening up (further) to investment jurisprudence. Not all so15 For much more on this (with respect to the ICJ) see the contributions in Christian J. Tams and James Sloan, The Development of International Law by the International Court of Justice, 2013. 16 See e.g. the tables of cases in Malcolm Shaw, International Law, 2017; Jan Klabbers, International Law, 2017.

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lutions adopted by investment tribunals will persuade, but in many fields, they could enrich the discourse. To illustrate the point, permit me to return to my introductory example — of mining in Central Asia and the relevance of an old ‘Soviet’ BIT.17 As noted above, to the extent that arbitral tribunals have engaged with the challenge of State succession, they have had to engage with general international law. While on certain questions, general international law may offer clear guidance, the general regime of State succession is highly controversial. The international community’s efforts to codify, clarify and develop the law have only been partially successful; and the core issue — are new States bound by pre-existing treaties? — remains disputed. Unsurprisingly, the law is applied cautiously, tentatively, reflecting the absence of clear normative guidance: in a process aptly described as ‘diplomatic bricolage’,18 dominated by inter-State negotiations and case-by-case analysis, in which the practical need for treaty continuity is balanced against concerns about strangling new States. All this reflects genuine uncertainty about the proper approach to State succession; but it also reflects decades of key actors ‘Avoiding Principled Answers to Questions of Principle’.19 Against this background, it seems to me that were investment awards seriously to engage with the law of succession, they could have a very positive influence on the general discourse. A handful of properly reasoned arbitral awards — clarifying the normative starting point, or specifying the conditions for succession based on conduct — would likely be warmly welcomed by the State succession community. Whether they agreed with the outcome or not, general international lawyers would certainly benefit from investment awards on the question: these could provide a fresh impetus to a debate that has been deadlocked for decades. State succession is no doubt a particular field, but the example chosen from it seems to me to illustrate the benefits that investment jurisprudence could bring to general international law. Investment lawyers engaging

17 The brief remarks in the following draw on Christian J. Tams, State Succession to Investment Treaties: Mapping the Issues, ICSID Review – Foreign Investment Law Journal, 31 (2), p. 314. 18 See Martti Koskenniemi, ‘Report of the Director of Studies of the English-Speaking Section of the Centre’, in Pierre Michel Eisemann and Martti Koskenniemi (eds.), State Succession: Codification Tested against the Facts, 2000, pp. 65, 132. 19 See Andreas Zimmermann, ‘The International Court of Justice and State Succession to Treaties: Avoiding Principled Answers to Questions of Principle’, in Christian J. Tams and James Sloan (eds.), The Development of International Law by the International Court of Justice, 2013, p. 53.

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with general international law are expected to be familiar with the discourse on treaty law, State responsibility, succession, etc. However, they are not limited to following existing approaches. Sometimes, the existing approaches may be unclear (as in the case of State succession). Sometimes, well-worn questions — say, of attribution of conduct — will arise in a particular manner. Sometimes, general international law may reflect an (as yet fragile) trend, which investment awards could confirm or undermine. In all these settings, investment jurisprudence could play a useful role and enrich the general legal discourse. It can, in one phrase, be a motor of general international law.

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International Investment Law and General International Law: Comment from Arbitrator’s Perspective Bruno Simma*

I concur with Christian J. Tams on most points. Substantive standards of protection like FET and FPS have to be given specific content in order to be applicable. Furthermore, the symbiotic relationship between substantive standards in international investment law and general international law is subject to ongoing academic discussions, which earlier legal scholarship illustrates.1 I believe that the more clearly the foundation of international investment law in public international law is accepted, the more legitimate ISDS will be seen by States at the receiving end, as well as by the general public. Looking at the law applicable in ISDS, we see that general international law is sometimes made applicable explicitly and even if that is not the case, like e.g. in Article 35(1) UNCITRAL Arbitration Rules, reference is often made to international law instruments such as the ILC Articles on the Responsibility of States for Internationally Wrongful Acts or the Vienna Convention on the Law of Treaties. At the same time, I would like to accentuate that the lex specialis nature of investment law should not lead to neglecting general international law concepts. The concept of necessity and its application in the series of investment arbitrations against Argentina can serve as an example in this regard. To use an analogy from the automotive industry, one can understand the relationship of international investment law and general international law as that of fuel and battery power in ‘mild-hybrid’ or ‘full hybrid’ vehicles.2 In this sense, the Argentinian cases can be qualified as being ‘full hybrid’, using only one of two possible sources of power. In my estimation * Prof. Dr. Bruno Simma is a Judge at the Iran-United States Claims Tribunal in The Hague. 1 See Campbell McLachlan, Investment Treaties and General International Law, International and Comparative Law Quarterly, 57 (2), pp. 361–401. 2 The term ‘mild-hybrid’ refers to vehicles which use batteries and an electricity generator to support regular combustion engine. The battery supports the engine’s performance while reducing fuel use. The term ‘full hybrid’ refers to vehicles with a stronger level of battery power making an all-electric propulsion possible.

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and considering the need for ‘symbiosis’ and ‘cross-fertilization’ discussed by McLachlan,3 choosing a ‘mild-hybrid’ approach is preferable. Opting for a ‘full hybrid’ method will not take the development of investment law very far. Let me turn to challenges concerning the interpretation of Article 1105 NAFTA (the ‘old’ NAFTA)4 as an illustration of how complicated the interplay of the lex generalis of general international law and the lex specialis of investment law can become. Article 1105 stated in its first paragraph that each Party shall accord to investments of nationals of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security. The treaty also foresaw a special institution, the Free Trade Commission (FTC), composed of representatives of the three member States. Following a number of cases decided against these States, the Commission adopted a Note of Interpretation stating that Article 1105 was to be read as prescribing the customary international law minimum standard of treatment of aliens as the standard of treatment to be afforded to NAFTA investors.5 Now, how are arbitral tribunals to deal with such an authoritative, if not authentic, interpretation in their own process of interpretation, particularly in light of their duty stemming from Article 31 (3) lit. c of the Vienna Convention on the Law of Treaties, to take any relevant rules of international law applicable in the relations between the parties into account? To my understanding, the ‘old’ NAFTA had to be characterized as lex specialis to Article 31 (3) lit. c VCLT also in that regard – with the result that interpretations by the FTC like the above were to be understood as the last word in the matter. Hence NAFTA tribunals were legally bound to give the standard provided for in Article 1105 the content given to it by the FTC. And according to the intention of the three Commission member States, this content was still determined by a leading case from the 1920s prescribing an extremely demanding benchmark for a certain treatment to turn into a violation of customary law. This left NAFTA tribunals with a crucial question: To what extent is cus-

3 Campbell McLachlan, Investment Treaties and General International Law, International and Comparative Law Quarterly, 57 (2), pp. 361, 395, 401. 4 North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico. The NAFTA entered into force on 1 January 1994 and was replaced by the United States-Mexico-Canada Agreement (USMCA) on July 1 2020. 5 Cp. the trend in FET-clauses of post-2010 IIAs to limit the accorded treatment to the customary international law minimum standard of treatment referred to in Chapter 1, Annacker at p. 53.

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tomary law like the customary international law minimum standard of treatment of aliens accessible to continuing development and, consequently, what exact content had to be accorded to the present standard of protection prescribed in Article 1105 NAFTA? As we just saw, the parties to the treaty initially intended the level of treatment to be accorded to investments to remain frozen for many decades. However, at a certain point that could not be the case anymore with the FET standard in NAFTA, the arbitral jurisprudence on which had developed substantially more favourably to investors. Question: What is now the content of customary international law on the matter? Is it now the case that States have lost their monopoly for making international law? If States were convinced that the development of investment law by arbitral tribunals was out of bounds, they would have means to remedy this situation. The development of such means is one of the topics at the heart of the current discussion on the future of investment arbitration.

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Discussion moderated by Patricia Nacimiento*

The chair of the panel, Nacimiento, raised the question what a world without BIT would look like. Tams explained that a distinction had to be drawn between two levels in this scenario. First, he pointed to the multilevel system of substantive standards of protection, which is comprised of general international law, contracts, and regional as well as national rules. According to him, the decline of BITs would not have a big impact at this substantive level as it would only concern one of the layers of this system. However, the procedural level required a different assessment: Without BITs, access to international arbitration would be much reduced which, in turn, would significantly raise the pressure to open contract arbitration and use domestic judicial channels. To Tams, a world without BITs would see pressure to revive investment contracts as instruments of dispute resolution. Simma looked at the question from a different angle. He suggested that diplomatic protection would play an important role when no BITs were available. He then turned to the history of NAFTA-arbitration and recounted how Canada had initially been irritated by the relevant proceedings. He recalled that the State had at that point threatened to terminate all BITs and MITs and return to diplomatic protection. Taking a step forward in time, he drew attention to the fact that, contrary to what it had announced, Canada had eventually not only not terminated all BITs and MITs, but, somewhat inversely, Canadian investors had discovered the appeal of international treaty arbitration. In order to defend IIAs in general, he observed that nowadays their ISDS clauses were no longer a legal oneway street which provides protection for investors from the global north against States from the global south. Hobe intervened with a question on the standards of attribution. He argued that the relevant rules in general international law were not clear and therefore wondered, whether international investment law had to elaborate its own rules in this realm. Tams acknowledged the importance of

* Dr. Patricia Nacimiento is a partner at Herbert Smith Freehills in Germany. The discussion is reported by Dr. Berta Boknik (IILCC, University of Cologne).

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standards of attribution and agreed that international investment arbitration could significantly clarify the applicable rules. He agreed that the respective rules in general international law were unclear, although the acquis had been consolidated by the ILC.1 According to Tams, however, the task of investment tribunals was not to formulate investment-specific rules, but to start from the general framework and try elaborate and clarify its content. In this regard, he found the case UPS v Canada2 to be very telling and instructive. The same held true, according to Simma, for the unpublished decision of a tribunal in which the acts of a body of professors in Halifax were judged to be attributable to the State. After bringing the IranUS Claims tribunal into the discussion, he concurred with the previous speakers that attribution was a topic where investment arbitration could play a role. In the end, Schreuer referred to the earlier topic and recalled that diplomatic protection had often led to armed conflicts in the past, evoking the concept of the so-called gunboat diplomacy. He felt that in current debates on a possible return to diplomatic protection, past experiences like the Suez conflict and the Cuba crisis were mostly forgotten. Turning back to the initial question of the discussion round, he suggested that a world without investment arbitration would simply be a lot more dangerous.

1 ILC, Draft Articles on Responsibility of States for Internationally Wrongful Acts, Chapter II, Yearbooks of the International Law Commission, 2001, Vol. II, Part II, pp. 38–54. 2 United Parcel Service of America Inc. v Government of Canada, ICSID Case No. UNCT/02/1.

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Chapter 3: Drafting of Investor-State Contracts

Pitfalls to Avoid in the Drafting of Investor-State Contracts Anke Sessler*

In this paper, I will talk about Investor-State Contracts. In particular, I will address a series of clauses that are typically found in such contracts and to which special attention must be paid at the drafting stage. My presentation is structured in five parts. After providing a short overview on investment protection instruments (1.), I will provide an introduction on Investor-State Contracts (2.). Then, after saying a few words on contract drafting in general (3.), I will come to the main part of my presentation: the drafting of Investor-State Contracts (4.). Finally, my presentation concludes with a short outlook into the future (5.).

1. Investment Protection Instruments First of all, when talking about investment protection, it is important to note that an Investor-State Contract is only one of several investment protection instruments.1 Investors are well-advised to combine these different instruments to ensure that their investment is protected comprehensively.

a) Treaty Protection Next to Investor-State Contracts, probably the most important investment protection instruments are investment treaties, i.e., agreements between States regarding the treatment of investments made by individuals or companies from one State in the territory of the other State. Investments can often be structured in a way that ensures that the investment is not only * Dr. Anke Sessler is a partner at Skadden, Arps, Slate, Meagher & Flom LLP in Frankfurt. The views and opinions expressed in this paper are those of the author. The paper is based on the author’s presentation on drafting Investor-State Contracts held during the IILCC Anniversary Conference on 16 May 2019. The presentation style has been maintained. Footnotes have been included where appropriate. 1 Even though this presentation focuses on the investor’s perspective, it contains various remarks that apply to Investor-State Contract drafting in general.

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protected by the Investor-State Contract, but also by an existing investment treaty, for example a bilateral investment treaty (BIT).2 This type of structuring is sometimes referred to as ‘nationality planning’, which means that the investor arranges the investment in such a way that it falls under the protection of an existing investment treaty. Investors wanting to make use of investment treaty protection should make sure that their investment is covered by the investment treaty from the outset. Arbitral tribunals have repeatedly ruled that the restructuring of an investment to gain the protection of an investment treaty at a point in time when a dispute is already foreseeable may be abusive and, therefore, the investment may be denied the protection of the investment treaty.3 When considering treaty protection, investors may also want to check whether they can make use of so-called umbrella clauses. These clauses, which can be found in many, but not all investment treaties, elevate a contract claim to the level of a treaty claim, so that a violation of an InvestorState Contract is deemed a violation of the investment treaty.4

2 Investment treaties typically grant the investor certain rights, such as fair and equitable treatment and protection from expropriation, including the possibility to have recourse to international arbitration if the investor’s rights (allegedly) have been violated. 3 See Philipp Morris Asia Ltd. v The Commonwealth of Australia, PCA Case No. 2012– 12, Award on Jurisdiction and Admissibility, 17 December 2015, para 585: “[T]he Tribunal concludes that the commencement of treaty-based investor-State arbitration constitutes an abuse of right (or abuse of process) when an investor has changed its corporate structure to gain the protection of an investment treaty at a point in time where a dispute was foreseeable.” See also Renée Rose Levy and Gremcitel S.A. v Republic of Peru, ICSID Case No. ARB/11/17, Award, 9 January 2015, para 185; Lao Holdings N.V. v Lao People’s Democratic Republic, ICSID Case No. ARB(AF)/12/6, Decision on Jurisdiction, 21 February 2014, para 70; Tidewater Inc., Tidewater Investment SRL, Tidewater Caribe, C.A., et al. v The Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Jurisdiction, 8 February 2013, paras 142 et seqq.; Pac Rim Cayman LLC v Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on the Respondent’s Jurisdictional Objections, 1 June 2012, paras 2.96 et seqq.; Mobil Corporation, Venezuela Holdings, B.V., et al. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction, 10 June 2010, para 205. 4 Umbrella clauses emerged in the 1950s to provide an investor with additional protection next to the dispute settlement mechanism contained in its contract with the State. Umbrella clauses can be found, for example, in Art. 7(2) of the 2008 German Model Treaty, which reads: “Each Contracting State shall fulfil any other obligations it may have entered into with regard to investments in its territory by investors of the other Contracting State.” Umbrella clauses can also be found in Art. 10(1) sentence 5 of the ECT (14 July 2014), albeit the latter clause contains an

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b) Further Investment Protection Measures Next to investment treaty protection, investors may want to make use of any of the following measures to protect their investment:5 • Since Investor-State Contracts are often relevant for the political relationship between the investor’s home State and the host State, the home States may be willing to grant political and/or diplomatic support during the negotiation and execution of the Investor-State Contract. • Likewise, home States6 and/or international organizations7 may offer political risk insurance or provide investment guarantees. • Also, financial safeguarding instruments are of high practical importance. They include (but are not limited to) bank guarantees and documentary letters of credit.8 In any case, the investor has to consider whether the measures it wants to rely on require a contractual stipulation or if there are any other prerequisites to which the investor must adhere. For example, investment guarantees may only be provided if the investment meets certain criteria, such as that the investment project will create jobs with high social standards or will implement modern, environmental-friendly technology.

5 6

7

8

opt-out mechanism, see Artt. 26(3)(c), 27(2), and Annex IA of the ECT. For a discussion on umbrella clauses see Chapter 1, Schreuer at p. 39 and Annacker at pp. 51 et seq. This list is not meant to be exhaustive. For example, the Federal Republic of Germany offers investment guarantees which serve to protect German investors and companies from the unpredictable occurrence of a political crisis in host countries. For further information see https:// www.investitionsgarantien.de/en [accessed 23 October 2020]. For example, the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, promotes cross-border investments in developing countries by providing guarantees such as political risk insurance and credit enhancement to investors and lenders. For further information see https://www.miga.org [accessed 23 October 2020]. Most letters of credit are subject to the Uniform Customs and Practice for Documentary Credits (UCP), a set of rules issued by the International Chamber of Commerce (ICC) to standardise the handling of letters of credit. They were first promulgated in 1933, the latest version, the so-called UCP 600, came into effect on 1 July 2007.

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c) Changing Landscape As my final note on investment protection instruments, I would like to point out that the current investment protection system is undergoing substantial changes. Sparked by criticism from various players, including both governments and non-governmental organisations, several reform processes have been initiated or are likely to be initiated, ranging from the (intended) renegotiation or termination of BITs9 to the establishment of a Multilateral Investment Court10. While I cannot go into these aspects in more detail due to time constraints, I want to emphasise that the changes in the current investment protection system may not only affect future, but also ongoing investment projects. Thus, investors need to be informed about any current developments to be able to properly react to them if the need arises.

2. Investor-State Contracts After this preface, I will now turn to the investment protection instrument that is the topic of my session: Investor-State Contracts. Investor-State Contracts are (private law) agreements between a foreign investor and a host State (or an organ or entity of the host State) regarding an investment in the territory of the host State. The agreement stipulates the respective rights and obligations of the parties, for example: The investor undertakes to realise a certain project defined in the contract, e.g., the construction of a new airport or a power plant, for which the investor will be compensated.

9 See Declaration of the Representatives of the Governments of the Member States on the Legal Consequences of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union, 15 January 2019, [https://ec.europa.eu/info/ sites/info/files/business_economy_euro/banking_and_finance/documents/190117bilateral-investment-treaties_en.pdf, accessed 23 October 2020]. 10 For example, both the EU-Canada Comprehensive Economic Trade Agreement (CETA) and the EU-Vietnam Free Trade Agreement envisage the establishment of a Multilateral Investment Court. For more information see http:// trade.ec.europa.eu/doclib/press/index.cfm?id=1608 [accessed 23 October 2020].

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a) Types There are different types or formats for Investor-State Contracts that cannot always be clearly distinguished from each other. The most common ones are: • Service contracts for the provision of certain services by the investor. Such contracts are often concluded in the high-technology sector. A recent example is the ‘Integrated Qatar Railways Project’. With a volume of USD 38 billion,11 this railway project is one of the biggest infrastructure projects in the world. It was initially set-up as a joint-venture, but has been modified so that the investor now works under a service contract (rather than as a joint venture partner).12 • Joint venture contracts for the establishment of a joint venture with a local, often State-owned company, such as the joint exploration of natural resources. For example, Sakhalin Energy Investment Company Ltd. is a joint venture between Gazprom, a corporation predominantly owned by the Russian Federation, Royal Dutch Shell plc, and others created to develop the oil and gas fields off the north-eastern coast of Sakhalin. The joint venture operates under the first Production Sharing Agreement signed by the Russian Federation.13 Such joint venture contracts may include provisions on the transfer of technical expertise to the local partner to ensure the host State gains sustainable benefits from the project. • Turnkey contracts, e.g., for the development and construction of infrastructure projects, such as power plants, airports or national motorways.14 • Build-operate transfer contracts (and comparable formats) where the investor not only builds the project, but also operates it for a pre-defined period of time in order to realise a profit before the investor transfers the project to the State. Build-operate transfer contracts are attractive for mega-projects that can hardly be financed otherwise. The best known (but by far not the only) project realised through such a con11 Philipp Stompfe, Die Gestaltung und Sicherung internationaler Investor-Staat-Verträge in der arabischen Welt am Beispiel Libyens und Katars, 2017, p. 201. 12 Pp. 206 et seqq., ibid. 13 For further information see http://www.sakhalinenergy.ru/en/company/overview/ [accessed 23 October 2020]. 14 Turnkey contracts are agreements under which a builder is responsible for the design and construction of a project and completes the facility in a way that it is ready for use when delivered to the other contracting party.

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tract is the Channel Tunnel under the Strait of Dover linking Great Britain to continental Europe.15 • Concession contracts, for example for the exploitation of natural resources or the operation of a railway line. Such contracts have been predominant in the past, but are no longer the most-used form of InvestorState Contracts.

b) Challenges Irrespective of the type of contract, there are various specific challenges drafters of Investor-State Contracts face.

(1) State as Legislator and Party to the Contract First and foremost, in comparison to contracts between private entities, a peculiarity of Investor-State Contracts is the State’s dual role as both the legislator and a party to the contract (or at least as an ‘indirect party’ if the contract is concluded with a State entity rather than the State itself). On the one hand, as a party to the contract, the State is bound to perform its contractual obligations. On the other hand, the State, in its function as legislator, wants to maintain its sovereign right to regulate, i.e., it may want to amend the law applicable to the investment project, for example due to ‘lessons learned’ from the very project itself or due to public policy considerations. For example, the State may want to intensify environmental laws or increase taxes. Unsurprisingly, such law amendments usually are to the detriment of the investor. In short, the parties’ diverging interests make conflicts likely to occur and, therefore, require early attention in the drafting process.

15 The Channel Fixed Link Concession Agreement, 14 March 1986, [http://www.channeltunneligc.co.uk/php?action=acceder_document&arg=94&cle=eb523418f351e57679238f0cf5452e8d&file=pdf%2FConcession_Agreement.pdf, accessed 23 October 2020].

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(2) Complexity Second, Investor-State Contracts are often very complex and, for this reason alone, difficult to draft. Think about the construction of large-scale projects, such as an airport, a dam or a power-transmission line: • Often, a complex feasibility study must be conducted. • The technical specifications of the project need to be agreed, which typically requires specific expertise in various fields. • Usually, several third parties must be involved, such as sub-contractors, suppliers, etc. • Also, local communities may be affected by the investment project and, therefore, need to be involved in the planning and execution of the project. One catchword that has emerged in this regard is ‘social licensing’, which means the need to ensure the ongoing acceptance of an investment project by the local communities.16 • Often, different fields of law must be taken into account, such as contract law, tax law, construction law, environmental law, public safety provisions, etc.

(3) Long Duration Third, the long duration of Investor-State Contracts – often more than five or even ten years, sometimes spanning decades – poses additional challenges. To only name a few: • The political landscape may change. For example, a new government may not be ready to back the project and/or may want to modify the Investor-State Contract.

16 See Bear Creek Mining Corporation v Republic of Peru, ICSID Case No. ARB/14/21, Partial Dissenting Opinion of Professor Philippe Sands QC, 12 September 2017, para 6: “[T]he Project collapsed because of the investor’s inability to obtain a ‘social license’, the necessary understanding between the Project’s proponents and those living in the communities most likely to be affected by it, whether directly or indirectly. It is blindingly obvious that the viability and success of a project such as this […] was necessarily dependent on local support. […] If nothing else, the absence of transparency at that early stage of the Project can only have contributed to an undermining of the conditions necessary to build trust over the longer term. The discontent that followed, expressed by many members of the affected local communities, was foreseeable.”

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• Wars, civil wars or acts of terrorism may endanger the realisation of the investment project. • The economic conditions may change significantly over the years. For example, there may be currency crises, economic recessions or material fluctuations in raw material prices, which may significantly impact the economic viability of the investment project. • Also, new technical developments may affect the investment project. For example, renewable energies may render classic power plants obsolete.

(4) Other Challenges Finally, there may be other project-specific challenges. For example, the project may be located in an earthquake-prone region or it may be endangered by other natural disasters, such as tsunamis or hurricanes. All of these challenges must be carefully analysed and taken into account when Investor-State Contracts are drafted.

