Rethinking Investor-State Arbitration (Studies in European Economic Law and Regulation, 27) 3031381831, 9783031381836

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Studies in European Economic Law and Regulation 27

Flavia Marisi

Rethinking Investor-State Arbitration

Studies in European Economic Law and Regulation Volume 27

Series Editor Kai Purnhagen, University of Bayreuth, Bayreuth, Germany Editorial Board Members Alberto Alemanno, HEC Paris, Paris, France Mads Andenaes, University of Oslo, Oslo, Norway Stefania Baroncelli, University of Bozen, Bozen, Italy Franziska Boehm, Westfälische Wilhelms-University Münster, Münster, Germany Anu Bradford, Columbia Law School, New York, USA Jan Dalhuisen, King’s College London, London, UK Michael Faure, Maastricht University, Maastricht, The Netherlands Jens-Uwe Franck, Ludwig-Maximilians-University Munich, Munich, Germany Geneviève Helleringer, University of Oxford, Oxford, UK Christopher Hodges, University of Oxford, Oxford, UK Lars Hornuf, University of Bremen, Bremen, Germany Moritz Jesse, Leiden University, Leiden, The Netherlands Marco Loos, University of Amsterdam, Amsterdam, The Netherlands Petros Mavroidis, Columbia Law School, New York, USA Hans Micklitz, European University Institute, Florence, Italy Giorgio Monti, European University Institute, Florence, Italy Florian Möslein, Philipps-University of Marburg, Marburg, Germany Dennis Patterson, European University Institute, Florence, Italy Wolf-Georg Ringe, University of Hamburg, Hamburg, Germany Jules Stuyck, Katholieke Universiteit Leuven, Leuven, Belgium Bart van Vooren, University of Copenhagen, Copenhagen, Denmark

The series “Studies in European Economic Law and Regulation” is devoted to the analysis of European Economic Law. The series’ scope covers a broad range of topics within economics law including, but not limited to, the relationship between EU law and WTO law; free movement under EU law and its impact on fundamental rights; antitrust law; trade law; unfair competition law; financial market law; consumer law; food law; and health law. These subjects are approached both from doctrinal and interdisciplinary perspectives. The series accepts monographs focusing on a specific topic, as well as edited collections of articles covering a specific theme or collections of articles. All contributions are subject to rigorous double-blind peer-review.

Flavia Marisi

Rethinking Investor-State Arbitration

Flavia Marisi Brussels, Belgium

ISSN 2214-2037     ISSN 2214-2045 (electronic) Studies in European Economic Law and Regulation ISBN 978-3-031-38183-6    ISBN 978-3-031-38184-3 (eBook) https://doi.org/10.1007/978-3-031-38184-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Paper in this product is recyclable.

To thinkers and doers of past, present, and future

Foreword

Reconciling Investment Arbitration – Has it come of age? Investment arbitration has for a long time been criticized from many perspectives: It has been criticized for its lack of transparency, as negotiations often take place in a concealed environment. They allegedly circumvent the rule of law and enable a race to the bottom, as parties may replace judicial procedures and substantive laws such as labor laws by their own agreements. Likewise, as outcomes are seldomly published, it is submitted that the law cannot advance coherently via reference to previous “judgments.” Investment arbitration, however, is also perceived as a necessary enabler of technology transfer and a safeguard mechanism for returns of investments, and hence an enabler thereof. Dr. Marisi reminds us that in the shadow of these heated debates and negotiation policies investment arbitration is based on legal principles. Considering these debates there may have come a time where investment arbitration needs to be reconciled and tested whether it can live up to its own expectations. There may be room for reconciliation to carve out its own legal principles, some sort of “rule of law” of investment arbitration, which would enable a more constitutionally based procedure. Dr. Marisi does exactly this in the first six chapters of this book. Using mainly arguments from consistency and history, she investigates if the current practice of investment arbitration lives up to these standards. As a kind of a test case, she also discusses in chapter seven if, when testing investment arbitration against the normative requirement of the EU legal system, investment arbitration will live up to these requirements. EU law serves as an excellent test case, as Achmea judges have been testing these regimes of investment arbitration against the rules and principles of a more advanced legal system operating beyond nation states: the EU law. All in all, she presents a book which reminds us of the benefits of a system of investment arbitration based on principles of law, and of the benefits of emphasizing the advancement of such benefits. I am happy to have the opportunity to welcome this new addition to the series. University of Bayreuth, Bayreuth, Germany May 2023

Kai P. Purnhagen

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Prelude

Doubt is uncomfortable. It not only challenges our beliefs and pushes us to leave familiar territories and roads we have walked a thousand times to sail toward unexplored waters. But it also allows us to see the circumstances from different perspectives, be creative in our search for answers, and think of new, fresh solutions with openness. This is where imaginative minds gather, drawing inspiration from each other’s ideas, striving to find and unveil a shared understanding of justice and fairness, and design innovations that reflect these values. This is where I will meet you.

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Preface

Investor-State arbitration has recorded, in the latest years, a global increase in the number of cases, showing a growing success. This is due to several strengths of this method of dispute resolution: beyond its neutrality, one of the reasons behind its extensive practice is its adaptability. The procedure can adapt to the needs of the disputing parties. The system is able to adjust to cultural changes demanding that more attention be dedicated to ethical issues, including diversity, gender representation, and corporate social responsibility. The hearings can take place on online platforms, to ensure that the essential service of justice is not suspended during global health crises such as the Covid-19 pandemic. Its adaptability is also shown in response to wars and changes in geopolitical scenarios. From a general perspective, economic exchanges, trade, and investment leading to economic integration and interdependence contribute to maintaining a ‘commercial peace’, toward international peace and security. Nevertheless, since a few years investor-State arbitration is at the center of a vivid debate, in which numerous voices are calling for a reform based on three main issues: transparency, legitimacy, and consistency. The reform of investor-State arbitration is currently being discussed multilaterally and is taking place at different levels: it includes negotiating and renegotiating investment treaties, designing a standing mechanism for the resolution of investment disputes, amending arbitration rules, and drafting policy frameworks. This book retraces the history of investment dispute resolution to understand how the features of investor-State arbitration acquired the current shape, discusses the most debated procedural issues, analyses their multi-faceted dimensions, reviews the complex relationship between investor-State arbitration and the European Union, and explores options for a reform, toward a more sustainable dispute settlement system. Brussels, Belgium

Flavia Marisi

xi

Acknowledgements

This book has benefitted immensely from the fruitful exchanges with numerous professionals in the world of international law. I wish to thank Prof. Luc Lavrysen, Prof. Julien Chaisse, and Prof. Herman Verbist, as an irreplaceable source of light and inspiration. I would like to express my gratitude to Prof. Cristiana Sappa, Prof. Kuei-Jung Ni, Prof. Joanna Lam, Judge Christopher Heath, Prof. Anselm Kamperman Sanders, Prof. Andrea Biondi, Prof. Kehinde Olaoye, and Prof. Alessandro Spano for their generous advice and bright observations. I am grateful to Prof. Alberto Villa, Prof. Martino Zulberti, Prof. Stefano Pellegatta, Prof. Federico Ferraris, Mr. João Ribeiro-Bidaoui, and Dr. Marek Topor for their precious insights and valuable perspective. It would be unthinkable not to thank Prof. Alessandra Padula, Prof. Rossella Marisi, and Mr. Stevan Randjelović for their invaluable support. Sincere appreciation goes to Ms. Olga Boltenko, Mr. Antony Crockett, Ms. Isabella Seif, Ms. Nhu-Hoang Tran Thang, Mr. Giulio Palermo, Ms. Dragana Nikolić, Dr. Vanina Sucharitkul, Mr. Samuel Pape, Mr. Rahul Donde, and Mr. Andrea Colorio, for sharing their expertise and stimulating ideas. I am genuinely thankful to Springer for processing this work with efficiency and professionalism for publication and in particular to my Editors Dr. Anja Trautmann and Ms. Manuela Schwietzer, and the Project Coordinator Mr. Pradeep Kuttysankaran. Thanks must be extended to the librarians of the many universities I visited and their suggestions. Finally, a special mention must be made of all those colleagues and friends who shared their valuable time and thoughts in this research. The views expressed in this book are my own and do not necessarily represent the position of the European Commission.

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Contents

1

Charting the Route����������������������������������������������������������������������������������    1 1.1 Why: Research Background ������������������������������������������������������������    1 1.2 Where to: Motivations and Research Objective��������������������������������    3 1.3 What: Relevance and Contribution to the Existing Literature����������    4 1.4 How: Structure����������������������������������������������������������������������������������    6 References��������������������������������������������������������������������������������������������������    7

2

 History of Investor-State Dispute Settlement����������������������������������������    9 2.1 Introduction��������������������������������������������������������������������������������������    9 2.2 Definition of Investment ������������������������������������������������������������������   10 2.3 The Early Stages of International Investment Law��������������������������   12 2.3.1 The Origins of International Investment Law����������������������   14 2.3.2 The Capitulation System������������������������������������������������������   15 2.3.3 Treaties of Friendship, Commerce and Navigation��������������   17 2.3.4 Ad hoc Commissions������������������������������������������������������������   20 2.3.5 Diplomatic Protection ����������������������������������������������������������   22 2.3.6 The Hull Formula and the Calvo Doctrine���������������������������   25 2.4 The Role of the IMF and the World Bank in Promoting Foreign Investment ����������������������������������������������������������������������������������������   28 2.5 Criticisms of International Investment Agreements��������������������������   32 2.6 The Rise of Investor-State Arbitration����������������������������������������������   34 2.7 Analogies and Differences Between Investor-State Arbitration and Commercial Arbitration ������������������������������������������������������������   38 2.8 Conclusions��������������������������������������������������������������������������������������   41 References��������������������������������������������������������������������������������������������������   42

3

Adaptability of Investor-State Arbitration��������������������������������������������   49 3.1 Introduction��������������������������������������������������������������������������������������   49 3.2 Adaptability to the Needs of the Disputing Parties��������������������������   50 3.2.1 Parties’ Procedural Autonomy Under International Arbitration Conventions��������������������������������������������������������   50

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3.2.2 Parties’ Procedural Autonomy Under National Arbitration Laws��������������������������������������������������������������������������������������   51 3.2.3 Parties’ Procedural Autonomy to Choose the Arbitration Rules ������������������������������������������������������������������������������������   52 3.2.4 Parties’ Procedural Autonomy Under Institutional Rules ������������������������������������������������������������������������������������   52 3.2.5 The Arbitral Tribunal’s Discretion to Determine the Procedure������������������������������������������������������������������������   53 3.3 Adaptability to Technological Progress and the Covid-19 Global Crisis ������������������������������������������������������������������������������������������������   54 3.3.1 Computer-Mediated Communication in Arbitration������������   56 3.3.2 Storage of Information Related to Arbitration����������������������   56 3.3.3 Security Precautions in Arbitration��������������������������������������   56 3.3.4 The Covid-19 Global Crisis��������������������������������������������������   57 3.3.5 Online Dispute Resolution����������������������������������������������������   58 3.4 Adaptability to Meet Cultural and Social Change����������������������������   62 3.4.1 Diversity and Gender Representation ����������������������������������   62 3.4.2 Human Rights Concerns ������������������������������������������������������   66 3.4.3 Investors’ Corporate Social Responsibility��������������������������   71 3.5 Adaptability in Response to Geopolitical Challenges����������������������   74 3.5.1 The Contribution of Trade and Investment to the Maintenance of International Peace and Security����������������   75 3.5.2 The Instrument of Denial of Benefits�����������������������������������   78 3.6 Conclusions��������������������������������������������������������������������������������������   79 References��������������������������������������������������������������������������������������������������   80 4

Criticisms of Investor-State Arbitration������������������������������������������������   85 4.1 Introduction��������������������������������������������������������������������������������������   85 4.2 In Search of Balance ������������������������������������������������������������������������   85 4.3 ISDS Statistics����������������������������������������������������������������������������������   87 4.4 The Clash with EU Law��������������������������������������������������������������������   89 4.5 Transparency, Legitimacy, Consistency��������������������������������������������   89 4.6 Turning Away from ISDS ����������������������������������������������������������������   90 4.7 The Need of a Reform of Investor-State Arbitration������������������������   91 4.8 Conclusions��������������������������������������������������������������������������������������   95 References��������������������������������������������������������������������������������������������������   95

5

Transparency in Investor-State Arbitration������������������������������������������   99 5.1 The Concept of Transparency ����������������������������������������������������������  100 5.2 Transparency v Confidentiality ��������������������������������������������������������  103 5.2.1 Advantages of Confidentiality����������������������������������������������  103 5.2.2 Advantages of Transparency������������������������������������������������  106 5.3 Transparency Provisions ������������������������������������������������������������������  113 5.3.1 Registration of the Initiation of the Arbitral Proceedings����  114 5.3.2 Availability of Procedural Documents and Publication of the Award��������������������������������������������������������������������������  125

Contents

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5.3.3 Non-disputing Parties’ Participation������������������������������������  139 5.3.4 Amicus curiae Intervention ��������������������������������������������������  148 5.3.5 Public Access to Hearings����������������������������������������������������  173 5.3.6 Conclusions��������������������������������������������������������������������������  181 References��������������������������������������������������������������������������������������������������  183 6

Legitimacy in Investor-State Arbitration����������������������������������������������  193 6.1 Introduction��������������������������������������������������������������������������������������  193 6.2 The Concept of Legitimacy��������������������������������������������������������������  195 6.3 Public Interest ����������������������������������������������������������������������������������  196 6.3.1 Overview������������������������������������������������������������������������������  196 6.3.2 A Matter of Sovereignty ������������������������������������������������������  197 6.3.3 The Review of Legislative, Administrative, and Judicial Acts ��������������������������������������������������������������������������������������  198 6.3.4 Balancing Conflicting Rights of Investors and States����������  200 6.3.5 Case Law������������������������������������������������������������������������������  203 6.4 Due Process in International Arbitration������������������������������������������  205 6.5 Arbitrators and Ethics ����������������������������������������������������������������������  210 6.5.1 The Appointment of Arbitrators��������������������������������������������  211 6.5.2 Rules, Guidelines, and Codes of Conduct Governing the Ethics of Arbitrators��������������������������������������������������������  213 6.5.3 Situations of Issue of Conflict����������������������������������������������  218 6.5.4 Challenging Arbitrators in Cases of Issue of Conflict����������  223 6.5.5 Modus operandi of Arbitrators����������������������������������������������  226 6.5.6 Case Law������������������������������������������������������������������������������  229 6.6 Counterclaims ����������������������������������������������������������������������������������  232 6.6.1 Jurisdiction����������������������������������������������������������������������������  234 6.6.2 Admissibility������������������������������������������������������������������������  238 6.6.3 Investor’s Obligations ����������������������������������������������������������  241 6.6.4 Counterclaims Against Companies of the Same Group��������  242 6.6.5 Benefits of Counterclaims����������������������������������������������������  242 6.6.6 Case Law������������������������������������������������������������������������������  243 6.7 The Link Between Legitimacy and Consistency������������������������������  245 6.8 Conclusions��������������������������������������������������������������������������������������  246 References��������������������������������������������������������������������������������������������������  248

7

Consistency in Investor-State Arbitration ��������������������������������������������  255 7.1 Introduction��������������������������������������������������������������������������������������  255 7.2 A Fragmented System����������������������������������������������������������������������  256 7.3 Driving Towards Consistency ����������������������������������������������������������  258 7.3.1 The Principle of Legal Certainty������������������������������������������  258 7.3.2 Judicial Economy������������������������������������������������������������������  262 7.3.3 Due Process and Procedural Fairness ����������������������������������  264 7.4 Parallel Proceedings��������������������������������������������������������������������������  264

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7.5 Treaty Shopping��������������������������������������������������������������������������������  267 7.5.1 Essentials of Treaty Shopping����������������������������������������������  267 7.5.2 Implications of Treaty Shopping������������������������������������������  268 7.6 Forum Shopping��������������������������������������������������������������������������������  271 7.7 Precedent������������������������������������������������������������������������������������������  275 7.7.1 Introduction��������������������������������������������������������������������������  275 7.7.2 Notion of Precedent��������������������������������������������������������������  278 7.7.3 Value of Precedents��������������������������������������������������������������  279 7.7.4 The Single Case and Its Wider Impact����������������������������������  281 7.7.5 Concluding Remarks������������������������������������������������������������  283 7.8 Review and Annulment ��������������������������������������������������������������������  283 7.8.1 Annulment of an ICSID Award��������������������������������������������  284 7.8.2 Annulment of a Non-ICSID Award��������������������������������������  287 7.8.3 Challenges to Recognition and Enforcement Under the New York Convention ����������������������������������������������������  289 7.8.4 Challenges Before National Courts��������������������������������������  290 7.8.5 Correction of Awards Under the ICC, LCIA, and SCC Rules ������������������������������������������������������������������������������������  291 7.8.6 Concluding Remarks������������������������������������������������������������  293 7.9 Appellate Mechanism ����������������������������������������������������������������������  293 7.9.1 Academic Opinions��������������������������������������������������������������  293 7.9.2 The Position of Institutions��������������������������������������������������  296 7.9.3 Provisions in IIAs ����������������������������������������������������������������  298 7.10 Permanent Bodies: Multilateral Investment Court and Investment Court System������������������������������������������������������������������������������������  299 7.11 Conclusions��������������������������������������������������������������������������������������  306 References��������������������������������������������������������������������������������������������������  308 8

 Investor-State Arbitration and European Union Law��������������������������  315 8.1 Intra-EU Investor-State Arbitration��������������������������������������������������  315 8.1.1 The European Commission as Amicus Curiae in Intra-EU Investor-State Arbitration������������������������������������������������������  315 8.1.2 Slovak Republic v Achmea BV, Case C-284/16��������������������  318 8.1.3 The Member States’ Declarations of 15 and 16 January 2019��������������������������������������������������������������������������������������  323 8.1.4 The Termination Agreement ������������������������������������������������  327 8.1.5 République de Moldavie v Komstroy LLC, Case C-741/19����������������������������������������������������������������������  329 8.1.6 Republic of Poland v PL Holdings S.à.r.l., Case C 109/20 ����������������������������������������������������������������������  332 8.1.7 European Commission v European Food SA and Others, Case C-638/19 P ������������������������������������������������������������������  334 8.1.8 Impact on Investments����������������������������������������������������������  335

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8.2 Landmark Opinions of the Court of Justice of the European Union on ISDS����������������������������������������������������������������������������������  336 8.2.1 Opinion 2/15 ������������������������������������������������������������������������  336 8.2.2 Opinion 1/17 ������������������������������������������������������������������������  338 8.3 The Multilateral Investment Court Project ��������������������������������������  341 8.3.1 The Contribution of the EU to the UNCITRAL Working Group III on ISDS Reform������������������������������������  341 8.3.2 The Goals of the MIC Proposal��������������������������������������������  345 8.4 Conclusions��������������������������������������������������������������������������������������  348 References��������������������������������������������������������������������������������������������������  349 9

Conclusions����������������������������������������������������������������������������������������������  353 9.1 Retracing the Research Path ������������������������������������������������������������  353 9.2 History of ISDS��������������������������������������������������������������������������������  355 9.3 Adaptability��������������������������������������������������������������������������������������  357 9.4 Criticisms������������������������������������������������������������������������������������������  359 9.5 Transparency ������������������������������������������������������������������������������������  360 9.6 Legitimacy����������������������������������������������������������������������������������������  362 9.7 Consistency ��������������������������������������������������������������������������������������  363 9.8 Investor-State Arbitration and EU Law��������������������������������������������  364 9.9 Projects for ISDS Reform ����������������������������������������������������������������  365 9.9.1 Amending Arbitration Rules ������������������������������������������������  365 9.9.2 Renegotiating Investment Treaties����������������������������������������  368 9.9.3 Designing a Permanent Investment Court����������������������������  371 9.10 Reflections on Selected Issues����������������������������������������������������������  373 9.11 Conclusive Remarks ������������������������������������������������������������������������  376 References��������������������������������������������������������������������������������������������������  381

Tables of Cases ������������������������������������������������������������������������������������������������  383 Table of Treaties and Other Documents��������������������������������������������������������  389 Index������������������������������������������������������������������������������������������������������������������  395

Abbreviations

AASA ACIA ACIJ AG ASEAN BGT BIT BLP BP CAFTA CAFTA-DR CAI CCIA CCP CEE CELS CETA CIEL CIL CJEU COMESA CPANI CPR CPTPP CSR DAWASA ECHR ECT ECtHR EFTA

Aguas Argentinas SA ASEAN Comprehensive Investment Agreement Asociación Civil por la Igualdad y la Justicia Advocate General Association of Southeast Asian Nations Biwater Gauff Bilateral Investment Treaty Berwin Leighton Paisner Baltijos Parkingas Central America Free Trade Agreement Dominican Republic-Central America-United States FTA EU–China Comprehensive Agreement on Investment COMESA Common Investment Area Common Commercial Policy Central and Eastern European States Centro de Estudios Legales y Sociales Comprehensive Economic and Trade Agreement Center for International Environmental Law Customary International Law Court of Justice of the European Union Common Market for Eastern and Southern Africa Belgian Centre for Arbitration and Mediation International Institute for Conflict Prevention & Resolution Comprehensive and Progressive Agreement for Trans-Pacific Partnership Corporate Social Responsibility Dar es Salaam Water and Sewerage Authority European Convention on Human Rights Energy Charter Treaty European Court of Human Rights European Free Trade Association xxi

xxii

EU EUSFTA FCN FDI FET FIPA FTA GATT IBA IACtHR ICC ICCA ICJ ICS ICSID IIA IIL IISD ILA IMF INE ISDS JPEPA LCIA LEAT LHRC M&A MAI MFN MIC MIGA MNCs MTBE NAFTA NDP NDTP NGO NIOC NT OECD PCA PSCs PTA PTIA RTA

Abbreviations

European Union European Union Singapore Free Trade Agreement Treaty of Friendship, Commerce and Navigation Foreign Direct Investment Fair and Equitable Treatment Foreign Investment Protection Agreement Free Trade Agreement General Agreement on Tariffs and Trade International Bar Association Inter-American Court of Human Rights International Chamber of Commerce International Council for Commercial Arbitration International Court of Justice Investment Court System International Centre for Settlement of Investment Disputes International Investment Agreement International Investment Law International Institute for Sustainable Development International Law Association International Monetary Fund National Ecology Institute of Mexico Investor-State Dispute Settlement Japan–Philippines Economic Partnership Agreement London Court of International Arbitration Lawyers’ Environmental Action Team Legal and Human Rights Centre Mergers and Acquisitions Multilateral Agreement on Investment Most Favoured Nation Multilateral Investment Court Multilateral Investment Guarantee Agency Multinational Corporations Methyl Tert-Butyl Ether North-American Free Trade Agreement Non-Disputing Party Non-Disputing Treaty Party Non-Governmental Organization National Iranian Oil Company National Treatment Organization for Economic Co-operation and Development Permanent Court of Arbitration Production Sharing Contracts Preferential Trade Agreement Preferential Trade Agreement with an investment chapter Regional Trade Agreement

Abbreviations

SALs SCC SIAC SMEs TFEU TGNP TIPs TPP TTIP UDHR UN UNCITRAL UNCLOS UNCTAD UNGA UPS US USMCA USSR VCLT WGIII WIR WTO

xxiii

Structural Adjustment Loans Stockholm Chamber of Commerce Singapore International Arbitration Centre Small and Medium Enterprises Treaty on the Functioning of the European Union Tanzania Gender Networking Programme Treaties with Investment Provisions Trans-Pacific Partnership Transatlantic Trade and Investment Partnership Universal Declaration of Human Rights United Nations United Nations Commission on International Trade Law UN Convention on the Law of the Sea United Nations Conference on Trade and Development United Nations General Assembly United Parcel Service of America United States United States–Mexico–Canada Agreement Union of Soviet Socialist Republics Vienna Convention on the Law of Treaties Working Group III World Investment Report World Trade Organization

Chapter 1

Charting the Route

1.1 Why: Research Background The pivot of globalised world’s economy is interdependence between States, despite the latest wave of protectionism that has featured daily news for the last years. Notwithstanding the global Foreign Direct Investment (‘FDI’) collapse in 2020 and further weakness registered in 2022 after the 2021 rebound,1 FDI still boosts international exchange alongside international trade. The Organisation for Economic Co-operation and Development (‘OECD’) defines FDI as ‘a category of cross-­ border investment made by a resident in one economy (the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor.’2 ‘Purchase/sale of existing equity in the form of mergers and acquisitions (M&A), greenfield investments, extension of capital (additional new investments), and financial restructuring’3 are integral part of FDI. However, there is no consensus among scholars as to the effectiveness of FDI. Neo-liberals praise the advantages that FDI brings to all the actors involved: elevated growth opportunities and international competitiveness, brought to life by employing local workforce, developing local infrastructure and transferring technology and knowhow. In addition, thanks to FDI monopolies may be eliminated and consumers benefit from ameliorated, more available and better-quality service and products. Local human resources, in turn, sharpen their skills, which they can sell when looking for the next position. Technology transfer is an added value for the host State. For instance, local companies providing raw materials supply foreign investors, who manufacture the  UNCTAD (2021), p. 1, UNCTAD (2023a), p. xi.  OECD (2008), p. 17. 3  OECD (2008), p. 87. 1 2

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goods and pay a percentage of their revenues to the State’s budget as taxes. The taxes paid can significantly expand the State’s spending capacity in core sectors such as healthcare, education, and infrastructure. These elements determine the host State’s ability to attract FDI, speeding up growth, and raising the overall level of welfare. Moreover, FDI inflows increase domestic investment in connected activities as well.4 Notwithstanding these benefits, some scholars argue that FDI brings some negative effects as well, related, for instance, to the use of loopholes in the host State’s labour laws combined with the high national rate of unemployment. Other scholars claim that further negativities arise out of the capital flight, with consequent economic gains being transferred to the home country of the investor instead of the host State. Scholars claim that in this way, only a small portion of the FDI positive aspects is enjoyed by the local workers, and even less by the local inhabitants. In this way, these scholars conclude that although wealth is created in the host country, it benefits the host country’s economy only in a small portion.5 Moreover, Multinational Corporations (‘MNCs’) often receive from the host State tax incentives and subsidies, provided in order to attract foreign investors. These incentives are not always granted to domestic investors. It follows that small and medium enterprises may end up struggling to compete with MNCs, and ultimately this situation may render it difficult to establish a solid local industrial base. In addition, economists of the Keynesian-school write that FDI effects may greatly vary depending on the conditions of the host State.6 The incorrect type of information gathered by the investor on the market, applicable taxes, logistics, availability of human resources and materials, relevant legislation, and competitors can lead to suboptimal investment decisions, and to the attraction of FDI in the wrong sector or in the wrong scale which, in turn, can originate market failures that render the market inefficient. It may occur that the interests of foreign investors and those of the host State are not aligned: for instance, the host State may significantly reduce its share of revenues if it grants tax incentives and subsidies. Moreover, as some scholars draw attention to, mergers and acquisitions have a lower effect in terms of fostering local development compared to greenfield investments.7 Assessing the level of beneficial consequences of a particular FDI is a complex task, because of the wide number of variables affecting the outcome. Among them we can find FDI type, duration, sector, geographical location, distribution network, local qualified human resources, technology transfer, knowhow gaps, and local companies as competitors.8

 Bernatonyte & Normantiene (2009), p. 7.  Vo (2004), pp. 83–84. 6  Lipsey et al. (1992); Epstein (1999); Sims and Lake (2002); Vo (2004), p. 81. 7  Vo (2004), p. 81. 8  Lipsey et al. (1992); Epstein (1999); Sims and Lake (2002). 4 5

1.2  Where to: Motivations and Research Objective

3

Some scholars argue that FDI may, in principle, be used to acquire some level of control in the host State, economic or political.9 Other scholars have hypothesised that the increasing foreign debt has led States to adopt austerity measures, leaving them without enough liquidity to repay their debts and continue the provision of basic services to their inhabitants.10 Some States have welcomed FDI to boost economic growth. With this ultimate objective, they have sometimes made exemptions to the implementation of domestic laws that could harm the investors’ interests.11 Because of the great impact, FDI can have on various aspects of society, several opinions on FDI have been crafted, from different socio-political and legal perspectives.

1.2 Where to: Motivations and Research Objective The motivation driving this research stems from the clash between the multiple voices that have been raised criticising various aspects of investor-State arbitration, and the positive thrust to economic stability and  growth that FDI gives to host States. The study has been conducted analysing the matter from different perspectives, gathering several points of view, and identifying the suggested options for the solution of the issues emerged. The research starts from the concept of economic development, which is at the heart of investment protection, as a principle enshrined in the preamble of the International Centre for Settlement of Investment Disputes (‘ICSID’) Convention: ‘[there is a] need for international cooperation for development, and the role of private international investment therein’.12 This study retraces the origins of investor-State arbitration as a means to solve investment disputes and considers the instruments, reasoning, and outcomes of investor-State dispute settlement (‘ISDS’) cases. In particular, this book endeavours to provide an answer to the following research questions: –– –– –– –– ––

How was the current system of investor-State arbitration developed? What is the origin of the call for a reform of investor-State arbitration? What arguments have been made against investor-State arbitration, and why? What is the relationship between investor-State arbitration and EU law? What are the options to address transparency, legitimacy, and consistency in investment arbitration?

The purpose of this study is to achieve a broad perspective on the procedural criticisms of investment arbitration and present options to rethink its most criticised aspects. The book aims to offer a careful analysis, detailed documentation, and a

 Krugman et al. (2014).  Jorgenson (2016), p. 341. 11  Leonard (1988); McMichael (2016). 12  ICSID Convention, Regulations and Rules (2006). 9

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thorough reflection path which could contribute to the debate on procedural issues and a possible reform of investor-State arbitration.

1.3 What: Relevance and Contribution to the Existing Literature The great part of the existing literature on investor-State arbitration expresses a certain level of discontent in some aspects of this method of dispute resolution. Scholars who share this point of view highlight that only investors can file a claim against the State, whereas the State can in very limited cases file a claim against the investor, that investment treaties cannot set obligations for investors, who are third parties, and that international law prevails over domestic law. Moreover, they argue that the existence of investment treaties might lead to the loosening of environmental and labour standards, and cultural heritage protection. Starting from these premises, part of the existing literature has a critical view not only on investor-State arbitration, but on all the FDI protection regime, and wonders whether the risks the host State runs balance out the advantages deriving from FDI inflows. This book takes into account the intensification of treaty-making in the latest years, which leads to believe that the advantages of concluding investment treaties are still deemed to overtake the risks it might entail. This research intends to investigate the multifaceted issues arising out of these critiques, especially considering the criticisms that take a public interest perspective. This study retraces the history of investor-State arbitration, with the aim to clarify the modality in which this method of dispute resolution between foreign investors and host States has developed in time. In this way, the book highlights that certain traits of investor-State arbitration are the result of a historical evolution lasting centuries, and that it has preserved itself thanks to its capacity to adapt to the needs of different times and spaces. By analysing the existing literature commenting on the normative framework of treaties and arbitration rules, this book aims to navigate the inherent fragmentation of international investment law, due to the presence of over 3260 international investment agreements (‘IIAs’).13 The research presents the main flagship of investor-State arbitration beyond its neutrality: its adaptability. The book then identifies transparency, legitimacy, and consistency as the procedural aspects that most often give rise to concern in the arbitration community. This research endeavours to verify whether and to what extent these critiques can be shared, examining the applicable norms, and discussing the case-law by studying the position of the parties and the decision of the tribunal. Part of the existing literature stresses the need for transparency at the start, during the course and at the end of the arbitral proceedings. This research investigates the treaty provisions and arbitration rules concerning transparency or confidentiality of 13

 UNCTAD (2023b).

1.3  What: Relevance and Contribution to the Existing Literature

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arbitral proceedings, to conclude that a balance is necessary in order to fulfil the needs of the disputing parties, the larger group of stakeholders, and the neutrality of the arbitration system itself. In fact, it is important that tribunals perform their tasks in an environment deprived of political pressure, as the neutrality and lack of politicisation of arbitration is one of its most appreciated features. A portion of the existing literature argues that legitimacy concerns on investment arbitration may derive from the appointment procedure of arbitrators. To assess this issue, this research examines international norms, self-regulation codes, awards and decisions on the challenge of arbitrators, and compares the multi-centred power system of ad hoc tribunals to the standing mechanism of the Multilateral Investment Court (‘MIC’) proposed by the European Commission. Some criticisms expressed by the existing literature concern the current lack of an appeal procedure and a binding precedent, which may lead to the lack of consistency across awards. This research carefully considers the source of such lack of consistency, and ponders with particular attention both the appeal proposals, including the Appellate Tribunal provided for by the EU  – Canada Comprehensive Economic and Trade Agreement (‘CETA’) and the European Union  – Singapore Free Trade Agreement (‘EUSFTA’), and the annulment procedure of awards. Building on the reflections carried out by research, this book illustrates how the issues of transparency, legitimacy and consistency that have arisen from ad hoc investment tribunals have been addressed. A comparison of the different proposals for a reform of ISDS follows, considering the opinions expressed by various actors and users, the MIC project, and the revision of arbitration rules of several administering institutions such as the ICSID, the International Chamber of Commerce (‘ICC’), the London Court of International Arbitration (‘LCIA’), and the Arbitration Institute of the Stockholm Chamber of Commerce (‘SCC’). Other pitfalls of investor-State arbitration, such as the costs and duration of the proceedings, have grabbed the attention of researchers and policy experts in different fora: one of these fora is the UNCITRAL Working Group III on ISDS Reform. Although these issues deserve reflection, their discussion in this book would have been out of the scope of this research. Finally, this research focuses on the relationship between ISDS and European Union law, which has, for a period of time, given rise to interpretative questions among experts until clarity was provided. A peculiarity of this research concerns its purely legal approach, intentionally far from social and political considerations. The aspiration is that the actors involved in investment treaty negotiations and those active in the ISDS reform can draw inspiration from this initial analysis, rendering possible to adjust different perspectives, arriving to the formulation of a fair legal framework for all parties and stakeholders involved.

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1.4 How: Structure This book is divided into nine chapters. This Chapter charts the route and contains the conceptual and theoretical background of the research, and highlights the main features of the research, such as its objectives, motivation, and rapport with the existing literature. Chapter 2 examines the origins of international investment law and the resolution of its disputes, underlining how some features of the ISDS system have ancient origins, and have been preserved during centuries notwithstanding the changing cultural, political, and economical framework in the countries involved, and the subsequent evolution of their mutual relationships. Chapter 3 focuses on the main reason for the widespread success of ISDS beyond neutrality: its adaptability. It includes a Section on the role of the disputing parties in determining the procedure and a Section on the capacity of investor-State arbitration to adapt to technological progress and face global health crises such as the Covid-19 pandemic. Chapter 3 further reflects on the flexibility of investment arbitration to respond to cultural changes by increasing diversity, gender representation, and openness to human rights, and on its capacity to react to geopolitical changes and international armed conflicts. Chapter 4 examines the fundamental issue whether ISDS is a balanced system. It identifies transparency, legitimacy, and consistency as the most controversial procedural aspects of investor-State arbitration with room for improvement, and flags the relationship between investment arbitration and EU law as particularly interesting. Chapter 5 dwells on transparency in investor-State arbitration and examines how the tribunals’ decisions on the level of transparency or confidentiality in specific arbitration cases are determined by the relevant provisions included in the applicable investment treaty, the applicable arbitral rules, and the consent of the parties. Chapter 6 considers the critiques moved by some experts on the legitimacy of the investment arbitration system, based on the function of arbitral tribunals in assessing whether public measures have breached investment protection obligations, the standards of review applied by arbitral tribunals when a measure was issued with a public interest purpose, ethics standards for arbitrators, and the possibility that States have to file a counterclaim against investors. Chapter 7 looks at the question of consistency in the investment arbitration system, and examines debated topics such as the principles of legal certainty and judicial economy, the issue of treaty shopping, the problem of parallel proceedings, the matter of validity of precedent in a decentralised system, and the possibility to correct errors through annulment and appeal. Chapter 8 examines how EU Institutions strove for the correct and uniform application of EU law in an international investment law context. This approach originates from the Opinions of the Court of Justice of the EU preventing external judiciary organs to have jurisdiction on legal acts and omissions of the EU, and is reinforced in the Member States’ Declarations and Agreements to phase out intra­EU ISDS. Chapter 8 presents and discusses the relevant cases of the Court of Justice

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of the EU. Furthermore, the inclusion of the Investment Court System in bilateral agreements with EU trade partners and the proposal of a Multilateral Investment Court within the UNCITRAL Working Group III are endeavours to improve the ISDS system. Chapter 9 draws the conclusions of the book. This Chapter correlates the most debated procedural issues in investment arbitration: transparency, legitimacy, and consistency with the proposals brought forward to reform this method of dispute settlement, and elabotares reflections on their interactions, significance, and prospects.

References Bernatonyte D, Normantiene A (2009) Estimation of trade specialization: the case of the Baltic states. Inzinerine Ekonomika-Eng Econ 2:7 Epstein G (1999) A critique of neo-liberal globalization. Third World Network, Penang ICSID Convention, Regulations and Rules (2006) Jorgenson AK (2016) The sociology of ecologically unequal exchange, foreign investment dependence and environmental load displacement: summary of the literature and implications for sustainability. J Polit Ecol 32:334 Krugman PR, Obstfeld M, Melitz M (2014) International economics: theory and policy. Pearson, London Leonard HJ (1988) Pollution and the struggle for the world product. Harvard University Press, Cambridge Lipsey RG, Courant PN, Pourvis DD (1992) Microeconomics. Longman Higher Education, Harlow McMichael P (2016) Development and social change: a global perspective. SAGE, Newcastle OECD (2008) OECD benchmark definition of foreign direct investment. OECD, Paris Sims A, Lake R (2002) Trade investment, business, and sustainable development. Earth Summit UNCTAD (2021) Global FDI Flows Down 42% in 2020. Investment Trends Monitor UNCTAD (2023a) World investment report. United Nations Publications, New York UNCTAD (2023b) Investment policy hub, Geneva Vo HX (2004) Host country income effects of foreign direct investment: an analytical framework. J Econ Econ Educ Res 5(3):81

Chapter 2

History of Investor-State Dispute Settlement

2.1 Introduction The press is unforgiving towards investor-State dispute settlement (‘ISDS’), describing it as an ‘obscure system’ designed to allow multinational companies to file large claims against States, which ‘has got dangerously out of control’.1 Certain press articles argue that investor-State arbitration allows companies to ‘profit from injustice’,2 and that it ‘threaten[s] freedom in poorer countries’.3 As a consequence, non-experts readers of these articles might have a negative idea of investment arbitration. The main critique brought forward pertains to the lack of equality of arms between investors and States, stemming from the major purpose of investment agreements: the protection of investments. An additional critique concerns the larger protection foreign investors are granted compared to domestic investors, leading to inequality. If we trace back the standards of treatment and non-discrimination clauses currently included in investment agreements, we will find that Most Favoured Nation (‘MFN’), National Treatment (‘NT’), Fair and Equitable Treatment (‘FET’), and ISDS are all resulting from a historical evolution dating back centuries, and originally blossomed from the negotiations between developed/capital exporting countries, and developing/capital importing States. It is worth starting with the definition of investment, which has undergone its own development; in several investment agreements it is quite broad and encompasses a wide variety of assets owned by the investor in the host State. The purpose

 Provost and Kennard (2015).  Olivet and Eberhardt (2013). 3  Gebelhoff (2016). 1 2

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of a large definition is to broaden the scope of protection granted by investment treaties.4

2.2 Definition of Investment Investment treaties aim to promote, foster, and protect foreign investment, they grant rights and establish duties for the contracting parties with the ultimate goal of increasing FDI flows.5 The definition of investment is particularly important, as the norms included in an investment treaty will not apply to investments that do not fall under the scope of the notion provided.6 The breath of the definition of investment varies depending on the treaty it is incorporated in:7 there is not one single generally accepted definition of foreign investment.8 Many definitions of investment are rather broad, open-ended, and inclusive,9 and refer to ‘every kind of property or economic asset owned or controlled by the investor’,10 adding a non-exhaustive list of specific kinds of covered economic activities.11 The notion of foreign investment is often used when an investor, national of his home State, owns at least 10% of assets in a host State,12 and plans to manage them,13 expecting not-immediate returns. Frequently, the broad definition of investment covers also any attempts to make investments,14 greenfield investment,

 Salacuse and Sullivan (2005), p. 80.  See, e.g., 2008 United Kingdom Model Bilateral Investment Agreement: “Desiring to create favourable conditions for greater investment by nationals and companies of one state in the territory of the other state; Recognising that the encouragement and reciprocal protection under international agreement of such investments will be conducive to the stimulation of individual business initiative and will increase prosperity in both states”; 2012 US Model Bilateral Investment Treaty, Preamble: “Desiring to promote greater economic cooperation between them with respect to investment by nationals and enterprises of one Party in the territory of the other Party; Recognizing that agreement on the treatment to be accorded such investment will stimulate the flow of private capital and the economic development of the Parties, Agreeing that a stable framework for investment will maximize effective utilization of economic resources and improve living standards” (emphasis in the original). 6  OECD (2008a), p. 9. 7  Carreau and Juillard (2007), p. 403. 8  Khan (2007), pp. 17–19. 9  Legum (2005), p. 15. 10  Qi (2011), pp. 552, 557. 11  Dolzer and Stevens (1995), p. 19. 12  OECD (2008b) para. 117. 13  WTO News: Press Releases, Press/57, October 9, 1996, ‘Trade and foreign direct investment’, New Report by the WTO 1. 14  2012 US Model BIT, Art. 1. 4 5

2.2  Definition of Investment

11

mergers and acquisitions,15 pre- and post-establishment activities, and activities linked with investments.16 Research shows that some common characteristics feature many among the definitions of investment.17 However, these features should be understood as typical characteristics rather than as jurisdictional requirements. According to Schreuer, the most important are the following: –– –– –– –– ––

The project should have a certain duration; There should be a certain regularity of profit and return; There is typically an element of risk for both sides; The commitment involved would have to be substantial; and The operation should be significant for the host State’s development.18

A list of partially different basic features characterising investment was included in some far-reaching awards. In the award in Fedax v Venezuela, the tribunal held that, in order to qualify as an investment, the activity should involve: –– –– –– –– ––

A certain duration; A certain regularity of profit and return; An assumption of risk; A substantial commitment; and A degree of significance for the host State’s development.19

In Salini v Morocco, the arbitrators stressed the formal activity requirements in order to qualify as an investment: –– –– –– ––

A contribution; A certain duration; A notion of risk; and A contribution to the economic development of the State’s economy.20

The Salini v Morocco award was a milestone as it was subsequently massively cited and relied on by a number of tribunals. For instance, the tribunal in Italy v Cuba, citing its Interim Award and similarly to Salini, finds that an ‘investment’ under the Bilateral Investment Treaty (BIT) covers an economic transaction that involves a contribution for a certain duration with risks.21 The Oostergetel v Slovak Republic Decision on Jurisdiction further applies Salini criteria although noting that it was developed in the context of Article 25 ICSID Convention and that it has come under

 Harzing (2002), p. 211.  Australia-China BIT, 1988. 17  Schreuer et al. (2009), pp. 139–141. 18  Schreuer et al. (2009), pp. 139–141. 19  Fedaz N.V. v Venezuela, ICSID Case No. ARB/96/3, award on jurisdiction, 11 July 1997. 20  Salini v Kingdom of Morocco, ICSID Case No. ARB/00/04, decision on jurisdiction, 23 July 2001. 21  Republic of Italy v Republic of Cuba, Final Award, 1 January 2008, paras. 143, 196, 198, and 219. 15 16

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a fair amount of scrutiny.22 Also, the tribunal in Bosca v Lithuania, applying the Salini test, finds that a services agreement has the necessary elements of contribution, risk and duration typically considered basic characteristics of an investment.23 That being said, the Salini criteria are tools to assist in the determination of the existence of an investment for the purposes of ICSID arbitration, and are not jurisdictional criteria.24 The Court of Justice of the European Union, in Opinion 2/15 issued on 15 May 2017, describes investment as including the following elements: –– –– –– ––

The commitment of capital or other resources; The expectation of gain or profit; The assumption of risk or a certain duration; In so far as that asset is owned, directly or indirectly, or controlled, directly or indirectly by natural or legal persons; –– In particular, direct investment consists in investments of any kind which serve to establish or maintain lasting and direct links between the persons providing the capital and the undertakings to which that capital is made available in order to carry out an economic activity.25 Economic activities falling under the scope of the definition of investment are protected by the rights granted by the treaty, including the right of the investor to bring a claim against the host State for a breach of the treaty provisions.26 A potential clash can be identified: whereas States wishing to attract FDI flows tend to draft the broadest definition of investment, at the same time they hope for a narrow interpretation of this definition, reducing the range of possible claimants who could file a claim deemed unfounded or frivolous by the host State.

2.3 The Early Stages of International Investment Law During their expansionist periods, and above all from the seventeenth till the nineteenth century, the Western powers developed political and economic views based on commercial expansion27 and protection of commercial interests, justifying their strategies with the protection of the investment made by their own nationals abroad.

 Jan Oostergetel and Theodora Laurentius v Slovak Republic, UNCITRAL, Decision on Jurisdiction, 30 April 2010, 161–172. 23  Luigiterzo Bosca v Republic of Lithuania, PCA Case No. 2011-04, Award, 19 February 2016, 168. 24  See Vincent J. Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v Republic of Poland, ICSID Case No. ARB(AF)/11/3, Award, 24 November 2015, 197. 25  Opinion 2/15 of the Court of Justice of the European Union on the Free Trade Agreement with Singapore, 16 May 2017, paras. 78–80. 26  OECD (2008a), p. 9. 27  Lipson (1985), pp. 20–21. 22

2.3  The Early Stages of International Investment Law

13

These kinds of investment were often intended to use the natural resources possessed by other States, and scholars argue they showed an imperialistic view,28 which was often supported by military intervention.29 In this way, the commercial interests of the capital exporting States aligned with their geopolitical interests aimed to keep and develop their influence and power in the international system.30 Such behaviour became more intense in the relationships between the European powers and their colonies and territories.31 In order to facilitate to Western powers the achieving of their commercial goals,32 and the gradual overcoming of their goals by the setting of even more ambitious ones,33 specific legal doctrines were developed, together with institutions designated to social, political, and economic control, which repetitively asserted the power of the stronger States towards weaker ones.34 This was achieved through the diffusion of Western juridical concepts, as for instance the notion of property, within other States and territories.35 For this reason, the legal rules supporting Western colonialism were designed to legitimise36 and protect these countries’ expansion:37 these rules favoured the home States of the foreign investors against host States,38 and this practice remained in use far beyond the end of the colonial era. The strategies included the signing of different kinds of agreements and treaties (among them capitulations, and treaties of friendship, commerce and navigation), military intervention and acquisition of colonies.39 Specific conceptualisations and practices were therefore asserted,40 aimed to protect the investors’ property.41 Some scholars argue that the repeated assertions of this kind of rules, made by capital-exporting States,42 were aimed to solidify this legal system and the legal and cultural conceptions on which it was based. These

 Miles (2013), p. 32.  Lipson (1985), pp. 11–12. 30  Miles (2013), p. 69. 31  Miles (2013), p. 21. 32  Miles (2013), p. 31. 33  Anghie (2007), pp. 3–12. 34  Benton (2002), p. 11. 35  Lipson (1985), pp. 16–18, 20–21, 37–38. 36  Anghie (2007), pp. 3–12. 37  Miles (2013), p. 70. 38  Lipson (1985), pp. 12–16. 39  Lipson (1985), pp. 12–21. 40  Miles (2013), p. 33. 41  Anghie (2007), pp. 3–10, 67–74. 42  Miles (2013), p. 70. 28 29

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researchers contend that these rules were unbalanced and unfair,43 and neither universal nor impartial.44 Sometimes, capital importing States tried to challenge this legal system, but usually their attempts were defeated by means of legal reasoning based on the Western concepts of rights and use of force.45

2.3.1 The Origins of International Investment Law Throughout the course of centuries, States and peoples have regulated their interactions by means of international legal regimes.46 The long period of Western expansionism was articulated in many different phases and occurred between the end of the first century B.C.47 and the early nineteenth century. European political organisations, and later the European States, often succeeded in making their will triumph, not only in the military and economic fields, but also in the legal culture field, imposing their own understanding of international law over the ones asserted by indigenous peoples.48 The conquest of territories located far from Europe with the aim of achieving economic and political advantages was certainly the salient feature of the period defined by Hobsbawm ‘the Age of Empire’,49 circumscribing it to the time span between 1875 and 1914. However, the trend of regulating the issues related to the occupation of territories located far from Europe began already in the fifteenth century, even before Cristoforo Colombo’s first voyage. In fact, the Alcaçovas Treaty, signed in 1479 and confirmed in 1481 with the papal bull Aeterni regis, granted all lands south of the Canary Islands to Portugal. After Cristoforo Colombo’s first voyage, the Spanish monarchs and the King of Portugal launched diplomatic negotiations, which culminated in the Treaty of Tordesillas. The Treaty of Tordesillas, signed in 1494 by the representatives of Isabel I of Castilla and Fernando II of Aragón, on one side, and the representatives of João II of Portugal on the other side, divided trading and colonising rights for all newly discovered lands located outside Europe between Spain and Portugal, along a meridian located 370 leagues west of the Cape Verde, assigning the lands to the east of this line to Portugal, and the lands to the west to Spain. The ultimate balance of the Treaty of Tordesillas shows that the contracting States possessed similar bargaining power, and therefore regulated their pretensions

 Miles (2013), p. 24.  Lipson (1985), pp. 37–38. 45  Miles (2013), p. 70. 46  Sornarajah (2017), p. 19; Alexandrowicz (1967), pp. 997–999. 47  See Lintott (Routledge 1993). 48  Anghie (2007), pp. 32–33; Benton (2002), pp. 10–11. 49  Hobsbawm (1987). 43 44

2.3  The Early Stages of International Investment Law

15

in a pacific manner. The aim of each State was to allow its nationals, settlers and merchants, to perform their economic activities far from their home State, without fear of hostile activities carried out by soldiers, settlers and merchant nationals of the other contracting party. However, if the parties of a treaty had unequal bargaining power, as it was often the case when the treaty was signed between a European State and a non-European one, foreign investment protection lost its reciprocity, and became connected to colonialism, strong protection of the commercial interests of the European State, and military intervention, taking on the characteristics of an imposition.50 The capital exporting States imposed foreign investment protection not only with the aim of safeguarding the specific property rights involved, which were based on the European notion of property, but also with the purpose of imposing their power in the military, economic, cultural and legal fields. Some scholars argue that international investment law developed toward a system protecting much more the investor than the other shareholders,51 and that the principles on which it was based established rights for the capital-exporting States and their citizens, and nothing more than obligations for capital-importing States.52 Not only did the Western powers share political and economic views based on liberalism: they also shared the legal views about the principles which should build the foundations of foreign investment law.53 Being avowed by all the Western powers, those principles appeared to possess the legitimacy of rules of customary international law. In this way, the political and commercial power of Western countries within non-European territories had both expanded and strengthened.54

2.3.2 The Capitulation System The origin of foreign direct investment goes back to very ancient times: private individuals and companies invested their resources abroad in order to buy, modify or build facilities for economic projects in countries different than their own.55 Historically, measures to protect foreign direct investment have seen the light at the beginning of the tenth century,56 when merchants from Venice were authorised to dock their ships in the harbours of the Byzantine Empire free of charge.57 A

 Miles (2010), p. 3.  Miles (2010), p. 4. 52  Lipson (1985), pp. 4, 8, 37–38; Anghie (2007), pp. 57–71. 53  Lipson (1985), pp. 229–230. 54  Anghie (2007), pp.  6–8, 32–33, 67–71, 141–142; Lipson (1985), pp.  16–18, 20–21, 37–38; Sornarajah (2017), p. 19. 55  Wouters et al. (2013), pp. 25, 26. 56  Salacuse (2010), p. 80. 57  See generally Lillich (1984), p. 7. 50 51

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similar privilege was later granted to sellers from Genoa.58 In the twelfth century, English monarchs started to grant comparable permits to foreign traders,59 allowing them to run their activities complying with the laws of their home countries.60 Even though such measures did not constitute a proper investment agreement, they provide an example of what the initial forms of investment protection were:61 trade concessions given by a monarch to alien merchants, rather than a treaty for mutual conditions signed by two sovereigns.62 Indeed, Western powers considered a State refusing to allow their nationals to carry out commercial activities within its borders as committing a hostile act, which entitled them to an armed intervention:63 Western powers with a considerable naval strength could place their armoured vessels near important targets, and enforce their request in this way.64 Some scholars argue that these treaties officialised that weaker countries had a ‘duty to trade’ with stronger ones.65 As a consequence of these concessions, if nationals of one State deemed that their rights had been injured during their stay abroad, whereas they were not entitled to specific rights against authorities and nationals of the host State, they could address a petition to their sovereign, so that the latter would exercise his influence and protect their interests.66 The legal principle at the basis of capitulations is founded on the concept of sovereignty, which in the past centuries was deemed to concern the nationals of a specific State, rather than the territory of that State. Therefore, whereas the foreigner residing abroad did not enjoy the same rights bestowed to citizens of his residing State, he had no specific obligations toward this State. If the number of a community of foreigners or their wealth became so great that it was necessary to regulate their behaviour, the needed rules were issued by the home State of these foreigners. This happened, for instance, when Christian foreigners, both merchants and missionaries, resided in countries in which justice was administered according to different principles compared to those of the Christian tradition.67 For regulating this kind of issues, in 1536 François I of France and Süleyman I of Turkey signed a treaty, which would be taken as a model in subsequent treaties with other countries. The treaty established that the French merchants could settle down in Turkey, enjoying individual and religious freedom, and that they would be subject to French civil and criminal law, administered by consuls appointed by the

 Lillich (1984), p. 7.  Salacuse (2010), p. 80; see also Fischer (1976–1983). 60  Lillich (1984), p. 7. 61  Tietje and Baetens (2014). 62  Salacuse (2010), p. 80. 63  Anghie (2007), pp. 20–22, 67–74. 64  Lipson (1985), pp. 14, 40, 53–54. 65  Lipson (1985), pp. 13–15. 66  Lillich (1984), p. 9. 67  Van Dyck (1881). 58 59

2.3  The Early Stages of International Investment Law

17

French monarch. The decisions of these consuls could be enforced cooperating with the Sultan’s officers.68 Building on their supremacy, and threatening or even exercising the use of force,69 almost all of the European States obtained capitulations for their citizens, signed by both Turkey between the eighteenth and the nineteenth centuries, and China between 1840 and 1860.70 Because of these unequal treaties, on the one hand the host States were reduced to ‘quasi-colonies of Western powers, companies or even individuals’,71 which could not refuse to grant citizens of the European powers neither the rights to invest and trade, nor an enhanced level of security to perform their activities.72 On the other hand, the European powers had in this way an extraterritorial jurisdiction on persons, goods and activities of their nationals living abroad,73 in both civil and criminal law. As a consequence, they could exercise their power also against the nationals of the host State, and other foreigners involved in disputes against their nationals.74 In this way, the European powers continued to expand their businesses abroad.75

2.3.3 Treaties of Friendship, Commerce and Navigation Because of the development of the nation-States, between the seventeenth and the eighteenth century the sovereigns issued acts finalised in writing, in which they ordered to control and regulate the economic activities of their subjects.76 In particular, the treaties in which two sovereigns agreed in writing upon the rules concerning investment and trade protection to be applied in their countries can be considered as the very first forms of investment protection.77 About the end of the eighteenth century a new kind of instrument aimed at protecting the States’ economic interests abroad was developed and spread among the States without colonial holdings. The Treaties of Friendship, Commerce and Navigation (‘FCNs’) allowed access to ports, and granted navigation rights through

 Van Dyck (1881).  Sornarajah (2004), p. 20. 70  Lipson (1985), p. 14. 71  Schrijver (1997), p. 174. 72  Lipson (1985), pp. 14–15. 73  Lipson (1985), p. 14; Anghie (2007), p. 85. 74  Lipson (1985), p. 14. 75  Lipson (1985), p. 14. 76  Salacuse (2010), p. 81. 77  Salacuse (2010), p. 81. 68 69

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internal waters.78 The first FCN, titled Treaty of Amity and Commerce,79 was signed by France and the United States in 1778, following a model drafted by John Adams.80 The United States drew bilateral FCNs with Prussia, Morocco, England, and Spain,81 and later the ones with the Latin American, Asian and African States willing to engage in commercial exchanges.82 Compared to the agreements used in the previous period, these treaties are characterised by a greater reciprocity: due to the similar level of leverage of the two signatory States,83 the treaties provided more balanced protections to both parties. As a consequence, national treatment was guaranteed for the partner State traders, and the latter had the right to file a claim with domestic courts in order to protect their own interests.84 However, as those treaties gradually covered territories increasingly far from Europe, their reciprocity faded.85 Moreover, the interpretation of these treaties carried out by the adjudicating bodies often became very favourable to the investors.86 From the substantive perspective, some treaties aimed at giving to the parties specific provisions which gradually became standard in these FCNs, and which can be considered as forerunners of the ‘fair and equitable treatment’,87 ‘most favoured nation’88 and ‘national treatment’ clauses, included in modern BITs.89 From the procedural perspective, an important innovation was introduced by the Treaty of Amity, Commerce and Navigation signed by Great Britain and the United States in 1794.90 This treaty, known as the Jay Treaty, created mixed commissions to decide the boundary disputes originated by damages or seizures caused to British or American citizens’ property during the war. The jurisdiction of such commissions included both, State-to-State disputes and disputes between individuals and States. The initiative succeeded: the more than 500 awards issued between 1798 and  Sornarajah (2017), pp. 180–181.  Salacuse (2010), p. 84; Treaty of Amity and Commerce between the United States and France (signed 6 February 1778). 80  Vandevelde (2010), p. 19. 81  A Treaty of Amity and Commerce between His Majesty the King of Prussia, and the United States of America (signed 10 September 1785); Treaty of Peace and Friendship, Treaty with Morocco (28 June and 15 July 1786); Treaty of Amity Commerce and Navigation, between His Britannick Majesty and The United States of America, by Their President, with the advice and consent of Their Senate (“The Jay Treaty”) (signed 19 November 1794); Treaty of Friendship, Limits, and Navigation Between Spain and The United States (signed 27 October 1795). 82  See generally Vandevelde (1993), p. 623. 83  Salacuse (2010), p.  82. See, e.g., Treaty of Friendship, Commerce and Navigation Between Argentina and the United States (signed 27 July 1853); Brazil-US, Treaty of Amity, Commerce, and Navigation (signed 12 December 1828). 84  Blumenwitz (2000), pp. 954–955. 85  Lipson (1985), pp. 12–14; Anghie (2007), pp. 85–86. 86  Lipson (1985), pp. 13–14. 87  Alschner (2013), pp. 455, 457. 88  Ziegler (2008), pp. 59–86, 62. 89  Blumenwitz (2000), p. 955; Bjorklund (2008), pp. 29, 31; Salacuse (2010), p. 85. 90  The Jay Treaty (1794), Art. 6. 78 79

2.3  The Early Stages of International Investment Law

19

1804 set the precedents for the subsequent development of law, and the public satisfaction for the work of these commissions led to the inclusions of arbitration clauses in several nineteenth century treaties.91 This, in turn, caused a gradual increase of State-to-State arbitration, so that in the first hundred years more than hundred claims were filed.92 However, sometimes trade and diplomatic measures have been supported by coercive means: examples thereof were Admiral Perry’s military mission to Japan in 1854, who forced Japan to open its commercial infrastructure and ports to Western trade,93 the armed interference committed by the Eight-Nation Alliance in the 1899 Chinese anti-foreign uprising called Boxer Rebellion, and the incursions of the United States Marine into Latin-American republics.94 The British Prime Minister Lord Palmerston himself upheld the so-called “gunboat diplomacy” in a speech held to the Parliament of Great Britain in 1850, speaking the following words: As the Roman, in days of old, held himself free from indignity when he could say Civis Romanus sum, so also a British subject, in whatever land he may be, shall feel confident that the watchful eye and strong arm of England will protect him against injustice and wrong.95

Nonetheless, the recourse to pacific means continued and even intensified: further FCNs have been signed until the half of the twentieth century by the United States and other States, with the aim of protecting individuals and businesses located abroad from discriminatory actions carried out against them. The principal goal was to protect property against expropriations,96 although foreign direct investment was quite limited at that time, except in the former colonial holdings. In the model FCN drafted by the United States, one clause specified that, in case of expropriation, it was necessary to abide with the rule of law and reimburse the owner of the expropriated property with a ‘just compensation’.97 One of the principal features of FCNs, which were the main instrument used by the United States to protect foreign direct investment until the 1960s,98 is the

 Malanczuk (1997), p. 20.  Rivkin (2017), p. 7 citing Scott (1909), p. 226. 93  Davies (1962), p. 43. 94  Jacoby (1973), p. 116. 95  Brendon (2008), p. 99. 96  Salacuse (2010), p. 86. 97  Vandevelde (2010), pp. 50–51. 98  Among the most recent FCNs signed by the United States are the following: Treaty of Friendship, Establishment and Navigation, United States-Luxembourg, 1962; Treaty of Friendship, Establishment and Navigation, United States-Belgium, 1961; Treaty of Friendship, Commerce and Navigation, United States-Netherlands, 1956; Treaty of Friendship, Commerce and Navigation, United States-Nicaragua, 1956; Treaty of Friendship, Commerce, and Navigation, United StatesWest Germany, 1954; Treaty of Friendship, Commerce and Navigation, United States-Israel,1951; Treaty of Friendship, Commerce and Navigation, United States-Denmark, 1951; Treaty of Friendship, Commerce and Economic Development, United States-Uruguay, 1950; Treaty of Friendship, Commerce and Navigation, United States-Italy, 1948. 91 92

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presence of international rules governing the relations between the parties. Some scholars argue that FCNs integrated both public international law and private law. 99 After the end of World War II, the international trade regime developed, going beyond the FCNs’ phase: new institutions were established, including the International Monetary Fund; multilateral agreements were signed, among others the General Agreement on Tariffs and Trade (GATT);100 and an entirely new type of agreement was created with the aim of protecting investment: international investment agreements (IIAs).101 Between FCNs and modern IIAs there are both analogies and differences: both instruments include provisions on investment, but whereas IIAs focus exclusively on this subject, FCNs were more complex instruments, also addressing commerce, navigation, and consular relations. IIAs provide substantive and procedural rules for the protection of investment, and among them, specific rules for the resolution of disputes. This testifies the adoption of a common view, aiming not only to maintain friendly relations between the involved States, but also to share initiatives specifically designed to protect investment.102

2.3.4  Ad hoc Commissions A further way to adjudicate peculiar groups of claims, which involved the treatment afforded by a host State to foreign nationals and their property, was the establishment of ad hoc commissions.103 Among the events or series of linked events that gave origin to numerous claims there could be revolutions, countrywide or sector-­ wide nationalisation of property, ‘civil rebellion, international conflict, and miscellaneous maritime seizures’,104 or the inaccessibility of domestic remedies due to widespread unrest.105 The first ad hoc commission was established in 1794 by the Treaty of Amity, Commerce and Navigation between Great Britain and United States (Jay Treaty),106 in order to settle claims concerning British and United States citizens during and after the American Independence War.107 To negotiate the settlement of many  Alschner (2014), p. 192, 200.  Salacuse (2010), pp. 86–87. 101  Vandevelde (2010), p. 22. 102  Tietje and Baetens (2014). 103  Newcombe and Paradell (2009), p. 7. 104  Weston and Lillich (1975), p. 27. 105  Bjorklund (2005), pp. 810, 825. 106  Treaty of Amity, Commerce, and Navigation, United Sates-Great Britain, 19 November 1794, 52 Cons TS 243, entered into force 28 October 1795. See also Sect. 2.3.3 Treaties of Friendship, Commerce and Navigation. 107  Johnston (2008), p.  636; Legum (2002), pp.  531, 534; Stuyt (1990), pp.  2–3; Ralston (1929), p. 153. 99

100

2.3  The Early Stages of International Investment Law

21

similar cases at once, the involved States signed an agreement which established a mixed claims commission, made up by arbitrators from each country, who heard claims submitted by nationals of both countries.108 The ad hoc commission could award damages in an amount that it determined autonomously, or by applying the lump-sum as provided for in the lump-sum agreements previously signed by the States involved.109 The claims heard were based on damages suffered by individuals, although the latter were not party to the proceedings, which was entirely managed by the States.110 There were a number of reasons why the involved States considered ad hoc commissions a good option. From a practical viewpoint, the issue of State liability was considered already ascertained, and the ad hoc commission had just to establish whether the individual claimant had a right to compensation, and the amount of such compensation. Moreover, if a lump-sum agreement had been already been signed between the disputing States, the States knew that their liability would never exceed that sum.111 From a political viewpoint, the States did not need to exercise diplomatic protection in specific cases, creating potential domestic conflict, if domestic protection would be assigned only to some claimants, and not to all of them, and potential international political unbalance.112 On the contrary, the establishment of ad hoc commissions was considered to be an effective means which could protect the relations between the involved countries in the long term,113 and give them the opportunity to turn their attention to other issues.114 For these reasons, in the period between 1840 and 1940, over 60 ad hoc commissions were established in order to decide over the disputes concerning damages to foreign citizens and their property,115 and in 1899 the Hague Convention for the Pacific Settlement of International Disputes116 was signed, which defined the procedure to establish ad hoc commissions. The involved States backed this method of dispute resolution, also because they appreciated the power to manage the proceedings without interference, and the non-­ binding nature of awards.117 However, precisely such elements made this method of dispute resolution scarcely accepted by investors.118 Therefore, after the end of the First World War new kinds of agreements were signed, which gave individual

 Weston and Lillich (1975), pp. 24–27.  Weston and Lillich (1975), pp. 24–27. 110  Dolzer (2012), vol III, 438. 111  Bjorklund (2005), pp. 810, 825–826. 112  Weston and Lillich (1975), p. 7. 113  Bjorklund (2005), pp. 810, 826. 114  Weston and Lillich (1975), p. 7. 115  Brownlie (2008), p. 500. 116  The Hague Convention for the Pacific Settlement of International Disputes 1899. 117  Newcombe and Paradell (2009), p. 7. 118  Newcombe and Paradell (2009), p. 7. 108 109

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claimants the opportunity to make claims directly.119 For this reason, the method of ad hoc commissions was abandoned in favour of direct investor-State arbitration.120 The experience gained by the ad hoc commissions and their decisions contributed to the growing jurisprudence on State responsibility for damages to foreign citizens and their property.121

2.3.5 Diplomatic Protection In the nineteenth century, foreign investment law developed within a branch of international law called ‘diplomatic protection of aliens’.122 Diplomatic protection can be defined as: The invocation by a state, through diplomatic action or other means of peaceful settlement, of the responsibility of another state for an injury caused by an internationally wrongful act of that state to a natural or legal person that is a national of the former state with a view to the implementation of such responsibility.123

Diplomatic intervention can be described as the home State’s engagement to protect its citizens abroad, when they received a treatment not complying with the minimum standards of protection. According to customary international law, when a State causes damages to an alien with its illicit action or omission, it bears responsibility for it, and the injured person can seek for reparation through the diplomatic protection mechanism. Such instrument has been historically considered an exclusive State right, since an offense to a State’s citizen was an offence to the State itself.124 As a consequence, when a State’s citizen suffered an offense, the host State was held liable, and the home State could intervene in order to restore the injured right,125 acting in a number of different ways ranging from a simple diplomatic protest to military intervention. The specific option chosen depended from the importance of the political and economic issues involved.126 The principle of diplomatic protection finds its origin in a declaration issued in 1758 by Emmerich de Vattel, a Swiss philosopher, lawyer, and diplomat, who wrote in his Le Droit des Gens ou Principes de la Loi Naturelle Appliqués à la Conduite et aux Affaires des Nations et des Souverains:127

 Orrego Vicuña (2000), pp. 631–645.  Newcombe and Paradell (2009), p. 8. 121  Newcombe and Paradell (2009), p. 7. 122  Brownlie (2008), pp. 524–526. 123  United Nations (2006). 124  Sornarajah (2017), p. 138. 125  Amerasinghe (1967), p. 56. 126  Borchard (1915), p. 439. 127  de Vattel (1758), para. 71. 119 120

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Whoever mistreats a citizen, indirectly offends the State, which is bound to protect the citizen; and the sovereign of the latter should avenge his injury, if possible, obliging the aggressor to make full reparation; since otherwise the citizen would not obtain the great end of civil society, which is security.128

More recently, the principle has been reaffirmed in a pronouncement of the Permanent Court of International Justice, which in 1924 asserted that: By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a state is in reality asserting its own right, the right to ensure, in the person of its subjects, respect for the rules of international law.129

Some scholars claim that this is an overstatement,130 because the rule of continuous nationality requires the home State to demonstrate ‘that the injured remained its national after the injury itself and up to the date of the presentation of the claim’.131 The necessity of the fiction descended from the conviction common in the past that an individual had no rights under international law. Another precondition for diplomatic protection is the exhaustion of legal remedies in the host State, as these would give the responsible State the occasion to take restorative measures.132 The mechanism allowing the home State of a national to bring a claim against the host State is called ‘espousal’. Research found that there is a number of reasons why the espousal is often an unsatisfactory remedy:133 (i) the home State is not forced to espouse the claim,134 and may be unwilling to do so wishing to not disrupt its own relations with the host State;135 (ii) the home State may decide to espouse the claim only after the national has exhausted the local remedies without satisfactory results;136 filing a claim in a domestic court may be a long and expensive procedure; (iii) if at last the home State decides to espouse the claim, it has the authority to settle;137 and in this way the individual loses the control over his claim. On the other hand, according to customary international law, the possibility to make recourse to diplomatic protection is lost if and when the investor and the host State agree to submit their dispute to an arbitration tribunal. This was highlighted by

 Vermeer-Kuenzli (2013), pp. 250, 251.  Mavrommatis Palestine Concessions (Greece v U.K.) P.C.I.J. Reports, 1924, Series A, No. 2, 12. This dictum was repeated by the Permanent Court of International Justice in the Panevezys Saldutiskis Railway case (Estonia v. Lithuania) P.C.I.J. Reports, 1939, Series A/B, No. 76, 16. 130  Brierly (1963), pp. 276–277. 131  United Nations Draft Articles on Diplomatic Protection with commentaries, Yearbook of the International Law Commission, 2006, vol. II, part two. 132  Interhandel (Switzerland v United States of America), 1959 ICJ Rep. 6, 27. 133  Vandevelde (2005), pp. 157, 160. 134  Whiteman (1967), vol. 8, 1216–1219. 135  Vandevelde (1992), pp. 10, 23. 136  Interhandel (Switzerland v US), 1959 I.CJ. 6, 27 (Mar. 21); Ambatielos Claim (Greece v U.K.) 23 I.L.R. 306, 344 (1956); Whiteman (1967), vol. 8, 769–807. 137  Whiteman (1967), vol. 8, 1216–1219. 128 129

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arbitral panels, who decided the cases Banro American Resources v Democratic Republic of the Congo and AES Corporation v The Argentine Republic. In Banro American Resources v Democratic Republic of the Congo the tribunal found that: (…) if direct arbitration between the host State and the investor is one of the main features of the ICSID system, the exclusion of the possibility of diplomatic protection is the inevitable consequence of this. In the case of state parties to the ICSID Convention, no longer can an investment dispute between the nationals of one in the territory of the other give rise to the exercise of diplomatic protection, a process that runs the risk of souring interstate relations. In other words, once ICSID arbitration is available for settling a dispute related to a foreign private investment, diplomatic protection is excluded: the investor no longer has the right to seek diplomatic protection, and the investor’s home State no longer has the right to grant the investor diplomatic protection.138

In AES Corporation v The Argentine Republic, the tribunal decided that under the ICSID system of settlement of disputes, exercise of diplomatic protection is per definition put aside.139 Of a partially different view was arbitrator Arthur W. Rovine’s concurring opinion, expressed in Archer Daniels v Mexico: The mechanism of diplomatic protection was not superseded by the system of individual investor rights, but rather was diminished by such system. Instruments such as treaties between states, both bilateral and multilateral, and agreements between and among states and private parties, provided an evolving legal framework for investor protection that differed in many respects from certain of the rules of diplomatic protection (…).140 [The previously cited Articles] obviously do not mean that all the rules of diplomatic protection and customary international law no longer apply at NAFTA. They do mean that the core of the diplomatic protection rule, state espousal of claims to enforce state obligations on behalf of the espousing state’s nationals, is not part of NAFTA, and that instead NAFTA investors have their own individual rights to enforce such state obligations (…).141

However, this principle finds an exception in Article 27(1)  of the ICSID Convention, establishing that no Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under the ICSID Convention, unless such

 Banro American Resources v Democratic Republic of the Congo, ICSID Case No. ARB/98/7, Award of September 1, 2000, 17 ICSID Rev.—FILJ 232 (2002), para. 15. 139  AES Corporation v The Argentine Republic, ICSID Case No. ARB/02/17 Decision On Jurisdiction, 26 April 20015, para. 99. 140  Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v United Mexican States, ICSID Case No. ARB(AF)/04/5, Concurring Opinion of Arthur W.  Rovine Issues of Independent Investor Rights, Diplomatic Protection and Countermeasures, para. 23. 141  Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v United Mexican States, ICSID Case No. ARB(AF)/04/5, Concurring Opinion of Arthur W.  Rovine Issues of Independent Investor Rights, Diplomatic Protection and Countermeasures, para. 77. 138

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other Contracting State shall have failed to abide by and comply with the award rendered in such dispute.142 In addition, there are various cases where diplomatic protection might still apply: 1. When there is no investment treaty nor trade agreement with an investment chapter; 2. When there are such treaties, but there is no ISDS; 3. When such treaties provide for ISDS, but only for a limited number of disputes.143 This happens, for example, when the definition of investment in the treaty is particularly narrow.144 To conclude, even though investment treaties provide investors with rights under international law, there are circumstances in which those rights do not apply to particular subjects or to specific situations. This is the reason why, in the opinion of some scholars, both ISDS and diplomatic protection play a part in protecting foreign investments abroad.145