3. Guidelines on Contract Drafting Before I come to the main part of my presentation, the drafting of Investor-State Contracts, I want to point out that, of course, any general guidelines and/or checklists on how to draft contracts also apply to Investor-State Contracts. These guidelines include, but are not limited to, the exact designation of the parties, the usage of precise and consistent definitions, the avoidance of contradictions throughout the contract and any annexes, the precise and comprehensive stipulation of both the parties’ rights and obligations and any legal remedies, and the attention to the applicable law or laws. I assume the guidelines just mentioned are no surprise to you, they merely represent a set of basic rules that should always be taken into account. However, my experience has taught me that even in high-stake projects, these guidelines are not always followed. More than once, I have seen agreements that lack precise definitions or contain unclear, imprecise or even contradictory provisions, in particular with respect to dispute resolution clauses. Certainly, not every imprecise term or missing stipulation is the result of careless or imprudent contract drafting. Some stipulations may simply

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result from the parties not being able to reach an agreement, which may lead to the parties deliberately using vague formulations or leaving open specific issues. Other issues may not have been foreseeable at the time of contract drafting, at least not in the specific form in which they later occurred. However, various dispute-triggering stipulations that I stumbled upon in my career appear to have been caused by imprudent contract drafting. Therefore, I strongly recommend diligent quality checks before contracts are signed to root out easily avoidable inaccuracies.

4. Investor-State Contract Drafting I now come to the main part of my presentation: the drafting of InvestorState Contracts. Considering the complexity of these contracts, I will confine myself to address a selection of common Investor-State Contract clauses that have been invented to deal with the challenges investment projects typically face.17

a) Choice of Law Clauses I will start with choice of law clauses. Obviously, choice of law clauses should be included in any contract with an international reach to avoid disputes as to which law applies to the contract. With respect to Investor-State Contracts, as pointed out, one of the key risks from the perspective of the investor is that a host State may amend its own law to the detriment of the investor after the conclusion of the Investor-State Contract. In the past, investors have often tried to tackle this problem with choice of law clauses. In the following, I will provide two approaches how this can be done, but will also point out that both approaches have serious downsides. First, the investor may suggest that the law applicable to the InvestorState Contract shall be the law of a third country unaffected by the Investor-State Contract, such as the law of a country with sound international reach and reputation. However, experience shows that host States have

17 See above at 2. b).

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become more and more unwilling to agree to the application of the law of another State,18 as this stands in conflict with their national sovereignty. Second, taking the State’s national sovereignty concerns into account, the investor might suggest that non-national rules shall govern the contract (either solely or in addition to the host State law), such as the lex mercatoria, general legal principles or public international law. And indeed, such choice of law clauses can be found in older Investor-State Contracts.19 But they are no longer a common feature nowadays. This is mainly due to the obstacles and difficulties related to such clauses: • Investor-State Contracts are anything but standardised. Thus, it is not advisable to apply uniform rules such as the lex mercatoria to such contracts. Likewise, general legal principles are not very specific and therefore inadequate to govern complex contracts, such as Investor-State Contracts. • Public international law is hardly adequate to govern Investor-State Contracts because it is generally designed to govern the legal relations between two or more States, not between States and private parties. Therefore, while it is already questionable whether such law can be validly agreed upon at all,20 public international law, in any event, lacks the norms that can reasonably govern Investor-State Contracts.21 • Also, a complete derogation of the host State law is hardly possible – overriding mandatory provisions and mandatory conflict of law provisions will continue to apply. Since there is, as a consequence, hardly a way to avoid the host State law completely, it is advisable for an investor to tackle the problem of detrimental law amendments by other means than choice of law clauses.

b) Stabilisation Clauses Commonly used means to protect the investor’s legal position against detrimental law amendments are stabilisation clauses. In short, these claus18 Morris Besch, ‘Typical Questions Arising within Negotiations’ in Marc Bungenberg et al. (eds.), International Investment Law, 2015, Chapter 3 II., paras 25 et seqq. 19 Paras 9 et seqq., ibid. 20 Paras 15 et seqq. with further references, ibid. 21 Cp. the evolution from an emphasis on domestic law towards international law as the applicable law in treaty-based investment arbitration referred to in Chapter 1, Schreuer at pp. 40 et seqq.

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es provide that the Investor-State Contract shall be unaffected by amendments to the host State’s law.

(1) Stabilisation Techniques To achieve this goal, different kinds of stabilisation techniques have been invented: • Freezing clauses are meant to ensure that only the law applicable at a certain point in time governs the Investor-State Contract (usually the date when the contract is concluded or when it comes into effect).22 • Non-application and non-intervention clauses are similar to freezing clauses; they aim to prevent certain amendments of the host State law from being applied to the Investor-State Contract. • Modern Investor-State Contracts often contain economic equilibrium clauses. These clauses secure the host State’s right to regulate with regard to the investment project, but require the State to either renegotiate the contract if there are substantial legislative changes, or to compensate the investor for losses suffered as a result of such changes. Of course, different kinds of stabilisation clauses may be combined and/or limited in scope or temporal application. The specific peculiarities of the investment project and the negotiating power of the parties play a huge role in this regard.

(2) Legal Remedies In addition to agreeing on a stabilisation clause, it is advisable to precisely stipulate the legal remedies of such clause. If the parties fail to agree on this point, the legal remedies are those that the law applicable to the Investor-State Contract provides. These remedies may be detrimental to the investor and may frustrate its expectations when entering into the contract, i.e., investors should stipulate the remedies in the contract.

22 See e.g. Art. 30.5 of the Pakistani Model Petroleum Concession Agreement for Onshore Area, 2013, [http://www.ppepdr.net/pdf/Model_Petroleum_Concession_Agreement.pdf, accessed 23 October 2020]: “All the rules, laws, regulations in effect on the Effective Date […] shall apply to this Agreement, throughout its term, whether or not subsequently amended or revised.”

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Typical remedies of economic equilibrium clauses include either renegotiation or financial compensation. Economic equilibrium clauses may also stipulate different steps. For example, the clause might stipulate that the parties shall attempt to renegotiate and, if such renegotiation fails after a certain amount of time, the investor shall receive financial compensation. If one of the remedies is compensation for non-performance, it is advisable to further stipulate if there are certain limits to such compensation, if lost profits shall be included, and how the compensation shall be calculated.23 Probably the most common remedy in the event of a breach of freezing clauses and non-application/non-intervention clauses is compensation for non-performance. To the extent contractual penalties are admissible by the applicable law, parties may also agree on such penalties. If they do, the scope of such penalties should be agreed upon as well, and it needs to be made clear if the penalties may be claimed instead of or on top of any financial compensation. Some stabilisation clauses also provide for the reinstatement of the law which existed prior to the breach. However, since there can be a lot of practical difficulties by enforcing such remedy, I do not consider such remedy to be a fail-safe alternative.

(3) Pitfalls to Avoid aa) Define Scope Precisely To avoid pitfalls when drafting stabilisation clauses, parties should always define the scope of the clause precisely: Shall the stabilisation clause apply comprehensively or shall it only apply to certain areas of law or certain parts of the contract?

23 An example for such a clause can be found in Andrea Shemberg, Stabilization Clauses and Human Rights, 11 March 2018, [http://documents.worldbank.org/ curated/en/502401468157193496/pdf/452340WP0Box331ation1Paper01PUBLIC1.pdf, accessed 23 October 2020], para 29: “In the event of the occurrence of a Change in Law […] that requires a material modification [of the investment project], or in lieu thereof or in addition thereto, an increase or decrease in operating costs […], the Company will be entitled to receive Recovery Allowance payments […] to recover fully the costs of complying with the Change in Law […]. The amount of any Recovery Allowance shall be determined pursuant to Article […].”

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bb) Prevent the Host State from Circumventing the Clause In addition, if the stabilisation clause is limited, it is advisable to prevent the host State from circumventing the stabilisation clause. What do I mean by this? Host States may amend provisions in fields of law not included in the stabilisation clause that indirectly affect stabilised areas, rendering the stabilisation clause factually ineffective. For example, if only property law is stabilised, but tax law is not, the State might amend the tax law for foreign investors so excessively that the investor’s property rights are economically worthless. To prevent this, the investor might want to insist on including the areas of law that are linked to the stabilised area or by insisting on stipulating that amendments in non-stabilised areas that affect stabilised areas are also covered by the stabilisation clause. cc) Stabilise the Stabilisation Clause Similarly, the stabilisation clause should be stabilised itself, i.e., the host State should be prevented from declaring the inadmissibility of stabilisation clauses and from cancelling or restricting the principle of party autonomy.24 These measures serve to ensure that the host State is in fact bound to the stabilisation clause. dd) Involve the Host State Finally, it is advisable to involve the host State (not only a State-owned entity) in the Investor-State Contract. If an investor only contracts with a State-owned entity, not with the host State itself, the host State is not a party to the contract. Thus, the host State will not be bound to a stabilisation clause that protects the investor from unfavourable law amendments. Therefore, the investor should try to

24 Erich Schanze, Investitionsverträge im internationalen Wirtschaftsrecht, 1986, p. 207, provides an example for such a clause that is contained in the Concession Agreement of 16 December 1974 between Bong Mining Company Inc. and Liberia: “The Arbitral Tribunal shall apply the law of the Republic of Liberia (including its rules on the conflict of law and its treaties and other rules of international law as may be applicable), excluding, however, any enactment passed or brought into force in the Republic of Liberia before or after the date of this Concession Agreement which is inconsistent with or contrary to the express terms hereof […].”

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get the host State ‘on board’. The safest way to do this is by insisting that the host State itself becomes a contracting party to the Investor-State Contract (in addition to any State-owned entity, if any). Depending on the contractual arrangement, getting the host State on board may also entail further advantages for the investor. For example, the host State may be an additional debtor. And – in contrast to many Stateowned entities – such debtor usually has ‘deep pockets’ and probably also seizable assets in foreign countries. If the host State is unwilling to become a party to the contract, investors may at least want to negotiate a clause which stipulates that the Stateowned company shall be liable for the financial loss the investor incurs as a result of any unfavourable host State law amendment. In its effects, such a clause is similar to an economic equilibrium clause.

c) Dynamic and Flexible Clauses Another type of clauses that should be included in Investor-State Contracts are so-called dynamic and flexible clauses. These clauses take into account that a long-term investment project is not only subject to changes to its regulatory environment, but also to unforeseen events outside of the control of both parties. Classic examples range from natural disasters to dramatic price increases for raw materials to new technical inventions that affect the project. Dynamic and flexible clauses allow the party affected by the event to renegotiate the contract in order to re-establish the original contractual balance. Dynamic and flexible clauses may take many forms. The most common ones are renegotiation clauses, force majeure clauses, and automatic adjustment clauses (which are also called variation clauses). When drafting renegotiation clauses, parties should pay attention to the following: First, the clause needs to be sufficiently clear, i.e., it must define certain parameters so that one can determine whether an event that triggers the clause has occurred or not. Second, the parties should agree on the scope of renegotiation if the clause is triggered. In particular, the parties may want to address the question whether the affected party may insist on renegotiating the whole contract or whether the renegotiation is limited to certain areas, such as those affected by the event. Third, the objective of the renegotiation should be determined: In order to allow the parties to conduct the renegotiation in a structured way, it 92

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must be clear what the renegotiation is supposed to achieve (and what not). For example, there are clauses which stipulate that the objective is to remove the unfairness, adopt an equitable revision or restore the original contractual equilibrium.25 Fourth, the parties’ obligations should be laid out precisely. For example, the clause should determine whether the parties only have to conduct good faith negotiations26 or whether there shall be an obligation to agree on a revision of the contract. For good reasons, such an obligation to agree is rarely agreed upon in practice. It runs contrary to the concept of negotiation as an open-ended process. Also, an obligation to agree may be difficult to enforce in certain jurisdictions as it limits the freedom to contract. If the parties cannot reach an agreement after renegotiation, a possible solution might be to vest a neutral third party (e.g., an arbitral tribunal) with the power to amend the contract. And indeed, such clauses exist in practice. However, they should not be agreed without due caution: An Investor-State Contract is usually the result of prolonged negotiations that have balanced the risks and gains of the parties. In such a situation, parties may not want to vest any third party, no matter how prudent, with the farreaching power to amend the contract. If the parties nevertheless want to agree on such a mechanism, they should specifically state so in the contract, and also stipulate reasonable benchmarks for the neutral authority’s decision. Whether an ordinary arbitration clause provides an arbitral tribunal with the jurisdiction to amend the contract if renegotiations fail is difficult to answer. In general, the arbitral tribunal’s function is to decide a legal dispute rather than to provide a self-invented solution if the parties’ renegotiations have failed. Thus, arbitral tribunals may only amend contracts if the parties’ agreement so provides or, to the extent there is no explicit

25 These examples are taken from Morris Besch, ‘Typical Questions Arising within Negotiations’ in Marc Bungenberg et al. (eds.), International Investment Law, 2015, Chapter 3 II., para 137. 26 A clause providing for good faith discussions is suggested by the IISD Guide to Negotiating Investment Contracts for Farmland and Water, November 2014, [https://www.iisd.org/sites/default/files/publications/iisd-guide-negotiating-investment-contracts-farmland-water_1.pdf, accessed 23 October 2020], Part 2: Model Contract, Section 13: “This Agreement shall, upon written request of a Party, be subject to periodic review once every five (5) years after the effective date for the purpose of good faith discussions to consider any proposed modification(s) to this Agreement as may be necessary or desirable in the light of any substantial changes in circumstances that may have occurred during the previous five (5) years, or experience gained in that period.”

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agreement, if the applicable arbitration law so allows. Most arbitration laws do not explicitly state if and under which conditions an arbitral tribunal may amend contracts, i.e., parties will likely have to consult any existing case law (if any) to find an answer to this question.

d) Dispute Resolution Clauses Finally, I want to talk about dispute resolution clauses. I assume it is needless to say that investors are well-advised to insist on a neutral forum outside the host State to resolve disputes. But that is not everything. There are a couple of further issues to think of. (1) Consider ADR First, arbitration is likely the most common dispute resolution mechanism for investor-State disputes, but it is by far not the only one. In fact, it may be useful to agree to arbitration only as ultima ratio. Alternative dispute resolution (ADR) mechanisms are an option worth thinking about. In particular, (standing) project-related Dispute Adjudication Boards may turn out to be very useful for disputes relating to large-scale projects where a lot of technical questions arise. This is because Dispute Adjudication Boards can quickly decide such questions and thereby efficiently prevent delays. In this way, Dispute Adjudication Boards also help to ensure that the investor-State relationship is not negatively affected by tedious discussions that can cause a lot of damage to the originally cooperative atmosphere between the parties. (2) Notification Issues Second, one of my recent cases has shown that it is also advisable to contractually stipulate the parties’ addresses for the notification of documents, such as any Request for Arbitration, including an obligation that any change of address shall be notified. This applies at least if the agreed arbitration rules do not provide a mechanism for notification issues. Also, a fiction of notification, such as a stipulation that a notice is deemed to have been received if it is sent to the addressee’s last-known place of business,

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may be useful. In the case I have just mentioned, notification became a serious issue because of war turmoil. (3) Interplay between the Dispute Resolution Mechanisms in the InvestorState Contract and any Investment Treaty (if any) Third, when drafting the Investor-State Contract’s dispute resolution clause, the investor may want to consider any corresponding dispute resolution mechanisms in the applicable investment treaty (if any). As I have outlined above,27 investors often structure investments in such a way that the investment is not only protected by the Investor-State Contract, but also by an investment treaty (for example a BIT). Such a treaty will usually provide for a dispute resolution mechanism for any treaty claims the investor alleges to have, and may possibly include an umbrella clause, with the consequence that contractual claims may also be resolved by the very same mechanism provided for by the treaty. Deciding both treaty claims and contractual claims in one proceeding obviously spares the parties the burden, time, and costs of having to conduct two proceedings. Also, there is no danger of diverging decisions, because all claims will be decided by the same authority. However, the investor may also want to consider whether it can bring its contractual claims in another forum than the treaty claims forum, for example by insisting on including a dispute resolution clause in the Investor-State Contract that explicitly provides for such a different forum. This approach enables the investor to start two proceedings, one in which it pursues its treaty claims, and one in which it pursues its contractual claims. Whether such approach is in fact feasible may be an intricate question. It primarily depends on how the dispute resolution clauses in the treaty and the Investor-State Contract affect one another, whether any clause provides for exclusive jurisdiction for certain types of claims (and, if so, whether such clause may be modified), and what types of claims are asserted. In practice, fork-in-the-road clauses, which are contained in some BITs, may also affect the possibility of parallel proceedings. In short, such clauses generally require the investor to choose irrevocably between different juris-

27 See above at 1. a).

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dictional systems. However, the scope and legal effects of such clauses are controversial in detail; the wording, of course, plays a huge role.28 (4) Hybrid Dispute Resolution Clauses Finally, if you intent to work with hybrid dispute resolution clauses (which are also called multi-tier dispute resolution clauses), make a clear allocation: Clarify if certain preliminary steps (such as negotiation and/or ADR) are mandatory or if the parties may skip them without any legal consequences before referring the dispute to arbitration. Various hybrid clauses do not address this issue, which may lead to unnecessary additional disputes.29

5. Outlook To conclude my presentation, I would like to briefly make a few remarks on current and future developments: First, I expect that the trend of renationalization of Investor-State Contracts that started in the 1970s will continue. Even developing countries have a strong political self-confidence and want their own national law to apply to Investor-State Contracts. Second, there is a lot of scepticism regarding the current investment law system and especially its dispute resolution mechanisms.30 This scepticism has at least two consequences for investment projects. Parties to InvestorState Contracts will have to follow any relevant developments to be able to assess if and to which extent their investment projects will be affected. In addition, considering the ongoing or intended termination of BITs, the importance of Investor-State Contracts will increase. Third, I believe that the importance given to human rights and environmental aspects when planning and executing investment projects will con-

28 For details see Jörn Griebel, Internationales Investitionsrecht, 2008, pp. 98 et seqq. For the assessment that fork-in-the-road clauses had only limited practical impact on treaty-based investment claims see Chapter 1, Annacker at p. 48. 29 See the Drafting Guidelines for Multi-Tier Dispute Resolution Clauses in the IBA Guidelines for Drafting International Arbitration Clauses, 2010, paras 86 et seqq. 30 See above at 1. c).

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tinue to increase.31 So will the importance of considering the (positive and negative) impacts on local communities. These factors will increase the overall complexity of investment projects. Thus, diligent contract drafting and management, including involving local communities and ensuring transparency, will be even more important than today for the success of investment projects.

31 See e.g. the UN Principles for Responsible Contracts, 2015, and the IBA Model Mine Development Agreement – A Template for Negotiation and Drafting, 2011, which both emphasise the importance of sustainable investment contracts.

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Investor-State Contracts: Comment from Arbitrator’s Perspective originally held by Rudolf Dolzer (1944–2020)*

Dolzer complemented Sessler’s presentation by emphasizing that the importance of meticulous contract drafting could not be overstated. Notwithstanding new challenges parties were faced with today, they could, in his view, draw from the history of investor-State contracts and did not have to reinvent the concept itself. In illustration of his argument, he drew reference to a case in which Lord Asquith had served as a single arbitrator.1 The facts submitted to the tribunal concerned a foreign company who had invested in Abu Dhabi. Although the parties had agreed to the application of Sharia law, Lord Asquith, after failing to find a pertinent provision in the Sharia and in national law, chose to base his decision on ‘natural law’. In order to do so he applied the national legal order which, according to him, came closest to natural law: English law. In light of this anecdote, Dolzer acknowledged that it was not an easy task to draft an investor-State contract as one had to possess expertise in international law and the national law of the host country as well as understand the difference between investment contracts and international investment agreements. 2 In order to stress the importance of careful contract drafting he referred to the French concept of contract as law between the parties. In addition, he accentuated a particularity of investment contracts: Host States played a double role in this context and apart from being a party to the contract, they also had the power to change the domestic law applicable to it.

* Prof. Dr. Dr. Rudolf Dolzer was a pioneer and thought leader in the field of international investment law and investor-State dispute settlement. Much to our regret Rudolf Dolzer has passed way and special tribute is given to him on behalf of the IILCC by Stephan Hobe above, at pp. 29 et seq. Rudolf Dolzer’s comments are reported by Dr. Berta Boknik (IILCC, University of Cologne). 1 Petroleum Development (Trucial Coast) Ltd. v Sheikh of Abu Dhabi (1951) 18 I.L.R. p. 144. 2 Cp. the challenges evoked with regards to the drafting of oil and gas contracts in Rudolf Dolzer, Petroleum Contracts and International Law, 2018.

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Turning to the often-evoked crisis of international investment law, he wondered what exactly was to be understood by this notion and challenged the very idea of the existence of a crisis. In order to do so, he recalled that usually the first request expressed by State representatives visiting Germany from developing countries was the plea for more investments. At the same time, he did not make out neither a crisis in the volume of investments nor in the number of investment law cases. In contrast, he referred to the rising number of investment claims initiated under the realm of the ICSID Convention and before the PCA. Subsequently, Dolzer focused on the standard of fair and equitable treatment (FET). He recalled that in 2005, several decisions had characterized FET as being the ‘heart of substantive investment protection’ and the ‘beacon of investment law’. Thus, according to him, FET had in a certain way superseded the protection of legitimate expectations, which had been defined in a wider manner before. Turning to current treaty practice, Dolzer pinpointed that the EU-Singapore FTA guaranteed the FET-standard3 but did not protect legitimate expectations.4 He judged this to be a fairly considerable change of substantive law.5 In this context, he took a critical look at the promise made by the European Union when taking over the competence for foreign investments through the Lisbon treaty,6 assuring that investment protection was not going to be reduced in its aftermath. Looking at it today, he expressed doubts on whether this promise had been met. However, he conceded that it was very difficult to identify the level of protection granted by investment treaties as international investment law was a system based on fragmentation.

3 Art. 2.4(1), EU-Singapore FTA: Each Party shall accord in its territory to covered investments of the other Party fair and equitable treatment […]. 4 Cp. Art. 2.2(2), EU-Singapore FTA: For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor's expectations, including its expectations of profits, does not amount to a breach of an obligation under this Chapter. Cp. Footnote 2 to Art. 2.4(3), EU-Singapore FTA: For greater certainty, the frustration of legitimate expectations as described in this paragraph does not, by itself, amount to a breach of paragraph 2, and such frustration of legitimate expectations must arise out of the same events or circumstances that give rise to the breach of paragraph 2. 5 For a reference to the trend of newer FTAs to limit the scope of protection accorded under FET-clauses see Chapter 1, Annacker at p. 53. 6 Cp. Art. 207(1), TFEU.

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Next, Dolzer tackled the question of inconsistency and clarified that if the system did not want to provide consistency, that was the way it was going to be. However, he criticized the working method of arbitral tribunals which refrain from engaging with decisions taken in previous cases. 7 In his opinion, a confrontation with pertinent arbitration practice was indispensable in the process of rendering an award. Revisiting the subject of investor-State contract drafting, he stressed the importance of always expecting both – that the legal situation could remain the same and that it could change. He used the FET standard as an example and explained that if one wanted to make sure that it was understood in a wide manner, one should specify the standard in the contract and refrain from using imprecise wording. In order to illustrate the danger of the changeability of contractual provisions, he referred to sunset clauses in intra-EU BITs and pointed to the new position adopted by European States according to which such clauses could be immediately terminated by mutual consent.8 With regards to a potential world investment court, he pointed out that the International Court of Justice was already a court of general competence that had only limited success in attracting investment cases. In this context, he referred to the Barcelona traction case 9 and recalled its critical reception by the investment community. He wondered whether a court consisting of arbitrators which have been exclusively designated by States would be welcomed more openly. Given current trends to lower standards of investment protection in treaties, he found it, in the end, advisable to agree on substantive rules and procedural matters in investor-State contracts instead of relying on treaties alone.

7 For a reference to the inconsistent interpretation of MFN clauses in arbitral practice see already Chapter 1, Annacker at p. 49. 8 Cp. Declaration of the Representatives of the Governments of the Member States of 15 January 2019 on the Legal Consequences of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union, 15 January 2019, p. 1, [https://ec.europa.eu/info/sites/info/files/business_economy_euro/banki ng_and_finance/documents/190117-bilateral-investment-treaties_en.pdf, accessed 23 October 2020]. 9 Barcelona Traction, Light and Power Company, Limited (Belgium v Spain), International Court of Justice, Judgment, 5 February 1970, I.C.J. Reports 1970, p. 3.