2.3.6 The Hull Formula and the Calvo Doctrine Within the framework of the conflicting economic and political relations between world powers and developing States, during the nineteenth century some European States attacked various developing States because of the latter’s inability to meet their financial obligations.146 For instance, in 1861 Napoleon III sent an expedition towards Mexico in order to support specific claims made by French investors against the Mexican government.147 Between the end of the nineteenth century and the beginning of the twentieth, Mexico and the Union of Soviet Socialist Republics (USSR) launched their respective nationalisation programs and started to expropriate large lots of lands, inspired by socialism and communism.148 In the 1910s, Mexico expropriated land belonging to American citizens, as part of an agrarian reform aimed at reallocating the land to the farmers who would cultivate it.149 Similarly, during the 1930s the Mexican government nationalised some oil investments owned by United States citizens.150

 ICSID Convention, Regulations and Rules (ICSID, April 2006) Part A.  Juratowitch (2008), p. 27. 144  Juratowitch (2008), p. 30. 145  Juratowitch (2008), p. 35. 146  Garcia-Mora (1950), p. 205. 147  Nussbaum (1947), pp. 211–212. 148  Wouters et al. (2013), p. 25, 28. 149  Lowenfeld (2008), pp. 471–473; Wouters et al. (2009), p. 265. 150  Greenberg and Winet (2013), p. 237. 142 143

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The issue of expropriation has caused profound divergence of views between, on the one hand, the capital-exporting countries, which affirmed that the investor whose property has been expropriated has the right to receive compensation, and, on the other hand, developing and communist countries, which rejected this principle, justifying their position with various legal reasons. An emblematic case involved Cordell Hull, United States Secretary of State at that time, and the Mexican Ministry of Foreign Affairs, and concerned the interpretation of the protection of aliens’ property in foreign territories. In particular, Cordell Hull declared that: ‘The taking of property without compensation is not expropriation. It is confiscation’,151 and that in case a host State made use of expropriation, it had to pay adequate compensation to the investor, based on the case-law and literature.152 The obligations of a State under customary investment law in case of expropriation became later known as the Hull formula: Cordell Hull affirmed that the Mexican government should provide ‘prompt, adequate and effective compensation’ to the adversely impacted United States investors, where ‘prompt’ means ‘immediate’, or at least ‘speedy’ compensation, ‘adequate’ means ‘following an appropriate valuation of the expropriated property coming close to its full or fair market value’,153 and ‘effective’ describes a form of payment effectively ‘usable by the recipient’, excluding, for instance, payments in a non-convertible foreign currency.154 The aim of Cordell Hull was to send a clear signal against nationalisation of United States investments.155 Conversely, the Mexican Ministry held the position later defined as the ‘Calvo Doctrine’, taking its name after the prominent Argentine scholar Carlos Calvo. In 1868, in a period in which Argentina emerged from a phase of intense political turmoil,156 Carlos Calvo published in France his treatise, entitled Le droit international théorique et pratique. Here he exposed his doctrine, which was based on two principles: foreign investors had equal rights to nationals, and, as a consequence, investment disputes had to be decided in national courts.157 According to the Calvo’s doctrine, each State necessarily has at its availability the rights of self-determination and sovereignty: it follows that foreign investors, enjoying the same rights and being submitted to the same obligations as nationals, have to file their legal disputes against the host State using the same procedures as nationals do: domestic courts158 are the sole judging bodies having jurisdiction. As  Cordell Hull, Diplomatic Note for the Secretary of State of the United States of America to the Minister of Foreign Affairs of Mexico, July 21, 1938. 152  Lowenfeld (2008), pp. 478–479. 153  PCIJ, Case Concerning the Factory at Chorzów (Merits), 13 September 1928, PCIJ Series A – No. 17, 47. 154  Schachter (1984), p. 121. 155  Wouters et al. (2013), pp. 25, 29. 156  OECD (2008c), pp. 33, 34. 157  Flagg Bemis (1943), pp. 230–234. 158  Greenberg and Winet (2013), p. 237. 151

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a consequence, foreign investors cannot seek diplomatic protection159 nor appeal to foreign courts.160 According to the Calvo Doctrine, the only commitment that international law inflicts on host States towards the foreign investor is non-discrimination. Hence, aliens could rely on the same treatment reserved to nationals and could not demand the application of any international standards of treatment. The diplomatic correspondence between the United States Secretary of State and the Mexican Ministry of Foreign Affairs did not result in a shared vision.161 However, the Calvo Doctrine inspired a great part of the Latin American countries’ legislation of the twentieth century concerning foreign investment,162 and was included in treaties, municipal legislation, private contracts with foreigners, and in most Latin American countries Constitutions.163 One example therefore is given by the inclusion of this doctrine in Article 27 of the 1927 Constitution of Mexico, providing that: Only Mexicans by birth or naturalization and Mexican corporations have the right to acquire ownership of lands, water and their appurtenance, or to obtain concessions for working mines or for the utilization of waters or mineral fuel in the Republic of Mexico. The Nation may grant the same rights to aliens, provided they agree before the Ministry of Justice to consider themselves as Mexicans in respect to such property and bind themselves not to invoke the protection of their governments in matters relating thereto, under penalty, in case of non-compliance, of forfeiture to the Nation of property so acquired.164

In AES Corporation v The Argentine Republic, the Decision on Jurisdiction aptly presented the Calvo Doctrine in a modern context. The tribunal found that the Calvo Doctrine was to be read in conjunction with reference to the general international law rule of diplomatic protection. It was interpreted as a clause by which private parties mistakenly pretended to renounce to a right which in law did not belong to them but to their national State: the right for this State to exercise diplomatic protection in favour of its nationals.165 The Calvo Doctrine gave origin to the Calvo Clause, a provision which was included in many contracts between a host State and a foreign investor. Under the Calvo Clause, the foreigner waived his rights to request his home State to bring a claim on his behalf and restricted himself to appeal the domestic courts of the host State if he suffered any damages abroad.166

 Mourra (2008), pp. 5, 8.  Lowenfeld (1982), p. 151. 161  Wouters et al. (2013), pp. 25, 29. 162  Mourra (2008), pp. 5, 9. 163  Shea (1955), pp. 21–27; Chowdhury et al. (2002), p. 116. 164  Restatement of the Law (Third), Foreign Relations Law of the United States, Part II Persons in International Law, §202. 165  AES Corporation v Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005, 98. 166  Schrijver (1997), pp. 178–179. 159 160

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Capital-importing States firmly supported the use of the Calvo Clause,167 but its scope was not as wide as to include a complete waiver. In fact, under the Calvo Clause, only the individual waives his rights, whereas his home State does not waive its own.168 The General Claims Commission established that the Calvo Clause simply affirms the necessity to exhaust local remedies before exercising diplomatic protection.169 What is particularly interesting is that in recent times, specific provisions in international agreements also require the exhaustion of local remedies:170 this is the reason why Schreuer ironically affirms: “Carlos Calvo is not alive, but he has children and grandchildren that have an uncanny family resemblance to him”.171

2.4 The Role of the IMF and the World Bank in Promoting Foreign Investment Research stressed that many peculiarities of the investment protection regime find their roots in the period after the end of World War II.172 Decolonisation progressed to the second stage after the war, as developing countries collectively declared their sovereignty. Immediately after gaining their independence, States began to bring their natural resources under their own control in the 1950s, imposing strict regulations on foreign investments and investors based on national law. Between the 1950s and the 1960s several countries, including Chile, Cuba, Egypt, Iran, Libya, and Venezuela expropriated and nationalised the properties of foreign investors.173 The home States of the involved investors, that were part of Europe and America, argued that a minimum set of international standards had to be applied by host States in their approach towards foreign investment. Instead, other countries, and above all Latin American States, claimed that domestic law should be the sole regulatory framework of foreign investment. Believing to be able to reach the majority at the United Nations General Assembly (UNGA), the developing countries declared their sovereignty over their own development and resources.174 In 1962, General Assembly Resolution 1803 (XVII) codified the principle of permanent sovereignty over natural resources, asserting:

 Miles (2013), p. 51.  Garcia Amador et al. (1974), p. 74. 169  Decision of the General Claims Commission of Mexico and United States in the North American Dredging Company case, See Feller (1935), p. 187. 170  Among others, the ICSID Convention and the BIT between Argentina and Germany. 171  Schreuer (2005), pp. 1, 3. 172  Anghie (2007), p. 224. 173  Elkins et al. (2006), p. 811, 813. 174  Bishop et al. (2014), p. 5. 167 168

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1. The right of peoples and nations to permanent sovereignty over their natural wealth and resources must be exercised in the interest of their national development and of the wellbeing of the people of the state concerned. 2. The exploration, development, and disposition of such resources, as well as the import of the foreign capital required for these purposes, should be in conformity with the rules and conditions which the peoples and nations freely consider to be necessary or desirable with regard to the authorization, restriction or prohibition of such activities. 3. Nationalisation, expropriation or requisitioning shall be based on grounds or reasons of public utility, security or the national interest which are recognized as overriding purely individual or private interests, both domestic and foreign. In such cases the owner shall be paid appropriate compensation, in accordance with the rules in force in the state taking such measures in the exercise of its sovereignty and in accordance with international law. In any case where the question of compensation gives rise to a controversy, the national jurisdiction of the state taking such measures shall be exhausted. However, upon agreement by sovereign states and other parties concerned, settlement of the dispute should be made through arbitration or international adjudication. 4. The free and beneficial exercise of the sovereignty of peoples and nations over their natural resources must be furthered by the mutual respect of states based on their sovereign equality.175 Although this declaration maintains that States have a right to permanent sovereignty over natural resources, and still tries to equip countries which recently became independent with a ‘legal shield’ against the property or contract rights claims asserted by foreign businesses or states, it tries to find a balance between the different rights, affirming that States will have to take into account the rights of the parties concerned by such nationalisations, expropriations or requisitioning. In such way, General Assembly Resolution 1803 (XVII) sought to provide a response to the concession agreements of the colonial period, which were considered to be unfair because they granted investors access to natural resources and created a dependency on foreign capital among developing countries, maintaining a fine balance and cooperation with the home States of the foreign investors. In fact, even the rules establishing settlement for nationalisation would be formulated in compliance with the national law of the host State as well as international law. In the following years, the developing countries supported their international position, promoting the issuing of the General Assembly Resolution 3281 (XXIX), which established the Charter of Economic Rights and Duties of States (‘1974 Charter’).176 It declared:  Permanent Sovereignty over Natural Resources, General Assembly Resolution 1803 (XVII), 15, U.N. Doc. A/5217 (Dec. 14, 1962). 176  Charter of Economic Rights and Duties of states, G.A. Res. 3281 (XXIX), U.N. Doc. A/9631 (Dec. 12, 1974). 175

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2  History of Investor-State Dispute Settlement Article 2

1. Every state has and shall freely exercise full permanent sovereignty, including possession, use and disposal, over all its wealth, natural resources and economic activities. 2. Each state has the right: To regulate and exercise authority over foreign investment within its national jurisdiction in accordance with its laws and regulations and in conformity with its national objectives and priorities. No state shall be compelled to grant preferential treatment to foreign investment; To regulate and supervise the activities of transnational corporations within its national jurisdiction and take measures to ensure that such activities comply with its laws, rules and regulations and conform with its economic and social policies. Transnational corporations shall not intervene in the internal affairs of a host State. Every state should, with full regard for its sovereign rights, cooperate with other states in the exercise of the right set forth in this sub-paragraph; To nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the state adopting such measures, taking into account its relevant laws and regulations and all circumstances that the state considers pertinent. In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing state and by its tribunals, unless it is freely and mutually agreed by all states concerned that other peaceful means be sought on the basis of the sovereign equality of states and in accordance with the principle of free choice of means.

According to Article 2 of the 1974 Charter, domestic law and the tribunals of the nationalising state would govern procedures for suitable reimbursement for nationalisation. Moreover, differently from what the General Assembly Resolution 1803 (XVII) declared, no reference is made to either international law or international arbitration. Notwithstanding the negative vote of many developed countries, the  General Assembly Resolution 3281 (XXIX) was approved. However, in the same period when developing States asserted their full sovereignty over their natural resources, the finalisation of IIAs was initiated. Some researchers argued that, in some way, IIAs are a paradoxical product of an era in which the developing countries declared their sovereignty, and this was considered as putting foreign contracts and associated property rights in jeopardy.177 Nevertheless, during the 1990s, the number of newly signed IIAs increased at a rapid rate.178 Among the reasons that could have promoted this change, research has identified the following: –– The clarification of the rules applicable to potential disputes was a priority for both States and investors, especially as it was uncertain the extent to which foreign investments could be protected by international law;179

 Alvarez (1992), p. 555.  Vandevelde (1998b), p. 621. 179  Sornarajah (2017), p. 213. 177 178

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–– The emergence of a serious debt crisis; –– In Central and Eastern European States, command economy models were abandoned at the same time as free market economies began to develop; –– Official development assistance had started to diminish; –– International financial institutions had requested that internal economic frameworks be restructured;180 and –– It was believed that development and modernisation would be stimulated by IIAs through encouragement of FDI flows.181 Some scholars highlighted that many developing countries signed IIAs hoping that it would result in a more equal footing between capital exporting and capital importing countries, with the purpose that Western powers would no longer be able to defend the demands of their foreign investors against the interests of capital-­ importing States.182 Others argued that the proliferation of IIAs was originated from the competition among developing countries aiming to attract capitals, coming across as investor-­ friendly environment.183 A thought-provoking study is the one by Guzman: he maintains that a prisoner’s dilemma confronted the developing countries, in which it is optimal for them, as a group, to reject the Hull Formula, but in which each individual developing country is better off ‘defecting’ from the group by signing a BIT that gives it an advantage over other developing countries in the competition to attract foreign investors.184 Yet, the most interesting connection was highlighted by those scholars who stressed the role of the International Monetary Fund (IMF) and the World Bank.185 After the end of the gold parity system in the 1970s, the IMF changed its policy: whereas beforehand it prioritised prevention of the effects of international fluctuations on national economies, later it changed course by handing out loans for the purpose of realising stabilisation programmes that would modify the national economic frameworks, creating an environment where foreign private investment could flourish. Two of the purposes of the World Bank, which was established in the aftermath of World War II, to generate funds for reconstruction is to promote foreign investment by means of guarantees of participation in loans and other investments by private investors, and to stimulate international trade and balance-of-payments equilibrium by encouraging international investment.186 It was precisely due to the importance attributed by the World Bank to foreign investment that the ICSID was established in 1966, and the Multilateral Investment  Vandevelde (1998a), pp. 386–390; Kaushal (2009), p. 491.  Anghie (2007), p. 223. 182  Alvarez and Khamsi (2009), p. 379. 183  Elkins et al. (2006), pp. 812, 823. 184  Guzman (1998), pp. 666–667. 185  Lastra (2000), pp. 507–508; Peet (2003), p. 73; Buira (2003), pp. 61–63. 186  Gilbert and Vines (2000), p. 12. 180 181

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Guarantee Agency (MIGA) was created in 1988.187 To help reforms in borrowing countries, the World Bank launched its Structural Adjustment Loans (SALs) in 1980.188 Given that the SALs had to be approved by the IMF, which, in turn, applied the policy of conditional loans, there was an integration of the functions and policies of the two institutions. The granting of funds required fulfilment of specific ­conditions: first of all, to show the host State’s openness to investment through privatisation, liberalisation and fiscal austerity. Foreign investors stand to benefit from such transformations because of the arising opportunities for mergers and acquisitions as well as the sale of companies previously owned by the host State.189 Besides, foreign investment insurance was available only where an IIA was in force.190 Developing countries had no real alternatives apart from addressing the IMF or the World Bank, since private investors would not offer loans in reasonable terms.191 With the aim of obtaining the loan to finance developing and growth policies, IIAs were signed by developing and capital exporting countries, and on that basis, numerous foreign investors established their investments in the host States.

2.5 Criticisms of International Investment Agreements Some researchers argue that investment agreements do not adequately protect the State’s right to regulate, whose importance has been compared by some scholars to the one attributed to the State’s duty to protect human rights.192 They contend that the doctrine of police powers under customary international law supports the right to regulate in international investment law. The doctrine of police powers has been described as follows: The power of a state to place restraints on personal freedom and property rights of persons for the protection of the public safety, health, and morals, or the promotion of the public convenience and general prosperity (…) The police power is the exercise of the sovereign right of a government to promote order, safety, security, health, morals and general welfare within the constitutional limits and is an essential attribute of government.193

Other scholars criticise the sunset clause of investment treaties, which provides that after treaty termination, the provisions of the treaty will be applicable for established investments;194 the FET clause because of its vagueness; the umbrella clause

 Schrijver (1997), pp. 41, 185–188.  Stiglitz (Norton 2003), p. 14. 189  Organization of Economic Cooperation and Development [OECD] (2003). 190  Kaushal (2009), p. 505. 191  Articles of Agreement of the International Bank for Reconstruction and Development art. I(2), Dec. 27, 1945, 60 Stat. 1440, 2 U.N.T.S. 134. 192  Mann (2008), p. 17. 193  Black’s Law Dictionary (6th edn, West Publishing Co. 1990). 194  See, for instance, the US Model BIT 1987, Art. XIII, cited in Vandevelde (1992) Appendix A-4. 187 188

2.5  Criticisms of International Investment Agreements

33

for bringing contract claims under treaty level; and stabilisation clauses for deterring the State from regulating in certain sensitive domains.195 In 2009, a petition filed by a group of Non-Governmental Organisations (NGOs) with the Supreme Court of the Philippines claimed that the investment chapter of the Japan-Philippines Economic Partnership Agreement (JPEPA) violated the Philippine constitution. The group of NGOs argued that under the Philippine Constitution, foreigners are allowed to own a small percentage in certain types of investment: for instance, foreign ownership can amount to a maximum proportion of 40% in public utilities and education, 30% of advertising. The Philippine Constitution also specified that private land acquisition was open exclusively to Filipino citizens and companies with minimum 60% Filipino-owned capital. The NGOs argued that the JPEPA resulted in land ownership liberalisation, breaching the restrictions imposed by the Philippine Constitution, despite the provision, accepted by the Philippines and Japan, that their national constitutions governed the application of the JPEPA. Other researchers argue that the investment regime inhibits the power of States to regulate: prioritising an absolute, neo-liberal vision of society and markets, they claim that IIAs prevent essential alternatives for pluralist self-government: [the investment regime] freezes existing distributions of wealth and privileges ‘status quo neutrality’. It does not merely commit citizens to predetermined institutions and rules through which political objectives are realized but also institutionalizes a legal incapacity to act in a variety of economic matters. It is not an enabling precommitment strategy: rather it is largely a disabling one. At bottom, the investment rules regime represents a form of constitutional precommitment binding across generations that unreasonably constraints the capacity for self-government.196

Tecmed v Mexico is an example of interface between investment protection and environmental considerations:197 Tecmed, a company incorporated in Spain, which operated a controlled landfill of hazardous industrial waste, committed breaches to the environmental legal framework of Mexico, and its license to operate the landfill was not renewed. However, whereas the Mexican government argued that the permit was not renewed in order to protect the environment and public health, the investor claimed that the closedown of the landfill was equivalent to an expropriation. Mexico was held responsible for breaching the expropriation clause. Other researchers are concerned about the possibility that foreign investment may slow down a country’s legislative reforms,198 and that the host State’s national security may be threatened if foreign companies own essential infrastructure.199

 Mann (2008), pp. 17–18.  Schneiderman (2007), p. 37. 197  Técnicas Medioambientales Tecmed SA v United Mexican States, Award, 29 May 2003, 43 ILM 133 (2004). 198  Newcombe (2007), p. 394. 199  Bottini (2008), p. 145. 195 196

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Critics argue that investment treaties are a colonial inheritance, and that they are built along North-South lines.200 They claim that IIAs resemble colonialist aims in that they are geared towards civilising the ‘uncivilised’. They substitute the “uncivilised” courts of host States in the same way as capitulation agreements did. They add that investment treaty arbitration replaces imperial consular officers with arbitral tribunals.201 Ultimately, some scholars contend that the philosophy of the free market pervaded the system, to the disadvantage of all the other interests involved. Several scholars agree that a different drafting of certain clauses of investment treaties is advisable in order to obtain a fairer system.202

2.6 The Rise of Investor-State Arbitration After the period in which arbitration was used only between States,203 because individuals and companies did not have the necessary status to appear before international tribunals,204 in the second half of the nineteenth century some investor-State arbitrations started to be filed: one of the first ones was between the Turkish La Compagnie Universelle du Canal de Suez, and Egypt. In 1864 Egypt issued a law, breaking an agreement it had signed with the Turkish company, and the latter sought compensation. The agreement between Egypt and the company did not include an arbitration clause; however, the parties agreed to resolve the dispute by means of arbitration, and designated Napoleon III as arbitrator.205 Nevertheless, although there were early cases of international investment arbitration, it was the overwhelming success of international commercial arbitration that made arbitration the most often chosen dispute resolution method in the investment field. Research remarked that arbitration is ‘a process by which parties reached an agreement to submit a dispute to a non-governmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute in accordance with neutral, adjudicatory procedures affording each party an opportunity to present its case’.206 Among the reasons making arbitration the preferred means of resolving international commercial disputes, there are the following: neutrality, centralised dispute resolution, enforceability of agreements and awards, commercial competence and

 Guzman (1998), p. 639.  Mann (2003), p. 247. 202  Schneiderman (2007). 203  Dolzer and Schreuer (2012), p. 14. 204  Sornarajah (2000), p. 151; Kronfol (1972), p. 16. 205  Egypt v Suez Canal Company, Award, 1864, cited in Stuyt (1990), 471. 206  Born (2012), p. 32. 200 201

2.6  The Rise of Investor-State Arbitration

35

expertise of the arbitrators, finality of decisions, party autonomy and procedural flexibility and adaptability, cost and speed of the procedure, and confidentiality.207 The increased recourse to commercial arbitration after World War II208 contributed to the rise in popularity of investment arbitration, although the latter is a hybrid form due to the involvement of a private party and a State.209 The offer to arbitrate is expressed by the State in the investment treaty: at present there are over 3200 IIAs in their various forms of Bilateral Investment Treaties (BITs), Regional Trade Agreements (RTAs), multilateral treaties, and Free Trade Agreements (FTAs) with investment chapters.210 The increase in the number of existing IIAs is due, among other factors, to investors’ mistrust towards the host State’s domestic courts.211 Indeed, the possibility to resolve a dispute in the neutral forum of arbitration has been welcomed by the international community.212 In 1965 the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the ‘ICSID Convention’) was formulated by the World Bank to address the resolution of investor-State disputes through arbitration. The ICSID Convention founded the ICSID,213 which then became the largest institution providing services for investor-State arbitration and conciliation.214 One additional reason for the success of international investment arbitration relates to the enforcement of awards. The ICSID Convention, to which 165 States are parties, provides that an award of a tribunal is binding and it can be enforced as though it were a final judgment of a State’s courts (Article 54(1) of the ICSID Convention).215 Moreover, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the ‘New York Convention’),216 counts 161 States parties and provides that awards are recognised and binding for all the States who are party to the New  York Convention. This ensures smoother cross-border enforcement. In addition, disputing parties can appoint the members of the tribunal, based also on their experience in a particular domain, and, if the applicable treaty and arbitral rules so allow, can choose the seat and the procedural rules. The choice of a neutral venue for the arbitration is appreciated by the parties, especially because investors fear that national courts might be under pressure from their government to decide in  Born (2012), p. 38.  Newcombe and Paradell (2009), p. 13; Salacuse (1990), p. 659. 209  Newcombe and Paradell (2009), p. 17. 210  See also: UNCTAD Investment Policy Hub, International Investment Agreements Navigator. 211  Knull II and Robins (2000), p. 531. 212  Feliciano (2012), p. 16. 213  Washington Convention, art. 1 (“The purpose of the [ICSID] shall be to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in accordance with the provisions of this Convention.”). 214  Washington Convention, 7. 215  Convention on the Settlement of Investment Disputes between States and Nationals of Other States (2006). 216  Convention on the Recognition and Enforcement of Foreign arbitral Awards (1958). 207 208

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the State’s favour.217 Moreover, arbitration can be faster compared to national trials.218 All of these reasons contribute to the success of investment arbitration: as highlighted by UNCTAD, the total number of publicly known ISDS claims had reached 1190  in December  2021, but: ‘As some arbitrations can be kept confidential, the actual number of disputes filed in 2021 and in previous years is likely higher.’ 219 Traditionally, concluding IIAs with capital-exporting countries was a strategy used by developing countries to attract FDI inflows, and this contributed to several agreements being signed.220 The provisions in investment treaties included non-­ discrimination clauses, such as national treatment (‘NT’) and most-favoured nation (‘MFN’), standards of treatment, such as fair and equitable treatment (‘FET’) and expropriation clauses, and dispute resolution provisions, such as State-to-State dispute resolution or ISDS.221 UNCTAD reports that in August 2023, 1257 investor-State cases were registered globally, out of which 890 were concluded.222 Many IIAs provide that investor-State arbitration will be administered by ICSID: the number of disputes registered under the ICSID Convention and Additional Facility Rules rose to 933 in August 2023.223 Every year, new cases are registered by ICSID: 48, 53, 56, 39, 58, 66, and 41 new cases were filed respectively in 2016, 2017, 2018, 2019, 2020, 2021, and 2022.224 These statistics make ICSID ‘the leading international arbitration institution devoted to investor-State dispute settlement’.225 The functions of ICSID extend to supporting the management process in investment arbitration cases governed by the UNCITRAL Arbitration Rules. Arbitration institutions like the International Chamber of Commerce (ICC) and the Stockholm Chamber of Commerce (SCC) usually apply their own rules.226 The high and ever-increasing number of cases and the significant amount of compensation granted in some awards have sparked debate among the community of investment lawyers. International institutions and organisations such as the European Commission, UNCITRAL, UNCTAD, and ICSID established projects in which working groups would discuss ideas for a possible reform of investment arbitration in identified areas deserving improvement.  The largest reported award in the history of investment treaty arbitration was given in Occidental v Ecuador, in which the claimant was awarded more than 1.7 billion USD.  See Occidental v Republic of Ecuador, ICSID Case No. ARB/06/11, Award, 20 September 2012. 218  Pouget (2013). 219  UNCTAD, World Investment Report 2022. 220  Levine (2011), p. 202. 221  Fach Gómez (2012), pp. 524–525. 222  UNCTAD Investment Policy Hub 2021. 223  ICSID Secretariat, The ICSID Caseload Statistics, Issue 2023-2. 224  ICSID Secretariat, The ICSID Caseload Statistics, Issue 2023-2. 225  Chechi (2014), p. 179. 226  Arbitration Institute of the Stockholm Chamber of Commerce (SCC), Rules; International Chamber of Commerce (ICC), Arbitration Rules. 217

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37

Dissatisfaction with the current status quo has been expressed by Bolivia, Ecuador, and Venezuela, which decided to withdraw from the ICSID Convention in 2007, 2010, and 2012 respectively. One more country that demonstrated its discontent with the regime of investment law is Ecuador, which in 2008 started to terminate its IIAs with the Netherlands, Cuba, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, Romania, Uruguay, and Venezuela.227 In 2010, the Ecuadorian Constitutional Court found the dispute settlement provisions included in the IIAs with China, Finland, Germany, the United Kingdom, Venezuela and United States to be incompatible with the Ecuadorian Constitution.228 Between January and April 2017, 19 IIAs were terminated by developing countries, mostly by India229 and Indonesia.230 In October 2016, ICSID started the process to amend its procedural rules, and sent an official invitation to all member States and the general public to join the discussions and submit their proposals regarding rule amendments.231 UNCITRAL launched Working Group III on Investor-State Dispute Settlement Reform, whose sessions have taken place twice a year since 2017.232 In 2015 UNCTAD issued a Road Map for IIA Reform of Investment Dispute Settlement,233 in 2018 the Reform Package for the International Investment Regime,234 and in 2020 the Reform Accelerator.235 The European Commission launched a revolutionary project on the Multilateral Investment Court, which would decide investor-State disputes between EU investors and third states, or third-state investors and EU Member States, according to the treaties providing for this different method of dispute resolution.236 Manifold are the drawbacks of the investment arbitration system and the solutions proposed by the various actors. The following paragraphs and chapters will focus on describing the features of investment arbitration in comparison with commercial arbitration, discussing the necessity of a reform of the system, and identifying the areas where public interests are particularly at stake in the investment arbitration procedure, suggesting innovative approaches in a balanced way so as to protect both the investors’ rights and the Host States’ rights at a time.

 Jaramillo and Muriel-Bedoya (2017).  Jaramillo and Muriel-Bedoya (2017). 229  Ross (2017). 230  Lingard and Menish,  ‘Indonesia’s BIT terminations: not the end of the story’ (2017) Global Arbitration Review (GAR). 231  ICSID, ‘Proposals for Amendment of the ICSID Rules — Working Paper’ (2018). 232  UNCITRAL, Working Group III, Investor-State Dispute Settlement Reform. 233  Weber and Titi (2015). 234  UNCTAD, UNCTAD’s Reform Package for the International Investment Regime, October 2018. 235  UNCTAD, International Investment Agreements Reform Accelerator November 2020. 236  European Commission (2018). 227 228

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2.7 Analogies and Differences Between Investor-State Arbitration and Commercial Arbitration International commercial arbitration and investment arbitration share some important characteristics. Both are consensual, although the mechanisms for expressing consent differ between the two forms of arbitration. Both involve decisions taken by arbitrators, who are selected for the specific dispute by the parties, or by an arbitral institution with the parties’ consent. In both forms of arbitration, the arbitrators issue a final and binding award applying adjudicatory procedures. Finally, the rules designed to conduct investment arbitration (e.g. ICSID Arbitration Rules, UNCITRAL Arbitration Rules) have been modelled on commercial arbitration rules.237 However, other characteristics are peculiar of each form of arbitration. The most evident feature differentiating investment arbitration from international commercial arbitration is that, whereas in the latter both parties are private, in the former, one of the parties is a private one, the investor, and the other one is a sovereign State. This causes the implication of state interests and legislative policies,238 with the consequence that the outcome of the arbitration will affect not only the parties, but rather large strata of population. For this reason, the confidentiality in investment arbitration is often subject to more limitations compared to commercial arbitration. Second, in investment arbitration only one of the parties is usually allowed to bring claims against the other, whereas in international commercial arbitration both parties have the authority to assert claims. Third, investment arbitration is usually subject to a specialised legal regime, so that it can be considered as ‘more autonomous’ from national law than international commercial arbitration. Fourth, in investment arbitration the claim arises from an alleged breach of a treaty provision, whereas in international commercial arbitration the claim originates from the breach of a contractual clause.239 Other researchers stressed further features differentiating investment arbitration from international commercial arbitration: among them, the legal culture, the case management, the consistency of the awards and the stare decisis principle. With regard to legal culture, in international commercial arbitration the majority of institutional arbitration rules include the obligation for the arbitrators to consider the customary trade usages, even if they greatly vary from region to region. On the other hand, in investment arbitration, differences in the legal culture may have strong repercussions due to the different role states play because of their specific constitutional framework and their application in practice.240 As regards the applicable law,  whereas in commercial arbitration the relevant treaties form a short list, in investor-State arbitration the basic legal framework is  Born (2012), p. 503.  Born (2012), pp. 503–504. 239  Born (2012), pp. 504–505. 240  Böckstiegel (2012), pp. 578–579. 237 238

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constituted by public international law treaties, among them 3260 IIAs, and multilateral agreements such as the ICSID Convention, the Energy Charter Treaty (ECT), and regional conventions like the Central America Free Trade Agreement (‘CAFTA’), the Comprehensive Economic and Trade Agreement (‘CETA’), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (‘CPTPP’). With regard to European Union (EU) law, it might be applicable to both commercial and investment arbitration: whereas, for instance, EU competition policy applies to commercial arbitration, the competence that the Lisbon Treaty conferred to the EU to conclude new IIAs involved the EU at a high degree in the investment relations with third countries. The function of national law is multifaceted: whereas in commercial arbitration, national procedural rules apply to the place of arbitration, and national law is the applicable law in most cases; in investment arbitration, national procedural rules are applied only in case the arbitration is administered by international institutions such as the International Chamber of Commerce (‘ICC’) or the Arbitration Institute of the Stockholm Chamber of Commerce (‘SCC’), and they have to abide with the law of the seat of arbitration. National law can also be chosen as the substantive applicable law in investment contracts and investment treaties. Article 42 of the ICSID Convention, for instance, cites the host State law in addition to the rules of international law.241 As regards the appointment of arbitrators, in commercial arbitration, the parties choose the arbitrators, taking into account their field of expertise, which is particularly relevant in the various areas of commerce. On the other side, in investment arbitration, the arbitrators are usually selected according to their experience in public international law. The grounds for challenging the jurisdiction of the tribunal are different. In commercial arbitration, the challenges to jurisdiction are mostly focused on the scope of the arbitration clause: for example, on the validity of the arbitration clause for non-­ signatory parties in a group of companies. In investment arbitration, the State’s offer to arbitrate is expressed in the investment treaty, and the investor’s acceptance is expressed at the time they file a request for arbitration. However, the tribunal could find it lacks jurisdiction in some cases, such as when it can be shown that the claimant company has been created just in order to be protected by the IIA with the respondent State.242 As regards the case management, the national law for commercial arbitration, or the treaty for investment arbitration, will have only a few rules regarding the management of the proceedings, such as the principle of due process. The detailed procedure to follow is described in the arbitration rules, and although these differ in the level of detailedness in which they address the conduct of the proceeding, they leave some level of

241 242

 Böckstiegel (2012), pp. 579–581.  Böckstiegel (2012), pp. 583–585.

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discretion to the tribunal. However, in investment arbitration, in which a State is party to the dispute, the formality and the length of the proceedings is usually increased.243 As regards the possibility of preliminary reference to the Court of Justice of the European Union (‘CJEU’), commercial arbitration panels do not fall into the scope of ‘a court and tribunal of a Member State’ according to Article 267 of the Treaty on the Functioning of the European Union (‘TFEU’),244 and therefore do not have the right to refer a question of EU law interpretation to the CJEU. Such reading has been confirmed in case Nordsee, where the CJEU declared that in spite of certain similarities between the activities of the arbitration tribunal and those of an ordinary court, the arbitration panel could not be considered as an ordinary court.245 Yet, in investment arbitration, most of the proceedings are administered by ICSID. In particular, Article 54 of the ICSID Convention determines the recognition and enforcement of awards even outside of the territory of the host State, providing for easier enforcement.246 Some authors have encouraged the possibility of investment arbitration tribunals to make preliminary reference to the CJEU according to Article 267. In Nordsee, Case 102/81,247 the CJEU declared that an arbitration tribunal may be included in Article 267 TFEU only if it involves the exercise of public authority, for it to be regarded as a State institution. 248 The evolution of the jurisprudence of the CJEU opened a window toward the inclusion of arbitral tribunals in the EU legal order: in fact, in Genentech Inc. v Hoechst GmbH, concerning the definition of public policy in the European Union in the recognition of awards, the Advocate General (‘AG’) Wathelet presented his Opinion on the role of arbitral tribunals in EU law. He considered investment tribunals as deserving the right to consult the CJEU: Since the number and size of investment arbitrations raising questions on the application of EU law are increasing, particularly in the field of state aid, the possibility for arbitral tribunals to refer questions for a preliminary ruling could help to ensure the correct and effective implementation of EU law.249

 Böckstiegel (2012), pp. 584–586.  Treaty on the Functioning of the European Union. 245  Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co. KG and Reederei Friedrich Busse Hochseefischerei Nordstern AG & Co. KG., Case 102/81, judgment of 23 March 1982. 246  ICSID Convention, Regulations and Rules (ICSID, April 2006) 1. 247  Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co. KG and Reederei Friedrich Busse Hochseefischerei Nordstern AG & Co. KG. - Reference for a preliminary ruling: Oberlandesgericht Bremen - Germany. - Aid from the European Agricultural Guidance and Guarantee Fund for the construction of fishing vessels: “Pooling”. - Case 102/81. 248  Gaffney (2013), p. 2. 249  Opinion of Advocate General Wathelet delivered on 17 March 2016 (1), Case C-567/14, Genentech Inc. v Hoechst GmbH, formerly Hoechst AG, Sanofi-Aventis Deutschland GmbH, footnote 34. 243 244

2.8 Conclusions

41

The position of AG Wathelet appeared to be an encouragement for arbitral panels to actively engage in asking preliminary questions to the CJEU, and accept the prevailing nature of the CJEU. However, the Opinion of AG Wathelet was not followed by the CJEU, as the Court decided in Slovak Republic v Achmea BV, C-284/16, (also known as the ‘Achmea judgment’) that an arbitral tribunal as referred to in a BIT cannot be regarded as a ‘court or tribunal of a member state’ within the meaning of Article 267 TFEU and that such arbitral tribunal is therefore not entitled to make a reference to the CJEU for a preliminary ruling.250 Concerning transparency, whereas in commercial arbitration both proceedings and awards are traditionally confidential, in investment arbitration the awards are often published. This provides the legal community with jurisprudence where lawyers and arbitrators can gather information on how specific issues have been decided in the past.251 In turn, both the awareness of legal arguments and reasoning which prevailed in previously decided cases can promote consistency among past and future awards. Transparency and consistency will be discussed more in depth in the next Chapters.

2.8 Conclusions This Chapter has analysed the historical development of the definition of investment, included in different IIAs, arbitral awards, and scholarly works: it was found that the definition of investment in IIAs is generally very broad and comprehensive, so that no type of investment is preventively excluded from the scope of the agreement. However, within the context of dispute settlement, it became necessary to better define in detail the features that an investment must have in order to be protected under the applicable IIA. This Chapter has also analysed the historical development of international investment law, demonstrating how some key provisions of IIAs have origins rooted in the tenth century. Their genesis in a colonial and imperialistic era allows to understand why some features of the current system of investment arbitration may appear to some as unbalanced and favouring investors. The Chapter continued with the discussion of the evolution of the methods of resolution of investment disputes, through its various stages of capitulation system, treaties of friendship, commerce and navigation, ad hoc commissions, and diplomatic protection, until reaching its current and widely used form of investor-State arbitration. It has drawn a distinction between investment arbitration and commercial arbitration, based on elements such as the actors involved, the legal basis, the procedure, and the means of review of the award.

250 251

 Slovak Republic v Achmea BV, C-284/16, 6 March 2018, paras. 43–49. See also Sect. 8.1.2.  Böckstiegel (2012), pp. 587–588.

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Finally, this Chapter has examined the role of the United Nations General Assembly in finding a balance between the rights of the investors and those of the States, the role of the IMF and the World Bank in promoting foreign investment through the establishment of the ICSID with the aim of fostering FDI flows, in particular towards developing countries and economies in transition, contributing to their growth and development.

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Mann H (2008) International investment agreements, business and human rights: key issues and opportunities, OECD Global Forum on International Investment, 27-28 March 2008 Mavrommatis Palestine Concessions (Greece v U.K.), P.C.I.J. Reports, 1924, Series A, No. 2, 12 Miles K (2010) International investment law: origins, imperialism and conceptualizing the environment. Colorado J Int Environ Law Policy 21(1):1 Miles K (2013) The origins of international investment law: empire, environment and the safeguarding of capital. Cambridge University Press, Cambridge Mourra MH (2008) The conflicts and controversies in Latin American treaty-based disputes. In: Mourra MH, Carbonneau TB (eds) Latin American investment treaty arbitration: the controversies and conflicts. Wolters Kluwer, Alphen aan den Rijn, p 5 Newcombe A (2007) Sustainable development and investment treaty law. J World Investment Trade 8:357 Newcombe A, Paradell L (2009) Law and practice of investment treaties. Standards of treatment. Kluwer Law International, Alphen aan den Rijn Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co. KG and Reederei Friedrich Busse Hochseefischerei Nordstern AG & Co. KG., Case 102/81 Nussbaum A (1947) A concise history of the law of nations. The MacMillan Company, New York Occidental v Republic of Ecuador, ICSID Case No. ARB/06/11 OECD (2008a) Benchmark definition of foreign direct investment. OECD, Paris OECD (2008b) International investment law: understanding concepts and tracking innovations. OECD, Paris OECD (2008c) Latin American economic outlook. OECD, Paris Olivet C, Eberhardt P (2013) Profiting from injustice: challenging the investment arbitration industry. Open Democracy, London Organization of Economic Cooperation and Development [OECD] (2003) Recent Trends in Foreign Direct Investment. Int’l Inv. Perspectives 23 Orrego Vicuña F (2000) The changing law of nationality of claim. Report for the International Law Association Committee on Diplomatic Protection of Persons and Property, 69th Conference. London, 631–645 Panevezys Saldutiskis Railway case (Estonia v Lithuania), P.C.I.J.  Reports, 1939, Series A/B, No. 76, 16 Peet R (2003) Unholy trinity: the IMF, World Bank and WTO. SIRD, Petaling Jaya Pouget S (2013) Arbitrating and Mediating Disputes. Benchmarking arbitration and mediation regimes for commercial disputes related to foreign direct investment. Policy Research Working Paper No. 6632. World Bank, Washington, DC Provost C, Kennard M (2015) The obscure legal system that lets corporations sue countries. The Guardian (London, 10 June 2015) Qi H (2011) The definition of investment and its development: for the reference of the future BIT between China and Canada. Revue Juridique Themis 45:541 Ralston JH (1929) International arbitration from Athens to Locarno. Stanford University Press, Redwood City Republic of Italy v Republic of Cuba, ad hoc State-State arbitration, Final Award, 1 January 2008 Rivkin DW (2017) The Impact of International Arbitration on the Rule of Law, transcript of the Clayton Utz and University of Sydney International Arbitration Lecture. Sydney, 2012 Ross A (2017) India’s termination of BITs to begin. Global Arbitration Review (GAR) Salacuse JW (1990) BIT by BIT: the growth of bilateral investment treaties and their impact on foreign investment in developing countries. Int Law 24:655 Salacuse JW (2010) The law of investment treaties. Oxford University Press, Oxford Salacuse JW, Sullivan NP (2005) Do BITs really work?: An evaluation of bilateral investment treaties and their grand bargain. Harv Int Law J 46:67 Salini v Kingdom of Morocco, ICSID Case No. ARB/00/04 Schachter O (1984) Compensation for expropriation. Am J Int Law 78:121

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Schneiderman D (2007) Constitutionalizing economic globalization. Cambridge University Press, Cambridge Schreuer C (2005) Calvo’s grandchildren: the return of local remedies in investment arbitration. Law Pract Int Courts Trib 4(1):1 Schreuer CH, Malintoppi L, Reinisch A, Sinclair A (2009) The ICSID convention: a commentary. Cambridge University Press, Cambridge Schrijver N (1997) Sovereignty over natural resources: balancing rights and duties. Cambridge University Press, Cambridge Scott JB (1909) The Hague Peace Conferences of 1899 and 1907. John Hopkins Press, Baltimore Shea DR (1955) The Calvo clause: a problem of Inter-American and international law and diplomacy. University of Minnesota Press, Minneapolis Sornarajah M (2000) The settlement of foreign investment disputes. Kluwer, Alphen aan den Rijn Sornarajah M (2004) The International Law of Foreign Investment, 2nd edn, Cambridge University Press, Cambridge Sornarajah M (2017) The international law on foreign investment. Cambridge University Press, Cambridge Stiglitz JE (2003) Globalization and its discontents. Norton, New York Stuyt AM (1990) Survey of international arbitrations, 1794-1989. Martinus Nijhoff Publishers, Leiden Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003 Tietje C, Baetens F (2014) The impact of investor-state dispute settlement (‘ISDS’) in the transatlantic trade and investment partnership, Study prepared for the Minister for Foreign Trade and Development Cooperation, Ministry of Foreign Affairs, Netherlands UNCITRAL, Working Group III Investor-State Dispute Settlement Reform UNCTAD (2013) IIA issues note - Recent developments in ISDS UNCTAD (2022) World Investment Report 2022 UNCTAD Investment Policy Hub, International Investment Agreements Navigator United Kingdom Model Bilateral Investment Agreement 2008 United Nations Conference on Trade and Development [UNCITRAL] (1999) Scope and Definition, United Nations, New York/Geneva United Nations Draft Articles on Diplomatic Protection with Commentaries (2006) Yearbook of the International Law Commission, vol. II, part two United States Model Bilateral Investment Treaty 2012 Van Dyck EA (1881) Capitulations of the Ottoman Empire since the Year 1150: Report. Government Printing Office, Washington Vandevelde KJ (1992) United States investment treaties: policy and practice. Kluwer Law and Taxation, Alphen aan den Rijn Vandevelde KJ (1993) U.S. Bilateral investment treaties: the second wave. Mich J Int Law 14:621 Vandevelde KJ (1998a) Sustainable liberalism and the international investment regime. Mich Int Law J 19:373 Vandevelde KJ (1998b) The political economy of a bilateral investment treaty. Am J Int Law 92:621 Vandevelde KJ (2005) A brief history of international investment agreements. U.C.  Davis J Int Law Policy 12(1):157 Vandevelde KJ (2010) Bilateral investment treaties: history, policy and interpretation. Oxford University Press, Oxford Vermeer-Kuenzli A (2013) Diplomatic protection as a source of human rights law. In: Shelton D (ed) The Oxford handbook of international human rights law. Oxford University Press, Oxford, pp 250–274 Vincent J.  Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v Republic of Poland, ICSID Case No. ARB(AF)/11/3 Weber J, Titi C (2015) UNCTAD’s Road Map for IIA Reform of Investment Dispute Settlement

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Weston BH, Lillich RB (1975) International claims: their settlement by lump sum agreements, vol 1. University Press of Virginia, Charlottesville Whiteman MM (1967) Digest of international law. US Department State 8:1216–1219 Wouters J, De Man P, Chanet L (2009) The long and winding road of international investment agreements. Human Rights Int Legal Discov 3:265 Wouters J, Duquet S, Hachez N (2013) International investment law: the perpetual search for consensus. In: De Schutter O, Swinnen J, Wouters J (eds) Foreign direct investment and human development. Routledge, London, p 25 WTO News: Press Releases (1996) Press/57, Trade and foreign direct investment, New Report by the WTO Ziegler AR (2008) Most-favoured-nation (MFN) treatment. In: Reinisch A (ed) Standards of investment protection. Oxford University Press, Oxford, pp 59–86

Chapter 3

Adaptability of Investor-State Arbitration

3.1 Introduction Arbitration owes its rise and success to the need of a neutral forum for the settlement of disputes, and to the possibility to choose its adjudicator.1 A well-known judgment discussing arbitration was issued by the Supreme Court of the United States in 1985, where it was recognised that adaptability and access to expertise are hallmarks of arbitration.2 The Supreme Court of the United States considered arbitration as an alternative to domestic proceedings, and identified its most prominent features as its inherent flexibility and informality. Beyond being an alternative dispute settlement mechanism,3 where the adjudicators are neutral arbitrators who could hold a different nationality compared to the disputing parties, that are experts in the field, and whose decision can be more easily enforced in the States parties to the New York Convention, arbitration has among its core features a high level of party autonomy. This is considered by several experts as a fundamental strength. Thanks to the adaptability and flexibility of investment arbitration, the parties have the right to agree on several aspects of the conduct of the proceedings. For instance, in an ad hoc arbitration, the disputing parties may determine their own procedural rules, thereby adjusting them to the dispute between them. When, instead, the International Investment Agreement (‘IIA’) establishes that one set of arbitration rules is applicable, most institutional rules leave to the disputing parties the possibility to agree on several steps of the procedure, including the place of

 Yiannibas (2018), p. 216.  Mitsubishi Motors Corp. v Solar Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985). 3  Malanczuk (1997), p. 273. 1 2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Marisi, Rethinking Investor-State Arbitration, Studies in European Economic Law and Regulation 27, https://doi.org/10.1007/978-3-031-38184-3_3

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arbitration,4 some of the rules governing the proceedings,5 the language of the proceedings,6 and some of the applicable rules of law.7 Beyond these aspects of adaptability, well known since the rise of arbitration, in most recent times scholars have observed that the high degree of flexibility of investment arbitration renders this method of dispute resolution suitable to adapt not only to the needs of the parties, but also to the ever-changing challenges brought by the contemporary world. These include the pandemic needs and post-pandemic scenarios, technology, diversity and gender representation, human rights concerns, the application of principles of Corporate Social Responsibility, and geopolitical challenges.

3.2 Adaptability to the Needs of the Disputing Parties One of the core features of international arbitration concerns the liberty that the disputing parties have to agree on the arbitral procedure: this has always been one of the traditional features of the arbitration proceedings. The principle of the parties’ freedom to determine the procedure is recognised by the New York Convention, other international arbitration conventions, national laws on arbitration in most countries, and procedural rules of several administering institutions.

3.2.1 Parties’ Procedural Autonomy Under International Arbitration Conventions Parties’ procedural autonomy is granted a fundamental role by the New  York Convention. Article V(1)(d) of the New York Convention acknowledges the parties’ freedom to decide the applicable arbitration rules, even when they choose procedural rules that differ from those that are applicable in the seat of arbitration. In fact, pursuant to Article V(1)(d), the agreement of the parties is to be respected even when they decide to apply arbitral rules that are different from those in force in the place of arbitration. Scholars have commented that Article V(1)(d) makes party autonomy the sole determinant in procedural matters, the only limit to such

 This is provided for, for instance, by Article 18 of the ICC Arbitration Rules 2021.  For instance, Article 19 of the provides that “where the [ICC Arbitration Rules] are silent, the proceedings before the arbitral tribunal shall be governed (…) by any rules which the parties may settle on” ICC Arbitration Rules 2021. 6  This is provided for, for instance, by Article 20 of the ICC Arbitration Rules 2021. 7  This is provided for, for instance, by Article 20 of the ICC Arbitration Rules 2021. 4 5

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autonomy at the enforcement stage being subparagraph V(1)(b) on public policy, which reflects the principles of natural justice.8 In addition, Article V(1)(d) of the New York Convention provides for the possibility to refuse recognition and enforcement of the award if the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties. Article II of the New York Convention provides that Contracting Parties must recognise agreements concerning arbitral procedures. Similarly, pursuant to Article IV(1)(b)(iii) of the European Convention on International Commercial Arbitration, the parties can establish the procedure to be followed by the arbitral tribunal. Likewise, Article 3 of the Inter-American Convention on International Commercial Arbitration establishes that the arbitration be conducted in accordance with the agreement of the Parties. These rules from different international conventions show that the autonomy of the disputing parties is a core principle of international arbitration.

3.2.2 Parties’ Procedural Autonomy Under National Arbitration Laws Articles 18, 19(1) and 24(1) of the UNCITRAL Model Law on International Commercial Arbitration clearly acknowledge the autonomy of the disputing parties to agree on several issues: on the possibility to hold a hearing, the taking of evidence, and the filing of their submissions. For instance, Article 24(1) establishes that subject to any contrary agreement by the parties, the arbitral tribunal shall decide whether to hold hearings for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials. Similarly, Article 183(1) of the Swiss Federal Act on Private International Law (‘FAPIL’) provides that the parties may, directly or by reference to arbitration rules, determine the arbitral procedure, and that they may also submit it to a procedural law of their choice. Not too distant is the French Code of Civil Procedure, which establishes under Article 1509 that an arbitration agreement may define the procedure to be followed in the arbitral proceedings, directly or by reference to arbitration rules or to procedural rules.

 Petrochilos (2004), para. 8.4.1.

8

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Analogous norms can be found in the national arbitration laws of several other countries, including Austria,9 Belgium,10 United Kingdom,11 Germany,12 Hong Kong SAR,13 Japan,14 India,15 Russia,16 and Singapore.17 The principle of party autonomy in international arbitration is not questioned by contemporary scholars.

3.2.3 Parties’ Procedural Autonomy to Choose the Arbitration Rules One additional component of the parties’ procedural autonomy is their ability to choose the arbitration rules of administering institutions when they are not indicated by the applicable treaty. Often, the parties integrate institutional rules in their agreement. In practice, a great proportion of arbitration proceedings develop under institutional arbitration rules. When the parties choose a set of arbitration rules, they give their agreement to procedural and substantive norms, and in some instances they grant certain powers to the arbitral institution, such as the appointment and removal of the arbitrators, the selection of the seat of arbitration, and the determination of the arbitrators’ fees. National courts acknowledge the parties’ autonomy to choose institutional rules and assign certain decisions to the arbitration institution, including those mentioned above.

3.2.4 Parties’ Procedural Autonomy Under Institutional Rules Most institutional rules expressly allow the parties to adopt by agreement certain aspects of the procedure.18 The 2010 UNCITRAL Arbitration Rules confirm the principle of party autonomy and allow the parties to the dispute to modify them. Article 1(1) provides that, where the parties have agreed that disputes between them in respect of a defined legal relationship, whether contractual or not, shall be referred to arbitration under

 Austrian ZPO, §594(1).  Belgian Judicial Code, Art. 1700(1). 11  UK Arbitration Act, 1996, §§1(b), 33, 34 (“parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest”). 12  German ZPO, §1042(3). 13  Hong Kong Arbitration Ordinance, 2013, §47(1). 14  Japanese Arbitration Law, Art. 26(1). 15  Indian Arbitration and Conciliation Act, Art. 19(2). 16  Russian Arbitration Law, Art. 19(1). 17  Singapore International Arbitration Act, 2012, Schedule 1, Art. 19(1). 18  Waincymer (2012). 9

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the UNCITRAL Arbitration Rules, then such disputes shall be settled in accordance with these Rules subject to such modification as the parties may agree. The main exception to the principle of procedural autonomy is when the parties’ agreement breaches the rules of fairness and equality of the parties. Here, there is a derogation to party autonomy because of the clash with the arbitral tribunal’s duty to ensure due process, granting each party equal opportunity to present their case, and treating them fairly and conducting the proceedings efficiently. These principles assign the greatest value to fairness, party equality, and efficiency of the proceedings, at the cost of limiting parties’ autonomy in some instances. However, generally the procedural authority of the arbitral tribunal is circumscribed to procedural issues and does not cover substantive aspects of the arbitration agreement. This is confirmed by several articles of the 2010 UNCITRAL Arbitration Rules: Article 18 on the location of the arbitral seat, Article 19(1) on the choice of the language of the proceedings, Article 35 on the choice of the applicable law. Several other arbitration rules express the principle of parties’ procedural autonomy, however with some narrow exceptions. Examples thereof can be found in Article 14 of the 2020 London Court of International Arbitration (‘LCIA’) Rules, and Articles 1, 8 and 9 of the 2021 Arbitration Rules of the International Centre for Dispute Resolution (‘ICDR’), the international division of the American Arbitration Association. A minority of countries did not recognise the parties’ autonomy to agree on arbitral procedures: their national legislation provides for specific procedural norms for the conduct of arbitral proceedings.19

3.2.5 The Arbitral Tribunal’s Discretion to Determine the Procedure Even though in most countries the parties have the right to agree on the arbitral procedural rules, which must nevertheless respect the principles of fairness and party equality, in practice sometimes the parties cannot come to an agreement in advance on the conduct of the arbitration. When the parties cannot agree on how to fill in the gaps left by the administering institution rules even after the dispute has arisen, the arbitral tribunal will determine the procedure. The arbitral tribunal enjoys the discretion to determine the procedure when the disputing parties cannot agree on certain aspects. Such discretion is provided for by international arbitration conventions (such as the European Convention on International Commercial Arbitration20 and the New York Convention);21 by national legislation on arbitration,

 Malouche (1996), pp. 1, 7.  European Convention on International Commercial Arbitration, 1961, Art. IV(4)(d). 21  In the absence of agreement by the parties Articles V(1)(b) and V(1)(d) of the New  York Convention provide grounds for non-recognition of an award that presuppose the tribunal’s power 19 20

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such as the Swiss Law on Private International Law,22 the United States Federal Arbitration Act (‘FAA’),23 and the English Arbitration Act;24 and by institutional rules, such as the UNCITRAL Rules,25 the LCIA,26 ICDR,27 the Hong Kong International Arbitration Centre (‘HKIAC’),28 the Singapore International Arbitration Centre (‘SIAC’),29 the Vienna International Arbitral Centre (‘VIAC’)30 and the Arbitration Institute of the Stockholm Chamber of Commerce (‘SCC’) Arbitration Rules.31

3.3 Adaptability to Technological Progress and the Covid-19 Global Crisis Until the 2010s, the use of technology in dispute resolution was limited to certain functions, but in the last years the need of information and communications technology (‘ICT’) has become inevitable.32 Taking a step back, the rise of computer networks intensifies the communication and market exchanges, both in term of number of transactions, and in terms of nature of the relationships.33 Based on the available data on the number of transactions since 1959, year in which the first Bilateral Investment Treaty (‘BIT’) was signed, it can be predicted that a percentage of these transactions and relationships will encounter conflict. Hence, a direct relationship can be identified between the number of transactions and relationships and the number of disputes.34 The disputes that have arisen thus far show that paper communication has been increasingly replaced by online communication. Larger amounts of information are exchanged digitally instead of physically. The arbitration industry is affected more and more by technology.35 Some scholars found that new technologies bring fresh opportunities for dispute resolution, as information exchange, information to determine arbitral procedures. New York Convention, Arts. V(1)(b), (d). 22  Swiss Law on Private International Law, Art. 182(2). 23  U.S. FAA, 9 U.S.C. §§2, 4; §1.04[B][1][e][ii]. 24  UK Arbitration Act, 1996, §§1, 34(1). 25  2010 UNCITRAL Rules, Art. 1(1). 26  2020 LCIA Rules, Arts. 14, 16, 17. 27  2021 ICDR Rules, Arts. 19, 20, 22, 24. 28  2018 HKIAC Rules, Art. 13. 29  2017 SIAC Investment Rules, Arts. 16, 17, 18, 19. 30  2018 VIAC Rules, Arts. 28, 29, 30. 31  2017 SCC Arbitration Rules, Art. 23. 32  Piers and Aschauer (2018), p. 2. 33  Abdel Wahab and Katsh (2018), p. 28. 34  Abdel Wahab and Katsh (2018), p. 28. 35  Abdel Wahab and Katsh (2018), p. 29.

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­ anagement, and information processing are at the core of any dispute resolution m process.36 A more prominent role played by technology can change the relationship between the parties, and can even suggest alternatives and options for a quicker resolution of the dispute.37 This leads future disputes to be handled in an increasingly different fashion compared to earlier ones.38 Investment arbitration is inherently international: with its flexible nature, it is able to adapt the needs of the parties, even when physical hearings cannot take place due to travel restrictions.39 Numerous administering institutions have developed new rules and protocols to adapt arbitration to technological progress. For instance, in line with the Netherlands Arbitration Law, which permits the digital conduct of arbitration [Article 1072(b) Dutch Code of Civil Procedure (‘DCCP’)], the Netherlands Arbitration Institute promotes the use of an e-arbitration procedure.40 The Netherlands is currently one of the pioneer countries in introducing the possibility to conduct arbitration proceedings electronically. However, it is surprising that before the Covid-19 health crisis the use of IT was not more diffused, considering the extensive technological developments in the last thirty years and the positive contribution they can bring to arbitration proceedings in terms of a speed, cost, and due process.41 More generally, several countries and arbitration institutions are moving towards a higher use of IT in arbitration proceedings: for instance, the International Centre for Settlement of Investment Disputes (‘ICSID’) declared that in 2019 the main part of its hearings were held by videoconference.42 On these themes, in the autumn of 2015 a survey on the use of technology in arbitration proceedings was launched by the Transnational Law Center (University of Ghent) and the Institute for Civil Procedure and Insolvency Law (University of Graz), in cooperation with the Belgian Centre for Arbitration and Mediation (‘CEPANI’) and the Vienna International Arbitration Centre (‘VIAC’).43 The survey was administered to the members of the two arbitral institutions, with the aim to measure the level of familiarity of practitioners with the advantages and the risks connected to the use of IT in arbitration.44

 Abdel Wahab and Katsh (2018), p. 31.  Abdel Wahab and Katsh (2018), p. 33. 38  Abdel Wahab and Katsh (2018), p. 34. 39  Honey and Gare (2020). 40  Honey and Gare (2020). 41  Van Hooft and Kross-Lastochkina (2018), p. 124. 42  Scherer (2020). 43  Scherer (2020). 44  Piers and Aschauer (2018), p. 22. 36 37

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3.3.1 Computer-Mediated Communication in Arbitration According to the survey results, email has become the predominant method of communication in arbitration proceedings, in particular between the members of the tribunal (92.1%), between clients and their legal counsel (81.9%), and between the tribunal and the administering institution (66.5%).45 The results of the survey showed that video-conferencing was not highly spread before the Covid-19 pandemic. Thirty-eight percent of the participants declared that they never made use of video-conferencing to hear witnesses, and 56.3% announced that they only did so in one quarter of the arbitration cases they participated in.46

3.3.2 Storage of Information Related to Arbitration Eighty-six percent of arbitration practitioners store both a hard copy and an electronic copy of the files of each case. The survey participants justified the double storage of files with a more practical organisation of e-documents, as well as a reduced risk of theft during travels.47 In fact, hearing bundles are now more and more in digital form rather than hard copy, and both counsel and members of the tribunals are accustomed to working with e-bundles. These offer the advantages of hyperlinked cross-references, an easier system for searching the relevant documents and parts of documents, support when drafting submissions, and a lower impact on the environment.48

3.3.3 Security Precautions in Arbitration Only 6.3% of survey participants reported that they always use an encryption system to secure the information exchanged, whereas 68.4% indicated that they never do so. The participants who seldom use electronic signatures vary from 21.7% in 25% of the emails, to 3% in 50% of the emails, and 1% in 75% of the emails. Concerning storing sensitive information in a cloud, 90.9% of arbitrators reported to do so in a secured manner, whereas 90% of them declared to work with a provider that guarantees that the information is securely stored.49

 Piers and Aschauer (2018), p. 18.  Piers and Aschauer (2018), p. 19. 47  Piers and Aschauer (2018), p. 19. 48  Honey and Gare (2020). 49  Piers and Aschauer (2018), p. 20. 45 46

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The data shows that arbitration practitioners use several applications in their daily work, although they remain cautious on integrating more complex technology tools into their practice.50 On the other side, this prudence can be opportune, considering the apparent limited awareness of the risks involved in sharing confidential information online.51 More broadly, the interest shown by the survey participants in technological advancements is widespread, and the demand for a larger offer by administering institutions is growing.52 In fact, the vast majority of arbitration practitioners consider themselves ready to use the following technology tools if offered by an arbitral institution: ( 1) Cloud-based file-sharing services (84.8%); (2) Secured methods of Internet communication (92.3); (3) Email communication with electronic signatures (88.2%); (4) Hearing rooms with tele- and video-conference facilities (97.9%); and (5) Hearing rooms with audio recording facilities (94.6%).53

3.3.4 The Covid-19 Global Crisis In December 2019 an outbreak of Covid-19, causing a severe acute respiratory syndrome and characterised by a very high transmissibility, began in Wuhan, China, and rapidly spread to more than 200 countries.54 The health crisis caused by Covid-19 and the social distancing measures adopted by countries with the aim to contain the number of infections significantly decreased human interactions globally. In the EU, Member States have forbidden public gatherings, partially or totally closed schools and universities, restricted travels and introduced border control. These restrictions were required to decelerate the spread of the virus and have already saved tens of thousands of lives.55 However, they had a high economic and social cost: by closing down entire sectors, limiting connectivity, restricting cross-­ border supply chains, and restraining people’s freedom of movement, the economy took a significant shock, and people’s mental health was faced with an increased pressure.56

 Piers and Aschauer (2018), p. 22.  Piers and Aschauer (2018), p. 22. 52  Piers and Aschauer (2018), p. 22. 53  Piers and Aschauer (2018), p. 18. 54  WHO. Coronavirus disease 2019 (COVID-19) situation report–54. March 14, 2020. 55  Flaxman et al. (2020). 56  European Commission, Joint European Roadmap towards lifting COVID-19 containment measures 2020/C 126/01. 50 51

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Experts have provided precious input on the measures taken by several countries,57 the applicability of investment protection treaties,58 the possible issues before investor-State arbitration tribunals,59 and the wide-ranging implications for international law and geopolitical relations.60 The tension between investment protection and public policy has been widely discussed by several scholars. Occasionally, foreign investment protection can defy public policies implemented by States for the protection of public health. Investor-State arbitration cases dealing with different areas of public policy are manifold and tackled human rights,61 environment,62 water services,63 tobacco control,64 taxation,65 and democratic revolutions.66 These cases are helpful to understand how the protection of public health may interact with the protection of foreign investment when considering the measures adopted by the majority of countries globally in response to the Covid-19 pandemic. As an example, measures affecting operating conditions of foreign investors, measures affecting market access, and measures on taxation ought to be mentioned. It follows that arbitration tribunals might be asked to review whether the measures adopted against the pandemic were adequate, or whether they breached the applicable international investment agreement.67 Even before the assessment of the measures against the spread of Covid-19, arbitral tribunals have to deal with complex issues related to the conduct of the proceedings under the mutated circumstances.

3.3.5 Online Dispute Resolution In its early days, the most important feature of Online Dispute Resolution was its capacity to enable asynchronous communication between distant users, so that participation was possible at any given moment and in any given place. This allowed physical constraints of time and space to be removed in any form of communication.68 In the early days, Online Dispute Resolution was a small part of what was

 Dean et al. (2020); Druon et al. (2020); Tertrais (2020).  See Pathirana (2020); Velàsquez-Ruiz (2020). 59  See Hailes (2020); Paddeu and Jephcott (2020); Paddeu and Parlett (2020). 60  See Paparinskis (2020); van der Marel and Guinea (2020); Deloitte (2020); Lacey (2020); Kituyi (2020). 61  See generally Petersmann (2021); Seif (2021). 62  See Marisi (2020). 63  See generally Chaisse and Polo (2015); Qian (2020); Qian (2018). 64  See generally Sheargold and Mitchell (2021); Chaisse (2013); Garcia Olmedo (2012). 65  Ji (2019). 66  See generally Morris (2012); Foty (2019); Blanke (2018). 67  Chaisse (2020). 68  Abdel Wahab and Katsh (2018), p. 32. 57 58

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developed thereafter. At that time, no artificial intelligence existed to help trust building or support tribunals in their decision-making.69 It is well known that some of the responsibilities performed by tribunals included arranging information, assigning meaning, brainstorming, calculating, caucusing, circulating, clarifying, collecting, creating, defining, discussing, evaluating, exchanging, explaining, identifying, linking, measuring, monitoring, organising, proposing, publishing, reminding, scheduling, and simulating. Technology can assist in the performance of all of these tasks.70 On the other side, it is also common knowledge that the use of software could be troublesome: some experts have qualified technology as a ‘Double-Edged Sword’.71 In other settings, it was found that ‘[w]hen a new online technology is created for any process, the initial impulse is to create online mirror images of the “live” or offline process’.72 However, when a process is transferred online, its core features change, as it happened in ODR and ADR in the last twenty years. Some ODR protocols are similar to in-person ADR processes, and practitioners might make use of ODR tools to integrate physical hearings, but the aim of ODR is broader than the digitalisation of offline processes.73 Taking a step back, there is a vivid debate on whether IT should be used to allow videoconferencing in state proceedings.74 3.3.5.1 Regulatory Framework of Remote Hearings The regulatory framework, in particular the law of the seat of the arbitration and the arbitral rules, if any, will determine whether remote hearings are allowed. Generally, national laws including a norm on remote hearings will permit them. Arbitration rules make reference to the use of technology or the necessity of an efficient and appropriate means to conduct hearings. This provision could be interpreted as encompassing online hearings. In fact, several arbitration rules include reference to online taking of evidence, but not to the remote conduct of the entire hearing. For instance, according to Article 28(4) United Nations Commission on International Trade Law (‘UNCITRAL’) Arbitration Rules, witnesses and experts can be heard remotely. However, there is no similar provision for other aspects of hearings. When national laws or administering institution rules do not contain a dedicated provision, the question remains open as to whether tribunals may resort to remote hearings. Under these circumstances, other principles may be of guidance, beyond the parties’ right to a hearing and the tribunal’s power to determine procedural

 Abdel Wahab and Katsh (2018), p. 32.  Abdel Wahab and Katsh (2018), p. 33. 71  Abdel Wahab and Katsh (2018), p. 33. 72  Katsh and Rainey (2017), p. 260. 73  Abdel Wahab and Katsh (2018), p. 33. 74  Piers and Aschauer (2018), p. 3. 69 70

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matters: they have been identified by some experts as the principle of orality and the principle of immediacy. Pursuant to these principles, the hearing shall be oral, and must allow for a simultaneous exchange of arguments or evidence respectively.75 Lord Devlin commented that ‘the centrepiece of the adversary system is the oral trial’.76 Pursuant to the principle of orality, evidence should typically be gathered through the live oral testimony of witnesses, who speak from their own direct knowledge. Conversely, the principle of immediacy entails that all evidence is presented in court in its original form. In its Covid-19 Guidance Note, the ICC established that these elements are met by remote hearings. The Guidance Note clarified that the term ‘in person’ in article 25(2) of the ICC Rules is to be understood as referring to a hearing where the various participants are exchanging arguments or evidence live with each other (i.e. in between persons)—irrespective of whether this is done in a physical meeting or remotely.77 If the applicable law and the arbitration rules do not include any norm on remote hearings, it is for the arbitral tribunal to decide whether, when, where, and how the hearing should take place. If the parties do not agree on holding a remote hearing, and if there is no explicit provision prohibiting remote hearings, it can be recalled that the tribunal’s power to conduct the proceedings embraces several aspects of the organisation of the proceedings, including modalities of the hearing. Hence, the tribunal will decide whether the hearing should take place remotely or in person, considering the applicable norms, the rights that would be protected and whether any right would be prejudiced by a remote holding of the hearing. 3.3.5.2 When the Disputing Parties Do Not Agree on Remote Hearings In some cases, Australian courts have established that the party requesting a remote hearing has the onus to show why it is necessary. However, in other cases Australian courts have applied a more liberal test, and permitted remote hearings ‘in the absence of considerable impediment’. Pursuant to this approach, it is for the party resisting the remote hearing to prove that a ‘considerable impediment’ exists.78 Some cases have tried to reconcile the two opposing views. An important test for allowing a remote hearing instead of a physical one is whether the award will be able to survive a challenge in the recognition, enforcement or setting aside proceedings. Due process, intended as the disputing parties’ right to be heard and treated equally, represents the most likely grounds for challenges, pursuant, for instance, to Article V(1)(b) of the New York Convention on the Recognition and Enforcement

 Homburger (1970), pp. 9–39.  Devlin (1979), p. 54. 77  ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic, 2020. 78  Legg and Song (2021) 75 76

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of Foreign Arbitral Awards, 79 Articles 34(2)(a)(ii) and 36(1)(a)(ii) of the UNCITRAL Model Law,80 and similar provisions in national arbitration laws. Nonetheless, challenges based on these provisions are not often successful. 3.3.5.3 Seoul Protocol on Video Conference in International Arbitration Due to the cross-border nature of international arbitration, witnesses are frequently asked to travel and provide their testimony in a physical hearing. However, not always are they able to participate in person, for instance when travel restrictions to contrast the spread of the Covid-19 pandemic are in place. With the development of dedicated technologies, disputing parties are able to choose remote videoconferencing as a solution to this issue. With international arbitration involving interested individuals located in countries that are geographically distant, and with technology becoming more and more sophisticated and targeted to the needs of each business activity, it is not unrealistic to predict that the use of remote videoconferencing will continue even after the Covid-19 pandemic. However, in the same way as every new technology, video conferencing has certain risks: these concern security, effectiveness, and due process. It is therefore in the interest of arbitration users to create a protocol to ensure the effectiveness, fairness, security, and efficiency of video conferencing. The Seoul Protocol on Video Conferencing in International Arbitration (‘Seoul Protocol’) was introduced with this aim at the seventh Asia Pacific ADR Conference, held in Seoul, Korea on 5–6 November 2018.81 A group of arbitration practitioners gathered the best practices of planning, testing and performing video conferencing and drafted a guide that will serve the arbitration community. The Seoul Protocol includes provisions on preparatory arrangements, technical requirements, audio and video tests, venue, observers, documents, witness examination, interpretation, recordings, and backups. 3.3.5.4 Electronic Signatures Nowadays electronic signatures have become the norm in corporate life. Arbitration practitioners and members of the tribunal already have various technology tools to use the e-signature. However, signing electronically may be not permitted by the law of the seat of arbitration, which could require the arbitrators to physically sign the award in the place of arbitration. A further issue concerns the possibility to enforce an award signed electronically in a jurisdiction where the debtor has its assets.  United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958). 80  UNCITRAL Model Law on International Commercial Arbitration 1985 With amendments as adopted in 2006. 81  Seoul Protocol on Video Conference in International Arbitration is Released (18 March 2020). 79

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3.3.5.5 Cyber Fraud It should be carefully considered that, with the increase of remote hearings, cyber-­ fraud could find its ways to confidential information. A high level of security in IT systems remains unavoidable: guidance to achieve it can be found in the 2020 Cybersecurity Protocol for International Arbitration, adopted following two years of work by a working group on cybersecurity composed by representatives of the International Council for Commercial Arbitration (‘ICCA’), the New York City Bar Association (‘City Bar’), and the International Institute for Conflict Prevention & Resolution (‘CPR’).82

3.4 Adaptability to Meet Cultural and Social Change 3.4.1 Diversity and Gender Representation Diversity in business contexts greatly contributes to the success of projects. Research found that diversity encourages the search for novel information and perspectives, leading to better decision making and improved problem solving.83 Specifically concerning decision-making bodies, research and institutions have come to a consensus on the need for them to be inclusive and to represent the groups of stakeholders that will be by some means affected by their decisions.84 Hence, it is desirable that decision-making bodies are inclusive of different cultural perspectives to fully grasp the different facets of the interests at stake.85 Broad diversity between the members of decision-making bodies has the potential to increase the quality, accuracy and consistency of the decisions, therefore improving their fairness,86 and enhancing the legitimacy of a given dispute resolution mechanism.87 However, the lack of diversity among arbitrators is one of the criticisms of investment arbitration. In fact, diversity in the arbitration world is currently not optimal under several perspectives: one of them is the geographical origin of arbitrators despite the international nature of arbitration. Recent research found that out of the 25 most frequently appointed arbitrators, 22 are from North America or Europe.88 Other elements, as highlighted by some researchers, concern ethnicity, education, professional background and average age. As expressed by McIlwrath and Savage, ‘In a discipline that prides itself on being transnational and designed for the  ICCA-NYC Bar-CPR, Protocol on Cybersecurity for International Arbitration (Edition 2020).  Phillips (2014). 84  Bjorklund et al. (2020), p. 412. 85  Kidane (2017), pp. 145–147. 86  Bjorklund et al. (2020), p. 413. 87  Sommers (2006), p. 598. 88  Langford et al. (2017), p. 313. 82 83

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resolution of cross-cultural disputes around the globe, is it acceptable that the vast majority of prominent international arbitrators are white, male lawyers or law professors over the age of 50?’89 Especially in the latest years, diversity has often been a topic of discussion at conferences on international arbitration as well as the object of several surveys. The 2017 Berwin Leighton Paisner survey on diversity in arbitration found that 80% of participants believed that tribunals were composed by too many Caucasian arbitrators, that 84% thought that the male gender was overrepresented, and that 64% perceived an excessive number of arbitrators from Western European countries or from North America.90 The theme of diversity was included in the agenda of the UNCITRAL Working Group III on ISDS Reform, as adjudicator diversity was deemed crucial to the reform under discussion. The reports of Working Group III conclude that ‘the lack of diversity was said to be exemplified by a concentration of arbitrators from a certain region, a limited age group, one gender and limited ethnicity’;91 that ‘there was general support for diversifying and expanding the pool of arbitrators qualified to serve as arbitrators in ISDS cases’;92 and that: ‘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.’93 3.4.1.1 Deconstructing the Diversity Palette Applying the concept of diversity to investment tribunals, this can be deconstructed into several elements and organised in different types. Research has identified the following factors: geographical origin (which is however a very broad concept, as not always those who share the same provenance also share the same experience and views), gender, ethnicity, culture, education, legal training (for instance civil law, common law or Islamic law expertise), age, work experience (private sector, public sector, academia, NGOs), repeat appointments, language, religion, level of development of the country of origin, level of disability, industry specialisation, and personality.94 Among these factors, the two that have been discussed the most are geographical origin and gender. Several scholars submit that: ‘[a]rbitrators of Asian or African  McIlwrath and Savage (2010).  Greenwood (2019), p. 94. 91  UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), ‘Report of Working Group III (Investor-State Dispute Settlement Reform) on the Work of Its Thirty-Fifth Session’ (New York, 23–27 April 2018) UN Doc AQ/CN.9/935, para. 70. 92  UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), ‘Report of Working Group III (Investor-State Dispute Settlement Reform) on the Work of Its Thirty-Fifth Session’ (New York, 23–27 April 2018) UN Doc AQ/CN.9/935, para. M72. 93  Kidane (2017), p. 145 and fn 81 (collecting sources); 288–289. 94  Bjorklund et al. (2020), p. 415. 89 90

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nationality are under-represented, despite significant inward and investment flows to and from Asia in particular, and associated investment treaty disputes’.95 Researchers remark that most appointments result in gender imbalance in favour of men.96 Several commentators conclude that the time has come for enhancing diversity in arbitral tribunals. The focus of research on the two above-mentioned factors led to a greater availability of data on these two factors compared to all other components of diversity. In the study conducted on arbitrators attending the 2014 ICCA Congress, Franck and associates have examined geographical origin among the features identified by the survey respondents and have found the following. Arbitrators from Asia were the second least represented of 2014 ICCA Congress arbitrators (10%), despite Asia being the most populous continent (60.3% of the world population). In particular, less than 3% of arbitrators were from India and China, even though these two countries combined count 33% of the global population and 30.4% of global GDP. In addition, notwithstanding Africa’s second highest population globally (15.41%), it scored the lowest level of geographical origin in the arbitral tribunals’ composition (0.4%). Conversely, there was an over-representation of other nationalities. Europe, counting 10.37% of the world population, was the continent of origin of 48.2% of the arbitrators. Similarly, 27.9% of arbitrators were from North America, although United States and Canada represent 4.9% of the global population and 14.5% of global GDP.  Out of the 70 arbitrators from North America, only one was from Mexico. Franck’s study revealed that 82% of arbitrators were either from an OECD Member State or from a high-GDP country.97 A similar outcome descends from the analysis of the 3147 appointments (not including ICSID annulment proceedings) through the end of 2018. Only 25% of all appointments were to designate non-Western arbitrators, accounting for a total of 780 appointments.98 With regard to gender diversity, the study conducted by Franck and associates highlighted that, among the 2014 ICCA Congress participants, the vast majority (82.4%) of arbitrators were men and only 17.6% were women.99 These data confirm the information on gender imbalance obtained from other sources. For instance, out of the 341 arbitrators appointed in the Singapore International Arbitration Centre (‘SIAC’) procedure, only 44 were women. In particular, SIAC appointed 38 women as arbitrators out of 167 (22.8%); the parties appointed five women as arbitrators out of 145 (3.4%); and the co-arbitrators nominated only one female arbitrator out of 29 as president of the tribunal (3.4%).100 In 2021, the numbers showed an improvement

 Bonnitcha et al. (2017), p. 255.  Puig (2014), pp. 404–405. 97  Franck et al. (2015), pp. 457–458. 98  Bjorklund et al. (2020), p. 428. 99  Franck et al. (2015), p. 452. 100  SIAC Annual Report 2016, 16. 95 96

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towards gender balance: of the 179 arbitrators appointed by SIAC, 64 (35.8%) were female.101 A study on appointments in investment arbitration covering cases up to 2017 found that only 11% of arbitrators were women.102 A report by Berwin Leighton Paisner (‘BLP’) highlights that the percentage of female arbitrators appointed as president of the tribunal is even lower, showing that ‘[o]ut of the 222 arbitrators from which presidential appointments are made, only 16 (7%) are women’.103 In July 2020, the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings released a report showing that in the period between 2015 and 2019 the proportion of female arbitrators has almost doubled.104 In 2020, ICSID case statistics report a “step back” from progress made in gender representation among arbitrators: in 2020 14% of arbitrators were women, whereas in 2018 and 2019 the proportion was 24%.105 Concerning legal training, the questionnaire administered during the ICCA Congress revealed that 38.5% of ICCA arbitrators were educated and trained only in common law, 33.8% of arbitrators received their training only in civil law, whereas 27.7% had training in both common law and civil law.106 The 2014 ICCA Congress survey revealed that the most spoken languages by the participants of the 2014 ICCA Congress were English, German, and French, counting more than 60% of the overall language capacity.107 Finally, the questionnaire reported that over 75% of arbitrators came from high-GDP country.108 Intersectionality may be a further source of discrimination. Those who belong to multiple minorities face steeper struggles compared to those who belong to only one disadvantaged group.109 For instance, between 2012 and 2017, 951 appointments were made to form ICSID tribunals. Out of these, only three were female, non-­ Caucasian, and from a developing State.110

 SIAC Annual Report 2021, 24.  St John et al. (2018). 103  Berwin Leighton Paisner (2017), p. 3. 104  Peart et al. (2020). 105  Simson (2020). 106  Franck et al. (2015), p. 455. 107  Franck et al. (2015), p. 455. 108  Franck et al. (2015), p. 504. 109  Polonskaya (2018). 110  Karton and Polonskaya (2018). 101 102

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3.4.1.2 The Way Forward Currently, one of the main criteria when appointing an arbitrator is experience: hence, if diversity is not prioritised, parties may not select diverse arbitrators who have different levels of experience in respect of those who are repeatedly appointed.111 Therefore, in order to promote a more truly diverse and balanced composition of arbitral tribunals considering the different factors of diversity, it is necessary to provide the parties’ legal counsel with a broader pool of arbitrators. This can be obtained, for instance, by expanding the pool of arbitrators eligible to sit in ICSID cases, while respecting the principle of diversity.112 In fact, some researchers recall the great effort that many arbitration institutions have made to promote gender diversity in tribunals, including the Pledge of Equal Representation in Arbitration that LCIA signed, inviting others to do the same.113 In June 2020, the Pledge had already been adopted by 4000 signatories, including arbitral institutions such as SIAC, SCC, and ICC, law firms, law schools, law associations, public entities, companies, and individuals.114 Moreover, a good start to embrace diversity in arbitral tribunals is shown by two of the latest and most progressive investment agreements concluded, the Comprehensive Economic and Trade Agreement between Canada and the European Union (‘CETA’) and the Free Trade Agreement between the European Union and Singapore (‘EUSFTA’), which established an equal number of adjudicators from each side and arbitrators from third countries as well.115 The latest developments therefore confirm that investment arbitration has the ability to fully adapt to the need of diversity in the composition of the adjudicating bodies.

3.4.2 Human Rights Concerns The history of human rights is composed by three main phases, also called the ‘Three Generations’, each phase expanding the number and nature of human rights: First Generation human rights acknowledge basic individual freedoms and the right to be protected against violations by the State. These are Civic-Political human rights. Second Generation human rights are Socio-Economic rights and include the right to nutrition, healthcare, and education. They provide that the State guarantees equal treatment of all people. Third Generation human rights are collective and can  Bjorklund et al. (2020), p. 429.  Braghetta (2015), p. 1257. 113  Moses (2017), p. 6. 114  Equal Representation in Arbitration, the Pledge, 2015. 115  CETA (n 88), art 8.27(2); Investment Protection Agreement Between the European Union and Its Member States, of the One Part, and the Republic of Singapore, of the Other Part, Arts 3.9(2), 3.10(2). 111 112

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be claimed by social groups. They include the right to a healthy environment, the right to peace, and the right to sustainable development.116 Human rights issues did not arise in the earlier investment arbitration cases. There are still a few mentions today,117 but an increase in the frequency was registered in the latest years.118 This is due to the difficult position States find themselves into: they need to comply with their investment treaty obligations while respecting their international human rights commitments, and this might not always be practicable.119 3.4.2.1 Investment Rights and Human Rights The common goal that investment protection law and human rights law share is to find a balance between the asymmetrical legal relationships between States and inhabitants, where the latter are in a weaker position, by supporting the international protection of investors and individuals.120 However, Brown highlighted that certain human rights provisions may clash with investment protection norms.121 Whereas on one hand, investment lawyers write that foreign investment ultimately improves the living standards of the host State, by providing services, infrastructure, and knowhow,122 human rights scholars claim that the investment agreements do not prioritise human rights over investment protection.123 Simma wondered whether it is feasible to harmonise the States’ commitments under both regimes and found that this will always be a difficult exercise and sometimes compliance with both sets of obligations will be almost impossible.124 Other scholars highlighted that foreign investment and human rights obligations lead to States being respondents in two fora, whereby the interests they are protecting cannot be easily reconciled.125 However, some scholars believe that these international systems of norms can complement each other in investor-State arbitration.126 Indeed, the possibility to file human rights-based counterclaims could be an

 Joshi and Gurpur (2020).  Peterson (2009). 118  Feria-Tinta (2017), p. 601. 119  Polanco Lazo and Mella (2018), p. 42. 120  Petersmann (2009), p. 16. 121  Brown (2013), p. 303. 122  Muchlinski (2010), p. 180. 123  Alfred-Maurice de Zayas, statement at the Human Rights Council 30th Session, Geneva, 16 September 2015. 124  Simma (2011), pp. 583–584, 591. 125  Polanco Lazo and Mella (2018), p. 91. 126  Steininger (2018), p. 55. 116 117

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incentive for full compliance on behalf of foreign investors with the host State’s human rights norms.127 Human rights have been relied upon by both foreign investors and host States. Whereas the former invoked them in the context of governmental action and public constraints,128 the latter mentioned them in response to allegations of investment treaty breaches,129 either as contributory fault,130 or as a counterclaim when the applicable treaty allows counterclaims.131 Moreover, human rights have been called upon by amicus curiae and sometimes by the arbitral tribunal ex officio.132 Finally, in the context of enforcement of an award, national courts in the country of enforcement could deny enforcement based on human rights concerns as part of public policy.133 There are several elements that need to be considered when the arbitral tribunal assesses whether human rights law is applicable. Firstly, the jurisdiction clause and the applicable law as provided for by the investment treaty.134 Sometimes, the investment treaty grants the foreign investor the right to bring a claim against the host State for treaty violations, and does not grant the right to the host State to sue the foreign investor.135 The applicable law clause establishes which law should be considered and applied in an investment treaty case. Often, the applicable law provision lists international law, the investment treaty, Customary International Law (‘CIL’), and the national law of the host State.136 Human rights international agreements can therefore be applicable as part of international law.137 An additional instance that can determine the applicability of human rights law is when a human rights norm constitutes CIL,138 or when it is applicable as domestic law.139 Moreover, human rights law is relevant in the interpretation of the investment treaty, if its preamble refers to such norms. Similarly, if

 Schill (2017), pp. 658–659.  Steininger (2018), p. 35. 129  Meshel (2015), pp. 279–284. 130  Copper Mesa Mining Corp v Ecuador, PCA 2012-2, Award of 15 March 2016, paras. 6.99–6.102. 131  Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v Argentina, ICSID ARB/07/26, Award of 8 December 2016, paras. 1143–1155. 132  Kube and Petersmann (2016). 133  Joshi and Gurpur (2020), p. 579. 134  Kriebaum (2019), p. 14. 135  Kriebaum (2019), p. 14. 136  See for instance, Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Argentine Republic (adopted 20 October 1992, entered into force 1 October 1994), art 10(7). Begic (2005); Schreuer et al. (2009), art 42. 137  Schreuer et al. (2009), pp. 169–203. 138  Kriebaum (2019), p. 15. 139  Dupuy (2009), pp. 59 ff. 127 128

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the host State and the home State of the investor are parties to a human rights treaty, that treaty will also be applicable.140 Hence, human rights law can be considered and applied in investor-State disputes in several ways. The weight finally awarded to human rights concerns will depend on a number of factors, by how the different elements interconnect with each other, and by the room given to each of them in the interpretation. These elements will determine whether a tribunal has the power to find that human rights were breached in connection with an investment, or whether it may just take human rights into account when interpreting substantive standards of an investment treaty.141 Human rights law has more chances of being applied when the provision on compliance with the law of the host State includes express reference to human rights and the declaration that human rights must be complied with throughout the whole duration of the investment.142 Certain scholars claim that ISDS does not necessarily entail the superiority of investment protection norms over human rights norms,143 and conclude that creating a legal framework for welcoming investments should not entail undermining human rights.144 It is necessary to recall that investment treaty claims are governed by international law,145 and that according to Article 31(3)(c) of the Vienna Convention on the Law of Treaties (‘VCLT’), not any rules, but only the relevant rules that are ‘applicable in the relations between the parties’ can be lawfully applied.146 Among the relevant rules, there might be human rights conventions binding upon both State parties.147 Different approaches have been hypothesised and presented by scholars on how tribunals could interpret the different commitments by host States. Some scholars have written that arbitral tribunals should decide whether to interpret the investment treaty in light of human rights or to read human rights obligations in light of the investment treaty.148

 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. 472. 141  Kriebaum (2019), p. 39. 142  Kriebaum (2019), p. 40. 143  Fry (2007), p. 148. 144  Polanco Lazo and Mella (2018), p. 92. 145  Fahner and Happold (2019), p. 750. 146  South American Silver Limited v The Plurinational State Of Bolivia, PCA Case No. 2013-15, Award, 22 November 2018, para. 216: “the Tribunal finds that the principle of systemic interpretation is part of the rules of interpretation of international treaties foreseen in Article 31 of the Vienna Convention. However, this principle must be applied in harmony with the rest of the provisions of the same article and cautiously, in order to prevent the tribunal from exceeding its jurisdiction and applying rules to the dispute which the Parties have not agreed to.” 147  See South American Silver Limited v The Plurinational State Of Bolivia, PCA Case No. 2013-15, Award, 22 November 2018, para. 217. 148  Fahner and Happold (2019), p. 744. 140

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In fact, as the International Law Commission’s Report on Fragmentation established, rules appear to be compatible or vice-versa in conflict as a result of interpretation.149 The harmonisation of different sets of rules can be performed in different fashions: the tribunal can determine that human rights commitments delimit the scope of investment protection clauses, or it can find that investment agreements restrict the application of human right norms.150 Hence, harmonising the two sets of norms could in any case imply that one supersedes the other, which also takes place if the prioritisation is explicit.151 Certain scholars argue that, when the host State has concluded two different treaties, one on investment protection and the other on human rights, unless the relevant human rights rules constitute jus cogens, they cannot be considered hierarchically superior to an international investment agreement.152 Other scholars claim that tribunals should grant a higher hierarchical value to the investment treaty empowering them with jurisdiction.153 However, IIAs often refer to rules of international law and transnational public policy as the applicable law. Transnational public policy includes ‘fundamental rules of natural law, principles of universal justice, jus cogens in public international law, and the general principles of morality’.154 By applying a systemic interpretation, the international obligations of the host State are considered on the whole, taking into account all international treaties in force to which the State is a party.155 Certain human rights could be considered as an integral part of international public policy: an example thereof is the right of indigenous people to be consulted.156 Scholars have hypothesised that violations of human rights could therefore be considered as contrary to international public policy.157 References to human rights in investor-State arbitration cases are changing the interaction between human rights and investment law. Arbitral tribunals can take human rights provisions into account, and this could turn investment arbitration to be more human rights friendly.158 This confirms that ISDS is a flexible system, prone to take evolving needs into account, and to consider human rights as part of the applicable legal framework.  International Law Commission, Fifty-eighth session, ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law. Report of the Study Group of the International Law Commission finalized by Marti Koskenniemi’, A/ CN.4/L.682, 13 April 2006 para. 412. 150  Fahner and Happold (2019), p. 758. 151  Fahner and Happold (2019), p. 759. 152  van Aaken (2009), p. 493. 153  Desierto (2013), pp. 81–82; de Brabandere (2012). 154  International Law Association, ‘Interim Report on Public Policy as a Bar to Enforcement of International Arbitral Awards’ (2000) 6–7. 155  Kriebaum (2019), pp. 16–17 and 33–39. 156  Marcoux (2020), p. 22. 157  Lalive (1986), pp. 341 and 359. 158  Steininger (2018), p. 35. 149

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3.4.3 Investors’ Corporate Social Responsibility A noteworthy way in which investment arbitration can show its adaptability is related to the investor’s responsibility vis-à-vis the territory in which the investment develops and those who live and work in the area. In fact, consumers’ calls for more corporate accountability made terms such as ‘corporate social responsibility’ (‘CSR’) and ‘responsible business conduct’ have an increasingly important role in public discussions. Moreover, these terms have started to appear in IIAs clauses, recalling investors their role and duty to abide by human rights, labour, environmental, and anticorruption norms.159 In several investment treaties, CSR appears only in the preamble. In 2023, UNCTAD reports that 89 IIAs refer to CSR.160 Whereas Canada has a tradition of incorporating CSR clauses in its investment treaties since 2013,161 the EU and Brazil have started to include them in 2014 and 2015 respectively.162 Certain IIA clauses define CSR. Article 16 of the 2013 Benin-Canada BIT provides that: ‘Each Contracting Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate social responsibility in their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Contracting Parties. These principles address issues such as labor, the environment, human rights, community relations and anti-corruption.’ Many CSR clauses stipulate that they cover internationally recognised standards of corporate social responsibility that have been acknowledged by the parties163 or internationally agreed standards, guidelines, and principles of corporate social responsibility that have been endorsed or are supported by the party in which the enterprise is operating.164

 Bernasconi-Osterwalder (2020).  See UNCTAD (2023) International Investment Agreements Navigator. 161  The Canadian BITs referred to here include Canada-Mongolia BIT (2016); Burkina FasoCanada BIT (2015); Canada-Guinea BIT (2015); Cameroon-Canada BIT (2014); Canada-Senegal BIT (2014); Canada-Mali BIT (2014); Canada-Cote d’Ivoire BIT (2014); Canada-Serbia BIT (2014); Canada-Korea FTA (2014); Canada-Honduras FTA (2013); and Benin-Canada (2013). 162  Zhu (2017), p. 111. 163  See Art 16 of the 2013 Benin-Canada BIT. 164  See Art 14.17, USMCA. See also Article 9.17 of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (‘CPTPP’). 159 160

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By recalling internationally recognised standards, this phrasing allows States to foster only the CSR standards that the States have promoted in other agreements.165 Some treaties are more specific, for example the 2018 UMSCA refers to the OECD Guidelines for Multinational Enterprises.166 Certain CSR provisions are very detailed. For instance, Article 13(2) of the Brazil-Mexico CFIA (2015), and Article 13 of the Brazil-Colombia CFIA of 2015 meticulously lists the principles and standards the investors are encouraged to adhere to. Besides guiding investors and their investments to strive to achieve the highest possible level of contribution to the sustainable development of the host State and the local community, through the adoption of a high degree of socially responsible practices, the Brazil-Mexico CFIA expressly requests that investors and their investments: (a) Stimulate the economic, social, and environmental progress, aiming at achieving sustainable development; (b) Respect the human rights of those involved in the companies’ activities, consistent with the international obligations and commitments of the Host Party; (c) Encourage the strengthening of local capacities building through close cooperation with the local community; (d) Encourage the development of human capital, especially by creating employment opportunities and facilitating access of workers to professional training; (e) Refrain from seeking or accepting exemptions that are not established in the legislation of the Host Party, relating to environment, health, security, work or financial incentives, or other issues; (f) Support and maintain good corporate governance principles and develop and apply good practices of corporate governance; (g) Develop and apply effective self-regulatory practices and management systems that foster a relationship of mutual trust between the companies and the society in which the operations are conducted; (h) Promote the knowledge of workers about the corporate policy, through appropriate dissemination of this policy, including programs for professional training; (i) Refrain from discriminatory or disciplinary action against the employees who submit grave reports to the board or, whenever appropriate, to the competent public authorities, about practices that violate the law or violate the standards of corporate governance that the company is subject to; (j) Encourage, whenever possible, the business associates, including service providers and outsources, to apply the principles of business conduct consistent with the principles provided in this Article; and (k) Respect local political activities and processes.167  Bernasconi-Osterwalder (2020), p. 5.  Bernasconi-Osterwalder (2020), p. 5. 167  Acuerdo de Cooperación y de facilitación de las inversiones entre la Repùblica Federativa del Brasil y los Estados Unidos Mexicanos, 2015, Article 13.2, translated by Bernasconi-Osterwalder (2020), p. 6. 165 166

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Nevertheless, the majority of CSR clauses do not have an enforcement mechanism.168 In fact, it can be observed that in the regulation of corporate activity, international legal acts do not provide for obligations connected with sanctions on companies,169 but rather have soft obligations, as a consequence of the companies’ lack of international legal personality.170 Hence, they sometimes tend to be characterised as soft law, encouraging investors to apply the standards on a voluntary basis.171 Recently, investment agreements have started to encourage investors to contribute to sustainable development in the host State with socially responsible actions. For instance, Article 9(1) of the 2015 Brazil-Malawi Cooperation and Investment Facilitation Agreement (‘CFIA’) provides that investors and their investments shall strive to achieve the highest possible level of contribution to the sustainable development of the host Party and the local community, through the adoption of a high degree of socially responsible practices, based on voluntary principles and standards.172 On the other side, it is worth recalling that investors can have positive obligations. This is shown in their duty to comply with the applicable law in order to benefit from the protection of the investment treaty. Some treaties provide a definition of covered ‘investments’ indicating only those which comply with the domestic law. For instance, some IIAs define ‘investments’ as those that are ‘made in accordance with the applicable law at the time the investment is made’, among the requirements.173 With this wording, the investment must be made according to the applicable law in the host State in order to be protected by the investment agreement. This includes receiving the permits and complying with domestic norms on environmental and labour protection. Commonly, these provisions are drafted so to cover the establishment phase of an investment and not the phases of operation or closure.174 Other IIAs establish that, in order to benefit from investment protection, the compliance with domestic law must take place even beyond the establishment phase. For instance, Article 1.4 of the Indian Model BIT (2015) provides that ‘investment’ refers to an enterprise constituted, organised and operated in good faith by an investor in accordance with the law of the Party in whose territory the investment is made.175 A similar approach was taken by the Nigeria-Morocco BIT (2016), which in Article 1.3 states that ‘investment’ means an enterprise within the territory of one State established, acquired, expanded or operated, in good faith, by an investor of

 Zhu (2017), p. 118.  Joseph (2003), p. 438. 170  De Brabandere and Hazelzet (2018), p. 235. 171  Zhu (2017), p. 112. 172  Investment Cooperation And Facilitation Agreement Between The Federative Republic Of Brazil And The Republic Of Malawi, 2015, Art. 9.1. See Dubin (2018). 173  One example thereof is the Comprehensive Economic and Trade Agreement (CETA), Art 8.1. 174  Bernasconi-Osterwalder (2020), p. 11. 175  India Model BIT (2015), Art 1.4. 168 169

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the other State in accordance with law of the Party in whose territory the investment is made. By extending the obligation of investments to comply with the applicable law beyond the phase of establishment in order to be granted access to investment arbitration, the investment treaty ensures that the investors comply with domestic law also during the operation phase. Viñuales writes that the positive obligations investors are subject to can be found in sources other than the applicable IIA: ‘[t]he sources of foreign investment regulation are not merely treaties but also a wide array of domestic norms, contractual arrangements, and an evolving body of customary and treaty-based international norms concerning matters such as corruption, social rights, human (including collective) rights, and environmental protection’.176 Another method used by contracting parties to an IIA is to provide a detailed definition of ‘investor’ that includes the parent company, the holding company, shareholders, and ultimate beneficiary owners. It follows that the adaptability of investment arbitration is shown by the investors’ responsibility vis-à-vis the territory in which they invest. The CSR norms, of voluntary adherence, have started to be included in the most recent treaties. In several IIAs, the definition of covered ‘investment’ is subject to the condition that the investment be made according to good faith and the applicable law, and sometimes this includes the operation phase. This entails the responsibility of investor to adhere to the laws beyond the establishment phase. The combination of the inclusion of voluntary schemes of CSR and positive obligations in various legal instruments make investment arbitration adaptable to the evolving legal scenario enshrining the values of civil society.

3.5 Adaptability in Response to Geopolitical Challenges Investor-State arbitration shows its adaptability in different situations that reflect the unpredictable and ever-evolving geopolitical scenarios and changing political alliances. These developments inevitably have direct and indirect large-scale repercussions on the global economy, on partnerships in trade and investment, and on cross-border supply chains, thereby affecting FDI flows, countries’ gross domestic product (‘GDP’), the stability of national and regional economies, and the livelihood of millions of people. This Section analyses the contribution of trade and investment to the maintenance of international peace and security, and studies a legal instrument provided by certain IIAs, which can be invoked in case of a rupture of diplomatic relations between countries: the instrument of denial of benefits.

176

 Viñuales (2017), p. 367.

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3.5.1 The Contribution of Trade and Investment to the Maintenance of International Peace and Security Economic exchanges, trade, and investment leading to economic integration and interdependence reduce the likelihood of armed conflicts.177 According to this view, States tend to avoid militarised disputes in order not to dissuade investors, thereby building and maintaining a ‘commercial peace’. In turn, the presence of an armed conflict on a certain territory, or a threat thereof, reduces FDI inflows.178 In order to promote liberalised trade, international agreements such as Preferential Trade Agreements (‘PTAs’), Free Trade Agreements (‘FTAs’) and the WTO Agreements are in place, providing a system of protection against discrimination and other barriers to trade. Similarly, in order to promote cross-border investments, international investments agreements safeguard the rights of foreign investors against unlawful expropriation, unfair and unequal treatment and other public measures harming foreign investments. The dense network of hundreds of trade agreements and thousands of investment agreements179 constitutes a system of interdependence which deters militarised conflicts. Taking a step back, international law supports world order with the aim to maintain and promote peace,180 advance international security and ensure international justice.181 International investment agreements are part of international law, as legal instruments between two or more contracting parties that protect foreign investment against public measures of discrimination, unlawful expropriation, unfair and inequitable treatment, and assets damage by actions of private parties. As discussed in Chap. 2, History of Investor-State Dispute Settlement, investment treaties are heirs to a long tradition of international agreements aimed to ensure the protection of foreign investment, moving away from the possibility that the home State of those investors who consider they were penalised by the measures taken by the host State would intervene militarily to defend its citizens and their investments. Article 2(4) of the United Nations (‘UN’) Charter prohibits UN Member States from using force directed against the territorial integrity or political independence of another State, or in any other manner inconsistent with the purposes of the United Nations. The International Court of Justice established that the prohibition against

 Bussmann (2010).  Bussmann (2010). 179  IIAs count 3266 at the time of writing, out of which 2583 in force, UNCTAD Investment Policy Hub, International Investment Agreements Navigator, August 2023. 180  Shaw (2008), p. 1010. 181  Kulesza (2022). 177 178

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the use of force is a cornerstone of the UN Charter.182 However, Article 51 of the UN Charter may justify a use of force in self-defence in case of an armed attack only within the limits there laid down. Generally, armed conflicts tend to deter FDI flows. By causing the loss of human lives and the physical damage to investment, disruption to the supply chain and the drastic reduction of internal demand, armed conflict leads to the inevitable decline and diversion of foreign investment. Armed conflict may also give rise to protectionist moves. Moreover, the negative impact of armed conflicts on FDI flows can last longer than the duration of the armed conflict itself, with FDI flows starting to increase only, on average, three years after the end of large-scale conflicts. Moreover, the negative shock and disruption are not limited to the economy of the countries involved in the conflict, but because of the commercial links between countries, swiftly spread to the entire world economy, with direct and indirect consequences on FDI and other capital flows. If we focus our attention to Russia and Ukraine, the countries currently involved in an armed conflict in the European territory, according to OECD statistics, the impact on global FDI flows might appear to be limited, as Russia’s and Ukraine’s role as recipients and origin of FDI flows is marginal. However, a comprehensive perspective on FDI flows considers global economy as interdependent and promoting mutual growth. In this regard, it is relevant to highlight that Russia has investment treaties in force with about 80 countries, 27 of which are OECD Members. The consequences of the Russian-Ukrainian war on the international investment environment are already appreciable. Since 2014, following Russia’s annexation of Crimea, the changes in FDI flows to and from Russia have changed: these changes have escalated since February 2022, showing the increasing financial and economic isolation of Russia.183 Whereas in the short term, the war will increase the costs of doing business, in the medium-long term it may lead companies to delay new investments or divest altogether. As it is known, investment protection treaties characteristically grant foreign investors the right to commence arbitration against the host State if they allege a treaty breach. International arbitration provides a neutral forum for investors to claim damages before independent and impartial arbitrators, who balance or rebalance the rights of both parties, the investor and the host State. Whereas globally there was an increase in the number of cases in international arbitration,184 since 2014, in the territory of the Russian-Ukrainian  war several investment arbitration cases were initiated by foreign investors in relation to their harmed investments in Crimea. These cases concerned Russia’s measures in Crimea

 Democratic Republic of the Congo v Uganda, International Court of Justice, Judgment of 19 December 2005, para. 148, p. 59. 183  OECD (2022), International investment implications of Russia’s war against Ukraine, 4 May 2022. 184  UNCTAD (2023) Investment Policy Hub, Investment Dispute Settlement Navigator. 182

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and involved several sectors such as energy, oil and gas, financial services, transport, and real estate.185 At the time of writing, there are 27 cases between foreign investors and Russia as respondent.186 Out of these, eight are pending; 12 have been decided in favour of the investor, four have been decided in favour of the State, one was settled and one was discontinued.187 Russia has shown its unwillingness to comply with the awards against it, which led the investors to try enforcing the awards in third countries where Russia owns assets. Considering future prospects, it is possible that Russia will not accept to pay arbitral awards against it arising out of or in connection with the Russian-Ukrainian war. The focus on enforcement is therefore likely to be on third countries where Russian assets are located and that permit such enforcement. Currently, 172 States allow this type of enforcement, including EU Member States, the United Kingdom, Switzerland, the United States, and Canada. In the past, investors have managed to enforce awards against uncooperative respondent States by seizing real property, aircraft, ships, stakes in private or state-owned companies, and income from commercial assets.188 If the Russian-Ukrainian war that started with the Russian invasion of Ukraine of 24 February 2022 leads to a change of de facto control over a territory, the State who took control, in this case Russia, must apply its treaty obligations to investors in the acquired territory, in this case Ukraine. Some investment agreements provide that losses of foreign investors resulting from destruction of physical property and lost profits from disrupted business operations during armed conflict shall be compensated promptly, adequately, and effectively.189 Therefore, investors with investments in the Ukrainian territory may have treaty claims against Russia, on the basis of de facto control over Ukraine, for damages to those investments arising from the armed conflict. With the aim to discourage Russia from continuing its invasion of Ukraine, a number of countries, including the historically neutral Switzerland, have adopted sanctions against the Russian Federation and Russian interests. The sanctions imposed affect different economic sectors. For instance, the prohibition for Russian vessels to dock at ports in the EU, the United Kingdom, the United States and Canada, and Russian aircrafts from overflying the EU and the United States’ airspace has the potential to affect business transactions between the Russian Federation and the rest of the world and can discourage FDI flows to and from Russia. At the same time, the FDI flows that Russia holds with the Western countries cannot be entirely replaced with new FDI flows in emerging economies because of

 UNCTAD (2023) Investment Policy Hub, ISDS Cases.  UNCTAD (2023) Investment Policy Hub, Investment Dispute Settlement Navigator. 187  UNCTAD (2023) Investment Policy Hub, Investment Dispute Settlement Navigator. 188  Thomson Reuters (2021). 189  One example thereof is the Canada-Croatia BIT (1997). 185 186

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the different technological offer and value chain structures. Symmetrically, the place in the supply chain of Russian firms might be taken by Chinese and Indian investors. A large number of investors in different industries have started to divest their operations in Russia based on considerations including reputation and branding, liability risks, unpredictable market conditions, and practical challenges. They have taken steps to divest soon after the announcement of the first round of sanctions, ranging from delaying new investments to reducing some operations, suspending certain business activities, and withdrawing of all operations.190 As a response to Western companies exiting or suspending operations in Russia, the Russian government has adopted measures seeking to prevent foreign investors from divesting from Russia, for example suspending the execution of all orders by foreign legal entities and individuals to sell Russian securities.191 These emergency measures might constitute a breach of an investment treaty and are likely to be challenged in ISDS. A particularly problematic case concerns the energy sector. Considering the United States sanctions in the context of the Russia-Ukraine war and, and bearing in mind that a significant share of trade between Russia and the Western States is in the energy sector, such trade can face delays and volume reductions. Therefore, Western countries aiming to reduce their dependency on Russian energy might consider a shift towards nuclear power and ‘cleaner’ energy stocks and green metals, or a return towards ‘dirtier’ power such as coal. This implies a momentous shock to the economy, not only in those countries involved in the armed conflict, but to the global economy. The repercussions on investments in the energy sector are manifold. As a response to the Russia-Ukraine war, Ukraine has invoked its right, under the Energy Charter Treaty (‘ECT’), to deny the benefits of investment protection to investments of investors of the Russian Federation.

3.5.2 The Instrument of Denial of Benefits The instrument of denial of benefits, included in certain IIAs, provides the right for a contracting party to deny the advantages of investment protection to investments of investors of an aggressor State, under certain conditions. Article 17(2) of the ECT governs the Non-Application of Part III of the ECT in Certain Circumstances. It provides the right for each contracting party to deny the advantages of Part III of the ECT to an investment of an investor of a contracting party or a third state with which the denying Party does not maintain a diplomatic relationship or with which transactions are restricted or prohibited.

190 191

 Gambetta and Webb (2022).  Reuters (2022).

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On 18 August 2022, the Minister of Foreign Affairs of Ukraine informed the Secretariat of the Energy Charter Treaty that, as of 15 August 2022, it exercises its right under Article 17(2)(a)-(b) of the Energy Charter Treaty (‘ECT’) to deny the advantages of Part III of the ECT (dealing with investment promotion and protection) to investments of investors of the Russian Federation. The decision is based on the following grounds: (a) Although the Russian Federation signed the ECT, it never ratified it. On 20 August 2009, the Russian Federation notified the Depository of the ECT its intention not to become a Contracting Party to the ECT. (b) On 24 February 2022, following the start of the Russian Federation’s war of aggression towards Ukraine, diplomatic relations between the two countries were severed. (c) Ukraine has adopted a number of sanctions that restrict and prohibit transactions with Russian investors, including the Law of Ukraine No. 2116-IX dated 3 March 2022 ‘On Forcible Expropriation of Property of the Russian Federation and its Residents’, and the Resolution of the Cabinet of Ministers of Ukraine No. 187 dated 3 March 2022 ‘On Ensuring the Protection of National Interests in Future Lawsuits of the State of Ukraine in Connection with the Military Aggression of the Russian Federation’. The right to deny protection under the ECT needs to be exercised. As concluded by the tribunal in Plama v Bulgaria: the ‘exercise would necessarily be associated with publicity or other notice so as to become reasonably available to investors and their advisers. To this end, a general declaration in a Contracting State’s official gazette could suffice; or a statutory provision in a Contracting State’s investment or other laws; or even an exchange of letters with a particular investor or class of investors.’192 It can be concluded that it is necessary that the declaration of the denying State that it exercises its right to deny protection be public. The letter of the Minister of Foreign Affairs of Ukraine dated 18 August 2022 is published on the ECT Secretariat website: it is undeniably accessible to the public.

3.6 Conclusions This Chapter has shown that investment arbitration is a neutral and flexible mechanism for the resolution of investment disputes. Beyond the procedural flexibilities related for instance to the choice of language, choice of seat, and choice of law, investment arbitration proved to be particularly adaptable to the needs of the disputing parties, the challenges moved by global health crises such as the Covid-19 pandemic, technology progress, diversity and gender representation, balance between

 Plama Consortium Limited v Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, para. 157. 192

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human rights protection and property rights protection, and balance between investors’ rights and obligations. The latter can be pursued considering instruments such as Corporate Social Responsibility and a definition of covered investments as being made and operated according to the applicable law. Moreover, this Chapter has discussed that the system of protection of FDI shows adaptability in response to geopolitical challenges. From a general perspective, it is composed by a dense network of international investment agreements and mechanisms for a peaceful settlement of investment disputes, and  can be considered to offer a significant contribution to the maintenance of global peace and security under international law, in favour of economic interdependency for mutual prosperity. In particular concerning the Russia-Ukraine armed conflict, direct and indirect negative repercussions are immediately visible: casualties, social and environmental costs, loss of jobs, damage to the wealth of the countries involved, business losses, reduction of economic flows, divestments, disruption of global economic exchanges, sanctions and responses to sanctions. In this regard, investment treaty protection can play a role recouping economic losses by foreign investors in Ukraine and Russia. One legal instrument that shows the adaptability of investment protection to geopolitical challenges is the denial of benefits clause, included in certain IIAs such as the ECT. It allows a State to deny the advantages of investment protection to the investments of investors of a country with which the denying State no longer entertains diplomatic relations. The denial of benefits clause, invoked by Ukraine in August 2022 against investments of investors of the Russian Federation, shows the adaptability of the investment treaties’ regime to the changes in political balances and alliances.

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St John T et  al (2018) Glass ceilings and arbitral dealings: gender and investment arbitration. PluriCourts Working Paper Steininger S (2018) What’s human rights got to do with it? An empirical analysis of human rights references in investment arbitration. Leiden J Int Law 31:33–58 Tertrais B (2020) Year of the rat. The strategic consequences of the coronavirus crisis. Fondation Pour La Recherche Stratégique Thomson Reuters (2021) Enforcing arbitral awards globally: practical considerations UNCITRAL Model Law on International Commercial Arbitration 1985 With amendments as adopted in 2006 UNCTAD. International Investment Agreements Navigator, “Mapping of IIA Content” United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) van Aaken A (2009) Defragmentation of public international law through interpretation: a methodological proposal. Indiana J Global Leg Stud 16:483 van der Marel E, Guinea O (2020) Globalization after Covid-19. ECIPE Van Hooft A, Kross-Lastochkina J (2018) Case study: the legislator’s perspective. In: Piers M, Aschauer C (eds) Arbitration in the digital age. Cambridge University Press, Cambridge, pp 99–125 Velàsquez-Ruiz M (2020) El Covid-19 y las Posibles Controversias Internacionales de Inversión que Tendrá que Asumir Colombia Viñuales JE (2017) Investor diligence in investment arbitration: sources and arguments. ICSID Rev Foreign Invest Law J 32(2):346–370 Waincymer J (2012) Procedure and evidence in international arbitration. Wolters Kluwer, Alphen aan den Rijn WHO (2020) Coronavirus disease 2019 (COVID-19) situation report–54. March 14, 2020 Yiannibas K (2018) The adaptability of international arbitration: reforming the arbitration mechanism to provide effective remedy for business-related human rights abuses. Neth Q Hum Rights 36(3):214–231 Zhu Y (2017) Corporate social responsibility and international investment law: tension and reconciliation. NJCL 1:90–119

Chapter 4

Criticisms of Investor-State Arbitration

4.1 Introduction Chapter 2, History of Investor-State Dispute Settlement, retraced the historical evolution of the protection of foreign investment which lasted for many centuries. Several elements featuring the present system of investment protection, for instance the triangular relationship between host States, capital-exporting States, and investors, some legal doctrines concerning the conceptualisation of this relationship, the complex interaction of both public and private interests, and the design of investment dispute resolution can be adequately understood only taking into consideration the historical evolution of investment law and its dispute resolution mechanisms. Undoubtedly, backtracking the historical roots of the current system of investment protection helps to understand the reasons it developed in that particular way. Chapter 3, Adaptability of Investor-State Arbitration, discussed the main flagship of investment arbitration beyond its neutrality: its adaptability, and explained how it applies to the procedure, ethical considerations, and response to global health crises. It is now useful to present the critiques that have been moved to ISDS.

4.2 In Search of Balance After World War II, businesses having overseas investments were worried about the possibility that the host States that had recently gained independence from colonial powers could implement radical policies against foreign investors. Therefore, they began to reflect on a kind of ‘international magna charta’ aimed to protect private foreign investments. One of the most significant early efforts in this direction was launched in 1957 under the leadership of Hermann Abs, Chairperson of the Deutsche © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Marisi, Rethinking Investor-State Arbitration, Studies in European Economic Law and Regulation 27, https://doi.org/10.1007/978-3-031-38184-3_4

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Bank in Germany, and Lord Shawcross, former Attorney-General of the United Kingdom. In that year an organisation of German businesspeople seated in Cologne, the Society to Advance the Protection of Foreign Investments, published a draft entitled International Convention for the Mutual Protection of Private Property Rights in Foreign Countries. That version was subsequently revised and, in April 1959, a Draft Convention on Investments Abroad was issued.1 A few years later, the proposal was taken up by the World Bank, with the aim to help the world’s low-income countries to attract foreign investment and in this way promote development and progress. During the annual meeting in Tokyo in 1964, the World Bank issued a resolution paving the way for the establishment of a mechanism through which investor-State cases could be handled and decided.2 A number of developing countries opposed, maintaining that such a system would undermine the States’ sovereignty, but the project was nevertheless pursued, because the majority was convinced that a better protection of investments would ensure investors’ position while at the same time enable the host State to improve its economy. At the beginning, the system was designed to protect foreign investors from expropriations that the host State carried out without taking the investors’ interests into consideration. Later, the compensation standard expanded to include lost profits in addition to indirect damages, such as “any potential future profit”.3 At the present time, the number of cases filed against host States is ever growing:4 almost half the cases are brought by medium-large enterprises,5 and the sums requested as damages are significant.6 The ISDS system is sometimes perceived as unbalanced: among those expressing this view there is the UNCTAD, which proposes a reform of investor-State dispute settlement and expresses concerns related to a perceived deficit of legitimacy  Draft Convention on Investments Abroad (ABS-Shawcross Draft Convention), 1959.  Hynning (1965), p. 560. 3  See the concurring opinion of Judge Brower in the Amoco International Finance Corp. v Iran, 15 Iran-US CTR (1987-II): “if expropriation is lawful, the dispossessed party should be awarded damages equal to “the value of the undertaking” it has lost, including any potential future profit, from the date of dispossession; in the case of wrongful expropriation, however, the injured party must either regain effective enjoyment of its property, or if that is impossible or impracticable, it should be awarded damages equal to the greater of (i) the value of the company at the date of injury (again, including lost profits), assessed on the basis of information available at that date, and (ii) its value (also including lost profits), as illustrated by its likely performance after the date of injury and before the date of the award, based on actual post-expropriation experience, and (in either alternative) any indirect damages.” Cited in Nikièma (2013). 4  Olivet and Eberhardt (2013). 5  Commission Staff Working Document, Impact Assessment, Multilateral reform of investment dispute resolution Accompanying the document Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes, SWD(2017) 302 final, 13 September 2017. 6  For instance, in the case Gold Reserve Inc. v Venezuela, ICSID AF 2014, a tribunal awarded 760 million dollars for expropriation of a gold mining license. Gold Reserve Inc. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1. 1 2

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and transparency; the 2013 Declaration of the 1st Ministerial Meeting of Latin American States Affected by Transnational Interests, which argues that investment arbitration violates the sovereignty of the States and its legal institutions, due to the economic power of certain companies and the deficiencies of the international systems of dispute settlement on investment;7 and Sundaresh Menon, Attorney-­General of Singapore, who during the ICCA Congress 2012 warned the audience that investor-State arbitration has the potential to restrict the exercise of domestic public authority in a manner and to a degree perhaps not seen since the colonial era.8 Other scholars disagree with this understanding, and claim that it is held only by some academics, anti-globalisation groups, and States that have been respondents in investment treaty arbitrations.9 In any case, in the majority of the times it is the State who is brought before an arbitration tribunal by the investor, whereas the possibilities for a State to file a claim against the investor are rather limited. An example thereof is in the ICSID Additional Facility Rules, used between a State and an investor and providing three different options: (i) arbitration or conciliation of investment disputes between a State and a foreign national, one of which is not an ICSID Member State or a national of an ICSID Member State; (ii) arbitration or conciliation of disputes that do not arise directly out of an investment between a State and a foreign national, at least one of which is an ICSID Member State or a national of an ICSID Member State; and (iii) fact-finding proceedings instituted by any State or a national of any State.10 The ICSID Caseload Statistics of 2021 clarify the usage of the ICSID Additional Facility Rules compared to the ICSID Convention. The most common situation, not limited to the ICSID Convention, is when the investor, as claimant, files an arbitration claim against the State, as respondent. In an arbitration case, the investor contests the State’s measures allegedly impairing its investment. On the other side, the State can file a counterclaim against the investor. However, counterclaims can only be filed within an already existing arbitration case and must satisfy the requirements of jurisdiction and admissibility.11

4.3 ISDS Statistics UNCTAD reports a total of 1257 registered cases globally in August 2023. Out of those, 343 are pending, 890 are concluded, and the status of 24 of them is unknown. Out of the 890 concluded cases, 327 have been decided in favour of the State

 Declaration of the 1st Ministerial Meeting of Latin American States Affected by Transnational Interests, 22 April 2013. 8  Menon (2012). 9  Brower and Blanchard (2014), p. 45. 10  ICSID Additional Facility Rules, as amended on 10 April 2006, Introduction, p. 5. 11  For more detail, see Sect. 6.6, Counterclaims 7

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(corresponding to 36.7%); 249 of them have been found in favour of the investor (amounting to 28%); 171 cases have been settled (19.2%); 121 cases have been discontinued (13.6%); and in 22 cases liability was found but no damages were awarded (2.5%).12 The 2023 ICSID caseload statistics report the cases governed by the ICSID Convention and the ICSID Additional Facility Rules. The new cases registered each year by ICSID under the ICSID Convention and Additional Facility Rules denote an increase starting from 1997: whereas in the period from 1972 to 1996 there was only one to three new cases registered each year, in 1997 the new cases registered were ten, in 2007 they were 37, in 2017 they were 53, in 2020 they were 58, in 2021 they were 66, and in 2022 they were 41.13 This shows that an increasing number of investors has started to make recourse to ICSID arbitration especially since 1997. ISDS has started to be widely used in the last 25 years. As of 30 June 2023, ICSID had registered 933 cases under the ICSID Convention and Additional Facility Rules. Out of the 933 cases registered, 844 (90.5%) were ICSID Convention Arbitration Cases; 11 (1.2%) were ICSID Convention Conciliation Cases; 76 (8.1%) were ICSID Additional Facility Arbitration Cases; and two (0.2%) were ICSID Additional Facility Conciliation Cases.14 With regard to the outcome, 64% of arbitration proceedings under the ICSID Convention and Additional Facility Rules were decided by the tribunal, and 36% of them were settled or the proceedings were otherwise discontinued.15 Concerning the findings, out of the disputes decided by arbitral tribunals under the ICSID Convention and Additional Facility Rules, in 48% of cases the tribunal upheld the claims in part or in full; in 29% of cases the tribunal dismissed all claims; in 21% of cases the tribunal declined jurisdiction, and in 2% of cases the tribunal decided that the claims were manifestly without legal merit. In the end, it is also possible that the publicly accessible arbitration cases do not suitably represent the whole population of cases, because the worthiest cases are resolved before initiating the arbitration, or non worthy ones are not pursued.16 What is common to the views of several experts of the field is that the system of ISDS presents many aspects that can be improved. The following Chapters aim at identifying the most debated procedural issues of investment arbitration.

 UNCTAD (2023), Dispute Settlement Navigator.  ICSID Caseload statistics, Issue 2023-2. 14  ICSID Caseload statistics, Issue 2023-2. 15  ICSID Caseload statistics, Issue 2023-2. 16  Franck and Wylie (2015), pp. 463, 497. 12 13

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4.4 The Clash with EU Law A further critique on investment arbitration was highlighted by the Court of Justice of the EU in Slovak Republic v Achmea BV, case C-284/16 (Achmea). The preliminary ruling concerned the institution of an arbitral tribunal provided for in an intra­EU BIT, a BIT signed between two Member States before the entry into force of the Treaty of Lisbon. In its judgment, the Court of Justice of the EU ruled that the arbitral tribunal established under the arbitration clause included in the intra-EU BIT of Netherlands Slovakia might interpret EU law, and that the derived award had limited means of review. Consequently, the Court of Justice of the EU concluded that a dispute settlement mechanism between an investor from an EU Member State as claimant, and a different Member State as respondent, could lead to a non-uniform interpretation of EU law, threatening the autonomy of the EU legal system. The Court decided that the establishment of such arbitral tribunal is therefore incompatible with EU law. It follows that national courts will be required to set aside and preclude the enforcement of awards issued by arbitral tribunals established by intra-EU BITs. In this way, the Court of Justice has put forward another element of argument against investment tribunals, and more precisely those established by intra-EU BITs. However, it is necessary to heed that this critique regards only Member States that still have BITs in force with other Member States. It was with the Treaty of Lisbon of 2009 that the EU gained exclusive competence on foreign direct investment as part of the common commercial policy,17 and therefore, when treaties are signed by the EU itself, such criticism does not apply.18

4.5 Transparency, Legitimacy, Consistency Investment arbitration has at a time numerous supporters and as many critics: whereas the former highlight that the system allows to resolve disputes between investor and host State through a leaner procedure compared to court proceedings, shortening the duration, opponents argue that the system of ad hoc arbitration presents a significant lack of coherence in the awards and lack of stability, which add up to an overall lack of transparency, and doubts on its legitimacy. Other researchers reflect on the relationship between measures issued for the public interest and investment protection. Some scholars write that transparency should be strengthened, in particular with the publication of the award and the participation of amicus curiae in the proceedings. As it was expressed in the speeches of the representatives in the UNCITRAL  European Commission, Investment Protection and Investor-to-State Dispute Settlement (ISDS) in EU agreements (March 2014). 18  For more detail on Achmea and its consequences, see Sects. 8.1.2–8.2.1. 17

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Working Group III sessions on States’ concerns about investor-State dispute settlement, the issue of coherence and consistency is certainly one of the key concerns expressed by civil society, and it is highly likely that the lack of consistency across different arbitral awards has negative implications on the reliability, predictability, and credibility of the ISDS regime as a whole.19 Finally, lack of predictability affects also the ability of governments and investors to know if specific measures will be found in contravention of particular investment treaty’s provisions: States could be uncertain on the extent to which taking certain types of measures expose them to the risk of claims from foreign investors.20 In fact, according to several scholars and experts, ‘legitimacy, transparency and a consistent jurisprudence are the benchmarks for an arbitration system’.21 It is therefore necessary to meet all demands for transparency, legitimacy, and consistency raised by the various stakeholders, with the aim to promote the evolution of investment law.22

4.6 Turning Away from ISDS The last years have witnessed the criticism of ISDS turning into action: in more than one instance, countries have decided to renegotiate or terminate their investment treaties, choosing to opt out of ISDS. Such trend23 can be seen in the termination of NAFTA, which was replaced by the USMCA which has a very limited access to ISDS; in the termination on behalf of Tanzania of its BIT with the Netherlands;24 in India’s 2016 notices25 to terminate 58 of its 83 BITs;26 in South Africa’s BITs termination since 2012, with nine brought to an end to date; and in the announcement of the intention to terminate all of their BITs made by Indonesia,27 Venezuela, Ecuador, and Bolivia, followed by the actual termination of some of their IIAs.28 In addition, in 2011–2012, Bolivia, Ecuador, and Venezuela withdrew from the ICSID Convention.29 Australia decided not to include investor-State arbitration clauses in future international investment treaties, as part of the new trade policy statement

 United Nations Commission on International Trade Law Working Group III (2017).  Roberts and Bouraoui (2018). 21  Hess (2015). 22  Dussan Laverde (2011), p. 105. 23  Martin (2017). 24  Ngumi and Sejpal (2021). 25  Peacock (2018). 26  Peacock and Nihal (2017). 27  Tevendale and Naish (2014). 28  Fritz (2015). 29  United Nations Conference on Trade and Development (UNCTAD) (2012). 19 20

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issued by the Australian Government in April 2011.30 This is reflected in the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (‘CPTPP’),31 in which Australia has signed, together with New Zealand, Brunei Darussalam, Malaysia, Peru, and Vietnam side letters to exclude ISDS.

4.7 The Need of a Reform of Investor-State Arbitration Although the investment arbitration system is constantly growing, which could be considered as a proof of the favour bestowed on it by both States and investors, several scholars plead for a structural reform.32 Why are these two opposite trends exponentially increasing?33 It is helpful in this regard to clarify who is discontented with the current state of the art. The host State, as respondent, often shows dissatisfaction with the system.34 In order to analyse the matter of contention, it is opportune to examine what are the common features of the claimants and the ones of the respondent States; whether any claims are frivolous, and whether certain regions are more likely to be respondents.35 The critiques, especially those of the opponents to an early NAFTA,36 and the promoters of the Draft Multilateral Agreement on Investment (‘Draft MAI’),37 maintain that investment arbitration leans towards the protection of corporations’ interests to the detriment of developing countries.38 This is why several scholars,39 developing and developed countries,40 and NGOs41 are challenging the rights of foreign investors to bring action against host States, on issues involving erga omnes rights through a private dispute resolution mechanism. The primary question is whether investor-State disputes should be resolved in arbitration at all. Certain scholars claim that investment disputes should be resolved

 Kurtz (2011).  Horrigan and Naish (2018). 32  See, e.g., United Nations Conference on Trade and Development (UNCTAD) (2013). 33  Behn (2015), p. 363. 34  The dissatisfaction with investment treaty arbitration shall be assessed in terms of whether there are structural flaws in the design of this type of adjudication, or whether the dissatisfaction is exclusively documenting displeasure in having to defend against investment treaty claims that are being legitimately pursued by foreign investors. 35  Behn (2015), p. 368. 36  See, among others, Loewen Group, Inc. v US, ICSID Case No. ARB (AF)/98/3, 26 June 2003; Mondev International LTD. v US, ICSID Case No. ARB (AF)/99/2, 11 October 2002. 37  OECD (1998). 38  See Van Harten et al. (2010). 39  See, among others, Schneiderman (2013); Sarkar (2011); Van Harten (2010). 40  Nariman (2014), p. 9. 41  See, among others, Olivet and Eberhardt (2013); Williams (2009); Bottari and Wallach (2005). 30 31

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before national courts;42 other authors insist that a dispute involving public interest cannot be resolved by a private tribunal,43 since arbitrators do not enjoy public legitimisation and decide sensitive issues connected to important State policies. Such concerns have been formulated by Alvarez, who wrote that: The emerging FDI regime draws some of the same ‘democratic’ critiques as more institutionalized international regimes: namely, that the law that it relies on is not accountable or respectful of traditional notions of separation of powers.44

In a similar vein, Bjorklund reflected that: arbitral innovation inevitably gives rise to questions about the democratic deficit in international judicial law-making. Because there is no established system of government, no legislative branch can reply to perceived excesses in judicial decision-making.45

Moreover, Bottari and Wallach maintained that the investor-State dispute settlement system outdoes the freedom of action of national parliaments and governments.46 Both the suitability of arbitration as a forum, and the appropriateness of arbitrators to resolve investment disputes involving public interest, constitute the basis for almost all of the challenges made to the system. Other issues in investment arbitration were identified by Alvarez and Topalian.47 Alvarez writes that awards are often inconsistent (also in relation to other treaties or other international law regimes),48 in this way defeating one of the most important objectives of a judicial system, that is to form a stable body of laws attracting foreign direct investment. Critics further refer to the possibility to contest decisions of national supreme courts under NAFTA, whereas domestic investors did not enjoy the same right.49 Third, the general principle of national emergency is not always taken into consideration. Examples thereof can be considered the high number of cases initiated against Argentina as a result of the measures adopted by this state to mitigate the effects of the economic and financial crisis it suffered between 2001 and 2002. Only 15 percent of the cases were decided in favour of Argentina,50 about 45 percent of the cases were decided in favour of the investors,51 and others were settled or discontinued.  Henckels (2013); Hueckel (2012); Kulick (2012); Foster (2011).  Van Harten (2012); Schneiderman (2010). A more cautious opinion is expressed by Rogers (2014). 44  Alvarez (2005), p. 96. 45  Bjorklund (2010), p. 167. 46  Bottari and Wallach (2005). 47  Alvarez and Topalian (2012), p. 494. 48  Alvarez (2011), p. 93. 49  Loewen Group Inc v United States, ICSID Case No. ARB(AF)/98/3, Award, 26 June 2003. 50  These cases are: ICS Inspection and Control Services Limited (United Kingdom) v The Argentine Republic, UNCITRAL; Daimler Financial Services AG v Argentine Republic, ICSID, Case ARB/05/1; Metalpar S.A. and Buen Aire S.A. v The Argentine Republic, ICSID, Case ARB/03/5; and Wintershall Aktiengesellschaft v Argentine Republic, ICSID, Case ARB/04/14. 51  These cases are: Anglian Water Group (AWG) PLC v Argentina, UNCITRAL; BG Group Plc v Argentina, UNCITRAL; CMS Gas Transmission Company v The Republic of Argentina, ICSID, 42 43

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Fourth, critics contest the dichotomy between investors’ rights and other policy objectives. An example thereof could be considered the case Foresti et al. v South Africa.52 An initiative of the Black Economic Empowerment policy required that a certain percentage ownership of mining rights should be assigned to black persons. The Italian investors challenged this policy, affirming that the measures limiting investors’ rights of ownership violated the Italy-South Africa BIT. Fifth, a vivid debate has sparked over the confidentiality of hearings. An example thereof can be considered the case Glamis Gold v United States.53 The investor claimed that the United States expropriated its mining rights, whereas the United States affirmed that the enacted measure was motivated by public welfare objectives aiming to respect the right of indigenous peoples to preserve their sacred land. In this kind of cases, some researchers claim that the public law dimension of the issue would not deserve a confidential, but rather a public proceeding. Lastly, Alvarez and Topalian claim that the system would set a ‘neoliberal rule of law’ at the expense of democratic politics.54 Alvarez and Topalian summarise their position, strongly stating that the investment regime can be considered to be the enemy of the State.55 Other researchers argue that grouping all the claimants as investors and all the respondents as host States can lead to the conclusion that investment arbitration leans towards the side of corporations rather than host countries.56 More than a few scholars also present the possibility of a chilling effect that investor-State agreements can have on the legislative process.57 Indeed, planned tobacco restrictions in Canada between the end of the twentieth and the beginning of the twenty-first century were allegedly thwarted because of threats by the tobacco industry to bring claims under NAFTA Chapter Eleven.58 Some scholars wonder whether the structure of investment arbitration is biased, leaning towards the claimant.59 Case ARB/01/8; Continental Casualty Company v The Argentine Republic, ICSID, Case ARB/03/9; EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A.  v Argentine Republic, ICSID, Case ARB/03/23; El Paso Energy International Company v The Argentine Republic, ICSID, Case ARB/03/15; Impregilo S.p.A. v Argentine Republic, ICSID, Case ARB/07/17; LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v Argentine Republic, ICSID, Case ARB/02/01; National Grid v Argentina, UNCITRAL; Suez, Sociedad General de Aguas de Barcelona S.A. and Interagua Servicios Integrales de Agua S.A. v The Argentine Republic, ICSID, Case ARB/03/17; and Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A. v Argentine Republic, ICSID, Case ARB/03/19. 52  Piero Foresti, Laura de Carli v The Republic of South Africa, ICSID Case No. ARB (AF)/07/01, Award, 04 August 2010. 53  Glamis Gold, Ltd. v The United States of America, UNCITRAL award, 8 June 2009. 54  Alvarez and Topalian (2012). 55  Alvarez and Topalian (2012), p. 494. 56  Behn (2015), p. 368. 57  Risse (2015). 58  Tienhaara (2011), p. 617. 59  Behn (2015), p. 369.

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Two approaches can be identified in dealing with legitimacy of investment arbitration: the evolutionary one takes into account the growing path of investment arbitration and compares the present time to teenage difficulties, being its structure solid, and foresees the resolution of all of these problems in a near future;60 on the contrary, the revolutionary approach maintains that the whole framework of investment arbitration is defected and any type of reform would be insufficient to balance its lack of legitimacy. On the other side, the evolutionists are convinced that minor adjustments, such as a reduction of the overall number of cases, an increase in the heterogeneity both in the size of the claims (with more claims of lower value) and in the type of respondent States (not only developing countries) would make investment arbitration fairer.61 Several commentators oppose confidentiality and despite a recent inclination towards opening up the proceedings, the number of confidential awards is still high.62 Depending on the applicable arbitration rules, the awards,63 and even the mere existence of a dispute will be public or confidential.64 The balance between transparency and confidentiality is indeed one of the most discussed topics in investment arbitration.65 The issues more passionately debated vary from standards interpretation to the legitimacy of arbitration itself.66 On the other side, different scholars maintain that the arbitral system has so far been solid and functional:67 in their viewpoint, it is only before neutral arbitral panels that public interests can be better protected rather than before domestic courts. In fact, in arbitration, the parties have the possibility to decide which law will be applicable to the dispute, whereas in national proceedings, national law might not be balanced towards the foreign party.68 Nevertheless, some scholars argue that the negotiation of investment treaties lacks public dialectic.69

 See, among others, Berman (2011), p. 658; Waibel et al. (2010); Schneiderman (2008); Yackee (2008); Van Harten (2007). 61  See, among others, Sauvant and Ortino (2014). 62  Behn (2015), p. 379. 63  For example, on the website for the Permanent Court of Arbitration (PCA), there are 35 investment treaty arbitrations that have been registered by the PCA but to which there is no further information available. See ‘Cases’ (Permanent Court of Arbitration, 2018). 64  Although on 1 April 2014, the UNCITRAL transparency rules for investment treaty arbitrations came into effect, they cover only arbitrations based on treaties signed after this date. Moreover, an investment treaty may permit the parties to derogate from the Rules. ‘Frequently Asked Questions on Transparency’ (2018). 65  Ruscalla (2015), pp. 1, 2. 66  United Nations Conference on Trade and Development (UNCTAD), ‘Transformation of the international investment agreement regime’ (17 December 2014), TD/B/CII/EM4/2, 3. 67  Risse (2015). 68  Euler (2015). 69  Aliot (2002). 60

References

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4.8 Conclusions The present Chapter has presented some statistics and the main critiques moved to investment arbitration. Analysing caseload reports, the Chapter has put in relief that in 23% of concluded cases under the ICSID Convention and ICSID Additional Facility Rules, arbitral tribunals declined jurisdiction, in 47% of cases the tribunal upheld the claims in part or in full, and in 29% of cases the tribunal dismissed all claims. In the overall number of cases discussed under any applicable investment treaty and administered by any arbitral institution, UNCTAD found that 37% was decided in favour of the state, 28.6% was decided in favour of the investor, and 20% was settled. Some scholars claim that the current ISDS is unbalanced, as it would hinder the State from protecting its inhabitants’ welfare, hamper the empowerment of different citizens’ groups, and interfere with counteraction to financial crises. A further critique moved by the Court of Justice of the European Union in Slovak Republic v Achmea BV, Case C-284/16, concerns the compatibility of the application of arbitral clauses in intra-EU BITs with the EU legal order. This Chapter has identified transparency, legitimacy, and consistency as the main procedural aspects deserving attention and improvement in investment arbitration. Chapters 5, 6, and 7 will illustrate the various proposals and mechanisms that have been brought forward by different actors in order to address them and ameliorate the system. Chapter 8 will unravel the fascinating relationship between the investment arbitration and EU law, and Chap. 9 will draw the overall conclusions of this book.

References Aliot P (2002) The health of nations, society and law beyond the state. Cambridge University Press, Cambridge Alvarez JE (2005) The emerging foreign direct investment regime. Am Soc Int Law Proc 99:94 Alvarez JE (2011) Public international law regime governing international investment. Martinus Nijhoff Publishers, The Hague Alvarez J, Topalian G (2012) The paradoxical Argentina cases. World Arb Mediat Rev 6:491 Behn D (2015) Legitimacy, evolution, and growth in investment treaty arbitration: empirically evaluating the state-of-the-art. Georgetown J Int Law 45(2):363 Berman F (2011) Evolution or revolution? In: Brown C, Miles K (eds) Evolution in investment treaty law and arbitration. Cambridge University Press, Cambridge, pp 658–672 Bjorklund AK (2010) The promise and peril of arbitral precedent: the case of Amici Curiae. ASA Special Series 34:165 Bottari M, Wallach L (2005) NAFTA’s threat to sovereignty and democracy: the record of NAFTA Chapter 11 Investor-State Cases 1994-2005 Brower CN, Blanchard S (2014) From “dealing in virtue” to “profiting from injustice”: the case against “re-statification” of investment dispute settlement. Harv Int Law J 55:45 Draft Convention on Investments Abroad (ABS-Shawcross Draft Convention) (1959)

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Dussan Laverde S (2011) Analysis of the principle of transparency with special reference to its implications for the procedure of international investment arbitration. Criterio Jurídico 11(1):105 Euler D (2015) Increased transparency in investor-state dispute settlement (29 July 2015) European Commission (2014) Investment Protection and Investor-to-State Dispute Settlement (ISDS) in EU agreements European Commission (2017) Staff Working Document, Impact Assessment, Multilateral reform of investment dispute resolution Accompanying the document Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes, SWD (2017) 302 final, 13.9.2017 Foster G (2011) Striking a balance between investor protections and national sovereignty: the relevance of local remedies in investment treaty arbitration. Colum J Transnatl Law 49:201 Franck SD, Wylie LE (2015) Predicting Outcomes in Investment Treaty Arbitration. Duke L J 65:459 Fritz T (2015) International investment agreements under scrutiny. Traidcraft, London Henckels C (2013) Balancing investment protection and the public interest: the role of the standard of review and the importance of deference in investor–state arbitration. J Int Disp Settlement 4(1):197 Hess B (2015) Legitimacy, transparency and a consistent jurisprudence are the benchmarks for an arbitration system, Max-Planck-Gesellschaft, 10 December 2015 Horrigan B, Naish V (2018) New Zealand signs side letters with five CPTPP members to exclude compulsory investor state dispute settlement. Herbert Smith Freehills, 9 May 2018 Hueckel J (2012) Rebalancing legitimacy and sovereignty in international investment agreements. Emory Law J 61:601 Hynning C (1965) The World Bank’s Plan for the settlement of international investment disputes. Am Bar Assoc J 51(6):558 ICSID Additional Facility Rules, as amended on 10 April 2006 ICSID Secretariat, The ICSID Caseload Statistics, Issue 2021-1 Kulick A (2012) Global public interest in international investment law. Cambridge University Press, Cambridge Kurtz J (2011) The Australian trade policy statement on investor-state dispute settlement. Am Soc Int Law Insights 15(22) Martin E (2017) Is the sun setting on BITs?. Ashurst, 18 December 2017 Menon S (2012) International arbitration: the coming of a new age for Asia (and elsewhere), Keynote Address at the Opening Plenary Sessions of the ICAA Congress in Singapore Nariman F (2014) Investment arbitration under the spotlight – what next for Asia. Herbert Smith Freehills-SMU Arbitration Lecture Series, 9 Ngumi D, Sejpal S (2021) Tanzania Terminates Bilateral Investment Treaty with the Netherlands Nikièma SH (2013) Compensation for expropriation. The International Institute for Sustainable Development OECD (1998) Draft Multilateral Agreement on Investment’, DAFFE/MAI(98)7/REV1 Olivet C, Eberhardt P (2013) Profiting from injustice: challenging the investment arbitration industry’, Open Democracy Peacock N (2018) Indian Government launches international research project on the impact of Bilateral Investment Treaties on investment flows from/to the country. Herbert Smith Freehills, 5 October 2018 Peacock N, Nihal J (2017) Mixed messages to investors as India quietly terminates bilateral investment treaties with 58 countries. Herbert Smith Freehills, 16 March 2017 Permanent Court of Arbitration, Cases Risse J (2015) A New “Investment Court System” – Reasonable Proposal or Nonstarter?. Global Arbitration News Roberts A, Bouraoui Z (2018) UNCITRAL and ISDS reforms: concerns about consistency, predictability and correctness. EJIL: Talk!

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Rogers C (2014) The politics of international investment arbitrators. Santa Clara J Int Law 12:223 Ruscalla G (2015) Transparency in international arbitration: any (concrete) need to codify the standard? Groningen J Int Law 3(1):1 Sarkar R (2011) A ‘re-visioned’ foreign direct investment approach from an emerging country perspective: moving from a vicious circle to a virtuous cycle. ILSA J Int Comp Law 17:379 Sauvant KP, Ortino F (eds) (2014) Improving the international investment law and policy regime: options for the future. Ministry for Foreign Affairs of Finland Schneiderman D (2008) Constitutionalizing economic globalization: investment rules and democracy’s promise. Cambridge University Press, Cambridge Schneiderman D (2010) Judicial politics and international investment arbitration: seeking an explanation for conflicting outcomes. Northwest J Int Law Bus 30:383 Schneiderman D (2013) Resisting economic globalization: critical theory and international investment law. Palgrave MacMillan, London Tevendale C, Naish V (2014) Indonesia indicates intention to terminate all of its Bilateral Investment Treaties?. Herbert Smith Freehills, 20 March 2014 Tienhaara K (2011) Regulatory chill and the threat of arbitration: a view from political science. In: Brown C, Miles M (eds) Evolution in investment law and arbitration. Cambridge University Press, Cambridge, p 617 UNCITRAL (2018) Frequently Asked Questions on Transparency UNCTAD Investment Policy Hub (2021) Dispute Settlement Navigator, March 2021 United Nations Commission on International Trade Law Working Group III [UNCIRAL] (Investor-­ State Dispute Settlement Reform) (2017) Thirty-fourth session Vienna, 27 November-1 December 2017 Possible reform of investor-State dispute settlement (ISDS) Note by the Secretariat, A/CN.9/WG.III/WP.142, 18 September 2017 United Nations Conference on Trade and Development (UNCTAD) (2012) Towards a New Generation of Investment Policies. World Investment Report United Nations Conference on Trade and Development (UNCTAD) (2013) Reform of Investor-­ State Dispute Settlement: In Search of a Roadmap United Nations Conference on Trade and Development (UNCTAD), Transformation of the international investment agreement regime Note by the secretariat Van Harten G (2007) Investment treaty arbitration and public law. Oxford University Press, Oxford Van Harten G (2010) Five justifications for investment treaties: a critical discussion. Trade Law Dev 2(1):19 Van Harten G (2012) Arbitrator behavior in asymmetrical adjudication: an empirical study of investment treaty arbitration. Osgoode Hall Law J 50:211 Van Harten G et al (2010) Public statement on the international investment regime. Osgoode Hall Law School, 31 August 2010 Waibel M, Kaushal A, Chung K-H (L), Balchin C (2010) The backlash against investment arbitration: perceptions and reality. Kluwer Law International, London Williams R (2009) Nothing sacred: developing countries and the future of international investment treaties. IISD 2 Yackee J (2008) Do we really need BITs? Toward a return to contract in international investment law. Asian J WTO Int Health Law Policy 3:121

Chapter 5

Transparency in Investor-State Arbitration

Transparency and investor-State arbitration have had an uneasy relationship, which was well exposed in Biwater Gauff v Tanzania. Procedural Order No. 3 noted that there is no provision imposing a general duty of confidentiality in the ICSID Convention, any of the applicable rules or otherwise; there is also no provision imposing a general rule of transparency or non-confidentiality in any of these sources.1 More recently, the tribunal in Telefónica v Mexico addressed the same situation and issued Procedural Order No. 1, which stated that neither the ICSID Convention nor the Additional Facility Rules impose a general duty of confidentiality or transparency on the parties to a proceeding.2 These two cases are examples of the difficulty to reconcile confidentiality and transparency in arbitration proceedings. Difficulty is not synonym of impossibility. There is no better illustration of the issues of the balance between transparency and confidentiality than the dispute that took place between Vattenfall and Germany. In 2009, the Swedish State-owned energy giant Vattenfall, which was building a coal power station in the surroundings of Hamburg, filed to the ICSID administration a notice of arbitration against Germany based on the Energy Charter Treaty (‘ECT’), relating to the administrative procedure for the issuing of permits for a new power plant. Vattenfall claimed that the measures imposed by the Hamburg administrative authorities amounted to an indirect expropriation, breaching the ECT.3 This case, also known as Vattenfall v

 Biwater Gauff (Tanzania) Limited v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006 at 121. The same Procedural Order No. 3 noted that while the proceedings remain pending, there is an obvious tension between the interests in transparency and in procedural integrity; and lists several occasions where the interests of transparency are outweighed by the interests of procedural integrity. See paragraphs 140, 157, and 161. 2  Telefónica S.A. v United Mexican States, ICSID Case No. ARB(AF)/12/4, Procedural Order No. 1, 8 July 2013 at 20–26. 3  Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG & Co. KG (Sweden and Germany) v the Federal Republic of Germany (‘Vattenfall v Germany I’), Request for Arbitration 1. 1

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Marisi, Rethinking Investor-State Arbitration, Studies in European Economic Law and Regulation 27, https://doi.org/10.1007/978-3-031-38184-3_5

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Germany I, took place between 2009 and 2011, and was conducted under the strictest confidentiality, which, pursuant to the ICSID Rules of Procedure for Arbitration Proceedings, had evidently been requested by one or both parties:4 in fact, the only documents that we can find on the ICSID website are the notice of arbitration and the award.5 Even the latter, however, originating from a settlement between the parties, was written respecting confidentiality. The award reveals only that a modified water use permit was finally issued to Vattenfall.6 Some years later, in 2012, Vattenfall filed a second request for arbitration against Germany before an ICSID tribunal (Vattenfall v Germany II).7 The Swedish company claimed that the recently adopted 13th amendment to the Atomic Energy Act, which provided for the phase-out of nuclear power plants on the national territory by 2022, breached the investor’s rights, protected by the ECT. In Vattenfall v Germany II, the request for arbitration is not publicly available. However, by the end of September 2016, the ICSID Secretariat declared that the parties had chosen to make part of the hearings publicly accessible.8 Video recordings of part of the hearings are available online in English language, allowing also those who have not personally attended the hearing to follow. The parties have nevertheless agreed on the need to not disclose the parts involving confidential or sensitive information. The radical evolution of the parties’ conduct, apparent in the change from a strict confidentiality in Vattenfall v Germany I to an ampler transparency in Vattenfall v Germany II, demonstrates that, in view of the relevant public interest involved in arbitration cases, the idea of endorsing transparency is spreading, while in any case safeguarding the confidential or sensitive information if requested by one or both parties. This experience shows that an evolution is possible towards a greater role for transparency in investor-State arbitration. This Chapter will reflect on the concept of transparency, trace a comparison between the advantages of confidentiality and those of transparency, and examine transparency provisions included in IIAs and arbitral institutions rules.