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Discussion moderated by Christian Borris*

At the beginning of the discussion Dolzer circled back to the topic of diplomatic protection. Drawing on a phrase coined by Winston Churchill,1 he explained that he believed in arbitration as it was the only option. He referred to cases in which requests for diplomatic protection made by investors had been turned down by the government of their home State in order to avoid political problems. These cases showed, according to him, that although diplomatic protection helped bigger States, it was not very helpful to investors due to its lack of effectiveness. To him, it therefore did not constitute an adequate option. The chair of the panel, Borris, took this as an opportunity to emphasise the importance of choosing a pragmatic approach to investment protection. He felt that investors should explore any means available for the protection of their interests in foreign States. At this point, Sessler jumped into the discussion and noted that many companies were not aware of the tools available to them in respect to their foreign investments. In addition, they were often reluctant to involve outside counsel. She pinpointed that many companies did not know how important the stage of contract drafting was. During the negotiation of contracts, they were too keen to get the project agreed upon and put a lot of emphasis on the technical elements to the detriment of legal issues. Next, the discussion turned to the topic of economic equilibrium clauses. The audience wanted to know whether such clauses had often been put into practice and questioned their relevance in international arbitration. The question was raised whether economic equilibrium clauses had the potential to mitigate the conflict between the democratic idea of changing legislation and investor protection. Sessler confirmed that economic equilibrium clauses played a role in the drafting of contracts. According to her,

* Prof. Dr. Christian Borris is a partner at Borris, Hennecke, Kneisel Rechtsanwälte in Cologne. The discussion is reported by Dr. Berta Boknik (IILCC, University of Cologne). 1 Reportedly Winston Churchill said: ‘Democracy is the worst form of government except for all the others that have been tried.’

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they could contribute to the solution of the above-mentioned conflict by taking into account the legitimate expectations of investors. An intervention from the public identified the lack of public information as a main point of criticism and recalled that awards had to be paid by tax-payers. Dolzer explained that the public interest was supposedly taken into consideration when signing and ratifying treaties. As an evidence for the fact that treaties considered public interests, he referred to the arbitral awards in Methanex2, Philipp Morris3 and environmental cases in general. At the same time, he made it clear that he felt the task of searching for the ideal balance was not upon the tribunals but upon the parties. Borris took up the subject and explained that in his personal view, the discussion on the issue of transparency in investment arbitration was legitimate. He pointed to the fact that all ICSID awards and many hearings were nowadays published. Drawing a comparison to commercial arbitration in which confidentiality was strongly desired by the parties, he stressed that in investment arbitration other aspects played a major role. Reminiscent of the case Sancheti v Germany4, he drew the conclusion that the time had been different back then. Jumping on the train into the past as well, Dolzer recounted a meeting with his neighbour in 1995, shortly after the publication of his book on international investment agreements.5 The neighbour had asked him whether he could not have written about a more important subject. He felt it was interesting to see how things had changed and that nowadays hundreds of people were invited for a meeting of experts of international investment law.6

2 Methanex Corporation v United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005. 3 Philip Morris Brands Sàrl and others v Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016. 4 Ashok Sancheti v Germany, UNCITRAL, 2000 [not public]. 5 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law, 2012. 6 The sessions of UNCITRAL Working Group III have, for example, been attended by around 400 delegates. See Chapter 6, Montineri at p. 164.

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Chapter 4: Investment Protection in the Age of Climate Change

Investment Protection and Sustainable Energy Projects in the Age of Climate Change: Comment from Counsel’s Perspective Markus Burgstaller*

Introduction There is broad agreement on the urgent need for substantial and sustained investment in the renewable energy sector. The only way to keep the rise in global temperatures within the limit agreed in Paris to ‘well below 2 degrees Celsius above pre-industrial levels’,1 is to shift capital away from fossil fuels and towards zero-carbon projects. According to estimates, a total of USD 16.5 trillion of investment in renewable energy will be required by 2030 just to keep global warming below 2 degrees Celsius.2 In recognition of these goals, there has been a trend in more recentlyconcluded bilateral investment treaties (BITs), investment protection agreements (IPAs) or free trade agreements (FTAs) to refer to the protection of the environment or sustainable development in their preambles.3

* Dr. Markus Burgstaller is a Partner at Hogan Lovells International LLP in London. The views expressed in this contribution are the author’s views. These are neither the views of Hogan Lovells International LLP nor of its clients. The author wishes to thank Gulshan Gill for research assistance. 1 Art. 2(1)(a), The Paris Agreement, 2016, [https://unfccc.int/sites/default/files/ english_paris_agreement.pdf, accessed 23 October 2020]. 2 Martin Dietrich Brauch, Yanick Touchette, Aaron Cosbey, Ivetta Gerasimchuk, Lourdes Sanchez, Nathalie Bernasconi-Osterwalder, Maria Bisila Torao Garcia, Temur Postaskaevi and Erica Petrofsky, Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation: Aligning International Investment Law with the Urgent Need for Climate Change Action, Journal of International Arbitration, 36 (1), p. 9. 3 These include the Argentina-Japan BIT, Australia-Peru BIT, Belarus-India BIT, EUSingapore IPA and United Arab Emirates-Uruguay BIT. See also UNCTAD, Recent Developments in the International Investment Regime, IIA Issues Note, No. 1, May 2018, [https://unctad.org/en/PublicationsLibrary/diaepcbinf2018d1_en.pdf, accessed 23 October 2020]; UNCTAD, Taking Stock of IIA Reform: Recent Developments, IIA Issues Note, No. 3, June 2019, [https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d5_en.pdf, accessed 23 October 2020].

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Some of these agreements have gone further, including substantive provisions which allow States to take into account the effects of climate change when making policy decisions affecting specific investments.4 This contribution addresses four key issues in relation to this development: 1. current trends towards greater environmental protection contained in modern international investment agreements; 2. practical implications of this trend towards greater environmental protection; 3. whether this trend is sufficient to meet the goal of transitioning to a zero-carbon economy; and 4. alternative conceptions of economic development, including ideas put forward to reform the investment protection framework during the course of the 2017/2018 Stockholm Treaty Lab Competition.5

1. Current Trends In 2015 UNCTAD published an Investment Policy Framework for Sustainable Development. Suggestions included ensuring an appropriate balance be struck between a host State's commitments to investment protection and maintaining a regulatory space for it to develop new policies as well as reforming the investor-State dispute settlement system which has seen several governments' measures fostering environmental protection being challenged before arbitral tribunals.6 Since then, many of today's new international investment agreements have incorporated some of the progressive clauses that were set out by UNCTAD.7

4 These include the Armenia-Japan BIT, Brazil-Suriname BIT, Canada-Republic of Moldova BIT, Central America-Republic of Korea FTA and Lithuania-Turkey BIT. 5 The Stockholm Treaty Lab is an initiative of the Arbitration Institute of the Stockholm Chamber of Commerce. The 2017/2018 competition challenged teams to develop investment promotion policies and model treaties that aim to encourage investment in climate change mitigation and adaptation; Journal of International Arbitration, 36 (1). 6 UNCTAD, UNCTAD Investment Policy Framework for Sustainable Development, 2015, pp. 78–79, [https://unctad.org/en/PublicationsLibrary/ diaepcb2015d5_en.pdf, accessed 23 October 2020]. 7 UNCTAD, UNCTAD World Investment Report 2018: Investment and New Industrial Policies, 2018, p. 96, [http://www.iberglobal.com/files/2018/wir2018.pdf, accessed 23 October 2020].

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A number of examples, including EU treaties as well as UK, Dutch and Indian Model BITs, illustrate the trend towards greater recognition of environmental protection and sustainable development in current treaties. These examples will briefly be discussed in this section.

a) EU Investment Treaties with Canada, Singapore and Vietnam Recently concluded EU-wide agreements with Singapore,8 Vietnam9 and Canada10 provide for the protection of the environment. All three agreements include language in their respective preambles which take into account the objective of sustainable development in their social and environmental dimensions.11 All three agreements also include substantive environmental protections in relation to the host State's right to regulate to meet environmental policy objectives.12 The Singapore and Canada agreements include an additional carve-out to the definition of expropriation such that a measure taken by a State to protect public policy objectives such as environmental protection does not constitute an indirect expropriation.13 This would seem to allow host States wider discretion in implementing policies to mitigate the effects of climate change.

8 The EU-Singapore IPA was signed on 19 October 2018, but will need to be approved by the national parliaments of EU Member States before it can enter into force. 9 The EU-Vietnam IPA was signed on 30 June 2019 but will need to be approved by the national parliaments of EU member States before it can enter into force. 10 The EU-Canada Comprehensive Economic and Trade Agreement (CETA) provisionally entered into force on 21 September 2017 but will need to be approved by the national parliaments of EU member States before it can enter into force on a non-provisional basis. 11 The preambles to all three agreements reaffirm the commitments of the contracting parties "to the principles of sustainable development", while the preambles to the Singapore and Canada agreements go further and recognise the rights of the contracting parties to pursue legitimate policy objectives including, inter alia, environmental protection. 12 Art. 2.2(1), EU-Singapore IPA; Art. 2.2(1), EU-Vietnam IPA and Art. 8.9(1), CETA. 13 Art. 2.6 and Annex 1(2), EU-Singapore IPA; Art. 8.12 and Annex 8-A(2), CETA.

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b) Netherlands The most recent Dutch Model BIT, published on 22 March 2019, safeguards the State's right to regulate by pursuing policy objectives, including the protection of the environment. In addition to reaffirming States' obligations under multilateral agreements in the field of environmental protection, specifically listing the Paris Agreement as an example,14 the Dutch Model BIT includes a reaffirmation by the Netherlands and any other contracting party of ‘the importance of investors conducting a due diligence process to identify, prevent, mitigate and account for the environmental and social risks and impacts of its investment’.15 The 2019 Dutch Model BIT additionally includes substantive protections such as a carve-out to the definition of expropriation allowing States the right to regulate for the protection of the environment.16 The new Dutch Model BIT presents a vision of how investment protection could be reformed to better balance the rights and duties of host States and investors, including States' duties in the context of multilateral frameworks for environmental protection. This development is especially pertinent given that claims brought under Dutch BITs account for around 12 % of all publicly known investor-State dispute settlement cases by one estimate.17

c) UK Similarly, the recently concluded UK-Colombia BIT contains substantive environmental protection provisions including a carve-out to the definition of indirect expropriation where a host State takes non-discriminatory measures for the protection of the environment.18 This stands in contrast to the 2008 UK Model BIT which does not include any references to sustainable development either in its preamble or in its substantive provisions.

14 15 16 17

Art. 6(6), Netherlands Model Investment Agreement, 2019. Art. 7(3), ibid. Art. 12(8), ibid. The 2018 Draft Dutch Model BIT: A critical assessment, IISD Investment Treaty News, 30 July 2018, [https://www.iisd.org/itn/2018/07/30/the-2018-draft-dutchmodel-bit-a-critical-assessment-bart-jaap-verbeek-and-roeline-knottnerus/, accessed 23 October 2020]. 18 Art. 6(2)(c), UK-Colombia BIT, 10 October 2014.

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d) India However, the trend towards recognition of environmental issues in investment treaties is not without criticism. For instance, the proposed changes to the 2015 Indian Model BIT were subject to significant criticism. Like the new Dutch Model BIT, the 2015 Indian Model BIT was intended to redress the perceived imbalances in India between the interests of the host State and private investors and was to be used as a template for the renegotiation of 47 existing BITs.19 The 2015 Indian Model BIT lists security exceptions and general exceptions.20 The list of general exceptions includes the protection and conservation of the environment and all living and non-living natural resources. While all of the exceptions in the Draft 2015 Indian Model BIT were intended to be self-judging provisions, granting States the discretion to deviate unilaterally from their obligations under the BIT to protect the areas governed by these exceptions, under the final 2015 Indian Model BIT only the security exceptions are self-judging.21 Un-

19 India has since signed the Belarus-India BIT in 2018 based on the 2015 Indian Model BIT, which contains the self-judging security exception set out in the 2015 Indian Model BIT: Art. 33 and Annex, Belarus-India BIT. India is also currently negotiating a BIT with Cambodia which looks set to include the same provisions: Cabinet approves Bilateral Investment Treaty between India and Cambodia to boost investment, Press Information Bureau Government of India Cabinet, 27 July 2016, [https://www.pmindia.gov.in/en/news_updates/cabinet-approves-bilateral-investment-treaty-between-india-and-cambodia-to-boost-investment/, accessed 23 October 2020]; Maria Fanou, Environmental Considerations in Investment Arbitration: A Report of a 'Topical Issues in ISDS' Seminar, Kluwer Arbitration Blog, 22 May 2019, [http://arbitrationblog.kluwerarbitration.com/2019/ 05/22/environmental-considerations-in-investment-arbitration-a-report-of-a-topical-issues-in-isds-seminar/, accessed 23 October 2020]. 20 Art. 33 and Annex 1, 2015 Indian Model BIT, and Art. 32, Indian Model BIT, respectively. 21 Grant Hanessian and Kabir Duggal, The Final 2015 Indian Model BIT: Is This the Change the World Wishes to See?, ICSID Review – Foreign Investment Law Journal, 32 (1), pp. 216–226, [https://doi.org/10.1093/icsidreview /siw020, accessed 23 October 2020]; Annex 1 of the 2015 Indian Model BIT provides in relevant part: ‘Where the Party asserts as a defence that conduct alleged to be a breach of its obligations under this Treaty is for the protection of its essential security interests protected by Article 33, any decision of such Party taken on such security considerations and its decision to invoke Article 33 at any time, whether before or after the commencement of arbitral proceedings shall be non-justiciable.’

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der these self-judging provisions, a tribunal is precluded from evaluating a State's defence to a treaty breach based on such exceptions.22

2. Practical Implications of Current BITs The kind of progressive, pro-environment provisions described above appear to be having an effect in international arbitral practice. One example is the case of Al Tamimi v Oman23 in which a US investor brought a claim against Oman under the investment chapter of the Oman-USA FTA, which is based on the 2004 US Model BIT.24 The preamble to the 2004 US Model BIT refers to achieving its objectives in a manner consistent with the protection of health, safety and the

22 The fact that the 2015 Indian Model BIT expressly states that the security exception is to be self-judging may be a response to some earlier cases which had found that security exceptions which were not expressly stated to be self-judging should not be interpreted as such. In Deutsche Telekom v India, the Swiss Federal Tribunal found the security exception under the Germany-India BIT is not self-judging, Deutsche Telekom v India, PCA Case No. 2014–10, Judgment of the Swiss Federal Tribunal, 11 December 2018, paras 3.2.3.1 – 3.2.3.4. The security exception in the Germany-India BIT was based on the security exception in the 2003 Indian Model BIT, which was not an explicit self-judging provision: Art. 12, 2003 Indian Model BIT. A number of other tribunals have also endeavoured to read the scope of earlier security exceptions narrowly, particularly by reference to the principle of necessity under customary international law. However, in Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic the decision was subsequently annulled on the basis that the Tribunal manifestly exceeded its powers in reaching the conclusion that Argentina was precluded from relying on the security exception contained in Art. XI of the Argentina-US BIT: Enron Corporation and Ponderosa Assets, L.P. v Argentine Republic, ICSID Case No. ARB/01/3, Decision on the Application for Annulment of the Argentine Republic, 30 July 2010, para 405. See also: Sempra Energy International v The Argentine Republic, ICSID Case No. ARB/02/16, Decision on the Argentine Republic's Application for Annulment of the Award, 29 June 2019, paras 186–219; however, cp. CMS Gas Transmission Company v The Republic of Argentina, where the annulment committee concluded that the tribunal had given an erroneous interpretation to the security exception, but that the tribunal had not manifestly exceeded its powers: CMS Gas Transmission Company v The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, paras 128–136. 23 Adel A Hamadi Al Tamimi v Sultanate of Oman, ICSID Case No. ARB/11/33, Award, 3 November 2015. See also: David R. Aven and Others v Republic of Costa Rica, ICSID Case No. UNCT/15/3, Award, 18 September 2018. 24 Chapter 10, US-Oman FTA.

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environment. It further creates a carve-out for environmental protection – regulatory measures taken by a party to protect a legitimate public welfare objective such as the environment do not constitute an indirect expropriation – which had not been included in the previous 1998 US Model BIT.25 In Al Tamimi v Oman, a Mr Al Tamimi was issued with permits for the quarrying of limestone within a limited area and his companies entered into lease agreements with an Omani State-owned mining company to quarry in this area. Mr Al Tamimi was authorised to mine only ‘limestone rock products’ within a defined area. Mr Al Tamimi allegedly violated the terms of these permits by operating outside the boundary of the permit, blasting outside of the concession area and removing material such as sand and stones from the dry riverbed, in alleged breach of Oman's environmental laws.26 Accordingly, the State-owned company terminated its lease with Mr Al Tamimi's companies and he was arrested by the Royal Oman Police at the request of the Ministry of Environment. Mr Al Tamimi then brought a claim against Oman. The tribunal recognised that the FTA included an express carve-out for environmental protection27 and ultimately concluded that Oman did not expropriate Al Tamimi's investment.28

3. International Investment Agreements do not Differentiate between Sustainable Investments and Unsustainable Investments However, while the trend towards substantive environmental protections in international investment agreements can and indeed has helped to safeguard legitimate policy objectives, these environmental protections are not always sufficiently strong to withstand challenges from investors in non-renewable projects.

25 Art. 6 and Annex B, 2004 US Model BIT. The 2004 US Model BIT has been replaced with the 2012 US Model BIT which retains the careful balance between preserving the government's right to regulate in the public interest and maintaining strong investor protections: Model Bilateral Investment Treaty, US Department of State Archive PRN 2012/612, [https://2009-2017.state.gov/r/pa/prs/ps/ 2012/04/188199.htm, accessed 23 October 2020]. For the restrictive definition of indirect expropriations in the 2004 and 2012 US Model BIT see already Chapter 1, Schreuer at p. 44. 26 Adel A Hamadi Al Tamimi v Sultanate of Oman, ICSID Case No. ARB/11/33, Award, 3 November 2015, para 75. 27 Annex 10-B.4(b) of the US-Oman FTA; Adel A Hamadi Al Tamimi v Sultanate of Oman, ICSID Case No. ARB/11/33, Award, 3 November 2015, para 368. 28 Para 376, ibid.

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In particular, the network of 3,000 BITs that exist today provides legal protection for all forms of foreign investment.29 This includes legal protection for investment in non-renewable energy such as oil, gas and coal. Similarly, the Energy Charter Treaty (ECT) is technology-neutral30 and does not prescribe any particular fuel or technology for its members. In order to transition to a zero-carbon economy, the focus of the investment protection regime needs to shift to the specific protection of renewable energy projects. In this context, the Council of the European Union has given a mandate to the European Commission to begin negotiations on the modernisation of the ECT. It also adopted corresponding negotiating directives. According to the Council, the aim of the negotiations is to modernise the provisions of the ECT so that it takes account of sustainable development and climate goals. The objective of the modernised ECT should be to facilitate investment in the energy sector in a sustainable way, provide for legal certainty and ensure a high level of investment protection.31 A strong investment protection regime offers investors legal certainty that their investments will be treated fairly by host States. This in turn encourages and supports sustainable energy projects in the age of climate change. However, the risk that existing strong investment protection regimes may also inadvertently exacerbate climate change by simultaneously protecting unsustainable energy projects also needs to be taken into account. The Keystone XL pipeline case demonstrates the scope for investors in non-renewable energy projects to test governments' legitimate policy aims by threatening arbitration proceedings where changes in government policy objectives conflict with their investment objectives. The Keystone XL

29 Cp. Kyla Tienhaara, Regulatory Chill in a Warming World: The Threat to Climate Policy Posed by Investor-State Dispute Settlement, Transnational Environmental Law, 7 (2), pp. 229–250, [https://www.cambridge.org/core/journals/transnational-environmental-law/article/regulatory-chill-in-a-warming-world-the-threat-to-climatepolicy-posed-by-investorstate-dispute-settlement/ C1103F92D8A9386D33679A649FEF7C84, accessed 23 October 2020]. 30 Dr. Urban Rusnák (Secretary General of the Energy Charter), Part I: Redefining Energy Security for Europe and Beyond, Elektor Magazine, 2 April 2015, [https:// www.elektormagazine.com/news/part-i-redefining-energy-security-for-europe-andbeyond, accessed 23 October 2020]: ‘At the same time, the ECT is technologically neutral. As at the end of the day, we have to use the entire variety of energy sources available and the ECT is friendly to all of them.’. 31 European Commission, Energy Charter Treaty modernisation: Commission welcomes Council's mandate, News Archive, 15 July 2019, [http://trade.ec.europa.eu/doclib/ press/index.cfm?id=2049, accessed 23 October 2020].

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pipeline is an oil pipeline proposed to run from oil fields in Alberta, Canada to Nebraska, USA, to be built by TransCanada Corp. In November 2015, President Obama rejected the proposed pipeline. TransCanada filed a federal lawsuit32 and a claim for arbitration under NAFTA.33 TransCanada’s NAFTA claim alleged that the cancellation of Keystone XL violated Chapter 11 of NAFTA. TransCanada requested USD 15 billion in damages. Soon after coming to office, President Trump revived the Keystone XL pipeline in January 2017 by signing an executive order. TransCanada then suspended its NAFTA claim.34

4. Rethinking Economic Development The Keystone XL pipeline example highlights how an investment protection regime that affords all types of energy investment equal protection can easily be used to the detriment of the environment. In a similar vein, approximately 50 % of claims brought under the ECT so far have been in relation to investments in non-renewable energy

32 In January 2016, TransCanada filed a law suit in the US Federal Court in Houston, Texas, asserting that the US President's decision to deny TransCanada a permit to construct the Keystone XL pipeline exceeded his power under the US Constitution; TransCanada Corporation, 2018 Annual information form, 13 February 2019, p. 12, [https://www.sec.gov/Archives/edgar/data/ 99070/000123238419000014/a12312018tccaifenglish.htm, accessed 23 October 2020]. 33 TransCanada Corporation and TransCanada PipeLines Ltd. v The United States of America, ICSID Case No. ARB/16/21, Request for Arbitration, 24 June 2016. 34 TransCanada Corporation and TransCanada PipeLines Ltd. v The United States of America, ICSID Case No. ARB/16/21, Claimant's Statement on the Discontinuance of the Arbitration Proceeding, 24 March 2017. Construction of the Keystone XL pipeline continues to be challenged by activists. On 1 July 2019 the Sierra Club, an environmental organization, filed a claim against the U.S. Army Corps of Engineers for improperly issuing a permit for the Keystone XL pipeline's construction in the United States District Court for the District of Montana Great Falls Division: Trump admin violated National Environmental Policy Act, Clean Water Act, and Endangered Species Act, Sierra Club, 1 July 2019, [https://www.sierraclub.org/press-releases/2019/07/conservati on-groups-launch-new-legal-challengeskeystone-xl-pipeline-approval#, accessed 23 October 2020]; for the complaint for declaratory and injunctive relief see https://www.sierraclub.org/sites/www.sierraclub.org/files/blog /NWP%2012%20Complaint%206–30–19%20final.pdf [accessed 23 October 2020].

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projects.35 Based on statistics published by ICSID, approximately a quarter of all investment disputes before it relate to oil, mining and gas investments.36 Traditional international investment agreements may make it difficult for governments to adopt disruptive but necessary measures to address climate change. One approach suggested to tackle this problem is to further refine the definition of investment such that it requires contributing to sustainable development.37 By incorporating the protection of the environment in the definition of an investment, it would invite tribunals to consider the environmental implications of the investment from the outset. In this context, some ideas from the Stockholm Treaty Lab Competition are noteworthy. The Stockholm Treaty Lab Competition resulted in the sharing of many innovative investment policy design ideas in order to meet the objectives of the Paris Agreement. One of the winning model treaties, the Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation,38 included several novel provisions to promote sustainable investment: (1) Implementing treaty provisions which distinguish between sustainable investments on the one hand and unsustainable investments on the other, with sustainable investments attracting a higher degree of protection under this proposed model treaty.39 The model treaty, however, does not attempt to define the terms ’sustainable investments‘ or ’unsustainable investments‘ – instead leaving it to the contracting parties to determine.

35 Kyla Tienhaara and Christian Downie, Risky business? The energy charter treaty, renewable energy, and investor-state disputes, Global Governance, 24 (3), pp. 451–471, [https://www.researchgate.net/publication/32802 0633_Risky_business_The_energy_charter_treaty_renewable_energy_and_investor-state_disputes, accessed 23 October 2020]. 36 Sarah Anderson and Manuel Pérez-Rocha, 'ISDS, Extractive Industries and the Case of Pacific Rim vs El Salvador' in Singh Kavaljit and Ilge Burghard (eds.), Rethinking Bilateral Investment Treaties: Critical Issues and Policy Choices, 2016, p. 232. 37 Antonia Fandrich, Sustainability and Investment Protection Law A Study on the Meaning of the Term Investment within the ICSID Convention, Rechtswissenschaftliche Beiträge der Hamburger Sozialökonomie, Heft 9, December 2016, [https://d-nb.info/1124101128/34, accessed 23 October 2020]. 38 Brauch et al., Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation: Aligning International Investment Law with the Urgent Need for Climate Change Action, Journal of International Arbitration, 36 (1), pp.7 – 35. 39 Artt. 1.1, 3.2, Annex I and Annex II, Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation, ibid.

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(2) Denying treaty-based procedural rights altogether to investments classified as unsustainable. This leaves such investors with no recourse to the dispute settlement mechanism in the treaty and subject to the exclusive jurisdiction of the host State's domestic courts.40 (3) Denying all investors a remedy for indirect expropriation in relation to both sustainable and unsustainable investments, as this provision is subject to widely different interpretations and is frequently used to attack environmental regulations.41 The first suggestion parallels discussions on widening the definition of economic development to focus on sustainable development. However, giving ‘the “sustainability dimension” some teeth’ remains a challenge,42 including questions of who (and how) (is) to define what is meant by ’sustainable investment‘. The second and third suggestions arguably go too far and are akin to throwing the proverbial baby out with the bathwater. Investment treaties were traditionally a tool employed by capital-importing countries to attract foreign investment and a way for capital-exporting countries to protect investments of their investors. The purpose of these terms is typically to ensure that the investment conditions are predictable, while striking a balance between the interests of host States and foreign investors. Adopting these two suggestions may risk tipping the balance of power too far in favour of host States.

Conclusion The model treaties put forward at the Stockholm Treaty Lab Competition provide a useful model for States to aspire to when negotiating or renegotiating investment treaties in mitigation of the effects of climate change. However, they do not fully take into account the political realities of the present day. In a world with inequity in the levels of development between States, a wholesale adoption of the recommendations proposed in these model treaties may risk jeopardising economic development in low- or middle-income States. Further, while there is broad agreement on the need

40 Art. 2.5, ibid. 41 Art. 3.4, ibid. 42 Lars Ronnås (Swedish Ambassador for Climate Change), Opening statement at seminar arranged by Arbitration Institute of the Stockholm Chamber of Commerce, 16 May 2019, [https://sccinstitute.com/media/ 672122/lars-ronnas_lowcarbonsociety_scc16may2019.pdf, accessed 23 October 2020].

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for investment in renewable energy projects to meet climate goals, this is not universal. Indeed the US, which is the largest carbon-emitter per capita, withdrew from the Paris climate agreement effective in November 2020.43 Nevertheless, the tide has turned and the investment protection regime can no longer afford to ignore the effects of climate change. Citizens are taking their governments to task before national courts for failing to do enough to protect the environment. For example: (1) In a claim brought by the Urgenda Foundation against the Dutch government, a Dutch court ordered the Dutch government to reduce greenhouse gas emissions by 25 % by 2020 in comparison with 1990 levels and confirmed that the State owes a duty of care to its citizens under Articles 2 and 8 of the ECHR to protect the environment for its citizens.44 On 20 December 2019, the Dutch Supreme Court upheld the judgement of the Court of Appeal.45 (2) A similar claim is being brought by islanders in Australia against their government for failing to tackle climate change and instead prioritising the interests of fossil fuel companies.46 (3) Lawsuits have also been brought before national courts against companies contributing to climate change: The UK Supreme Court has ruled that Zambian villagers can sue Vedanta, a UK-based mining company, over alleged pollution in the African country.47 A German court has also agreed to hear a claim brought by Saúl Luciano Lliuya, a Peruvian national, against RWE, Europe's largest carbon emitter, for its role in causing climate change.48

43 The incoming Biden administration is committed to rejoin the Paris climate agreement. 44 The State of the Netherlands (Ministry of Infrastructure and the Environment) v Urgenda Foundation, Hague Court of Appeal Civil Law Division, Ruling, 9 October 2018, [https://www.urgenda.nl/wp-content/uploads/ECLI_NL_GHDHA_2018_26 10.pdf, accessed 23 October 2020]. 45 [https://www.urgenda.nl/en/themas/climate-case/, accessed 23 October 2020]. 46 Climate threatened Torres Strait Islanders bring human rights claim against Australia, ClientEarth, 12 May 2019, [https://www.clientearth.org/press/climate-threatenedtorres-strait-islanders-bring-human-rights-claim-aga inst-australia/, accessed 23 October 2020]. 47 Vedanta Resources PLC and another v Lungowe and others, [2019] UKSC 20, UK Supreme Court, Judgement, 10 April 2019. 48 This case addresses the question whether and how greenhouse-gas emitters, such as energy suppliers, may be held liable for losses and damages caused by climate change. The claimant sued the company for a contribution to safety measures that

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Investor-State dispute settlement may not be the most obvious forum to litigate or arbitrate the challenges of climate change. However, the steps already taken to give greater discretion to host States in regulating for the protection of the environment should be lauded and steps to distinguish between sustainable and unsustainable investments should be welcomed.

help avoid the outburst of a glacial lagoon fuelled by glacial retreat linked to anthropogenic climate change. After having been rejected by a district court in November 2017, the Court of Appeals accepted the case and took it forward to the evidentiary phase. This decision marks the first time that a court acknowledged that a private company is in principal responsible for its share in causing climate damages. See Will Frank, Christoph Bals and Julia Grimm, 'The Case of Huaraz: First Climate Lawsuit on Loss and Damage Against an Energy Company Before German Courts' in Reinhard Mechler, Laurens Bouwer, Thomas Schinko, Swenja Surminski and JoAnne Linnerooth-Bayer (eds.), Loss and Damage from Climate Change – Concepts, Methods and Policy Options, 2019, pp. 475–482.

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With his contribution, Burgstaller commented on the presentation held by Peter Cameron on investment protection and sustainable energy projects in the age of climate change.1 Cameron had pointed out that the unprecedented transition to a carbon-free economy posed major challenges for investors in long-term and capital extensive energy projects. He had accounted for a context of disruption in investment protection regarding sustainable energy projects. Its emergence could, according to him, not solely be traced to climate change, but rather reflected the disappointing experiences in the past, when investors did not deliver the development they had previously promised. As for climate change mitigation, Cameron had judged States actions and regulatory activities to be necessary. Turning the focus on the supply chain, he had stressed that human rights abuse at this level had to be tackled when promoting investments in renewable energy. He had noted that governments, particularly in West Africa, were increasingly asking how they could adjust their investment context when the demand for fossil energy declines. In this context, he had also referred to the large number of proceedings currently pending before courts regarding climate measures. At the end of his speech, Cameron had issued a warning and had urged States to take action against climate change because otherwise the world would face disastrous consequences. In the following discussion, Hobe stressed that sustainable energy projects concerned a special field of international law. Addressing the relation between the two legal regimes, he asked whether it was going too far to say that greening of IIAs could cause a greening of parts of general international law. Cameron answered first by pointing to the important role that investors play in making the greening actually happen. He observed that the energy * Markus Gabbert is General Counsel and Chief Compliance of DEG-Deutsche Investitions- und Entwicklungsgesellschaft mbH. The discussion is reported by Dr. Berta Boknik (IILCC, University of Cologne). 1 Peter Cameron is Professor of International Energy Law and Policy and Director of the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee.

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sector in particular offered great uncertainties for investors, which they tried to counter by means of stabilisation clauses. Building upon a point evoked by Sessler, he recalled that investment contracts often involve, on the one hand, provisions aiming at preserving the status quo and, on the other hand, clauses that encourage the parties in case of a change of law to meet and discuss in order to adapt the contract.2 He found it interesting that recourse to ISDS was only meant to serve as a last resort in case of failed renegotiations.3 Cameron recalled that making use of arbitration under such circumstances required to specify an event as a trigger and elaborate a framework for managing the change. Such a contractual framework must narrow down the tribunal’s discretion by specifying method, time limit and outcome. According to him, this approach showed clearly what contracts can and what they cannot offer: they cannot stop the change from happening, but they can provide a framework for investors and States to cope with fundamental changes. Then, he addressed the question why the recourse to ISDS and not national courts was considered desirable. For him, the biggest advantages of international arbitral tribunals were the avoidance of corruption and the fast proceedings, because, as he recalled, in business, time was money. Afterwards, Gabbert steered the discussion to the supply chain in complex energy projects. Cameron reacted by stressing that there were many investors with strong ethical commitments. This applied in particular to their standards regarding their supply chain. An intervention from the public raised the question whether carve-out provisions for investment protection were a good idea given how lightly governments tend to refer to these general restrictions. In his answer, Cameron drew attention to the fact that investors face regulatory risks occurring from many different bodies within the State structure.

2 For a discussion on stabilisation techniques used in investor-State contracts see above Chapter 3, Sessler at p. 89. 3 Cp. Chapter 3, Sessler at p. 93 where the possibility to involve an arbitral tribunal as a neutral third party in case of failed renegotiations of an investor-State contract is evoked. For details on dispute resolution clauses in investor-State contracts see Chapter 3, Sessler at pp. 94 et seqq.

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Chapter 5: The Amendment Process of the ICSID Arbitration Rules

Amendment to the ICSID Arbitration Rules: Towards Increasing Time and Cost Efficiency Francisco Abriani*

1. Introduction I would like to start this presentation by congratulating the International Investment Law Centre Cologne for its 10-year anniversary, and by thanking the organizers for having invited ICSID to participate in this excellent conference. It is a real privilege to be part of this celebration. I will take this opportunity to describe some of the most important aspects of the rule amendment project currently underway at ICSID, including the amendment process itself. Given the limited time, I will focus my presentation on one important aspect of the rule amendment project: time and cost efficiency in ICSID arbitration proceedings. The amendment project is still ongoing and the proposed Rules are subject to vote by Member States. This presentation is based on Working Paper No. 3 published on August 16, 2019.1 This paper is structured as follows. First, I will provide a general overview of ICSID and the ongoing rule amendment project. Then, I will discuss the outcomes of an ICSID study on the time and cost of ICSID arbitration proceeding, which has helped identifying areas for improvement and possible rule changes. Finally, I will give you an idea of the proposed new rules addressing time and cost efficiency in ICSID arbitration.

* Francisco Abriani is Legal Counsel at the International Centre for Settlement of Investment Disputes (“ICSID” or “the Centre”). 1 ICSID, Working Paper No. 3, Vol. 1, Proposals for Amendment of the ICSID Rules, 16 August 2019, [https://icsid.worldbank.org/sites/default/files/amendments/WP_3_V OLUME_1_ENGLISH.pdf, accessed 23 October 2020].

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2. General Overview of ICSID and the Rule Amendment Project a) The ICSID Framework for the Settlement of Investment Disputes ICSID is an independent, depoliticized and effective dispute-settlement institution established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). Its availability to investors and States helps to promote international investment by providing confidence in the dispute resolution process. ICSID provides for settlement of disputes by conciliation, arbitration or fact-finding. The ICSID process is designed to take account of the special characteristics of international investment disputes and the parties involved, maintaining a careful balance between the interests of investors and host States. Article 6(1) of the ICSID Convention authorizes the ICSID Administrative Council to adopt administrative and financial regulations, and rules of procedure for the institution and conduct of arbitration and conciliation proceedings. Amendments to rules under the Convention must be adopted by two-thirds of the Member States of the Administrative Council. ICSID currently has 155 Member States, hence rule amendments must be approved by 103 or more members. Amendments to the Additional Facility rules require majority approval (78/154 votes) pursuant to Article 6(1) of the Convention and Administrative and Financial Regulation 7(1). The ICSID Convention Rules and Regulations were adopted in 1967, and the Additional Facility Rules were adopted in 1978. The rules were amended in 1984, 2003 and 2006. The first two amendment processes resulted in modest changes. The third, in 2006, introduced important innovations on transparency, arbitrator declarations and early dismissal of claims.2 Having administered more than 700 cases, ICSID is the leading institution in this field. A number of lessons can be learned from its extensive experience, and they should be incorporated into the rules from time to time.

2 Further background on rule amendments can be found on the ICSID website on amendment, [https://icsid.worldbank.org/resources/rules-and-regulations/icsid-rule s-and-regulations-amendment-working-papers, accessed 23 October 2020].

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b) The Current Amendment Process ICSID launched the current amendment process in October 2016 and invited Member States and the public to suggest topics that merited consideration. Most submissions received have been posted on the ICSID website. The Secretariat has reviewed all comments and has so far prepared three Working Papers to inform further discussions. The amendment project covers arbitration and conciliation proceedings, fact-finding proceedings and new mediation rules. The aim is to modernize ICSID procedure based on experience, best practices and feedback received from users. The arbitration and conciliation rules under both the ICSID Convention and Additional Facility have been re-drafted in plain, gender-neutral language, and numerous measures are suggested to reduce the time and cost of proceedings. Drawing in input received from States and public, a number of discrete topics have also been addressed. These include enhanced transparency through the publication of awards, decisions and orders; mandating the disclosure of third-party funding; and requiring more extensive declarations of independence and impartiality from arbitrators, mediators, conciliators and ad-hoc committee members. The Fact-Finding rules are also completely revised to be more user-friendly and cost-effective. As regards the Additional Facility Rules, the proposed rules extend the availability of arbitration or conciliation proceedings to cases where, for example, both the claimant and the respondent are not Member States of the ICSID Convention. They also provide regional economic integration organizations (REIOs), such as the European Union, with access to dispute settlement under the Additional Facility Rules, reflecting the fact that increasingly States are negotiating investment agreements as regional entities. Finally, ICSID has proposed an entirely new set of rules for mediation. The Mediation Rules align with the trend amongst States to include mediation in investment treaties, either as a pre-condition to arbitration, as a stand-alone mechanism, or for use in parallel with other dispute settlement mechanisms. The Mediation Rules have also been designed to complement the Singapore Mediation Convention, which was opened for signature in 2019 and which facilitates the enforcement of international settlement agreements arising from mediation. The philosophy motivating these amendments is that States and investors should have a range of modern dispute settlement options available to resolve their disputes. These may be used individually, or at times in parallel. For example, parties may suspend an ongoing arbitration to medi127

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ate their dispute or may obtain a binding determination in a fact-finding proceeding that will be used in an ongoing arbitration. The main drivers of the amendment project have been to simplify and modernize the rules, to codify some of the best procedural practices, to reduce the time and cost of proceedings and to reduce the environmental footprint of cases by going green. The overarching goal is to maintain the procedural equilibrium between disputing parties so that proceedings are fair and equally effective for all participants. With these general remarks in mind, I will now address specifically the issue of time and costs in ICSID arbitration.

3. Review of Time and Costs in ICSID Arbitration a) Overview There is growing concern about the length and cost of the investment arbitration process. Recent studies have shown that the average duration of investment disputes is close to four years and the average cost per party is between USD 4–6 million.3 The users of ISDS recognize that the complexity of investor-State disputes may require a longer process at higher cost than commercial arbitration cases, and some are reluctant to impose hard time limits or other provisions that make the process less flexible and constrain party autonomy. At the same time, comments received from Member States and the public show that most users consider efficiency vital to the success of the system. Many of the comments received focused on arbitrator delay in issuing decisions and rendering the award; others suggested more proactive case management by tribunals; others focused on time limits for pleadings and reducing the number and type of pleadings. In view of these comments, one of the main goals in this rule amendment process has been to reduce the time and cost of proceedings through a variety of approaches. The Centre has sought to identify the areas where time and cost can be reduced by examining trends and practices and the duration and costs of recently concluded cases. To identify the main issues affecting case dura-

3 Jeffery Commission, How Much Does an ICSID Arbitration Cost? A Snapshot of the Last Five Years, Kluwer Arbitration Blog, 29 February 2016; Allen & Overy, Investment Treaty Arbitration: Cost, duration and size of claims all show steady increase, 14 December 2017.

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tion, the Secretariat reviewed 63 cases which concluded with an award in the period January 1, 2015 to June 30, 2017 (excluding post-award remedy proceedings).4 In addition to showing large discrepancies in duration between different types of proceedings (bifurcated and non-bifurcated), the study identified three main areas of concern: (i) the length of time to appoint arbitrators and constitute the tribunal; (ii) the length of time for the written process; and (iii) the length of time to render the tribunal’s award. The study shows that improving efficiency will require coordinated effort from parties, counsel, arbitrators and the Centre alike throughout the various stages of an arbitration.

b) Review of Case Duration The study shows that the average length from the constitution of the tribunal to the dispatch of the award of all 63 cases was 1,336 days (3 years and 7 months). When broken down by the type of proceeding, the average length was: (i) 1,382 days (3 years 9 months) for a joint proceeding on jurisdiction and the merits (‘joint proceedings’); (ii) 1,301 days (3 years 6 months) for proceedings where jurisdictional and admissibility issues were addressed as a preliminary matter, before dealing with the merits (‘bifurcated proceedings’); and (iii) 829 days for the merits only proceeding. The findings can be summarized as follows: • In terms of time efficiency, bifurcation is not always the best option for cases with jurisdictional objections. Parties and tribunals should therefore carefully consider whether to bifurcate jurisdictional objections or join them to the merits (including whether to raise an objection that a claim manifestly lacks legal merit under current Arbitration Rule 41(5)).5

4 The study has been made available on the ICSID website as Schedule 9 to Working Paper No. 1, Vol. 3, Proposals for Amendment of the ICSID Rules – Working Paper, 2 August 2018, [https://icsid.worldbank.org/sites/default/files/publications/WP1_Am endments_Vol_3_WP-updated-9.17.18.pdf, accessed 23 October 2020]. 5 Indeed, the average duration of proceedings where tribunals declined jurisdiction after hearing the case on jurisdiction (awards on jurisdiction), was 749 days; while the average duration where tribunals upheld jurisdiction and heard the case on the merits in a further stage of the proceeding was 1,893 days.

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• It takes much longer to constitute tribunals than the intended 60 days after the date of registration in the Arbitration Rules and (Additional Facility) Arbitration Rules,6 or the default of 90 days for invoking Article 38 of the Convention.7 When the parties had agreed on a method of constituting the tribunal, constitution took around 23 % less time than when the default method (Article 37(2)(b) of the Convention) applied. • There is a significant difference in the duration of the written phase in proceedings where jurisdictional objections have been bifurcated from the merits and the case proceeds to the merits.8 • Almost 60 % of the cases experienced some delay in the written schedule. The average length of the delay was 90 days.9 • The deliberation phase10 typically took 30–34 % of the total length of the process from tribunal constitution to the award.

4. Time and Costs in the Proposed ICSID Rules Many of the proposed rules address some of the issues identified in ICSID’s study, including delays in the constitution of tribunals, in the deliberation process and, more generally, regarding the overall conduct of the proceeding. Indeed, a substantial focus of the amendments is to reduce

6 See proposed Arbitration Rule (AR) 2 and (AF)AR 4. 7 See proposed AR 4. The reasons for delay include: (i) settlement negotiations between the parties; (ii) no initial participation by the respondent due to delay in organizing its defense; (iii) methods that provide for a long appointment process; (iv) no immediate request by a party for the Chairman of the Administrative Council to appoint a missing arbitrator after the expiry of the 90-day period provided in Art. 38 of the Convention; and (v) agreed methods that eventually lead to default. The Secretariat has observed a trend for parties to agree on methods to constitute the tribunal that are complex and sometimes lead to a lengthy appointment process. 8 In these cases, the overall duration of the written phase is around 40 % longer than in joint or merits-only proceedings. 9 The reasons for the delay included: (i) suspension of the proceeding (due to agreement of the parties, a proposal to disqualify an arbitrator or resignation of an arbitrator); (ii) longer than expected preparation times; (iii) requests for production of documents that led to an extension of time limits; (iv) requests for bifurcation of the proceeding; and (v) consecutive written schedules on an objection that a claim manifestly lacks legal merit, followed by a bifurcated proceeding on jurisdiction, followed by a proceeding on the merits. 10 Tribunal deliberations cover the time between the final written or oral submission to the award.

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the time and cost of proceedings, recognizing that success in this regard will depend upon the joint efforts of parties, counsel, tribunal members and the Centre. The proposed Arbitration Rules, Institution Rules and Administrative and Financial Regulations target different aspects and actors of ICSID arbitrations by: (1) (2) (3) (4)

setting out general duties of conduct for parties and arbitrators; incorporating measures to increase case management efficiency; ensuring that tribunal members issue timely decisions and awards; ensuring that the conduct of the parties is considered and reflected in the tribunal’s decisions on cost allocation; and (5) offering parties the alternative to expedite their case. The changes in these areas will be addressed in turn.

a) Conduct Requirements The amendment project introduces general rules to address the time and cost of proceedings. For example, a new provision obliges the tribunal and the parties to conduct the proceeding in an expeditious and cost-effective manner, and in good faith.11 This duty is also reflected in the tribunal’s consideration of the parties’ conduct when allocating costs12 and in a new rule concerning case management conferences.13 The proposed rules also provide clear rules on the fixing and extension of time limits, including the consequences of the failure to comply with time limits.14

b) Streamlined Case Management A good number of the proposed new rules are intended to expedite the different phases of the proceeding. First, Working Paper No. 3 proposes that the parties’ failure to agree on a method for constituting the tribunal within 45 days from registration will automatically trigger the method set out in Article 37(2)(b) of the

11 12 13 14

Proposed AR 2(1). Proposed AR 51(1)(b). Proposed AR 31. Proposed ARs 10 and 11.

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ICSID Convention.15 Under the current rules, Article 37(2)(b) can be triggered only at the initiative of either of the parties and after 60 days from registration. This provision would thus prompt the parties to proceed with the constitution of the tribunal. The proposed new rules also foresee the possibility for the Secretary-General to assist the parties in the appointment of a sole arbitrator or the president of the tribunal, upon the parties’ joint request.16 Second, the proposed amendment introduces a 21-day time limit to propose the disqualification of an arbitrator from the date when the party knew or should have known of the facts on which the proposal is based.17 In any event, the disqualification proposal can only be filed after the constitution of the tribunal. Moreover, the briefing schedule has been limited to a total of 33 days,18 and the decision must be issued within 30 days from the parties’ last written submissions on the proposal.19 Further, the proposed rules allow the arbitration to continue in whole or in part while the proposal for disqualification is pending, if the parties so agree,20 which is currently not foreseen under Arbitration Rule 9(6). Third, a new proposed rule identifies a number of procedural matters to be discussed between the parties and the tribunal at the first session. These include whether or not there will be requests for production of documents – as well as their timing, scope and procedure – and page limits for the written submissions.21 Fourth, tribunals are encouraged to be active case managers where possible. For example, the tribunal must convene at least one case management conference to identify uncontested facts, narrow the issues in dispute, or address any other procedural or substantive matter.22

15 16 17 18 19 20 21

22

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Proposed AR 15(2). Proposed AR 17. Proposed AR 22(1). The 33 days correspond to: (a) the 21 days for the other party to respond to the disqualification proposal: (b) the 5 days for the challenged arbitrator to file a statement; and (c) the 7 days for the parties to file a final written submission. Proposed AR 23(1). Proposed AR 22(2). Proposed AR 29; see also ICSID, Working Paper No. 1, Vol. 3, Proposals for Amendment of the ICSID Rules, 3 August 2018, para 361; and ICSID, Working Paper No. 2, Vol. 1, Proposals for Amendment of the ICSID Rules, March 2019, para 204, [https: //icsid.worldbank.org/sites/default/files/amendments/Vol_1.pdf, accessed 23 October 2020]. Proposed AR 31.