5.1 The Concept of Transparency Transparency in investment arbitration is one of the most discussed topics in recent literature, and is the subject of the most passionate debates among scholars.9 In the same way, transparency is recognised and implemented in international, regional  ICSID (2006).  Vattenfall v Germany I, Available Documents. 6  Vattenfall v Germany I, ICSID Case No. ARB/09/6. 7  Vattenfall AB and others v Federal Republic of Germany (‘Vattenfall v Germany II’), ICSID Case No. ARB/12/12. 8  Bert (2016). 9  Knahr and Reinisch (2007), p. 97. 4 5

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and national legal frameworks within and beyond national borders.10 Nevertheless, the definition of transparency is not easy to draw, as it holds different features based on the field of law it is applied to.11 In the meaning of investment law, transparency can be described as follows: “The adequacy, accuracy, availability, and accessibility of knowledge and information about the policies and activities of (the international investment law regime and its participants), and of the central organizations (functioning within) it on matters relevant to compliance and effectiveness, and about the operation of norms, rules, and procedures (underlying the regime)”.12 Nevertheless, as previously stated, one and only notion of transparency is not easy to obtain, as the ‘one size fits all’ concept does not seem to be applicable in all of the international law fields, which are instead characterised by discontinuity, being ‘a universe of inter-connected islands’ in the words of Pauwelyn.13 As each domain of international law has originated its own system of norms and its own courts, a sole notion of transparency cannot be applied to all fields.14 Behn maintains that one of the sources of the issue of transparency can be found in the inherently private and fragmented nature of investor-State disputes: as a matter of fact, due to the number of ad hoc tribunals and institutions providing for investment arbitration dispute resolution, a comprehensive registry of investor-State cases does not exist.15 Transparency can play a crucial role, rendering investment arbitration more accessible to society, incentivising people’s participation, guaranteeing plurality and accountability.16 Several aspects of transparency can be identified: among them, there are the publication of the parties’ submissions, the accessibility to hearings, the publication of the arbitral award,17 and third parties’ participation.18 A systematic approach was adopted already in 2010 by the UNCITRAL Working Group II on Arbitration and Conciliation, stating that the substantive issues to be considered in respect of the possible content of a legal standard on transparency would be publicity regarding the initiation of arbitral proceedings; documents such as pleadings, procedural orders, supporting evidence to be published; submission by third parties (‘amicus curiae’) in proceedings; public hearings; publication of  Bevilacqua and Spagnuolo (2015).  Zoellner (2006), pp. 580–581. 12  Maupin (2013), pp. 142, 147. 13  Pauwelyn (2004), p. 903. 14  Research analysed the concept of transparency as applied to the several fields of international law (international environmental law, international economic law, international human rights law, international health law, international humanitarian law, international peace and security law), showing that a general definition of ‘transparency in international law’ does not exist. See, among others, Bianchi and Peters (2013). 15  Behn (2015), p. 413. 16  Bevilacqua and Spagnuolo (2015), p. 3. 17  Neumann and Simma (2013), pp. 436, 437. 18  Feliciano (2013), p. 19. 10 11

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arbitral awards; possible exceptions to the transparency rules; and registry, that is repository of published information.19 Building on this definition, several scholars maintain that three levels can be distinguished in the notion of transparency in international law: institutional transparency, legislative transparency, and procedural transparency. Institutional transparency is applied to everyday activities of international organisations;20 legislative transparency concerns the legislative process;21and procedural transparency regards the application of law by international courts.22 Some scholars further differentiate between regulatory transparency and procedural transparency in the following way: whereas the first brings into focus the regulatory and administrative systems, and is applied, for instance, in the interpretation of fair and equitable treatment standards, the latter regards the whole design of investment treaties and the clauses included therein, concerning investment disputes and their settlement. It pertains, especially, to the core issue: to what extent are transparency and accountability beginning to outweigh in importance privacy and confidentiality in investment arbitration?23 As stated in the report of the Trade and Development Board at UNCTAD: ‘[transparency] was also seen as an important step to respond to the challenges regarding the legitimacy of international investment law and arbitration as such. Those challenges were said to include, among others: an increasing number of treaty-based investor-State arbitrations, including frivolous claims; greater amounts of awarded damages; higher inconsistency of awards and concerns about lack of predictability and legal stability; and uncertainties regarding how the investor-State dispute settlement system interacted with important public policy considerations. It was concluded that legal standards on increased transparency would enhance the public understanding of the process and its overall credibility’.24  United Nations Commission on International Trade Law (UNCITRAL), Report: Settlement of commercial disputes: preparation of a legal standard on transparency in treaty-based investor-state arbitration, Working Group II (Arbitration and Conciliation) of the work of its fifty-third session (Vienna, 4–8 October 2010), A/CN9/712, 20 October 2010, para. 31. 20  Some programs, promoting accountability through transparency, have been launched by major international organizations; see, among others, the United Nations’ Strengthening Accountability, and the European Commission’s Transparency Portal. 21  The online public consultation on investment protection and investor-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP) agreement has been launched by the European Commission on 27 March 2014. This initiative shows that international and regional organisations acknowledge the importance of including all stakeholders interested in the negotiation of multilateral treaties. See European Commission, Commission Staff Working Document, Report on Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP), SWD(2015) 3 final, 13 January 2015. 22  Delaney and Magraw Jr (2008), p. 722. 23  McLachlan et al. (2007), p. 57. 24  UNCITRAL, Report of the Working Group on arbitration and Conciliation on the work of its fifty-third session (Vienna, 4–8 October 2010) (A/CN.9/712), in Yearbook Volume XLII: 2011, New York: United Nations, 2014, 181. 19

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Reflecting on international fairness and legitimacy, Franck wrote that a deeply held popular belief affirms that for a system of rules to be fair, it must be firmly entrenched in a framework of formal requirements about how rules are made, interpreted and applied.25 There are, in his view, four elements that can be considered as objective factors indicating that rules are legitimate: clear message articulation (determinacy), conveyance of authority via ritual or standardised practice (symbolic validation), consistency with other rules (coherence), and vertical connection to a pyramidal structure of secondary rules (adherence to a normative hierarchy). Franck contends that, if rules show these characteristics, they induce states to respect them. On the contrary, if these elements are scarce or not present, it is easier to avoid conforming to them.26 Before UNCITRAL published its Rules on Transparency in Treaty-based Investor-State Arbitration,27 neither ICSID nor PCA, nor SCC or other commercial arbitration institutions had promoted transparency in such a decisive manner, and some researchers doubted that, despite the importance conferred to transparency, its practical impact on investment arbitration could be substantial.28

5.2 Transparency v Confidentiality This Section highlights the advantages from the adoption of transparency or confidentiality standards in investor-State dispute settlement.

5.2.1 Advantages of Confidentiality The main reasons to preserve the confidentiality of certain information are discussed in the following paragraphs.29 Certain information is kept confidential to preserve the integrity of the arbitration process. Companies making use of arbitration particularly value both the protection of classified business information, and the possibility to defend their reputation from press speculations.30 International law itself regards privacy as a fundamental right, although its procedural application is still missing.31

 Franck (1995), pp. 7–8.  Franck (1988), p. 712. 27  UNCITRAL (2014). 28  Mitchell (1998), p. 111. 29  Ortino (2013), p. 132. 30  Knahr and Reinisch (2007), p. 109. 31  Bevilacqua and Spagnuolo (2015), p. 22. 25 26

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One of the reasons why, to resolve commercial disputes, companies prefer arbitration to litigation is because of the enhanced protection it offers to confidential business information.32 In fact, the protection of both their public image and business secrets are of the utmost importance for firms, and they prefer avoiding risking to reveal certain information that could harm the company.33 Such motivations certainly apply also to investment arbitration.34 States as well benefit from a certain degree of confidentiality. States might wish to keep the procedure confidential with the aim to: –– Maintain a good and stable atmosphere that continues to attract foreign direct investment; –– Decrease the probability that other investors could bring similar claims against the host State; –– Get the approval of the stakeholders, a particularly sensitive issue when minorities’ rights are at stake;35 –– Reduce and keep at a minimum level the external forces and pressures on the procedure, in this way maintaining the possibility to settle; –– Prevent high governmental and company officials from suffering any embarrassment;36 –– Safeguard sensitive national information;37 and –– Not hinder the spontaneous deposition of witnesses and the collection of evidence, which could be made more difficult in case sensitive information are revealed.38 In a nutshell, keeping awards and other sensitive information confidential might protect the interests of both parties from being exposed to the public. This kind of information includes certain behaviours of the parties, such as conducts of the parties before the start of the arbitration, allegations made by the parties during the proceedings, and findings of fact and law by the tribunal during the arbitration. Advocates of a greater confidentiality claim that what should be kept private and confidential is not only the development of the procedure and the award, but even the mere start of arbitration proceedings.39 Other researchers stressed that, without any external pressure, the disputing parties would be more prone to find a solution, either through an award or through settlement,40 which fosters the keeping of good

 Ruscalla (2015), p. 6.  Knahr and Reinisch (2007), p. 109. 34  Knahr and Reinisch (2007), p. 110. 35  Ortino (2013), p. 132. 36  Ortino (2013), p. 132. 37  Ortino (2013), p. 132; Buys (2003), pp. 123, 137; Schreuer et al. (2009), p. 826; Delaney and Magraw Jr (2008), pp. 762–763. 38  Horn (2014), p. 339. 39  Loquin (2006), p. 344. 40  Knahr and Reinisch (2007), p. 109. 32 33

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long-term relations between the parties41 and can be advantageous for business purposes. Moreover, confidentiality might play an important role in maintaining the depoliticised nature of arbitration, as was the intent of the ICSID Convention.42 Other commentators highlighted that a wider access to documents and information may increase the length of the proceedings and its costs,43 and vice-versa negatively affect the efficiency of the procedure. Some authors suggest that, for instance, if public participation in the form of streaming of hearings and the publication of documents is authorised, the software required to keep the arbitration public and make the documents available to the civil society can have high costs.44 Other researchers stressed that a distinction should be made between arguments in favour of confidentiality according to their different aims: some of them aim at safeguarding the parties’ interests; others aim at protecting the arbitration system in its entirety.45 The potential discordance between the requirement of ensuring justice in a particular case and the general requirement for clarity and certitude has been greatly emphasised by some researchers. As a result of this potential discordance, the development of a coherent law framework has been prioritised over the resolution of an existing dispute.46 Some scholars claim that any future arbitration may be affected by publicly disclosed erroneous judgments. In addition, proceedings and awards may be published only partially if their publication is discretionary. Hence, a developing legal perspective could be rooted solely in the published awards, providing a partial if not distorted legal picture.47 Certain forms of transparency may be supported by reaching a compromise or trade-off. For example, in Germany, it is possible to attend hearings, even though written submissions are undisclosed and film recording is prohibited. The purpose of these provisions is to ensure that neither advocacy tactics nor unwarranted influence exerted by pressure groups can affect the tribunals or the disputing parties.48

 The availability of conciliation under Articles 28–35 of the ICSID Convention stresses this aspect.  Cf. Shihata (1986), p. 5. 43  See Rubins (2006). 44  Bevilacqua and Spagnuolo (2015), p. 21. 45  Ortino (2013), p. 132. 46  Blackaby (2002), pp. 145, 149. 47  Ortino (2013), p. 133. 48  Risse (2015). 41 42

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5.2.2 Advantages of Transparency 5.2.2.1 Essentials of Transparency There is a widespread belief that transparency is one of the central aspects of good governance.49 However, in the field of dispute settlement, such transparency considerations could not arise: some researchers consider arbitration a substitute for judicial dispute settlement, characterised by confidentiality that does not represent its limit, but rather a valuable peculiarity.50 However, the need for arbitral proceedings to be more open and transparent has been stressed by the civil society and other players in the field of international investment.51 It is a shared opinion that it is important for the administrative and legislative governmental entities to be as transparent as possible when interacting with citizens. Applying this principle to investment law, every legislative act with implications for investors should be disclosed by the host States.52 Furthermore, as part of corporate social responsibility, private parties are also required more and more often to ensure transparency in their policy.53 Scholars write that the judiciary should uphold transparency as well and must ensure publication of its proceedings and decisions.54 In order to reflect on the application of the principle of transparency in investor-­ State arbitration, it is important to consider the peculiarities of arbitration, and even more specifically, those of investor-State arbitration, where a public interest dimension is present. If the tribunal finds that a respondent’s measure has violated the applicable law, it can award damages in case it encounters that the enactment of such measure violates the investor’s rights. Often, investors offer public services: this explains the presence of public interest.55 In fact, civil society is interested in the results of disputes with implications for both the disputing parties and the general public or specific social groups.56

 Cf. European Commission, White Paper on European Governance, COM (2001) 428 final, [2001] OJ C 287/1; Harlow (2006), pp. 195, 202. 50  Section 5.2.1 focuses specifically on the advantages of confidentiality. 51  Schreuer et al. (2009), pp. 697–698. 52  See, for example, Article 20 Energy Charter Treaty: “2. Laws, regulations, judicial decisions and administrative rulings of general application made effective by any Contracting Party, and agreements in force between Contracting Parties, which affect other matters covered by this Treaty shall also be published promptly in such a manner as to enable Contracting Parties and Investors to become acquainted with them. […].” 34 ILM 360 (1995); See also UNCTAD, Transparency, Series on Issues in International Investment Agreements (2004). 53  Cf. Muchlinski (2003), p. 123; Tapscott and Ticoll (2003). 54  Knahr and Reinisch (2007), p. 110. 55  See Johnson et al. (2015). Contra, Hóber (2014), p. 927. 56  This policy aspect was highlighted in the famous Australian case of Esso/BHP v Plowman, (1995) 128 ALR 391. See also Tweeddale (2005), p. 61. 49

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Compared to commercial arbitration, investment arbitration draws a greater level of attention from the public due to the more extensive ramifications that its outcome can have. State bodies, political parties, and non-governmental organisations argue that an arbitration decision may limit the future legislative and/or administrative room for manoeuvre.57 Citizens’ everyday life may be affected by certain disputes, especially in terms of how much public services cost and the extent to which they are available. In several arbitration proceedings, the investor was a provider of public services, such as waste management and electricity, and the management of important natural resources, such as oil, minerals, forests, fisheries, and water.58 The measures triggering the start of an investor-State arbitration include a denial of permit for a facility for waste disposal in a town in Mexico, and the actions taken by Argentina in its fiscal crisis, which has originated more than 35 cases under ICSID rules.59 The management of potable water system by foreign investors in Cochabamba, Bolivia, and Dar es Salaam, Tanzania gave rise to a clash between public policy measures and international investment rules. These are examples of cases that have an impact on policies at regional and national level, for the protection of public health, safety, and the environment.60 Scholars highlight that the degree of public policy concerns raised by investment arbitrations depends on the financial implications of those cases.61 In fact, if the State is found liable to pay large amounts of compensation, the budget of a State could be significantly affected. For instance, the sums of $500 million or $1 billion that have been reported are substantial for both investors and host States, with even a $500 million compensation award being considered too large by some States.62 The public interest aspect and the importance of transparent arbitration are increasingly acknowledged by States and bodies in charge of international dispute settlement, and appropriate measures have been adopted accordingly.63 Transparent arbitral proceedings and awards afford the general public an insight into the manner in which the host State conducts its public functions, contributing to improving the efficiency of governance. To summarise, in order to ‘regulate the regulators’, transparency and public participation are important instruments that can be employed to hold national and international regulators accountable and draw them towards constituencies’ common goals.64

 See Mistelis (2005).  Plagakis (2013), pp. 88–89. 59  Plagakis (2013), pp. 88–89. 60  Plagakis (2013), pp. 88–89. 61  Delaney and Magraw Jr (2008), p. 724. 62  Delaney and Magraw Jr (2008), p. 724. 63  Plagakis (2013), p. 88. 64  Bevilacqua and Spagnuolo (2015), p. 4. 57 58

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5.2.2.2 Harmonising Different Regulatory Systems Legal harmonisation in international law may be improved through promotion or enhancement of transparency and public participation. Transparency ensures that the different legal systems communicate with one another. In order to ensure that their decisions are legitimate, both national and international authorities draw on impartial and shared criteria and oversee that the procedure complies with the requirement of transparency and participation.65 The legal harmonisation process is primarily related to procedural rules.66 Integration, balance and harmonisation could be further improved through the dissemination of shared principles67 and inter-court communication.68 Pursuant to this approach, judicial interpretation and assessment can be improved if they are based on general principles, which are shared by several legal regimes.69 5.2.2.3 Contributing to the Evolution of the Case-Law The development of the case-law is another advantage brought by transparency. Research has pointed out that in order to guarantee equal treatment of all cases and generate legal certainty, the development of a coherent case-law70 depends on the disclosure of judicial rulings, arbitral awards,71 and procedural orders.72 Because of transparency, decisions will be of better quality, more consistent and predictable.73 Transparent arbitral decisions enable international investment law to develop and achieve consistency.74 Publication increases the quality of decisions, resulting in greater case-law rationality and encouraging tribunals and parties to refer to previous decisions.75 Moreover, since decision-making can be influenced more readily if

 Bevilacqua and Spagnuolo (2015), p. 4.  Bevilacqua and Spagnuolo (2015), p. 18. 67  Bevilacqua and Spagnuolo (2015), p. 18. 68  Bevilacqua and Spagnuolo (2015), p. 18. 69  Bevilacqua and Spagnuolo (2015), p. 18. 70  Cf. Berger (1992), p. 19; Lew (1982), p. 229. 71  Berger (1992), p. 19; Lew (1982), p. 229. 72  It is thus not surprising to see that the Biwater Gauff v Tanzania tribunal decided that its “Procedural Order No. 3 shall be subject to no confidentiality restrictions and may be freely disclosed to third parties.” Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 164. 73  Magraw and Amerasinghe (2008–2009), p. 345; Delaney and Magraw Jr (2008), pp. 761–762; Knahr and Reinisch (2007), p. 111. 74  Ortino (2013), p. 119. 75  Dragana Nikolić, international arbitration practitioner, in an interview with the author in 2018. See also Schreuer et al. (2009); Blackaby (2002), p. 149; Buys (2003), pp. 136–137; Egonu (2007), p. 488; IISD (2007), p. 4; Delaney and Magraw Jr (2008), pp. 761–762. 65 66

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there is information accessibility, the efficiency of transparency is improved by public participation.76 5.2.2.4 Promoting Precision in International Law The publication of judgments and awards is particularly important, because in certain cases there is a lack of clarity on the substantive rules of international law under which disputes unfold.77 In order to clarify rules of international law, it is up to institutions of dispute settlement to interpret them.78 Indeed, research finds that both the World Trade Organisation (‘WTO’) and the EU display the de facto transfer of law-making functions between the legislator and the judiciary.79 An examination of the reports of WTO panels and the Appellate Body is required in order to understand essential provisions such as Article III, Article XI or Article XXII of the GATT 1994. Likewise, the content of the rules of the EU Treaties regarding the free movement of goods, people and services is largely clarified by the case-law of the Court of Justice of the EU.80 A similar situation may be found within the settings of modern investment arbitration as well.81 In fact, research stressed that most BITs and key multilateral investment treaties (e.g. NAFTA Chapter Eleven or ECT) include substantive treatment standards that are phrased in a similar manner and lack accuracy and concreteness.82 Notions such as fair and equitable treatment, full protection and security, and expropriation are interpreted and applied within the context of each investment arbitration case.83 It can be concluded that the development of clarity and precision in international investment law would greatly benefit from a greater transparency.84

 Bevilacqua and Spagnuolo (2015), p. 4.  Anonymous expert, in an interview with the author in 2018. 78  Knahr and Reinisch (2007), p. 111. 79  Knahr and Reinisch (2007), p. 111. 80  Knahr and Reinisch (2007), pp. 111–112. 81  Knahr and Reinisch (2007), p. 112. 82  See, for example, Art. 2 (2) Pakistan-Italy BIT: “Both Contracting Parties shall at all times ensure fair and equitable treatment of the investments of investors of the other Contracting Party.” or Art 1105 NAFTA: “Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.” 83  See Schreuer (2006), p. 2. 84  See also OECD (2005) according to which publication of arbitral awards would “contribute to the further development of a public body of jurisprudence which would allow investors and host States to understand how investment agreements are interpreted and applied and ultimately contribute to a more predictable and consistent system.” (para. 42). 76 77

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5.2.2.5 Creating Confidence in Investment Arbitration By making more transparent the course of the arbitral proceedings and by publishing the award, the investment arbitration system will regain trust.85 In fact, it has happened in the past that the unavailability to the public of documents in investment arbitration raised the irritation of some journalists.86 Research has found that speculation would be eliminated87 and that the single proceedings as well as the whole system will appear more legitimate if they demonstrate openness.88 ISDS will be more widely accepted89 as a viable alternative to judicial dispute settlement. Some researchers argue that this will bring advantages to the State, as it will attract more foreign investment.90 If the award is published, the investment system can be understood, trusted and acknowledged by the overall civil society as well, not just by the participants that are traditionally involved in the dispute.91 Since decisions in investment arbitration are publicly relevant, the civil society’s concerns will be alleviated if the process is transparent.92 A greater transparency is appropriate concerning the arbitrators’ role as well. In fact, it is in the arbitrators’ interest that their professionalism and experience93 are known to the public,94 and that their products, meaning the awards, decisions, and orders, are publicly available and therefore open to public and scholarly scrutiny.95 Furthermore, knowing the legal reasoning in the awards provides States with the possibility to intervene both at the beginning and at the end of the path, starting from the negotiation and signature of IIAs and ending with dispute settlement, including enforcement, annulment and setting aside procedures. It gives them also the opportunity to act pre-emptively, in the stage of treaty drafting, by choosing a clear and

 Knahr and Reinisch (2007), p. 112.  See the famous characterisation of NAFTA Chapter 11 tribunals made by Anthony DePalma on the New York Times: “Their meetings are secret. Their members are generally unknown. The decisions they reach need not be fully disclosed. Yet the way a small group of international tribunals handles disputes between investors and foreign governments has led to national laws being revoked, justice systems questioned, and environmental regulations challenged. And it is all in the name of protecting the rights of foreign investors under the North American Free Trade Agreement.” De Palma (2001). 87  Knahr and Reinisch (2007), p. 112. 88  Delaney and Magraw Jr (2008), p. 763; OECD (2005); Tienhaara (2007), p. 22 note 96. 89  Delaney and Magraw Jr (2008), p. 762; OECD (2005), p. 11. 90  Triantafilou (2010). 91  Ortino (2013), p. 119. 92  Buys (2003), p. 136. 93  Schreuer et al. (2009), p. 827; Buys (2003), p. 136. 94  Knahr and Reinisch (2007), p. 112. 95  Lew (1982), p. 227. 85 86

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precise wording in the substantive or the procedural provisions, which allows to avoid, as far as possible, the occasions of contrast with the foreign investors.96 5.2.2.6 Legitimising Investor-State Arbitration One more potential advantage of transparency regards the possibility to allow third-­ party participation: the public may become more aware and express greater interest, and local communities will become more actively involved in investment disputes.97 Overall, the legitimacy of the ISDS may be augmented by enhanced transparency,98 with advantages associated with accountability and provision of a platform for individuals and communities to articulate their opinions.99 However, several authors argue that the system may not necessarily be accepted and viewed as more legitimate just because more information is publicly available. In fact, they fear that the system may be perceived as less legitimate if the information disclosed is disagreeable to people.100 5.2.2.7 Increasing the Predictability of Outcomes More transparency will lead to greater accountability and greater predictability of outcomes.101 According to some researchers, decisions should be grounded in past decisions that are made publicly available:102 in this way, their accuracy and thorough defensibility will increase.103 Frivolous disputes can be prevented,104 as well as the submission of claims and defences brought against a robust case law.105 Other types of ADR, such as negotiation or mediation may be promoted by transparency. An additional benefit of transparency is that it compels parties to enforce awards.106

 OECD (2005); Delaney and Magraw Jr (2008), p. 762.  Buys (2003), pp. 134–135. 98  Marisi (2021). 99  Bevilacqua and Spagnuolo (2015), p. 13. 100  Mollestad (2014). 101  Dragana Nikolić, international arbitration practitioner, in an interview with the author in 2018. 102  Magraw and Amerasinghe (2008–2009), p. 345. 103  Anonymous expert, in an interview with the author in 2018. 104  Knahr and Reinisch (2007), p. 112. 105  Knahr and Reinisch (2007), p. 112. 106  Delaney and Magraw Jr (2008), pp. 761–762. 96 97

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5.2.2.8 Encouraging Public Participation As demonstrated by the involvement of NGOs in ICSID arbitration,107 transparency stimulates stakeholders to intervene in decision-making, therefore promoting their public participation, which in turn increases pluralism and accountability.108 Moreover, some criticalities associated with stakeholders’ interference in decision-­ making may be reduced by the accessibility of data and information. It follows that transparency and openness have a favourable impact on the process of participation.109 As is the case with the involvement of NGOs in investment arbitration, participation is frequently perceived not so much as a right, but as pure opportunity.110 Nevertheless, substantial equality would be favourably affected by even the slightest increase in transparency, directing greater attention to underrepresented interests.111 Transparency is often articulated solely as the ability to acquire information for stakeholders or parties rather than as a responsibility. This makes transparency, as well as participation, less effective.112 Instead, an effective exercise of the freedom of expression entails both providing access to information and acquiring information.113 Article 19 of the Universal Declaration of Human Rights (UDHR) recognises the right to freedom of opinion and expression, and explicitly provides that this right includes freedom to seek and receive information and ideas through any media and regardless of frontiers.114 Some researchers summarised the trade-off between confidentiality and transparency, stating that confidentiality and transparency are competing values which need to be adjusted one to the other in specific cases.115 For this reason, arbitral tribunals usually try to keep distance from uncritically adhering either to the one or to the other principle. In fact, although in this field there is an overall trend in towards transparency,116 and even though the overall advantages of transparency outweigh those of confidentiality, the tribunal’s difficult task of achieving a good balance is particularly delicate.

 Specific cases are described in Sect. 5.3.2.2.  Ruscalla (2015), p. 1. 109  Cassese (2012), p. 160. 110  Bevilacqua and Spagnuolo (2015), p. 23. 111  Bobbio (2005), p. 6. 112  Bevilacqua and Spagnuolo (2015), p. 23. 113  Balcerzak and Hepburn (2015), p. 153. 114  Balcerzak and Hepburn (2015), p. 153. 115  Feliciano (2013), p. 20. 116  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 122. 107 108

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5.3 Transparency Provisions In investment arbitration, the legal basis for the dispute is provided by the relevant investment agreement, which can be an IIA (which in turn can be a multilateral or a bilateral treaty) or a Preferential Trade Agreement with an investment chapter (‘PTIA’).117 Currently, there are more than three thousand IIAs that have been finalised throughout the world.118 Research stressed that this energetic ‘treatification’ results from the fact that the contracting parties have to consider and balance the different interests of all those on whom such agreements have an impact: not just the negotiating States, but also their civil societies and businesses.119 Attempts to balance all these interests are the suggestions included in the 2003 OECD booklet Public Sector Transparency and the International Investor,120 and the Multilateral Agreement on Investment (‘MAI’), negotiated without success between 1995 and 1998.121 Compared to multilateral agreements, negotiation of bilateral agreements regarding investment issues has been less challenging for States, even since 1959, when Germany and Pakistan concluded the first Bilateral Investment Treaty (‘BIT’).122 Indeed, in the opinion expressed by some scholars in 2012, it is the diffusion of bilateral agreements that prevents the conclusion of new multilateral investment agreements.123 In fact, on the one hand, we are currently witnessing a renewed interest towards multilateral agreements; on the other hand, the conclusion of these agreements encounters some opposition by experts, population, NGOs, and the press.124 An example thereof is the vivid debate sparked from the TTIP negotiations. The following Sections will examine specific issues on transparency provisions in IIAs and PTIAs, arbitration rules, and the relevant decisions made by arbitral tribunals in well-known cases. Issues regarding transparency essentially concern the following stages: i) registration of the initiation of arbitral proceedings; ii) accessibility of procedural documents and the publication of the final award; iii) participation of non-disputing parties; iv) amicus curiae submissions; and v) openness of hearings to the public.

 Among them are the following: China-Pakistan 2006, China-New Zealand 2008, China-Peru 2009, China-ASEAN 2009. 118  Out of a total of 3266 international investment  agreements, 2827 are Bilateral Investment Treaties (BITs), and 439 are Treaties with Investment Provisions (TIPs). See UNCTAD Investment Policy Hub, International Investment Agreements Navigator, August 2023. 119  Salacuse (2006), p. 20. 120  OECD (2003). 121  Multilateral Agreement on Investment (MAI). 122  Germany-Pakistan BIT (1959). 123  Meyer (2012), p. 1065. 124  OHCHR, EU Trade agreements: UN rights expert warns against bypassing national parliaments, press release, 2016. 117

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5.3.1 Registration of the Initiation of the Arbitral Proceedings Depending on the applicable rules, the registration of the initiation of arbitral proceedings can be published or not. Information related to pending and concluded arbitration cases is included in the registries kept by the arbitration institution that administered those proceedings. It is important that the information included in such registries be available to the public. Every form of non-party activity related to the proceedings depends on knowledge of pending arbitrations, including public attendance to hearings, information search, public scrutiny and debate, as well as amicus curiae requests to submit a brief. The following Sections will examine the provisions establishing the publication of a list of pending proceedings in regional and multilateral investment treaties and in arbitration rules of selected institutions. 5.3.1.1 NAFTA Rules Governing Registration of the Initiation of Arbitral Proceedings The robust transparency policies introduced by both Canada and the United States support to the statement that transparency standards in the context of investment arbitration have their roots in North America.125 The North American Free Trade Agreement (NAFTA), between Mexico, Canada and the United States was signed at the end of 1992, ratified by the three countries in 1993, entered into effect on 1 January 1994,126 and was replaced by the United States  – Mexico  – Canada Agreement (USMCA) on 1 July 2020. For merchandise entered into commerce on or before 30 June 2020, NAFTA will continue to apply. With a population of over 491 million127 and an overall estimated $22.5 trillion GDP per year,128 NAFTA created the most extensive free trade sphere anywhere in the world. The agreement was intended not just to regulate goods and services trade, but also to protect investment and supply settlement mechanisms for disputes between investors and States, and to provide rules concerning intellectual property and technical hindrances to trade. NAFTA Chapter Eleven was concerned with investments and was meant to provide investment stimulus and protection as well as dispute settlement mechanisms, just like any other investment treaty.129 Section B of Chapter Eleven focused exclusively on arbitration between investors and States, providing a comprehensive

 Caplan and Sharpe (2013), p. 838. Although the reference is to the US policy, the same can be said about Canada. 126  Villarreal and Fergusson (2015). 127   Canada Population, Worldometers, 2017; Mexico Population,  Worldometers, 2017; US Population, Worldometers, 2017. 128  Estimated numbers for 2016, The CIA World Factbook. 129  Gantz (2003), p. 683. 125

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outline of the arbitral process. Therein, Article 1120 specified the settlement mechanisms of international dispute that investors could resort to. 1. Except as provided in Annex 1120.1, and provided that six months have elapsed since the events giving rise to a claim, a disputing investor may submit the claim to arbitration under:

(a) the ICSID Convention, provided that both the disputing Party and the Party of the investor are parties to the Convention; (b) the Additional Facility Rules of ICSID, provided that either the disputing Party or the Party of the investor, but not both, is a party to the ICSID Convention; or (c) the UNCITRAL Arbitration Rules. 2. The applicable arbitration rules shall govern the arbitration except to the extent modified by this Section.130

NAFTA included mechanisms providing for a series of obligatory procedural arrangements. As Mexico was not party to the ICSID Convention, jurisdiction was not afforded by the NAFTA. Instead, given that the ICSID Convention has been ratified by both Canada and the United States, ICSID Additional Facility Rules were applicable between American or Canadian investors and Mexico, as well as between investors from Mexico and the United States or Canada as respondents. Summing up, a NAFTA Chapter Eleven arbitration might be governed by the ICSID Convention Rules, the ICSID Additional Facility Rules, or the UNCITRAL Arbitration Rules. Under NAFTA Chapter Eleven, transparency provisions derived from the parties’ agreement and the applicable arbitration rules. The original NAFTA text contained two particular specifications regarding arbitration transparency. As far as they were different from the relevant arbitration rules, these specifications could be considered as ‘modifications’ from the perspective of Article 1120(2), which stated that ‘[t]he applicable arbitration rules shall govern the arbitration except to the extent modified by this Section.’131 Combined, the two rules ensured that information regarding the initial phases of investment disputes was transparent. In paragraphs 10, 11, and 12 of the first of these norms, Article 1126 NAFTA, it was stated: 10. A disputing Party shall deliver to the Secretariat, within 15 days of receipt by the disputing Party, a copy of: (a) a request for arbitration made under paragraph (1) of Article 36 of the ICSID Convention; (b) a notice of arbitration made under Article 2 of Schedule C of the ICSID Additional Facility Rules; or (c) a notice of arbitration given under the UNCITRAL Arbitration Rules.

11. A disputing Party shall deliver to the Secretariat a copy of a request made under paragraph 3:

130 131

 North American Free Trade Agreement (NAFTA).  Article 1120(2) NAFTA.

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5  Transparency in Investor-State Arbitration (a) within 15 days of receipt of the request, in the case of a request made by a disputing investor; (b) within 15 days of making the request, in the case of a request made by the disputing Party.

12. A disputing Party shall deliver to the Secretariat a copy of a request made under paragraph 6 within 15 days of receipt of the request.132 Moreover, paragraph 13 established that the Secretariat shall maintain a public register of the documents referred to in paragraphs 10, 11 and 12.133 The registry was open to everyone requiring information on pending. Public registries offered a hub for distribution of information about the start of investment disputes. It would have been more difficult for the public to gain insight into proceedings commenced under Chapter Eleven if such an open registry did not exist. Notice about new arbitrations was addressed by Article 1127 NAFTA, which specified that: A disputing Party shall deliver to the other parties, [the non-disputing parties to the agreement]: (a) Written notice of a claim that has been submitted to arbitration no later than thirty days after the date that the claim is submitted; and (b) Copies of all pleadings filed in the arbitration.134

In July 2001, the three NAFTA Member States issued the Notes of Interpretation of Certain Chapter Eleven Provisions, stating that nothing in the NAFTA imposes a general duty of confidentiality on the disputing parties to a Chapter Eleven arbitration.135 5.3.1.2 The CETA Rules Governing Registration of the Initiation of Arbitral Proceedings No comprehensive norms regarding the transparency in dispute settlement between investors and states were included in IIAs signed by EU Member States136 prior to the incorporation of foreign direct investments in the scope of EU common commercial policy.137

 North American Free Trade Agreement.  Article 1126(13) NAFTA: “13. The Secretariat shall maintain a public register of the documents referred to in paragraphs 10, 11 and 12.” 134  Article 1127 NAFTA. 135  NAFTA Free Trade Commission, ‘Note on Interpretation of Certain Chapter 11 Provisions’ (31 July 2001). 136  See, for instance, the BITs ratified by France, Germany, The Netherlands, Spain, the United Kingdom. 137  Foreign direct investments are part of the EU Common Commercial Policy since the entry into force of the Treaty of Lisbon, on 1 December 2009. See Articles 3 and 207(1), European Union, Consolidated Version of the Treaty on the Functioning of the European Union (2012) C326/01. 132 133

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The introduction of transparency provisions in investment protection provisions,138 including IIAs and FTAs139 occurred with the direct involvement of the European Union, which has been particularly active in its trade and investment agreements negotiations since the 2009 Treaty of Lisbon. The negotiations on trade and investment agreements with Canada and the United States prompted the European Union to put even greater emphasis on transparency. One of the treaties it has signed, and that has provisionally entered into force on 21 September 2017, is the Comprehensive Economic and Trade Agreement (‘CETA’) with Canada.140 This agreement was cited by the European Commission as a watershed in European attitudes towards investment policy, a ‘turning point in the European approach to investment Policy’.141 The European Commission recognised that, of the 3000 agreements with ISDS in existence, only the ones to which the United States and Canada are party have transparency arrangements.142 Furthermore, norms that make direct reference to the UNCITRAL Transparency Rules and add to parties’ responsibility the duty of sharing arbitration-related information are included in the text of the CETA: Article 8.36 Transparency of proceedings 1. The UNCITRAL Transparency Rules, as modified by this Chapter, shall apply in connection with proceedings under this Section. 2. The request for consultations, the notice requesting a determination of the respondent, the notice of determination of the respondent, the agreement to mediate, the notice of intent to challenge a member of the tribunal, the decision on challenge to a member of the tribunal and the request for consolidation shall be included in the list of documents to be made available to the public under Article 3(1) of the UNCITRAL Transparency Rules.143

5.3.1.3 The TTIP Draft Rules Governing Registration of the Initiation of Arbitral Proceeding The transparency provisions included in the Transatlantic Trade and Investment Partnership (‘TTIP’), whose negotiations ceased until further notice at the end of 2016,144 are comprehensive and detailed. This did not stop the controversy in the press on the treaty between the European Union and the United States.145 The provisions included in the TTIP are very similar to the ones included in CETA.  Ruscalla (2015), p. 26.  See European Commission, Investment Protection and Investor-to-State Dispute Settlement in EU agreements, March 2014. 140  Comprehensive Economic And Trade Agreement (CETA). 141  See European Commission (26 September 2014). 142  European Commission (2004), p. 4. 143  CETA, Article 8.36. 144  European Commission (2022). 145  Ruscalla (2015), p. 25. 138 139

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TTIP Article 18 Transparency 1. The “UNCITRAL Transparency Rules” shall apply to disputes under this Section, with the following additional obligations. 2. The request for consultations under Article 4, the request for a determination and the notice of determination under Article 5, the agreement to mediate under Article 3, the notice of challenge and the decision on challenge under Article 11 the request for consolidation under Article 27 and all document submitted to and issued by the Appeal tribunal shall be included in the list of documents referred to in Article 3(1) of the UNCITRAL Transparency Rules.146

5.3.1.4 The COMESA Common Investment Area Rules Governing Registration of the Initiation of Arbitral Proceedings Transparency provisions are included in the regional investment agreement established in May 2007 between countries with membership to the Common Market for Eastern and Southern Africa (‘COMESA’) regional economic community, known as the COMESA Common Investment Area (‘CCIA’). The majority of transparency aspects in investor-State arbitration is encompassed in the CCIA, including the publication of the notice of arbitration. For instance, Article 9: Transparency of Arbitral Proceedings establishes under paragraph (1) that the claimant and respondent shall, after sending the notice of intention to the other disputing party, promptly transmit it to the Secretariat which shall make it available to the public including by Internet.147 5.3.1.5 The ASEAN Comprehensive Investment Agreement Rules Governing Registration of the Initiation of Arbitral Proceedings The Comprehensive Investment Agreement (‘ACIA’) was concluded by the Association of Southeast Asian Nations (‘ASEAN’) in 2009 and entered into force three years later. According to Article 39.6 of the ACIA, the notice of arbitration is restricted to non-disputing state parties. Article 39.6 of the ACIA specifies that the disputing State party has a thirty-day lapse within which it has the duty to inform every other Member State about reception of the notice of arbitration.148

 TTIP, Commission draft text, Article 18.  Investment Agreement for the COMESA Common Investment Area, 2007. 148  ASEAN Comprehensive Investment Agreement (ACIA), 2007. 146 147

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5.3.1.6 IIAs Rules Governing Registration of the Initiation of Arbitral Proceedings A study has examined the following of IIAs:149 41 BITs signed between 2010 and 2013 for which text were available through the databases of UNCTAD,150 the bilateral and regional PTAs available on the WTO website,151 model investment treaties of a number of States, such as Canada, the United States, China and the United Kingdom, and 30 further BITs from the period between 2004 and 2010.152 Transparency norms are included in  two treaty sections: in the definitions of terms, as well as in the dispute settlement section.153 The norms regarding the initiation of the arbitration frequently include setting a time frame between the emergence of the dispute and the submission of the dispute to arbitration.31 Certain BITs encompass comprehensive rules regarding procedural matters, but this is a rarer occurrence.154 The study found that the 71 BITs analysed most frequently referred to the ICSID Convention and Arbitration Rules, by the ICSID Additional Facility Rules, and by the UNCITRAL Arbitration Rules,155 and that ICC was the governing institution in six treaties, followed by LCIA, SCC and PCA, referred to by one treaty each.156 A number of treaties allow the disputants to submit their dispute to any arbitration institution, provided they are in agreement, to ad-hoc tribunals formed according to the arbitration rules selected by the disputing parties, or to both. Such permission was included in thirty-six of the BITs analysed in the study referred above.157 National arbitration institutions are specifically mentioned by nine treaties as dispute settlement options. Two categories of treaties have been discerned based on data analysis, namely, treaties with the above-mentioned stipulations and treaties without them.  Mollestad (2014), p. 13.  UNCTAD, Investment Policy Hub. 151  WTO, Regional Trade Agreements Database. 152  Mollestad (2014), pp. 20–21. 153  Dolzer and Schreuer (2012), pp. 28–34. 154  See e.g. Colombia–Japan BIT article 26–41, which exhibits a high level of detail in its regulation of the arbitral process, but besides providing some transparency in relation to the non-disputing party, cf. article 32, does not touch upon transparency issues. 155  The study examined 71 bilateral investment treaties: only one does not provide for any sort of international arbitration, namely the Australia–New Zealand Protocol on Investment to the Australia-New Zealand Closer Economic Relations Trade Agreement (2011). Mollestad (2014). 156  See also Douglas (2009), pp. 5–6, with extensive references to dispute settlement alternatives in BITs. Mollestad (2014). 157  E.g. Estonia–Azerbaijan BIT (2010) article 10, paragraph 2, Egypt–Switzerland BIT (2010) article 12, paragraph 4 and Papua New Guinea–Japan article 16, paragraph 4 d). A somewhat distinct solution can be found in Colombia–UK BIT (2010), which in article IX, paragraph 4 makes the choice of arbitral regime subject to party consensus, but in the case that no agreement is reached the dispute is to be submitted to arbitration under the ICSID Convention or ICSID Additional Facility Rules. 149 150

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Group 1: BITs which do not feature specific provisions on registration of the initiation of arbitral proceeding Having available the text of 41 BITs concluded in the time frame from 2010 to 2013, the research highlighted that 36 out of 41 fall in the category of treaties without transparency provisions.158 Similar observations derive from the analysis the 30 treaties signed between 2004 and 2010. No provisions governing procedural transparency are included in the model agreements of Austria, Great Britain, Korea, China, Colombia, the Netherlands, France, Germany, Italy, and Russia.159 These model treaties leave it up to the disputing parties or arbitral tribunals to address such matters.160 Group 2: BITs which feature specific provisions on registration of the initiation of arbitral proceedings The category of BITs with detailed procedural transparency provisions, including the registration of the initiation of the arbitration, comprises the agreements in which one of the parties is a NAFTA member, notably Canada and the United States.161 5.3.1.7 ICSID Rules Governing Registration of Information Concerning the Initiation of Arbitral Proceedings Other arbitration rules are used in a wide variety of circumstances covering a broad range of disputes: among them are disputes between private commercial parties, investor-State disputes, State-to-State disputes and commercial disputes administered by arbitral institutions.162 On the contrary, the ICSID Arbitration Rules bear exclusively upon investment disputes between investors and States.163 These rules differ in aspects such as transparency.164 The ICSID Convention and Arbitration Rules do not contain a general presumption of confidentiality or transparency applicable to each case. Instead, the parties may adjust the level of confidentiality or transparency to their proceedings. The

 The 5 treaties that do feature provisions on procedural transparency are all treaties to which Canada is party. Mollestad (2014). 159  Brown (2013). 160  There are many examples where procedural orders focused merely on decisions centred on transparency issues. Among them are the following: Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012/12, Procedural Order No. 5 (Regarding Confidentiality), 30 November 2012; Abaclat and Others v Argentine Republic, ICSID Case No. ARB/07/5, Procedural Order 3 (Confidentiality Order), 27 January 2010. 161  Mollestad (2014), p. 41. 162  United Nations Commission on International Trade Law, UNCITRAL Arbitration Rules 2010. 163  ICSID Convention, Art. 25(1). 164  International Institute for Sustainable Development, New UNCITRAL Arbitration Rules on Transparency: Application, Content and Next Steps 2013. 158

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disputing parties sometimes agree on the information and documents that they wish to keep confidential. Article 36.3 of the ICSID Convention establishes that the Secretary-General shall register the request unless he finds, on the basis of the information contained in the request, that the dispute is manifestly outside the jurisdiction of the Centre and shall immediately notify the parties of registration or refusal to register.165 The Centre publishes information on the registration of requests for arbitration, conciliation and post-award remedies and maintain registers of all proceedings. Regulation 22(1) of the Administrative and Financial Regulations establishes that the Secretary-General shall correctly publish information about the operation of the Centre, including the registration of all requests for arbitration and, in due course, an indication of the date and method of the termination of each proceeding.166 Regulation 23(2) of the Administrative and Financial Regulations establishes that the Registers shall be open for inspection by any person.167 The ICSID case register is public in nature. It includes specific information pertaining to the dispute: among them are the registration date, the identity of the disputing parties, a short presentation of the case’s content, the method of constitution and composition of each tribunal, conciliation commission and ad hoc committee, and the procedural steps in the proceedings.168 The ICSID register provides open access to this information.169 More detailed information on each dispute is contained in the arbitration notices, which are also encompassed in the register.170 Nevertheless, not every part of the register can be accessed online; in fact, Regulation 23(2) establishes that, although the Registers shall be open for inspection by any person, the Secretary-General shall promulgate rules concerning access to the Registers, and a schedule of charges for the provision of both, certified and uncertified extracts therefrom. Some researchers argue that, although the register is openly accessible, its level of usage depends on the willingness of individuals to searching for information.171 The application of the ICSID Convention and Arbitration Rules requires that both the home State of the investor and the host State signed and ratified the ICSID Convention. In 1978, the Additional Facility Rules allowed further types of cases to be brought before the Centre: among them, disputes in which just one side had already signed and ratified the ICSID Convention. These rules bore great significance for the States that were party of the NAFTA: in fact, the ICSID Convention had been ratified by the United States and Canada but not by Mexico.

 ICSID Convention, Regulations and Rules (ICSID, April 2006c) Article 36(3).  Regulation 22(1) of the ICSID Administrative and Financial Regulations (ICSID, April 2006b). 167  Regulation 23(2) of the ICSID Administrative and Financial Regulations (ICSID, April 2006b). 168  Asteriti and Tams (2010), p. 790; OECD (2005). 169  ICSID, Cases Database. 170  A case recently added to the ICSID database is BA Desarrollos LLC v Argentine Republic, ICSID Case No. ARB/23/32, registered on 4 August 2023. 171  Mollestad (2014), p. 81. 165 166

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In general, since the ICSID Additional Facility is external to the Convention, proceedings conducted under it are not governed by ICSID Convention rules. However, Article 5 of the Additional Facility Rules provides that: The responsibilities of the Secretariat in operating the Additional Facility and the financial provisions regarding its operation shall be as those established by the Administrative and Financial Regulations of the Centre for conciliation and arbitration proceedings under the Convention. Accordingly, Regulations 14 through 16, 22 through 30 and 34(1) of the Administrative and Financial Regulations of the Centre shall apply, mutatis mutandis, in respect of fact-finding, conciliation and arbitration proceedings under the Additional Facility.172

It follows that the cases governed by the Additional Facility Rules are included in the public ICSID register. 5.3.1.8 UNCITRAL Rules on Transparency Governing Registration of Information Concerning the Initiation of Arbitral Proceedings Whereas the UNCITRAL Rules on Arbitration do not provide for mandatory publication of the notice of arbitration, the UNCITRAL Rules on Transparency in Treaty-­ based Investor-State Arbitration (‘UNCITRAL Rules on Transparency’) do. Article 1 concerns the applicability of the UNCITRAL Rules on Transparency.173 Article 1. Scope of application Applicability of the Rules 1. The UNCITRAL Rules on Transparency in Treaty-based Investor-state Arbitration (“Rules on Transparency”) shall apply to investor-State arbitration initiated under the UNCITRAL Arbitration Rules pursuant to a treaty providing for the protection of investments or investors (“treaty”) concluded on or after 1 April 2014 unless the Parties to the treaty** have agreed otherwise. 2. In investor-State arbitrations initiated under the UNCITRAL Arbitration Rules pursuant to a treaty concluded before 1 April 2014, these Rules shall apply only when:

(a) The parties to an arbitration (the “disputing parties”) agree to their application in respect of that arbitration; or (b) The Parties to the treaty or, in the case of a multilateral treaty, the state of the claimant and the respondent state, have agreed after 1 April 2014 to their application.174

Article 2 of the UNCITRAL Rules on Transparency governs the notice of arbitration. Article 2. Publication of information at the commencement of arbitral proceedings Once the notice of arbitration has been received by the respondent, each of the disputing parties shall promptly communicate a copy of the notice of arbitration to the repository referred to under article 8. Upon receipt of the notice of arbitration from the respondent, or upon receipt of the notice of arbitration and a record of its transmission to the respondent, the repository shall promptly make available to the public information regarding the name

 ICSID Additional Facility Rules (2006a).  UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (Transparency Rules) (2014). 174  UNCITRAL (2014) Article 1. 172 173

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of the disputing parties, the economic sector involved and the treaty under which the claim is being made.175

Article 1.3 of the UNCITRAL Rules on Transparency provides for the possibility for the tribunal to assess the particularity of each case, after consultation with the parties, in determining whether information on the initiation of the proceedings shall be published. Article 1.3 of the UNCITRAL Rules on Transparency provides that: 3. In any arbitration in which the Rules on Transparency apply pursuant to a treaty or to an agreement by the Parties to that treaty: (a) The disputing parties may not derogate from these Rules, by agreement or otherwise, unless permitted to do so by the treaty; (b) The arbitral tribunal shall have the power, besides its discretionary authority under certain provisions of these Rules, to adapt the requirements of any specific provision of these Rules to the particular circumstances of the case, after consultation with the disputing parties, if such adaptation is necessary to conduct the arbitration in a practical manner and is consistent with the transparency objective of these Rules.176

5.3.1.9 The Mauritius Convention on Transparency In 2014, as the UNCITRAL Rules on Transparency came into force, some experts doubted that their practical significance could be relevant, because the UNCITRAL Rules on Transparency would apply to a limited number of arbitration proceedings. According to the UNCITRAL Rules on Transparency, they apply: i) to those proceedings begun under the UNCITRAL Arbitration Rules in accordance with agreements signed since 1 April 2014, except under the circumstance that the parties of such agreements had agreed differently,177 ii) to those proceedings begun under UNCITRAL Arbitration Rules in accordance with agreements signed before 1 April 2014, as long as the parties to such agreement,178 or, in multilateral agreements, the parties to the dispute179 had agreed to their application. Given these premises, some commentators felt that the extent of reach of the UNCITRAL Rules on Transparency would be restricted to agreements of the first group. The UNCITRAL Working Group II noted that all claims arising under the existing universe of 3000 investment treaties would continue to be exempt from any transparency requirements unless the disputing parties were to agree otherwise or unless the treaties were proactively amended by their Contracting state parties to explicitly incorporate the new rules.180  UNCITRAL (2014) Article 2.  Article 1.3, UNCITRAL Rules on Transparency. 177  Transparency Rules, Article 1(1). 178  Transparency Rules, Article 1(2)(b). 179  Transparency Rules, Article 1(2)(a). 180  UNCITRAL, Report of Working Group II (Arbitration and Conciliation) on the work of its fiftyeighth session, Records of the UNCITRAL, 46th Session, UN Doc. A/CN.9/765 (13 February 2013), paras. 75–78. 175 176

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For this reason, UNCITRAL wrote a preliminary version of a treaty aimed at making it easier to apply the Transparency Rules to the approximately 3000 investment agreements signed before 1 April 2014. The purpose of this treaty was to give those States that wished to make the Rules on Transparency applicable to their existing investment treaties an efficient mechanism to do so.181 Namely, the convention aimed at making available an effective tool by means of which states could declare their assent conforming to Article 1(2) of the Transparency Rules. On 10 December 2014, the General Assembly of the United Nations adopted the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (‘Mauritius Convention on Transparency’),182 which applies to arbitral disputes where the home State of the investor and the host State or a regional organisation concluded an investment treaty before 1 April 2014. The ratification of the Mauritius Convention on Transparency started on 17 March 2015, and entered into force on 18 October 2017, after the ratification by Mauritius (2015), Canada (2016), and Switzerland (2017).183 In the framework created from the integration of the provisions of the UNCITRAL Rules on Transparency and those of the Mauritius Convention on Transparency, the former are therefore applicable to the following types of investment arbitrations: a) Investment arbitrations commenced under the UNCITRAL Arbitration Rules in accordance with a treaty concluded on or after 1 April 2014, if no agreement to the contrary exists between the contracting parties;184 b) Investment arbitrations commenced in accordance with a treaty concluded prior to 1 April 2014, if the applicability of the UNCITRAL Rules on Transparency has been endorsed by the treaty parties. This is possible if the Mauritius Convention on Transparency is ratified by the home State as well as by the host State;185 c) Investment arbitrations commenced in accordance with a treaty signed prior to 1 April 2014, if there is agreement between disputing parties regarding the treaty, in line with Article 1(2)(a) of the Rules. This is possible if the Mauritius Convention on Transparency is ratified by the host State and if the “general offer to use the Transparency Rules” is accepted by the investor.186

 UN, Report of the UNCITRAL – Forty-sixth session, Official Records of the General Assembly, 68th session, Supplement No. 17, UN Doc. A/68/17, para. 127. 182  UN, United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, General Assembly, 69th session, Resolution A/69/116 (18 December 2014). 183  UN, United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, General Assembly, 69th session, Resolution A/69/116 (18 December 2014). 184  Article 1(1) of the Transparency Rules. 185  Article 2(1) of the Mauritius Convention on Transparency. 186  Article 2(2) of the Mauritius Convention on Transparency. 181

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5.3.1.10 Other Arbitration Institutions Rules Article 22(3) of the 2021 ICC Rules of Arbitration states that, upon the request of any party, the arbitral tribunal may make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information.187 The 2017 SCC Arbitration Rules establish a very strict regime of confidentiality, providing under Article 3, Confidentiality, that, unless otherwise agreed by the parties, the SCC, the arbitral tribunal and any administrative secretary of the Arbitral Tribunal shall maintain the confidentiality of the arbitration and the award.188 Under Article 9 of Appendix I, the 2017 SCC Arbitration Rules provide that the SCC shall maintain the confidentiality of the arbitration and the award and shall deal with the arbitration in an impartial, practical, and expeditious manner.189 It emerges that, whereas the parties can agree to disclose the information concerning the initiation of the proceedings, it is unlikely that they will do so in an arbitration whose applicable rules favour confidentiality.

5.3.2 Availability of Procedural Documents and Publication of the Award Although access to procedural documents and final awards is often governed by the same provisions, in order to attain the highest possible degree of conceptual clarity, the different conditions will hereby be described separately. 5.3.2.1 Availability of Procedural Documents Accessibility and publication of arbitration-related documents are transparency issues of great importance. In general, procedural documents consist of every document submitted to or released by the arbitral tribunal, including procedural documents (e.g. request for arbitration, parties’ submissions, witness statements, expert reports, other documental evidence, judgments, orders, and hearing transcripts).190 On the other hand, these documents do not necessarily need to be disclosed: it depends on the applicable norms.

 ICC Rules of Arbitration 2021.  SCC Arbitration Rules 2017. 189  SCC Arbitration Rules 2017. 190  See the US Model BIT, Article 29 (1), litra a-e for a comprehensive listing of the basic procedural documents. 187 188

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5.3.2.1.1  Availability of Procedural Documents Established by Treaties From a general point of view, the examination of the treaties available on the UNCTAD site shows that some BITs establish that procedural documents shall be available to the public: Australia  – Republic of Korea,191 Canada  – Republic of Korea,192 New Zealand  – Taiwan Economic Cooperation Agreement,193 Protocol Pacific Alliance,194 Republic of Korea – New Zealand,195 Rwanda – United States of America,196 United States of America – Uruguay.197 Pursuant to other treaties, all other documents submitted to or issued by the tribunal shall be publicly available unless the disputing parties otherwise agree: Benin – Canada,198 Canada – Cote d’Ivoire,199 Canada – Czech Republic,200 Canada – Jordan,201 Canada  – Kuwait,202 Canada  – Latvia,203 Canada  – Mali,204 Canada  – Peru,205 Canada  – Senegal,206 Canada  – Serbia,207 Canada  – Slovakia,208 Canada - United Republic of Tanzania,209 Canada – Honduras.210 What is particularly interesting is that some treaties establish that, if a national law ensures that certain documents shall be made available to the public, the provisions of this national law prevail over contrary decisions which could be issued by arbitral tribunals. Such a rule is contained in the following treaties: Benin – Canada, Burkina Faso  – Canada, Canada  – Cote d’Ivoire, Canada  – Czech Republic, Canada  – Jordan, Canada  – Kuwait, Canada  – Latvia, Canada  – Mali, Canada  – Peru, Canada  – Korea, Canada  – Senegal, Canada  - Serbia, Canada  – Slovakia, Canada - United Republic of Tanzania, Canada – Honduras, New Zealand – Taiwan Economic Cooperation Agreement, Protocol Pacific Alliance, Republic of

 Australia – China FTA, 2015.  Canada – Republic of Korea FTA, 2014. 193  New Zealand – Taiwan economic Cooperation Agreement, 2013. 194  Protocol Pacific Alliance, 2014. 195  Republic of Korea – New Zealand FTA, 2015. 196  Rwanda – United States of America BIT, 2008. 197  United States of America – Uruguay BIT, 2005. 198  Benin – Canada BIT, 2013. 199  Canada – Côte d’Ivoire BIT, 2014. 200  Canada – Czech Republic BIT, 2009. 201  Canada – Jordan BIT, 2009. 202  Canada – Kuwait BIT, 2011. 203  Canada – Latvia BIT, 2009. 204  Canada – Mali BIT, 2014. 205  Canada – Peru BIT, 2006. 206  Canada – Senegal BIT, 2014. 207  Canada – Serbia BIT, 2014. 208  Canada – Slovakia BIT, 2010. 209  Canada – United Republic of Tanzania BIT, 2013. 210  Canada – Honduras FTA, 2013. 191 192

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Korea  – New Zealand, Rwanda  – United States of America, United States of America – Uruguay. The Canadian Model Foreign Investment Protection Agreement (FIPA) 2004 provides, under Article 38.8: To the extent that a tribunal’s confidentiality order designates information as confidential and a Party’s law on access to information requires public access to that information, the Party’s law on access to information shall prevail. However, a Party should endeavour to apply its law on access to information to protect information designated confidential by the tribunal.211

The Canada Model FIPA 2004 establishes, under Article 38.3, that all procedural documents shall be available to the public, unless the disputing parties otherwise agree. Article 28, paragraph 1 of the Canada–China FIPA, which was concluded in 2012, leaves the respondent State responsible for addressing matters of document transparency: Article 28. Public Access to Hearings and Documents 1. Any tribunal award under this Part shall be publicly available, subject to the redaction of confidential information. Where a disputing Contracting Party determines that it is in the public interest to do so and notifies the tribunal of that determination, all other documents submitted to, or issued by, the tribunal shall also be publicly available, subject to the redaction of confidential information.212

Similar wording can be found between the United States Model BIT and the Canada Model FIPA. The main difference between the two concerns the possibility to agree on non-disclosure of procedural documents, which is not provided by the United States Model BIT. Article 29: Transparency of Arbitral Proceedings 1. Subject to paragraphs 2 and 4, the respondent shall, after receiving the following documents, promptly transmit them to the non-disputing Party and make them available to the public: ( a) the notice of intent; (b) the notice of arbitration; (c) pleadings, memorials, and briefs submitted to the tribunal by a disputing party and any written submissions submitted pursuant to Article 28(2) [Non-Disputing Party submissions] and (3) [Amicus Submissions] and Article 33 [Consolidation]; (d) minutes or transcripts of hearings of the tribunal, where available; and (e) orders, awards, and decisions of the tribunal.213

An additional difference pertains to the types of documents that need to be published: the Canadian Model FIPA specifies that ‘all documents’ must be published.214

 Canadian Model FIPA 2004.  Agreement Between the Government of Canada and the Government of the People’s Republic of China for the Promotion and Reciprocal Protection of Investments, 2012. 213  US Model BIT 2012, Article 29.1 paras. a–e. 214  Canadian Model FIPA 2004, Article 38 (3). 211 212

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5.3.2.1.2  Availability of Procedural Documents Established by Arbitral Institutions’ Rules The London Court of International Arbitration (LCIA) 2020 Arbitration Rules establish, at Article 30: Article 30 Confidentiality 30.1 The parties undertake as a general principle to keep confidential all awards in the arbitration, together with all materials in the arbitration created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain, save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right, or to enforce or challenge an award in legal proceedings before a state court or other legal authority. The parties shall seek the same undertaking of confidentiality from all those that it involves in the arbitration, including but not limited to any authorised representative, witness of fact, expert or service provider. 30.2 Article 30.1 of the LCIA Rules shall also apply, with necessary changes, to the Arbitral Tribunal, any tribunal secretary and any expert to the Arbitral Tribunal. Notwithstanding any other provision of the LCIA Rules, the deliberations of the Arbitral Tribunal shall remain confidential to its members and if appropriate any tribunal secretary, save as required by any applicable law and to the extent that disclosure of an arbitrator’s refusal to participate in the arbitration is required of the other members of the Arbitral Tribunal under Articles 10, 12, 26.6 and 27.5. 30.3 The LCIA does not publish any award or any part of an award without the prior written consent of all parties and the Arbitral Tribunal.215

And the 2017 SCC Rules establish, at Article 3 Confidentiality, that unless otherwise agreed by the parties, the SCC, the Arbitral Tribunal, and any administrative secretary of the Arbitral Tribunal shall maintain the confidentiality of the arbitration and the award.216 According to some researchers, although the disputing parties are not subject to any mandatory provisions under the SCC Rules, the phrasing of Article 3 SCC Rules means that SCC tribunals can impose a duty to preserve the confidentiality of the arbitration.217 Therefore, under the LCIA and SCC regimes, document disclosure is not a right afforded to the disputing parties. In a similar way, provisions regarding the circumstances for the disclosure of final awards are included in the ICSID, ICSID Additional Facility, UNCITRAL, ICC and PCA Rules,218 but not provisions regarding the ability of disputants to publish procedural documents. This absence of clear provisions has led to ongoing contention about the balance between an optimal level of transparency and confidentiality in arbitral proceedings.219 Despite being the norm in commercial arbitration, in investment arbitration the supposition of ‘implied’ confidentiality has proven highly controversial,

 LCIA Arbitration Rules 2020.  SCC Arbitration Rules 2017. 217  Born and Shenkman (2009), p.  17; on the contrary, Ortino takes the opposite position with regard to parties’ access to disclose awards: Ortino (2013), p. 124. 218  Mollestad (2014), p. 84. 219  Mollestad (2014), p. 84. 215 216

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determining some to question its existence.220 At first, certain researchers maintained that a similar assumption was strictly connected with the investment arbitration system, because the latter was shaped on the commercial arbitration system.221 Nevertheless, there is growing acknowledgement among researchers and investment tribunals that a new approach is required to deal with the transparency matters pertaining to investor-­State disputes. Indeed, transparency matters related to investment arbitration proceedings differ from those related to other kinds of proceedings, and therefore require distinct answers.222 As expressed by Feliciano: ‘Confidentiality and transparency are both values in international arbitration (…). The line of actual contact and equilibrium between the two desiderata is a moving one, and its particular location and shape are function of differing factors. Some of these factors include the kind of international arbitration proceeding at issue as well as the nature of the subject matter of the dispute.’223 The next Section will address the approach adopted by investment tribunals towards document transparency. 5.3.2.1.3  Availability of Procedural Documents Established by Tribunals’ Decisions In 1983, in Amco v Indonesia, the ICSID tribunal reflected on whether the concept of ‘a spirit of confidentiality’ was a cornerstone of investment arbitration, and it concluded that the Convention and the Rules do not prevent the parties from revealing their case.224 This statement implies that the general confidentiality precept in investment arbitration is refuted, with a number of other tribunals subsequently adopting the same stance. For example, the confidentiality of arbitration was also refuted by the tribunal in Metalclad v The United Mexican States,225 which was governed by the ICSID Additional Facility Rules. The tribunal affirmed that neither the NAFTA nor the ICSID Additional Facility Rules contain any express restriction on the freedom of the parties in this respect. It deduced that, though it is frequently stressed that one of the motives for recourse to arbitration is to avoid publicity, unless the agreement between the parties incorporates such a limitation, each of them is still free to speak publicly of the arbitration.226  Sarles (2002), pp. 1–2; Haugeneder (2012); Born and Shenkman (2009), p. 7.  Asteriti and Tams (2010), p. 789. 222  Asteriti and Tams (2010), pp. 791–792. 223  Feliciano (2013), p. 20. 224  Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Provisional Measures, 9 December 1983, para. 4. 225  Metalclad Corporation v The United Mexican States, ICSID Case No. ARB(AF)/97/1. 226  Metalclad Corporation v The United Mexican States, ICSID Case No. ARB(AF)/97/1, Decision on a Request by the Respondent for an Order Prohibiting the Claimant from Revealing Information, 27 October 1997, para. 9. See also Loewen Group, Inc. and Raymond L. Loewen v United States of 220 221

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Following Metalclad Corporation v The United Mexican States, a number of tribunals have expressed similar views. For example, in S.D. Myers v Canada, the tribunal established under the UNCITRAL Rules decided that: [W]hatever may be the position in private consensual arbitrations between commercial parties, it has not been established that any general principle of confidentiality exists in an arbitration such as that currently before this tribunal. The main argument in favour of confidentiality is founded on a supposed implied term in the arbitration agreement. The present arbitration is taking place pursuant to a provision in an international treaty, not pursuant to an arbitration agreement between the disputing parties.227

This passage attributes importance to the particular circumstances of treaty-based arbitration whilst rejecting any intrinsic confidentiality principle.228 After Amco v Indonesia,229 the tribunal in Biwater Gauff v Tanzania issued one of the sharpest declarations with regard to the confidentiality of ICSID arbitrations. In Procedural Order No. 3, the tribunal affirmed that, in the absence of any agreement between the parties on this issue, there was no provision imposing a general duty of confidentiality in ICSID arbitration, whether in the ICSID Convention, any of the applicable Rules or otherwise. However, there was not even a provision imposing a general rule of transparency or non-confidentiality in any of these sources.230 The Biwater Gauff tribunal subsequently delineated an overall trend in this field towards transparency,231 drawing attention to the comparable judgments of earlier investment tribunals under ICSID, UNCITRAL and NAFTA by making reference to the legal reasoning made in Amco v Indonesia, Metalclad v Mexico, S.D. Myers v Canada, and Loewen v United States.232 The tribunal affirmed in its conclusion that the accepted need for greater transparency in this field, generally militate against the America, ICSID Case No. ARB(AF)/98/3, Decision on Hearing of Respondent’s Objection to Competence and Jurisdiction, 5 January 2001, para. 26. 227  S.D. Myers, Inc. v Government of Canada, UNCITRAL, Procedural Order 16, 13 May 2000, para. 8. 228  The Chapter 11 Consolidation tribunal in Softwood noted “a general trend” of procedural transparency; see Canfor Corp. v United States of America, Terminal Forest Products Ltd. v United States of America, and Tembec Inc. et al. v United States of America, NAFTA (UNCITRAL), Order of the Consolidation tribunal, 7 September 2005, para. 139. It is important to keep in mind, however, that after the 2001 FTC Notes of Interpretation of Certain Chapter 11 Provisions, the issue of a fundamental notion of confidentiality in Chapter 11 arbitration is nearly resolved. Transparency problems in Chapter 11 proceedings are now resolved against the background of the FTC statements. For an example of how this plays out in practice, see Chemtura Corporation v Government of Canada, UNCITRAL (formerly Crompton Corporation v Government of Canada), Confidentiality Order, n. 2, 21 January 2008, in particular paras. 10–14. 229  Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No. ARB/81/1. 230  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order 3, 29 September 2006, para. 121. 231  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order 3, 29 September 2006, para. 122. 232  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order 3, 29 September 2006, paras. 126–133.