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Fifth, the rules introduce specific timelines for various steps to avoid late submissions that might cause delay in the proceeding. For example, a request for bifurcation relating to preliminary objections would need to be made within 45 days after the filing of the memorial on the merits.23 Further, the proposed rules provide guidance to tribunals to consider, inter alia, whether bifurcation would materially reduce the time and cost of the proceeding in deciding whether to bifurcate.24

c) Arbitrators’ Timeliness New time limits are proposed for issuing decisions, orders and awards. Most procedural orders and decisions, such as a decision on provisional measures, must be issued within 30 days after the last submission.25 An award must be rendered within 60 days after the last submission on an objection that a claim manifestly lacks legal merit, 180 days after the last submission on a preliminary objection if it has been bifurcated, and 240 days after the last submission on all other matters.26 The proposed timelines constitute ‘best-effort’ obligations (as opposed to strict deadlines), as there has to be some flexibility to take into account special circumstances. However, the tribunal must always inform the parties of such circumstances before the expiration of the relevant time limit and advise the parties when the order, decision or award will be rendered. The new time limits would be reinforced by Secretariat practices: • First, arbitrators will be reminded of time limits at the time of acceptance and throughout the proceeding. • Second, arbitrators will have an obligation to indicate their availability and confirm that they will not accept conflicting commitments in the new Arbitrator Declaration, which will facilitate a thoughtful consideration about whether to accept the appointment given their other commitments.

23 24 25 26

Proposed AR 44(1). Proposed AR 44(2). E.g. proposed AR 44(1)(e) and proposed AR 46(2)(d). Proposed AR 57(1). The same deadlines would apply to decisions on manifest lack of legal merit and preliminary objections (proposed ARs 41(2)(e) and 44(3)(c), respectively).

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• Third, ICSID will be posting information about pending decisions, orders and awards on ICSID’s home page, thus tracking compliance with tribunal time limits.

d) Controlling Costs To ensure compliance with its provisions, the proposed Arbitration Rules attach to the conduct of a party concrete consequences in terms of costs and require tribunals to provide reasoned decisions on costs. The proposed rules provide guidance to tribunals on the allocation of costs between the parties. These include, inter alia, consideration of the outcome of the proceeding and the conduct of the parties.27 Further, the proposed rules underscore the tribunal’s power to make interim decisions on costs at any stage of the proceeding.28 These decisions form part of the award.29 Finally, a rule change that will reduce costs is that all filings will be electronic by default.30 Moving from hard-copy to electronic filing will also help expedite the process and significantly reduce the environmental footprint of ICSID proceedings.

e) Expedited Arbitration An optional expedited arbitration process is proposed as a separate opt-in chapter. The parties must expressly agree to apply this chapter and may do so at any time. Under the expedited rules, the parties could opt for a sole arbitrator or three-person tribunal. The default if they do not agree within 30 days after registration is a sole arbitrator.31 Once the tribunal is constituted, a streamlined procedural calendar requires that the first session be held within 30 days,32 and memorials and counter-memorials would each be filed in 60 days and be limited to 200 pages, while replies and rejoinders may each be filed in 40 days and are limited to 100 pages.33 The hearing would be held within 60 days after the last written submission, and the

27 28 29 30 31 32 33

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award would be rendered within 120 days from the last hearing day.34 The entire process is designed to conclude within a maximum of a year-and-ahalf, which is around two years shorter than the average duration of an arbitration case under the current rules. The parties may also agree to opt out of the expedited rules at any point.

5. Conclusion Since the adoption of its first set of arbitration rules, ICSID has sought to modernize and adapt its rules to the developing practice in international arbitration. Ultimately, the purpose of the amendment process is to offer the parties a set of clear, fair, impartial and useful tools for the settlement of investment disputes for the benefit of both investors and States. In this respect, improving time and cost efficiency constitutes one of the most important objectives. The current amendment process addresses time and cost efficiency on the basis of a careful analysis of issues observed at every stage of the proceeding, following a practical and balanced approach. By requiring expeditious conduct throughout the proceeding and including time limits for certain party filings and tribunal decisions, we believe the proposed rules will lead to significant improvement in terms of duration and costs.

34 Ibid.

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Amendment of the ICSID Arbitration Rules: Comment from Counsel’s Perspective Sebastian Seelmann-Eggebert*

1. Introduction Much as I would like, I will not be able to present my rendition of the good, the bad and the ugly of the proposed amendments to the ICSID Arbitration Rules. That is because even a creative advocate will find it difficult to seriously criticise any proposed amendment as bad, much less as ugly. However, in order to inspire some debate, I will offer my version of the Great, the Good and the So-So. Before I do so, let me join Francisco Abriani in congratulating the IILCC on its tenth anniversary and thanking it for the invitation to this conference to present the views of a practitioner on the ICSID Arbitration Rules and their current amendment process. At a time when public debate on international investment law sometimes suffers from disinformation and confusion, it is difficult to overstate the need for scientific analysis, education and rational argument in this field. The IILCC therefore has an important role to play in informing public debate as the system of international investment law continues to evolve in the coming decade. That brings me to another important actor in this field and closer to my topic: ICSID. As we all know, ICSID is the leading institution in the area of investor-State arbitration. Its Arbitration Rules are well tailored for this purpose and their current version has been tried and tested in practice since 2006. So the first question to ask is why amend the rules? I believe there are essentially two good reasons: first, there are some matters where the Arbitration Rules could usefully be clarified or mod* Dr. Sebastian Seelmann-Eggebert is a Partner at Latham & Watkins LLP in London and Hamburg. This paper reflects comments provided by the author on a panel at the 10 Year Anniversary Conference of the International Investment Law Centre Cologne (IILCC) on 16 May 2019. It is based on ICSID’s Proposals for Amendment of the ICSID Rules in Working Paper No. 3. Any significant changes made in Working Paper No. 4 have been incorporated following the publication of Working Paper No. 4. The views expressed by the author are his own and were expressed strictly for purposes of stimulating debate at the conference.

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ernised to provide tribunals with guidance and a more solid footing for their decisions; and second, it is important to address the public debate and what we Germans like to call the Zeitgeist. Investor-State arbitration has been the subject of intense and sometimes irrational criticism over recent years, and ICSID deserves significant credit for its efforts to respond. ICSID has long been a leader in shaping and innovating investor-State arbitration. As of 31 December 2019, ICSID registered and administered a total of 745 cases under the ICSID Arbitration Rules and under the Additional Facility Rules.1 One of the key benefits of an ICSID arbitration is that the Secretariat plays an active role in the case administration, providing a secretary for the tribunal who attends the hearing and acts as a conduit for all communications between the parties and the tribunal. The Secretariat therefore has close insights into each step of the arbitration process. It has used its insights and experience for many small and thoughtful innovations, for example, to promote diversity in the appointment of arbitrators. The current project to amend the Arbitration Rules also benefits greatly from the Secretariat’s experience. It does not mark ICSID’s entry into the perpetual competition for the latest and greatest institutional arbitration rules, but appears as part of a broader effort to examine, debate and rebuild consensus around investor-State arbitration. ICSID’s iterative process has provided all actors in investor-State arbitration, particularly States, broad opportunities to comment and be heard. I am happy to see that this process has not exposed any fundamental defects in investor-State arbitration or a need significantly to recalibrate the balance between investors and States that the ICSID Arbitration Rules strike. With that let me turn to some of the specific proposals.

2. The Great My category of the Great includes proposals that, in my view, address a genuine need for guidance and clarity in the ICSID Arbitration Rules.

1 ICSID, The ICSID Caseload – Statistics, Issue 2020–1, p. 7.

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a) Security for Costs For me, the single most important amendment is the introduction of a provision on security for costs. Tribunals previously recommended security for costs as provisional measures under Article 47 of the ICSID Convention and ICSID Arbitration Rule 39.2 They typically did so only in exceptional circumstances, and the absence of a more specific basis to order security for costs appears to have resulted in a general reluctance of tribunals to use their powers. This has left several States out of pocket after they have had to incur significant expenses successfully to defend claims brought by shell or project companies whose only remaining asset was the purported claim. ICSID has now proposed to include a detailed rule allowing a tribunal to order any party asserting a claim or counterclaim to provide security for costs.3 The rule provides a procedural timetable to decide a request for security for costs, an illustrative list of circumstances to consider in the decision-making, and, importantly, it regulates the consequences of a failure to comply with an order for security for costs (suspension and ultimately discontinuance of the proceeding). The rule resolves the debated question on the relevance of third-party funding of an investor’s claim to the effect that a tribunal may consider third-party funding but that its existence as such is not sufficient to justify an order for the security for costs. This is an evenhanded and balanced approach. Parties (and any third-party funders) can of course further mitigate the risk of orders for security for costs by taking out after the event insurance that includes any costs the party has to reimburse to the other side. The only constructive comment I would add is that the proposal could give the tribunal a little more discretion to determine the scope of its order. Under the current proposal, the tribunal can only order “any party asserting a claim or counterclaim” to provide security for costs. In practice that means that the tribunal cannot order a respondent State to provide security for costs (unless the State counterclaims). While the need to order States to provide security for costs may be less obvious given their ability to pay an adverse award on costs, the willingness of some States to comply with such an award cannot be taken for granted. More importantly, the

2 See e.g. RSM Production Corporation v Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs, 13 August 2014, paras 46–48. 3 Proposed AR 52 in Working Paper No. 3, now proposed AR 53 in Working Paper No. 4.

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ability to also order a respondent State to provide security for the investor’s costs of prosecuting its claim would leave room for more balanced decisions; the tribunal could then, for example, order both the investor and the State to provide security for each other’s costs, a constructive compromise that the current proposal does not expressly contemplate.4

b) Third-Party Funding ICSID has also found a balanced solution to the thorny issue of third-party funding.5 It focuses on the need for transparency so that any potential conflicts that arise from the involvement of a funder can be identified as early as possible. Accordingly, the funded party has to disclose the name and address of the funder as soon as possible. It does not, as a general rule, have to disclose further details of the funding agreement (although Working Paper No. 4 now provides that the tribunal can order the disclosure of further information at any stage of the proceeding6). This is a sensible approach that appears to reflect an increasing consensus on the topic. One area where debate will likely continue is the question precisely what constitutes third-party funding. The proposal includes funds received from any non-party for the pursuit or defence of the proceeding through “a donation or grant, or in return for remuneration dependent on the outcome” of the case.7 Time will have to tell whether this definition includes after the event insurance or other more novel funding arrangements, depending on whether they give rise to potential conflicts.

3. The Good Many of the proposed amendments are good primarily because they respond to some of the criticisms levelled against investor-State dispute reso-

4 Although a tribunal could arguably condition an order for an investor to provide security for costs on the respondent State also providing security for costs. 5 Proposed ARs 14 in Working Paper No. 3 and Working Paper No. 4. 6 Proposed AR 14(5) in Working Paper No. 4. 7 The most recent definition in Working Paper No. 4 reads: “A party shall file a written notice disclosing the name and address of any non-party from which the party, directly or indirectly, has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding (‘third-party funding’).”

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lution or introduce mechanisms that are now considered standard in modern arbitration rules.

a) Time and Costs Time and cost efficiency, on which Francisco concentrated, is a good example for amendments that have been proposed to address some of the public criticism. Investment arbitration is indeed a slow and costly process. So it makes sense to place at the parties’ disposal the various instruments that different arbitration rules have developed in recent years in an effort to make arbitration more efficient. Whether these amendments will significantly accelerate proceedings, remains to be seen. Investment treaty cases often involve significant sums and deal with issues that relate to a State’s policy or are otherwise politically sensitive. Given these high stakes, the parties typically want the most experienced arbitrators (who tend to also be the busiest arbitrators) to decide their dispute, and they want sufficient time to prepare their respective case. For example, the procurement (and production) of documents and other evidence can present a particular challenge for a State, which may have to involve a number of regional or local administrations and have to overcome domestic data protection or privacy restrictions. In my experience, these and other reasons will continue to call for a relatively generous timetable in investment arbitrations, whether they are administered by ICSID, other institutions or ad hoc. It will therefore be interesting to see what effects the amendments will have on the mean duration of an ICSID arbitration. Coming from a legal background that applies the German Relationstechnik, I of course welcome the proposal to introduce a mandatory case management conference to identify uncontested facts and narrow the issues in dispute, amongst other things.8 If it is fully operationalised, this rule could avoid irrelevant submissions and superfluous taking of evidence by focusing the parties on the issues that are contested and relevant for the tribunal’s analysis of the case. This will require a proactive tribunal willing to frontload some of its legal analysis and deliberation so it can identify the issues that it considers relevant before hearing the evidence. Apart from focusing the hearing this might also reduce the time that tribunals require after a hearing to complete their deliberations and prepare the award.

8 Proposed AR 31 in Working Paper No. 3.

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b) Consolidation Another good proposal is the inclusion of a rule to address the consolidation and coordination of arbitrations.9 Consolidation is addressed in most modern arbitration rules, and ICSID appears to be following suit. The proposed rule distinguishes between consolidation (one arbitration and one award) and coordination (two or more aligned arbitrations with separate awards). The parties may agree to consolidate or coordinate and, if they do, are required to prepare proposed terms for the conduct of the consolidated or coordinated arbitrations and to consult with the Secretary-General. The proposal thus stops short of permitting consolidation without agreement, which is understandable given that the ICSID Convention contemplates no such power. It is important in this context, and more generally, to note that the ICSID Arbitration Rules cannot alter the basic rules set out in Chapter IV of the ICSID Convention, which would require an amendment of the ICSID Convention.

4. The So-So While perfectly acceptable, some of the proposals appear to be driven by the current Zeitgeist without fully considering the nature of investor-State arbitration. One of the areas in which this applies is transparency. 10 The new proposals seek to maximise transparency in investor-State arbitration. They provide for the publication of awards and related decisions in full or in excerpts, of orders, decisions, of the parties’ submissions and of recordings or transcripts of the hearing. They also include rules on amicus curiae submissions by non-disputing parties as well as on written or oral submissions of treaty parties that are not party to the dispute. These rules respond to the criticism raised particularly in Germany that investor-State arbitration is secretive justice (Geheimjustiz). To be clear: transparency is important, and ICSID arbitration is more transparent than nearly any other form of international arbitration. The ICSID Arbitration Rules already provide for the publication of all awards in full or, if the parties do not agree to publication, in relevant excerpts,

9 Proposed AR 45 in Working Paper No. 3, proposed AR 46 in Working Paper No. 4. 10 Proposed ARs 61 to 67 in Working Paper No. 3, proposed ARs 62 to 68 in Working Paper No. 4.

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and for submissions of non-disputing parties.11 The fact that ICSID awards are readily available has contributed significantly to academic debate and the evolution of international investment law. For example, there is now consistent precedent to the effect that investment treaty claims have to be dismissed for lack of jurisdiction or admissibility if the investment is tainted by corruption or other forms of illegality. This precedent has helped to incorporate into international investment law international rules on the fight against corruption. So why is there any reason to be less than enthusiastic about the proposed further increase in transparency? There are two main reasons, one is a practical one, the other is more principled. The practical reason is that the inclusion of non-disputing parties can make the arbitral process more cumbersome. The new rules require the parties and the tribunal to address a large number of issues from redactions of documents for publication to the attendance of non-disputing treaty parties at the hearing. The parties also need to invest additional time and resources to address written and oral submissions of non-disputing parties, who may side with one of the parties or pursue their own objectives. This can become a complex exercise, particularly where parallel domestic proceedings are ongoing, and undermine the competing objective of making ICSID arbitration more efficient. The more principled reason for caution against the increased transparency is that one size may not fit all. ICSID comprises more than 150 Member States with very diverse political and constitutional systems. The debate about transparency has not transcended all those Member States; it has focused more on “Western” democracies and Germany in particular. The professed desire of those Member States to increase transparency is perfectly legitimate. However, I would be cautious not to impose a transparency standard which may be consistent with European and US perceptions on all ICSID Member States. My vote would be instead to let the Member States decide which transparency rules they want to adopt – either in their investment treaties or by joining (and ratifying) the Mauritius Convention on Transparency.12 Alternatively, the rules could provide that more of the measures introduced to raise transparency require the consent

11 Proposed ARs 37(2) and 48(4). 12 United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, 2014. For details on the Mauritius Convention, see Chapter 6, Montineri at pp. 160 et seq.

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of the disputing parties.13 Otherwise, there may be a risk that disputing parties will agree in accordance with Article 44 of the ICSID Convention to opt out of the transparency provisions in the ICSID Arbitration Rules, as they have already done in some cases. With these observations, which are intended mainly as food for further thought, I rest my case and look forward to the debate.

13 Working Paper No. 4 contemplates the following measures even if the parties do not consent: the publication of excerpts of awards, supplementary decisions on an award, rectification, interpretation and revision of an award, and decisions on annulment (which can be published without the consent of either party); the publication of redacted orders and decisions (which can be published without the consent of either party); the publication of redacted written submissions (which can be published at the request of one party); the admission of submissions by nondisputing parties (which can be admitted without the consent of either party); and written or oral submissions by a party to a treaty that is not a party to the dispute.

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Discussion moderated by Nadia Darwazeh*

At the beginning of the discussion, the chair of the panel, Darwazeh, asked whether there had been a push for more disclosure with respect to thirdparty funding during the amendment process to the ICSID Arbitration Rules. Abriani answered that the latest modifications reflected a compromise between the different actors involved. He explained that the avoidance of a conflict of interest was the main objective of the rules on thirdparty funding. Accordingly, the rules did not require a disclosure of thirdparty funding agreements in every case. An intervention from the public suggested that established funders could agree that transparency was very important and found that the new rules were very much in line with the ICCA best practice.1 The discussion then turned to security for costs. Seelmann-Eggebert took on the topic and assessed that the changes pertaining to security for costs were probably the most important amendments for States as they levelled the playing field. According to him, investors had become very clever in structuring their investments, so that claims could be raised at different levels. Abriani pointed to the fact that, when a claimant obtained a favorable award, costs would be part of the total sum awarded to it. SeelmannEggebert pointed out that enforcement risks were never factored in. In response to an intervention from the audience about the basis on which security for costs was allocated, Abriani pointed out that as cost shifting was not the norm in all legal systems it was not foreseen in ICSID. Being questioned about whether there had been any debate on this subject, Abriani answered in the affirmative while making clear that ICSID had so far chosen not to include it.

* Nadia Darwazeh is a Partner at Clyde & Co in Paris. The discussion is reported by Dr. Berta Boknik (IILCC, University of Cologne). 1 Further information on the ICCA project on Third-Party Funding is available at [https://www.arbitration-icca.org/projects/Third_Party_Funding.html, accessed 23 October 2020].

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moderated by Nadia Darwazeh

Redirecting the focus of the debate, Seelmann-Eggebert challenged the ‘one size fits all-mentality’ adopted with regard to transparency and established that equal rules were not appropriate everywhere. This remark triggered an intervention from the audience that stressed that transparency was related to the human right to information and was therefore of value for people everywhere. Attention was drawn to the fact, that pertinent transparency rules had not only been considered useful in European and American countries. Seelmann-Eggebert queried whether the human right to information included a right to access to every arbitration award. Darwazeh summarized that although the concept of transparency had a very positive connotation, it should not be applied blindly and the extent of its application should take account of the circumstances at hand.

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Chapter 6: UNCITRAL Reform Process on ISDS

Introduction: An Overview of Institutional Efforts Moritz Keller*

Almost exactly 30 years after the first investment treaty arbitration award was handed down in 1990 in the case of AAPL v Sri Lanka,1 the investment treaty arbitration landscape has expanded to encompass almost 3,000 bilateral investment treaties (BITs),2 and nearly 1,000 ISDS proceedings, pending or completed.3 Reflections on practices and outcomes have, inevitably, led to calls for reform from a variety of stakeholders – calls which have become increasingly loud, and have resulted more recently in concrete change. Two examples of such change are (i) the 2006 version of the arbitration rules of the International Centre for the Settlement of Investment Disputes (ICSID) contained a new Article 37(2), embedding the practice of amicus curiae briefs into ICSID proceedings,4 and (ii) from 1 April 2014, arbitration parties could agree to apply in arbitration proceedings the new United Nations Commission on International Trade Law (UNCITRAL) Transparency Rules,5 which provide for an opening-up of previously largely opaque proceedings to the general public, in response to particularly strong criticism in this regard. Since 2017, a comprehensive ISDS reform project has been taking place under the auspices of UNCITRAL, with UNCITRAL’s Working Group III focusing closely on a number of aspects of ISDS that may be ripe for re* Dr. Moritz Keller is a partner at Clifford Chance in Frankfurt. 1 Asian Agricultural Products Ltd. (AAPL) v Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final Award, 27 June 1990. 2 See UNCTAD, International Investment Agreements Navigator, [https://investmentpolicy.unctad.org/international-investment-agreements, accessed 23 October 2020]. 3 See UNCTAD, Investment Dispute Settlement Navigator, [https://investmentpolicy.unctad.org/investment-disp ute-settlement, accessed 23 October 2020]. 4 Art. 37(2) AR. See also the statement of the NAFTA Free Trade Commission on Non-Disputing Party participation, 7 October 2003. 5 See UNCITRAL, Rules on Transparency in Treaty-based Investor-State Arbitration, [https://www.uncitral.org/pdf/english/texts/arbitration/rules-on-transparency/ Rules-on-Transparency-E.pdf, accessed 23 October 2020]. See also UNCITRAL, Mauritius Convention on Transparency, [https://uncitral.un.org/en/texts/arbitration/ conventions/transparency, accessed 23 October 2020].

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form. The first issues to be examined by Working Group III were consistency, coherence, predictability and correctness of arbitral decisions by ISDS tribunals,6 cost and duration of arbitration proceedings7 and independence and impartiality of arbitrators.8 As well as governments, a number of stakeholders have provided input into the working sessions and documents of Working Group III. This short introductory piece examines the roots of some of the reform initiatives on the table of Working Group III within some of those stakeholder organisations and institutions, focusing on the European Union (EU) (1.), the Organisation for Economic Co-operation and Development (OECD) (2.), the United Nations Conference on Trade and Development (UNCTAD) (3.) and ICSID (4.). For each of these, I examine the trajectory of their reform initiatives.

1. EU With the Lisbon Treaty of 2009 granting the EU exclusive competence over foreign direct investment (FDI),9 a new vision of ISDS for the EU trading bloc has emerged in Brussels. The EU has taken decisive action to bring ISDS matters under its own control, initiating concrete steps with regard to both intra-EU and extra-EU BITs to which EU Member States are a party.

6 See UNCITRAL, Possible reform of investor-State dispute settlement (ISDS): Consistency and related matters, 28 August 2018, A/CN.9/WG.III/WP.150, [https:// undocs.org/en/A/CN.9/WG.III/WP.150, accessed 23 October 2020]. 7 See UNCITRAL, Possible reform of investor-State dispute settlement (ISDS) – cost and duration, 31 August 2018, A/CN.9/WG.III/WP.153, [https://undocs.org/en/A/CN.9/ WG.III/WP.153, accessed 23 October 2020]. 8 See UNCITRAL, Possible reform of investor-State dispute settlement (ISDS) Ensuring independence and impartiality on the part of arbitrators and decision makers in ISDS, 30 August 2018, A/CN.9/WG.III/WP.151, [https://undocs.org/en/A/CN.9/WG.III/ WP.151, accessed 23 October 2020]. 9 Art. 207(1), TFEU: ‘1. The common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalisation, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies. The common commercial policy shall be conducted in the context of the principles and objectives of the Union's external action.’.

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First, the EU is aiming to effectively phase out existing BITs between EU Member States, with inter alia (i) the CJEU ruling in its Achmea decision 10 that intra-EU BITs are incompatible with EU law, (ii) the enactment of a Regulation providing for the transition away from the current system of intra-EU BITs to a framework within which BITs are negotiated by the European Commission instead of the individual Member States,11 and (iii) a new plurilateral treaty agreed between the EU and the Member States in October 2019 for the termination of all existing intra-EU BITs.12 Secondly, regarding extra-EU BITs, (i) the EU is active in negotiating new free trade agreements (FTAs) on behalf of the Union and the Member States, with processes under way with Vietnam, New Zealand, Australia, Singapore, Mexico, MERCOSUR, Japan and Canada,13 (ii) the enactment of a Regulation for the allocation of financial responsibility as well as responsibility for mounting a defence between the EU and the Member States in cases where claims are brought by investors from third States,14 and (iii) efforts to push through reforms to the Energy Charter Treaty (ECT).15 The most innovative aspect of the negotiating position of the EU in its new FTAs is the Investment Court System (ICS),16 under which disputes will be submitted to tribunals whose members are appointed in advance 10 Slovak Republic v Achmea BV, Case C-284/16, CJEU, Judgement, 6 March 2018. 11 Regulation (EU) No. 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries, [https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:351:0040:0046:EN:PDF, accessed 23 October 2020]. 12 See https://ec.europa.eu/info/publications/191024-bilateral-investment-treaties_en [accessed 23 October 2020]. 13 See EU Commission, Negotiations and Agreements, [https://ec.europa.eu/trade/policy/countries-and-regions/negotiations-and-agreements/, accessed 23 October 2020]. 14 Regulation (EU) No. 912/2014 of the European Parliament and of the Council of 23 July 2014 establishing a framework for managing financial responsibility linked to investor-to-state dispute settlement tribunals established by international agreements to which the European Union is party, [https://eur-lex.europa.eu/ legal-co ntent/EN/TXT/PDF/?uri=CELEX:32014R0912&from=EN, accessed 23 October 2020]. 15 See European Commission, Energy Charter Treaty modernisation: European Commission presents draft negotiating directives, 14 May 2019, [http://trade.ec.europa.eu/ doclib/press/index.cfm?id=2017, accessed 23 October 2020]. 16 First included in Art. 8.29 of the CETA, referred to as the ‘multilateral investment tribunal’. (The Joint Interpretative Instrument on CETA agreed by the EU and Canada in October 2016 includes a commitment to make the ICS operational as soon as CETA enters into force. The EU-Viet Nam Investment Protection Agree-

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by the relevant treaty parties and subject to a code of conduct, together with access to an appellate tribunal. The compatibility of the ICS with EU law has already been confirmed by the CJEU17 and the ICS is a key step towards the EU's ultimate goal of a permanent multilateral investment court (MIC).18 The vision of a MIC forms a central plank of the EU's efforts in the work of UNCITRAL Working Group III.19

2. ICSID The majority of known ISDS cases have proceeded under the Arbitration Rules or the Additional Facility Rules of the Washington, D.C.-based International Centre for Settlement of Investment Disputes (ICSID), part of the World Bank Group. ICSID has also administered more than 700 cases. Accordingly, ICSID is well-placed to provide input into the ISDS reform discussions. ICSID launched its own far-reaching reform process in 2016 with a call for comments from Member States,20 followed by a call to the public in 2017 for proposals as to amendments to the framework of rules.21 In the course of the consultation, 16 areas were identified where the ICSID rules could be amended: those areas coincided with several concerns identified within UNCITRAL Working Group III, including the lack of consistency of arbitral awards, the lack of transparency, issues of independence and impartiality, and excessive cost and duration.

17 18 19

20 21

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ment (EUVIPA) also includes an ICS provision, which is replicated in the agreements concluded with Singapore and Mexico (both are pending ratification by the EU Member States). Opinion 1/17, AG Bot, 29 January 2019, ECLI:EU:C:2019:72; Opinion 1/17, Court, 30 April 2019, ECLI:EU:C:2019:341. See European Commission, The Multilateral Investment Court project, 14 February 2020, [http://trade.ec.europa.eu/doclib/press/index.cfm?id=1608, accessed 23 October 2020]. See UNCITRAL, Possible reform of investor-State dispute settlement (ISDS) Submission from the European Union and its Member States, 24 January 2019, A/CN.9/ WG.III/WP.159/Add.1, [https://undocs.org/A/CN.9/WG.III/WP.159/Add.1, accessed 23 October 2020]. See ICSID, 50th Annual Meeting of ICSID’s Administrative Council, 7 October 2016, [https://icsid.worldbank.org/en/Pages/News.aspx?CID=196, accessed 23 October 2020]. See ICSID, Invitation to File Suggestions for Rule Amendments, 25 January 2017, [https://icsid.worldbank.org/en/Pages/News.aspx?CID=213, accessed 23 October 2020].

Introduction: An Overview of Institutional Efforts

ICSID’s latest working paper22 sets out the proposed changes.23 These would introduce rules aimed at improving the consistency of ICSID arbitral awards by permitting the voluntary consolidation of claims. In order to address the perceived lack of independence and impartiality of arbitrators, ICSID is together with the UNCITRAL Secretariat developing a code of conduct for arbitrators. The current draft would make the process of challenging arbitrators easier and also contains a provision requiring disclosure of, or alternatively prohibiting, the controversial practice of "double-hatting", depending on which wording is ultimately agreed.24 In order to promote the transparency of proceedings, new rules would allow nondisputing parties such as NGOs a larger role in proceedings and improve their access to documents, while at the same time introducing disclosure requirements with regards to third-party funding for the parties. Other changes to the ICSID arbitration rules intend to reduce the costs of proceedings while making them more transparent. Finally, cases could be expedited through additional and shortened timelines.

3. OECD The OECD has also contributed to the ISDS reform debate, in particular through its 'Freedom of Investment' roundtable. The roundtable consists of representatives of the 36 OECD countries, as well as further countries adhering to the OECD Declaration on International Investment and Multinational Enterprises and organisations such as the EU and WTO.

22 See ICSID, Working Paper No. 4, Vol. 1, Proposals for Amendment of the ICSID Rules, February 2020, [https://icsid.worldbank.org/en/Documents/ WP_4_Vol_1_En.pdf, accessed 23 October 2020]. 23 Cp. Chapter 5 on the amendment process of the ICSID Arbitration Rules based on the Working Paper No. 3 at pp. 123 et seqq. 24 In May 2020, the Secretariats of ICSID and UNCITRAL released a first draft Code of Conduct for Adjudicators [https://uncitral.un.org/en/codeofconduct, accessed 23 October 2020]. Its Article 6, entitled ‘Limit on Multiple Roles’, contains the alternative proposals of (i) a requirement to disclose 'double hatting', and (ii) a prohibition on the practice of ‘double hatting’.

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In 2012, the roundtable held a public consultation on ISDS25 and also conducted a large-scale survey of BIT provisions.26 Most recently, in its thirtieth ‘Freedom of Investment’ roundtable held in March 2019, discussions focused inter alia on the question of a level playing field in international investment, regarding (i) controversies surrounding the preferential treatment granted to treaty-covered investors over non-covered investors and its consequences on State practice, (ii) the effect on a level playing field of the increasingly frequent acts of State-owned entities as investors abroad, and (iii) concerns that investment treaties tilt the competitive playing field for the distribution of government benefits and burdens towards investor interests and away from other societal interests including labour and the protection of human rights.27 The intersection of international investment arbitration, business, and human rights is also of concern to the OECD. In particular, it is concerned that the ways in which investment treaties interact with regulations on business responsibilities, either through ‘regulatory chill’ in the context of the host State, or conversely a strengthening of anti-corruption/human rights policies.28

4. UNCTAD UNCTAD’s aims of integrating developing economies into the world economy while maximising their trade and investment opportunities have led it to also contribute to the ISDS reform debate. In its updated Reform Package issued in 2018,29 UNCTAD sets out various guidelines, priority ar-

25 See OECD, Investor-State Dispute Settlement Scoping Paper: List of issues for discussion, 2012, [http://www.oecd.org/daf/inv/investment-policy/ISDSscopingpaper-Issues.pdf, accessed 23 October 2020]. 26 See OECD, Dispute settlement provisions in international investment agreements: A large sample survey, [http://www.oecd.org/investment/internationalinvestmentagreements/50291678.pdf, accessed 23 October 2020]. 27 See OECD, Freedom of Investment Roundtable 30: Summary of Discussion, 6 November 2012, p. 3, [https://one.oecd.org/document/DAF/INV/WD(2019)17/ FINAL/en/pdf, accessed 23 October 2020]. 28 See OECD, Business Responsibilities and Investment Treaties, p. 4, [http:// www.oecd.org/investment/OECD-Investment-treaties-Public-consultation-2020.pdf, accessed 23 October 2020]. 29 See UNCTAD, UNCTAD’s Reform Package for the International Investment Regime, 2018, [https://investmentpolicy.unctad.org/uploaded-files/document/ UNCTAD_Reform_Package_2018.pdf, accessed 23 October 2020].

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eas, levels of reform action, and different phases of IIA reform, which are far-reaching and cover very different aspects of ISDS. Key areas include UNCTAD’s advice to governments to take stock of their BITs, evaluate their suitability, and work bilaterally, regionally and multilaterally to either phase out or modernise unsuitable BITs and work towards reform. Furthermore, UNCTAD urges to focus on critical reform areas, such as the right of States to regulate, the promotion of responsible investment, procedural aspects of ISDS, and systemic consistency between BITs, other international law instruments and domestic policies. This would, in UNCTAD's view, be best achieved through a planned and properly sequenced, transparent and inclusive reform process, which would strengthen the multilateral supportive structure of ISDS. The debate within UNCITRAL Working Group III, into which the EU, OECD, ICSID and UNCTAD are providing input, therefore serves as an important focal point for the ongoing reform efforts concerning investorState dispute settlement; how this debate plays out, and what can be expected from the outcome, is the subject of the subsequent chapter by Corinne Montineri. August Reinisch then follows up with comments from an arbitrator’s perspective.

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UNCITRAL Reform Process on ISDS Corinne Montineri*

Introduction The investor-State dispute settlement (ISDS) regime forms part of the mechanisms for the promotion and protection of foreign investments. While ISDS provisions in investment treaties vary, they normally provide for dispute settlement mechanisms based on arbitration and the following features: (i) the claimant-investor may bring a claim directly against the host State; (ii) the dispute is resolved by an arbitral tribunal constituted ad hoc for that particular dispute; and (iii) both disputing parties, including the claimant-investor and the respondent-State, play an important role in the selection of the arbitral tribunal. The ISDS regime was developed to allow a foreign investor to bring a claim directly against a State. This regime constituted in a significant development as traditionally, diplomatic means of protection applied to the settlement of disputes relating to investment. As often underlined, the ISDS regime was intended to ‘de-politicize’ investment disputes and effectively remove the risk of such disputes escalating into inter-State conflicts. After decades of existence of the ISDS regime, the time may have come to draw lessons from experiences, and consider, as it is currently done in various fora, whether reform is needed and, if so, what type of reform could be envisaged, given the existing legal framework. Views are diverse on the benefits and drawbacks of ISDS. The common understanding reached at this point in time is that reform of ISDS is needed. Reform is undergoing, as States are adopting new approaches in their bilateral and regional investment treaties. The International Centre for Settlement of In-

* Corinne Montineri is a Legal Officer in the International Trade Law Division of the United Nations Office of Legal Affairs, the Secretariat of the United Nations Commission on International Trade Law (UNCITRAL). The views expressed therein are those of the author and do not necessarily represent those of UNCITRAL.

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vestment Disputes (ICSID) is also considering reforms, to the extent possible under its legal framework.1 Noteworthy are the current discussions held at the United Nations Commission on International Trade Law (UNCITRAL) on a possible reform of the ISDS regime.2 The purpose of this paper is to present such reform efforts. It is based on the documents published by UNCITRAL as of February 2020.3

1. Origin of the Work on ISDS Reform at UNCITRAL UNCITRAL is well-known for the framework that it developed in the field of international arbitration. UNCITRAL adopted a set of ad hoc Arbitration Rules in 1976. At that time, the UNCITRAL Arbitration Rules were meant to provide a basis for the harmonization of the arbitration procedure. The Rules paved the way for the preparation of the UNCITRAL Model Law on International Commercial Arbitration.4 Their main characteristics are that they are generic, meaning that they can be used for solving a wide range of disputes, whether simple or complex, and they are flexible in that they can be easily adapted to the needs of users. Over time, users of the Rules have included not only merchants, but also States which used them in the context of State-to-State dispute settlement, and arbitral institutions which adopted them as institutional rules. They have also been referenced in investment treaties concluded by States as an option in the in-

1 Cp. Chapter 5 on the amendment process of the ICSID Arbitration Rules based on the Working Paper No. 3 at pp. 123 et seqq. 2 See UN documents published on the website of UNCITRAL https://uncitral.un.org /en/working_groups/3/investor-state [accessed 23 October 2020]; see in particular the report on the thirty-sixth and thirty-seventh sessions of the UNCITRAL Working Group III, referenced A/CN.9/964 and A/CN.9/970, respectively; see also the report by the Geneva Centre for International Dispute Settlement (CIDS), Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? – Analysis and roadmap, 2016, (“CIDS report”), [https://www.uncitral.org/pdf /english/CIDS_Research_Paper_Mauritius.pdf, accessed 23 October 2020]; see also document A/CN.9/WG.III/WP.142. 3 See https://uncitral.un.org/en/working_groups/3/investor-state [accessed 23 October 2020]. 4 See UNCITRAL, Model Law on International Commercial Arbitration, [https://uncitra l.un.org/en/texts/arbitr ation/modellaw/commercial_arbitration, accessed 23 October 2020].

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vestor-State dispute settlement provision, so that investors would have the choice to arbitrate their claims under the rules of UNCITRAL, in addition to those of ICSID. The UNCITRAL Arbitration Rules have been revised in 2010 and 2013. A number of provisions were updated in 2010 with a view to improving procedural efficiency and including new provisions, for instance on joinder and interim measures. The revision undertaken in 2013 focus on the application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (‘Rules on Transparency’) in conjunction with the UNCITRAL Arbitration Rules. At the initial stage of the process of revising the UNCITRAL Arbitration Rules, in October 2006, the question was raised whether UNCITRAL should maintain the generic application of the Rules. A suggestion was made to include provisions, possibly contained in parallel versions or annexes to the UNCITRAL Arbitration Rules, dealing specifically with the different types of arbitration or disputes to which the Rules usually apply. It was suggested that inclusion of annexes could provide useful guidance for users, such as States and arbitral institutions when adopting the UNCITRAL Arbitration Rules. However, at that time, broad support was expressed for a generic approach that sought to identify common denominators that applied to all types of arbitration irrespective of the subject matter of the dispute, in preference to dealing with specific situations. Since practice in various areas, including in investor-State dispute settlement, was still developing, the decision was made not to prepare specific provisions.5 Two years after, in June 2008, the Government of Canada made a submission to UNCITRAL, requesting that as part of the revision of the Rules, UNCITRAL considers how to adapt the Rules to ensure that they would reflect the needed level of transparency and publication required in ISDS.6 The submission of the Government of Canada underlines that ‘investor-state arbitration also implicates the interests of the citizens and residents of the disputing State. Disputes brought pursuant to investment treaties often involve regulations with public policy implications, such as tax laws, environmental laws, health regulations and nat-

5 UNCITRAL, Report of the Working Group on Arbitration and Conciliation on the work of its forty-fifth session, 5 October 2006, A/CN.9/614, paras 17 and 18. 6 UNCITRAL, Settlement of commercial disputes Revision of the UNCITRAL Arbitration Rules Observations by the Government of Canada, 12 June 2008, A/CN.9/662.

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ural resources laws. Further, the defence of any claim and the payment of any award will ultimately come from public funds’.7 The submission also quoted Professor John Ruggie, the Special Representative of the United Nations’ Secretary-General on the issue of human rights and transnational corporations and other business enterprises, who explains that ‘[w]here human rights and other public interests are concerned, transparency should be a governing principle, without prejudice to legitimate commercial confidentiality’.8 In response, UNCITRAL agreed expressly by consensus on the importance of ensuring transparency in ISDS and decided that the topic should be dealt with as a matter of priority immediately after the revision of the UNCITRAL Arbitration Rules (which was completed in 2010).9 As a result, UNCITRAL adopted its first instruments applicable to ISDS. It adopted the Rules on Transparency in 2013, recognizing ‘the need for provisions on transparency in the settlement of treaty-based investor-State disputes to take account of the public interest involved in such arbitrations’.10 Their adoption resulted in an additional revision to the UNCITRAL Arbitration Rules in 2013, with a new Article 1(4) providing for the application of the Rules on Transparency. The Rules on Transparency, which came into effect on 1 April 2014, comprise a set of procedural rules that provides for transparency, and for accessibility by the public to treaty-based investor-State arbitration. In adopting the Rules on Transparency, the General Assembly expressed its belief ‘that rules on transparency in treaty-based investor-State arbitration would contribute significantly to the establishment of a harmonized legal framework for a fair and efficient settlement of international investment disputes, increase transparency and accountability and promote good governance’.11 The Rules on Transparency have been incorporated in most investment treaties concluded since their coming into force. In addition, the United Nations Convention on Transparency in Treatybased Investor-State Arbitration (also known as the ‘Mauritius Convention on Transparency’), which opened for signature in March 2015 and entered

7 Ibid. 8 Ibid. 9 UNCITRAL, Official Records of the General Assembly, Sixty-third Session, Supplement No. 17, 2008, A/63/17, para 314. 10 UNCITRAL, Official Records of the General Assembly, Sixty-eighth Session, Supplement No. 17, 2013, A/68/17, Annex I, at C. 11 UNCITRAL, General Assembly Resolution, 18 December 2013, A/RES/68/109.

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into force in October 2017, provides a mechanism for States to consent to the application of the Rules on Transparency to investment treaties concluded before the coming into force of these Rules in April 2014.12 In short, the Mauritius Convention allows the Rules on Transparency to be applied to all existing bilateral, regional, and multilateral investment treaties, and in all available arbitral fora, if both the respondent State and the investor’s home State are contracting parties to the Convention on Transparency or, alternatively, if the investor (as claimant) accepts the unilateral offer of the respondent State to apply the Rules on Transparency. In essence, the Convention introduces the substantive transparency standards embodied in the Transparency Rules into the fragmented treaty-by-treaty regime by way of a single multilateral instrument. It introduces a flexible regime as it foresees a limited number of reservations that Contracting Parties may formulate.13 In 2015, UNCITRAL noted that its standards in the field of dispute settlement were characterized by their flexibility and generic application to different types of arbitration, including both purely commercial arbitration and investor-State arbitration. In relation to investor-State arbitration, UNCITRAL noted that the current circumstances posed a number of challenges and proposals for reforms had been formulated by a number of organizations. In that context, UNCITRAL took note of the preparation of a study prepared by the Geneva Centre for International Dispute Settlement (CIDS) on whether the Mauritius Convention on Transparency could provide a useful model for possible reforms in the field of investor-State arbitration (‘CIDS report’).14 A year after, in 2016, UNCITRAL took note of the CIDS report, which analyses whether the approach adopted in the Convention on Transparency could be used for structural reforms of ISDS and the issues that this approach would create. The research study borrows from existing experience with various international courts and tribunals, including inter-State dispute settlement bodies (such as the International Court of Justice and the World Trade Organization (WTO)) as well as other dispute settlement mechanisms, such as the Iran-United States Claims Tribunal and regional

12 The status of the Mauritius Convention and the Rules on Transparency is available at https://uncitral.un.org/en/texts/arbitration/conventions/transparency/status and https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awar ds/status, respectively, [accessed 23 October 2020]. 13 See analyses in the CIDS report. 14 UNCITRAL, Official Records of the General Assembly, Seventieth Session, Supplement No. 17, 2015, A/70/17, para 268.

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courts. The final part of the research study addresses how States may extend the possible reforms to their existing and future investment treaties. The research study suggests that, although not the only model that could be envisaged for those purposes, an opt-in convention modelled on the Convention on Transparency with certain adaptations can effectively extend new dispute settlement options to existing investment treaties. However, such a convention would raise treaty law issues, which the research study discusses.15 A question considered is whether a convention implementing new reforms to existing investment treaties, modelled on the Convention on Transparency, would constitute a successive treaty creating new obligations pursuant to Article 30 of the Vienna Convention on the Law of Treaties, or whether it would constitute an amendment or modification of investment treaties (pursuant to provisions of existing investment treaties and Chapter IV of the Vienna Convention). If a convention implementing new reforms were to be considered as an amendment or a modification to underlying investment treaties, there would be some additional elements to be considered when drafting the convention (for instance, on procedures for amending/modifying treaties), and States parties to the Convention would need to consider possible domestic procedures to be followed to implement such reforms.16 Another useful model cited in the research study is the Multilateral Base Erosion and Profit Shifting (BEPS) Convention prepared by the OECD, which potentially impacts the application of thousands of bilateral tax treaties concluded to eliminate double taxation. At the annual session of UNCITRAL, in 2017, after consideration of some ongoing reform efforts, possible reform options, and after further consultations with a broad range of stakeholders, UNCITRAL decided to commence work on possible ISDS reforms, and it mandated its Working Group III to work on the matter.17 15 UNCITRAL, Official Records of the General Assembly, Seventy-first Session, Supplement No. 17, 2016, A/71/17, para 189. 16 Notably, including as that under the Mauritius Convention. See UNCITRAL, A/71/17, paras 187–194. 17 UNCITRAL, Official Records of the General Assembly, Seventy-second Session, Supplement No. 17, 2017, A/72/17, para 264. See also notes by the UNCITRAL Secretariat on Possible future work in the field of dispute settlement: Concurrent proceedings in international arbitration, 24 March 2017, A/CN.9/915; on Possible future work in the field of dispute settlement: Ethics in international arbitration, 13 April 2017, A/ CN.9/916; and on Possible future work in the field of dispute settlement: Reforms of investor-State dispute settlement (ISDS), 20 April 2017, A/CN.9/917; and on InvestorState Dispute Settlement Framework – Compilation of comments, 31 January 2017, A/

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2. Institutional Framework The mandate of Working Group III to work on the possible reform of investor-State dispute settlement adopted by consensus at UNCITRAL is defined in broad terms. It reads as follows: ‘In line with the UNCITRAL process, Working Group III would, in discharging that mandate, ensure that the deliberations, while benefiting from the widest possible breadth of available expertise from all stakeholders, would be Government-led, with high-level input from all Governments, consensus-based and fully transparent. The Working Group would proceed to: (a) first, identify and consider concerns regarding investor-State dispute settlement; (b) second, consider whether reform was desirable in the light of any identified concerns; and (c) third, if the Working Group were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission. UNCITRAL agreed that broad discretion should be left to the Working Group in discharging its mandate, and that any solutions devised would be designed taking into account the ongoing work of relevant international organizations and with a view to allowing each State the choice of whether and to what extent it wished to adopt the relevant solution(s).’18 The main elements of the mandate include the need to follow a careful, step-by-step approach, the broad discretion given to the Working Group in discharging its mandate, the flexibility of the solutions to be developed, as each State should be allowed the choice of whether and to what extent it wishes to adopt a relevant solution, and the transparency19 that should characterize the process. The mandate of Working Group III includes a requirement to ensure that the process is government-led. As for many UN bodies, the sessions of UNCITRAL and its Working Groups are attended by delegations representing States, as well as by representatives of invited international organizations. Working Group III has noted that ‘active and wide participation by both developing and developed States was essential to ensure the effectiveness and legitimacy of the UNCITRAL process in implementing the CN.9/918 and addenda available at https://uncitral.un.org/en/commission [accessed 23 October 2020]. 18 UNCITRAL, A/72/17, para 264. 19 See UNCITRAL, Frequently Asked Questions – Methods of Work, [https://uncitral.un .org/en/about/faq/me thods, accessed 23 October 2020].