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type of provisional measures for which the Claimant contended.233 After Biwater Gauff v Tanzania, a number of investment tribunals reasoned that transparency seemed to be an increasing priority and that indeed no general duty of confidentiality existed.234 The relevant frameworks do not contain any express confidentiality provisions: this is also due to difference between commercial arbitration and investment arbitration.235 Nevertheless, ever since Amco v Indonesia, ‘safety mechanisms’ or ‘exceptions’ have been applied to the acknowledgment of a general lack of confidentiality of investment arbitration. The application of safety mechanisms or exceptions works towards unilateral provision of arbitration transparency by substantially reducing the parties’ discretionary power.236 The decisions taken in a number of cases (among them, Amco v Indonesia,237 Metalclad v Mexico,238 Biwater Gauff v Tanzania,239 Loewen v United States,240 Abaclat v Argentina,241 Telefònica v Mexico,242 and Philip Morris v Australia243) show that the same tribunals that take into account arguments in support of transparency in certain cases are also the ones that impose considerable restrictions to transparency in other cases. In the absence of clear rules, the agreement of the parties will determine whether procedural documents will be published or will be kept confidential. For instance, in Philip Morris v Australia, the parties were permitted by the tribunal to publish their own filings, pleadings and submissions, on grounds that there already was  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order 3, 29 September 2006, para. 133. 234  E.g., Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Procedural Order 5, 30 November 2012, para. 51; Abaclat and Others v Argentine Republic, ICSID Case No. ARB/07/5 (formerly Giovanna Beccara and Others v The Argentine Republic), Procedural Order 3, 27 January 2010, para. 67; British Caribbean Bank Ltd. v Belize, PCA Case No. 2010/18, Procedural Order 1, 6 September 2010, para. 13. 235  See Sect. 2.7 on Analogies and differences between commercial arbitration and investment arbitration. 236  Mollestad (2014), p. 89. 237  Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Provisional Measures, 9 December 1983, 1 ICSID Reports 410. 238  Metalclad Corporation v The United Mexican States, ICSID Case No. ARB(AF)/97/1 Decision on a Request by the Respondent for an Order Prohibiting the Claimant From Revealing Information, ICSID Case No. ARB(AF)/97/1, 27 October 1997. 239  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006. 240  Loewen Group Inc and Raymond L Loewen v United States, ICSID Case No. ARB(AF)/98/3, Decision on Hearing of Respondent’s Objection to Competence and Jurisdiction, 5 January 2001. 241  Abaclat and Others v Argentine Republic (formerly Giovanna Beccara and Others v The Argentine Republic) ICSID Case No. ARB/07/5, Procedural Order No. 3, 27 March 2010. 242  Telefónica S.A. v United Mexican States, ICSID Case No. ARB(AF)/12/4, Procedural Order No. 1, 8 July 2013. 243  Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012/12, Procedural Order No. 5 (Regarding Confidentiality), 30 November 2012. 233

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agreement between them regarding disclosure of decisions and awards, provided that they mutually informed each other and redacted relevant parts of the documents.244 Philip Morris v Australia shows that growing transparency was acknowledged by the tribunal.245 5.3.2.2 Case-Law Suez v Argentina In 1993, the city of Buenos Aires granted a 30-year concession contract for water distribution and wastewater treatment services to the company Suez. Suez then formed an Argentine company, Aguas Argentinas S.A. (‘AASA’) in which they held shares. Under the concession contract, it was agreed that the claimant would make significant investment aimed at improving and developing the wastewater system and further develop water distribution, in return of the fees and tariffs paid by consumers.246 The year 2000 marked the beginning of Argentina’s economic crisis: the Government took emergency measures, devaluing the Argentine peso to one third of its previous value, not allowing the increase of water and sewage tariffs and fees charged by AASA, who consequently failed.247 In 2003, the claimants filed a request for arbitration, claiming that Argentina had illegally expropriated their investments, and that the provisions of full protection and security and fair and equitable treatment had been breached. In the meanwhile, AASA would still need to comply with its concession contract obligations. In September 2005, the claimants requested the termination of the concession contract, which was denied in the first place. However, on 21 March 2006 it was the Argentinian Government who terminated the contract, based on failure to provide the agreed water quality standards, while requesting payment of a performance bond. The water and sewage systems were transferred to a State-owned entity, and insolvency proceedings began for AASA.248 On 28 January 2005, five non-governmental organisations, Asociación Civil por la Igualdad y la Justicia (‘ACIJ’), Centro de Estudios Legales y Sociales (‘CELS’), Center for International Environmental Law (‘CIEL’), Consumidores Libres

 Philip Morris v Australia, Procedural Order 5, para. 53E.  Philip Morris v Australia, Procedural Order 5, para. 48. 246  Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. (Claimants) and The Argentine Republic (Respondent) ICSID Case No. ARB/03/19, award, 9 April 2015, para. 2. 247  Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. (Claimants) and The Argentine Republic (Respondent) ICSID Case No. ARB/03/19, award, 9 April 2015, para. 3. 248  Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. (Claimants) and The Argentine Republic (Respondent) ICSID Case No. ARB/03/19, award, 9 April 2015, para. 4. 244 245

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Cooperativa Ltda. De Provisión de Servicios de Acción Comunitaria, and Unión de Usuarios y Consumidores filed a Petition for Transparency and Participation as amicus curiae: asserting that the case involved matters of basic public interest and the fundamental rights of people living in the area affected by the dispute in the case, the Petitioners requested the tribunal to allow Petitioners timely and unrestricted access to all of the documents in the case.249 However, the claimants deemed the documents filed as confidential, and did not consent to their disclosure to the five Petitioners.250 Taking the claimant’s position into consideration, finally, the tribunal decided the Petitioners could provide their perspective, expertise, and arguments to help the court as amici curiae without needing to consult the record.251 5.3.2.3 Publication of the Award 5.3.2.3.1  Publication of the Award Pursuant to Treaties’ Provisions Despite occurring with greater frequency, arbitral award publication remains a contentious issue. As arbitral award publication becomes more common, many features of investment arbitration may undergo modification. Confidentiality, knowledge building and expertise, and the level of persuasiveness or precedent are among the most important of such features. An analysis of IIAs allows to observe that some agreements provide for the availability of the awards to the public: Australia – China, Australia – Republic of Korea, Benin  – Canada, Canada  – Cote d’Ivoire, Canada  – Czech Republic, Canada  – Jordan, Canada – Kuwait, Canada – Latvia, Canada – Mali, Canada – Peru, Canada – Republic of Korea, Canada  – Senegal, Canada  – Serbia, Canada  – Slovakia, Canada – United Republic of Tanzania, Canada – Honduras, New Zealand – Taiwan Economic Cooperation Agreement, Additional Protocol to the Framework Agreement of the Pacific Alliance. Other treaties establish that awards shall be made available unless the disputing parties agree otherwise: Mexico – Panama BIT, China – Mexico, Mexico – Slovakia, Mexico – United Kingdom.

 Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. (Claimants) v The Argentine Republic (Respondent) ICSID Case No. ARB/03/19, Order In Response To A Petition By Five Non-Governmental Organizations For Permission To Make An Amicus Curiae Submission, 12 February 2007, para. 1. 250  Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. (Claimants) v The Argentine Republic (Respondent) ICSID Case No. ARB/03/19, Order In Response To A Petition By Five Non-Governmental Organizations For Permission To Make An Amicus Curiae Submission, 12 February 2007, para. 23. 251  Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. (Claimants) v The Argentine Republic (Respondent) ICSID Case No. ARB/03/19, Order In Response To A Petition By Five Non-Governmental Organizations For Permission To Make An Amicus Curiae Submission, 12 February 2007, para. 25. 249

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Several international investment treaties make reference to institutional arbitration rules, but supplementary rules for regulation of investment arbitration are supplied by certain investment treaties.252 Among them are NAFTA, the Algiers Accord establishing the Iran-US Claims Tribunal, and other investment instruments such as the CAFTA-DR, and the 2004 Canada’s Model FIPA. Among the first international agreements to emphasise the need for greater transparency was NAFTA. Publication of awards was made available by Annex 1137.4 of NAFTA: Annex 1137.4: Publication of an Award Where Canada is the disputing Party, either Canada or a disputing investor that is a party to the arbitration may make an award public. Where Mexico is the disputing Party, the applicable arbitration rules apply to the publication of an award. Where the United States is the disputing Party, either the United States or a disputing investor that is a party to the arbitration may make an award public.253

If the disputing parties were Canada and the United States, the award might be published by them or by the disputing investor involved in the arbitration. Instead, the publication of the award was subject to the relevant arbitration rules in case the disputing party was Mexico. It can be concluded that Mexico’s appreciation for transparency was, generally, not as high as the one held by the two other parties of the NAFTA. The reference to the rules that apply to Mexico required both parties’ approval for unilateral award disclosure. With regard to the publication of the award, there was a clear difference between the ICSID Arbitration Rules and the ICSID Additional Facility Rules on one hand, and the UNCITRAL Arbitration Rules, on the other hand. As such, award publication might be challenging for a disputing party in a case involving Mexico, depending on the applicable rules. In other words, by comparison to disputes that involved Canada and the United States, disputes involving Mexico might have a lower level of transparency.254 An examination of the IIAs concluded by Mexico reveals that the provisions for transparency are limited, despite the fact that Mexico has ratified the NAFTA regime, which has a high degree of transparency. The available treaties concluded between 2005 and 2013255 contain provisions concerning the requirements for publication of final awards. The disputing parties normally have to agree with respect to disclosure, but there is variation among treaties as to whether the default stance is disclosure or confidentiality.256 The BIT concluded between Mexico and Spain in  Ortino (2013), p. 124.  NAFTA Article 1137.4. 254  Gantz (2003), p. 747. 255   Mexico-Australia (2005), Mexico-Bahrain (2012), Mexico-India (2007), Mexico-Kuwait (2013), Mexico-Panama (2005), Mexico-Singapore (2009), Mexico-Slovakia (2007), MexicoSpain (2006), Mexico-Trinidad and Tobago (2006). 256  See Mexico–UK BIT (2006) article 18, paragraph 4, Mexico–Iceland BIT (2005) article 17, paragraph 4, Mexico–Australia BIT (2005) article 19, paragraph 4 (the treaty uses the word “deci252 253

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2006 is the only treaty that clearly specifies that final award disclosure is obligatory, stating in Article XVI.4 that: ‘4. The arbitral award will be public’.257 The Algiers Accord establishing the Iran-US Claims Tribunal provides that: All awards and other decisions shall be made available to the public, except that upon the request of one or more arbitrating parties, the arbitral tribunal may determine that it will not make the entire award or other decision public, but will make public only portions thereof from which the identity of the parties, other identifying facts and trade or military secrets have been deleted.258

Article 10.21(1) of the 2004 CAFTA-DR provides that the respondent State shall make orders, awards and decisions of the tribunal available to the public. Paragraph 2 adds that the tribunal shall however make appropriate arrangements to protect the information from disclosure.259 In the 2004 Canada’s model FIPA Article 38.4 establishes that any tribunal award on investor-State-dispute settlement shall be publicly available, subject to the deletion of confidential information.260 As previously highlighted, robust confidentiality provisions may be included in the arbitration provisions by contracting parties who prioritise confidentiality. These parties may also have a preference for an administering institution or ad-hoc tribunal that either delays award publication or discloses only excerpts of the award or a redacted form of the award. An example of such a redacted award is Alps Finance and Trade AG v The Slovak Republic, governed by the UNCITRAL Rules. 5.3.2.3.2  Publication of the Award Pursuant to Arbitration Institutions’ Rules Regarding the arbitration rules of different arbitral institutions, it can be observed that international arbitration has traditionally been confidential and private. For instance, Article 48(5) of the ICSID Convention provides that, with regard to the arbitral institution, the Centre shall not publish the award without the consent of the parties.261 Such prohibition is reiterated in Rule 48(4) of the ICSID Arbitration

sion”, not award), Mexico–India BIT (2007) article 19, paragraph 4, Mexico–Panama BIT (2007) article 20, paragraph 4, Mexico–Slovakia BIT (2007) article 20, paragraph 4, Mexico–Trinidad & Tobago BIT (2006), article 20, paragraph 4, Mexico–Belarus (2008) article 20, paragraph 4. The treaties with the UK, India, Panama, Slovakia, Trinidad & Tobago and Belarus, as well as the treaty with China, all require final awards to be published unless the parties otherwise agree. Mexico’s treaties with Iceland and Australia establish the opposite starting position. 257  Agreement For The Reciprocal Promotion And Protection Of Investments Between The United Mexican States And The Kingdom Of Spain, 2006. 258  Iran-US Claims tribunal, Rules of Procedure, 3 May 1983. 259  CAFTA-DR. 260  Canada Model FIPA 2004 Article 38.4. 261  ICSID (2006) Article 48(5).

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Rules, which however specifies that the Centre shall, however, promptly include in its publications excerpts of the legal reasoning of the tribunal.262 Regulation 22 of the ICSID Administrative and Financial Regulations establishes: (1) The Secretary-General shall appropriately publish information about the operation of the Centre, including the registration of all requests for conciliation or arbitration and in due course an indication of the date and method of the termination of each proceeding. (2) If both parties to a proceeding consent to the publication of:

(a) reports of Conciliation Commissions; (b) arbitral awards; or (c) the minutes and other records of proceedings, the Secretary-General shall arrange for the publication thereof, in an appropriate form with a view to furthering the development of international law in relation to investments.263

With regard to the arbitral tribunal, the second sentence of Rule 6(2) requires that, before or at the first session of the tribunal, each arbitrator shall sign a declaration in the following form: ‘I shall keep confidential all information coming to my knowledge as a result of my participation in this proceeding, as well as the contents of any award made by the tribunal’.264 In the UNCITRAL Arbitration Rules, Article 34(5) establishes that an award may be made public with the consent of all parties, or where and to the extent disclosure is required of a party by legal duty, to protect or pursue a legal right or in relation to legal proceedings before a court of other competent authority.265 In July 2013, the UNCITRAL Commission adopted the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration: therein, Article 3(1) provides for the publication of awards, establishing that, subject to article 7, orders, decisions and awards of the arbitral tribunal shall be made available to the public. According to Article 7(7) of the UNCITRAL Rules on Transparency: The arbitral tribunal may, on its own initiative or upon the application of a disputing party, after consultation with the disputing parties where practicable, take appropriate measures to restrain or delay the publication of information where such publication would jeopardize the integrity of the arbitral process because it could hamper the collection or production of evidence, lead to the intimidation of witnesses, lawyers acting for disputing parties or members of the arbitral tribunal, or in comparably exceptional circumstances.

The Permanent Court of Arbitration (‘PCA’) Arbitration Rules provide under article 34(5) that an award may be made public with the consent of all parties or where and to the extent disclosure is required of a party by legal duty, to protect or pursue a legal right or in relation to legal proceedings before a court or other competent authority.266

 ICSID (2006) Rule 48(4).  Regulation 22 Publication, ICSID Administrative and Financial Regulations 2006. 264  ICSID (2006) Rule 6(2). 265  Article 34(5) UNCITRAL (2013). 266  PCA (2012). 262 263

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In the London Court of International Arbitration (‘LCIA’) Arbitration Rules, Article 30 places strict confidentiality obligations upon the parties and tribunals, including confidentiality of awards: paragraph 3 establishes that the LCIA does not publish any award or any part of an award without the prior written consent of all parties and the arbitral tribunal.267 In the 2017 Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (‘SCC’), Article 3 establishes that unless otherwise agreed by the parties, the SCC, the arbitral tribunal and any administrative secretary of the arbitral tribunal shall maintain the confidentiality of the award.268 This provision is reiterated in Article 9 of the Organisation of the SCC, establishing that the SCC shall maintain the confidentiality of the award and shall deal with the arbitration in an impartial, practical and expeditious manner.269 Research stressed that the rules of the SCC, ICC and ICSID concern only the tribunals’ decisions, and do not expressly prevent either disputing party from unilaterally disclosing orders, decisions and final awards issued by the tribunal.270 5.3.2.3.3  Observations on the Availability of Awards As previously highlighted, in some circumstances the award is published without requesting or considering the opinions expressed by the disputing parties. Although party autonomy has, as a rule, a fundamental role in international arbitration, as has been stressed by France, Germany, Turkey, Greece, Poland, and in the Working Group which drafted the UNCITRAL Rules on Transparency,271 research found also that in investment treaty arbitration the role of party autonomy is securely important, but not fundamental.272 If a growing number of arbitration awards is published, a public body of jurisprudence will be developed. This will consequently afford investors and host States a better understanding of the interpretation and application of investment agreements, resulting in improved predictability and consistency of decisions.273

 LCIA Arbitration Rules 2020.  SCC (2017) Article 3. 269  Article 9 Appendix 1 Organisation 2017 SCC Arbitration Rules. 270  International Institute for Sustainable Development (IISD) (2013). 271  UNCITRAL Working Group II (Arbitration and Conciliation), ‘Settlement of Commercial Disputes, Transparency in Treaty-based Investor-State Arbitration, Compilation of Comments by Governments’, Note by the Secretariat, Addendum No. 2 (4 August 2010) (A/CN.9/WG.II/ WP.159/Add.2), UNCITRAL Working Group II (Arbitration and Conciliation), Settlement of Commercial Disputes, Transparency in Treaty-based Investor-State Arbitration, Compilation of Comments by Governments, Note by the Secretariat, Addendum 3 (4 August 2010) (A/CN.9/ WG.II/WP.159/Add.3). 272  Feldman (2016), p. 18. 273  Jansen Calamita (2014), p. 652. 267 268

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In fact, published awards are likely to influence future cases. The publication of awards has a great relevance in order to develop case law in investment arbitration:274 although the decisions made by earlier tribunals are not binding on arbitrators,275 these awards often do influence later tribunals. The publication of the award may be advantageous to other disputing parties as well, not just to the tribunals, as the availability of the disputing parties’ arguments and the tribunals’ interpretations is helpful to better prepare their own case. The estimation of success can be predicted with greater accuracy by referring to earlier cases that shared close similarities with their own case.276 Access to an award may enable States to determine whether there is any part of the text of the award that should be considered in future policy planning.277 Consequently, the way states behave in the future, their national budget, and their citizens’ welfare may all be affected by arbitral awards to a considerable degree. The publication of the award can not only respond to the concerns of all the groups that are affected by the investment dispute but can also more generally operate in favour of the public well-being.278 Since access to up-to-date information and information that has not been published may be uneven among parties, award publication helps to put all the parties involved on the same footing.279 Furthermore, the availability of awards makes it possible for scholars to provide a critical evaluation, which is to the benefit of arbitral tribunals, legal counsel, and parties, and can itself contribute to the development of investment law.280 Civil servants who are in charge of drafting Model BITs can refer to the published awards in order to bring appropriate amendments to new Model BITs.281 The publication of the awards can contribute to enhance not just the effectiveness of the system of investment arbitration282 but also its legitimacy. Some researchers affirmed that general transparency gives cause to expect a more democratic, more accountable, and hence more legitimate283 system of global governance.284 Others found that: ‘the public interest in obtaining access to arbitral awards exceeds – both in strength and multiplicity – the public interest in obtaining access to other documents and hearings, or in participating in disputes as amicus curiae’.285

 Lew (1982), p. 229.  Schreuer et al. (2009), p. 828. 276  Schreuer et al. (2009), p. 827. 277  OECD (2005), p. 11. 278  OECD (2005), pp. 24–25. 279  Rogers (2006), p. 1325. 280  OECD (2005). 281  Fry and Repousis (2015), p. 807. 282  Knahr and Reinisch (2007), p. 115; OECD (2005). 283  Marisi (2021). 284  Schill (2014). 285  Feldman (2016). 274 275

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5.3.3 Non-disputing Parties’ Participation 5.3.3.1 Essentials on the Intervention of Non-disputing Parties The disputing parties in an investor-State dispute are one or more investors and the host State. It is possible that other individuals or organisations request to participate to the proceedings, as amici curiae. However, even other States, the investor’s home country in the first place, can play a role not only in the design of the normative framework of the applicable IIA, but also in the concrete intervention within the investor-State dispute. In fact, although with the introduction of the ISDS system, investors have the possibility to directly file arbitration claims against the host State, the home State of the investor never entirely withdrew from playing a role in the investment legal framework and the related investment claims. In fact, according to some scholars, home States kept an important role with respect to the following aspects of the investment realm: i) architecture of the treaties; ii) State-owned enterprises and sovereign wealth funds; iii) subrogation of claims; iv) exercise of diplomatic protection; v) use of informal diplomatic exchanges; vi) disputes brought to the International Court of Justice (‘ICJ’) or the WTO.286 These issues will be explained in detail in the following paragraphs. i) Architecture of the treaties. Over 3266 IIAs and FTAs with investment chapters have been concluded globally.287 Usually, the signing of a BIT would be attained at the end of negotiations, which, in turn, could have started taking into consideration Model Treaties, which represented the preferred way for home States to seek protection of their capital abroad. From their point of view, the host States entered into these negotiations aiming to find the best possible balance between attracting capital inflows and safeguarding their regulatory power. ii) State-owned enterprises or sovereign wealth funds. States can be directly involved in investment claims through State-owned enterprises investing abroad, or State-owned investment funds (sovereign wealth funds): the host State’s measures can be challenged also by these two entities in an investor-­ State arbitration.288 iii) Subrogation of claims. For instance, in the China-Denmark BIT, Article 7 establishes: If a Contracting Party makes by virtue of subrogation to exercise the rights and enforce the claims of that national or company and shall assume the obligations related to the investment.289

 Alschner (2014), p. 192.  UNCTAD (2023). 288  McLachlan et al. (2007), pp. 187–189; Annacker (2011); Poulsen (2012), pp. 73–90. 289  China and Denmark Agreement concerning the encouragement and reciprocal protection of investments. Signed at Beijing on 29 April 1985, Article 7. 286 287

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iv) Exercise a limited form of diplomatic protection. Under Article 27 of the ICSID Convention diplomatic protection is suspended, and not totally abrogated: in fact, Article 27(1) establishes that no Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under the ICSID Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute.290 v) Use of informal diplomatic exchanges for the settlement of investment disputes. Article 27(2) of the ICSID Convention explicitly allows this kind of diplomatic correspondence, establishing that diplomatic protection shall not include informal diplomatic exchanges for the sole purpose of facilitating a settlement of the dispute.291 vi) To file investment disputes before specific bodies. In previous times, certain States filed their cases before the ICJ292 or reformulated them as trade disputes and filed them before the WTO.293 5.3.3.2 Examples of Provisions on Non-disputing Parties’ Intervention The 1962 Draft Convention on the Protection of Foreign Property of the OECD established, in Article 7, that both parties to the convention and nationals of those parties could institute proceedings against other parties: (a) Any dispute between Parties as to the interpretation or application of this Convention may be submitted by agreement between them either to an arbitral tribunal established in accordance with the provisions of the Annex to this Convention, which shall form an integral part thereof, or to any other international tribunal (…) (b) A national of a Party claiming that he has been injured by measures in breach of this Convention may institute proceedings against any other Party responsible for such measures before the arbitral tribunal referred to in paragraph (a), provided that:

(i) the Party against which the claim is made has accepted the jurisdiction of that arbitral tribunal by a declaration which covers that claim; and (ii) the Party of which he is a national has indicated that it will not institute proceedings under paragraph (a) (…).294

 ICSID (2006) Article 27(1).  ICSID (2006) Article 27(2). 292  Case Concerning Elettronica Sicula S.p.A. (ELSI) (US v Italy), 1989 I.C.J. Reports 15, Judgment, 20 July 1989. 293  DS435: Australia – Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, WT/ DS435/1, 10 April 2012, and WT/DS/434/1, 23 July 2012; and Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12. 294  OECD, Draft Convention on the Protection of Foreign Property, 2 ILM 241, 1963, Article 7(a) and (b). 290 291

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Article 6(b)(i) of the Annex relating to the statute of the arbitral tribunal provides that the arbitral tribunal may permit intervention by a Party which considers that it has an interest of a legal nature which may be affected by the decision in the case.295 The 1983 Rules of Procedure of the Iran-United States Claims Tribunal allow, at note 5 to Article 15, the submissions from the non-disputing States, establishing that the arbitral tribunal may, having satisfied itself that the statement of one of the two Governments or, under special circumstances, any other person who is likely to assist the tribunal in carrying out its task, permit such Government or person to assist the tribunal by presenting oral or written statements.296 In 1992, NAFTA established precise modalities for States to intervene in a claim where it was not primarily involved: Article 1128 NAFTA, Participation by a Party, provided for non-disputing state parties interventions, and authoritative interpretations by contracting States, establishing that on written notice to the disputing parties, a Party may make submissions to a tribunal on a question of interpretation of the NAFTA Agreement.297 States parties to NAFTA could issue authoritative interpretations of the NAFTA Agreement according to Article 1131(2), Governing Law, providing that an interpretation by the Commission of a provision of the Agreement shall be binding on a NAFTA tribunal.298 The failed Multilateral Agreement on Investment (MAI), in Section D “Disputes Between an Investor and a Contracting Party” contained an article providing for non-disputing state party submissions: 12. Third Party Rights The arbitral tribunal shall notify the Parties Group of its formation. Considering the views of the parties, it may give to any Contracting Party requesting it an opportunity to submit written views on the legal issues in dispute, provided that the proceedings are not unduly delayed thereby. Any Contracting Party requesting it within thirty days after receipt by the Parties Group of the notification of the tribunal’s formation shall be given an opportunity to present its views on issues in dispute in which it has a legal interest.299

Also the Central America Free Trade Agreement (‘CAFTA’), signed in 2004, establishes under Article 10.20(2) that a non-disputing Party may make oral and written submissions to the tribunal regarding the interpretation of the CAFTA Agreement.300 Provisions regarding non-disputing party interventions are mainly present in regional or multilateral treaties. This can be explained by a number of diverse elements. Naturally, since many parties are involved in regional treaties, the likelihood of disputes is higher. Moreover, if a State expects to be a frequent player, either as a

 OECD, Draft Convention on the Protection of Foreign Property, 1962, Annex, Article 6(b)(i).  Iran-United States Claims Tribunal, Tribunal Rules of Procedure, 1983. 297  NAFTA (1994) Article 1128. 298  NAFTA (1994) Article 1131(2). 299  The Multilateral Agreement on Investment (‘MAI’), 1995–1998, Article D 12. 300  CAFTA, Article 10.20(2). 295 296

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home State or as a respondent, it is more concerned with shaping how the relevant treaty is interpreted. Moreover, whereas both home and host States may have an interest in pursuing predictability in the outcome of arbitral proceedings, by guaranteeing a consistent interpretation of a legal provision for all investors, there can be substantial differences in the aim with which a home State makes an intervention as non-disputing party. It could aim to ensure maintenance of a high level of investment protection through direct intervention; on the other side, following a different approach, the State could aim to expand policy space in the agreement, in order to decrease its own vulnerability in subsequent disputes, and thus support the view of the host State. This derives from the fact that States are not only foreign investment destinations, but also foreign investment sources. As a result, a contracting party is unaware as to whether it would fulfil the role of respondent or home State in potential litigation. Therefore, it is highly probable that the States wish to prevent drastic interpretations. In general, investment treaties prioritise States’ duties instead of their rights; therefore, prevention of interpretations biased towards the investor instead of towards the host State is usually the main goal of non-disputing interventions. In fact, research already stressed that a review of the publicly available record of cases under NAFTA showed that, in a total of 19 cases where the investor’s home State filed one or more submissions under Article 1128, in only two instances did it endorse the position of its own national against the foreign State. On the contrary, in the other 17 out of 19 cases, the national State of the investor sided with the respondent State.301 CETA institutionalises non-disputing parties, assigning a precise definition in Article 8.1, which provides that, for the purposes of the Chapter on investment, non-­ disputing Party means Canada, if the European Union or a member state of the European Union is the respondent, or the European Union, if Canada is the respondent.302 CETA establishes non-disputing parties’ rights and obligations under Article 8.38: Article 8.38 Non-disputing Party 1. The respondent shall, within 30 days after receipt or promptly after any dispute concerning confidential or protected information has been resolved, deliver to the non-disputing Party:



301 302

(a) a request for consultations, a notice requesting a determination of the respondent, a notice of determination of the respondent, a claim submitted pursuant to Article 8.23, a request for consolidation, and any other documents that are appended to such documents; (b) on request:

 Kaufmann-Kohler (2012), p. 319.  Article 8.1 CETA.

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(i) pleadings, memorials, briefs, requests and other submissions made to the tribunal by a disputing party; (ii) written submissions made to the tribunal pursuant to Article 4 of the UNCITRAL Transparency Rules; (iii) minutes or transcripts of hearings of the tribunal, if available; and (iv) orders, awards and decisions of the tribunal; and (c) on request and at the cost of the non-disputing Party, all or part of the evidence that has been tendered to the tribunal, unless the requested evidence is publicly available. 2. The tribunal shall accept or, after consultation with the disputing parties, may invite, oral or written submissions from the non-disputing Party regarding the interpretation of the Agreement. The non-disputing Party may attend a hearing held under this Section. 3. The tribunal shall not draw any inference from the absence of a submission pursuant to paragraph 2. 4. The tribunal shall ensure that the disputing parties are given a reasonable opportunity to present their observations on a submission by the non-disputing Party to this Agreement.303

Among the non-disputing party’s rights, there is the right to receive documents submitted by the disputing parties, the tribunal and third persons, to make submissions regarding the interpretation of the agreement, and to attend hearings. Beyond these rights, the non-disputing party has also a duty: it is obliged to pay the cost of the evidence it has requested. Also the Transatlantic Trade and Investment Partnership (‘TTIP’) institutionalises non-disputing parties, attributing a definition to them in Article 8.1 of the Section 3 - Resolution of Investment Disputes and Investment Court System, establishing that ‘Non-disputing Party’ means either the United States, when the respondent is the European Union or a Member State of the European Union; or the European Union, when the United States is the respondent.304 Moreover, the TTIP establishes rights and duties of the non-disputing party under Article 2.2 and Article 22 of Section 3. Article 2, Amicable Resolution, provides under paragraph 2 that a mutually agreed solution between the disputing parties shall be notified to the non-disputing Party within 15 days of the mutually agreed solution being agreed. The Committee shall keep under surveillance the implementation of such mutually agreed solutions and the Party to the mutually agreed solution shall regularly report to the Committee on the implementation of such solution.305 Article 22 The non-disputing Party to the Agreement 1. The respondent shall, within 30 days after receipt or promptly after any dispute concerning confidential or protected information has been resolved, deliver to the non-disputing Party:

 Article 8.38 CETA.  Article 8.1, Section 3, TTIP. 305  Article 2.2, Section 3, TTIP. 303 304

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5  Transparency in Investor-State Arbitration (a) A request for consultations referred to in Article 4, a notice requesting a determination referred to in Article 5, a claim referred to in Article 6 and any other documents that are appended to such documents; (b) On request: a. pleadings, memorials, briefs, requests and other submissions made to the tribunal by a disputing party; b. written submissions made to the tribunal by a third person; c. minutes or transcripts of hearings of the tribunal, where available; and d. orders, awards and decisions of the tribunal. (c) on request and at the cost of the non-disputing Party, all or part of the evidence that has been tendered to the tribunal.

2. The non-disputing Party has the right to attend a hearing held under this Section. 3. The tribunal shall accept or, after consultation with the disputes parties, may invite written or oral submissions on issues relating to the interpretation of this Agreement from the non-­disputing Party. The tribunal shall ensure that the disputing parties are given a reasonable opportunity to present their observations on any submission by the non-disputing Party.306

Like in CETA, the TTIP provides for the right for the non-disputing party to receive documents submitted by the disputing parties, the tribunal and third persons, to make submissions regarding the interpretation of the agreement, and to attend hearings. It is a non-disputing party’s duty to pay the cost of the evidence it has requested. Research found that the combination of repeat players combined with uncertainty as to which state will more likely be a respondent is not unique to regional treaties. Therefore, a rise in non-disputing party intervention could be expected also in future bilateral treaties.307 It is likely that there will be a rise in the need for rules providing for non-disputing party interventions in investor-State arbitration. The non-disputing party is granted the right by some IIAs to make submissions with respect to the manner in which the relevant treaty stipulations are interpreted. Among them are the 2004 and the 2012 United States Model BITs, which both provide at Article 28.2 that the non-disputing Party may make oral and written submissions to the tribunal regarding the interpretation of the same treaty.308 Other articles in IIAs can be connected to the non-disputing parties’ rights, such Article 2, Annex 8, of the 2018 EU – Singapore Investment Protection Agreement (‘IPA’), which establishes that the tribunal shall conduct hearings open to the public.309 It can be inferred that the hearings do not necessarily need to be made expressly accessible to the non-disputing party. Examples of BITs adhering to the United States Model BIT, allowing the non-disputing party to make oral and written submissions are the United States – Uruguay BIT,310 and the United States – Rwanda

 Article 22, Section 3, TTIP.  Alschner (2014), p. 211. 308  United States Model BIT 2004; United States Model BIT 2012. 309  Article 2, Annex 8, EU-Singapore IPA. 310  United States of America-Uruguay BIT (2005). 306 307

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BIT.311 Furthermore, the 2004 Canada Model FIPA provides for non-disputing parties rights, establishing under Article 35, that on written notice to the disputing parties, the non-disputing Party may make submissions to a tribunal on a question of interpretation of that agreement, and that the non-disputing Party shall have the right to attend any hearings held under that section, whether or not it makes submissions to the tribunal.312 Article 33 and Article 34 of the Canada Model FIPA 2004 concern the rights of non-disputing parties. Article 33, Notice to the Non-Disputing Party, establishes that a disputing Party shall deliver to the other Party a copy of the Notice of Intent to Submit a Claim to Arbitration and other documents, such as a Notice of Arbitration and Statement of Claim, no later than 30 days after the date that such documents have been delivered to the disputing Party.313 Article 34, Documents, provides that the non-disputing Party shall be entitled, at its cost, to receive from the disputing Party a copy of the evidence that has been tendered to the tribunal, copies of all pleadings filed in the arbitration, and the written argument of the disputing parties. The Party receiving this kind of information shall treat it as if it were a disputing Party.314 Article 30 of the 2013 Canada  – Tanzania Foreign Investment Promotion and Protection Agreement (FIPA) gives great impulse to transparency and establishes that: Public Access to Hearings and Documents 1. Any tribunal award under this Section shall be publicly available, subject to the redaction of confidential information. All other documents submitted to, or issued by, the tribunal shall be publicly available unless the disputing parties otherwise agree, subject to the redaction of confidential information. 2. Hearings held under this Section shall be open to the public. The tribunal may hold portions of hearings in camera to the extent necessary to ensure the protection of confidential information, including business confidential information. 3. A disputing party may disclose to other persons in connection with the arbitral proceedings such unredacted documents as it considers necessary for the preparation of its case, but it shall ensure that those persons protect the confidential information in such documents. 4. The Parties may share with officials of their respective federal and sub-national governments all relevant unredacted documents in the course of dispute settlement under this Agreement, but they shall ensure that those persons protect any confidential information in such documents. 5. To the extent that a tribunal’s confidentiality order designates information as confidential and a Party’s law on access to information requires public access to that information, the Party’s law on access to information shall prevail. However, a Party should endeav-

 Treaty between the Government of the United States of America and the Government of the Republic of Rwanda Concerning the Encouragement and Reciprocal Protection of Investment (2008). 312  Article 35, Canada Model FIPA 2004. 313  Article 33, Canada Model FIPA 2004. 314  Article 34, Canada Model FIPA 2004. 311

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Instead, Article 31 of the Canada-Tanzania FIPA on Submissions by a non-­disputing party reserves for the tribunal the authority to accept and take into consideration written submissions by persons or entities not being a disputing party, establishing that the tribunal shall ensure that any non-disputing party submission does not disrupt the proceedings and does not unduly burden or unfairly prejudice either disputing party.316 5.3.3.3 Case Law on Non-disputing Parties’ Intervention Among the arbitral cases where the non-disputing parties had the opportunity to submit their briefs, adhering or not adhering to the corresponding invitation on behalf of the tribunal, we can find Glamis Gold v United States, and Merrill & Ring Forestry v Canada. 5.3.3.3.1  Glamis Gold v United States In 1987, Glamis Gold Ltd., a gold mining company from Canada started the acquisition of interests in mining claims on federal lands in the Imperial Valley of California under the management of the United States Department of the Interior. Pursuant to the 1872 Mining Law in the United States, acquisition of claims for mining on federal lands was available to United States citizens at no cost. It was required that the acquirers put up posts signalling the claim with the location indicated on one post, and subsequently register that claim with the Department of the Interior. The land could then be mined by the claim holder without having to share the profit made with authorities of the federal or other governments. To satisfy the conditions set by the 1872 Mining Law and acquire mining claims, subsidiaries of Glamis serving as ‘citizens’ were created in the United States. The project proposed in the early 1990s would be an extensive open pit gold mine with the gold to be extracted through cyanide heap-leach, a process prohibited in many countries, and in the State of Montana. The project would adversely impact on an extensive untouched area proximal to an established desert wilderness area, including 88 acres (corresponding to 35.6 hectares) of woodland that was vital for local fauna. The project would also take water from the desert groundwater aquifer up to 389 million gallons (corresponding to 1.768 billion of liters) of water every year. Moreover, the mining location is right in the middle of an area close to Native American tribal lands protected from future mining claims for religious and cultural

315 316

 Article 30, Canada – Tanzania FIPA.  Article 31, Canada – Tanzania FIPA.

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reasons, and one of the mining sites is located exactly in an area sacred to the Quechan Indian Nation. In 2001, Glamis failed to secure an operational permit from the Department of the Interior, the latter arguing that the mining activities would have negative effects both on the environment and on the Quechan religious sites in the area. In November 2001, the permit refusal was overturned by Gale Norton, the new Bush administration Secretary of the Interior. In April 2003, the California State Legislature adopted Senate Bill 22, in which it specified that open-pit mines on or close to sacred sites or protected areas must be backfilled. On 21 July 2003, Glamis Gold submitted a claim against the United States, where it argued that the claimant California had breached the expropriation and fair and equitable treatment provisions in NAFTA Chapter Eleven. Glamis Gold claimed USD 50 million as damage compensation.317 On 15 October 2005, the tribunal issued Procedural Order No. 6, establishing a deadline for NAFTA Article 1128 submissions:318 both Canada and Mexico missed this deadline. However, some groups filed applications and submissions as amici curiae: the Quechan Indian Nation, Friends of the Earth Canada and Friends of the Earth United States, the National Mining Association, and Earthjustice and the Western Mining Action Project, which jointly filed a petition on behalf of the Sierra Club and Earthworks. 5.3.3.3.2  Merrill & Ring Forestry v Canada Merrill & Ring Forestry, a forestry and land management company established in the United States, filed a request for arbitration against the Canadian government. The claimant alleged that it suffered loss and damage because of the measures introduced by the federal and provincial government, and in particular the British Columbia Forest Act and the Export and Import Permits Act.319 Those measures were related to the federal regulatory framework of log and the provincial surplus testing procedure in British Columbia, and specified that export of logs from private and public land was only possible when provincial requirements were satisfied, and the logs to be exported were deemed surplus. The claimant argued that by implementing those measures Canada breached NAFTA’s provisions concerning national treatment, most favoured nation treatment, minimum standard of treatment, prohibition on performance requirements and expropriation. The tribunal requested the non-disputing parties to file their respective Article 1128 submissions by July 2008. A submission was filed by the

 Glamis Gold, Ltd. v The United States of America, UNCITRAL, Award, 8 June 2009.  Glamis Gold, Ltd. v The United States of America, UNCITRAL, Procedural Order No. 6 October 15, 2005, para. 13. 319  Merrill & Ring Forestry L.  P. Claimant v The Government Of Canada, ICSID Case No. UNCT/07/1, Award, 31 March 2010. 317 318

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United States320 but not by Mexico. However, the tribunal accepted the submission filed by Mexico a few months later, on 2 April 2009.321 On 2 October 2008, the collective submission of certain amici curiae briefs, jointly summitted by the Communications, Energy and Paperworkers Union of Canada, the United Steelworkers, and the British Columbia Federation of Labour, was accepted by the tribunal.

5.3.4  Amicus curiae Intervention 5.3.4.1 Definition As known, the Latin term amicus curiae means “friend of the court.” Research stressed that it is difficult to provide an exhaustive definition of this concept, due to the wide variability of its attributes and roles, depending on the point in time and jurisdiction where an amicus curiae brief is submitted.322 The concept took its origin in Roman law, where passersby without any direct interest in the case could intervene in a trial on their own initiative, providing the court with information on matters of fact and law that was beyond the court’s notice or expertise, such as the death of a party, collusion, or manifest error.323 Some centuries later, the use of amici curiae was common in the early history of common law,324 a time in which the content of the laws was not always absolutely certain and indisputable.325 Abbott’s Dictionary of Terms and Phrases defines amicus curiae as: ‘A friend of the court. A term applied to a bystander, who without having an interest in the cause, of his own knowledge makes suggestion on a point of law or of fact for the information of the presiding judge’,326 and Holthouse’s Law Dictionary further underlines the importance for the judge to be reminded of cases relevant to the matter at hand: ‘When a judge is doubtful or mistaken in matter of law, a bystander may inform the court thereof as amicus curiae. Counsel in court frequently act in this capacity when they happen to be in possession of a case which the judge has not seen or does not at the moment remember’.327

 Merrill & Ring Forestry L.  P. Claimant v The Government Of Canada, ICSID Case No. UNCT/07/1, Submission of the United States of America, 14 July 2008. 321  Merrill & Ring Forestry L.  P. Claimant v The Government Of Canada, ICSID Case No. UNCT/07/1, Government of Canada Rejoinder Memorial, 27 March 2009. 322  Fach Gómez (2012), p. 516; Bellhouse and Lavers (2004), p. 188; Lowman (1992), p. 1244. 323  Angell (1967), p. 1017. 324  Francioni (2009), p. 740. 325  Viñuales (2006). 326  Cited in Krislov (1963), pp. 694–695. 327  Cited in Krislov (1963), pp. 694–695. 320

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In the United Kingdom, it was often the court who invited an intervention of amicus curiae, in order to receive information ‘which would otherwise not be heard because they did not form part of the respective cases of the litigants represented’.328 In the United States, amicus curiae refers to individuals who come forward with information pertinent to the dispute, despite not being involved in any way in the litigation proceedings.329 The United States Supreme Court requested a third party’s intervention in Green v Biddle,330 in order to receive information about an alleged collusion between the parties.331 Research found that since then, it has become common practice for amicus curiae briefs to be submitted in the United States, not just before the Supreme Court, but also on appeal: Paul Collins observed that the recent and dramatic increases in amicus curiae briefs before the Supreme Court may have resulted in a ‘routinisation’ of how they are considered by the Supreme Court.332 Simpson and Vasaly highlighted in 2010 that in the previous fifty years amicus curiae filings have increased more than 800 percent, while the United States Supreme Court has not increased its output of opinions.333 5.3.4.2 Amicus Curiae’s Features As FDI protection is largely governed by international law, the problem arises concerning what other actors may have standing within disputes governed by international law. Even today, some experts write that international law concerns almost exclusively State-to-State relations and rule that customary international law is created ‘only by achieving universal recognition and acceptance as a norm in the relations of states inter se’.334 However, although some researchers have highlighted that non-­ State actors neither are States nor can aspire to be such,335 others claim that international law does not concern only the relations of States inter se, because for centuries there have been many formally recognised actors in the international legal process other than the State.336 It follows that non-State actors can have an independent participation in the international legal system.337 There are indeed many different types of non-State actors: among them are sub-­ State actors, such as trade unions; Intergovernmental Organizations (IGOs), such as

 Bellhouse and Lavers (2004), p. 190.  Bellhouse and Lavers (2004), pp. 3–6. 330  Green v Biddle, 21 US 1, 17 (1823). 331  O’Connor and Epstein (1983), p. 36. 332  Collins Jr. (2004), p. 828. 333  Simpson and Vasaly (2011), p. 8. 334  Kiobel v Royal Dutch Petroleum Co., 621 F.3d 111, 149 (2d Cir. 2010). 335  De Brabandere (2011), p. 85. 336  Paust (2011), p. 977. 337  McCorquodale (2004), p. 497. 328 329

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the United Nations, the World Trade Organization, the International Monetary Fund, the Association of Southeast Asian Nations, and the European Union; transnational actors, such as multinational corporations (‘MNCs’) and nongovernmental organisations (‘NGOs’); political groups that advocate violence (terrorists); and international criminal groups. Among the non-State actors cited above, those that most likely will have a role as third-parties in ISDS are NGOs and civil society groups, which seek standing as amici curiae in order to represent specific public interests in the disputes, as for instance sustainable development and public health. The difference between the participation of NGOs and that of third parties such as the European Commission raises a crucial issue: should investment tribunals recognise that specific third parties may have relevant legal interests in the proceedings and in its outcome?338 Some commentators write that the European Commission has a significant and legally protectable interest in the outcome of disputes involving EU law,339 and in particular it has the role of ‘public prosecutor’ in issues concerning competition law.340 Moreover, it has frequently participated as a third party in EU competition law arbitrations,341 and it is known that the EU as a whole has a strong interest in a uniform application of both, EU primary and secondary rules.342 The request of participation made by an amicus curiae usually expresses the civil society’s concerns about core issues related to broader rights, such as private property, free speech, right to anonymity, socio-cultural values, environment, and public health,343 or rights of a specific social group that would otherwise not be able to present its arguments to the court or tribunal, but that would certainly be affected by their decision.344 In particular, as regards investment arbitration, research found that opening it to amici curiae permits the development, in international law, of the notion of civil society as a significant participant in the resolution of investment disputes.345 The same principle of access to justice, which has been successfully developed to grant investors the chance to file a claim against host States, should be applied to allow the participation of individuals and groups who are or could be adversely affected by an investment made in the territory were they live and work.346 Furthermore, a fundamental principle of equity and fairness should inspire the

 Levine (2011), pp. 214–215.  Triantafilou (2009). 340  Blanke (2006), p. 155. 341  Blanke (2006), p. 155. 342  Blanke (2006), p. 161. 343  See, for example, Center For Individual Freedom, Amicus Curiae Briefs. 344  De Brabandere (2011), pp. 103–104. 345  Francioni (2009), p. 742. 346  Francioni (2009), p. 738. 338 339

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tribunal to recognise and balance the potentially competing interests of the investor and the population affected by the investment’s negative externalities.347 As highlighted by the OECD, the term ‘externalities’ refers to situations in which the effect of production or consumption of goods and services gives rise to costs or benefits on others which are not reflected in the prices charged for the goods and services provided.348 A burdensome externality is pollution, an example of which may be the release of chemicals into the air and the water of rivers or lakes, harming animals and plants and affecting the subsistence of local inhabitants.349 It emerges that an amicus curiae is a person or a group with a general interest in the outcome of the case. However, as research highlighted, not only is a shared definition of interest difficult to achieve, but it is not easy to establish what characteristics allow to define an interest as legitimate, appropriate, significant and worthy to be represented in the arbitral proceedings.350 An example thereof is the case of an NGO financially damaged by the investment: in this case, the NGO should show that the investment negatively affects the purpose for which the NGO was created.351 5.3.4.3 Amicus Curiae’s Spectrum of Action Amici curiae might participate in an arbitration in different ways: a) submitting written briefs; b) attending hearing, and potentially making oral submissions; c) having access to the documents on the record, d) responding to questions made by the tribunal. A scholarly proposed definition of amicus curiae briefs is the following: in civil law jurisdictions ‘amicus briefs are documents voluntarily submitted to a court (1) by an entity other than a party to a dispute or an officer of the court, (2) such that the entity retains substantial discretion over the content of the submission’.352 With regard to hearings, research stressed that some courts permitted amici curiae to attend the hearings of the proceedings: West and Roberts reflect that this occurs in about seven per cent of all cases having a full hearing on the merits.353 Article 36(1) of the European Convention on Human Rights (‘ECHR’) establishes that in all cases before a Chamber or the Grand Chamber, a High Contracting Party whose national is an applicant shall have the right to submit written comments and to take part in hearings.354 Amici curiae are allowed to participate to hearings before the Inter-American Court of Human Rights: Article 2.3 of the Rules of Procedure establishes that:

 Biglan (2009).  OECD, Glossary of Statistical Terms, 2003. 349  OECD, Glossary of Statistical Terms, 2003. 350  Fach Gómez (2012), p. 558. 351  Fach Gómez (2012), p. 558. 352  Kochevar (2013), pp. 1654–1655. 353  West and Roberts (2003), p. 3. 354  Art. 31.1, European Convention on Human Rights, 1950. 347 348

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The expression “amicus curiae” refers to the person or institution who is unrelated to the case and to the proceeding and submits to the Court reasoned arguments on the facts contained in the presentation of the case or legal considerations on the subject-matter of the proceeding by means of a document or an argument presented at a hearing.355

In order to receive permission to participate in an extended form, the amicus curiae must show a direct legal interest in the case.356 However, if an amicus curiae acts as having a direct interest in the case, it might behave as a ‘lobbyist before the court’,357 and this is not considered as an appropriate behaviour. On the other side, it could be maintained that it acts as a ‘lobbyist before the court’ even if it only submits a brief to the tribunal. Rule 32.2 of the ICSID Arbitration Rules regulates the filing of written submissions by non-disputing parties, and Rule 37.2 governs the attendance of third parties at hearings: Rule 37.2: (…) the non-disputing party submission would assist the Tribunal in the determination of a factual or legal issue related to the proceeding by bringing a perspective, particular knowledge or insight that is different from that of the disputing parties; (b) the non-disputing party submission would address a matter within the scope of the dispute; (c) the non-disputing party has a significant interest in the proceeding.358 Rule 32.2: Unless either party objects, the tribunal, after consultation with the Secretary-­ General, may allow other persons, besides the parties, their agents, counsel and advocates, witnesses and experts during their testimony, and officers of the tribunal, to attend or observe all or part of the hearings, subject to appropriate logistical arrangements. The tribunal shall for such cases establish procedures for the protection of proprietary or privileged information.359

Since an amicus curiae is not a party to the proceeding, its submission has to address matters already under discussion in the specific dispute.360 In fact, as established by the Appellate Body of the WTO, if the amicus curiae brief concerns a matter not considered within the discussion, the tribunal will note that the brief is directed primarily to a question that is not part of any of the claims,361 or that the brief dealt with some issues not addressed in the participants’ submissions362 and will disregard its content.

 Article 2.3, Rules of Procedure of the Inter-American Court of Human Rights.  Levine (2011), p. 222. 357  Harper and Etherington (1953), p. 1172. 358  Rule 37.2, ICSID Arbitration Rules, ICSID Convention, Regulations and Rules. 359  Rule 32.2, ICSID Arbitration Rules, ICSID Convention, Regulations and Rules. 360  DS248: United States — Definitive Safeguard Measures on Imports of Certain Steel Products, Appellate Body Report, 10 November 2003. 361  DS248: United States — Definitive Safeguard Measures on Imports of Certain Steel Products, Appellate Body Report, 10 November 2003. 362  DS257: United States  — Final Countervailing Duty Determination with respect to certain Softwood Lumber from Canada, WT/DS257/AB/R, para. 9 (2004). 355 356

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Conversely, in another case the tribunal emphasised that an amicus curiae brief can bring new perspectives to the proceedings,363 and represent therefore an added value. However, offering novel contributions may objectively be difficult if combined with what has already been provided by earlier statements. In search of a balanced view, research stressed that, depending on the specific amicus curiae brief submitted, on one hand it should provide novel legal or factual arguments that are not a simple repetition of those brought by the disputing parties, and, on the other hand, do not widen the subject-matter of the dispute.364 In any event, even when the tribunal allows the submission of an amicus curiae brief, this cannot be considered as a commitment by the tribunal to take into consideration the content of the brief. In fact, in several cases the tribunals wrote that they found the brief itself of no assistance in deciding the case,365 or simply did not find it necessary to take the amicus curiae brief into account.366 This is demonstrated also by the fact that in many cases, the tribunal decides not to address, in its award or decision, the arguments contained in the brief. However, this cannot not lead to believe that an amicus curie brief is entirely irrelevant: since its content has been read, it is undoubtedly known by the arbitral body.367 5.3.4.4 Benefits Deriving from Accepting Amicus Curiae Participation The main benefit deriving from amicus curiae’s participation to arbitral proceedings is transparency itself, which, according to some scholars, can make the mechanism of international investment arbitration more credible and contributes to its future consolidation and prevalence.368 Therefore, amicus curiae briefs are a valid resource to contrast the lack of determinacy and coherence in investment arbitration which, according to Franck, ‘raised the spectre of a legitimacy crisis. There are a variety of institutions that complain about particular aspects of the investment treaty process, including stated concerns

 Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. v Argentina, ICSID Case No. ARB/03/19, Order in Response to a Petition for Transparency and Participation as Amicus Curiae in Suez (July 30, 2010), para. 21. 364  De Brabandere (2011), p. 108. 365  DS252: United States  — Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248/AB/R, 10 December 2003, para. 9. 366  Among others: DS265: European Communities — Export Subsidies on Sugar, WT/DS265/ AB/R, para. 9, 2005; DS252: United States — Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248/AB/R, 10 December 2003, para. 9, DS269: European Communities — Customs classification of frozen boneless chicken cuts, WT/DS269/AB/R, para. 12, 2005; DS308: Mexico — Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, para. 8, 2006; DS332: Brazil — Measures Affecting Imports of Retreaded Tyres, para. 7, 2007; DS342: China — Measures Affecting Imports of Automobile Parts, WT/DS339/AB/R, para. 11, 2009. 367  De Brabandere (2011), p. 111. 368  Fach Gómez (2012), pp. 545–546. 363

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about the transparency and privacy of the decision-making process, which lead to a lack of representation’.369 Other important benefits descending from the participation of third parties to investment arbitration are the following: public interest protection, improvement of the quality of the award, provision of expertise, and promotion of accountability. 5.3.4.4.1  Public Interest Protection Some researchers argue that amici curiae can provide significant information and raise relevant public policy issues that are necessary to properly decide the dispute.370 They contend that the assessment of whether a breach of the relevant treaty occurred through a public measure371 limits the state’s sovereignty.372 They argue that it is important to be aware of the social impact that awards can generate,373 and that the mechanism of amicus submissions allows to seek the greater social good.374 In fact, amicus curiae briefs are often aimed to protect relevant public interests, including: (i) general interests, such as sustainable development, environmental protection,375 public health, cultural heritage, human rights; and (ii) specific or sectorial interests, such as workers’ rights and governmental policies.376 In particular, the participation of NGOs by means of amicus curiae briefs reveals that matters of public interest are involved in a specific arbitration, advancing the public character of the dispute,377 and, at the same time, the openness and legitimacy of the ISDS.378 Moreover, the participation of NGOs in this kind of proceedings shows the strength of the idea that civil society has an important role in the resolution of the dispute between foreign investors and host States.379 5.3.4.4.2  Improvement of the Quality of the Award Since in investor-State arbitration not only the interests of the parties are at stake, but also those of the public, it is opportune that the public can offer to the tribunal their expertise, knowledge of determined issues, and specific evidence. For instance,

 Franck (2005), p. 1586.  Newcombe and Lemaire (2001), p. 30. 371  Ishikawa (2010), pp. 402–403. 372  Francioni (2009), p. 740. 373  Friedland (2006), p. 321. 374  Friedland (2006), p. 321. 375  Marisi (2020). 376  Fach Gómez (2012), pp. 543–544. 377  De Brabandere (2011), p. 102. 378  Sands and Mackenzie (2011), pp. 29–31. 379  Francioni (2009), p. 742. 369 370

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it may occur that an investor is reluctant to submit to the arbitrators a complete analysis of the environmental impact of his investment on a given territory and its population. On the other hand, it can happen that the State cannot bring all relevant aspects of the dispute to the attention of the tribunal.380 An investment could, for example, potentially cause environmental damages, but offer employment opportunities in an area characterised by a heavy unemployment rate. In this kind of circumstances third parties may offer, as research stressed, additional perspectives, based on factual, legal, and technical arguments. Their intervention can lead the tribunal to issue a decision of higher quality:381 this can benefit not only the parties involved in the case, but also the civil society as a whole.382 Moreover, in helping tribunals improve the quality of the award, the involvement of third parties can also promote the development of ISDS.383 5.3.4.4.3  Provision of Expertise and Promotion of Accountability Amici curiae can provide the tribunal their specific expertise in relation to the issues under discussion in the dispute,384 for instance informing the arbitrators about the broader implications which may descend from a particular decision.385 Having had the chance to take into consideration the potential impact the arbitral decision might generate, a tribunal can more easily be held accountable towards the public. In turn, this would allow overcoming the legitimacy crisis that the arbitration system is experiencing.386 5.3.4.5 Admissibility of Amicus Curiae Briefs On the other side, various legal experts maintain that third parties’ participation, including amicus curiae briefs’ submission, may negatively affect the proceedings due to the following reasons: disregard for the consensual nature of arbitration and risk for confidentiality, unilateral positioning, costs and delays.

 Fach Gómez (2012), p. 545.  Fach Gómez (2012), p. 545. 382  Magraw and Amerasinghe (2008–2009), p. 345. 383  Levine (2011), p. 217. 384  Bartholomeusz (2005), p. 211. 385  Ishikawa (2010), pp. 402–403. 386  See also Chap. 6. Legitimacy. 380 381

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5.3.4.5.1  Disregard for the Consensual Nature of Arbitration and Risks for Confidentiality The consensual nature of arbitration is its essential feature, and the disputing parties perceive it as a significant advantage. In the opinion of some authors, the participation of third parties is not too favourably perceived by disputing parties because it undermines the consensual character of arbitration. These authors argue that tribunals that allow participation of third parties implicitly permit a significant deviation from this established arbitral principle.387 They fear that, by compelling party autonomy restriction and likely engendering deprivation of confidentiality and privacy, the tribunal’s acceptance of an amicus curiae submission would have an adverse impact on arbitration from a practical perspective.388 The loss of confidentiality, they claim, would be detrimental to investors, who would suffer the negative consequences of the diffusion of confidential information, such as adverse publicity or the loss of future business.389 Other commentators suggest that confidentiality can be ensured by means of specific techniques, such as redaction.390 The State may want to keep certain aspects of the case undisclosed as well, because the government might suffer from political pressure or it might consider the disclosure as counterproductive to its interests.391 For these reasons some researchers claim that, if one of the parties does not accept third parties interventions, arbitrators should not authorise it.392 5.3.4.5.2  Unilateral Positioning Some investors claim that amici curiae mostly support the State approach, and that therefore the tribunal can, accepting third parties’ arguments, have a bias towards the State’s position.393 Other scholars argue that tribunals should verify if the prospective third parties are independent of the parties to the dispute.394 The similarity of the State’s and some amici curiae positions is revealed also by the fact that the arguments brought forward are often comparable or even identical.395 Some arbitral decisions stressed that amicus curiae brief shall not create an unfair prejudice to or an undue burden on one of the parties.396 The UNCITRAL Working Group II on

 Newcombe and Lemaire (2001), p. 32.  Boralessa (2004), p. 253. 389  Fach Gómez (2012), p. 553. 390  Tienhaara (2007), p. 230. 391  Ishikawa (2010), p. 393. 392  Fach Gómez (2012), p. 549. 393  Magraw and Amerasinghe (2008–2009), p. 355. 394  Bastin (2012), p. 226. 395  Bjorklund (2009), pp. 1292–1293. 396  Schliemann (2013), p. 380. 387 388

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Arbitration and Conciliation found that, in order to pursue equity and impartiality, when deciding whether to allow for a third-party intervention, tribunals have to distinguish the substantive and the procedural impact of an amicus curiae submission.397 5.3.4.5.3  Costs and Delays Although arbitration has a shorter duration than civil litigation,398 proceedings run, on average, a number of years and entail significant costs: therefore, if the parties have chosen this method of dispute resolution, they most probably do not wish to increase its length and costs. Instead, the disputing parties could, in principle, incur in higher costs and delays associated with amicus curiae briefs. The time and resource consumption that amicus curiae briefs inflict on disputing parties explains why arguments have been raised against investment arbitration, similarly to the critiques addressed to the judicial system.399 Some researchers argue that opening the possibility for amicus curiae to submit their briefs would expose the arbitral proceedings to the same animosity that is usually directed towards judicial litigation.400 In fact, the procedural precautions taken by tribunals, like time restrictions on third party submissions,401 and/or limits to the number of pages of the brief, or joint submissions of more than one NGO to prevent so called ‘opening of the floodgates’ of the briefs, have the purpose to prevent the proceedings from becoming too expensive or delayed. In this way, the burden on the disputing parties can be decreased. Moreover, once amici curiae have submitted their intervention, the disputing parties can respond to their arguments. This might increase the duration and the cost of the arbitration.402 For this reason, to offset costs, sometimes a certain sum is paid in advance by the amicus curiae as reimbursement for the incurred legal fees of the parties.403 Ultimately, the accuracy of information provided by the amicus curiae intervention cannot be considered as ascertained before an assessment thereof is made by the tribunal. It follows that an amicus curiae submission could require an additional assessment which can, in principle, increase costs and delays.404

 UNCITRAL, Report of Working Group II (Arbitration and Conciliation) on the work of its fiftyseventh session, UN Doc. A/CN.9/760, para. 77. 398  Pouget (2013). Contra, UNCTAD (2010), 18, and Plama Consortium v Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005. 399  Fach Gómez (2012), p. 552. 400  Levine (2011), p. 219. 401  UNCITRAL, Transparency Rules, Art. 4(5). 402  Newcombe and Lemaire (2001), p. 33. 403  Friedland (2006), p. 321. 404  Vujanic (2011). 397

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5.3.4.5.4 Repoliticisation A further issue raised by some scholars is that opening the doors to third-party interveners could potentially ‘re-politicise’ disputes,405 transforming a confidential proceeding in a ‘court of public opinion’.406 In turn, such politicisation could raise fierce protest against foreign investment, reducing the likelihood of a settlement. Moreover, if demonstrations stir unrest, with the State being unable to halt them, the State itself could lose credibility among foreign investors. Investors fear the negative publicity associated with activists campaigning against foreign investors, which could discourage investors from investing in that country, and lead to a chill of the capital and know-how inflow which is particularly needed by developing countries.407 5.3.4.5.5  Impact on the Parties’ Strategy It has been argued that the submission of amicus curiae briefs may affect the parties’ strategy in the case. In effect, parties could fear the pressure of public opinion, and thus be reluctant to disclose all the information connected to the case, or they could be in some way convinced that revealing some details could damage their interests.408 In particular, some researchers fear that a State involved in multiple parallel arbitrations for alleged similar treaty breaches, can be harmed by the fact that the defence strategy it has undertaken in a case is revealed, giving claimants in other proceedings an advantage in the possibility to successfully oppose it.409 This might happen if amicus curiae requested to have access to documents related to the case, and the tribunal granted permit to release them. However, tribunals are often unwilling to release procedural documents without party consent. An example of this kind of decision has been taken in Aguas del Tunari SA v The Republic of Bolivia: 410 according to the applicable rules (the ICSID Convention and the provision of the Netherlands-Bolivia BIT) the tribunal requested the parties’ consent to release the relevant documents to third parties, but the parties opposed. As a consequence, the tribunal did not allow their release. In Methanex v United States, in its decision on petitions from third persons to intervene as amici curiae issued on 15 January 2001, the tribunal declared: Confidentiality is determined by the agreement of the Disputing Parties as recorded in the Consent Order regarding Disclosure and Confidentiality, forming part of the Minutes of

 Tienhaara (2007), p. 230.  Rubins (2006). 407  Levine (2011), pp. 220–221. 408  Ishikawa (2010), p. 393. 409  Zuleta (2015), p. 420. 410  Aguas dal Tunari SA v The Republic of Bolivia, ICSID Case No. ARB/03/02, Decision on Respondent’s Objections to Jurisdiction, 21 October 2005. 405 406

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Order of the Second Procedural meeting of 7 September 2000. As amici have no rights under Chapter Eleven of NAFTA to receive any materials generated within the arbitration (or indeed any rights at all) they are to be treated by the tribunal as any other members of the public. Accordingly, materials may be disclosed only as allowed in the Consent Order. Of course, pursuant to paragraph 3 of that Order either party is at liberty to disclose the major pleadings, orders and awards of the tribunal into the public domain (subject to redaction of Trade Secret Information). That is however a matter for the Disputing Parties and not the tribunal.411

5.3.4.6 Provisions About Amicus Curiae Briefs in Investment Treaties The comparative analysis of the treaties whose text is available on the UNCTAD website412 shows that the following treaties confer exclusively to the tribunal the power to rule on the admissibility of an amicus curiae submission in a specific proceeding: Benin  – Canada,413 Burkina Faso  – Canada,414 Cameroon  – Canada,415 Canada – Cote d’Ivoire,416 Canada – Kuwait,417 Canada – Mali,418 Canada – Peru,419 Canada – Senegal,420 Canada – Serbia,421 Canada – United Republic of Tanzania.422 Other treaties provide that the applicant serve the application for leave to file a non-disputing party submission, the parties can comment, and then the tribunal decides: Canada  – Jordan,423 Canada  – Latvia,424 Canada  – Republic of Korea FTA,425 Canada  – Slovakia,426 Canada  – Honduras FTA.427 The bilateral treaty between Canada and Latvia establishes specific rules for submissions by the non-­ disputing contracting party.428 The Canada – Czech Republic BIT establishes that

 Methanex Corporation v United States of America, Decision of the tribunal on Petitions from Third Persons to Intervene as “amici curiae”, 15 January 2001, para. 46. 412  UNCTAD, Investment Policy Hub, International Investment Agreements Navigator. 413  Benin - Canada BIT, 2013, in force, Article 34. 414  Burkina Faso – Canada BIT, 2015, signed but not in force, Article 33. 415  Cameroon – Canada BIT 2014, signed but not in force, Article 31. 416  Canada – Côte d’Ivoire BIT 2014, in force, Article 31. 417  Canada – Kuwait BIT 2011, in force, Article 31. 418  Canada – Mali BIT 2014, in force, Article 31. 419  Canada – Peru BIT, 2006, in force, Article 39. 420  Canada – Senegal BIT, 2014, in force, Article 32. 421  Canada – Serbia BIT 2014, in force, Article 32. 422  Canada – United Republic of Tanzania BIT 2013, in force, Article 31. 423  Canada – Jordan BIT 2009, in force, Article 39. 424  Canada – Latvia BIT, 2009, in force, Annex C.III 1. 425  Canada – Republic of Korea FTA, 2014, in force, Article 8.36. 426  Canada – Slovakia BIT 2010, in force, Annex B.III. 427  Canada – Honduras FTA, 2013, in force, Article 10.36. 428  Canada – Latvia BIT, 2009, in force, Annex C.II. 411

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third parties can submit documents upon the request of the tribunal or both disputing parties.429 5.3.4.7 Analysis of Decisions Concerning Amicus Curiae Formal acceptance of a third-party intervention by a tribunal does not imply that the arguments the third party proposes are considered strong and taken into account. Some scholars claim that it is rare that awards refer explicitly to the arguments brought forward by third parties, and even rarer that these arguments are accepted.430 An example of a case where the arbitral tribunal rejected a third-party submission’s argument is von Pezold v Republic of Zimbabwe,431 whereas Biwater Gauff v Tanzania432 represents, by contrast, an example of a case where the argument has explicitly been taken into account in the award. It follows that tribunals may show a willingness to give voice to third parties, provided that the latter cause the smallest disruption possible to the usual arbitral proceedings.433 In this regard, it is now opportune to analyse in more detail the decisions of some of  the most important cases: Aguas del Tunari v Bolivia, Biwater Gauff v Tanzania, Pacific Rim v El Salvador. 5.3.4.7.1  Aguas del Tunari v Bolivia 5.3.4.7.1.1  Overview on Aguas del Tunari v Bolivia The privatisation of the water service infrastructure of its third largest urban centre, Cochabamba, was initiated by Bolivia during the 1990s. Aguas del Tunari S.A. was given in 1999 a concession valid for four decades to take charge of the city’s sewage and water system, side-lining SEMAPA, the state agency which until then managed the water and sewage systems of Cochabamba. The water rates were highly increased by Aguas del Tunari immediately after being appointed, and the city inhabitants began protesting because they could not afford the new rates. A state of emergency with suspension of constitutional rights was declared by the Bolivian government. Inhabitants started to organise protests: eventually the protesters were dispelled through the use of force, with over a hundred people suffering injuries and one boy of 17 years of age dying.

 Canada – Czech Republic BIT 2009, in force, Annex B.II.  Schliemann (2013), p. 389. 431  Bernhard von Pezold and others v Republic of Zimbabwe, ICSID Case No. ARB/10/15, Procedural Order No. 2, 26 June 2012, para. 62. 432  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 5, 2 February 2007, para. 601. 433  Bastin (2012), p. 228. 429 430

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When it was clear that the protests could not be contained, the company surrendered control of the water system and fled abroad. Subsequently, the company filed request for arbitration against Bolivia to recover the estimated profit loss incurred due to the forced departure. 5.3.4.7.1.2  Requests of the Petitioners The Petitioners, La Coordinadora para la Defensa del Agua y Vida, La Federación Departamental Cochabambina de Organizaciones Regantes, Semapa Sur, Friends of the Earth-Netherlands, Oscar Olivera, Omar Fernandez, Father Luis Sánchez, and Congressman Jorge Alvarado, requested: (i) standing to participate as parties in any proceedings that may be convened to determine the claim made by Aguas del Tunari, S.A., in this matter, and all rights of participation accorded to other parties to the claim; (ii) in the alternative, should the status as party be denied to one or more Petitioners, the right to participate in such proceedings as amici curiae, in accordance with the principles of fundamental justice, at all stages of the arbitration, including but not limited to permission –– To make submissions concerning the procedures by which this arbitration will be conducted; –– To make submissions concerning the jurisdiction of this tribunal and, once they are fully known, the arbitrability of the matters the disputing investor has raised; –– To make submissions concerning the merits of Aguas del Tunari’s claims; –– To attend all hearings of the tribunal; –– To make oral presentations during hearings of the tribunal; and –– To have immediate access to all submissions made to the tribunal. (iii) Public disclosure of the statements of claim and defense; memorials and countermemorials; pre-hearing memoranda; supplemental submissions; witness statements and expert reports; transcripts of hearings; appendices and exhibits to any submissions made to the tribunal; and any other submissions made to the tribunal; (iv) That the tribunal open all hearings in this arbitration to the public; (v) That the tribunal visit Cochabamba, Bolivia, and hold public hearings concerning the facts underlying this claim; (vi) That the tribunal permit Petitioners to respond to any arguments by either party to this arbitration concerning this petition, including through attendance at and participation in any hearings in which this petition is discussed; and (vii) An opportunity to amend this petition as further details of this claim become known to the Petitioners (para. 3).434

 Aguas del Tunari v Republic of Bolivia, ICSID Case No. ARB/02/3, Petition of La Coordinadora Para La Defensa del Agua y Vida, La Federación Departamental Cochabambina de Organizaciones Regantes, Semapa Sur, Friends of the Earth-Netherlands, Oscar Olivera, Omar Fernandez, Father Luis Sánchez, and Congressman Jorge Alvarado to the arbitral tribunal, 29 August 2002. 434

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5.3.4.7.1.3  The Tribunal’s Response The tribunal answered: [I]n response to your letter of August 28th 2002 (…) the tribunal has given extended consideration to your request (…). I write to you and your co-petitioners on behalf of the tribunal with our response to the particular requests specified in your petition (…). First, it is the tribunal’s unanimous opinion that your core requests are beyond the power or the authority of the tribunal to grant. The interplay of the two treaties involved (the Convention on the Settlement of Investment Dispute and the 1992 Bilateral Agreement on Encouragements and Reciprocal Protection of Investments between the Kingdom of the Netherlands and Bolivia) and the consensual nature of arbitration places the control of the issues you raise with the parties, not the tribunal. In particular, it is manifestly clear to the tribunal that it does not, absent the agreement of the Parties, have the power to join a non-­ party to the proceedings, to provide access to hearings and, a fortiori, to the public generally; or to make the documents of the proceedings public. Second, the consent required of the Parties to grant the requests is not present (…). Third, the tribunal is of the view that there is not at present a need to call witnesses or seek supplementary non-party submissions at the jurisdictional phase of its work. We hold this view without in anyway prejudging the question of the extent of the tribunal’s authority to call witnesses or receive information from non-parties on its own initiative. (…) given your status as a non-party to this dispute, we necessarily have been careful in our response not to breach the undertakings in our declarations as arbitrators, signed under Arbitration Rules 6(2), to maintain the confidentiality of the proceedings.435

To conclude, the tribunal found that the decision to grant or reject leave to submit amicus curiae briefs was governed by the ICSID Convention and the applicable IIA, and that, in the absence of an agreement between the disputing parties, the tribunal could not grant such leave. 5.3.4.7.2  Biwater Gauff v Tanzania 5.3.4.7.2.1  Overview on Biwater Gauff v Tanzania The investment made by the claimant in Dar es Salaam’s water and sewage system was the focus of the dispute in Biwater Gauff v Tanzania. The failure of the Tanzanian government’s efforts to supply water in Dar es Salaam free-of-charge436 led to the suspension in 1991 of State subsidies for water utilities, forcing them to finance themselves.437 The purpose of this approach was to enhance the supply standard, but the already poor water system infrastructure was further crippled first by floods and then by drought, resulting in an imminent crisis in 1997.438 In response, the

 Letter by the President of the tribunal in the matter of Aguas del Tunari v Republic of Bolivia, ICSID Case No. ARB/02/3, 29 January 2003. 436  Greenhill and Wekiya (2004). 437  Greenhill and Wekiya (2004). 438  Christen et al. (2005), p. 25. 435

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quasi-­ commercial parastatal Dar es Salaam Water and Sewerage Authority (‘DAWASA’) was founded by the Tanzanian government to provide water services.439 However, with funding from donors and support from various entities, including the World Bank, the government also began to search for a private operator to undertake responsibility for water production, transmission, distribution, billing and collection.440 In mid-1997, Tanzania initiated the actual process of finding a private partner, which involved multiple stages and bidding, taking six years to be concluded.441 Biwater Gauff, a partnership of two companies from the UK and Germany, Biwater International Ltd. and HP Gauff Ingenieure GmbH & Co. KG-JBG, placed the sole bid in the last round and secured the contract.442 Before the contract with Biwater Gauff entered into force, water was provided by DAWASA.443 The bid made by Biwater Gauff was accepted, assuming that it would be almost impossible for the private operator to perform worse than DAWASA, but this is precisely what happened.444 A study commissioned by the World Bank later ascertained that the quality of the water, which derives from its chemical, physical, biological, and radiological characteristics, was lower by about 20 percent than the average during the period in which it was managed by DAWASA, the new water connections rate was not improved compared to the pre-lease era, and the collection of water charges rate was lower than the one which was ensured by DAWASA.445 In April 2005, an independent mediator was delegated by Biwater Gauff and Tanzania to renegotiate the contract.446 The draft final report produced by this mediator mentioned that, during the initial year and a half of the contract, the performance of the subsidiary of Biwater Gauff was below the performance it had proposed in the bid, and even below the performance of DAWASA. The latter had been so unsatisfactory to lead the government to make a bid, and then assign the contract to Biwater Gauff. Furthermore, it was observed that the subsidiary of Biwater Gauff had performed increasingly poorly in the last half a year.447 Additionally, at the end of the process of renegotiation, in spite of the fact that the level of collections achieved by DAWASA was lower than the level claimed in the bid made by Biwater Gauff’s subsidiary, the latter refused to pledge achievement of that level.448 The poor water quality induced concern for human health and the environment. On the basis of the

 Christen et al. (2005), p. 23.  Christen et al. (2005), p. 25. 441  Christen et al. (2005), p. 25. 442  Christen et al. (2005), pp. 27–28. 443  Christen et al. (2005), p. 25. 444  Christen et al. (2005), p. 28. 445  Mugisha et al. (2005), p. 12. 446  TRC (2005), p. 12. 447  TRC (2005), p. 47. 448  TRC (2005), p. 54. 439 440

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mediator’s report, the Tanzanian government annulled the lease contract immediately449 and the senior management of Biwater Gauff were expelled from the country after a few weeks.450 After these events, Biwater Gauff terminated its investment in Tanzania. Invoking the BIT concluded between the UK and Tanzania451 in 1994, the company submitted a notice of arbitration. The investor claimed that in the previous months the Tanzanian government had expropriated its investment and violated the duties specified in the UK  -  Tanzania BIT through actions such as contract annulment and expulsion of the senior management. These violations were estimated by Biwater Gauff to have caused it to lose more than USD 20 million.452 National as well as international civil society groups closely monitored the management of Dar es Salaam’s water and sewage system by Biwater Gauff, due to concerns that economically disadvantaged citizens would have even more limited access to water as a result of the water supply being privatised. These civil society groups claimed that several water privatisation projects in African, Latin American and Asian countries had a negative impact on people living below the poverty line and disrupted sustainable development.453 5.3.4.7.2.2  The Claimant’s Request for Confidentiality On 17 July 2006, the claimant filed a request for provisional measures on confidentiality. On 29 September 2006, the arbitral tribunal issued Procedural Order No. 3, making an in-depth analysis of the confidentiality/transparency issue, and highlighting the relationship between the request for transparency and the need to keep procedural integrity. The arbitral tribunal recommended that: For the duration of these arbitration proceedings, and in the absence of any agreement between the parties: (a) all parties refrain from disclosing to third parties:

i. the minutes or record of any hearings; ii. any of the documents produced in the arbitral proceedings by the opposing party, whether pursuant to a disclosure exercise or otherwise; iii. any of the Pleadings or Written Memorials (and any attached witness statements or expert reports); and iv. any correspondence between the parties and/or the arbitral tribunal exchanged in respect of the arbitral proceedings. (b) All parties are at liberty to apply to the arbitral tribunal in justified cases for the lifting or variation of these restrictions on a case-by-case basis.