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mandate’.20 This is indeed the condition for the process to indeed be fully inclusive. Stakeholders in the process also include intergovernmental organizations such as the UNCTAD, WTO, OECD, ICSID and the PCA; a wide range of non-governmental organizations, academic circles and practitioners. Stakeholders provide contributions from their perspectives on the issues before the Working Group. The UNCITRAL website provides links to information and any materials they publish, so that the Working Group can consider them in its deliberations.21 As a result, the sessions of Working Group III have been attended by around 400 delegates, representing more than 100 States and 70 international organizations. Decisions are also usually made by consensus as far as possible. As a general matter, consensus does not require unanimity, but is instead based on a flexible notion that is characterized by a strong majority of opinions and the absence of formal objection and vote, a point that the Commission repeated when setting the mandate for Working Group III.22

3. Towards a Reform The first two steps in the reform process, i.e., first, identification and consideration of concerns regarding ISDS; and second, consideration whether reform is desirable in the light of any identified concerns, have been completed, with the understanding that any additional concern can always be raised and will be considered at any further stages of the deliberations. They are presented below, together with the conclusions reached by the Working Group.

20 UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-fifth session, 14 May 2018, A/CN.9/935, para 15. 21 https://uncitral.un.org/en/library/bibliography [accessed 23 October 2020]. 22 UNCITRAL, A/72/17, para 258; see also UNCITRAL, UNCITRAL rules of procedure and methods of work, 18 October 2007, A/CN.9/638/Add.4; and UNCITRAL, Official Records of the General Assembly, Sixty-fourth Session, Supplement No. 17, 2009, A/64/17, para 387.

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a) Divergent Interpretations of Substantive Standards, Divergent Interpretations Relating to Jurisdiction and Admissibility, and Procedural Inconsistency – Lack of a Framework to Address Multiple Proceedings – Limitations in the Current Mechanisms to Address Inconsistency and Incorrectness of Arbitral Decisions The Working Group first considered concerns relating to divergent interpretations of substantive standards, divergent interpretations relating to jurisdiction and admissibility, and procedural inconsistency.23 The starting point of the discussion was the consensus on the importance of a coherent and consistent ISDS regime, which would provide for correct and predictable outcomes. Such characteristics are needed so as to enhance confidence in the investment environment and legitimacy of the ISDS regime. Any lack of consistency would have a financial and political impact on States as they rely on a coherent and predictable framework when developing their investment policies. It was also not disputed in the Working Group that different factors may lead to different arbitral decisions: for example, the rules of treaty interpretation require a tribunal to consider more than the ordinary meaning to be given to the terms of a treaty provision when interpreting it, the manner and the extent to which relevant evidence are presented may lead to different decisions. So, in order to consider the matter, the Working Group made a distinction between divergence in decisions that could be justified and differing interpretations which could not be justified (for example, contradictory interpretations of the same substantive standard in the same treaty, or of the same procedural issue, particularly when the facts were similar). The Working Group focussed its discussion on those scenarios in which different interpretations could not be justified.24 The concern was described by some as particularly acute when different ISDS tribunals reach contradicting conclusions about the same or similar substantive standard or about the same procedural issue, particularly when the facts are similar or a different outcome cannot be justified.25 The concern was also said to relate to annulment as well as recognition and enforcement of arbitral awards, as these procedures have also given rise to inconsistent approaches and outcomes.

23 See UNCITRAL, A/CN.9/WG.III/WP.150. 24 See illustrations of inconsistent decisions in document, ibid. 25 Cp. e.g. the inconsistency in the interpretation of MFN clauses referred to in Chapter 1, Annacker at p. 49.

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Regarding the causes or sources leading to the lack of consistency, coherence, predictability and correctness of arbitral decisions, substantive protection standards are found in different sources of law, including investment treaties and domestic investment laws, which result in fragmentation. Investment disputes are resolved by tribunals constituted ad hoc for solving individual disputes. The divergent interpretations and procedural inconsistency can be viewed as intrinsic elements of the ISDS regime and further linked with other concerns, for instance, that arbitrators do not regard themselves as under a general duty towards an international system of justice, to act in the public interest, or to take into account the rights and interest of non-disputing parties. Existing mechanisms (annulment and set aside) are designed to address significant deficiencies in the arbitral proceeding before an award is enforced. As such, post-award remedies are generally limited to this scope and do not necessarily provide the mechanism to address concerns arising from incorrect decisions or error made by arbitral tribunals. In addition, annulment committees and domestic courts are not necessarily qualified to rectify the outcomes. There were different views on the degree of inconsistency and incorrectness of decisions by ISDS tribunals. For instance, it was suggested that the reform should not focus on inconsistency among decisions but on ensuring the correct interpretation of investment treaty provisions. The main concern is not that decisions are inconsistent, but that arbitral tribunals have interpreted the treaty provisions incorrectly, sometimes not taking account of the intention of the treaty parties. So, in considering any reform options, it would be important to consider their possible impact on States’ control over their treaties. During the deliberations, States shared their experience on how they have sought to address these concerns in their investment treaties, such as by including provisions on joint interpretative declarations, providing more guidance to arbitral tribunals on the meaning of certain terms and standards, and establishing joint committees on treaty interpretation. While these approaches are useful for the interpretation of a specific treaty, they do not constitute solutions for interpreting similar treaty provisions in different treaties. The importance of addressing these matters at a multilateral level was therefore underlined. The Working Group also considered concerns relating to the lack of a framework to address multiple proceedings, and whether such concerns warranted some form of reform. The agreed starting point was that not all multiple proceedings are problematic and during the deliberations, the right of access to justice was underlined. The discussion focussed on problematic situations where the multiplicity of proceedings results in a State 166

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having to defend several claims in relation to the same measure, with possibly the same economic damage at stake, leading to a duplication of efforts, additional costs, procedural unfairness and potentially contradictory outcomes. Examples were given of multiple proceedings involving entities within the same corporate structure that had given rise to multiple recovery of the same damage and created dissatisfaction among users of ISDS. There are a number of principles and mechanisms that could be applicable to prevent, or limit the impact of multiple proceedings, such as the doctrines of lis pendens, res judicata and the use of consolidation, joinder and coordination mechanisms. 26 However, their application is limited. For example, it is usually not possible to consolidate proceedings which have started under different arbitration rules and/or administered by different arbitration institutions. Consolidation of claims based on different underlying treaties can prove difficult because they may contain differing substantive obligations, as well as diverging time limits, procedural obligations and dispute settlement forums. The need to address the negative consequences of multiple proceedings and recurring problems, such as contradictory and irreconcilable decisions was underlined. During the deliberations, States shared their experience on how they have sought to address these concerns in their investment treaties, such as provisions to prevent abusive claims, prohibition of claims by shareholders where the investor itself is pursuing a remedy in a different forum, permitting claims by an investor only if the investor and the local company withdraw any pending claim and waive their rights to seek remedy before other forums, allowing consolidation, and limiting treaty shopping. Decisions by the Working Group There was consensus in the Working Group that there were instances of unjustifiable inconsistency. The Working Group concluded that the development of reforms by UNCITRAL was desirable to address the concerns related: • Unjustifiably inconsistent interpretations of investment treaty provisions and other relevant principles of international law by ISDS tribunals;

26 Cp. the comment on the proposed amendments to the ICSID Arbitration Rules concerning consolidation in Chapter 5, Seelmann-Eggebert at p. 142.

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• The lack of a framework for multiple proceedings that were brought pursuant to investment treaties, laws, instruments and agreements that provided access to ISDS mechanisms, and • The fact that many existing treaties have limited or no mechanisms at all that could address inconsistency and incorrectness of decisions.

b) Concerns Pertaining to Arbitrators and Decision Makers: Lack or Apparent Lack of Independence and Impartiality – Limitations in Existing Challenge Mechanisms – Lack of Diversity of Decision Makers – Qualifications of Decision Makers The next topic considered by the Working Group related to concerns pertaining to arbitrators and decision makers in ISDS, with a view to determining whether the relevant concerns warranted some form of reform. The consensus at the starting point of the discussion was that guaranteeing independence and impartiality of decision makers is crucial for ensuring due process, fairness, as well as the legitimacy of ISDS. Independence and impartiality are key elements of any system of justice, including arbitration. Concerns relating to the possible lack of independence and impartiality of decision makers, or of the perception thereof, were said to be particularly acute in the field of ISDS, as ISDS cases usually involved public policy issues and involved a State. The Working Group discussed certain issues that were identified as potential causes of lack of independence and impartiality, and of the perception thereof, such as repeat appointments, instances of conflict of interest and/or so-called issue conflicts, as well as the practice of individuals switching roles as arbitrator, counsel and expert in different ISDS proceedings (referred to as ‘double-hatting’ below). Views were expressed on some of the causes of the concerns with respect to independence and impartiality – with some highlighting the lack of clear standards in many existing older treaties, others highlighting specific practices like double-hatting, and others pointing to the ad hoc system of party-appointed tribunals. In that light, it was stated that consideration should be given on how any proposed reforms would address the identified cause of the concerns. The Working Group then considered whether it would be desirable for UNCITRAL to develop reforms to respond to concerns relating to the adequacy, effectiveness and transparency of disclosure and challenge mechanisms available under existing treaties and arbitration rules. It further discussed the existing mechanisms in many investment treaties for constituting ISDS tribunals, and questioned whether they were 168

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sufficient to ensure diversity of decision makers. The view was generally shared that the current lack of diversity in decision makers in the field of ISDS contributed to undermine the legitimacy of the ISDS regime. Relevant statistics illustrate that there is indeed lack of diversity particularly in terms of gender and geographical representation. Diversity includes broader considerations, for example, in terms of age, ethnicity, language, legal background as well as the country of origin, reflecting the different stages of economic development. In the context of a reform, promotion of diversity would ensure that decision makers have a better understanding of the policy consideration of States (particularly developing States), of local laws and practice as well as of public international law. Views were reiterated that existing mechanisms for constituting ISDS tribunals were based on party autonomy and designed to ensure flexibility and that those were key features of arbitration, which made it attractive. Party appointment was referred to as a fundamental right of disputing parties in arbitration, and one of the main reasons parties agreed to submit their dispute to arbitration. The mechanism for constituting arbitral tribunals allows parties to choose the arbitrators that they consider most qualified for solving their disputes and that, in practice, parties seldom delegate their right to participate in the constitution of ISDS tribunals. It was suggested that there was nevertheless a need to enhance the current mechanisms for constituting ISDS tribunals, in particular to address the concerns relating to lack of transparency, lack of diversity in appointed decision makers, repeat appointments, and qualification of decision makers. It was also noted that the constitution of ISDS tribunals at times involved the intervention of an appointing authority. In that context, the important role played by appointing authorities (both directly and indirectly) in constituting ISDS tribunals was highlighted.27 Decisions by the Working Group The Working Group concluded that the development of reforms by UNCITRAL was desirable to address concerns related to: • The lack or apparent lack of independence and impartiality of decision makers in ISDS;

27 See OECD Consultation Paper on Appointing Authorities and the Selection of Arbitrators in ISDS, March 2018.

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• The lack of adequacy, effectiveness and transparency of the disclosure and challenge mechanisms available under many existing treaties and arbitration rules; • The lack of appropriate diversity among decision makers in ISDS; and • The mechanisms for constituting ISDS tribunals in existing treaties and arbitration rules.

c) Concerns Pertaining to Cost and Duration of ISDS Cases: Lengthy and Costly ISDS Proceedings and the Lack of a Mechanism to Address Frivolous or Unmeritorious Cases – Allocation of Costs in ISDS – Concerns Regarding the Availability of Security for Cost in ISDS – Concerns Regarding ThirdParty Funding The Working Group considered concerns pertaining to cost and duration of ISDS proceedings with a view to determining whether relevant concerns warrant some form of reform.28 The resource-intensive nature of ISDS proceedings, where respondent States and claimant investors alike have to devote extensive time and cost, was highlighted. Costs were described as particularly significant for developing States with scarce financial and human resources, as well as for small and medium-sized enterprises with limited financial resources. It was, however, noted that length and cost of ISDS proceedings might be the consequence of a number of other concerns that the Working Group has identified previously as a number of issues may be seen as interlinked. The following was listed as potentially having an impact on the cost and duration of the ISDS proceedings: (i) application of provisional/interim measures by investors; (ii) bifurcation of proceedings; (iii) challenges to arbitrators; (iv) multiple appointments of arbitrators; (v) the need for translation; and (vi) delays in the rendering of the award.29 Having examined some of the reasons leading to length and cost of ISDS proceedings, the Working Group distinguished factors: (i) that were outside the control of the parties or could not be addressed in any reform (for example, complexity of the case, the need for translation and strategies by disputing parties); (ii) that were being addressed through improve28 Cp. the contribution on the amendment process of the ICSID Arbitration Rules focusing on the aspects of time and cost efficiency in ICSID arbitration proceedings in Chapter 5, Abriani at pp. 125 et seqq. 29 Cp. the reasons brought forward to explain the long duration of ICSID arbitrations in Chapter 5, Seelmann-Eggebert at p. 141.

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ments in procedural rules (for example, introduction of time frames and expedited procedure); and (iii) that needed a more systemic reform (for example, lack of a rule of precedent and ad hoc appointments). While it was generally felt that it would be desirable to undertake reforms to improve the efficiency of ISDS, the need to strike an appropriate balance was also stressed. For example, it was emphasized that ensuring due and fair process as well as guaranteeing the quality and correctness of the outcomes should not be sacrificed for the sake of speedy resolution of ISDS. During the deliberation, concerns were expressed with regard to the practice of third-party funding in ISDS as having an impact on the cost and duration of ISDS proceedings. More generally, the phenomenon of third-party funding was described as one of great concern and the necessity of developing reforms in that area was underlined, particularly in light of the current lack of transparency and of regulation of third-party funding.30 The need for balance in any solution to be developed by the Working Group was emphasized, so that it does not inadvertently limit access to justice particularly for small- and medium-size enterprises. The Working Group also considered whether it would be desirable for UNCITRAL to develop reforms to address the concerns related to limited availability of security for costs in ISDS in light of difficulties faced by States in recovering costs.31 ISDS tribunals seldom order security for costs and have done so in very exceptional circumstances, despite the fact that certain arbitration rules provide for that possibility. As a result, respondent States have not been able to recover a substantial part or any of their costs in defending unsuccessful, frivolous or bad faith claims by investors. Concerns regarding the availability of security for costs were widely shared. Decision by the Working Group The Working Group concluded that it was desirable that reforms be developed by UNCITRAL to address concerns with respect to: • • • •

Cost and duration of ISDS proceedings; Allocation of costs by arbitral tribunals in ISDS; Security for cost; and The definition, and to the use or regulation of third-party funding in ISDS.

30 Cp. the comment on the proposed amendments to the ICSID Arbitration Rules concerning third-party funding in Chapter 5, Seelmann-Eggebert at p. 140. 31 Cp. the comment on the proposed amendments to the ICSID Arbitration Rules concerning security for costs in Chapter 5, Seelmann-Eggebert at pp. 139 et seq.

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Conclusion The Working Group now needs to consider reform options, and it has started to do so based on proposals by States.32 The Working Group commenced to consider its methods of work to progress in an orderly manner on the reform agenda as there is a variety of possible reform options.33 There are fundamental differences in some of the reform solutions that are being proposed – some are more structural in nature, some involve reforms within the current system and some straddle that line. The Working Group agreed to discuss, elaborate and develop multiple potential reform solutions simultaneously. For that purpose, it has prepared a project schedule to move the proposed solutions forward in parallel.34 The preparation of a multilateral instrument on ISDS reform, that would include a number of reforms, and ensure application of such reforms to the existing investment treaties will be considered by the Working Group at its forthcoming sessions.35

32 A number of States have already submitted suggestions, see proposals under 37th session, [https://uncitral.un.org/en/working_groups/3/investor-state, accessed 23 October 2020]. 33 See the presentation of reforms in document A/CN.9/WG.III/WP.166 and its addendum, [https://uncitral.un.org/en/working_groups/3/investor-state, accessed 23 October 2020]. 34 See the report of the Working Group on the work of its thirty-eighth session, A/ CN.9/1004*, para 25. 35 See UNCITRAL, Possible reform of investor-State dispute settlement (ISDS) Multilateral instrument on ISDS reform, 16 January 2020, A/CN.9/WG.III/WP.194, [https://u ncitral.un.org/en/working_groups/3/investor-state, accessed 23 October 2020].

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UNCITRAL Reform Process on ISDS: Comment from Arbitrator’s Perspective August Reinisch*

Corinne Montineri provides an excellent account of what has happened in UNCITRAL’s Working Group III since 2017. It is indeed a very difficult task to distil from the work of Working Group III the main issues and this has been perfectly achieved. Before commenting on some specific points highlighted by Ms. Montineri allow me a general comment on one of the underlying difficulties that seem to be encountered by Working Group III when it concluded the second step, its identification of problems, and is now moving towards possible solutions. The closer this third step, the more evident a certain tension becomes: a tension between the flexibility of solutions for all members, as advocated by Working Group III, and the idea of creating a multilateral investment court (MIC) which will effectively function only if it is not flexible like the current arbitration system. Let me now make some specific comments on the identified concerns regarding ISDS, in regard to 1. inconsistent and ‘incorrect’ outcomes, 2. the independence and impartiality of arbitrators, challenge mechanisms and diversity, as well as 3. costs and allocation of costs in ISDS as well as concerns in regard to third-party funding:

1. Inconsistent and “Incorrect” Outcomes Inconsistent interpretations of the same BIT provision or provisions with almost identical language are indeed a problem which should be alleviated as far as possible. We are all aware of the issue of inconsistent awards and the general ‘absence […] of a rule of stare decisis in the ICSID arbitration

* Prof. Dr. August Reinisch is Professor of International and European Law at the University of Vienna.

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system.’1 Often, however, inconsistencies are rather the result of different treaty language intended by the treaty-makers; thus it would be difficult to regard this as an actual problem. The fact that more recent BIT generations with more detailed instructions are entering into force will equally contribute to a further diversification of outcomes. The possibility of consolidating proceedings as well as ultimately creating a single MIC, a multilateral investment appeals mechanism, or another permanent dispute settlement institution deciding on investment cases would certainly help avoiding inconsistencies.2 Still, we should be aware that consistent outcomes often remain an unattainable goal. Even within national supreme courts there may be diverging case law emerging from different chambers of such courts. 3 Thus, the MIC solution, while certainly helpful may not fully eliminate divergent lines of jurisprudence. I am more uncomfortable with the suggestion that inconsistencies could result from the fact that ‘arbitrators do not regard themselves as under a general duty towards an international system of justice, to act in the

1 Amco v Indonesia, ICSID Case No. ARB/81/1, Decision on Annulment, 16 May 1986, para 44; Art. 53(1), ICSID Convention, 18 March 1965, 575 UNTS 159, stating that an ‘award shall be binding on the parties […]’, has been generally interpreted to exclude a system of binding precedent in ICSID arbitration. The tribunal in AES Corporation v Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005, para 23 also explicitly held that ‘[t]here is so far no rule of precedent in general international law; nor is there any within the specific ICSID system’. See also Christoph Schreuer, Loretta Malintoppi, August Reinisch and Anthony Sinclair, The ICSID Convention. A Commentary, 2009, p. 1101; more specifically Art. 1136(1) NAFTA (‘An award made by a Tribunal shall have no binding force except between the disputing parties and in respect of the particular case.’). 2 See Marc Bungenberg and August Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court. Options Regarding the Institutionalization of Investor-State Dispute Settlement, Special Issue of European Yearbook of International Economic Law, 2020. 3 See e.g. Hugh Evander Willis, Some Conflicting Decisions of the United States Supreme Court, Virginia Law Review, 13 (3), p. 155; V. Nageswara Rao, Conflicting Decisions of Co-ordinate Benches: Problems and some Solutions, Journal of the Indian Law Institute, 32 (1), p. 49; cp. also Case of Nejdet Şahin and Perihan Şahin v Turkey, ECtHR, Judgement, Application No. 13279/05, 20 October 2011, para 86 (‘This means that two courts, each with its own area of jurisdiction, examining different cases may very well arrive at divergent but nevertheless rational and reasoned conclusions regarding the same legal issue raised by similar factual circumstances. It must be accepted that the divergences of approach that may thus arise between courts are merely the inevitable outcome of this process of interpreting legal provisions and adapting them to the material situations they are intended to cover.’).

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public interest, or to take into account the rights and interests of non-disputing parties.’4 From my own practical experience, arbitrators usually do regard themselves under an obligation of trying to find coherent outcomes and very specifically take into account ’precedents‘ by other tribunals.5 Evidently, the first duty of arbitrators is to decide disputes on the basis of the law that is applicable. That implies that to the extent that the applicable law mandates to take into account public interest, it will indeed be taken into account. More problematic is the issue of non-disputing parties and amicus curiae submissions, etc. The practice here is already rather liberal 6 and I would doubt whether an increased duty to admit non-disputing party submissions would serve the purpose of consistency. It might rather lead to more divergence as a result of hearing other voices than those of the treaty-makers and investors. I am really irritated, though, by the notion that there can be “incorrect” decisions; there are certainly outcomes that are more or less welcomed by one of the parties, but as lawyers from any field of law know there is hardly any “correct” or “incorrect” outcome. If what is meant by incorrect decisions are decisions that do not correspond to either the historic or present will of the treaty parties, the method of authentic treaty interpretation binding on tribunals seems to be a feasible tool to solve this problem.7 However, one should also understand that this method in itself raises seri-

4 See Chapter 6, Montineri at p. 166. 5 See Andrea Bjorklund, ‘Investment Treaty Arbitral Decisions as Jurisprudence Constante’, in Colin Picker, Isabella Bunn and Douglas Arner (eds.), International Economic Law: The State and Future of the Discipline, 2008, p. 265; August Reinisch, The Role of Precedent in ICSID Arbitration, Austrian Arbitration Yearbook, 2008, p. 495; Christoph Schreuer and Matthew Weiniger, ‘A Doctrine of Precedent’ in Peter Muchlinski, Federico Ortino and Christoph Schreuer (eds.), The Oxford Handbook of International Investment Law, 2008, p. 1188. 6 See on amicus curiae in ISDS, Christina Knahr, Transparency, Third Party Participation and Access to Documents in International Investment Arbitration, Arbitration International, 23 (2), p. 327; Eugenia Levine, Amicus Curiae in International Investment Arbitration: The Implications of an Increase in Third- Party Participation, Berkeley Journal of International Law, 29 (1), p. 200; Nicolette Butler, Non-Disputing Party Participation in ICSID Disputes: Faux Amici?, Netherlands International Law Review, 66 (1), pp. 143, 151 et seq. 7 See e.g. NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions, 31 July 2001, [http://www.sice.oas.org/tpd/nafta/Commission/CH11u nderstanding_e.asp, accessed 23 October 2020]; Art. 1131(2), NAFTA, (“An interpretation by the Commission of a provision of this Agreement shall be binding on a Tribunal established under this Section.”); Art. 8.31.3, CETA, (‘Where serious concerns arise as regards matters of interpretation that may affect investment, the

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ous rule of law concerns because it can be reasonably argued that it grants a party to a dispute a say in the outcome, thereby contravening the old maxim nemo iudex in causa sua.8 Furthermore, even the creation of a single court would not necessarily eliminate the problem of “incorrect” rulings because even its final decisions could be viewed as “incorrect” by some stakeholders.

2. Concerns Relating to the Independence and Impartiality of Arbitrators, Challenge Mechanisms and Diversity There is no doubt that the independence and impartiality of those deciding disputes, whether judges or arbitrators, is a crucial requirement for any system of dispute settlement and a core demand of the rule of law.9 It is contained in all human rights instruments, 10 has a functional equivalent in

Committee on Services and Investment may, pursuant to Article 8.44.3(a), recommend to the CETA Joint Committee the adoption of interpretations of this Agreement. An interpretation adopted by the CETA Joint Committee shall be binding on the Tribunal established under this Section. The CETA Joint Committee may decide that an interpretation shall have binding effect from a specific date.’). 8 On the discussion following the 2001 NAFTA FTC interpretation on FET see e.g. Todd Weiler, NAFTA Investment Law in 2001: As the Legal Order Starts to Settle, the Bureaucrats Strike Back, The International Lawyer, 36 (2), p. 345; Gabrielle Kaufmann-Kohler, ‘Interpretive Powers of the NAFTA Free Trade Commission – Necessary Safety Valve or Infringement of the Rule of Law?’ in Emmanuel Gaillard, Frédéric Bachand. Fifteen Years of NAFTA Chapter 11 Arbitration, 2011, p. 175; Patrick Dumberry, Moving the Goal Post!: how Some NAFTA Tribunals have challenged the FTC Note of Interpretation on the Fair and Equitable Treatment Standard under NAFTA Article 1105, World Arbitration and Mediation Review, 8 (2), p. 251. 9 United Nations General Assembly, Declaration of the High-level Meeting of the General Assembly on the Rule of Law at the National and International Levels, 30 November 2012, A/RES/67/1, para 13, (‘We are convinced that the independence of the judicial system, together with its impartiality and integrity, is an essential prerequisite for upholding the rule of law and ensuring that there is no discrimination in the administration of justice.’). 10 All the human rights instruments speak of ‘independent and impartial tribunals’. See Art. 10, Universal Declaration of Human Rights, GA Res. 217(III), UN GAOR, 3d Session, Supplement No. 13, 1948, UN Doc. A/810 at 71, (‘Everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him.’).

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most arbitration rules,11 can be enforced through various arbitrator challenge procedures12 and is ultimately guaranteed by annulment proceedings under the ICSID Convention and residual local court control in nonICSID cases, which can also make the lack of independence and impartiality a ground for annulment or set-aside/non-recognition of awards.13 While I thus fully agree that independence and impartiality of any decision-maker is always one of the crucial elements of dispute settlement, I have doubts that it is “particularly acute” in the field of ISDS.14 In fact, the same problem – if not a more “acute” one – relating to public policy issues exists before the International Criminal Court or the International Court of Justice. From my perspective the requirements of independence and impartiality contained in all arbitration rules are fine and particularly the International Bar Association’s (IBA) Guidelines on Conflicts of Interest in International Arbitration15 give very clear guidance. What may need improvement is the mechanism of implementing the independence and impartiality requirements, in particular, a) who decides on challenges, b) whether such decisions need to be reasoned, and c) whether they are made public or not. One of the further arguments made is the need for greater diversity of decision-makers.16 Of course, much has been written about the obvious

11 See e.g. Art. 6(7), UNCITRAL Arbitration Rules 2010 (‘independent and impartial arbitrator’); Art. 14(1), ICSID Convention (‘Persons […] of high moral character and recognized competence in the fields of law, commerce, industry or finance, who may be relied upon to exercise independent judgment.’). 12 Art. 57, ICSID Convention (‘A party may propose to a Commission or Tribunal the disqualification of any of its members on account of any fact indicating a manifest lack of the qualities required by paragraph (1) of Article 14.’); Art. 12(1), UNCITRAL Arbitration Rules (‘Any arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence.’). 13 Although the ICSID Convention does not make the lack of independence and impartiality an express ground for annulment, cases where arbitrators have acted in such a way may be challenged under ‘serious departure from a from a fundamental rule of procedure’. See Christoph Schreuer, Loretta Malintoppi, August Reinisch and Anthony Sinclair, The ICSID Convention. A Commentary, 2009, pp. 983 et seq. 14 See Chapter 6, Montineri at p. 168. 15 IBA Guidelines on Conflicts of Interest in International Arbitration, 2014, [https:/ / w w w . i b a n e t . o r g / P u b l i c a tions/publications_IBA_guides_and_free_materials.aspx, accessed 23 October 2020]. 16 See Chapter 6, Montineri at pp. 168 et seq.

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fact that ISDS in the form of investor-State arbitration is very much confined to a rather limited circle of arbitrators.17 While this would certainly bring in novel view-points and probably broaden the scope of legitimacy, it is likely to conflict or at least create a certain tension with the aim of producing more consistent outcomes.

3. Overall Costs as well as Allocation of Costs in ISDS; Concerns in regard to Third-Party Funding Costs, in particular, the costs of representing parties have reached staggering amounts and may have become prohibitive both for investors seeking redress as well as for host States.18 I also agree that third-party funding requires rules aimed at transparency.19 However, third-party funding may not always be negative as such. On the contrary, it can also be a tool to effectively ensure access to justice by parties that would otherwise not be able to afford it.20 For a tribunal the main problem is controlling costs during the proceedings. Controlling costs is often linked to the duration of proceedings,

17 Susan Franck, James Freda, Kellen Lavin, Tobias Lehmann and Anne van Aaken, The Diversity Challenge: Exploring the "Invisible College" of International Arbitration, Columbia Journal of Transnational Law, 53 (3), p. 429; Emmanuel Gaillard, Sociology of international arbitration, Arbitration International, 31 (1), pp. 13–16. 18 Susan Franck, Rationalizing Costs in Investment Treaty Arbitration, Washington University Law Review, 88 (4), p. 769; Matthew Hodgson, ‘Costs in Investment Treaty Arbitration: The Case for Reform’ in Jean Kalicki and Anna Joubin-Bret (eds.), Reshaping the Investor-State Dispute Settlement System: Journeys for the 21st Century, 2015, pp. 748, 749 et seq. 19 Anna Joubin-Bret, Spotlight on Third-Party Funding in Investor-State Arbitration, Journal of World Investment & Trade, 16 (4), pp. 727, 732 et seq.; Gary Shaw, Third-party funding in investment arbitration: how non-disclosure can cause harm for the sake of profit, Arbitration International, 33 (1), p. 109. Measures aimed at transparency could include a mandatory disclosure of the third-party funder and the terms of the funding agreement provided that sensitive business information remains confidential. 20 Mark Kantor, Third-Party Funding in International Arbitration: An Essay About New Developments, ICSID Review – Foreign Investment Law Journal, 24 (1), pp. 65, 73; Carolyn Lamm and Eckhard Hellbeck, ‘Third-Party Funding in Investor-State Arbitration Introduction and Overview’ in Antonias Dimolitsa and Bernardo Cremades (eds.), Third-Party Funding in International Arbitration, 2013, pp. 101, 106.

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which the tribunal can regulate to some extent.21 However, the tribunal usually has no effective means of ensuring that the parties are not overcharged by their own counsel since a tribunal is mainly limited to allocating costs between the parties. It appears that because of the difficulties of controlling costs of party representations, the focus of attention has shifted to limiting the costs of the arbitral tribunals. Nevertheless, given the fact that tribunal costs regularly account for only 15 to 20 per cent of the overall costs of arbitration proceedings22 the effect of such limitations will be rather modest.

21 See Stephan Schill, Reforming Investor-State Dispute Settlement (ISDS): Conceptual Framework and Options for the Way Forward, E15 Initiative, ICTSD, 2015, [http://e1 5initiative.org/publications/reforming-investor-state-dispute-settlement-isds-conce ptual-framework-and-options-for-the-way-forward/, accessed 23 October 2020]. 22 Calculations based on GAR study by Matthew Hodgson and Alastair Campbell, Damages and costs in investment treaty arbitration revisited, 14 December 2017, [https://www.allenovery.com/en-gb/global/news-and-insights/news/damages-and-c osts-in-investment-treaty-arbitration-revisited, accessed 23 October 2020].

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Discussion moderated by Moritz Keller*

A first intervention from the public enquired to what extent the concerns of investors were represented in the modernization discussions since only the complaints of the respondent States seemed to have been addressed. Montineri explained that the Working Group reached out to the ICC as a representative of the global business community. In addition, she reported that States had sometimes talked on behalf of their investors. Furthermore, she asked that, if anyone succeeded in channelling the investors’ opinion, he or she should reach out to UNCITRAL and pass them on. Afterwards, the discussion turned to third-party funding. The view was shared that while this instrument constituted a means of access to justice, only investors seemed to benefit from it. With reference to Philipp Morris v Uruguay1 the question was raised whether this matter should not be addressed in a systematic manner rather than through different initiatives. In that case, the Anti-Tobacco Trade Litigation Fund created by Bloomberg Philanthropies and the Bill and Melinda Gates Foundation had famously provided financial and technical assistance to Uruguay. Reinisch assumed that third-party funding has led to the initiation of many ISDS claims. He concurred that whether or not to raise a claim was an economic decision in which the probability of success had to be taken into account. According to him, this was the reason why investors depended on third-party funding while States did not. He added that assurances could be a way to help States in need.

* The discussion is reported by Dr. Berta Boknik (IILCC, University of Cologne). 1 Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v Oriental Republic of Uruguay, ICSID Case No. ARB/10/7.

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Concluding Remarks Julian Scheu*

After these excellent presentations, insightful comments, and lively discussions it is an honour to close the 10 Year Anniversary Conference with a few remarks on today’s programme and upcoming challenges for the development of international investment law. What are the takeaways for stakeholders of the investment law regime? Which conclusions can be drawn for the activities of the International Investment Law Centre Cologne in the next decade?

1. Evolution of International Investment Law Investment law is rapidly changing, and even for experts it can at times be challenging to distinguish short-term trends from path-breaking developments. Christoph Schreuer and Claudia Annacker thankfully put the evolution of investment law in treaty making and arbitral practice into a broader context and thereby set the stage for a better understanding of investment law’s characteristics and specificities. The identified developments in the field of consent, applicable law, and the restriction of investor rights exemplify the changing legal landscape of international investment protection. However, as rightly emphasised by Christoph Schreuer,1 taking these trends as indicators of future developments is questionable. Despite their existence, it remains unclear to which extent such trends will continue to influence the status quo of the law. In addition, such developments tend to interact with each other to an unforeseeable degree. For example, the shift from contract-based to treaty-based arbitration was a major step in the development of investment law.2 The emergence of a treaty-based framework led to a significant increase in cases which – at least in hind-

* Dr. Julian Scheu is Junior Professor of Public Law, International Law, and International Investment Law at the University of Cologne and Head of Management at the International Investment Law Centre Cologne (IILCC). 1 See Chapter 1, Schreuer at p. 46. 2 See Chapter 1, Schreuer at pp. 35 et seqq.

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sight – made the politization of ISDS more likely. As a reaction to the socalled legitimacy crisis of ISDS, States started to restrict investor rights. This restriction, however, could reverse the aforementioned shift and lead back to an increased importance of contract-based ISDS to the detriment of international treaties.3 These interrelations suggest that investment law’s development is not a linear process but rather the result of evolutionary pushs and pushbacks. Today, the law dedicated to the protection of foreign investments represents more than a set of international treaties since it has developed into a specialized legal regime. But this process obviously did not take place in a legal vacuum. The question therefore arises how to situate this field of law within the international legal order? Christian Tams and Bruno Simma addressed this complex question and clarified that investment law is embedded in international law ‘metarules’, but recalled that there is still potential for investment law to be a (mild or full) hybrid motor for the development of general international law. Anke Sessler and the late Rudolf Dolzer put the spotlight away from international treaties to the drafting of investor-State contracts. The contractual dimension of investment protection plays already a significant role in current legal practice.4 As outline above, this is especially true in times where an increasing number of States have made reservations against investment treaty arbitration.5 Setting out the complexities of contract-based investment protection was therefore vital to complete the picture.6

3 See the corresponding observations made by Tams, Chapter 2 at p. 75; Sessler, Chapter 3 at p. 96 and Dolzer, Chapter 3 at p. 36. 4 See for a statistical overview on contract-based investment arbitrations conducted under ICSID rules between 1972 and 2018: ICSID, Spotlight on Contract-based Disputes at ICSID, [https://icsid-archive.worldbank.org/en/Pages/resources/Spotlighton-Contract-based-Disputes-at-ICSID.aspx, accessed 23 October 2020]. 5 A recent illustration is the exclusion of ISDS in the reviewed NAFTA, now USMCA. See Lukasz Kułaga, ISDS During a Period of Transformation. Favouring Domestic Courts and Selective Judicialization in USMCA, Transnational Dispute Management, 3 (2020). Concerns and dissatisfaction with the ISDS regime have for a long time been raised in Latin America, see Katia Fach Gomez, Latin America and ICSID: David versus Goliath, Law and Business Review of the Americas, 17 (2), p. 195. In this sense, describing tendencies of ‘deconstitutionalisation’ of the ISDS regime in Latin America: Anna Böttcher, Dekonstitutionalisierungstendenzen im internationalen Investitionsschutzrecht, 2015, pp. 69 et seq. 6 In addition, international commercial arbitration should also be considered as a possible alternative to treaty-based ISDS. Concluding that in some cases commercial arbitration would indeed be a suitable alternative: Nikos Lavranos, Is Commercial Arbitration an Alternative to Investment Treaty Arbitration in Light of the Increas-

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Looking at this ‘bigger picture’, it becomes clear that investment law has grown very fast from a legal niche into a very effective regime for the protection of private rights in the international sphere. Throughout this process, various stakeholders have constantly worked on improving and adjusting the dispute settlement mechanism to the needs of its users. In this context, Francisco Abriani and Sebastian Seelmann-Eggebert described the ongoing amendment of the ICSID Arbitration Rules and how to navigate through the winds of change. The ongoing amendment process ensures that the desire of parties to settle their disputes as efficient as possible remains a cornerstone of ISDS. How far to go and whether one size fits all to achieve this goal is of course up to debate.7

2. A New Chapter in the History of International Investment Law So, is the emergence of the investment law regime a true success story? It seems clear that there were also ‘growing pains’ and downsides to this remarkably fast development.8 From a European perspective, the criticism articulated in a heated public debate on the legitimacy of ISDS during the TTIP negotiations. This serves as clear illustration of what is often referred to as the backlash against investment arbitration. 9 It seems that this process of confrontation with social and political expectations brought to light one of investment law’s most fascinating traits of character – which is its ability to evolve and adapt.

ing Aversion against BITS and ISDS?, European Investment Law and Arbitration Review, 2 (1), pp. 302–312. 7 So far, the ICSID Secretariat has published its fourth working paper on proposals for rule amendments. The publication of each version is followed by consultations with ICSID Member States and the public. ICSID, Working Paper No. 4, Vol. 1, Proposals for Amendment of the ICSID Rules, 28 February 2020. 8 Giving an overview on the multi-faceted nature of concerns especially about the challenging of policy decisions under ISDS and the lack of predictability with regard to the outcome of such proceedings: Silvia Constain, ‘ISDS Growing Pains and Responsible Adulthood’, in Jean Kalicki und Anna Joubin-Bret (eds.), Reshaping the Investor-State Dispute Settlement System, 2015, p. 344. 9 Michael Waibel, Asha Kaushal, Kwo-Hwa Chung and Claire Balchin, The Backlash Against Investment Arbitration, 2010. Emphasizing that the international business community considered the debate to suffer from a lack of balance: Winand Quaedvlieg, Take the emotion out of the ISDS debate, Financial Times, 27 November 2014, [https://www.ft.com/content/4d6989c0-74a4-11e4-8321-00144feabdc0, accessed 23 October 2020].

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What started in Mauritius in 2014 with the Transparency Convention has become a potentially wide-reaching reform process on ISDS. Corinne Montineri and August Reinisch gave an update and shared their insight on the latest developments at UNCITRAL which might lead to the creation of a Multilateral Investment Court in the near future.10 The establishment of such a multilateral body would of course not be the end of history, but rather the beginning of a new chapter in the evolution of investor-State dispute settlement. Writing a successful new chapter requires treaty negotiators, arbitrators, counsel, and scholars to jointly ensure that investment disputes are settled in a way that guarantees the respect for human rights, supports the protection of the environment and promotes sustainable development in home and host countries. These demands are all but new.11 In fact, balancing the protection of foreign investments and the host State’s regulatory power to promote public interests is part of investment law’s very nature.12 However, characterizing ISDS as an instrument used by private corporations to overrule public interest decisions would amount to a gross simplification. Instead, considering this potential conflict of values should be guided by a more nuanced approach. It is for example noteworthy that the normative tension between investment protection and public interests does not necessarily run along the lines between private investors and States since in principle, sovereign investors may also be protected by international investment treaties.13 Due to the fact that substantive investment protection standards are traditionally dominated by vaguely worded 10 See Marc Bungenberg and August Reinisch, Draft Statute of the Multilateral Investment Court, November 2020, [https://uncitral.un.org/sites/uncitral.un.org/ files/media-documents/uncitral/en/bungenberg_reinisch_draft_statute_of_the_mic.pdf, accessed 14 December 2020]. See for a summary of the most comprehensive academic studies on the MIC: IILCC Study Group on ISDS Reform, IILCC Comparative Report on the Creation and Implementation of a Multilateral Investment Court, Research Paper Series of the International Investment Law Centre Cologne 01–2020, [https://iilcc.uni-koeln.de/ sites/iilcc/reports/IILCC_Study_Group_on_ISDS_Reform_-_MIC_Report_-01– 2020.pdf, accessed 23 October 2020]. 11 See, e.g., with respect to human rights in 2004: Todd Weiler, Balancing Human Rights and Investor Protection: A New Approach for a Different Legal Order, Boston College International and Comparative Law Review, 27 (2), pp. 429–452. 12 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law, 2012, p. 25. Referring to this complex as the ‘public interest challenge’: Andreas Kulick, Global Public Interest in International Investment Law, 2012, p. 2. 13 Markus Burgstaller, ‘Sovereign wealth funds and international investment law’, in Chester Brown and Kate Miles (eds.), Evolution in Investment Treaty Law and Arbi-

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concepts such as ‘fair and equitable treatment’, there has always been enough space for tribunals to fill normative gaps through treaty interpretation.14 I therefore argue that the current system of ISDS is in principle well-equipped to take public interests and human rights considerations into account.15 However, what the current system lacks is a safeguard-mechanism which ensures that such considerations are not neglected and have an actual impact on the decision-making process. In that regard, the normative impact of non-investment values in a specific ISDS case too much depends on the individuals appointed as arbitrators. Hence, the mere capability of taking non-investment values into account is not enough. The emergence of a new generation of investment treaties such as Chapter 8 of the CETA is an important step in this direction since it makes it considerably more difficult to overlook or neglect legitimate policy objectives.16 But if there is any lesson to be learned from the public debate on ISDS than that it is not enough to explain why investment protection and ISDS are not harmful to the public interest. In addition to not being problematic, any reformed ISDS mechanism should be part of the solution when it comes to surmounting global challenges. A reformed ISDS mechanism should therefore reflect a balanced approach to investment protection and integrate public interests such as human rights considerations and climate change mitigation into its institutional DNA. This of course presupposes

tration, 2011, p. 178. State-owned investors are indeed not reluctant to make use of ISDS as is illustrated by cases such as Vattenfall AB and others v Federal Republic of Germany, ICSID Case No. ARB/12/12 or Stadtwerke München GmbH and others v Kingdom of Spain, ICSID Case No. ARB/15/1. 14 Tribunals are in principle capable of considering non-investment values in the context of interpreting investment treaties by making use of ‘systemic integration’ as a methodology. See Campbell McLachlan, The Principle of Systemic Integration and Article 31(3)(C) of the Vienna Convention, The International and Comparative Law Quarterly, 54 (2), pp. 279–319; Christoph Hölken, Systemische Integration von Investitionsschutzabkommen, 2017. 15 See for a detailed discussion of this conclusion: Julian Scheu, Trust Building, Balancing, and Sanctioning: Three Pillars of a Systematic Approach to Human Rights in International Investment Law and Arbitration, Georgetown Journal of International Law, 48 (2), pp. 449–504. 16 In this sense, Art. 8.9 – 1 of the CETA provides that contracting Parties ‘reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity’. While ensuring the relevance of these non-investment values seems to be the policy goal of Art. 8.9 – 1 it remains to be seen whether the provision will influence the decision-making of the CETA Investment Court System.

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that we carefully examine how these challenges interact with international investment law. Against this background, Markus Burgstaller and Peter Cameron analysed the impact of climate change mitigation policies on investment protection and rightly raised the question of the relationship between energy investment, the notion of development, and recent innovations in treaty making.

3. Takeaways for the International Investment Law Centre Cologne An anniversary is not only a moment to celebrate the past, but also to set new goals for the future. But how does an academic institution like the IILCC contribute to a positive development of international investment law? Through research, teaching, and the organization of academic conferences, the Centre will continue to promote a lively and fruitful exchange of ideas. In addition, we want to use our know-how and the network of affiliated experts to tackle a problem which was prominently brought up by the European Court of Justice in its Opinion 1/17 on the Investment Court System in the CETA.17 In the context of assessing the compatibility of the CETA with EU law, the Court raised the issue of financial accessibility of investor-State dispute settlement.18 The CJEU pointed out that in the absence of rules designed to ensure the financially accessibility for natural persons and small or medium-sized enterprises, the Investment Court System may, in practice, be accessible only to financially strong investors. The Court convincingly concluded that such a situation would give rise to an inconsistency with the objective of free and fair trade.19 In this sense, the legitimacy of ISDS also depends on whether there is a level playing field and whether the system provides for equality of arms between disputing parties.20 These considerations of a level playing field are of course not limited to the access for small- and medium-size enterprises, but also con-

17 Opinion 1/17, Court, 30 April 2019, ECLI:EU:C:2019:341. 18 This aspect is also considered by the UNCITRAL Working Group. See Chapter 6, Montineri at p. 170. Pointing to the fact that third-party funding can also be a tool to effectively ensure access to justice: Chapter 6, Reinisch at p. 178. 19 Opinion 1/17, Court, 30 April 2019, ECLI:EU:C:2019:341, para. 213. 20 See in that regard Art. 12 of the Resolution of the Institut de Droit International on Equality of Parties before International Investment Tribunals, 18 RES EN, 31 August 2019. Art. 12.1 demands that ‘the ability of parties, whether investors or States, to pursue or defend claims before a tribunal should not be determined on grounds of cost’.

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cern the role of developing countries and the integration of the host State’s population. Against this background and in addition to stimulating a lively and pluralistic discourse on investment law, the IILCC is committed to promote the accessibility of its resources. A public access investment law library, a visiting researcher programme, and guest students regularly welcomed at our courses reflect this intention. Another commitment to the sharing of knowledge is the ‘Digest of International Investment Law Jurisprudence’, a freely accessible online database which offers a systematic collection of legal statements from classic arbitral awards.21 Another recent project relevant in this context is the Centre’s involvement as a partner in the ‘Investment Support Programme for Least Developed Countries’ run by the International Development Law Organization (IDLO).22 The Programme supports the world's poorest developing countries in investment law related issues through a roster of experts.23 Despite the multitude of new challenges, the initial mission statement of the IILCC remains unchanged. Since its creation, the aim of all its activities is to analyse the ever-increasing complexity of international investment law and thereby constructively contribute to its development. The sharing of knowledge and the promotion of an open-minded discourse remain the cornerstones of this mission. Evaluating the state of investment law through research and discussion is vital for shaping and understanding its future developments. I would therefore like to express my profound gratitude to all partners who make it possible that the IILCC will be able to continue pursuing these goals throughout the next decade.24

21 Available at www.investment-law-digest.com [accessed 23 October 2020]. 22 The Investment Support Programme for Least Developed Countries was launched in 2017 and designed in collaboration with the UN Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States. 23 Further information is available at https://www.idlo.int/Investment-Support-Programme-LDCs [accessed 23 October 2020]. 24 See the corresponding Acknowledgements above, at p. 5.

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