 Abdul-Aziz (2005).  Biwater Plc, Press Release, ‘City Water and the Government of Tanzania’, Water Technology (2 June 2005). 451  UK-Tanzania BIT, 1994. 452  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 1, 31 March 2006, para. 1. 453  Hall and Lobina (2006). 449 450

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(c) Any disclosure to third parties of decisions, orders or directions of the arbitral tribunal (other than awards) shall be subject to prior permission by the arbitral tribunal. (d) For the avoidance of doubt, the parties may engage in general discussion about the case in public, provided that any such public discussion is restricted to what is necessary, and is not used as an instrument to antagonise the parties, exacerbate their differences, unduly pressure one of them, or render the resolution of the dispute potentially more difficult, or circumvent the terms of this Procedural Order.454

5.3.4.7.2.3  The Petition for Amicus Curiae Status and the Subsequent Procedure On 27 November 2006, the following five Petitioners filed with the ICSID Secretariat a Petition for amicus curiae status:455 –– –– –– –– ––

The Lawyers’ Environmental Action Team (LEAT); The Legal and Human Rights Centre (LHRC); The Tanzania Gender Networking Programme (TGNP); The Center for International Environmental Law (CIEL); and The International Institute for Sustainable Development (IISD).

In the award, rendered on 24 July 2008, they are collectively referred to as the ‘Petitioners’ or ‘Amici’).456 The Secretariat forwarded the Petition and its appendices to the arbitral tribunal on 27 November 2006.457 On 1 December 2006, the arbitral tribunal invited the parties to submit by 18 December 2006: (i) in accordance with Arbitration Rule 37(2), any observations they might have regarding the Petitioners’ participation in the written phase of the proceedings; and (ii) in accordance with Arbitration Rule 32(2), any observations they might have on the Petitioners’ attending or observing all or part of any forthcoming hearing in the case.458 On 2 February 2007, the arbitral tribunal issued Procedural Order No. 5, granting the Petitioners the opportunity to file a written submission in the arbitral proceedings, pursuant to Arbitration Rule 37(2).459 Concerning the other three modalities to participate, that is: a) being present at hearings, and possibly making oral submissions, b) accessing to the documents on

 Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006, para. 51. 455  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Petition for Amicus Curiae Status, 27 November 2006. 456  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 57. 457  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 58. 458  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 59. 459  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 62. 454

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the record, c) responding to possible questions put by the tribunal, the panel decided in the following way: a) Being present at hearings Pursuant to Arbitration Rule 32(2), and taking into account Biwater Gauff’s objection to the presence of the Petitioners at the hearing, the arbitral tribunal noted that it had no power to permit the Petitioners’ presence or participation at the hearing, and accordingly rejected the application in this regard.460 b) Accessing to the documents on the record As explained in detail in Procedural Order No. 5, the tribunal further decided that, for the time being, and pending a further ruling after the April hearing, the Petitioners’ application for access to the documents filed by the parties in the arbitration ought not to be granted, in particular given the ambit and function of the Petitioners’ submission.461 c) Responding to possible questions put by the tribunal It reserved the right to ask the Petitioners specific questions in relation to their written submission, and to request the filing of further written submissions and/or documents or other evidence, which might assist in better understanding the Petitioners’ position, whether before or after the hearing.462 5.3.4.7.2.4  The Tribunal’s Procedural Orders Notwithstanding the opposition of the claimant, the tribunal permitted the involvement of the amici curiae.463 Indeed, the claimant had argued that the concerns of the amici curiae were factually and legally irrelevant to the issues to be decided by the arbitral tribunal: ‘The dispute between the parties arises out of the privatisation and investment that in fact took place, and that no issues arise as to whether the Republic ought to have involved the private sector in the water supply process in the first instance; what form of private sector participation should have been employed (if any); or whether the purported termination of the lease contract was a failure of the concept of private sector participation in general.’

 Biwater Gauff (Tanzania) Ltd. Award, 24 July 2008, para. 65. 461  Biwater Gauff (Tanzania) Ltd. Award, 24 July 2008, para. 64. 462  Biwater Gauff (Tanzania) Ltd. Award, 24 July 2008, para. 65. 463  Biwater Gauff (Tanzania) Ltd. Award, 24 July 2008, para. 356. 460

v United Republic of Tanzania, ICSID Case No. ARB/05/22, v United Republic of  Tanzania, ICSID Case No. ARB/05/22, v United Republic of Tanzania, ICSID Case No. ARB/05/22, v United Republic of Tanzania, ICSID Case No. ARB/05/22,

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Further, Biwater Gauff submitted that no environmental issues arise for determination in this case and that the arbitration raises no issues of sustainable development.464 For this reason, the claimant argued that the petitioners could add nothing regarding the issues to be determined that could not be said by either party. However, ICSID Arbitration Rule 37(2) requires precisely that the Non-Disputing Party brings particular knowledge or insight that is different from that of the disputing parties. Consequently, the claimant requested the arbitral tribunal to reject the petitioner’s application.465 However, the arbitral tribunal did not accept the claimant’s position: ‘The arbitral tribunal noted that it is mandated to resolve claims as between BGT and the Republic, but also recognised that this arbitration raises a number of issues of concern to the wider community in Tanzania. It was therefore not inappropriate that the arbitral process permit some participation of interested non-disputing parties. It was also important that the arbitral tribunal be provided with information and submissions on the issues in dispute from all relevant standpoints. To this end, the arbitral tribunal respectfully adopted the words of the arbitral tribunal in Methanex v United States of America,466 “there is an undoubtedly public interest in this arbitration. The substantive issues extend far beyond those raised by the usual transnational arbitration between commercial parties. This is not merely because one of the Disputing Parties is a state: there are of course disputes involving states which are of no greater general public interest than a dispute between private persons. The public interest in this arbitration arises from its subject-matter, as powerfully suggested in the Petitions. There is also a broader argument, as suggested by the Respondents and Canada: the … arbitral process could benefit from being perceived as more open or transparent; or conversely be harmed if seen as unduly secretive. In this regard, the tribunal’s willingness to receive amicus submissions might support the process in general and this arbitration in particular, whereas a blanket refusal could do positive harm.”’467

On the contribution of the Petitioners, the tribunal noted that: The five Petitioners comprise NGOs with specialised interests and expertise in human rights, environmental and good governance issues locally in Tanzania. They approach the issues in this case with interests, expertise and perspectives that have been demonstrated to materially differ from those of the two contending parties, and as such have provided a useful contribution to these proceedings.468

With regard to access to the documents on the record, the tribunal established that: In the course of their application, the Petitioners applied to have access to a very wide range of the documents that had been produced by the parties for the purposes of these proceed Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 357. 465  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 357. 466  Methanex v United States of America (UNCITRAL Arbitration), Decision on Petitions from Third Persons to Intervene as Amici Curiae of 15 January 2001, para. 49. 467  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 358. 468  Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 359. 464

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ings. This was resisted by BGT, who suggested that the scope of documents sought by the Petitioners was suggestive of a broader wish on their part to engage in, and monitor, the proceedings as a matter of general interest, rather than a desire to provide assistance to the arbitral tribunal in relation to a particular subject matter.469

The tribunal clarified the role of amici curiae: It was important to be clear as to the proper role of a “non disputing party”, or amicus curiae in any given case. In this case, given the particular qualifications of the Petitioners, and the basis for their intervention as articulated in the Petition, it was envisaged that the Petitioners would address broad policy issues concerning sustainable development, environment, human rights and governmental policy. These, indeed, are the areas that fell within the ambit of Rule 37(2)(a) of the ICSID Arbitration Rules. Given the generalised nature of the Petitioners’ interests and participation, what was not expected was that the Petitioners (a) would consider themselves as simply in the same position as either party’s lawyers, or (b) that they would see their role as suggesting to the arbitral tribunal how issues of fact or law as presented by the parties ought to be determined (which is obviously the sole mandate of the arbitral tribunal itself).470

Concluding its assessment, the tribunal reflected on the public relevance of the case: This was a very public and widely reported dispute. The broad policy issues on which the Petitioners are especially qualified are ones which were in the public domain, and about which each Petitioner was already very well acquainted. These, after all, were the very issues that led to their application to intervene in these proceedings. The arbitral tribunal concluded that none of these types of issue required – at least for the Petitioners’ first filing – disclosure of documents from the arbitration.471

With regard to the chance for the petitioners to be present to hearings, the tribunal observed that, as Biwater Gauff objected to the petitioners’ attendance to the hearings, pursuant to ICSID Arbitration Rule 32(2) the arbitral tribunal had no power to allow it.472 5.3.4.7.2.5  The Tribunal’s Substantive Decisions The tribunal found that the petitioners provided information and views relevant to the task of the arbitral tribunal,473 and referred to them in the award, recapitulating their key issues.474 Evidence that the tribunal has found the amici curiae’s remarks

 Biwater Gauff (Tanzania) Ltd. v United Award, 24 July 2008, para. 365. 470  Biwater Gauff (Tanzania) Ltd. v United Award, 24 July 2008, para. 366. 471  Biwater Gauff (Tanzania) Ltd. v  United Award, 24 July 2008, para. 367. 472  Biwater Gauff (Tanzania) Ltd. v  United Award, 24 July 2008, para. 369. 473  Biwater Gauff (Tanzania) Ltd. v  United Award, 24 July 2008, para. 370. 474  Biwater Gauff (Tanzania) Ltd. v United Award, 24 July 2008, paras. 371–391. 469

Republic of Tanzania, ICSID Case No. ARB/05/22, Republic of Tanzania, ICSID Case No. ARB/05/22, Republic of Tanzania, ICSID Case No. ARB/05/22, Republic of Tanzania, ICSID Case No. ARB/05/22, Republic of Tanzania, ICSID Case No. ARB/05/22, Republic of Tanzania, ICSID Case No. ARB/05/22,

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helpful is given by its observation that their submissions informed the tribunal’s analysis. In conclusion, the tribunal highlighted that: In applying the general threshold as articulated (in particular) by the tribunal in Waste Management v Mexico (No. 2), the arbitral tribunal has also taken into account the submissions of the Petitioners, as summarised earlier, which emphasise (…) factors such as the responsibility of foreign investors, both in terms of prior due diligence as well as subsequent conduct; the limit to legitimate expectations in circumstances where an investor itself takes on risks in entering a particular investment environment; and the relevance of the parties’ respective rights and obligations as set out in any relevant investment agreement.475

5.3.4.7.3  Pacific Rim Cayman LLC v Republic of El Salvador 5.3.4.7.3.1 Overview According to Pacific Rim, a United States investor with investments in the Republic of El Salvador, El Salvador created a legal framework designed to facilitate foreign investment in its mining industry; El Salvador’s representatives induced Pacific Rim to invest millions of US dollars between 2002 and 2008  in exploration, and the investor believed that it would be allowed to exploit minerals in designated sites. However, after the announcement of a ban on metallic mining by the host State’s President Saca in March 2008, the government swept aside the legal and regulatory regime upon which the investor had relied, depriving it of the value of its investment in El Salvador.476 The respondent argued that the investor purchased exploration rights in El Salvador when time was running short to apply for a mining exploitation concession. In order to be entitled to extract minerals upon the successful completion of the exploration phase, Pacific Rim applied to obtain the needed environmental permit, but did not complete the required feasibility study. Moreover, the local population raised strong concerns of pollution arising from the extraction of gold and silver. A period of social unrest began, where several people lost their life. In the opinion of the respondent, the investor decided to make a gamble and failed, and instead of accepting the consequences of its own business decisions, the investor started the arbitration in order to force the respondent to grant a gold mining concession to which it never had any legal right.477

 Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, para. 601. 476  Pacific Rim Cayman LLC v Republic of El Salvador, ICSID Case No. ARB/09/12, award, 14 October 2016, para. 392. 477  Pacific Rim Cayman LLC v Republic of El Salvador, ICSID Case No. ARB/09/12, award, 14 October 2016, para. 3.17. 475

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5.3.4.7.3.2  The Tribunal’s Order Concerning Amicus Curiae Submissions In consideration of the relevant public interest in the case, on 10 June 2010 the tribunal issued an order concerning amicus curiae submissions. The order was made available on ICSID’s website, and provided that: In accordance with Article 10.20.3 of the Dominican Republic-Central America-United States Free Trade Agreement (DR-CAFTA-US) and ICSID Arbitration Rule 37(2), the tribunal invites any person or entity that is not a Disputing Party in these arbitration proceedings or a Contracting Party to DR-CAFTA-US to make a written application to the tribunal for permission to file submissions as an amicus curiae.478

Other provisions in the same paragraph specified the procedure which should be followed in submitting the documents. However, no such submissions were received under CAFTA Article 10.20(2), and no applications were received by the tribunal pursuant to its order made under CAFTA Article 10.20(3) and ICSID Arbitration Rule 37(2).479 As a consequence, although the tribunal itself requested submissions by amici curiae, demonstrating willingness to welcome them and take them into consideration in order to assess the possibility to integrate some of their relevant points in the award, no submission has been presented. Hereafter, the Center for International Environmental Law (‘CIEL’) filed an application as amicus curiae through submissions dated 2 March 2011480 and 20 May 2011,481 and such application was accepted by the tribunal.482 5.3.4.8 Non-disputing Party Intervention, Amicus Curiae Submission, Diplomatic Protection: Analogies and Differences In the present Section, the term ‘non-disputing party’ is used according to the definitions provided by the CAFTA, the CETA, the ICSID Convention Rules, and the ICSID Additional Facility Rules. This definition differs from the one used in the statement of the Free Trade Commission on non-disputing party participation, annexed to the NAFTA, that under Article A1 qualified the term ‘non-disputing party’ as ‘a person or entity that is not a disputing party’. In such a way, NAFTA defined as ‘non-disputing parties’, those who fall under the scope of ‘amici curiae’

 Pacific Rim Cayman LLC v Republic of El Salvador, ICSID Case No. ARB/09/12, award, 14 October 2016, para. 1.24. 479  Pacific Rim Cayman LLC v Republic of El Salvador, ICSID Case No. ARB/09/12, award, 14 October 2016, para. 1.25. 480  Pac Rim Cayman LLC v Republic of El Salvador, ICSID Case No. ARB/09/12 Application For Permission To Proceed As Amici Curiae, 2 March 2011. 481  Pac Rim Cayman LLC v Republic of El Salvador, ICSID Case No. ARB/09/12 Submission Of Amicus Curiae Brief, 20 May 2011. 482  Pac Rim Cayman LLC v The Republic of El Salvador, ICSID Case No. ARB/09/12, Award, 14 October 2016, paras. 1–48. 478

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in other agreements. On the contrary, the NAFTA called simply ‘Party’ the treaty-­ signatory country that was neither the respondent State nor the home State of the investor in that particular dispute. After this clarification, the legal instruments of non-disputing party, amicus curiae submission, and diplomatic protection can be examined. The non-disputing party submission presents some analogies with the amicus curiae submission: in both cases, an entity not party to the dispute submits a document to the arbitral tribunal, believing that the latter should take its content into consideration in order to issue a correct and fair award. Nevertheless, there are relevant differences: 1) whereas a State can have both the role of amicus curiae and the one of non-disputing party (if the applicable rules allow so), a private individual or association can only take the role of amicus curiae; 2) if the applicable IIA provides for a non-disputing party submission, the tribunal does not need to consult the parties on its admissibility; 3) with regard to the scope of the submission’s content, whereas amici curiae’s briefs may concern matters of fact and law, a State’s submission under NAFTA could only refer to the interpretation of the treaty itself. Concerning the comparison between non-disputing party submission and diplomatic protection, such analogy is fulfilled only when the non-disputing State submission is filed by the home State of the investor. Some researchers highlight that it is unlikely for diplomatic protection to be renewed as a result of the arguments articulated by the State parties that are not the investor’s home State.483 Furthermore, with reference to the measures that a State may implement when it exercises diplomatic protection, a number of judicial decisions clearly differentiate ‘diplomatic action’ from ‘judicial proceedings’.484 ‘Diplomatic action’ refers to all the legitimate methods that a State may use to convey its concerns and perspectives to a different State, such as protest and request for an inquiry or negotiations intended to solve a dispute. All types of dispute settlement, including negotiation, mediation, conciliation, and arbitral and judicial dispute settlement are encompassed under the expression ‘other means of peaceful settlement’. State representatives acting on behalf and in the interest of the State are responsible for undertaking diplomatic protection, which is intended to rectify an act that is considered unlawful at international level. Therefore, in diplomatic protection as well as in non-disputing party submission, the State acts in its own interest with the intent to remedy an internationally wrongful act. For these reasons, some scholars affirm that non-disputing party submissions might represent a re-emergence of diplomatic protection.485

 Kaufmann-Kohler (2012), p. 314; Hunter and Barbuk (2003).  Mavrommatis Palestine Concessions, Greece v Britain, Permanent Court of International Justice, Judgment, 30 August 1924; Panevezyś-Saldutiskis Railway case, Estonia v Lithuania, Permanent Court of International Justice, Judgment, 28 February 1939; Nottebohm case (Liechtenstein v Guatemala), Second Phase Judgment, 6 April 1955. 485  Kaufmann-Kohler (2012), n. 74. 483 484

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However, research found that it is important to draw a difference between two circumstances in non-disputing party intervention: (i) the situation where a State writes about the abstract manner in which a treaty is interpreted; and (ii) the situation where a State provides its own perspective on the facts.486 According to some researchers, non-disputing party submissions on treaty interpretation are allowed in most situations, but non-disputing party submissions on facts may present some issues,487 because they make the limits between non-­ disputing party submission and diplomatic protection ambiguous. They propose that non-disputing party submissions on facts be denied based on Article 27 of the ICSID Convention to interpret the relevant arbitration rules.488 Other scholars go further, and reject non-disputing party submissions on facts, considering them inadmissible, both if they support the claimant or the respondent.489 The discrepancy between non-disputing party submissions on interpretation and non-disputing party submissions on facts is coherent with the position of the United States as a non-disputing party in S.D. Myers v Canada, and in Chemtura v Canada: ‘[t]he United States does not, through this submission, take a position on how the following interpretation applies to the facts of this case.’490 In any event, undoubtedly the manner in which a treaty is interpreted as well as the manner in which it is applied to specific disputes is of interest to home States. For this reason, a non-disputing State party may consider the possibility of circumventing the limits set by NAFTA Article 1128, and file an amicus curiae brief focusing on the facts of the specific dispute.491 Nevertheless, non-disputing State party submissions are part of structured arbitral proceedings and are therefore different from diplomatic consultations.492 In fact, the distinction between diplomatic protection and other State interventions in dispute settlement mechanisms was also discussed in Pac Rim Cayman v El Salvador. In the decision on the respondent’s jurisdictional objections as regards Article 27(1) of the ICSID Convention precluding diplomatic protection in respect of a dispute subject to ICSID arbitration before an award is rendered in such dispute, the tribunal did not consider that the procedures envisaged by Articles 18.3 and 20.4 of the CAFTA amount to the exercise of diplomatic protection by a CAFTA Party.493

 Alschner (2014), p. 192.  Kaufmann-Kohler (2012), pp. 319–324. 488  Kaufmann-Kohler (2012), pp. 319–324. 489  Weiler (2001). 490  Submissions of this kind have been made by the United States in S.D. Myers, Inc. v Government of Canada, UNCITRAL, United States Article 1128 Submission, para. 1, 18 September 2001; and in Chemtura Corp. v Government of Canada, UNCITRAL, United States 1128 Submission, para. 1, 31 July 2009. 491  Alschner (2014), p. 192. 492  Kaufmann-Kohler (2012), pp. 307–326. 493  Pac Rim Cayman LLC v the Republic of El Salvador, ICSID Case No. ARB/09/1, Decision on the Respondent’s Jurisdictional Objections, para. 4.87. 486 487

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The tribunal specified that, in its view, the two CAFTA procedures envisaged by Articles 18.3 and 20.4 of the CAFTA do not amount to diplomatic protection under international law, regardless of the consular practice of a CAFTA Party, including the United States.494 Research has examined the hypothesis that non-disputing party submissions could create a bias in favour of the respondent State. Even though some scholars stressed that ‘[t]he days when a government would lend its support for a claim made by its investor against another country appear to have passed into history’,495 this does not imply that non-disputing parties uncritically support the respondent State’s position. In the opinion of Pearce and Coe, NAFTA Parties are unlikely to support interpretations and theories of recovery that increase their own exposure to claims.496 This is because NAFTA Parties want to strike a balance between the protection of foreign investors as home States of investors and their own regulatory power as host States.497

5.3.5 Public Access to Hearings 5.3.5.1 Essentials of Public Access to Hearings As an important component of a legal community that has achieved a certain level of maturity, the public nature of judicial proceedings is a basic principle in public law, being inherent in the appropriate ‘rule of law’ and the concept of ‘fair trial’. This is dealt, for example, by Article 6(1) of the European Convention on Human Rights, which provides that, in the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.498 This principle is also enshrined in Article 10 of the Universal Declaration of Human Rights, which affirms that 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.499

 Pac Rim Cayman LLC v the Republic of El Salvador, ICSID Case No. ARB/09/1, Decision on the Respondent’s Jurisdictional Objections, para. 4.89. 495  Weiler (2002), p. 348. 496  Pearce and Coe (2000), p. 338. 497  Alschner (2014), p. 192. 498  European Convention on Human Rights. 499  The Universal Declaration of Human Rights. See also European Court of Human Rights, Guide on Article 6 of the European Convention of Human Rights, Right to a Fair Trial (criminal limb), 30 April 2022. 494

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Building confidence in the legal system depends on public access to national judicial proceedings: this allows to observe the judiciary functions.500 However, as a general rule, these principles are inapplicable to traditional arbitration as a form of private settlement of disputes, because the parties may wish to keep the hearing confidential.501 Accordingly, it is important to question the extent to which the matter of public access to hearings in investment arbitration differs compared to the same matter in commercial arbitration. This issue will be discussed taking into consideration multilateral agreements, bilateral treaties, and the arbitration rules of some important arbitral institutions. 5.3.5.2 Public Access to Hearings in Multilateral Agreements This Section will examine certain multilateral agreements, with the aim to verify whether there are specific provisions governing public access to hearings. In CETA, public access to hearings is governed by Article 8.36. CETA, Article 8.36: Transparency of proceeding 5. Hearings shall be open to the public. The tribunal shall determine, in consultation with the disputing parties, the appropriate logistical arrangements to facilitate public access to such hearings. If the tribunal determines that there is a need to protect confidential or protected information, it shall make the appropriate arrangements to hold in private that part of the hearing requiring such protection.502

Not only does Article 8.36 of the CETA provide that the public may be present to hearings: it also mandates that the tribunal is responsible for solving potential logistics issues linked to public participation. It is established also that the same tribunal shall decide whether to take measures for the protection of confidential information. In the European Commission’s text of the proposal for the TTIP, Articles 22 and 23 of Chapter II – Investment provide that: TTIP, Article 22 The non-disputing Party to the Agreement 2. The non-disputing Party has the right to attend a hearing held under this Section. TTIP, Article 23 Intervention by third parties 3. If the application to intervene is granted, the intervener shall receive a copy of every procedural document served on the disputing parties, save, where applicable, confidential documents. The intervener may submit a statement in intervention within a time period set by the tribunal after the communication of the procedural documents. The disputing parties shall have an opportunity to reply to the statement in intervention. The intervener shall be permitted to attend the hearings held under this Chapter and to make an oral statement.503  Paolo Bargiacchi (2015).  Caron and Caplan (2013), p. 607. 502  Article 8.36 CETA. 503  Articles 22 and 23, Section II – Investment, TTIP. 500 501

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The text of these provisions emphasises that, whereas a non-disputing party enjoys the right to participate to hearings, third parties must apply for leave to intervene, and only if this is granted they can attend hearings. Concerning NAFTA, two similar statements were issued by the United States and Canada to provide public access to hearings related to proceedings initiated under Chapter Eleven: it is stated therein that the United States and Canada will consent, and will request the consent of disputing investors and, as applicable, tribunals, that hearings in Chapter Eleven disputes to which they are parties be open to the public, except to ensure the protection of confidential information, including business confidential information. They recommend that tribunals determine the appropriate logistical arrangements for open hearings in consultation with disputing parties, and suggest that these arrangements may include, for example, use of closed-circuit television systems, Internet webcasting, or other forms of access.504 However, as only an amendment to NAFTA could create a legally binding requirement, these statements were not binding on tribunals. 5.3.5.3 Public Access to Hearings in Bilateral Agreements From the examination of a number of bilateral treaties,505 it can be observed that a good number of treaties provides for public access to hearings: Benin – Canada,506 Burkina Faso  – Canada,507 Cameroon  – Canada,508 Canada  – Cote d’Ivoire,509 Canada  – Jordan,510 Canada  – Kuwait,511 Canada  – Latvia,512 Canada  – Mali,513 Canada  – Nigeria,514 Canada  – Peru,515 Canada  – Republic of Korea FTA,516 Canada – Senegal,517 Canada – Serbia,518 Canada – Slovakia,519 Canada – United

 US, ‘Statement on Open Hearings in NAFTA Chapter Eleven Arbitrations’, 7 October 2003; Canada, ‘Statement on Open Hearings in NAFTA Chapter Eleven Arbitrations’, 7 October 2003. 505  UNCTAD, Investment Policy Hub, International Investment Agreements Navigator. 506  Benin - Canada BIT 2013, in force, Article 33.2. 507  Burkina Faso – Canada BIT, 2015, signed but not in force, Article 32.2. 508  Cameroon – Canada BIT 2014, signed but not in force, article 30.2. 509  Canada – Côte d’Ivoire BIT 2014, in force, Article 30.2. 510  Canada – Jordan BIT 2009, in force, Article 38.1. 511  Canada – Kuwait BIT 2011, in force, Article 30.2. 512  Canada – Latvia BIT, 2009, in force, Annex C. 1. 513  Canada – Mali BIT 2014, in force, Article 30.1. 514  Canada – Nigeria BIT 2014, signed but not in force, Article 31.2. 515  Canada – Peru BIT, 2006, in force, Article 38.1. 516  Canada – Republic of Korea FTA, 2014, in force, Article 8.35(2). 517  Canada – Senegal BIT, 2014, in force, Article 31.2. 518  Canada – Serbia BIT 2014, in force, Article 31.2. 519  Canada – Slovakia BIT 2010, in force, Annex B.1. 504

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Republic of Tanzania,520 Canada  – Honduras,521 Colombia  – Peru,522 Colombia  – Costa Rica,523 Mexico  – Panama FTA,524 New Zealand  – Taiwan Economic Cooperation Agreement,525 Protocol Pacific Alliance,526 Republic of Korea – New Zealand FTA,527 Rwanda – United States of America,528 United States of America – Uruguay.529 Some treaties give the possibility to open the hearings to the public, after having consulted the disputing parties: Australia – Republic of Korea FTA,530 Canada  – Czech Republic BIT.531 Finally, the China  – Australia Free Trade Agreement (‘ChAFTA’) allows tribunals to keep the hearings open to the public, with the parties’ consent.532 From the analysis of these treaties, it can be deduced that the countries that more decisively promote transparency, favouring hearings open to the public or with minor formalities, are Canada, Colombia, New Zealand, and United States of America. Following a complementary interpretation, it could be hypothesised that Canada and the United States may be able to pressure for the adoption of certain clauses in IIA negotiations, present in their model BIT and FIPA, due to their stronger negotiation power compared to other States. 5.3.5.4 Public Access to Hearings Under Arbitration Rules This Section will address the arbitration rules of the most relevant arbitration institutions. Although in the opinion of many researchers investor-State arbitration has a public law character, the features delineated in the arbitration rules do not always support this perspective.533 In fact, Article 28(3) of the 2012 PCA Arbitration Rules affirms: Hearings shall be held in camera unless the parties agree otherwise. The arbitral tribunal may require the retirement of any witness or witnesses, including expert witnesses, during

 Canada – United Republic of Tanzania BIT 2013, in force, Article 30.2.  Canada – Honduras FTA, 2013, in force, Article 10.35(1). 522  Colombia – Peru BIT 2007, in force, Article 26.5. 523  Colombia – Costa Rica FTA 2013, signed but not in force, Article 12.23(2). 524  Mexico – Panama FTA, 2014, signed but not in force, Article 10.22(2). 525  New Zealand – Taiwan Economic Cooperation Agreement, 2013, in force, Article 27.2. 526  Protocol Pacific Alliance, 2014, in force, Article 17.8(1). 527  Republic of Korea – New Zealand FTA, 2015, in force, Article 10.27(2). 528  Rwanda – United States of America BIT, 2008, in force, Article 29.2. 529  United States of America- Uruguay BIT, 2005, in force, Article 29.2. 530  Australia – Republic of Korea FTA, 2014, in force, Article 11.21(2). 531  Canada – Czech Republic BIT 2009, in force, Annex 8. 1. 532  Free Trade Agreement Between The Government of Australia and The Government of The People’s Republic of China, 2015, in force, article 9.17(3). 533  Among them: Kulick (2012); Van Harten (2007); Van Harten and Loughlin (2006), p. 121. 520 521

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the testimony of such other witnesses, except that a witness, including an expert witness, who is a party to the arbitration shall not, in principle, be asked to retire.534

Article 32(3) of the 2017 SCC Arbitration Rules states that, unless otherwise agreed by the parties, hearings will be held in private.535 Article 26(3) of the 2021 ICC Arbitration Rules establishes that the arbitral tribunal shall be in full charge of the hearings, at which all the parties shall be entitled to be present. It provides also that, save with the approval of the arbitral tribunal and the parties, persons not involved in the proceedings shall not be admitted.536 Article 19(4) of 2020 LCIA Arbitration Rules states that all hearings shall be held in private, unless the parties agree otherwise in writing.537 As it can be observed, these articles contain rules on the private nature of the arbitral procedure, confirming the traditional position held in the framework of commercial arbitration. ICSID commenced in 2004 a review of its arbitration rules in response to growing pressure to enhance transparency in investment arbitration.538 Empowering ICSID tribunals to make hearings accessible to the public regardless of party approval was among the suggested amendments.539 The Secretariat presented the following text: After consultation with the Secretary-General and with the parties as far as possible, the tribunal may allow other persons, besides the parties, their agents, counsel and advocates, witnesses and experts during their testimony, and officers of the tribunal, to attend or observe all or part of the hearings.540

The ICSID Administrative Council voted down the suggested review541 and chose the following phrasing instead: ICSID Arbitration Rule 32(2) Unless either party objects, the tribunal, after consultation with the Secretary-General, may allow other persons, besides the parties, their agents, counsel and advocates, witnesses and experts during their testimony, and officers of the tribunal, to attend or observe all or part of the hearings, subject to appropriate logistical arrangements. The tribunal shall for such cases establish procedures for the protection of proprietary or privileged information.542

 PCA Arbitration Rules 2912, Article 28 (3) 1.  SCC Arbitration Rules 2017, Article 32(3). 536  ICC Arbitration Rules 2021, Article 26(3). 537  LCIA Arbitration Rules 2020, Article 19(4). 538  ICSID Secretariat, ‘Possible Improvements of the Framework for ICSID Arbitration’ (ICSID Secretariat 127 Discussion Paper, 22 October 2004). 539  Menaker (2010), p. 157. 540  ICSID, ‘Suggested Changes to the ICSID Rules and Regulations’ (Working Paper of the ICSID Secretariat, 2005). 541  Asteriti and Tams (2010), p. 794. 542  ICSID, Arbitration Rules, Rule 32 (2). 534 535

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In this way, the decision to make hearings publicly accessible falls on the tribunal, unless either party objects.543 The same changes were made to the Additional Facility Arbitration Rules, Rule 39(2).544 The amendment involved replacing a ‘consent rule’ with a ‘veto rule’, whereby the tribunal has the power to make independent decisions about providing public access to hearings without the need to previously obtain the approval of the parties, whereas the latter can only contest the tribunal’s decisions if they do not agree with them.545 The decision on the confidentiality of the proceedings is still in the hands of the parties: it follows that hearings in investment disputes are open to the public only where the parties have so agreed. Article 28(3) of the UNCITRAL Arbitration Rules provides that hearings shall be held in camera unless the parties agree otherwise.546 This Article corresponds to Article 25(4) of the 2010 UNCITRAL Arbitration Rules, which was applied in a number of cases governed by NAFTA Chapter Eleven. Among them, the tribunal in Methanex v United States found in its decision on amici curiae: The Claimant’s reliance on Article 25(4) or the UNCITRAL Arbitration Rules to the effect that hearings are to be held in camera is not relevant to the Petitioners’ request to serve written submissions to the tribunal. In the tribunal’s view, there are no further provisions under the UNCITRAL Arbitration Rules that modify the application of its: general power under Article 15 (I) to allow the Petitioners to make such submissions in this arbitration.547 However, the claimant’s reliance on Article 25(4) is relevant to the Petitioners’ request to attend hearings and to receive copies of all submissions and materials adduced before the tribunal. Article 25(4) provides that: “[Oral] Hearings shall be held in camera unless the parties agree otherwise ...”. The phrase “in camera” is clearly intended to exclude members of the public, i.e. non-party third persons such as the Petitioners. As the travaux préparatoires disclose, the UNCITRAL drafting committee deleted a different provision in an earlier draft which could have allowed the arbitration tribunal to admit into a hearing persons other than the parties. However, as discussed further below, Article 25(4) relates to the privacy of the hearings of the arbitration; and it does not in like terms address the confidentiality of the arbitration.548 As to privacy, the respondent has accepted that, as a result of Article 25(4), hearings are to be held in camera unless both disputing parties consent otherwise. The respondent has given such consent. The claimant has given no such consent. The tribunal must therefore apply Article 25(4); and it has no power (or inclination) to undermine the effect of its terms. It follows that the tribunal must reject the Petitioners’ requests to attend hearings of the arbitration.549

 ICSID, Arbitration Rule 32(2).  Rule 39(2), ICSID Additional Facility Rules. 545  Plagakis (2013), p. 90. 546  Article 28(3), UNCITRAL Arbitration Rules. 547  Methanex Corporation v United States of America, Decision of the Tribunal on Petitions from Third Persons to Intervene as “Amici Curiae”, 15 January 2001, para. 40. 548  Methanex Corporation v United States of America, Decision of the Tribunal on Petitions from Third Persons to Intervene as “Amici Curiae”, 15 January 2001, para. 41. 549  Methanex Corporation v United States of America, Decision of the Tribunal on Petitions from Third Persons to Intervene as “Amici Curiae”, 15 January 2001, para. 42. 543 544

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It emerges that, when the applicable treaty is silent on the publicity of hearings, many of the arbitral rules provide that the parties can agree on making the hearings public, or they can express their opposition. In practice, public access had been granted to the majority of hearings governed by NAFTA Chapter Eleven since 2004, when the United States and Canada issued their statements on this issue. In 2010, webcasting550 was used for the first-time in Pac Rim Cayman LLC v Republic of El Salvador,551 under the ICSID Arbitration Rules on the basis of the Dominican Republic  – Central America FTA (‘CAFTA  – DR FTA’). Research stressed that this decision was a major step towards increasing transparency in international arbitrations, because it enables the public and the press to watch the proceedings, even if they cannot physically attend them.552 With regard to other arbitration rules, and considering the traditional privacy of arbitration proceedings, it may be assumed that public access is rarely provided in proceedings.553 5.3.5.5 Case-Law 5.3.5.5.1  Methanex v United States Methanex, a Canadian investor, produced and distributed methanol, a key ingredient for the production of the compound Methyl tert-butyl ether (‘MTBE’), a gasoline additive, used as an oxygenate to raise the octane rating. When California banned the use or making available on the market of MTBE through a California Executive Order, Methanex filed a request for arbitration against the United States554 based on NAFTA under the UNCITRAL Rules, alleging expropriation, violation of fair and equitable treatment, and breach of national treatment, claiming damages for a total of USD 970 million.555 The United States justified the prohibition of MTBE by invoking a scientific report that indicated that use of MTBE increased the probability of contamination of potable water following leaks from subsurface tanker and pipelines.556 Between August and September 2000, some petitioners requested permission to appear as amici curiae.557 In its decision of 15 January 2001, the tribunal established: As to privacy, the Respondent has accepted that, as a result of Article 25(4), hearings are to be held in camera unless both Disputing Parties consent otherwise. The Respondent has given such consent. The Claimant has given no such consent. The tribunal must therefore

 Webcasting refers to the method of broadcasting live audio and video in real-time to audiences all over the world via the Internet. 551  Pac Rim Cayman LLC v Republic of El Salvador, ICSID Case No. ARB/09/12. 552  Plagakis (2013), pp. 84–85. 553  Mollestad (2014), p. 105. 554  For more information, see Methanex Corporation v United States of America, UNCITRAL. 555  Methanex Corporation v United States of America, UNCITRAL, Final Award of the tribunal on Jurisdiction and Merits, 3 August 2005, part I, para. 1. 556  Methanex Corporation v United States of America, UNCITRAL, Final Award of the tribunal on Jurisdiction and Merits, 3 August 2005, part II, para. 15. 557  An interesting analysis of the case can be found in Verbist (2012). 550

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apply Article 25(4); and it has no power (or inclination) to undermine the effect of its terms. It follows that the tribunal must reject the Petitioners’ requests to attend hearings of the arbitration.558

It emerges that, in the absence of one of the parties’ consent, the tribunal rejected the amici curiae’s participation in the hearing. A hearing on jurisdiction and admissibility was held in July 2001. On 7 August 2002, the tribunal issued a First Partial Award on issues of jurisdiction and admissibility.559 A hearing on the merits was held in June 2004. On 3 August 2005, the tribunal released the final award, dismissing all of the claims. The tribunal also ordered Methanex to pay the United States’ legal fees and arbitral expenses in the amount of approximately USD 4 million.560 5.3.5.5.2  UPS v Canada561 United Parcel Service of America Inc (‘UPS’) offers courier services in Canada. One of its competitors in that market is a courier service company owned by a Canadian State enterprise. Service companies exporting letters and parcels to Canada are subject to distinct Canadian customs treatment programs. On 19 January 2000, UPS filed a request for arbitration claiming that the Government of Canada breached its obligations under several articles of the NAFTA and put it at an unfair disadvantage compared to its Canadian competitors.562 More specifically, UPS alleged that certain provisions of NAFTA Chapter Fifteen (Article 1502 Monopolies and State Enterprises and Article 1503 State Enterprises), Chapter Twelve (Article 1202 National Treatment), and Chapter Eleven (Articles 1102 National Treatment, and 1105 Minimum Standard of Treatment) could be used as a basis upon which to claim damages for breaches of NAFTA that were not limited to breaches of the obligations contained in Chapter Eleven. Canada objected on the ground that any claim based on obligations beyond those contained in Chapter Eleven falls beyond the jurisdiction of a Chapter Eleven tribunal. The tribunal found that the fact that a State’s conduct is anticompetitive and falls within the scope of Chapter Fifteen (Competition Policy, Monopolies and State Enterprises) does not prevent that the same measures constitute a violation of Chapter Eleven as well.563

 Methanex Corporation v United States of America, UNCITRAL, Decision of the Tribunal on Petitions from Third Persons to Intervene as “Amici Curiae”, 15 January 2001, para. 42. 559  Methanex Corporation v United States of America, UNCITRAL, Partial Award, 7 August 2002. 560  Methanex Corporation v United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005. 561  The case UPS v Canada was hereby mentioned to compare it with Methanex v United States: in fact, both are governed by NAFTA Chapter 11, but because of the parties’ different decisions, whereas Methanex tribunal could authorise public hearings, UPS tribunal could not do it. 562  United Parcel Service of America, Inc. v Government of Canada, ICSID Case No. UNCT/02/1, Notice of Intent to Submit a Claim to Arbitration under Section B of Chapter 11 of the North American Free Trade Agreement, 19 January 2000. 563  United Parcel Service of America Inc v Government of Canada, ICSID Case No. UNCT/02/1, Award on Jurisdiction, 22 November 2002 9. 558

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Pursuant the UNCITRAL Arbitration Rules, in 2002 the tribunal authorised public hearings based on the consent of the parties except for those parts of the hearing which involve confidential information.564 UPS challenged Canada Post’s use of its monopoly infrastructure for its non-­ monopoly products under both the obligations found in NAFTA Chapter Eleven (Investment) and Chapter Fifteen (Competition Policy, Monopolies and State Enterprises). UPS claimed that the Government of Canada accords less favourable customs treatment to UPS than to Canada Post in breach of Canada’s national treatment obligation (NAFTA Article 1102). The differences between these two systems was the object of UPS’ national treatment challenge. The tribunal dismissed UPS’ claims, based on the presence of a separate annex for postal traffic due to its unique nature in the World Customs Organization’s Kyoto Convention,565 and on the grounds that the United Kingdom and United States custom authorities treat mail traffic and couriers deliveries as two different streams. The tribunal observed that courier companies are commercial enterprises, whereas Canada Post needs to fulfil its Universal Service Obligation mandate.566 In its award on the merits issued on 11 June 2007, the tribunal found that the treatment of UPS and Canada Post under the program could not be compared as the two enterprises are not ‘in like circumstances’.567 In his dissent, arbitrator Cass opposed the findings of the majority. He argued that, whereas UPS is not in like circumstances with Canada Post with respect to the distribution of letters and small parcels, it is in like circumstances with Canada Post’s non-monopoly products. It emerges that, based on the applicable arbitration rules, and the consent of the disputing parties, the tribunal decided to open the hearings to the public.568

5.3.6 Conclusions Research stressed that the silence of many IIAs on transparency issues could be at least in part linked to historical reasons:569 at the time in which this kind of treaties was at most based on ‘boiler-plate’ texts developed by the capital exporting State,570 transparency in ISDS was not considered a core issue. On the one hand, it was very  United Parcel Service of America Inc v Government of Canada, ICSID Case No. UNCT/02/1,  NAFTA/UNCITRAL Arbitration Rules Proceeding, ICSID New Release, 7 December 2005 9. 565  United Parcel Service of America Inc. v Government of Canada, ICSID Case No. UNCT/02/1, Award, 11 June 2007, para. 114. 566  United Parcel Service of America Inc. v Government of Canada, ICSID Case No. UNCT/02/1, Award, 11 June 2007, para. 140. 567  United Parcel Service of America Inc. v Government of Canada, ICSID Case No. UNCT/02/1, Award, 11 June 2007, para. 102. 568  United Parcel Service Of America Inc. v Government Of Canada, ICSID Case No. UNCT/02/1, Award, 11 June 2007, separate opinion of Arbitrator Cass, para. 198. 569  Echandi (2011), p. 3. 570  Maupin (2013), pp. 151–152. 564

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unlikely that exhaustive provisions on specific issues of the arbitration procedure could be included in IIAs, because of the succinct form in which these agreements were drafted. On the other hand, provisions on procedural transparency were often missing even in the agreements with more detailed ISDS provisions: examples thereof are the Egypt – Switzerland BIT (2010),571 the Japan – Iraq BIT (2012),572 and the Japan – Papua New Guinea BIT (2011).573 It is therefore probable that both capital importing and capital exporting States considered  a certain degree of confidentiality a highly-desired characteristic of investment arbitration, as it could reduce or even prevent public pressure on both investors and host States, and thus favour negotiations and settlements. However, the traditional design of IIAs is being progressively replaced by a modern approach in the most recently concluded agreements. In the opinion of some experts, the newly signed treaties show a cautious trend towards transparency. Remarkable progress has been made in the new generation of investment agreements, where reference to the UNCITRAL Rules on Transparency can be found, and the general rule is shifted from ‘consent-based’ to ‘veto-based’. Examples thereof are the following IIAs: EU - Vietnam Investment Protection Agreement (2019), CETA (2016), Hungary - San Marino BIT (2022), and Hungary - Kyrgyzstan BIT (2020).574 This Chapter examined the various stages of investment arbitration where a certain degree of transparency can be attained: i) registration of the initiation of the arbitral proceedings; ii) accessibility of procedural documents and the publication of the final award; iii) participation of non-disputing parties; iv) amicus curiae submissions; and v) openness of hearings to the public. Moreover, this Chapter highlighted the perceived advantages of both transparency and confidentiality in investor-State arbitration. Among the advantages of confidentiality, there are the maintenance of a good and stable atmosphere towards the stakeholders, the reduction of pressure on the procedure, the safeguarding of sensitive national and business information. On the other side, transparency contributes to the harmonisation of different regulatory systems, the evolution of the case-law, the promotion of precision in international law, the development of trust in investment arbitration, the legitimisation of investment arbitration, the predictability of outcomes, and the increase in public participation. In any event, in the interest of all the stakeholders (including investors, host States, workers and inhabitants of the host State, civil society, and NGOs) it is necessary that an appropriate degree of transparency is carefully adjusted, in order to achieve the best possible balance between transparency and the protection of confidential information, with preference for a higher degree of transparency, as the  Agreement between The Swiss Confederation and The Arab Republic of Egypt on the Promotion and Reciprocal Protection of Investments, 2010. 572  Agreement between Japan and the Republic of Iraq for the Promotion and Protection of Investment. 573  Agreement between the Government of Japan and the Government of the Independent State of Papua New Guinea for the Promotion and Protection of Investment, 2012. 574  Marques da Silva (2016), p. 336. 571

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Treaty between the Government of the United States of America and the Government of the Republic of Rwanda Concerning the Encouragement and Reciprocal Protection of Investment (2008) Triantafilou E (2009) A more expansive role for amici curiae in investment arbitrations?. Kluwer Arbitration Blog Triantafilou EE (2010) Is a connection to the “public interest” a meaningful prerequisite of third party participation in investment arbitration? Berkeley J Int Law Tweeddale A (2005) Confidentiality in arbitration and the public interest exception. Arbitr Int 21(1):59 UN (2013) Report of the UNCITRAL  – Forty-sixth session, Official Records of the General Assembly, 68th session, Supplement No. 17, UN Doc. A/68/17 UN (2014) United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, General Assembly, 69th session, Resolution A/69/116 UNCITRAL (2012) Report of Working Group II (Arbitration and Conciliation) on the work of its fifty-seventh session, UN Doc. A/CN.9/760 UNCITRAL (2013) Report of Working Group II (Arbitration and Conciliation) on the work of its fifty-eighth session, Records of the UNCITRAL, 46th Session, UN Doc. A/CN.9/765 UNCITRAL, Report of the Working Group on Arbitration and Conciliation on the work of its fifty-third session (Vienna, 4-8 October 2010) (A/CN.9/712). In: Yearbook Volume XLII: 2011, United Nations, New York, 2014, pp 175–197 UNCITRAL Arbitration Rules (2010) (2013) (2021) UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (2014) UNCITRAL Working Group II (Arbitration and Conciliation) (2010) Settlement of Commercial Disputes, Transparency in Treaty-based Investor-State Arbitration, Compilation of Comments by Governments’, Note by the Secretariat, Addendum No. 2 (4 August 2010) A/CN.9/WG.II/ WP.159/Add.2) UNCITRAL Working Group II (Arbitration and Conciliation) (2010) Settlement of Commercial Disputes, Transparency in Treaty-based Investor-State Arbitration, Compilation of Comments by Governments, Note by the Secretariat, Addendum 3, A/CN.9/WG.II/WP.159/Add.3, 4 August 2010 UNCTAD (2004) Transparency, Series on Issues in International Investment Agreements UNCTAD (2010) Investor-State Disputes: Prevention and Alternatives to Arbitration. United Nations, New York UNCTAD (2013) World Investment Report 2013 - Global Value Chains: Investment and Trade for Development (UNCTAD/WIR/2013) UNCTAD Investment Policy Hub (2023) International Investment Agreement Navigator United Nations (1948) The Universal Declaration of Human Rights United Nations Commission on International Trade Law (UNCITRAL) (2010) REPORT: Settlement of commercial disputes: preparation of a legal standard on transparency in treaty-­ based investor-State arbitration, Working Group II (Arbitration and Conciliation) of the work of its fifty-third session (Vienna, 4–8 October 2010), A/CN9/712, 20 October 2010 United Nations Convention on Transparency in Treaty-based Investor-State Arbitration. New York, 2014 United Parcel Service of America Inc v Government Of Canada, ICSID Case No. UNCT/02/1, Award on Jurisdiction, 22 November 2002 United Parcel Service of America Inc v Government of Canada, ICSID Case No. UNCT/02/1, 7 December 2005 United Parcel Service of America Inc. v Government of Canada, ICSID Case No. UNCT/02/1, Award, 11 June 2007a, separate opinion of Arbitrator Cass United Parcel Service of America Inc. v Government of Canada, ICSID Case No. UNCT/02/1, Award, 11 June 2007b United Parcel Service of America, Inc. v Government of Canada, Notice of Intent to Submit a Claim to Arbitration under Section B of Chapter 11 of the North American Free Trade Agreement, 19 January 2000

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US (2003) Statement on Open Hearings in NAFTA Chapter Eleven Arbitrations (7 October 2003) Van Harten G (2007) Investment treaty arbitration and public law. Oxford University Press, Oxford Van Harten G, Loughlin M (2006) Investment treaty arbitration as a species of global administrative law. Eur J Int Law 17:121 Verbist H (2012) The Methanex arbitration: the elaboration of a legal standard on transparency in treaty-based investor-state arbitration. In: Wautelet P, Kruger T, Coppens G (eds) The practice of arbitration: essays in honour of Hans van Houtte. Hart Publishing, London, pp 279–294 Villarreal MA, Fergusson IF (2015) The North American Free Trade Agreement (NAFTA). Congressional Research Service Viñuales JE (2006) Human rights and investment arbitration: the role of amici curiae. International Law: Revista Colombiana de Derecho Internacional 8:231 Vujanic V (2011) Amicus curiae briefs and non-governmental organizations in investment arbitration: positive or negative?. Croatian Legal Review Weiler T (2001) The Ethyl arbitration: first of its kind and a harbinger of things to come. Am J Int Arbitr 11(1–2):201 Weiler T (2002) NAFTA Investment Law in 2001: as the legal order starts to settle, the bureaucrats strike back. Int Lawyer (ABA) 36:348 West TR, Roberts MMC (2003) Amicus curiae participation in US Supreme Court Oral Arguments. All Academic Research Worldometers, Canada Population Worldometers, Mexico Population Worldometers, US Population Zoellner C-S (2006) Transparency: an analysis of an evolving fundamental principal in international economic law. Mich J Int Law 7:579 Zuleta E (2015) The challenges of creating a standing international investment court. In: Joubin-­ Bret A, Kalicki J (eds) Reshaping the investor-state dispute settlement system: journey for the 21st century. Brill Nijhoff, Leiden, pp 403–423

Chapter 6

Legitimacy in Investor-State Arbitration

6.1 Introduction An increasing number of experts argue that the existing system of investment arbitration has certain limitations, including the lack of a mechanism for preventing conflicting decisions, the lack of appropriate rules for guaranteeing the impartiality and independence of the process, and the lack of an appellate system for the correction of errors.1 The clash between the State’s regulatory tasks and the foreign investor’s rights has been widely discussed in many fora. The issues revolving around the legitimacy of the system led some States to abandon investor-State dispute settlement (‘ISDS’): the period 2011–2012 saw the withdrawal from the ICSID Convention of Bolivia, Ecuador, and Venezuela.2 The first developed country that had initially decided not to include investor-­ State arbitration clauses in future international investment treaties is Australia. The decision was communicated in the trade policy statement issued by the Australian Government in April 2011.3 However, in 2013, a new government was sworn in and investor-State arbitration was included in the 2014 Australia-Korea FTA, which has a section on investment.4 Seeking to address the host State policy-making space, the Australia-Korea FTA provides for a ‘general exception’ which is similar Article XX of the GATT 1994 and Article XIV of the GATS.5

 Doe (2016); Van Harten et  al. (2010); Howse (2000), p.  211; Caron (2009); Adeleke (2014); Franck (2005); Nappert (2009), p.  152; Friedman and Popova (2014); Brower and Schill (2008–2009). 2  United Nations Conference on Trade and Development (UNCTAD), ‘Towards a New Generation of Investment Policies’ (World Investment Report, 2012b). 3  Kurtz (2011). 4  Lester (2014). 5  Lester (2014). 1

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Marisi, Rethinking Investor-State Arbitration, Studies in European Economic Law and Regulation 27, https://doi.org/10.1007/978-3-031-38184-3_6

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The United States brought amendments to their 2012 Model Bilateral Investment Treaty (‘BIT’)6 as well, in order to reserve regulatory space on various matters, including health, safety, environment, and support of labour rights upheld at the international level.7 Furthermore, according to Article 28(10) of their 2012 Model BIT, the parties should ‘consider’ whether a future appellate mechanism could be applied to the awards.8 ISDS has attracted criticism from South Africa as well. In 2009, a crucial stance was adopted by a government department in relation to BITs, declaring: Existing international investment agreements are based on a 50-year-old model that remains focused on the interests of investors from developed countries. Major issues of concern for developing countries are not being addressed in the BIT negotiating processes. BITs extend far into developing countries’ policy space, imposing damaging binding investment rules with far-reaching consequences for sustainable development.9

In an effort to balance interests between host State and foreign investors, on 15 December 2015 the South African government issued the Protection of Investment Act, which states: Art. 4 Purpose of Act 5. The purpose of this Act is to— (a) protect investment in accordance with and subject to the Constitution, in a manner which balances the public interest and the rights and obligations of investors; (b) affirm the Republic’s sovereign right to regulate investments in the public interest; and (c) confirm the Bill of Rights in the Constitution and the laws that apply to all investors and their investments in the Republic.10

South Africa confirmed that it remained open to and protects FDI, but at the same time preserved the right of the government to pursue legitimate public policy objectives in line with constitutional requirements. The ISDS system was also criticised by Germany in September 2014: Minister of Economic Affairs and Energy and vice-chancellor Sigmar Gabriel affirmed that Germany rejects the ISDS system and refused its unclear definitions of legal concepts such as ‘Fair and Equitable Treatment’ and ‘Indirect Expropriation’.11 However, significant progress has been achieved in August 2022, with constructive discussions between Germany and the European Commission within the negotiations on the EU-Canada Comprehensive Economic and Trade Agreement (‘CETA’), where Germany and the European Commission have agreed on a text that provides a more precise definition of the concepts of ‘indirect expropriation’ and ‘fair and equitable treatment’ of investors under CETA, with the aim to prevent the misuse of

 United States Model Bilateral Investment Treaty 2012.  United States Model Bilateral Investment Treaty 2012. 8  United States Model Bilateral Investment Treaty 2012. 9  Republic of South Africa DTI (Department of Trade and Industry), Notice 961 OF 2009, 3 NO.32386, July 7, 2009. 10  Government Gazette, Act No. 22 of 2015, Protection of Investment Act, 15 December 2015. 11  Deutscher Bundestag (2014). 6 7

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the ISDS system.12 The new draft text needs to be supported by the other Member States, before the European Commission can enter into discussions with Canada aimed to adopt the new definitions by the CETA Joint Committee. The existing system of dispute settlement has raised concerns among other stakeholders as well, besides States. In the Report on the Future of International Investment Policy of the European Union13 published by the Committee on International Trade of the European Parliament (‘INTA’) on 22 March 2011, a range of issues was emphasised, including lack of a uniform interpretation of investment principles by different tribunals, generating conflicts between private interests and the regulatory duties of the authorities;14 the existence of BITs prioritising investors’ interests over the host State’s interests regarding regulatory activities related to development;15 and the absence of a model BIT for Member States that could make interpretation more certain and consistent.16 Additional issues mentioned in the Report include the non-transparent nature of the existing system, the unavailability of an appeal, and the lack of the rule of exhaustion of local remedies.17 In 2010, a public statement denouncing the existing investment arbitration system was issued by law academics from different countries.18 They called for the need of a standing judicial system in charge of investment disputes, the acknowledgement of the State’s basic right to establish social programs, the need for the public interest to be taken into account by tribunals in the interpretation of investment principles, and the strengthening of impartiality, independence and consistency of the existing system of investment arbitration.19 It is clear from these stakeholders’ perspective that ISDS is suffering a legitimacy crisis.

6.2 The Concept of Legitimacy ‘Legitimacy’ is the basis on which an existing legal order secures the acceptance of citizens: its underlying assumption is that citizens must benefit from and be served by law.20 If citizens consider rules to be legitimate, then they will be willing to

 European Commission, Statement from the Commission on clarifications discussed with Germany regarding investment protection in the context of the CETA agreement, STATEMENT/22/5223, 29 August 2022. 13  European Union Parliament (2011). 14  European Union Parliament (2011), para. G. 15  European Union Parliament (2011), para. J(1) and para. 25. 16  European Union Parliament (2011), para. J(4) and (10). 17  European Union Parliament (2011), para. 31. 18  Van Harten et al. (2010). 19  Van Harten et al. (2010). 20  Hurst (1971); Howse (2000); Caron (1993), p. 556. 12

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comply with them. A system or rule must be perceived as legitimate otherwise it will lose its viability because stakeholders will consider it untrustworthy.21 The fragmentation of international law makes the importance of legitimacy perception even greater. Indeed, the players’ perception of the legitimacy of an institution issuing decisions has a major influence on the compliance with these decisions in the context of international law. The present Section focuses on the evaluation of the investment arbitration system and proposes some suggestions on how the perceived legitimacy crisis of the system can be overcome.

6.3 Public Interest 6.3.1 Overview As discussed in Sect. 2.7, an important difference between commercial arbitration and investment arbitration is that in the latter the respondent is a State, and its measures are being contested. In turn, these measures could be, in the intention of the State, enacted in order to protect general interests of various stakeholders, particularly some specific groups and the broader public.22 In fact, when the measures are issued by the central government, they could aim to protect the citizens’ general interests: an example thereof is the Reform to the Ecuadorian Tax Regime of 30 April 1999, aimed to improve tax collection and procedures, in order to enhance the fair redistribution of resources throughout the country.23 On the other side, when the measures enacted emanate from the local administration, they could be aimed to protect distinct communities and peoples. Examples thereof can be found in the United States Surface Management 3809 Regulations, which restrict open-pit mining operations with the purpose of preventing a negative impact on the sacred Native American site;24 and in the 2008 Hamburg Urban Development and Environment Authority, which sets limitations to issue water permits.25 When similar legislation and regulations conflict with the expectations of foreign investors, the latter can file a request for arbitration against the host State alleging a breach of the relevant investment agreement. Therefore, as stressed by some scholars, it may happen that investment disputes involve a multitude of  Afilalo (2005); Brower (2002); Brower et al. (2003); Van Harten (2010); Franck (1990); Treves (2008); Franck (2006); D’Amato (2008). 22  Adeleke (2014). 23  EnCana Corporation v Ecuador, LCIA Case No UN3481 (formerly EnCana Corporation v Government of the Republic of Ecuador). 24  Glamis Gold Ltd. v United States of America, UNCITRAL. 25  Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v Federal Republic of Germany (I) (ICSID Case No. ARB/09/6) (formerly Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG & Co. KG v The Federal Republic of Germany). 21

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different issues, some concerning matters such as human rights or the environment,26 which are of mainly public interest.27 As early as 2013, UNCTAD highlighted that: ‘In many cases foreign investors have used ISDS claims to challenge measures adopted by states in the public interest (for example, policies to promote social equity, foster environmental protection or protect public health). Questions have been raised whether three individuals, appointed on an ad hoc basis, can be seen by the public at large as having sufficient legitimacy to assess the validity of states’ acts, particularly if the dispute involves sensitive public policy issues’.28 More recently, the World Investment Report of 2015 identified the protection of the right to regulate for public interest as the first key area for reform,29 and the G20 governments, in occasion of the Hangzhou Summit in September 2016, reaffirmed the right to regulate investment for legitimate public policy purposes in their Guiding Principles for Global Investment Policymaking.30 Other researchers write that investment disputes have a clear public dimension31 and that it is important for both state and citizens to have confidence in an international investment protection system which is open, transparent and fair.32

6.3.2 A Matter of Sovereignty Some scholars claim that this issue concerns the core concept of State’s sovereignty. State sovereignty can be defined as the State’s right to self-government with no interference from an outside power in the decisions made in relation to either internal or external national policy. Garcia Sanchez argues that: ‘states are changing their decision-making processes in order to satisfy an illegitimate authority, and in the process, they are giving away an essential part of their sovereignty’.33 Van Harten contends that sovereignty is significantly restricted when a State signs a BIT, because, it agrees ab initio to investment arbitration: by bestowing an international investment tribunal with the authority to decide over the State-foreign investor relationship, a potential host State

 Marisi (2020).  Kulick (2012), p. 1. 28  UNCTAD, ‘Reform of Investor-State Dispute Settlement: In Search of a Roadmap’ (26 June 2013). 29  UNCTAD, World Investment Report 2015 (WIR2015), Reforming the International Investment Regime: An Action Menu, Chapter IV. 30  OECD, G20 Guiding Principles for Global Investment Policymaking. 31  Viñuales (2006), p. 255. 32  Barker (2015), p. 248. 33  Garcia Sanchez (2016), pp. 485–486. 26 27

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effectively grants power to the arbitral tribunal over significant parts of its own regulatory structure.34 According to Van Harten, sovereignty implies, on the part of the State, external autonomy and internal control35 and the sovereign State is ‘the repository of the collective authority to make governmental decisions’.36 Consequently, domestic governmental regulations usually engender debates, which are ‘presumed to fall within the exclusive domain of the state’s legal system’.37 In other words, according to the scholar, ‘the courts and only the courts should have the final authority to interpret the law that binds sovereign power and to stipulate the appropriate remedies for sovereign wrongs that lead to business loss’.38 Van Harten argues that the investment treaty arbitration system ‘uses the model of private arbitration rather than that of a tenured judiciary’,39 and that in doing so, the State empowers foreign investors to challenge its own regulatory measures. Van Harten claims that: ‘the system is flawed, above all because it submits the sovereign authority and budgets of states to formal control by [private] adjudicators’.40 A mechanism of control on the laws and regulations issued by the State or public bodies is necessary to prevent incorrect legislative or administrative acts, and helps improve the democratic legitimacy of decision-making. Some researchers affirm that this is relevant with regard to investment arbitration as well,41 particularly as far as disputes concerning public law are concerned. However, certain aspects of the perceived legitimacy crisis of investment arbitration could be attenuated by well-­ formulated mechanisms of review.42

6.3.3 The Review of Legislative, Administrative, and Judicial Acts Taking a general point of view on the reviewing function undertaken by a court or tribunal, some scholars highlighted that, in determining the breadth and detail of review of the actions of a public entity, courts and tribunals consider factors such as normative suitability, technical acumen, and politico-cultural proximity. To put it differently, the range of instruments of review indicates that political and legal

 Van Harten (2007), p. 64.  Van Harten (2007), p. 48. 36  Van Harten (2007), p. 48. 37  Van Harten (2007), p. 49. 38  Van Harten (2007), p. 11. This quote refers to both domestic courts and international courts. 39  Van Harten (2007), p. vii. 40  Van Harten (2007), p. vii. 41  Burke-White and von Staden (2010); von Staden (2012). 42  Franck (2005), p. 1586. 34 35

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decision-­making is carried out in more than one place, and a legal norm under consideration can be interpreted and applied as each of those places sees fit.43 Scholars have compared the review work by investment tribunals with the one carried out by administrative courts, considering that administrative courts decide specific disputes in which one party is an authority exercising public power, and the other is a private subject. These courts are responsible for the review of official acts and ascertain if they are consistent with the law. Indeed, to put it in the words of one of these scholars, international investment law may be the best example of Global Administrative Law, because it protects investors against domestic regulation violating their rights.44 However, other commentators challenge this view, arguing that investment tribunals cannot enforce regulatory policy on a State because they do not have the required legitimacy.45 The procedures adopted by the investment regime derived from commercial arbitration rules, which are not concerned with transparency or with ensuring arbitrators’ accountability.46 Furthermore, for the time being, the decisions of investment tribunals are not subject to revision by any reviewing court.47 In addition, some studies have put in relief that: ‘measures adopted by the host State on the domestic level that affect the investor’s international rights very often are (…) taken by the legislature rather than by the executive. Tax legislation, general regulatory regimes in the energy sector, or simply expropriation by a formal law are only three examples in this regard’.48 Some researchers write that the review can be compared to the one usually assigned to the constitutional court rather than that allocated to an administrative court, because obliging the state to justify any infringement of individual rights is a characteristic feature of a constitutional order.49 For this reason, the control of the exercise of public authority by sanctions for violating the investor’s rights has constitutional features.50 Therefore, hypothesising that investment tribunals carry out a role not dissimilar to the one of the administrative or constitutional courts, scholars argue that they should, on par with the latter, draw on general public law principles, and demonstrate to own ‘publicness’, which is ‘a necessary element in the concept of law under modern democratic conditions. The claim is that the quality of publicness, and the related quality of generality, are necessary to the concept of law in an era of democratic jurisprudence. Publicness, in this context, refers to the claim that law

 von Staden (2012).  Kulick (2012), p. 83. 45  Van Harten (2007), p. 5. 46  Van Harten (2007), pp. 159, 173. 47  Van Harten (2007), p. 166; Franck (2005), pp. 1547–1557. 48  Kulick (2012), p. 84. 49  Kulick (2012), p. 92. 50  Kulick (2012), p. 93. 43 44

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must be wrought by the whole society, by the public, and the connected claim that law addresses matters of concern to the society as such’.51 Some commentators argue that, aside from principles of national and international public or administrative law, arbitral tribunals should consider the deferential standards of review formulated therefrom in their decision-making.52 Rather, some researchers affirm that, lacking the territorial and socio-political connection to the states they are reviewing, international tribunals should be even more aware of the significance of the public nature of their disputes compared to their domestic counterparts.53 However, according to some scholars, a rational approach to the standard of review regarding disputes related to use of public power by host States has so far not been devised by international investment tribunals. More specifically, they argue that the issue of deference with the authorities in the host State has not been dealt with by tribunals in a proper way,54 and that because of this, international arbitration may lose the support of communities and host States.55

6.3.4 Balancing Conflicting Rights of Investors and States It is therefore necessary to balance the different and, in some situations, conflicting rights of investors and civil society. In fact, a number of researchers stressed that a balance has to be struck between the individual rights and the interests significant to the relevant constituencies (i.e. the public interest).56 In this regard, particularly relevant are EDF v Argentina57 and Electrabel v Hungary.58 In EDF v Argentina, the tribunal recognised that in applying the FET standard, at a time of crisis the investor’s expectations must be balanced against the host State’s need to take action in the public interest;59 but at the same time, the tribunal acknowledged that, after a state of emergency has passed, an integral part of fairness and equity must be constituted by respect for the fundamental representations of a concession.60 Similar considerations were carried out in Electrabel v  Kingsbury and Schill (2009).  Barker (2015), p. 248; Schill (2012); Katselas (2012). 53  Barker (2015), p. 248. 54  Henckels (2013). 55  Tienhaara (2011). 56  Seerden (2007), p. 406. 57  EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v Argentine Republic, ICSID Case No. ARB/03/23, Award, 11 June 2012. 58  Electrabel S.A. v Republic of Hungary, ICSID Case No. ARB/07/19, Award, 25 November 2015. 59  EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v Argentine Republic, ICSID Case No. ARB/03/23, Award, 11 June 2012 at 1005. 60  EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v Argentine Republic, ICSID Case No. ARB/03/23, Award, 11 June 2012 at 1005. 51 52

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Hungary: the tribunal found that the respondent pursued a legitimate policy objective by carrying out a balancing exercise ‘at a time in which it was emerging from massive political and economic changes, exacerbated by budgetary constraints caused by the global economic and financial crisis’.61 Still, the acknowledgment of the need for balance clashes with the drafting of many investment treaties. In fact, often already the title and the preamble of BITs stress mainly the protection of the rights of the investors. An example thereof is the BIT between Germany and Bahrain, signed in 2007 and in force since 2010: Treaty between the Federal Republic of Germany and the Kingdom of Bahrain concerning the Encouragement and Reciprocal Protection of Investments The Federal Republic of Germany and the Kingdom of Bahrain –– Desiring to intensify economic co-operation between both states, –– Intending to create favourable conditions for investments by nationals and companies of either state in the territory of the other state, –– Recognizing that the encouragement and contractual protection of such investments are apt to stimulate private business initiative and to increase the prosperity of both nations.

Have agreed as follows (…).62 In this regard, some scholars point out that ‘[a] particular feature of most investment treaties is that they make provisions to investor rights without addressing in a comprehensive fashion the relationship of these to continuing powers of state regulation. It is likely that states parties typically did not intend a sever occlusion of these regulatory powers and a good faith reading of the text of the applicable treaty in context and in light of the object and purpose of the treaty may well indicate that interpretation calls for a balance to be struck between investor protection and state regulatory powers’.63 Awards show that a certain degree of deference is necessary when assessing the exercise of public power by host States. Although the standard of review intended for use has not been clearly outlined by any tribunal thus far, a level of deference based on the right to regulate of the host State, the proximity of authorities to their communities, and the higher level of competence and expertise of institutions64 is reflected in the decisions of arbitral tribunals in several disputes.65 The suitable degree of deference is context-specific. The outlining of suitably deferential standards of review affording sufficient freedom of choice to respondent  Electrabel S.A. v Republic of Hungary, ICSID Case No. ARB/07/19, Award, 25 November 2015 at 213–216. 62  Germany – Bahrain BIT, 2007. 63  Kingsbury and Schill (2009), p. 23. 64  Henckels (2013). 65  Among them are the following disputes: GAMI Investments, Inc. v Mexico, UNCITRAL (NAFTA), Final Award, 15 November 2004; Glamis Gold Ltd. v United States of America, UNCITRAL (NAFTA), Award, 8 June 2009; Continental Casualty v Argentine Republic, ICSID Case No. ARB/03/09, Award, 5 September 2008; Joseph Charles Lemire v Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010; Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v Mongolia, Award on Jurisdiction and Liability, UNCITRAL, 28 April 2011. 61

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States in the pursuit of relevant public interest policies falls within the remit of investment tribunals. This enables arbitral tribunals to maintain their judicial supervisory role whilst ensuring that both the lawful regulatory interests of States and the interests of investors are acknowledged and safeguarded.66 Whereas, in the past, there have been plenty of awards where there was no such deference,67 nowadays it is common practice to afford some level of deference to a State’s measure required for safeguarding its key security interests or public order.68 Certain scholars claim that the only circumstances warranting the adoption of this kind of deferential stance to review are those in which the text of the investment treaty specifies the intention of states to maintain regulatory autonomy.69 On the contrary, other experts maintain that a certain level of deference is always necessary, with the aim of issuing a balanced award.70 The question whether the use of a deferential approach means renunciation of the adjudicatory role of tribunals has been pondered by several specialists. According to Van Harten, it is an important aspect of governance, adjudication included, to consider the features and advantages of each player in decision-making.71 The application of the proportionality analysis in balancing multiple interests in the context of evaluation of state measures has been weighed by several researchers.72 Kingsbury and Schill support this option and consider that interpreting the relevant treaty in good faith is key in the application of proportionality analysis.73 These scholars indicate that appropriateness, necessity and proportionality in the narrow sense are the main dimensions of proportionality analysis.74 Several conditions must be satisfied: the measure taken by the State should have a lawful objective and should be appropriate for fulfilling that objective; no other measure of lesser stringency must have the same effectiveness; and the impact of the state measure on the rights or interests in question must be balanced out with the significance of the governmental objective.75 Henckels is in favour of a proportionality analysis as well: the way in which tribunals make a systematic analysis of the case, reason their decisions, and formulate a conclusion regarding the legality of a specific measure may increase the legitimacy of tribunals. Some scholars argue that tribunals could apply proportionality  von Staden (2012).  “The objective of the BIT [is] to protect investments and create conditions conducive to investments”, MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile, Case No. ARB/01/7, award, 25 May 2004, para. 104. 68  von Staden (2012). 69  Burke-White and von Staden (2008), pp.  370–376; Burke-White and von Staden (2010), pp. 293–296; von Staden (2012). 70  Henckels (2013). 71  Van Harten (2007), pp. 144–145. 72  Stone Sweet and Grisel (2017), p. 231. 73  Kingsbury and Schill (2009), p. 22. 74  Kingsbury and Schill (2009), p. 29. 75  Kingsbury and Schill (2009), pp. 29–30. 66 67

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analysis to evaluate the regulatory purpose of a host State by comparison to non-­ interference with the interests of the investors.76

6.3.5 Case Law Among the arbitration cases where the respondent appealed to the public interest defence we can find Tecmed v Mexico, Unglaube v Costa Rica, and Rusoro Mining v Venezuela. In these cases, the contested measure had a public interest purpose (in particular environmental protection), and the respondent State highlighted the public policy goal in its defence. The outcomes may vary, but what is most relevant in this instance is that the purpose of the measure was presented within the respondent’s arguments to qualify it as legitimate. The following cases were decided pursuant to NAFTA, Costa Rica-Germany BIT and Canada-Venezuela BIT respectively, and they represent examples of cases where the purpose of the measure takes a crucial role in determining its lawfulness. 6.3.5.1 Tecmed v Mexico A controlled landfill of hazardous industrial waste in Mexico, managed by the Spanish company Tecmed possessed an operational license that needed to be renewed. The applicant had to request the renewal of the license annually, one month before it was due to expire. On 25 November 1998 the Hazardous Materials, Waste and Activities Division of the National Ecology Institute of Mexico (INE) refused to issue the license renewal, leading the investors to prepare a program for landfill shut down. This prompted the investor to bring legal action on 28 July 2000, claiming that the rejection of the operational permit extension amounted to expropriation.77 Vice-­ versa, according to the respondent, the rejection of the renewal was a measure taken in a sector subjected to strict regulations and intended to serve public interests, and was not an arbitrary measure.78 This reasoning was dismissed by the tribunal as the INE Resolution dated 25 November 1998 did not state any reasons of public interest, public use or public emergency that justified it.79

 Henckels (2012).  Técnicas Medioambientales Tecmed v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003. 78  Técnicas Medioambientales Tecmed v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para. 46. 79  Técnicas Medioambientales Tecmed SA v United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para. 125. 76 77

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6.3.5.2 Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica Properties under the individual or joint ownership of the claimants, situated near a scenic beach were at the centre of the dispute. The importance of the beach stemmed from the fact that it was an egg-laying site for Leatherback Turtles. The measures adopted by the Costa Rica government were meant to ensure the protection of both the nesting site of those endangered turtles and the image of Costa Rica as an ecotourism destination. With the aim of creating a national park in this area, Costa Rica adopted a number of legislative, administrative, and judiciary measures, and expropriated a portion of the claimant’s property in the public interest.80 Acknowledging the importance of protecting endangered species, the tribunal considered that it had to determine whether Costa Rica’s measures amounted to a treaty breach, whether the claimant had the right to be compensated, and in what amount.81 Whereas the tribunal acknowledged the existence of a bona fide public purpose for the expropriatory measures, pursuant to Article 4(2) of the Germany-­ Costa Rica BIT, it found that the State had finally committed an unlawful expropriation because it failed to pay prompt and adequate compensation to the investor.82 6.3.5.3 Rusoro Mining v Venezuela The case is one of the many following the nationalisation of different sectors, started in 2007 with the taking of a majority stake in four oil projects in the Orinoco Oil Belt.83 In August 2011, the President of Venezuela Ugo Chávez announced the immediate nationalisation of the gold mining industry in the country. The Nationalisation Decree84 reserved the gold extraction and exploitation activities to the State, and provided for investors to be compensated. However, no agreement was reached between the investors and Venezuela concerning the compensation. Rusoro filed a request for arbitration against Venezuela, alleging the breach of several provisions: direct expropriation, indirect expropriation, fair and equitable treatment, including denial of justice claims, full protection and security, national treatment, performance requirements, and transfer of funds.85

 Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, ICSID Case No. ARB/09/20, Award, 16 May 2012, paras. 127, 133, 134, 140, and 144. 81  Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, ICSID Case No. ARB/09/20, Award, 16 May 2012, para. 167. 82  Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, ICSID Case No. ARB/09/20, Award, 16 May 2012, para. 305. 83  Reuters Staff (2012). 84  Decree No. 8.413 published in the Gaceta Oficial No. 39.759 on 16 September 2011. 85  Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016. 80

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The tribunal found that for an expropriation to be lawful, the following requirements must be fulfilled: the measure must be adopted for a public purpose, under due process of law, in a non-discriminatory manner and it must ensure prompt, adequate and effective compensation. The arbitral tribunal summarised the reasons Venezuela put forward for issuing the Nationalisation Decree: The stated purpose of the Nationalisation Decree is consequently: the construction of socialism, “basado en los principios humanistas y en las condiciones éticas Bolivarianas”, to undo the capitalist mining model, and substitute it by a new model, and the execution of public policies “que se traduzcan en el vivir bien del pueblo, la protección ambiental y el desarrollo nacional”.86

Venezuela further explained that its measures were a direct response to alarming developments in the mining sector: environmental harm and violation of workers’ rights,87 and that the aim of government action was to ensure that natural resources were exploited in a sustainable and socially responsible way.88 The tribunal found that States have extensive discretion when designing their public policy, and that the Nationalisation Decree’s purpose was a legitimate aim of economic policy, complying with the public purpose requirement of Article VII.I of the Canada – Venezuela BIT.89 Although the tribunal sided with Venezuela on the presence of three of the four requirements for lawful expropriation (public purpose, due process of law, and carried out in a non-discriminatory manner), it concluded that the fourth requirement was not met, as Venezuela’s offer for compensation during the negotiations was insufficient, and the minimum amount offered was never paid or deposited. This led the tribunal to conclude that Venezuela’s actions amounted to a breach of the expropriation provisions under the applicable BIT.90

6.4 Due Process in International Arbitration The legitimacy of arbitral proceedings also depends on its respect of the rule of law and its capacity to qualify as due process. In the 2004 Report of the Secretary-­ General of the United Nations on The rule of law and transitional justice in conflict and post-conflict societies, the rule of law was defined in the following way:  Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, para. 384. 87  Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, para. 381. 88  Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, para. 381. 89  Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, para. 385. 90  Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016, para. 410. 86

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The “rule of law” (…) refers to a principle of governance in which all persons, institutions and entities, public and private, including the state itself, are accountable to laws that are publicly promulgated, equally enforced and independently adjudicated, and which are consistent with international human rights norms and standards. It requires, as well, measures to ensure adherence to the principles of supremacy of law, equality before the law, accountability to the law, fairness in the application of the law, separation of powers, participation in decision-making, legal certainty, avoidance of arbitrariness and procedural and legal transparency.91

The rule of law implies that all actors can rely on legal certainty and legal security, and adapt their behaviour accordingly to form stable social and economic relationships.92 In dispute settlement, the rule of law is converted into procedural requirements,93 establishing that individuals whose interests are affected by the decisions of officials have, among other rights, ‘the right to a hearing before a decision is made, the right to have the decision made in an unbiased and impartial fashion, the right to know the basis of the decision so that it can be contested, the right to reasons for the official’s decision, and the right to a decision that is reasonably justified by all relevant legal and factual considerations.’94 Leaving aside substantive justice, which concerns the evaluation and decision on the merits of the case, we will now focus on the notion of procedural due process. Procedural due process, prevention of denial of justice,95 and prevention of arbitrariness are some of the dimensions related to the rule of law in the legal systems of different countries. Procedural due process relates to avoiding denial of justice, which represents one of the principles underlying the legitimacy of a state and its actions. The State must acknowledge that its power is subject to restraints and must comply with the rule of law in its actions, otherwise it cannot acquire the status of legitimate Rechtsstaat.96 Reflecting on arbitrariness, some researchers stress that there are two types of arbitrariness, namely substantive arbitrariness, which is associated with arbitrary conduct, and procedural arbitrariness, which is applicable within the settings of due process and denial of justice.97 Due process and denial of justice are generally known as investment protection norms included in several investment agreements pertaining to the investors’ right to challenge unfavourable decisions issued by the judicial or administrative bodies of the host State. However, the standards of due process and denial of justice apply to the system of investment arbitration as well. The question whether investment arbitration ensures procedural fairness directly affects the legitimacy of ISDS.

 United Nations Security Council (2004).  Fallon (1997), pp. 14 ff. 93  Fallon (1997), pp. 18 ff. 94  Dyzenhaus (2005), p. 129. 95  Swisslion DOO Skopje v Former Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16, Award, 6 July 2012, para. 262. 96  Portinaro (2007), p. 354. 97  Newcombe and Paradell (2009), p. 251. 91 92

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An effective consideration on denial of justice has been developed by UNCTAD, which affirmes: It is generally recognized that only gross or manifest instances of injustice are considered a denial of justice and that a simple error, misinterpretation or misapplication of [the applicable] law is not per se a denial of justice.98 While it is commonly emphasized that any attempt accurately and exhaustively to define the forms of denial of justice is bound to fail, [some] are likely to be considered a denial of justice [due to procedural irregularities]:99 ( a) Denial of access to justice and the refusal of [the tribunal] to decide (b) Unreasonable delay in proceedings; (c) Breach of fundamental due process guarantees, such as a failure to give notice of the proceedings and failure to provide an opportunity to be heard.100

It is uncertain how long the duration of the delay in arbitral proceedings must be to result in a denial of justice. In Jan de Nul v Egypt, the interval of one decade for securing a first instance judgment by the Egyptian courts was deemed ‘certainly unsatisfactory’, although this was not classified as denial of justice because the issues were complex and highly technical, two cases were involved, and the parties filed lengthy submissions and numerous expert reports.101 Some awards suggest a recent shift in the standard of the rule of law,102 the features of due process being accorded increasing attention. Indeed, tribunals have identified procedural approprietaness and due process as key determinants of the standard of treatment.103 Emphasis is no longer placed solely on the reduction of value of an investment, but also on the availability of legal recourse to investors.104 Ensuring that investors are afforded procedural rights within arbitration proceedings is the primary goal of the due process requirement. National Iranian Oil Company (‘NIOC’) v Israel105 can be considered as an example of this kind of situation. On 29 February 1968, a ‘Participation Agreement’ was established between Israel and NIOC for building, using and maintaining an oil pipeline within Israel. The arbitration clause in Article 12a of the Participation Agreement specifies that: If at any time within the period of this Agreement or thereafter, any doubt, difference or dispute shall arise between the Parties concerning the interpretation or execution of this

 See Borchard (1929), Article 9.  Borchard (1929), Article 9 and accompanying references to international authorities. 100  UNCTAD, Fair and equitable treatment, UNCTAD Series of issues in International Investment Agreements II (UNCTAD 2012a) 80. 101  Jan de Nul N.V. and Dredging International N.V. v Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award, 6 November 2008, para. 204. 102  ADF Group Inc. v USA, ICSID Case No. ARB(AF)/00/1, 18 FILJ 195, Award, 9 January 2003, para. 179. 103  Dolzer and Schreuer (2012), pp. 133–147. 104  Dolzer and Schreuer (2012), pp. 151–152, 162–166. 105  National Iranian Oil Company (NIOC) v the State of Israel, ICC, Cour de cassation, Arrêt n° 404 du 1er Février 2005. 98 99

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Agreement or anything connecting therewith or concerning the rights and liabilities of the Parties hereunder, the same shall, failing any agreement to settle it by other means, be referred to arbitration. Each Party shall appoint one arbitrator. If such arbitrators fail to settle the dispute by mutual agreement or to agree upon a Third Arbitrator, the President of the International Chamber of Commerce in Paris shall be requested to appoint such Third Arbitrator. The decision of the Board of Arbitrators so appointed shall be final and binding upon the Parties.106

On 14 October 1998, an arbitration proceeding was commenced by NIOC. Israel contended that there was no clarification of the subject matter under contention and that no amicable consultation had been attempted earlier, as required in the arbitration agreement, and declined to appoint an arbitrator. Article 1493 of the French Code of Civil Procedure granted NIOC the right to ask the president of the Tribunal de Grande Instance de Paris to appoint an arbitrator for Israel, provided that the arbitration took place in France and that French Procedural Law was applicable. Jurisdictional reasons were invoked by the French court in dismissing the application, observing that none of the above-mentioned requirements were met. In his first ruling, the judge noted that NIOC failed to establish denial of justice, as Israeli law allowed the judicial appointment of an arbitrator in cases of party default. Consequently, NIOC began weighing its chances of seizing the Israeli courts, but its lawyers advised that, due to an earlier judgment (in a different case, but seemingly with an effect similar to the one of stare decisis) that classified Iran as an ‘enemy state’, it was not worth trying to start proceedings before an Israeli tribunal, as no such request would be accepted. Subsequently, NIOC reverted to petitioning the French judge. The French judge rejected NIOC’s second application as well. He justified his decision by writing that the claimant had to demonstrate not only that the dispute was relevant to France, but also that seizing a jurisdiction in another country was not possible, otherwise there would be no proof of denial of justice as an independent reason for hearing the dispute in French courts. Given the possibility of repealing the Israeli earlier judgment not to hear Iranian parties, the French judge was not convinced that a court in Israel or in Iran would not accept NIOC’s application. The decision of the French judge was overturned on appeal. A third basis of jurisdiction under 1493 of the French Code of Civil Procedure, specifically ‘if a denial of justice abroad is established’ was created by the Court of Appeal to address the seeming absence of jurisdiction of the courts in France. The Court of Appeal further stated that it is a rule of public policy that a party to an arbitration agreement has the right to have its claim submitted to an arbitral tribunal.107 However, this did not eliminate the obstacle that judicial proceedings in France were only possible if they were justified by a sufficient link to France. Nonetheless, since the International Chamber of Commerce (‘ICC’) represents a French legal body headquartered in  Judgment of the Swiss Federal Tribunal on Israel’s Request to Annul the 2012 Award and to Stay the Enforcement, 10 January 2013, Facts A[2]. 107  Schwebel et al. (1987), p. 130. 106

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Paris, despite being active at international level and having foreign staff, the reference to the ICC was considered to provide satisfactory evidence of the existence of such a link. On 1 February 2005, the Première Chambre Civile de la Cour de Cassation issued a final ruling. The Cour de Cassation wrote: ‘(…) the impossibility for a party to access the court (or arbitral tribunal) entrusted with the settlement of that party’s claim to the exclusion of all other state jurisdictions, and thus to exercise a right pertaining to international public policy, established by the principles of international arbitration and Art. 6(1) of the European Convention on Human Rights, is a denial of justice justifying the international jurisdiction of the president of the Paris Court of First Instance within the context of the state court’s mission to assist and cooperate in the constitution of an arbitral tribunal when there is a connection with France’.108 It is hypothetically possible that in certain cases, foreseeably numerically limited, the following circumstances may simultaneously take place: a) an arbitration clause; b) the lack of constitution of the arbitral panel; and c) the lack of activation of a forum necessitatis.109 Besides the case where one of the disputing parties refuses to appoint an arbitrator, precluding the constitution of the tribunal, there can be other cases where recourse to arbitration is proven not to be feasible. This may occur, for instance, if the arbitration agreement is defective, if there was a precondition to arbitration that has not been met, and if the claim is non-arbitrable according to the applicable law. In these cases, the investor alleging an infringement of his rights on behalf of the State would suffer from a denial of justice. The possibility that the system of investment arbitration can give rise to a denial of justice for procedural reasons has a negative effect on the inherent legitimacy of the system itself. It follows that denial of justice has a very high threshold and may take place only with the occurrence of a number of parallel events. It is rare that denial of justice occurs in investor-State arbitration, as this system offers the possibility to investors to file their claim before a neutral, independent, and impartial decision-making body, and contest a measure of the host State that they consider harmed their investment.

 National Iranian Oil Company (NIOC) v the State of Israel, ICC, Cour de Cassation, Arrêt n° 404 du 1er Février 2005. 109  The creation of a forum necessitatis, namely that a court must, when faced with an apparent situation of lack of forum (a condition where a theoretical forum exists but is not susceptible in practice of providing substantive justice) declare its own jurisdiction. This possibility exists in Dutch law: see Jaegers and van der Heijden (2008). 108

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6.5 Arbitrators and Ethics According to some scholars, a central element of arbitration is the selection of the arbitrators.110 In the case of a tribunal with a single arbitrator, that arbitrator is usually designated by the concerned parties or by an institution of arbitration.111 Instead, in the case of a tribunal with three arbitrators, each of the two parties designates an arbitrator,112 and the third arbitrator, who presides over the process, is chosen by the two designated arbitrators, the parties in agreement, an institution of arbitration, or an appointing authority.113 Most frequently, the president of the tribunal is appointed by the two selected arbitrators. There are, however, exceptions to this common modus operandi. A novelty in the appointment of arbitrators can be found in the 2019 Netherlands Model Investment Agreement.114 An important innovation lies in Article 20(1) of the 2019 Netherlands Model Investment Agreement, where it is provided that the arbitrators are appointed by an appointing authority, depending on what rules the claimant chooses to govern the arbitration. The appointing authority will be either the Secretary General of ICSID, if the arbitration will be governed by the ICSID Convention or Additional Facility Rules, or the Secretary-General of the Permanent Court of Arbitration, if the applicable rules are the UNCITRAL Arbitration Rules. The text of the 2019 Netherlands Model Investment Agreement will be used as a basis in the negotiation of BITs with non-EU States.115 This represents a significant innovation in the selection method of arbitrators. Some authors highlight that concerns regarding the perceived legitimacy of the system can stem from a possible difference in accountability, as arbitrators may not have accountability to the public or even to the parties that designated them, despite the fact that their decisions may have implications at the international level.116 Due to the very important role assumed by arbitrators, it is worthy to examine the moments when their role may raise concerns linked to legitimacy: i) arbitrators’ appointment criteria; ii) guidelines and other rules; iii) situations of conflict of

 Kapeliuk (2010), p. 60.  Arbitration rules provide for the procedure for the appointment of arbitrators. See, e.g., ICSID Convention, Arts. 37–40; UNCITRAL Arbitration Rules, Arts. 8–10, 2018 HKIAC Administered Arbitration Rules, Arts. 7–8, 2021 ICDR Rules, Article 13, 2017 SCC Rules, Article 17. 112  Lowenfeld (1995), p.  65 (“[T]he predominant practice, as reflected in the most widely used rules, is to presume, or even to require, that if three arbitrators are to be appointed, each party shall appoint or nominate one of the three.”). 113  See, e.g., ICSID Convention, arts. 37–38; UNCITRAL Arbitration Rules, arts. 7–8; 2017 SCC Arbitration Rules, Art. 17, 2021 ICC Arbitration Rules, Art. 13. 114  2019 Netherlands Model Investment Agreement. 115  Declève (2018). 116  Arbitrators are responsible for rendering an award. In some, but not all, jurisdictions, arbitrators may not be liable for misconduct. See generally Franck (2000); Rutledge (2004). 110 111

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interest or issue of conflict; iv) criteria for decidig a challenge of an arbitrator; and v) the manner in which arbitrators undertake their duties.

6.5.1 The Appointment of Arbitrators Reflecting on the qualities that are necessary to carry out the role of an arbitrator, some experts stress above all impartiality and independence: as highlighted in Fábrica De Vidrios v Venezuela,117 ‘Impartiality refers to the absence of bias or predisposition towards a party. Independence is characterized by the absence of external control. Independence and impartiality both “protect parties against arbitrators being influenced by factors other than those related to the merits of the case”.’118 Independence is a more objective concept as compared to impartiality:119 the parties may establish independence more directly when the arbitral proceedings commence.120 This might be the reason why the requirement of independence is stressed in several treaties, such as CETA, which establishes under Article 8.30(1) that the members of the tribunal shall be independent and shall not be affiliated with any government.121 Although independence is not mentioned in the English Arbitration Act of 1996, the importance of impartiality is mentioned as a prerequisite that the parties cannot dispense with.122 Impartiality is considered arbitrators’ most important or main requisite also by other experts: Daphna Kapeliuk stresses that independence and impartiality are the core characteristics requested to arbitrators, and that, in particular, the

 Fábrica de Vidrios Los Andes, C.A. and Owens-Illinois de Venezuela, C.A. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/21, Reasoned Decision On The Proposal To Disqualify L. Yves Fortier, Q.C., Arbitrator, 28 March 2016, para. 29. 118  Conoco Phillips Company et  al. v Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/30), Decision on the Proposal to Disqualify a Majority of the Tribunal (1 July 2015), para. 81; Abaclat and others v Argentine Republic (ICSID Case No. ARB/07/5), Decision on the Proposal to Disqualify a Majority of the tribunal (4 February 2014), para. 75; Burlington Resources Inc. v Republic of Ecuador (ICSID Case No. ARB/08/5), Decision on the Proposal for Disqualification of Professor Francisco Orrego (13 December 2013) para. 66; Blue Bank International & Trust (Barbados) Ltd. v Bolivarian Republic of Venezuela (ICSID Case No. ARB/12/20), Decision on the Parties’ Proposal to Disqualify a Majority of the tribunal (12 November 2013), para. 59; Repsol, S.A. and Repsol Butano, S.A. v Argentine Republic (ICSID Case No. ARB/12/38), Decision on the Proposal to Disqualify a Majority of the tribunal (13 December 2013) para. 71. 119  Lalive (1991), pp. 119–120. 120  Hascher (2012), p. 792. 121  Comprehensive Economic And Trade Agreement (CETA) Between Canada, Of The One Part, And The European Union [And Its member states]. 122  UK Arbitration Act, 1996, c. 23. 117

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future selection of legal professionals as arbitrators, as well as other areas of their careers as academics or as private counsel.123 Impartiality and independence are essential characteristics of who has the task to judge, be it a professional judge or an arbitrator. Judges and arbitrators should have the same level of independence and impartiality, meaning that an arbitrator cannot be less independent or less impartial compared to a judge. Finally, if arbitrators will keep on being appointed on an ad hoc basis, it is very important that they keep their reputation of absolute independence and impartiality. Beyond an obligation to be independent and impartial, some commentators argue that there are usually no minimum qualifications for an arbitrator to be appointed.124 Indeed, although many rules for investment treaty arbitration establish the procedure for arbitrator appointment, neither the UNCITRAL Arbitration Rules, nor the 2017 SCC Rules, nor the 2021 ICC Rules do so. However, all of them provide for substantive qualifications that arbitrators shall have.125 ICSID is an important exception. The ICSID Convention Rules establish: Article 14 (1) Persons designated to serve on the Panels shall be 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.126

The ICSID Additional Facility Rules state: Article 8 Qualifications of Arbitrators. Arbitrators shall be 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.127

Also the CETA establishes, under Article 8.27(4): The members of the tribunal shall possess the qualifications required in their respective countries for appointment to judicial office or be jurists of recognised competence. They shall have demonstrated expertise in public international law. It is desirable that they have expertise in particular, in international investment law, in international trade law and the resolution of disputes arising under international investment or international trade agreements.128

CETA further provides under Article 8.28(4): The members of the Appellate tribunal shall meet the requirements of Articles 8.27.4 (…).129

Some scholars stress that public international law is the typical expertise required from arbitrators, and particularly its application to investment treaties provisions on

 Kapeliuk (2010), p. 90.  Kapeliuk (2010), p. 75. 125  UNCITRAL Arbitration Rules, arts. 6–11; 2017 SCC Rules, Article 18; 2021 ICC Rules, Article 11. 126  Article 14(1) ICSID Convention, Regulations and Rules (2006). 127  Article 8 ICSID Additional Facility Rules (2006a). 128  Comprehensive Economic And Trade Agreement (CETA). 129  Comprehensive Economic And Trade Agreement (CETA). 123 124

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expropriation, fair and equitable treatment, and discrimination.130 It is a shared opinion that the expertise of the arbitrator has a great influence on the quality of arbitral proceedings.

6.5.2 Rules, Guidelines, and Codes of Conduct Governing the Ethics of Arbitrators Considering the centrality of an arbitrator’s impartiality, certain situations can amount to a challenge, which, in turn, may lead to the arbitrator’s replacement. Therefore, rules and procedures have been developed, with the aim to serve as guidance to the decision-makers who will decide upon the challenge of an arbitrator. 6.5.2.1 Code of Conduct of Adjudicators in International Investment Disputes Within the framework of the UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), the UNCITRAL Secretariat and the ICSID Secretariat drafted the Code of Conduct131 and the Commentary to the Code of Conduct.132 The latter assisted the delegations to the Working Group III during their deliberations on the Code of Conduct at the forty-third session of Working Group III in Vienna on 5 to 16 September 2022. The Code of Conduct applies to both adjudicators and candidate adjudicators in international investment disputes. The term ‘candidate’ indicates a person who has been contacted regarding potential appointment as an arbitrator, but has not yet accepted. Article 3 emphasises that an adjudicator must be independent and impartial at the time of acceptance of appointment, and shall remain so until the conclusion of the proceeding or until the end of his or her term of office. Article 3 includes a list of the obligations of independence and impartiality the adjudicators are subject to, such as the prohibition to take instruction from any organisation or government and to allow present financial, business, professional or personal relationships to influence his or her conduct. Article 4 sets a limit to the multiple roles that adjudicators can hold concurrently, involving: (a) the same contested measure(s); (b) the same or related party or parties; or (c) the same provision or provisions of the same treaty. It also provides that  Böckstiegel (2012), pp. 577–582.  United Nations Commission on International Trade Law Working Group III (Investor-State Dispute Settlement Reform), Possible reform of investor-State dispute settlement (ISDS), Draft Code of Conduct, Note by the Secretariat, Forty-third session Vienna, 5–16 September 2022, A/ CN.9/WG.III/WP.216. 132  UNCITRAL and ICSID Secretariats, Possible reform of investor-State dispute settlement (ISDS), Commentary to the Code of Conduct, September 2022. 130 131

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adjudicators cannot act concurrently as counsel or witness in another IID proceeding involving legal issues which are substantially excessively similar, accepting the second role would entail a breach of Article 3. Article 5 gives emphasis on the duty of diligence, providing that adjudicators cannot delegate their decision-making function. Article 6 establishes that adjudicators shall conduct the proceedings in accordance with high standards of integrity, fairness, and competence. Article 7 regulates ex-parte communication, which refers to any communication by an adjudicator with a disputing party concerning the dispute, without the presence or knowledge of the other disputing party. Ex-parte communication is prohibited except under the listed circumstances, for instance when it is aimed to determine the candidate’s expertise, experience, availability, and the existence of any potential conflicts of interest. Article 8 provides that a candidate and an adjudicator shall not disclose or use any information concerning, or acquired in connection with, an investment dispute proceeding, except if the information is publicly available or if it is so permitted by the applicable rules or by the parties’ agreement. It also provides that adjudicators cannot disclose the contents of the deliberations, and cannot comment decisions. Article 8(6) provides an exception to the confidentiality obligations: when an adjudicator is legally compelled to disclose the information in a court or other competent body or needs to disclose such information to protect his or her rights in a court or other competent body. Article 9 concerns the fees and expenses applicable in an investment dispute, and provides that discussions concerning fees and expenses be concluded prior to the constitution of the tribunal. It establishes that arbitrators must, solely or jointly with the other members of the tribunal, consult the disputing parties on any fees and expenses related to the proceeding and/or the assistant. Article 10 addresses the disclosure obligations of a candidate and an arbitrator. Disclosure obligations are essential as they contribute to identify conflicts of interest and compliance with other obligations in the Code of Conduct, mainly the possible lack of independence and impartiality. Candidates must disclose ‘any circumstances likely to give rise to justifiable doubts as to his or her independence or impartiality’. These include any financial, business, professional, or personal relationship with any of the disputing parties and related entities, their counsel, expert witnesses, or the other arbitrators in the past five years, and any financial or personal interest in the outcome of these proceedings or any other proceedings involving the same measure or involving a disputing party. Article 10(5) provides that disclosure of relevant information may be done using the form in the Annex to the Code of Conduct prior to or upon acceptance of the appointment. Article 10(6) provides a continuing obligation of disclosure. If new relevant information emerge during the course of the proceeding, the arbitrator must disclose such new information without delay. Therefore, arbitrators should remain attentive concerning their disclosure obligations during the whole course of the investment dispute proceeding.

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Article 11 sets the obligation for adjudicators to comply with the Code of Conduct. Interestingly, the Code of Conduct does not contain rules on sanctions in case of breach, such as challenge, disqualification or removal. These sanctions are instead provided in the applicable arbitration rules, rules of professional accreditation bodies, or treaties. If an assistant does not comply with the Code of Conduct, the adjudicator shall remove the assistant from the proceeding: if they fail to do so, they will be in breach of Article 11(4) and may be subject to sanctions. Both the Draft Code of Conduct and the Commentary are open to input and suggestions from the delegations to the UNCITRAL Working Group III. The work of the UNCITRAL Working Group III on the Code of Conduct represents a positive evolution, highlights the importance of arbitrators’ ethics in investor-State arbitration, sheds a light on this theme in the debate involving a wide number of active delegates in the UNCITRAL negotiations, and allows stakeholders to look with confidence and hope towards the reform of ISDS. 6.5.2.2 The IBA Guidelines on Conflicts of Interest in International Arbitration Within the context of conflict of interest, significant importance have the Guidelines on Conflicts of Interest in International Arbitration, issued by the International Bar Association (‘IBA’) in 2004, and revised in 2014 (‘IBA Guidelines’).133 Although they are not binding, the international arbitration community has broadly embraced the IBA Guidelines. The purpose of the IBA Guidelines is to facilitate arbitrators’ decision-making process regarding potential appointments and disclosures. At the same time, the IBA Guidelines enable the parties and their legal advisors to appraise how impartial and independent arbitrators are, whilst also being useful to arbitration institutions and courts in dealing with challenges to arbitrators.134 The Guidelines set out non-exhaustive lists of situations: the Red List (which, in turn, consists of two parts: a Non-Waivable Red List, and a Waivable Red List), the Orange List, and the Green List. The Red List details certain situations in which, depending on the facts of a given case, justifiable doubts may arise as to the arbitrator’s impartiality and independence.135 Upon disclosure, it is possible to dispose of certain Red List circumstances, but not all. The Orange List enumerates particular situations in which, depending on the facts of a certain case, doubts may arise, in the eyes of the parties, as to the arbitrator’s impartiality or independence.136 The Green List catalogues certain situations in

 IBA (2014).  Marisi (2019). 135  IBA (2014), p. 17. 136  IBA (2014), p. 18. 133 134

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which, from an objective point of view, there is neither appearance nor actual conflict of interest.137 Examples of situations included in the Red List are the following: 1. Non-Waivable Red List 1.1 There is an identity between a party and the arbitrator, or the arbitrator is a legal representative or employee of an entity that is a party in the arbitration. 1.2 The arbitrator is a manager, director or member of the supervisory board, or has a controlling influence on one of the parties or an entity that has a direct economic interest in the award to be rendered in the arbitration. 1.3 The arbitrator has a significant financial or personal interest in one of the parties, or the outcome of the case. 1.4 The arbitrator or his or her firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or her firm derives significant financial income therefrom.138

Examples of situations included in the Orange List are the following: 3.1 Previous services for one of the parties or other involvement in the case 3.2 Current services for one of the parties 3.3 Relationship between an arbitrator and another arbitrator or counsel 3.4 Relationship between arbitrator and party and others involved in the arbitration.139

Examples of situations included in the Green List are the following: 4.1.1 The arbitrator has previously expressed a legal opinion (such as in a law review article or public lecture) concerning an issue that also arises in the arbitration (but this opinion is not focused on the case).140 4.3.3 The arbitrator teaches in the same faculty or school as another arbitrator or counsel to one of the parties, or serves as an officer of a professional association or social or charitable organisation with another arbitrator or counsel for one of the parties.141

6.5.2.3 The Burgh House Principles on the Independence of the International Judiciary Collaborating with the Project on International Courts and Tribunals, the International Law Association’s Study Group on the Practice and Procedure of International Courts and Tribunals formulated the Burgh House Principles on the Independence of the International Judiciary (‘Burgh House Principles’) in 2005.142 These principles concern how judges’ duty of independence and obligation to avoid bias could restrict their freedom of expression:

 IBA (2014), p. 19.  IBA (2014), p. 20. 139  IBA (2014), pp. 22–25. 140  IBA (2014), pp. 25–26. 141  IBA (2014), p. 26. 142  Burgh House Principles on the Independence of the International Judiciary, 2005. 137 138

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9.2 Judges shall not serve in a case with the subject-matter of which they have had any other form of association that may affect or may reasonably appear to affect their independence of impartiality.143

6.5.2.4 Institutional Arbitration Rules Further procedural rules on the qualities of arbitrators, disclosure, and conflict of interest can be found, more generally, in some arbitration rules. Examples thereof are the following: ICSID Convention Article 14 (1) Persons designated to serve on the Panels shall be 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. Competence in the field of law shall be of particular importance in the case of persons on the Panel of Arbitrators. (2) The Chairman, in designating persons to serve on the Panels, shall in addition pay due regard to the importance of assuring representation on the Panels of the principal legal systems of the world and of the main forms of economic activity.144

ICSID Arbitration Rules Rule 6 Constitution of the tribunal (1) The tribunal shall be deemed to be constituted and the proceeding to have begun on the date the Secretary-General notifies the parties that all the arbitrators have accepted their appointment. (2) Before or at the first session of the tribunal, each arbitrator shall sign a declaration in the following form:

“To the best of my knowledge there is no reason why I should not serve on the arbitral tribunal constituted by the International Centre for Settlement of Investment Disputes with respect to a dispute between ___________________and___________________. “I shall keep confidential all information coming to my knowledge as a result of my participation in this proceeding, as well as the contents of any award made by the tribunal. “I shall judge fairly as between the parties, according to the applicable law, and shall not accept any instruction or compensation with regard to the proceeding from any source except as provided in the Convention on the Settlement of Investment Disputes between states and Nationals of Other states and in the Regulations and Rules made pursuant thereto. Attached is a statement of (a) my past and present professional, business and other relationships (if any) with the parties and (b) any other circumstance that might cause my reliability for independent judgment to be questioned by a party. I acknowledge that by signing this declaration, I assume a continuing obligation promptly to notify the Secretary-General of the Centre of any such relationship or circumstance that subsequently arises during this proceeding.”

143 144

 Principle 9.2 Burgh House Principles on the Independence of the International Judiciary, 2005.  ICSID Convention, Regulations and Rules (ICSID, April 2006) 1.

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6  Legitimacy in Investor-State Arbitration Any arbitrator failing to sign a declaration by the end of the first session of the tribunal shall be deemed to have resigned.145

UNCITRAL Arbitration Rules Article 11 When a person is approached in connection with his or her possible appointment as an arbitrator, he or she shall disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence. An arbitrator, from the time of his or her appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties and the other arbitrators unless they have already been informed by him or her of these circumstances.146 Article 12 (1). Any arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence.147

6.5.3 Situations of Issue of Conflict Apart from situations of conflict of interest, there are more softened circumstances where an issue of conflict may arise. However, there is no consensus on the definition of ‘issue of conflict’. The disclosure and disqualification of certain categories of objective circumstances are the focus of conflicts of interest in international arbitration. On the other hand, queries associated with ‘issue of conflict’ concern arbitrators’ mental attitude, which cannot be easily measured based on mechanical rules.148 The issue of conflict is primarily concerned with determining the predispositions that are likely to be considered as ‘inappropriate’. In certain cases, arbitrators have no choice but to form a prior judgment regarding a matter without which conclusive remarks about an issue in investment dispute arbitration cannot be drawn. Arbitrators are required to refuse specific appointments and disclose particular aspects in keeping with their obligation of impartiality.149 The main challenge facing discussions of “issue of conflict” is the uncertainty regarding if or when arbitrators’ impartiality can be called into question, based on their attitude towards a substantive issue or knowledge about factual issues.150

 ICSID (2006b), Rule 6.  UNCITRAL Arbitration Rules (2013), Article 11. 147  UNCITRAL Arbitration Rules (2013), Article 12(1). 148  International Council For Commercial Arbitration (ICCA) (2016), p. 8. 149  ICCA (2016), p. 8. 150  ICCA (2016), p. 8. 145 146

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6.5.3.1 Multiple Hats The ‘two hat’ or even ‘multiple hat’ scenario—the situation in which who represents one of the parties in a case before an ad hoc tribunal one day might sit as an arbitrator in another ad hoc tribunal the next, amounting to an overlap of bench and bar, or even between bench, bar, and academia, is sometimes considered a concern.151 6.5.3.1.1  Prior Professional Experience Prior professional experience is not usually considered by decision-makers as suggestive of inadequate bias. For example, a challenge on the basis of prior professional experience of Gabriel Bottini, a member of an ICSID tribunal, was opposed by the two unchallenged members of the tribunal in St. Gobain Performance Plastics v Venezuela.152 In this case, the matter of an ‘issue of conflict’ was the source of the claimant’s concerns: these were related to the assumption that Bottini would not provide impartial or independent judgment in the present case for two main reasons: (i) Bottini served as a public officer for the government of Argentina in the past; and (ii) Bottini’s former direct superior, Osvaldo César Guglielmino was at that time acting as counsel to Venezuela in Flughafen Zürich v Venezuela. The unchallenged members of the tribunal found that these grounds were baseless as: (i) Bottini was a public servant in the government of Argentina, his role was not political, and he was advising investors as well; and (ii) Bottini had ceased to work with Guglielmino three years before. The tribunal rejected the challenge to Bottini concluding that his former functions did not represent any manifest danger that he would not be able to make an independent and impartial judgment. Greater concerns have been raised by a lawyer acting as counsel and at the same time as arbitrator.153 During the initial hearing in Ghana v Telekom Malaysia Berhad154 in a court in the Netherlands, the claimant’s designation of Emmanuel Gaillard was challenged by Ghana, because he had served as arbitrator as well as advisor for a party whose goal was to overturn an ICSID award.

 Dezalay and Garth (1996), 10 n.7; Bernasconi-Osterwalder and Rosert (2014).  Saint-Gobain Performance Plastics Europe v Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Claimant’s Proposal to Disqualify Mr. Gabriel Bottini from the Tribunal under Article 57 of the ICSID Convention, 27 February 2013. 153  Sands (2011), p. 19; Jenik Radon, Adjunct Professor at the School of Public and International Affairs, Columbia University, in an interview with the author on 25 November 2017. See also Hranitzky and Silva Romero (2010); Veit (2010), reporting about a panel at the IBA conference concerning “issue conflicts” arising between counsel and arbitrators. 154  Republic of Ghana v Telekom Malaysia Berhad, District Court of The Hague, civil law section, provisional measures judge, Challenge No. 13/2004, Petition No. HA/RK 2004.667 (Oct. 18, 2004), reprinted at ASA Bulletin 186, 192 (2005). 151 152

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Similarly, Canada’s appointment of J.  Christopher Thomas in Vito Gallo v Canada was challenged by the claimant because Thomas was also a legal counsel to another member of NAFTA, Mexico. The claimant asserted that an arbitrator who served on a tribunal in a NAFTA arbitration involving a NAFTA State Party, and simultaneously acted as an advisor to another NAFTA State Party having a legal right to participate in the proceedings, risks creating legitimate doubts as to his impartiality and independence.155 The ‘two hat’ situation, which is deemed concerning by some scholars and is often invoked in different initiatives to reform investment arbitration, occurs when there is no separation between the roles as arbitrator in one case and as counsel in another.156 Among those who expressed criticism there is the European Commission: There is concern that arbitrators on ISDS tribunals do not act in an independent and impartial manner. Because the individuals in question may not only act as arbitrators, but also as lawyers for companies or governments, concerns have been expressed as to potential bias or conflict of interest.157

The European Commissioner for Trade from 2014 to 2019 Cecilia Malström affirmed that, since arbitrators are also lawyers and might expect to get business from investors in future, this gives rise to concerns about conflicts which might be created by the system.158 In a similar vein, Nathalie Bernasconi-Osterwalder and Diana Rosert stressed that the ‘dual role’ or ‘multiple hat’ issue, which derives from the fact that arbitrators who sit on treaty-based investor-State tribunals can simultaneously serve as expert or counsel in other investment disputes, may cause concerns related to arbitrators’ impartiality and independence.159 The UNCTAD recognised that: Particular concerns have arisen from a perceived tendency of each disputing party to appoint individuals sympathetic to their case. Arbitrators’ interest in being re-appointed in future cases and their frequent “changing of hats” (serving as arbitrators in some cases and counsel in others) amplify these concerns.160

In fact, it is common for arbitrators to act as legal counsel as well. Therefore, they may find themselves concomitantly arbitrating one case and advising another.161 Moreover, aside from roles in law firms, arbitrators usually hold academic and governmental positions as well. Owing to this wide variety of roles, some scholars argue that arbitrators can shape the future of investment arbitration in different ways:

 Vito Gallo v Canada, UNCITRAL, Challenge Decision, 14 October 2009, para. 31.  Dañino (2018). 157  European Commission (2014). 158  Malström (2015). 159  Bernasconi-Osterwalder and Rosert (2014). 160  UNCTAD (2013). 161  Dezalay and Garth (1996), pp. 22–23; Reed et al. (2004), p. 80. 155 156

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–– Convincing governments that international investment arbitration is the ideal course of action in terms of policy; –– Arguing in favour of robust investment protection rules and opposing governmental attempts to diminish the strength of existing standards; –– Recommending the ratification of new investment treaties by governments, thus ensuring future work for members of arbitration panels; –– Preserving a certain level of ambiguity in the phrasing of investment protection rules to boost investors’ opportunities for submitting a claim and to enable interpretation of those rules in a way that is favourable to investors; –– Guiding the way in which clauses are interpreted by ensuring to be invited by other arbitrators as experts in some cases; and –– Preventing recommendations of structural alterations by acknowledging the adverse response to investment arbitration and encouraging small-scale reforms, provided that the system foundations are left intact.162 On the other hand, criticisms of the multiple hats situation are not shared by all actors in the investment arbitration system. Nhu-Hoang Tran Thang, international arbitration practitioner, remarks: ‘I believe that arbitral tribunals are always better armed to conduct an arbitration when they are composed of individuals with diverse backgrounds and expertise. Having a dispute adjudicated by arbitrators having been in the shoes of users, external counsel or institutions is in my view a plus, as this provides them with a better understanding of the Parties’ goals, constraints and conduct. It is however of utmost importance that such arbitrators respect their mandate and role in a given proceeding. I trust that seasoned arbitration counsel know very well how to differentiate between these two roles when taking on arbitrators’ mandates’.163 To provide a mechanism to address the concerns related to the multiple hats issue, the IBA Guidelines’ Orange List defines in Article 3.1.5 issue-based conflict in connection with repeat appointments, as a situation in which the arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties, or an affiliate of one of the parties (emphasis added).164 However, the wording of Article 3.1.5 of the IBA Guidelines on Conflict of Interest raises the following problem: how can arbitrators know if they have been appointed to a case that involve a ‘related issue’ before familiarising themselves with the claims and statements of the case? The most frequently performed option implies that the parties’ counsel interview the appointed arbitrators on the keystone issues of the case: however, according to some commentators, the practice of substantive interviews can be considered both impractical and unethical.165  Fitzpatrick (2014).  Ms Nhu-Hoang Tran Thang, international arbitration practitioner, in an interview with the author on 23 August 2018. 164  IBA (2014). 165  Aksen (2014), p. 333. 162 163

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The European Commission is trying to solve the delicate issue of multiple hats in its Investment Court System (ICS) and the Multilateral Investment Court (MIC),166 projects it is preparing and whose establishment it supports. Whereas the ICS was included in the text of both the Comprehensive Economic Trade Agreement (CETA)167 and the EU-Vietnam Investment Protection Agreement,168 and in the negotiation for the Transatlantic Trade and Investment Partnership (TTIP),169 the various features of the Multilateral Investment Court project are currently being designed.170 A core feature common to both projects is the arbitrators’ adherence to the highest ethical standards. In fact: not only shall ‘(…) A candidate (…) disclose any interests, relationships, or matters, that are likely to affect that candidate’s independence or impartiality, or that might reasonably create an appearance of impropriety or bias in the proceedings’,171 as stated in the EU-Vietnam Investment Protection Agreement, but they shall also refrain from acting as counsel in any pending or new investment protection dispute under TTIP or any other agreement or domestic law,172 as provided for in the TTIP proposed text. This solution prevents that members of the ICS act simultaneously as counsel in an arbitration case, and as adjudicators in a different one, providing for the possibility to shift from a part-time regime to a full-time one.173 In case the Joint Committee decides to change to a full-time regime, which is also provided for by CETA,174 the judges will also be required, unless exemption is exceptionally granted by the President of the tribunal, to abstain from any occupation, whether gainful or not.175 This sets an even higher standard, as

 See Chap. 7, Sect. 7.10.  CETA, Chapter 8, Article 8.29: Establishment of a multilateral investment tribunal and appellate mechanism. The Parties shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes. Upon establishment of such a multilateral mechanism, the CETA Joint Committee shall adopt a decision providing that investment disputes under this Section will be decided pursuant to the multilateral mechanism and make appropriate transitional arrangements. 168  The EU–Vietnam Investment Protection Agreement includes an Investment Tribunal System in Sub-section 4, Articles 3.38 to 3.41. 169  European Commission, Proposed text to the United States for the TTIP negotiations, Chapter II, section 2, Sub-chapter III. 170  Council of the European Union, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, 20 March 2018. 171  EU-Vietnam Investment Protection Agreement, Chapter 15 Dispute Settlement, Annex 15-B Code of Conduct for Arbitrators and Mediators, Article 3 Disclosure Obligations. 172  European Commission, Proposed text to the United States for the TTIP negotiations, Chapter II, section 2, Sub-chapter III, Article 11(1) ‘Ethics’. 173  European Commission, Proposed text to the United States for the TTIP negotiations, Chapter II, section 2, Sub-chapter III Article 9(15). 174  Article 8.27.15 CETA. 175  European Commission, Proposed text to the United States for the TTIP negotiations, Chapter II, section 2, Sub-chapter III Article 9(15). 166 167

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the limited and partial prohibition to practice simultaneously as counsel in other investor-State cases turns into a full one.176 This prohibition could shift to an even stricter requirement, if the Joint Committee decides to turn the regime into a full-time one, so as to avoid that judges engage in any other occupation, whether profitable or not. Although the purpose is valuable, some scholars fear that, if practitioners must choose between the two roles, they might prefer the more profitable role of counsel,177 and it might be more difficult to find qualified and experienced candidates willing to renounce to any other professional engagement.178 Summing up, concerning the issue of multiple hats, some researchers argue that the arbitrators’ ability to make decisions may suffer due to the fact that they combine different roles.179 Other authors maintain that having knowledge of arbitration and its different points of view means, for legal experts, having a more ample and deeper vision, which cannot be but favourable to a correct development of the proceedings.

6.5.4 Challenging Arbitrators in Cases of Issue of Conflict From what has been presented above, it emerges that some cases exist where there is an actual conflict between situations where an arbitrator is involved, and the impartiality demanded for the execution of his or her function: these are the cases listed in the non-waivable Red List of the IBA Guidelines. In addition, there are cases where a potential conflict is envisioned between the work of the arbitrator and the impartiality necessary on his or her behalf. This concerns the cases where, in order to improve the chances of a favourable outcome, parties might tend to select arbitrators most likely to be on their side, as can be deduced from the arbitrators’ previous practice. Each party can challenge an arbitrator on the basis of the assumption that, having already expressed favourable views to the counterparty’s position or adverse to its own stance, the arbitrator may judge the case in a non-impartial manner.

 Dias Simões (2018).  Ziadé (2009). 178  Dias Simões (2018). 179  See, e.g., Banaji et al. (2003). The authors discuss how conflicts of interest can unintentionally and unconsciously skew decision making. 176 177

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6.5.4.1 Scholarly Writing Arbitrators are not usually challenged based on the manner in which they framed general perspectives regarding substantive legal matters in the past, either in professional or scholarly writings or in remarks at professional meetings or lectues,180 which are unrelated to a particular case. Probably the best known challenge related to this issue occurred in Urbaser SA v Argentine Republic: [T]he mere showing of an opinion, even if relevant in a particular arbitration, is not sufficient to sustain a challenge for lack of independence or impartiality of an arbitrator. For such a challenge to succeed there must be a showing that such opinion or position is supported by factors related to and supporting a party to the arbitration (or a party closely related to such party), by a direct or indirect interest of the arbitrator in the outcome of the dispute, or by a relationship with any other individual involved, such as a witness or arbitrator.181

Rather, it can be maintained that comprehensive and transparent discourse on current legal issues by individuals possessing the required knowledge is valuable to international arbitration. Indeed, in the view of the members of the American Society of International Law (‘ASIL’)  – International Council for Commercial Arbitration (‘ICCA’) Joint Task Force on Issue Conflicts in Investor-State Arbitration, it would be damaging if such discourse were restricted or censored due to participants’ apprehension that their stated perspective would be called into question in the future. Therefore, it is important to dispel any concern that academic or professional publications related to general arbitration matters may compromise impartiality.182 In any case, the matter of arbitrators writing academic publications pertaining to legal aspects that occurred in past cases in which they were involved has so far not been considered in the IBA Guidelines183 or in the ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration.184 6.5.4.2 Exposure to Similar Facts by Means of Earlier Awards Another possibility is that the arbitrator was exposed to similar facts in earlier awards. This concern is embodied in Article 3.1.5 of the IBA Guidelines on Conflicts of Interest, which provides guidance for arbitrators regarding disclosure on repeat appointments on associated matters. According to the Chairman of the ICSID Administrative Council and a number of Task Force members, the international  Banaji et al. (2003).  Urbaser S.A. v Argentina, ICSID Case No. ARB/07/26, Decision on Claimants’ Proposal to Disqualify Professor Campbell McLachlan, Arbitrator, 12 August 2010, paras. 44–45. 182  International Council For Commercial Arbitration, Report Of The ASIL-ICCA Joint Task Force On Issue Conflicts In Investor-state Arbitration: The ICCA Reports No. 3. 17 March 2016. 183  IBA (2014). 184  ICC (2019). 180 181

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arbitration system could be negatively affected if replacement of a challenged arbitrator occurs based on exposure to similar factual or legal matters in an earlier award. They argued that this would result in excluding numerous arbitrators who possess the competence needed to manage cases of complexity and, as one author wrote, it would boost a race to the lowest common denominator.185 In several cases, the unchallenged arbitrators did not remove the challenged colleague. In Suez v Argentina, the respondent affirmed that a complete independence and impartiality of arbitrators could not exist if those arbitrators had been involved in a previous concordant award against the country. On grounds that the past and current cases were dissimilar, the challenge was not accepted by the unchallenged arbitrators.186 In Electrabel v Hungary, a challenge was made without success by the claimant against the arbitrator appointed by Hungary. The basis on which the challenge was made was that the respondent State had appointed the same arbitrator in a different ICSID case that was similar in terms of factual context, governmental decree, power purchase agreements, and connection to the Energy Charter Treaty.187 In Tidewater v Venezuela, the challenge to Brigitte Stern was opposed by the unchallenged ICSID arbitrators. Removal was sought by the claimant partly due to the fact that the arbitrator was involved in a different investment case with the same respondent, and therefore she had in both cases to interpret the respondent’s investment law. The unchallenged arbitrators remained unconvinced.188 In fact, they stated that: ‘[i]nvestment and even commercial arbitration would become unworkable if an arbitrator were automatically disqualified on the ground only that he or she was exposed to similar legal or factual issues in concurrent or consecutive arbitrations’.189 However, in other cases, the challenged arbitrator was disqualified: in Caratube v Kazakhstan, the unchallenged arbitrator stated that information Boesch acquired in the prior arbitration may well affect his understanding of the situation, and it is not reasonable to ask him to maintain a ‘Chinese wall’ in his own mind.190

 Nappert (2009), p. 152.  Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v Argentine Republic, ICSID Case No. ARB/03/19, Decision on Proposal for the Disqualification of G. Kaufmann-Kohler, 22 October 2007, para. 37. 187  Electrabel SA v The Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Proposal to Disqualify an Arbitrator, 25 February 2008, paras. 22–24. 188  Tidewater Inc. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Claimant’s Proposal to Disqualify Professor Brigitte Stern, Arbitrator, 23 December 2010, para. 37. 189  Tidewater Inc. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Claimant’s Proposal to Disqualify Professor Brigitte Stern, Arbitrator, 23 December 2010, paras. 67–68. 190  Caratube International Oil Company LLP and Devincci Salah Hourani v Republic of Kazakhstan, ICSID Case No. ARB/13/13, Decision on the Proposal for Disqualification of Mr. Bruno Boesch, 20 March 2014, para. 27. 185 186

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6.5.5  Modus operandi of Arbitrators 6.5.5.1 The Panel Composition and the Interpanel Dynamics In assessing facts and in identifying and interpreting the applicable norms, interpanel dynamics have great importance. Interpanel dynamics indicate how arbitrators confront their views on the case and reach an agreement for the award. What is crucial in interpanel dynamics is the composition of the panel itself. Considering the way in which arbitral institutions establish the panel composition, Article 37 of the ICSID Convention establishes: Article 37 (1) The arbitral tribunal (hereinafter called the tribunal) shall be constituted as soon as possible after registration of a request pursuant to Article 36. (2) (a) The tribunal shall consist of a sole arbitrator or any uneven number of arbitrators appointed as the parties shall agree. (b) Where the parties do not agree upon the number of arbitrators and the method of their appointment, the tribunal shall consist of three arbitrators, one arbitrator appointed by each party and the third, who shall be the president of the tribunal, appointed by agreement of the parties.191

Article 9 of the UNCITRAL Arbitration Rules establishes: 9.1. If three arbitrators are to be appointed, each party shall appoint one arbitrator. The two arbitrators thus appointed shall choose the third arbitrator who will act as the presiding arbitrator of the arbitral tribunal. (…) 9.3. If within 30 days after the appointment of the second arbitrator the two arbitrators have not agreed on the choice of the presiding arbitrator, the presiding arbitrator shall be appointed by the appointing authority in the same way as a sole arbitrator would be appointed under article 8.192

Article 1123 of the NAFTA established that, except in specific circumstances, the tribunal will be constituted by three arbitrators: one appointed by each disputing party, and the third appointed by agreement of the disputing parties. The latter arbitrator will preside the panel.193 Often, in an arbitral panel composed by three arbitrators, two of them are selected by the parties, and, as regards the presiding arbitrator, his or her appointment may be decided by the parties, the two arbitrators designated by the parties, or an arbitral institution. The presiding arbitrator holds the critical position of ensuring that autonomy and impartiality are suitably balanced. It is essential for the presiding arbitrator to demonstrate true impartiality, since the appointment procedure could,

 ICSID Convention, Regulations and Rules (2006), ICSID Arbitration Rules, Article 37.  UNCITRAL Arbitration Rules (2013), Article 9. 193  NAFTA (1994). 191 192

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in principle, produce one ‘pro-investor’ arbitrator and one ‘pro-State’ arbitrator, and it is up to the presiding arbitrator to establish a balance between the two.194 6.5.5.2 The Presiding Arbitrator The appointment of the presiding arbitrator or chair of the tribunal serves to illustrate the concept of party autonomy, which is shown in the process of designating arbitrators. The parties’ right to assent to the method of appointment of the president of the tribunal is enshrined in numerous institutional rules. At the same time, often arbitral rules grant to the arbitral institution the right to confirm the appointment of the arbitrators nominated by the parties.195 For instance, Article 13(2) of the 2021 ICC Rules states that persons nominated by the parties or pursuant to their agreements may be confirmed as co-arbitrators, sole arbitrators and presidents of arbitral tribunals by the Secretary General.196 Art. 17(4) of the SCC Rules establishes: Article 17 Appointment of arbitrators (4) Where the Arbitral Tribunal is to consist of more than one arbitrator, each party shall appoint an equal number of arbitrators and the Board shall appoint the Chairperson. Where a party fails to appoint arbitrator(s) within the stipulated time period, the Board shall make the appointment.197

Art. 5(10) of the 2020 LCIA Rules provides that the only circumstance in which the President of the LCIA Court is eligible to be appointed as an arbitrator is when the parties agree in writing to nominate him or her as the sole or presiding arbitrator.198 Instead, when the parties have not agreed on the criteria for selecting the presiding arbitrator, or have not found an agreement on who shall be chosen as presiding arbitrator, the issue is regulated by different rules. For instance, the NAFTA established under Article 1124.4: Constitution of a tribunal When a Party Fails to Appoint an Arbitrator or the Disputing Parties Are Unable to Agree on a Presiding Arbitrator 4. On the date of entry into force of this Agreement, the Parties shall establish, and thereafter maintain, a roster of 45 presiding arbitrators meeting the qualifications of the Convention and rules referred to in Article 1120 and experienced in international law and investment matters. The roster members shall be appointed by consensus and without regard to nationality.199

 International Council for Commercial Arbitration, Report of the ASIL-ICCA Joint Task Force on Issue Conflicts in Investor-State Arbitration. The ICCA Reports No. 3, 17 March 2016, 13. 195  ICC Rules 2021, Article 9(2). 196  ICC Rules 2021, Article 13(2). 197  SCC Rules 2017. 198  LCIA Arbitration Rules 2020, Article 5(10). 199  NAFTA Article 1124.4. 194

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The 2021 ICC Rules, under Article 12(5) establish that if no specific agreement exists between the parties with regard to the issue, the selection of the presiding arbitrator is undertaken by the ICC Court. Article 12(5) Constitution of the Arbitral Tribunal, Three Arbitrators Where the dispute is to be referred to three arbitrators, the third arbitrator, who will act as president of the arbitral tribunal, shall be appointed by the Court, unless the parties have agreed upon another procedure for such appointment, in which case the nomination will be subject to confirmation pursuant to Article 13. Should such procedure not result in a nomination within 30 days from the confirmation or appointment of the co-arbitrators or any other time limit agreed by the parties or fixed by the Court, the third arbitrator shall be appointed by the Court.200

Similarly, under the LCIA Rules, the LCIA is granted the responsibility to confirm the presiding arbitrator nominated by the parties after being chosen jointly by the arbitrators: Article 7 Party and Other Nominations 7.1 If the parties have agreed howsoever that any arbitrator is to be appointed by one or more of them or by any third person (other than the LCIA Court), that agreement shall be treated under the Arbitration Agreement as an agreement to nominate an arbitrator for all purposes. Such nominee may only be appointed by the LCIA Court as arbitrator subject to that nominee’s compliance with Articles 5.3 to 5.5; and the LCIA Court shall refuse to appoint any nominee if it determines that the nominee is not so compliant or is otherwise unsuitable. 7.2 Where the parties have howsoever agreed that the Claimant or the Respondent or any third person (other than the LCIA Court) is to nominate an arbitrator and such nomination is not made within time or at all (in the Request, Response or otherwise), the LCIA Court may appoint an arbitrator notwithstanding any absent or late nomination. 7.3 In the absence of written agreement between the Parties, no party may unilaterally nominate a sole arbitrator or presiding arbitrator.201

6.5.5.3 Consensus and Dissenting Opinions The tribunal presiding arbitrator usually attempts to promote cooperative interaction and generate agreement, being actively involved in the dynamics within the panel.202 Consensus may be an important element of an award, as it shows that the legal issues have been assessed and resolved in a shared way. An award without dissenting opinion would contribute to avoiding the perception of fragmentation. Frequency of dissenting opinions is, in fact, not the lowest: according to some scholars, it is around 22% of the total of examined awards.203 Prof. Albert Jan van den Berg

 ICC Arbitration Rules 2021.  LCIA Arbitration Rules 2020. 202  Rau (1997), p. 501. 203  van den Berg (2010), p. 824; Drahozal (2013); Rogers (2014), p. 12. 200 201

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observes that most of the dissents written by the arbitrators designated by the parties are favourable to the respective parties who made their appointment.204

6.5.6 Case Law 6.5.6.1 Azurix v Argentina A concession active for three decades for drinking water distribution and sewage treatment was tendered in the Province of Buenos Aires, Argentina, as part of the water privatisation political project. The tender was won by an American company via its subsidiary in Argentina, Azurix Buenos Aires S.A. (‘ABA’).205 According to the investor, in the period 1999–2001 the tariff scheme for provision of water services was influenced by the political interests of the provincial authorities, resulting in measures preventing revenue growth for ABA.206 The investor claimed that the algae outbreak denounced by the authorities was due to the failure to undertake infrastructure repair by the Province of Buenos Aires.207 The incident prompted the government to denounce the absence of planning, overbudgeting, and the absence of environmental impact assessments,208 stirring users to stop paying their water bills.209 At the end of 2001, Azurix proceeded with the termination of the concession after giving notice, but the termination was not acknowledged by the Province of Buenos Aires. The termination of the concession was only acquiesced by the Province of Buenos Aires when ABA declared bankruptcy, on grounds that the service under the concession was no longer provided by ABA. The investor Azurix files a request for arbitration according to the rules of the Argentina  – United States BIT of 1991, alleging that the measures taken by Argentina amounted to expropriation, failure to ensure fair and equitable treatment, non-discrimination, and full protection and security. On 29 November 2004, Argentina challenged Andrés Rigo Sureda, president of the tribunal. The complaints brought by Argentina were rooted in three sets of facts: (i) Rigo Sureda was employed as a consultant by the law firm Fulbright and

 van den Berg (2010), p. 824.  Azurix Corp. v The Argentine para. 40. 206  Azurix Corp. v The Argentine para. 83. 207  Azurix Corp. v The Argentine para. 124. 208  Azurix Corp. v The Argentine para. 166. 209  Azurix Corp. v The Argentine para. 283. 204 205

Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006, Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006, Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006, Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006, Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006,

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Jaworski, which represented an investor in a case against Argentina, where Fulbright and Jaworski appointed as arbitrator Guido Santiago Tawil, one of the counsel for Azurix in the present case; (ii) the fact that Fulbright and Jaworski provided legal advice to Azurix on other matters, including while the arbitration in the present case was in progress; and (iii) the fact that Fulbright and Jaworski participated in matters related to Enron, which was Azurix’s parent company. From the perspective of Argentina, a ruling in Azurix v Argentina could not be considered independent.210 The challenge was rejected on 25 February 2005.211 6.5.6.2 Perenco v Ecuador In September 2002, participation contracts were established between Perenco, an Anglo-French oil and gas company, and Ecuador, to enable the former access to particular oil fields in Ecuador’s Amazon region. Under this type of contracts, the investor has the right to a certain share of production due to its activities of oil exploration and production: in this case, about 77% of production represents the share of Perenco, whereas the share of Ecuador is around 23%.212 In the context of a general increase in oil prices, Law No. 2006-42 (‘Law 42’) was passed by the Ecuadorean Congress, leading to a significant rise in the share of oil sales revenue for Ecuador. Perenco claimed that Law 42 breached the 1994 Treaty between France and Ecuador concerning the Encouragement and Reciprocal Protection of Investment (‘Treaty’). On 30 April 2008, Perenco requested arbitration in accordance with the Treaty, one of its reasons being that the measures taken by Ecuador were allegedly equivalent to expropriation of its investment.213 On 18 July 2008, Judge Brower was designated as arbitrator by the claimant.214 The parties reached an agreement about tribunal constitution via a series of three letters, dated 19 September, 30 September and 2 October 2008. On 14 February 2009, the President of Ecuador made the announcement that Perenco’s failure to make payments under Law 42 prompted Ecuador to adopt coercive measures.215 On  Mourra (2008), p. 36.  Azurix Corp. v The Argentine Republic (ICSID Case No. ARB/01/12), Decision on the Application for Annulment of the Argentine Republic, 1 September 2009. 212  Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. ARB/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009, para. 9. 213  Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. ARB/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009, para. 7. 214  Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. ARB/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009, para. 8. 215  Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. ARB/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009, para. 13. 210 211

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24 February 2009, the Tribunal issued a temporary restraint requesting the parties to refrain from initiating or continuing any action, including any attempt to seize any assets of claimant, until it has had an opportunity to further hear from the parties. On 3 March 2009, the crude oil production of Perenco was confiscated by the respondent and an order was issued for taking the oil into custody. On 8 May 2009, the tribunal decided that provisional measures should be implemented to protect Perenco from respondents’ demands for payments owed under Law 42 and actions of payment collection, as well as to hinder respondents from unilateral amendment of the Participation Contracts. The tribunal clarified that the provisional measures it issued were an international obligation whose requirements Ecuador had to meet.216 The denunciation of the ICSID Convention by Ecuador was announced on 6 July 2009.217 6.5.6.2.1  The Challenge to Judge Brower In an article published in August 2009 on The Metropolitan Corporate Counsel, Judge Brower was interviewed on various themes.218 Responding to a question on the most pressing issues in international arbitration, Judge Brower affirmed that the orders issued by two ICSID tribunals regarding conformance to stringent interim provisional measures were explicitly rejected by Ecuador, invoking that the need to implement the national law was more important than any orders. However, he added, when ‘recalcitrant’ host countries discover that claimants will engage in the same behaviour as those who suffered expropriation in Libya, beginning to bring legal action in relation to hot oil, going after cargos, and investigating individuals invoking cross-default clauses in loan agreements, ‘the politics may change’: beyond a given point, investors will require something to rely on, otherwise they will withhold investment.219 A request for disqualification of Judge Brower was then submitted by the respondent.220

 Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. ARB/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009, para. 20. 217  Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. ARB/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009 para. 24. 218  Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. ARB/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009 para. 25. 219  Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. ARB/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009 para. 27. 220  Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. ARB/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009 para. 29. 216

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The challenge against the arbitrator was sustained by the Secretary-General of the Permanent Court of Arbitration, as, from the point of view of a reasonable third person having knowledge of the relevant facts, the remarks that the arbitrator made in an interview published in August 2009 by the Metropolitan Corporate Counsel called into question his impartiality or independence.

6.6 Counterclaims Several commentators agree that the instrument of counterclaims enhances the legitimacy of investment arbitration.221 Counterclaims are defined as claims occurring within the same proceedings, filed by the respondent against the claimant, and related to the original claim. In investment disputes, counterclaims are used to enforce obligations the investor has towards the State, or to ask for compensation for the damages suffered by the State following the investor’s actions. The number of cases with counterclaims is still rather low; this kind of incidental claim has raised criticisms and has been a source of debate.222 Until the present time, counterclaims have been filed in several known investment cases, including: Perenco v Ecuador, Burlington v Ecuador, Urbaser v Argentina, Oxus v Uzbekistan, Hesham v Indonesia, Metal-Tech v Uzbekistan, Goetz v Burundi, Spyridon Roussalis v Romania, Saluka v Czech Republic, Amco Asia v Indonesia, and Klöckner v Cameroon.223 In five of the  above, the tribunal decided it had jurisdiction and analysed the merits. However, only in two cases counterclaims were granted: Burlington v Ecuador and Perenco v Ecuador. Instead, in Urbaser v Argentina the tribunal found that no obligation burdened the investor to guarantee the right to water: the international instruments invoked by Argentina could not create any obligation for private parties, nor did the concession contract establish any duty in this regard. In Goetz, the tribunal decided that there was not enough evidence to prove the damages that the state claimed to have suffered.

 Bjorklund (2013).  Atanasova et al. (2014), p. 359. 223  See Perenco Ecuador Ltd. v The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Burlington Resources Inc. v Republic of Ecuador, ICSID Case No. ARB/08/5 (formerly Burlington Resources Inc. and others v Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (PetroEcuador)), Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The Argentine Republic, ICSID Case No. ARB/07/26, Oxus Gold v Republic of Uzbekistan, UNCITRAL, Hesham T. M. Al Warraq v Republic of Indonesia, UNCITRAL, Metal-Tech Ltd. v Republic of Uzbekistan, ICSID Case No. ARB/10/3, Antoine Goetz et consorts v République du Burundi, ICSID Case No. ARB/95/3, Spyridon Roussalis v Romania, ICSID Case No. ARB/06/1, Saluka Investments B.V. v The Czech Republic, UNCITRAL, Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No. ARB/81/1, and Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais, ICSID Case No. ARB/81/2, Award not public, dated 21 October 1983, then annulled on different grounds. 221 222

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Ultimately, in Hesham, despite having found that damages occurred, the tribunal decided that the legal basis to cover the incurred losses was not demonstrated. Filing a counterclaim is not part of the defence of the respondent: instead, the defendant is exercising its ‘right to bring an action’.224 As an autonomous claim, the outcome of the counterclaim is not affected by the outcome of the original claim.225 According to some scholars,226 the first counterclaim appeared in the 1970s in contract-­based arbitration,227 whereas 2001 marks the beginning of the use of counterclaims in treaty-based arbitration228 and more than half of the cases where counterclaims were filed have been settled in the last years.229 At the time of writing UNCTAD reports 1257 investor-State cases,230 with a low number of counterclaims filed,231 out of which the first successful one was in 2017.232 Counterclaims aim at achieving a further and higher objective compared to the mere response to the primary claim:233 be it the compensation for damages or the restoration of the pre-investment situation.234 Counterclaims differ from set-off defences as the latter are aimed to reduce the final sum that the respondent will need to pay by virtue of a separate debt that the claimant has towards the respondent. Instead, counterclaims have a wider scope and could require specific performance.235 The power of the competent investment tribunal to decide on counterclaims depends on two factors: jurisdiction and admissibility.

 Blomeyer (1982), Chapter 4 62.  Blomeyer (1982), p. 10. 226  Friedman and Popova (2014). 227  One example thereof is Adriano Gardella S.p.A v Republic of Ivory Coast, Award, 1977. 228  Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v The Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001. 229  Farmer (2016), p. 4. 230  UNCTAD (2023). 231  Atanasova et al. (2014), Annex, Table 4. 232  Burlington Resources Inc. v Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Ecuador’s Counterclaims, 7 February 2017. The tribunal ordered Burlington to pay environmental damage in an amount of USD 39,199,373. 233  Antonopoulos (2011), p. 60. 234  For example, Case Concerning the Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria) (Counter-Claims), Order of 30 June 1999, ICJ Rep. 1999, at 985: the tribunal ruled that the “Counter-Memorial of Nigeria in submission 7 contains claims whereby Nigeria seeks further to the rejection of Cameroon’s claims to establish the latter’s responsibility and to obtain reparation on that account” and that “such claims constitute counterclaims within the meaning of Article 80 of the Rules of the Court.” [emphasis added]. 235  Case Concerning the Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria) (Counter-Claims), Order of 30 June 1999, ICJ Rep. 1999, 146. 224 225

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6.6.1 Jurisdiction There are four main different legal bases to find jurisdiction on counterclaims: (i) the relevant investment treaty explicitly allows both parties to file claims against each other; (ii) the relevant arbitration rules provide for the possibility to file counterclaims; (iii) a specific agreement of the parties in which they grant to the State the right to file a counterclaim; (iv) an investment tribunal finds it has jurisdiction even lacking an express provision.236 6.6.1.1 Provisions in IIAs Consent is the basis for jurisdiction in arbitration generally. In investment arbitration, consent is expressed in two different moments. The State’s offer to arbitrate is given in the investment treaty to investors of the other contracting party/parties,237 which is accepted when foreign investors file an arbitration claim against the host State.238 It is the agreement to arbitrate that lays the foundation of the tribunal’s jurisdiction.239 Based on the Kompetenz/Kompetenz principle, the tribunal has the power to rule on its own jurisdiction by applying the arbitration agreement:240 it follows that the parties’ consent is essential for counterclaims to be included in the scope of the tribunal’s jurisdiction. Firstly, and most commonly,241 the investment treaty can include provisions allowing investment tribunals to hear ‘all’ or ‘any’ dispute concerning investments: an example thereof can be found in the Netherlands – Czech Republic BIT, establishing that the disputes covered are all disputes between one Contracting Party and an investor of the other Contracting Party concerning an investment of the latter.242 As a second possibility, jurisdiction can be found if an explicit provision on counterclaims is included in the applicable treaty, such as the one in the Common Market for Eastern and Southern Africa (‘COMESA’). Article 28(9) provides that a member State which is the respondent against whom a COMESA investor brought a claim may assert that the investor bringing the claim has not fulfilled its obligations under this Agreement, and use this assertion as a defence, counterclaim, right of set off or other similar claims.243 Thirdly, counterclaims can be filed on the basis of the dispute resolution clause included in the investment treaty, for instance Article IX of the Argentina – Spain  Marisi (2020), pp. 237–254.  Douglas (2009), p. 258. 238  Douglas (2009), p. 258. 239  Atanasova et al. (2014), p. 366. 240  Kjos (2013), p. 112. 241  Douglas (2009), p. 234. 242  Netherlands-Czech Republic BIT, Art 8. 243  Investment Agreement for the COMESA Common Investment Area (2007), Art. 28(9). 236 237

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BIT provides that any controversy between the parties related to the interpretation or application of the BIT will be resolved, to the extent possible, by diplomatic means. However, if the conflict cannot be resolved in this way within a period of six months, it will be submitted to an arbitral tribunal, at the request of either of the two parties.244 In Urbaser v The Argentine Republic the tribunal found that: It further follows from the dual possibility to initiate an arbitration that the BIT does include in the dispute resolution mechanisms retained in Article X the hypothesis of a counterclaim, provided that the requirements defined by the provisions governing such mechanism are met. Indeed, when both parties are entitled to lodge a claim, it cannot happen that in acting first one party could prevent the other from raising its claim. This can be avoided only by admitting the possibility of a counterclaim.245

6.6.1.2 Provisions in Arbitration Rules The procedural rules govern the procedure of the arbitration, and are determined by the contracting parties in the investment treaty: often they refer to rules set by arbitration institutions or international organisations. In this Section, the rules established by ICSID, UNCITRAL, ICC, LCIA and SIAC will be discussed. Under Article 46, the ICSID Convention provides: Except as the parties otherwise agree, the tribunal shall, if requested by a party, determine any incidental or additional claims or counterclaims arising directly out of the subject-­ matter of the dispute provided that they are within the scope of the consent of the parties and are otherwise within the jurisdiction of the Centre.246

In case the parties do not expressly agree on the possibility to file counterclaims, the power of the tribunal to hear them is based on the following requirements: the counterclaim must derive from the foreign investment, it must be filed between the foreign investor and the host State,247 it must fall within the consent of the contracting parties,248 and it must be connected to the main claim.249 The ICSID Convention, referring to the ‘Settlement of Disputes Between States and Nationals of Other States’ [emphasis added] in its own title, implies that claims can be filed in both directions.250 Moreover, Article 36(1) of the ICSID Convention provides for the possibility for nationals of contracting States or contracting parties

 Acuerdo Para La Promocion Y La Proteccion Reciproca De Inversiones Entre El Reino De España Y La Repùblica Argentina, 1991, Article IX. 245  Urbaser v The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, para. 1144. 246  ICSID Convention, Article 46. 247  ICSID Convention, Art 25. 248  See Section 5.6.1.1. 249  See Section 5.6.2. 250  ICSID (2006c). 244

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themselves to start arbitral proceedings. This was acknowledged by the Executive Board on the ICSID Convention: While the broad objective of the Convention is to encourage a larger flow of private international investment, the provisions of the Convention maintain a careful balance between the interests of investors and those of host States. Moreover, the Convention permits the institution of proceedings by host States as well as investors and the Executive Directors have constantly had in mind that the provisions of the Convention should be equally adapted to the requirements of both cases.251

Rule 40(1) Ancillary Claims of the ICSID Arbitration Rules provides that except as the parties otherwise agree, a party may present an incidental or additional claim or counterclaim arising directly out of the subject-matter of the dispute. This ancillary claim shall be within the scope of the consent of the parties and be otherwise within the jurisdiction of the Centre.252 Rule 40(1) was applied in Amco v Indonesia, where the tribunal established that the ICSID Convention is aimed to protect, to the same extent and with the same vigour, both the investor and the host State.253 Finally, the 1968 Model Clauses suggested by the ICSID Centre initially covered only claims put forth by investors, but subsequent amendments of the document included claims made by States as well.254 Article 19(3) the 1976 UNCITRAL Arbitration Rules provides that, in its statement of defence, or at a later stage in the arbitral proceedings if the arbitral tribunal decides that the delay was justified under the circumstances, the respondent may make a counterclaim arising out of the same contract or rely on a claim arising out of the same contract for the purpose of a set-off.255 Historically, the UNCITRAL Rules were drafted to govern international commercial arbitration, hence their application to investment cases created some concerns. In 2010 they underwent revision, and the expression ‘the same contract’ was eliminated, with the effect of broadening their effect to include counterclaims:256 Article 4(2) of the UNCITRAL Rules establishes that the response to the notice of arbitration may also include a brief description of counterclaims or claims for the purpose of a set-off, if any, including where relevant, an indication of the amounts involved, and the relief or remedy sought.257 Regarding the 2021 ICC Rules, Article 5 establishes as follows: Article 5(5) Any counterclaims made by the respondent shall be submitted with the Answer and shall provide:  Articles of Agreement of the International Bank for Reconstruction and Development art. I(2), Dec. 27, 1945, 60 Stat. 1440, 2 U.N.T.S. 134. 252  ICSID (2006b). 253  Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, 23. 254  Schreuer et al. (2009), pp. 733–744. 255  UNCITRAL Arbitration Rules 1976, Article 19(3). 256  Kendra (2013), p. 578. 257  UNCITRAL Arbitration Rules 2010. 251

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a) a description of the nature and circumstances of the dispute giving rise to the counterclaims and of the basis upon which the counterclaims are made; b) a statement of the relief sought together with the amounts of any quantified counterclaims and, to the extent possible, an estimate of the monetary value of any other counterclaims; c) any relevant agreements and, in particular, the arbitration agreement(s); and d) where counterclaims are made under more than one arbitration agreement, an indication of the arbitration agreement under which each counterclaim is made. The respondent may submit such other documents or information with the counterclaims as it considers appropriate or as may contribute to the efficient resolution of the dispute. (6) The claimant shall submit a reply to any counterclaim within 30 days from the date of receipt of the counterclaims communicated by the Secretariat. Prior to the transmission of the file to the arbitral tribunal, the Secretariat may grant the claimant an extension of time for submitting the reply.258

Article 2(1)(iii) of the LCIA Rules provides that: Article 2. Response 2.1 Within 28 days of the Commencement Date, or such lesser or greater period to be determined by the LCIA Court upon application by any party or upon its own initiative (pursuant to Article 22.5), the Respondent shall deliver to the Registrar a written response to the Request (the “Response”), containing or accompanied by: (…) (iii) if not full confirmation, a statement briefly summarising the nature and circumstances of the dispute, its estimated monetary amount or value, the transaction(s) at issue and the defence advanced by the Respondent, and also indicating whether any cross-claim will be advanced by the Respondent against any other party to the arbitration (such cross-­ claim to include any counterclaim against any Claimant and any other cross-claim against any Respondent).259

Article 4(1)(b) of the SIAC Investment Rules governs counterclaims, establishing that the Respondent shall file a Response with the Registrar within 35 days of receipt of the Notice of Arbitration. The Response shall include a brief statement describing the nature and circumstances of any counterclaim, specifying the relief claimed and, where possible, an initial quantification of the counterclaim amount.260 And Article 25(2) of the SIAC Investment Rules provides that: 25. Jurisdiction of the tribunal The tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence, validity or scope of the arbitration clause or the admissibility of any claim or counterclaim. An arbitration clause which forms part of a contract, treaty, statute or other instrument shall be treated as a clause independent of the other terms of the contract, treaty, statute or other instrument. A decision by the tribunal that the contract, treaty, statute or other instrument is null and void shall not entail ipso jure the invalidity of the arbitration clause, and the tribunal shall not cease to have jurisdiction by reason

 ICC Arbitration Rules 2021.  LCIA Arbitration Rules 2020. 260  Investment Arbitration Rules of the Singapore International Arbitration Centre SIAC Investment Arbitration Rules (1st Edition, 1 January 2017). 258 259

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of any allegation that the contract, treaty, statute or other instrument is non-existent or null and void.261

It can be concluded that the discussed arbitration rules confirm that, in principle, counterclaims can be allowed if they meet the requirements on jurisdiction and admissibility. 6.6.1.3 Assessment by the Investment Tribunal and Parties’ Consent An investment tribunal may find its jurisdiction on counterclaims in the absence of a dedicated treaty provision. In fact, the International Court of Justice, the International Tribunal for the Law of the Sea and the Iran – United States Claims Tribunal have approved procedural norms on counterclaims, although the relevant treaty is silent on the matter. The possibility to file counterclaims is indeed provided by Article 80 of the Rules of the International Court of Justice, Article 98 of the Rules of the International Tribunal for the Law of the Sea, and Article II of the Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran (‘Claims Settlement Declaration’). Finally, the disputing parties may consent themselves over the jurisdiction of the tribunal on counterclaims, such as in Burlington Resources v Ecuador, where Ecuador filed a counterclaim on the environmental damage caused by the claimant on the site of the investment operations and sought compensation for USD 2.8 billion. Burlington accepted not to object jurisdiction over the counterclaims while the case was already pending.

6.6.2 Admissibility The connection between counterclaims and the primary claim is the second requirement needed for the tribunal to hear the counterclaims filed, as highlighted by several arbitration institutions,262 in order to favour procedural economy and a solid administration of justice.263

 SIAC Investment Arbitration Rules 2017.  ICSID Convention, Article 46; International Court of Justice, Rules of the International Court of Justice, 1978, Art 80. Other international dispute settlement bodies have held that the close connection requirement is a ubiquitous part of general principles of law of procedure, e.g. Westinghouse Electric Corp v Islamic Republic of Iran Case No. 389, 12 February 1987, Award 6 Iran-US CTR II (1984) at 1; UNCITRAL Arbitration Rules 2010, Art 21(3). 263  Kjos (2013), p. 147. 261 262

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Beyond arbitration rules, the correlation between the primary claim and the counterclaim can also be provided by domestic law.264 In investment disputes, the applicable treaty265 or other instruments266 can provide for the requirement of correlation. Lalive wrote that the condition of correlation under Article 46 ICSID Convention concerned admissibility and that it was an additional requirement compared to the provisions on jurisdiction in Article 25 of the ICSID Convention.267 Similarly, Kjos concluded that, compared to agreements on forum election, connexity is not as much a question of jurisdiction, but rather of admissibility.268 The provision on the requirement of correlation for admissibility purposes was applied in a few investment cases only. Among them, the tribunal in Metal-Tech v Uzbekistan concluded on Article 46 of the ICSID Convention: [T]he second [connectedness] requirement supposes a connection between the claims and the counterclaims. It is generally deemed an admissibility and not a jurisdictional requirement.269

Also in Oxus v Uzbekistan, the tribunal found that a close connection was a requirement of admissibility: a sufficient “close connection” or “nexus” exist[ed] between Claimant’s claims and Respondent’s counter-claims to justify the admissibility of Respondent’s counter-claims.270

The tribunal in Goetz v Burundi reached the same conclusion.271 Under the ICSID Convention, counterclaims shall arise ‘directly out of the subject-matter of the dispute’.272 The requirements set by Article 46 and Article 25 (‘arising directly out of an investment’)273 are distinct, as Article 25 of the ICSID Convention requires a close link with the investment, pertaining therefore to the issue of jurisdiction.274 Under the 2010 UNCITRAL Arbitration Rules, Article 21(3) establishes that the respondent may make a counterclaim or rely on a claim for the purpose of a set-off provided that the arbitral tribunal has jurisdiction over it.275  See for example, Norwegian Dispute Act (2005), Swedish Code of Judicial Procedure (1942), Civil Procedure Code of the Russian Federation (2002), Civil Procedure Code of Azerbaijan Republic (1999). 265  See for example the CPTPP Agreement. 266  See for example ICSID Convention or UNCITRAL Arbitration Rules. 267  Lalive and Halonen (2011), Vol. II, 141. 268  Kjos (2013), p. 147. 269  Metal-Tech Ltd. v Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013, para. 407. 270  Oxus Gold v Republic of Uzbekistan, UNCITRAL, Award, 17 December 2015, para. 940. 271  Atanasova et al. (2014), p. 378. 272  ICSID Convention, Article 46 and ICSID Arbitration Rules, Rule 40. 273  Steingruber (2013), p. 299. 274  Steingruber (2013), p. 299. 275  UNCITRAL Arbitration Rules 2010, Article 21(3). 264

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The wording does not require a close connection between claim and counterclaim. The revised drafting is aimed to be clearer and more straightforward than the previous one, and some commentators write that it could apply as a general procedural principle.276 The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (‘CPTPP’) is an investment agreement with provisions on counterclaims: it allows the State to file a counterclaim provided that a connection with the factual and legal basis of the primary claim exists.277 Scholars such as Lalive and Halonen, Atanasova and Kjos write that the factual correlation should be close in order for counterclaims to be admissible. In particular, Lalive and Halonen specify that: Whereas the investor might well have committed unlawful acts that are closely connected to the measures taken by the state that allegedly violate the BIT, it is hard to see a scenario where they may arise under the same legal order, namely international law.278

Atanasova argues that, if the wording of the investment agreement is broad enough to include counterclaims, ‘it is not necessary for the legal basis on which the counterclaim is brought to be the same as the one for the main claim in order to fall under the jurisdictional powers of the constituted tribunal.’279 Kjos writes that, if there is no judicial connectedness, robust factual connectedness could be the basis for admissibility, as it can promote procedural economy.280 The difference between jurisdiction and connectedness is very important, as decisions on jurisdictions are reviewable, but not necessarily other decisions.281 Pertaining to the means of review, ICSID awards follow different norms compared to non-ICSID awards. Whereas the latter may be reviewed by the courts of the seat of arbitration or the courts of the place where the enforcement is sought,282 ICSID awards can be annulled by an ad hoc committee under Article 52 of the ICSID Convention.283 Some scholars comment that the distinction between jurisdiction and admissibility brings further implications.284 Firstly, new facts occurring after the date of the request for arbitration cannot be considered in the decision on jurisdiction.285 Vice versa, new developments concerning admissibility may be taken into

 Caron and Caplan (2013), p. 414.  Comprehensive and Progressive Agreement for Trans-Pacific Partnership (‘CPTPP’) (2018), Article 9.19(2). 278  Lalive and Halonen (2011), Vol. II, 141. 279  Atanasova et al. (2014), p. 372. 280  Kjos (2013), p. 154. 281  Paulsson (2005), p. 601. 282  Gouiffès and Ordonez (2015). 283  Gouiffès and Ordonez (2015). 284  Waibel (2014), p. 67. 285  Waibel (2014), p. 67. 276 277

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consideration.286 Secondly, if the tribunal finds that it has no jurisdiction, it will not analyse the merits of the case, but if admissibility conditions are not met, the tribunal may grant the claimant a further possibility to satisfy those conditions by staying the procedure.287

6.6.3 Investor’s Obligations An important element in counterclaims is the existence of obligations held by the investor, which are allegedly violated. It is worthy to focus on the sources of the investor’s obligations, which can be found in international law, customary international law, general principles of law, domestic law, and contracts. With regard to international law, it is worth mentioning that within the 2002 WTO discussions about a multilateral scheme on trade and investment, Kenya, China, Zimbabwe, India, and Cuba asked to include binding measures aimed at providing for foreign investors’ corporate responsibility and accountability.288 In its 2016 Model BIT, India included the right to file counterclaims in Article 14.2.b, Scope, and Article 14.11, Counterclaims by Parties.289 Investment agreements can grant rights to third parties, but they cannot generate obligations on them.290 Customary international law, which is integrated by State practice, imposes obligations upon States rather than investors.291 Some of the general principles of law are applicable also to investors, and have been applied in a number of investment arbitration cases: we can recall principles such as pacta sunt servanda (agreements must be kept),292 good faith,293 damage compensation following a breach of contractual obligations,294 and nemo auditur propriam turpitudinem allegans (prohibition from taking advantage of one’s own turpitude, or guilt).295 Concerning domestic law, often IIAs provide that the applicable law is international law as well as domestic law.296 If the applicable IIA so provides, the investor’s obligations established by domestic law can elevate to the role of treaty obligation. An example thereof can be found in the award in Al Warraq v Indonesia: the tribunal

 Waibel (2014), p. 67.  Waibel (2014), p. 67. 288  Brower and Schill (2008–2009), p. 482. 289  Indian Model Bilateral Investment Treaty, 2016. 290  McKendrick (2000), p. 133. 291  Kryvoi (2011), p. 24. 292  Texaco v Libya, 53 ILR, award (1977) 389. 293  Waguih Elie George Siag and Clorinda Vecchi v Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction of 11 April 2007, para. 125. 294  Amco v Indonesia I, Award on the Merits of 20 November 1984, (1992) 89 ILR 368. 295  Inceysa v El Salvador, para. 240 et seq. 296  Begic (2005), p. 232. 286 287

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applied the Agreement on Promotion, Protection and Guarantee of Investments amongst the Member States of the Organisation of the Islamic Conference (1981), and affirmed that the investor’s obligations are raised ‘from the plane of domestic law (and jurisdiction of domestic tribunals) to a treaty obligation binding on the investor in an investor state arbitration’.297 However, domestic law obligations do not always rise to the level of international law commitments. Finally, investors’ obligations can arise out of the relevant contracts, such as licensing agreements, privatisation agreements, and concessions.298

6.6.4 Counterclaims Against Companies of the Same Group The consent of foreign investors to counterclaims against their parent companies is of particular interest. In certain cases, affiliated companies might not have sufficient assets to cover the awarded damages. It can be difficult to involve a parent organisation with greater resources as a party in an investment arbitration.299 In some of the past ICSID cases, foreign control over local subsidiaries was considered when trying to pierce the corporate veil,300 as well as the interpretation of the parties’ intent, or the wording of the applicable international treaty.301

6.6.5 Benefits of Counterclaims There are plenty of benefits in including counterclaims in new investment agreements, or agreements under re-negotiation.302 First, procedural efficiency would increase, as the tribunal will already be familiar with the facts of the case. The calculation of damages and offset damages would be more direct, and having only two sets of counsel, one arbitral tribunal, and one hearing would avoid duplication of costs and time,303 and would be particularly appreciated by developing countries.304  Hesham T.M.  Al Warraq v Republic of Indonesia, UNCITRAL, Final Award (15 December 2014) para. 663. 298  Crawford (2007), p. 13. 299  For a more detailed discussion of piercing the corporate veil, see Kryvoi (2010). 300  Kryvoi (2010). 301  Kryvoi (2010). 302  Professor Jenik Radon, School of Public and International Affairs, Columbia University, in an interview with the author in 2017. 303  Jean Kalicki has noted that allowing counterclaims “may lead to efficiency, to the centralization of inquiry and the avoidance of duplication.” Kalicki (2013), pp. 1–2. 304  For instance, in Plama Consortium v Bulgaria, ICSID Case No. ARB/03/24, the legal costs to the claimant (related to both the jurisdiction and merits phases of the arbitration), amounted to $4.6 297

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The legitimacy of the investment arbitration system would benefit from the possibility to file counterclaims. Concerns on the lack of symmetry due to States not being able to use remedies investors have would be appeased. In fact, several scholars argue that the rights of the disputing parties would not be equally granted if States were not given the possibility to file counterclaims.305 Moreover, counterclaims could dissuade frivolous claims from being filed. In contract-based counterclaims, it would be possible to assess investors’ conduct, improving corporate governance, and enhancing the rule of law. To conclude, counterclaims aim to ensure procedural economy, improve efficiency, reduce costs, and make enforcement easier. In fact, the ICSID Convention provides that the States parties are under the obligation to satisfy monetary obligations ordered by an award in their territories in the same way that they would enforce a final domestic court ruling.306

6.6.6 Case Law A consortium for exploitation of oil reserves in Block 7 and Block 21 of the Ecuadorian Amazon Forest was formed by oil companies Burlington (United States-­ based) and Perenco (France-based), and jointly operated. Pursuant to the Production Sharing Contracts (‘PSCs’), the operation risks were upon the investors in exchange for part of the oil extracted. Following the rise in global oil prices, an attempt was made by Ecuador to renegotiate the PSCs, but it did not succeed. Ecuador then established a windfall tax of 99% on oil revenues. After the investors expressed their refusal to pay the newly imposed tax, Ecuador initiated a case before the domestic courts to seize part of the oil extracted. The investors then suspended all operations and Ecuador obtained possession of Block 7 and Block 21. Finally, Ecuador terminated the PSCs. Burlington and Perenco filed two separate requests for arbitration against the host State: respectively on 21 April 2008 and 30 April 2008. 6.6.6.1 Burlington v Ecuador Burlington initiated ICSID Case No. ARB/08/5, claiming the breach of several provisions under the United States-Ecuador BIT, including expropriation, national treatment, fair and equitable treatment, and full protection and security.307 In the

million, whereas the respondent’s legal costs (for both phases) were $13.2 million. 305  Bubrowski (2013), pp. 214–215. 306  ICSID Convention, Art 54.1. 307  Burlington Resources Inc. v Republic of Ecuador,  ICSID Case No. ARB/08/5, Decision on Liability, 14 December 2012, para. 67.

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same case, Ecuador filed a counterclaim alleging the breach of national environmental laws, asking compensation for the environmental harm caused in Block 7 and Block 21 (paras. 80–82), claiming that environmental harm is not prescriptible (paras. 85–90), and that Burlington should restore the conditions of the soils to pre-­ investment health levels (paras. 104–112), or back to the sensitive ecosystems standard (paras. 113–117).308 Burlington contended that Ecuador’s USD 2.6 billion environmental claim was a ‘work of fiction’, unsupported by the facts and ill-founded as a matter of law and argued that Ecuador did not establish that Burlington acted in breach of its duty of care, that Ecuador suffered harm, and that there is a causal nexus between the act and the harm (para. 118).309 The arbitral tribunal interpreted the notion of environmental harm pursuant to Ecuadorian law (paras. 273–293), and decided the counterclaim in favour of Ecuador, ordering Burlington to pay USD 41.7 million to the state (para. 1075).310 6.6.6.2 Perenco v Ecuador On 24 June 2011, Perenco suggested that the counterclaims be fully addressed in the Burlington Arbitration as to all parties, including Perenco. However Ecuador declined this offer (para. 31).311 Hence, the two arbitration cases including Ecuador’s counterclaims continued in parallel (para. 32).312 The tribunal found that, although parallel proceedings are, to the extent possible, to be avoided, neither the Perenco nor the Burlington tribunal had the power to order the consolidation of the parts of the proceedings relating to counterclaims motu proprio (para. 33).313 Finally, the tribunal in Perenco v Ecuador concluded that, since Ecuador had applied for the annulment of the Burlington v Ecuador award, the res judicata of that award would be frozen until the decision on the annulment. The tribunal decided that, since it could not foresee the outcome of the Burlington v Ecuador annulment

 Burlington Resources Inc. v Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Counterclaims, 7 February 2017. 309  Burlington Resources Inc. v Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Counterclaims, 7 February 2017. 310  Burlington Resources Inc. v Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Counterclaims, 7 February 2017. 311  Perenco Ecuador Limited v The Republic Of Ecuador, ICSID Case No. ARB/08/6, Decision on Perenco’s Application for Dismissal of Ecuador’s Counterclaims, 18 August 2017. 312  Perenco Ecuador Limited v The Republic Of Ecuador, ICSID Case No. ARB/08/6, Decision on Perenco’s Application for Dismissal of Ecuador’s Counterclaims, 18 August 2017. 313  Perenco Ecuador Limited v The Republic Of Ecuador, ICSID Case No. ARB/08/6, Decision on Perenco’s Application for Dismissal of Ecuador’s Counterclaims, 18 August 2017. 308

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decision, (para. 51)314 it would continue working on Ecuador’s counterclaims, and that it would avoid double recovery (para. 52).315 The award issued on 27 September 2019 included an order for Ecuador to pay compensation calculated in USD 449 million, for violation of the contracts and the investment treaty. However, the tribunal also decided to uphold Ecuador’s counterclaim, and ordered Perenco to pay USD 54 million to restore the environment and infrastructure in the two oil blocks involved. The tribunal calculated this amount considering what was awarded in the Burlington v Ecuador award as compensation for counterclaims, in order to avoid double recovery.316

6.7 The Link Between Legitimacy and Consistency Some scholars highlighted that the legitimacy of the investment regime can be undermined by inconsistent awards on similar facts, due to the fragmented nature of investment law, where no notion of precedent is applied.317 In fact, some scholars argue that a cornerstone of legitimacy of international arbitration lies in the expectations and confidence that its users have in it.318 Susan Franck adds: Legitimacy depends in large part upon factors such as determinacy and coherence, which can in turn beget predictability and reliability. (…) Coherence is a key element of legitimacy: it requires consistency of interpretation and application of rules in order to promote perceptions of fairness and justice.319

Susan Franck further warns  that, conversely, ‘any system where diametrically opposed decisions can legally coexist cannot last long. It shocks the sense of rule of law or fairness (…) [I]ssues of legitimacy cut to the heart of the utility of using arbitration, (…) [and] conflicting awards based upon identical facts and/or identically worded investment treaty provisions will be a threat to the international legal order and the continued existence of investment treaties’.320 It has already happened that two different arbitration cases, stemming out of the same circumstances, had clashing outcomes. Ronald Lauder, a United States citizen, had the control of the Dutch company CME Czech Republic BV (‘CME’), which, in turn, invested in a Czech television enterprise. Lauder filed an arbitration claim against the Czech Republic under the United States – Czech Republic BIT,

 Perenco Ecuador Limited v The Republic Of Ecuador, ICSID Case No. ARB/08/6, Decision on Perenco’s Application for Dismissal of Ecuador’s Counterclaims, 18 August 2017. 315  Perenco Ecuador Limited v The Republic Of Ecuador, ICSID Case No. ARB/08/6, Decision on Perenco’s Application for Dismissal of Ecuador’s Counterclaims, 18 August 2017. 316  Bohmer (2019). 317  Ten Cate (2013); Caron (2009), p. 516. 318  Simmons (2012), p. 204. 319  Franck (2005), pp. 1584, 1585. 320  Franck (2005), p. 1583. 314

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alleging an unlawful measure harming the value of its investment. Shortly afterwards, CME started a separate arbitration against the Czech Republic under the Netherlands – Czech Republic BIT. Whereas the first tribunal decided in favour of the State, finding that Lauder had failed to prove the causality between the Czech Republic’s measures and the damages suffered, the second tribunal found the host State liable and awarded compensation to the investor amounting to USD 269,814,000.321 Similarly, it also happened that cases stemming from the same state measure, decided under the same IIA, and whose claimants were operative in the same sector—namely, the so-called ‘four Argentina Gas Cases’—CMS, Enron, LG&E, and Sempra, had divergent outcomes. The discrepancy in the outcomes raised the concerns of many commentators. It can be concluded that legitimacy and consistency are closely interconnected. For clarity purposes, the two topics are discussed in separate Chapters. However, the discourse on the various issues emphasises the numerous links between the two matters, and brings to the conclusion that limiting the inconsistency of awards would improve the perceived legitimacy of the overall system.

6.8 Conclusions The present Chapter explained that people’s acknowledgement of or willingness to acknowledge an existing legal order depends on the perceived legitimacy of that order. In turn, legitimacy is rooted in the notion that the law should work to promote people’s interests. The concept of legitimacy is defined as ‘the basis upon which people accept or are willing to accept the legal order as they find it’.322 Based on this premise, this Chapter has investigated the legitimacy of the ISDS system, a topic that fuelled passionate debates. This Chapter has highlighted the strict standards of independence and impartiality arbitrators adhere to, with the duty to disclose a number of situations in which they had financial, professional, or personal relations with any of the parties or their counsel. The soft law rules on independence and impartiality and the rigorous challenge mechanism ensure that the tribunal is formed respecting the highest standards of independence and impartiality. Although part of commentators perceives a lack of legitimacy, investment arbitration is governed by effective self-regulation guidelines about disclosure of conflicts of interests and issues of conflicts. This Chapter has found that applying a proportionality analysis is important to balance the rights of the parties. Moreover, it has highlighted that failure to ensure

 Lauder v Czech Republic, UNCITRAL, Final Award, 3 September 2001, para. 313; CME Czech Republic BV v Czech Republic, UNCITRAL, Partial Award, para. 575, 13 September 2001, and Final Award, 14 March 2003, paras. 446–47. 322  Cosmas (2015). 321

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due process in investment arbitration is in theory possible, but happens very rarely in practice, since it would need a particular concurrence of circumstances. There are further spheres where the legal experts’ criticism most frequently steers: among them, this Chapter has discussed: (i) the practice of multiple hats; (ii) the involvement of public interest in ISDS cases, where a panel of private arbitrators is assigned functions analogous to those of a constitutional court. Whereas, in principle, this ‘does not restrict the limits of the possible political decisions as such, it does increase the potential cost of such changes for the public’;323 (iii) criteria for the appointment and potential challenge of arbitrators; (iv) whether investor-State arbitration ensures due process; (v) the Code of Conduct for adjudicators in international investment dispute proceedings; and (vi) the possibility, for the State, to bring successful counterclaims against the investor. The Code of Conduct drafted by the ICSID Secretariat jointly with the UNCITRAL Secretariat governs independence and impartiality of arbitrators, sets a limit on multiple roles, establishes the duty of diligence, clarifies when ex-parte communications are allowed, provides for the obligation of confidentiality on the information relating to the proceeding, and lists any circumstances that should be disclosed. Guidelines such as the Code of Conduct, the IBA Guidelines on conflicts of interest in international arbitration, and institutional arbitration rules including the ICSID Arbitration Rules and the UNCITRAL Arbitration Rules contain specific provisions on independence and impartitality, disclosure obligations, and multiple hats. These rules contribute to the identification of personal and professional situations that may give rise to a challenge. Disclosure of the relevant circumstances and, more generally, compliance with these provisions allows to strengthen the legitimacy of the ISDS. Whereas on one side, it enables arbitrators to protect their reputation of independent and impartial adjudicators, it also provides other actors and stakeholders with valid reasons to keep their trust in this dispute resolution system. Provisions governing the conduct of arbitrators in international arbitration reinforce the legitimacy of the investment arbitration system overall. It can be concluded that the currently ongoing work at the UNCITRAL Working Group III on the Code of Conduct is a positive and encouraging development, and that the adoption of the Code will doubtlessly enhance the legitimacy of ISDS. As certain scholars point out, there are different ways to tackle the above-­ mentioned issues: between the two extremes of ignoring the criticism, and eliminating the ISDS system, there are certainly intermediate options, which hypothesise a reform of the ISDS system.

323

 Doe (2016).

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Kulick A (2012) Global public interest in international investment law. Cambridge University Press, Cambridge Kurtz J (2011) The Australian Trade Policy Statement on Investor-State Dispute Settlement. American Society of International Law Insights (2 August 2011) Lalive P (1991) Conclusions. In: International Chamber Of Commerce, International Court of Arbitration (ed) The arbitral process and the independence of arbitrators. ICC Publications, Paris, pp 119–120 Lalive P, Halonen L (2011) On the availability of counterclaims. In: Bělohlávek AJ, Rozehnalová N (eds) Czech yearbook of international law: - rights of host states within the system of international investment protection, vol 2. Juris Publishing, Huntington, pp 141–156 LCIA (2020) Arbitration Rules Lester S (2014) Improving investment treaties through general exceptions provisions: the Australian example. Investment Treaty News (May 2014) Lowenfeld AF (1995) The party-appointed arbitrator in international controversies: some reflections. Tex Int Law J 30:59 Malström C (2015) Opening remarks: discussion on investment in TTIP Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, ICSID Case No. ARB/09/20, Award, 16 May 2012 Marisi F (2019) Independence and impartiality: the role of soft law in international arbitration. Arbitr: Int J Arbitr Mediat Dispute Manag 85(4):326–345 Marisi F (2020) Environmental interests in investment arbitration: challenges and directions. Wolters Kluwer, Alphen aan den Rijn McKendrick E (2000) Contract law. Oxford University Press, Oxford Metal-Tech Ltd. v Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013 Mourra MH (2008) The conflicts and controversies in Latin American treaty-based disputes. In: Mourra MH, Carbonneau TB (eds) Latin American Investment Treaty Arbitration: the controversies and conflicts. Wolters Kluwer, Alphen aan den Rijn, pp 5–68 MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004 NAFTA, Legal texts Nappert S (2009) Bias in international commercial arbitration versus investment arbitration: are there different standards? Should there be? In: Rovine AW (ed) Contemporary issues in international arbitration and mediation: the Fordham Papers. Brill Nijhoff, Leiden, pp 146–154 National Iranian Oil Company (NIOC) v the State of Israel, ICC, Cour de Cassation, Judgment of the French Supreme Court on the Applicant’s Request for Designation of an Arbitrator for Israel, 1 February 2005 Newcombe A, Paradell L (2009) Law and practice of investment treaties. Standards of treatment. Kluwer Law International, Alphen aan den Rijn Norwegian Dispute Act (2005) OECD (2016) G20 Guiding Principles for Global Investment Policymaking Oxus Gold v Republic of Uzbekistan, UNCITRAL, Award, 17 December 2015 Paulsson J (2005) Jurisdiction and admissibility. In: Aksen G, Briner RB (eds) Global reflections on international law, commerce and dispute resolution - Liber Amicorum in honour of Robert Briner. ICC Publication, New York, pp 601–617 Perenco Ecuador Limited v The Republic of Ecuador & Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Decision on Challenge to Arbitrator, 8 December 2009 Perenco Ecuador Ltd. v The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Decision on Perenco’s Application for Dismissal of Ecuador’s Counterclaims, 18 August 2017 Plama Consortium v Bulgaria, ICSID Case No. ARB/03/24 Portinaro PP (2007) Beyond the rule of law: Judges’ Tyranny ot Lawyers’ Anarchy? In: Costa P, Zolo D (eds) The rule of law: history, theory and criticism. Springer, Dordrecht, pp 353–370

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Rau AS (1997) Integrity in private judging. S Tex Law Rev 38:485 Reed L, Paulsson J, Blackaby N (2004) Guide to ICSID arbitration. Kluwer Law International, Alphen aan den Rijn Repsol, S.A. and Repsol Butano, S.A. v Argentine Republic, ICSID Case No. ARB/12/38, Decision on the Proposal to Disqualify a Majority of the Tribunal, 13 December 2013 Republic of Ghana v Telekom Malaysia Berhad, District Court of The Hague, civil law section, provisional measures judge, Challenge No. 13/2004, Petition No. HA/RK 2004.667, 18 October 2004, reprinted at ASA Bulletin 186, 192 (2005) Republic of South Africa DTI (Department of Trade and Industry) (2009) Notice 961 OF 2009, 3 NO.32386, 7 July 2009 Reuters Staff (2012) Factbox: Venezuela’s nationalisations under Chavez, 8 October 2012 Rogers C (2014) The politics of international investment arbitrators. Santa Clara J Int Law 12:223 Ronald S. Lauder v The Czech Republic, UNCITRAL, Final Award, 3 September 2001 Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016 Rutledge PB (2004) Toward a contractual approach for arbitral immunity. Ga Law Rev 39:151 Saint-Gobain Performance Plastics Europe v Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Claimant’s Proposal to Disqualify Mr. Gabriel Bottini from the Tribunal under Article 57 of the ICSID Convention, 27 February 2013 Saluka Investments B.V. v The Czech Republic, UNCITRAL, Partial Award, 17 March 2006 Sands P (2011) Conflict and conflicts in investment treaty arbitration: ethical standards for counsel. In: Brown C, Miles K (eds) Evolution in investment treaty law and arbitration. Cambridge University Press, Cambridge, pp 19–41 SCC (2017) Arbitration Rules Schill SW (2012) Deference in investment treaty arbitration: re-conceptualizing the standard of review. J Int Disp Settlement 3:577 Schreuer CH, Malintoppi L, Reinisch A, Sinclair A (2009) The ICSID Convention: a commentary. Cambridge University Press, Cambridge Schwebel SM, Sobota L, Manton R (1987) International arbitration: three salient problems. Cambridge University Press, Cambridge Seerden R (2007) Comparative remarks. In: Seerden R (ed) Administrative law of the European Union, its Member States and the United States  – a comparative analysis. Intersentia, Cambridge, p 401 Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v Mongolia, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011 Simmons JR (2012) Valuation in investor-state arbitration: toward a more exact science. Berkeley J Int Law 30(1):196 Spyridon Roussalis v Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011 SIAC (2017) Investment Arbitration Rules of the Singapore International Arbitration Centre, 1 January 2017 Steingruber AM (2013) Antoine Goetz and others v Republic of Burundi: consent and arbitral tribunal competence to hear counterclaims in treaty-based ICSID arbitrations (case comment). ICSID Rev 28(2):299 Stone Sweet A, Grisel F (2017) The evolution of international arbitration: judicialization, governance, legitimacy. Oxford University Press, Oxford Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v Argentine Republic, ICSID Case No. ARB/03/19, Decision on Proposal for the Disqualification of G. Kaufmann-Kohler, 22 October 2007 Swedish Code of Judicial Procedure (1942) Swisslion DOO Skopje v Former Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16, Award, 6 July 2012 Técnicas Medioambientales Tecmed v. United Mexican States, ICSID Case No. ARB(AF)/00/2), Award, 29 May 2003

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Ten Cate IM (2013) The costs of consistency: precedent in investment treaty arbitration. Columbia J Transnatl Law 51:418 Texaco v Libya, 53 ILR, Award, 19 January 1977 Tidewater Inc. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Claimant’s Proposal to Disqualify Professor Brigitte Stern, Arbitrator, 23 December 2010 Tienhaara K (2011) Regulatory chill and the threat of arbitration: a view from political science. In: Brown C, Miles K (eds) Evolution in investment law and arbitration. Cambridge University Press, Cambridge, pp 606–628 Trans Pacific Partnership Agreement (2016) Treves T (2008) Aspects of legitimacy of decisions of international courts and tribunals. In: Wolfrum R, Röben V (eds) Legitimacy in international law. Springer, Berlin, pp 169–188 UK (1996) Arbitration Act UNCITRAL (1976) Arbitration Rules UNCITRAL (2010) Arbitration Rules UNCTAD (2012a) Fair and equitable treatment, UNCTAD Series of issues in International Investment Agreements II. UNCTAD, Geneva UNCTAD (2012b) Towards a new generation of investment policies. UNCTAD, New York - Geneva UNCTAD (2013) Reform of Investor-State Dispute Settlement: In Search of a Roadmap. IIA Issues Note No. 2 UNCTAD (2015) World Investment Report 2015, Reforming the International Investment Regime: An Action Menu. UNCTAD, New York - Geneva UNCTAD Investment Policy Hub (2023) Investment Dispute Settlement United Nations Security Council (2004) The rule of law and transitional justice in conflict and post-conflict societies. Report of the Secretary-General Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The Argentine Republic, ICSID Case No. ARB/07/26, Decision on Claimants’ Proposal to Disqualify Professor Campbell McLachlan, Arbitrator, 12 August 2010 van den Berg A (2010) Dissenting opinions by party-appointed arbitrators in investment arbitration. In: Arsanjani MH, Cogan J, Sloane R, Wiessner S (eds) Looking to the future: essays on international law in honor of W. Michael Reisman. Brill, Leiden, pp 821–843 Van Harten G (2007) Investment treaty arbitration and public law. Oxford University Press, Oxford Van Harten G (2010) Five justifications for investment treaties: a critical discussion. Trade Law Dev 2(1):19 Van Harten G et al (2010) Public statement on the international investment regime. Osgood, 31 August 2010) Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v Federal Republic of Germany (I), ICSID Case No. ARB/09/6, (formerly Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG & Co. KG v The Federal Republic of Germany) Veit M (2010) Investment treaty arbitration. IBA Arbitr News 15(1):21 Viñuales JE (2006) Human rights and investment arbitration: the role of amici curiae. International Law: Revista Colombiana de Derecho Internacional 8:231 Vito Gallo v Canada, UNCITRAL, Challenge Decision, 14 October 2009 von Staden A (2012) Deference or no deference, that is the question: legitimacy and standards of review in investor-state arbitration. Investment Treaty News 2:3 Waguih Elie George Siag and Clorinda Vecchi v Arab Republic of Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007 Waibel M (2014) Investment arbitration: jurisdiction and admissibility. University of Cambridge Faculty of Law Research Paper No. 9/2014 (31 January 2014) Westinghouse Electric Corp v Islamic Republic of Iran Case No. 389, 12 February 1987, Award 6 Iran-US CTR II (1984) Ziadé N (2009) How many hats can a player wear: arbitrator, counsel and expert? ICSID Rev – Foreign Invest Law J 24(1):49

Chapter 7

Consistency in Investor-State Arbitration

7.1 Introduction Gus Van Harten writes that a dispute resolution mechanism should satisfy four main requirements: independence, openness, accountability and coherence.1 The first two requirements were discussed in Sect. 6.5, concerning arbitrators and ethics, and in Chap. 5, focused on transparency in ISDS. On the other side, the same author argues that accountability can be improved, because there are no appeal methods that would make the arbitrators accountable for their interpretation of investment law. In fact, a frequently raised criticism of investment arbitration is that it lacks internal coherence and consistency, i.e., the capability to resolve inconsistencies arising from different decisions, and ensure uniformity and a relative predictability in the interpretation of the law, so that those affected by the rules can plan their conduct.2 According to Van Harten’s critique, at the international level, all treaty-based adjudication is confronted with the challenge of coherence,3 because there is no hierarchical structure in ad hoc tribunals. Van Harten claims that the settlement of investment disputes should be reformed through: (i) the provision of an increased domestic scrutiny of arbitral awards; and (ii) the creation of a permanent international investment court. Starting from Van Harten’s critiques, a long debate on the appropriateness of investment arbitration to solve disputes between States and investors has taken place with some commentators attempting to reply to some of such criticism.4 On the other side,

 Van Harten (2007), p. 152.  Van Harten (2007), p. 164. 3  Van Harten (2007), p. 164. 4  Franck (2009), p. 440; European Federation For Investment Law And Arbitration (EFILA) (2015). 1 2

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Marisi, Rethinking Investor-State Arbitration, Studies in European Economic Law and Regulation 27, https://doi.org/10.1007/978-3-031-38184-3_7

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Kaufmann-­Kohler defines consistency in investment arbitration as a myth, a belief that does not correspond to reality.5

7.2 A Fragmented System The matter of consistency is linked to the possibility of considering what is commonly called the ‘investment arbitration system’, in fact, as a system. According to a widespread definition, a system is ‘an organized, purposeful structure that consists of interrelated and interdependent elements (components, entities, factors, members, parts etc.). These elements continually influence one another (directly or indirectly) to maintain their activity and the existence of the system, in order to achieve the goal of the system.’6 However, although ‘the investment arbitration system’ has been addressed by a number of authors, the existence of systemic features in international investment law and arbitration is yet to be investigated thoroughly and in detail. Indeed, other authors claim that international investment law has no systemic features, and thus the term ‘system’, which is frequently applied to it, is not entirely appropriate. Hence, investment arbitration tribunals shall be deemed as parallel entities with different trajectories, not interacting with or paying any attention to each other. Di Benedetto describes international investment law (‘IIL’) using the image of a patchwork, which derives from the fact that international investment law is fragmented into a large number of autonomous legal instruments and investment disputes are settled by independent tribunals.7 The International Law Commission found in its 2006 Report that the risk of conflicting and incompatible rules, principles, rule-systems and institutional practices comes from fragmentation.8 In fact, arbitral tribunals are constituted separately for each dispute, on an ad hoc basis. It can be hypothesised that they might focus exclusively on deciding the dispute in question, with no consideration for the decisions of other tribunals, regardless of their pertinence to the issue under dispute. International investments are currently subject to an uncoordinated aggregation of BITs, which provides further evidence that a real system may not exist. 9 Such a legal framework is likely to cause significant disunity and division.10 However, this

 Kaufmann-Kohler (2008), p. 137.  Nightingale and Rhodes (2015), p. 171. 7  Di Benedetto (2013), p. 22. 8  International Law Commission, Fifty-eighth session, ‘Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law. Report of the Study Group of the International Law Commission finalized by Marti Koskenniemi’, A/ CN.4/L.682, 13 April 2006. 9  Schill (2008), p. 2. 10  Savarese (2012), p. 232. 5 6

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international law area has some traits that can be classified as systemic features. The reference is especially applicable to the following aspects: (i) The high correlation between the standards that most current BITs include. This correlation is in fact so close that the standards are almost overlapping; and (ii) The ‘taking into account’ approach related to the matter of precedent in investment arbitration. This is based on the similarity of investment treaties in terms of structure, scope and content. According to Schill: BITs do not stand isolated in governing the relation between two states; they rather develop multiple overlaps and structural interconnections that create a relatively uniform and treaty-­ overarching legal framework for international investments based on uniform principles with little room for insular deviation.11

Also other researchers noted that: Investment treaties are a “network” of inter-related provisions, notwithstanding the formal autonomy of each treaty with respect to the other treaties. Such inter-relation is realized through two phenomena. On one side investment treaties are based on a structure and on clauses, which are repeated in all treaties with very similar, if not identical, modalities. On the other side, by means of the most favoured nation clause, several structural and not occasional recalls operate between the various treaties, so that investors may rely on uniform standards of protection.12

As argued by certain authors, two main dimensions are associated with the analysis of the existing framework of international investment law and arbitration, as follows: (i) A network of interconnected BITs; and (ii) A network of tribunals that act like they are integrated into a single dispute settlement system.13 As a consequence, according to Pauwelyn, the minimum continuity structure of foreign investment law has sufficient freedom to amend and at the same time it has sufficient stability to remain recognisable.14 In the opinion of renowned researchers, in order to have the whole picture it is necessary to collocate the systemic features of investment law in the wider international law framework. The following aspects support this viewpoint: (i) International law is applied by international investment tribunals; (ii) Several international investment law substantive rules derive from public international law; and (iii) International investment tribunals typically refer to public international law rules, such as the Vienna Convention on the Law of Treaties, and the case-law of public international law courts and tribunals.  Schill (2008), p. 3.  Savarese (2012), p. 26. 13  Palombino (2012), p. 195. 14  Pauwelyn (2014), p. 372. 11 12

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It follows that due consideration should be given to the values of consistency and finality in a framework characterised by the features outlined above. On the other hand, if the interpretation of treaties is undertaken separately and if tribunals act without regard for one another, then it is a contradiction to refer to a network of treaties and tribunals.15 Nevertheless, some commentators concluded that international investment law can be qualified as a ‘fragmented subsystem’, and that the evolution of the system into a more coherent and consistent one would improve its predictability and legitimacy.16

7.3 Driving Towards Consistency According to Harnon, many, if not all, systems of law recognise the need for finality of judgment;17 also Pintos claimed that the effective functioning of the system of justice has at its center the final resolution of disputes.18 It is no mere coincidence that the implementation of such principles has been urged by most researchers in the field of investment law.19 The requirement of consistency and/or finality has been structured by certain authors in three key policy dimensions: (i) Making sure that the adjudication process is reliable and legitimate, and upholding the principle of legal certainty; (ii) Protecting the respondent from intimidation by safeguarding judicial economy and efficiency in decision-making; and (iii) Balancing the aspiration that a final decision is reached with the aspiration that the truth is ascertained in an irrefutable way.20

7.3.1 The Principle of Legal Certainty Investor-State dispute settlement does not only affect the disputing parties: its effects touch other stakeholders. This requires an examination of how parallel proceedings affect the way in which investment arbitration is perceived by States and civil society.

 Zarra (2016), p. 36.  Alvarez-Zárate (2012). 17  Harnon (1966), p. 539. 18  Pinos (1988), p. 718. 19  Kaufmann-Kohler (2008), p. 137. 20  Zarra (2016), p. 38. 15 16

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CME v Czech Republic21 and Lauder v Czech Republic22 provide an illustration of parallel proceedings. The two tribunals formulated different decisions about the matters of expropriation, fair and equitable treatment and full protection and security, even though the two cases were based on the same facts and pertained to the provision of the same TV license. In deciding CME, the SCC tribunal declared that every mentioned standard had been breached, whereas in Lauder the ad hoc tribunal concluded that no breach had taken place. A further matter concerns indirect claims: research stressed that a claim in which compensation is demanded by a shareholder for damages incurred from a measure infringing the rights of the company in which the shareholder holds shares is known as an indirect claim.23 A certain number of ICSID cases centred on this issue: among them, Asian Agricultural Products Ltd v Sri Lanka,24 American Manufacturing & Trading v Republic of Zaire,25 Antoine Goetz et consorts c. Republique du Burundi,26 Lanco v Argentina,27 the cases constituting “the Argentine Saga” (CMS v Argentina,28 Azurix Corp. v Argentina,29 LG&E v Argentina,30 Enron v Argentina,31 Siemens v Argentina,32 AES v Argentina,33 Camuzzi v Argentina,34 Sempra v Argentina,35 Gas Natural SDG v Argentina,36 Vivendi v Argentina,37 Continental v Argentina,38 SAUR International v Argentina,39 Metalpar v Argentina,40 Telefónica v Argentine

 CME v Czech Republic, UNCITRAL, SCC Partial Award, 13 September 2001.  Ronald S. Lauder v Czech Republic, UNCITRAL, Final Award, 3 September 2001. 23  Bottini (2008). 24  Asian Agric. Prod. Ltd. (AAPL) v Sri Lanka, ICSID Case No. ARB/87/3. 25  Am. Mfg. & Trading Inc. (AMT) v Zaire, ICSID Case No. ARB/93/1. 26  Antoine Goetz v Rep. of Burundi, ICSID Case No. ARB/95/3). 27  Lanco Int’l Inc. v Argentine Republic, ICSID Case No. ARB/97/6. 28  CMS Gas Transmission Co. v Republic of Argentina, ICSID Case No. ARB/01/8. 29  Azurix Corp. v Argentine Republic, ICSID Case No. ARB/01/12. 30  LG&E Energy Corp. v Argentine Republic, ICSID Case No. ARB/02/1. 31  Enron Corp. v Argentine Republic, ICSID Case No. ARB/01/3. 32  Siemens A.G. v Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 12 ICSID Rep. 171. 33  AES Corporation v Argentine Republic, ICSID Case No. ARB/02/17. 34  Camuzzi International S.A. v Argentine Republic, ICSID Case No. ARB/03/2, and Camuzzi International S.A. v Argentine Republic, ICSID Case No. ARB/03/7. 35  Sempra Energy Int’l v Argentine Republic, ICSID Case No. ARB/02/16. 36  Gas Natural SDG, S.A. v Argentine Republic, ICSID Case No. ARB/03/10. 37  Compañia de Aguas del Aconquija, S.A. v Argentine Republic, ICSID Case No. ARB/97/3. 38  Cont’l Cas. Co. v Argentine Republic, ICSID Case No. ARB/03/9. 39  SAUR Int’l v Argentine Republic, ICSID Case No. ARB/04/4. 40  Metalpar S.A. y Buen Aire S.A. v Repùblica Argentina, ICSID Case No. ARB/03/5. 21 22

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Republic,41 Suez et al. v Argentine Republic,42 Pan American et al. v Argentina,43 Total v Argentina44), Consortium Groupement L.E.S.I. - DIPENTA v Algeria.45 Although CME and Lauder, concerning the same facts, ended with two opposite decisions, parallel proceedings do not always have a completely opposite outcome. For instance, the awards in the three proceedings brought by majority shareholders of Yukos46 were essentially coincident, and were issued by the same tribunal on the same day. In these cases, and in the disputes initiated by minority shareholders regarding the Yukos saga,47 the tribunals gave consideration to the facts and results of the associated disputes in order to solve the matter of parallel proceedings in a feasible way. The rulings in Sempra and Camuzzi demonstrated similar coordination: the claimants chose the same tribunal to preside over both disputes against Argentina. Some scholars maintain that the survival of international investment law and arbitration may be put at risk by the occurrence of parallel proceedings due to several reasons, including the possibility that the outcomes will be incongruent and that the costs will increase. Besides, they stress a low level of efficiency and legal certainty.48 It follows that the possibility of having similar cases with opposite outcomes has raised many hesitations in the international community.49 Some scholars argue that discordant outcomes are an unacceptable result. A system of arbitration producing two diametrically opposite results at any time on the same subject matter may  Telefònica S.A. v Argentine Republic, ICSID Case No. ARB/03/20.  Suez, Sociedad General de Aguas de Barcelona S.A. v Argentine Republic, ICSID Case No. ARB/03/17. 43  Pan Am. Energy LLC & BP Argentina Exploration Co. v Argentine Republic, ICSID Case No. ARB/03/13. 44  Total S.A. v Argentine Republic, ICSID Case No. ARB/04/01. 45  Consortium Groupement L.E.S.I.-Dipenta v Algeria, ICSID Case No. ARB/03/08. 46  Yukos Universal Ltd. (Isle of Man) v Russian Federation, PCA Case No. AA 227, Award of 18 July 2014, Hulley Enterprises Limited (Cyprus) v The Russian Federation, PCA Case No. AA 226, Award of 18 July 2014, and Veteran Petroleum Limited (Cyprus) v The Russian Federation, PCA Case No. AA 228, Award of 18 July 2014. 47  Quasar de Valores and others v The Russian Federation, SCC Case No. 24/2007, Award of 20 July 2012, RosInvest UK Ltd v The Russian Federation, SCC Case No. V079/2005, Award of 2 September 2010. It is noticeable that the Yukos saga also involved a case before the European Court of Human Rights, OAO Neftyanaya Kompaniya Yukos v Russia, App. No. 14902/04, ECtHR, Judgement (Merits) of 20 September 2011, and an ICC commercial arbitration, Yukos S.a.r.l. v Rosneft, which involved also proceedings before Dutch, English and US Courts. As explained by Giorgetti (2013) (n. 5), 112, in Quasar, “when reaching its conclusions, the SCC tribunal reviewed both Yukos [i.e. the proceedings before the ECtHR] and RosInvest. It explained why it disagreed with the Yukos decision. It also briefly referred to the similarities with the RosInvest. The Yukos litigation is particularly interesting because the different tribunals took cognizance of other international courts and tribunals seized of similar and related matters. They often, but not always agreed with each other’s conclusions”. An analysis of the Yukos case can be found in McCarthy (2016), p. 140. 48  Giorgetti (2013), p. 787; Donziger et al. (2010). 49  Sornarajah (2008), p. 39, 41. 41 42

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undermine the whole future of bilateral investment dispute settlement, unless a solution to this problem can be found.50 Similarly, according to Susan Franck, a system where diametrically opposed decisions can legally coexist shocks the sense of fairness or rule of law. Perceptions of fairness and justice can only be promoted by consistent interpretation and application of rules, and legitimacy largely depends on determinacy and coherence.51 The international legal order and the continued existence of investment treaties will be threatened by conflicting awards based upon identical facts or identical investment treaty provisions.52 Finally, and more generally, according to Charney, conflicting views on the norms of international law may undermine the perception of the existence of an international legal system, and the very essence of a normative system of law will be lost if like cases are not treated alike.53 Overall, several commentators write that legal principles such as coherence, consistency, equality, justice, objectivity and predictability should govern investment arbitration, so that legal certainty is guaranteed. In general terms, some scholars stress that disputing parties’ expectations should be taken into account.54 Others argue that, given its public nature, investment arbitration must fulfil and represent the desires and necessities of the affected community in order to achieve reliability and thus enhance its legitimacy.55 Other scholars maintain that the disputing parties (and above all the responding State) would expect that proceedings regarding a matter will not be carried out more than once.56 On the issue of consistency, the Institut de Droit International established a commission to look at some of the unresolved or unsettled issues and emerging challenges within international investment law and arbitration. The commission submitted its report to the Tokyo Session of the Institut de Droit International in September 2013. In turn, the Institut de Droit International adopted the Tokyo Resolution on Legal Aspects of Recourse to Arbitration by an Investor Against the Authorities of the Host State under Inter-State Treaties in September 2013. Article 2 provides as follows: Consistency of solutions in investment arbitration contributes to legal certainty for all actors involved. The quest for consistency does not require the mechanical application of prior practice without regard to the particular circumstances of the case or the need for the interpretation and development of the law.57

 Kuhn et al. (2004), p. 23.  Franck (2005), pp. 1584–1585. 52  Franck (2005), p. 1583. 53  Charney (1999), p. 699. 54  Bekker (2013), p. 8; Salacuse (2010), p. 428. 55  Gribnau (2002). 56  Vestal (1964–1965), p. 31. 57  Institut de Droit International (2014), pp. 701–716. 50 51

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To summarise, with respect to investment law and arbitration, study findings emphasise the need to avoid parallel proceedings. In addition, a general rule should be formulated to deal with issues occurring if multiple proceedings are initiated between the same parties, with the same factual basis, and with the same claims.58

7.3.2 Judicial Economy An oft-cited standard related to judges’ process management, judicial economy is also a canon on which procedural law drafts should be based.59 In the context of national systems, judicial economy is usually understood as time-effectiveness and cost-effectiveness. However, the principle of judicial economy is not often referred to in international arbitration. This should not be understood as that the arbitrators’ activities are unaffected by this principle or that the parties lack expectations regarding the efficient conduct of arbitration. Examples of awards in which the tribunal considered the issue of judicial economy, although not discussing it in detail, are Noble Energy v Ecuador and Levy and Gremcitel v Peru. In Noble Energy v Ecuador, the tribunal mentioned judicial economy in its Decision on Jurisdiction, where it concluded that the interests of judicial economy support the tribunal hearing both treaty and contract claims together, through the consolidation of separate proceedings, in this way promoting fair and efficient dispute resolution.60 The award in Levy and Gremcitel v Peru also represents an interesting application of the principle of judicial economy, although for different reasons. In this case, the tribunal decided that the respondent’s second objection to jurisdiction was well founded, as the corporate restructuring that constituted the investment amounted to an abuse of process. The tribunal found that it lacked jurisdiction to decide the case. The tribunal continued that there was no reason to deal with the respondent’s further objections to jurisdiction, as they would have no impact on the award.61 Arbitration efficiency depends significantly on the time frame between the start (notice of arbitration) and the end of the procedure (issuance of the award), and international arbitration practitioners pay great attention to the matter of efficiency.62 In fact, according to the 2015 Queen Mary Arbitration Survey, costs and duration of the arbitration process are among the features of this dispute settlement method that are considered less appealing.63  Zarra (2016), p. 42.  Nigro and Prosperi (2009), pp. 35–37. 60  Noble Energy Inc. and MachalaPower Cía. Ltd. v Republic of Ecuador and Consejo Nacional de Electricidad, ICSID Case No. ARB/05/12, Decision on Jurisdiction, 5 March 2008 at 193. 61  Renée Rose Levy and Gremcitel S.A. v Republic of Peru, ICSID Case No. ARB/11/17, Award, 9 January 2015 at 197. 62  Kirby (2015), p. 689. 63  School of International Arbitration Survey (2015). 58 59

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The fact that taxpayers pay the costs burdening the respondent has prompted some leading commentators to argue that due process and efficiency must be adequately balanced.64 Applying this principle to the issue of parallel proceedings, it can be inferred that it is the duty of the tribunal to guarantee that the right of every party to make its case is unsured whilst concomitantly preventing an injudicious use of resources of time and money.65 This general duty is reinforced by the English Arbitration Act 1996, which provides, under Section 33, that the tribunal shall act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and shall adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.66 Article 17 of the UNCITRAL Arbitration Rules similarly provides that, if the parties are treated with equality and at an appropriate stage of the proceedings each party is given a reasonable opportunity to present its case, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate. Unnecessary delay and expense should be avoided, and the arbitral tribunal shall conduct the proceedings so as to provide a fair and efficient process for resolving the parties’ dispute.67 With regard to parallel proceedings, this means that it is the arbitrators’ responsibility to avoid incongruous outcomes, unnecessary repetition of proceedings, exorbitant costs and ineffective dispensation of justice by making sure that a dispute is not heard more than once. Douglas writes: An appeal to basic notions of justice would surely suffice to refute any suggestion that such a state of affairs is acceptable as a matter of principle. A host State cannot be expected to defend a barrage of concurrent or consecutive claims relating to precisely the same prejudice to a single investment. Nor can it be right for a host State to defend consecutive claims in relation to the same investment by different members of the group of claimant companies until an award favourable to that group is procured.68

Another positive implication of finality is that the respondent State is protected against the frustration accompanying multiple proceedings. If the finality rule were not implemented, some commentators claim that investors would have the opportunity to arrange their operations in such a way as to make a claim against the host State more than once, based on approximately the same factual basis.69 Bekker argues that it is important to consider the legitimate expectations and rights of both

 Waincymer (2012), p. 78.  Fortier (1999), p. 395, 396. 66  Arbitration Act 1996. 67  UNCITRAL Arbitration Rules 22913, Article 17. 68  Douglas (2009), p. 309. 69  Vestal (1964–1965), p. 34. 64 65

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parties,70 and that having multiple opportunities to bring the same claim should be avoided.

7.3.3 Due Process and Procedural Fairness It is the duty of tribunals to ensure due process during the proceedings.71 A party must be given the opportunity to make its case just once in order for the due process and the right to be heard to be upheld in the context of a dispute. Repetition of proceedings is unnecessary, provided that due process and fairness are upheld during proceedings. As Justice Stewart affirmed in Allen v McCurry, under the principle of res judicata, a final judgment precludes the parties from re-litigating issues that were or could have been raised in that same trial. Several courts have recognised that the principle of res judicata relieves parties of the costs and vexation of multiple lawsuits, conserve judicial resources, and encourages trust in the justice system by preventing inconsistent decisions.72 Also Scott, the Reporter of the first Restatement of Judgments, stressed that the interests of justice and of the parties require to put an end to controversies and avoid relitigation.73

7.4 Parallel Proceedings The matter of inconsistent rulings has been addressed in different ways by different national law systems. In the case of two parallel national proceedings that have not been finalised, the lis pendens rule is automatically applied in civil law systems, specifying that the court seised in second place can continue with its proceeding only after the court seised in first place has reached a decision on its jurisdiction.74 On the other hand, the more discretional measures of forum non conveniens and anti-suit injunctions are generally used by common law systems. An English judge will halt proceedings if he or she considers that the interest of justice would be served more effectively in a different forum and will request the claimant to bring the matter before that judge. By contrast, if, according to the English judge, the most suitable forum is the one presided over by himself or herself, an anti-suit injunction will be issued to prevent a party from initiating or continuing a

 Bekker (2013), p. 8.  Fortier (1999), pp. 395, 398. 72  Allen v McCurry, 449 US 90, 94, 101 S.Ct. 411 (1980). 73  Scott (1942), p. 1. 74  Art. 29 of the EU Regulation 1215/2012. 70 71

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proceeding. The rule of res judicata is implemented by most national law systems in the case where one of two parallel proceedings has been finalised. It specifies that the same issue cannot be subject to litigation again after a dispute between two parties has been concluded with a final decision on the rights, claims and facts involved therein.75 With regard to international arbitration, no explicit rules for addressing the issue of parallel proceedings exist. The jurisdictional stage, being the initial stage of the proceedings, is the one in which it is possible to identify a solution for overcoming the issue of parallel proceedings. In fact, it is reasonable for other arbitral tribunals to deny the jurisdiction over a claim that is being or has been decided in other proceedings. However, a more detailed examination of the rules governing jurisdiction in international arbitration shows that there are scarce measures that arbitrators can take during the jurisdictional stage to prevent two parallel proceedings from taking place. Concerning the principle of Kompetenz-Kompetenz, the tribunals’ jurisdiction is established by the same arbitrators. Article 41(1) of the ICSID Convention specifies that the tribunal shall be the judge of its own competence.76 Likewise, Article 23(1) of the 2010 UNCITRAL Arbitration Rules provides that the arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections related to the existence or validity of the arbitration agreement.77 The principle of Kompetenz-Kompetenz is based on the logic that the tribunal is responsible for interpreting the arbitration agreement, taking into account solely party autonomy as stipulated in the arbitration clause under the applicable law. It is necessary to cite the provision of Article 31(1) Vienna Convention on the Law of Treaties (VCLT), which states that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose78 (emphasis added). The above rules are accorded the same importance by the VCLT in relation to international treaty interpretation, and none of them are prioritised over the other.79 On the basis of these considerations, a teleological interpretation of the International Investment Agreement (‘IIA’), which includes the analysis of the context, object and aim of the treaty, is to be conducted by the tribunal. In some cases, tribunals rejected an interpretation of the IIA jurisdictional clauses that differed from the interpretation stemming from the regular meaning, context, object and aim of the treaty. As known, the objective of investment treaties is the promotion, encouragement and protection of investments. In fact, the text of the treaty provisions, read together with the rules on the interpretation of the treaty, may allow the initiation of parallel proceedings under certain

 Gallagher (2006), pp. 329, 335.  ICSID Convention (2006), Article 41(1). 77  UNCITRAL Arbitration Rules 2013, Article 23(1). 78  Vienna Convention on the Law of Treaties (1969) Article 31(1). 79  See Gardiner (2008), p. 142. 75 76

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circumstances. For example, shareholders of the same group of companies might bring separate claims, if the applicable investment agreements provide that possession of shares can be considered as a form of investment. The observations made by the CMS tribunal are particularly salient with respect to this matter: The tribunal notes in respect that the Centre [ICSID] has made every effort possible to avoid a multiplicity of tribunals and jurisdictions, but that it is not possible to foreclose rights that different investors might have under different arrangements.80

In some cases, tribunals granted the authorisation to proceed with the dispute, even in cases where shell companies acted as claimants. With respect to this matter, the decisions made by the tribunals in Saluka and Yukos are of particular relevance. In the first case, the tribunal ruled that the phrasing of the relevant BIT prevented the tribunal from finding that it had no jurisdiction over a claim brought by a shell company without any real connection with a state party to a BIT, despite the fact that the arbitrators were, in some way, sympathetic to the possibility of denying jurisdiction.81 In the second case, the tribunal acknowledged its obligation to interpret the applicable treaty not as it might have been written so as exclusively to apply to foreign investment, but as it was actually written, adhering to the textual definition of investment, regardless of additional elements such as beneficial ownership or injection of foreign capital.82 Nevertheless, some scholars argue that the provisions outlined by the BITs in question could have been interpreted by the tribunals in a different way, and that the tribunals could have prioritised policy considerations rather than canons of interpretation.83 This happened, for instance, in Vacuum, where the tribunal declined to hear a claim brought by a minority shareholder.84 Generally, however, the application of the Vienna Convention on the Law of Treaties (VCLT) when it is required to interpret provisions of the relevant IIA continues to be the main preference of tribunals, with no regard for the likelihood of occurrence of multiple proceedings and potentially clashing awards.85

 CMS Gas Transmission Company v Argentina, ICSID Case No. ARB/01/8, Decision on Jurisdiction, 17 July 2003, para. 86. 81  Saluka Investments BV v Czech Republic, (UNCITRAL), Partial Award, 17 March 2006, paras. 240–241. 82  Yukos Universal Ltd. (Isle of Man) v Russian Federation, PCA Case No. AA 227, Interim Award on Jurisdiction and Admissibility, 30 November 2009, paras. 430–436. 83  Weiniger (2006), p. 247. 84  Vacuum Salt v Ghana, ICSID Case No. ARB/92/1, Award, 16 February 1994. The arbitral panel concluded that it did not have jurisdiction because the investor, a company established in Ghana, had a Greek shareholder who owned 20%, hence the latter could not have control over the company. The issue is created by the lack of definition of “foreign control” in Article 25(2)(b) ICSID Convention, and the absence of a consensus over the concept of control corresponding to the majority of shares. 85  TSA Spectrum de Argentina S.A. v Argentine Republic, ICSID Case No. ARB/05/5; National Gas S.A.E. v Arab Republic of Egypt, ICSID Case No. ARB/11/7. 80

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Taking into account all of these aspects, it becomes clear that it is highly unlikely for the issue of parallel proceedings to be solved at the jurisdictional stage, if changes are not made to the wording of IIAs. This is because tribunals do not have the authority to act in contravention to what the contracting parties have agreed to in the treaty due to the rules of the VCLT.86 Despite these obstacles, a number of authors have suggested that parallel proceedings can still be avoided by employing certain available tools. Such tools may be: –– An exercise of party autonomy aimed at avoiding parallel proceedings; –– An exercise of discretion by arbitrators at the jurisdictional stage; and –– A requirement of the applicable substantive law aimed to avoid conflicting outcomes, regardless of party autonomy.87

7.5 Treaty Shopping 7.5.1 Essentials of Treaty Shopping One of the practices carried out in the ISDS system, linked to the rapid increase of investment treaties and investment arbitration that took place around the turn of the century88 is treaty shopping, which host States consider a major limitation of the system.89 The availability of rights and protections solely to nationals of a country adhering to a specific IIA has intensified the practice of ‘treaty shopping’, also termed ‘nationality planning’. Treaty shopping refers to the foreign investors’ behaviour of intentionally seeking countries that have, with the host country where they intend to invest, IIAs deemed more advantageous, and accordingly select their ‘home country’. This ensures that their investment is covered by the standards and guarantees stipulated in the relevant treaty.90 This means that, in general, investors engage in the practice of treaty shopping for two major reasons, as outlined in the following paragraphs. One reason is related to the situation in which there is no IIA between the home country of an investor and the host State: as a consequence, the investor ‘shops’ and attains a different nationality or directs the investment via a third country that has an IIA with the host State. The other reason is related to the situation in which there is an IIA between the home State of the investor and the host State, yet the investor still ‘shops’ to secure a more advantageous protection, which he or she finds in the IIA existing between a third country and the host country. Both substantive rights or benefits for investors  Zoppo (2013), p. 239.  Zarra (2016), p. 54. 88  Baumgartner (2016), p. 7. 89  Lee (2015), p. 1. 90  Chaisse (2005). 86 87

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(i.e. more robust protective measures against expropriation) and procedural rights (i.e. improved accessibility to arbitration in the event of a dispute) can be included in the term ‘more favourable IIA’.91 Unsurprisingly, States consider treaty shopping an undesirable practice.92 In order to assess the potential relevance of treaty shopping, an analysis was made of ISDS cases in the UNCTAD database that were submitted by investors as of 28 April 2014. This scholarly work determined that, of the 499 available ISDS cases, 66 were likely treaty shopping cases, amounting to the 15,7% of the total. An additional observation was that ‘home country of claimant and home country of claimant’s parent company suggests that treaty shopping is negatively skewed towards developing countries; in about 80% of potential treaty shopping cases, developing countries have been respondent states whereas about 88% of the cases are brought by claimants which have a parent company incorporated or headquartered in developed countries’.93 Lee writes that some developing countries could be compelled by this situation to seek BIT renegotiation or withdrawal with certain developed countries, like the Netherlands. In fact, due to the broad and vague definitions of ‘investor’ and ‘investment’ included in the Netherland’s BITs, treaty shopping investors have submitted claims against the opposing State party through holding companies established in the Netherlands.94

7.5.2 Implications of Treaty Shopping Although the treaty shopping practice is disapproved, no treaty includes its explicit prohibition.95 Firstly, the reciprocity principle underlying IIAs, which establishes mutual rights and obligations between contracting States and their nationals, is violated by treaty shopping. Indeed, disruption of the balance between two contracting parties occurs when a third country investor, that is an investor whose home country is different from those which have signed an investment agreement, enjoys the advantages of a BIT without its home country having any investment protection obligations towards the nationals of the host country in question. As discussed in Sect. 7.5.1, the practice of treaty shopping could concern investors who would otherwise have no chance to bring an investment claim. It is likely that States will face such practices, due to the possibility for a subsidiary company to initiate an arbitration by means of acquiring a different ‘nationality’.96

 Chaisse (2005).  Azaino (2013), p. 1; Anonymous expert, in an interview with the author in 2018. 93  Lee (2015), p. 18. 94  Lee (2015), p. 4. 95  Chaisse (2005), p. 225. 96  Van Harten (2005). 91 92

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A second possibility, as detailed in Sect. 7.5.1, concerns the case in which there is an IIA between the home State of the claimant and the respondent, but the investor prefers to secure a broader protection by ‘shopping’ a more favourable treaty. It can be argued that treaty shopping involves an extension of the benefits of a particular treaty to the ‘shopping’ investor. An additional situation can occur when nationals of the host country may set up companies in a third country to gain access to an IIA between their own country and that particular third country.97 As we know, the nationals of a country cannot file a request for arbitration against their own country under an IIA because they lack the rights or protections that their country confers only to foreign investors. In such a case, balance disruption happens between nationals who must bring a claim before national courts trying to obtain protection and nationals who ‘shop’ to gain access to an international jurisdiction or dispute arbitration mechanism that may be more advantageous compared to national courts. Generally, the practice of treaty shopping is accessible to large companies and various subsidiaries, whereas it is inaccessible to local investors, like small and medium enterprises (SMEs) unable to secure expensive legal services.98 However, restructuring an investment in order to secure access to an ISDS mechanism is considered an abuse of right, because it jeopardises the fundamental principle of good faith.99 This approach was applied in the case Philip Morris Asia v Australia (2015),100 where the tribunal finally denied jurisdiction concluding that 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, the commencement of treaty based investor-State arbitration constitutes an abuse of right (or abuse of process).101 In light of the foregoing discussion, the tribunal cannot but conclude that the initiation of this arbitration constitutes an abuse of rights, as the corporate restructuring by which the Claimant acquired the Australian subsidiaries occurred at a time when there was a reasonable prospect that the dispute would materialise and as it was carried out for the principal, if not sole, purpose of gaining Treaty protection.102

 See Phoenix Action, LTD v The Czech Republic, ICSID case No. ARB/06/5, paras. 141-144, in which the tribunal stated: “The unique goal of the “investment” was to transform a pre-existing domestic dispute into an international dispute subject to ICSID arbitration under a bilateral investment treaty”. 98  Baumgartner (2016), p. 64. 99  Baumgartner (2016), p. 279. 100  Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015. 101  Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015, 585. 102  Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015, 588. 97

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The tribunal found that although the practice of treaty shopping is not prohibited, restructuring an investment should not be considered acceptable if its only aim is to seek access to ISDS on the basis of a more favourable treaty. In order to counteract treaty shopping, and safeguard the very goal of the contracting states, which is to promote FDI by affording rights and protection according to the relevant IIA to nationals and investments actually within their scope, different approaches can be implemented. Among them are the following strategies, which are often applied in combination: –– Introducing anti-avoidance measures in the domestic legislation (including the abuse of law doctrine and the step transaction doctrine); and –– Issuing an interpretation of the wording of the IIA which prevents the abuse of the treaty provisions.103 A consensual approach is yet to be agreed upon by tribunals on treaty shopping. Treaty shopping has been looked upon either conservatively or with tolerance by tribunals, considering the definitions of ‘investor’ and ‘investment’ included in the relevant BITs. In Aguas del Tunari, S.A. v Republic of Bolivia (2005), Saluka Investments B.V. (the Netherlands) v the Czech Republic (2006), ADC Affiliate Limited and ADC & ADMC Management Limited v The Republic of Hungary (2006), and Yukos Universal Limited v the Russian Federation (2009), the tribunals considered it was beyond their power to apply a definition that was stricter compared to the one set by the parties to the treaty. On the other hand, a more restrictive stance has been adopted by some tribunals. For instance, in Phoenix Action Ltd. v Czech Republic the tribunal affirmed that: ‘The evidence indeed shows that the Claimant made an “investment” not for the purpose of engaging in economic activity, but for the sole purpose of bringing international litigation against the Czech Republic. This alleged investment was not made in order to engage in national economic activity, it was made solely for the purpose of getting involved with international legal activity. The unique goal of the “investment” was to transform a pre-existing domestic dispute into an international dispute subject to ICSID arbitration under a bilateral investment treaty. This kind of transaction is not a bona fide transaction and cannot be a protected investment under the ICSID system’.104 The tribunal concluded therefore that the claimant’s initiation and pursuit of that arbitration was an abuse of the system of ICSID arbitration. It stressed that the tribunal had the duty not to protect such an abusive manipulation of the system of international investment protection under the ICSID Convention and the BITs, and had to ensure that the ICSID mechanism does not protect investments that it was not designed for to protect.105  Kerekes (2016), pp. 147, 151–152.  Phoenix Action Ltd. v Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, para. 142. 105  Phoenix Action Ltd. v Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, para. 144. 103 104

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In Banro v Congo, the ICSID tribunal found that: Even if we admit – that which, as we have demonstrated, has not been established by the case file– that Banro American was an original shareholder of SAKIMA S.A.R.L. and that the transfer of … shares of SAKIMA made for its benefit … by Banro Resource was valid, Banro American could not nonetheless avail itself, on a derived basis, of the consent to ICSID arbitration provided by Banro Resource under Article 35. In order to consider the right of access to ICSID arbitration, available under Article 35, as “extended” or “transferred” to Banro American by applying other provisions of the Mining Convention, it would still be necessary that such right existed first for the benefit of the entity Banro Resource. Such is not the case, given that Banro Resource, a Canadian company, never had, at any time, jus standi before ICSID. Having never existed for the benefit of Banro Resource, the right of access to ICSID cannot be viewed as having been “extended” or “transferred” to its affiliate, Banro American.106

The tribunal found that it should be prohibited to practice treaty shopping through improper distribution of assets between a parent company and a subsidiary with the objective of accessing ICSID jurisdiction. To conclude, arbitral tribunals have been careful to deny jurisdiction in cases where the investor had established a company in a country with an IIA with the host State with the sole purpose of gaining access to investment arbitration. In this way, these cases show a tendency to preserve the tradition of investment arbitration and avoid distortion mechanisms.

7.6 Forum Shopping According to the OECD, forum shopping is the process throughout which one of the parties to a dispute attempts to bring a claim before the forum most advantageous to him or her.107 For the purposes of this research, forum shopping can have two diffent scopes: (i) the search for one or more seats and/or rules of arbitration, with the corresponding curial law applicable to arbitration proceedings,108 where more than one arbitration option exists; and (ii) the choice between arbitration, national courts, diplomatic protection, and other international courts. The first definition of forum shopping, which pertains more strictly to the field of international arbitration, indicates a phenomenon that negatively affects the ISDS system in the view of some commentators.109 The possibility to choose the arbitration seats and the rules of arbitration can be granted by the applicable IIA. In particular, multiple arbitration options are provided to investors by IIAs such as the

 Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v Democratic Republic of the Congo (ICSID Case No. ARB/98/7), Award, 1 September 2000 (excerpts), para. 5. 107  Yannaca-Small (2006). 108  ICC Institute of World Business Law (2005). 109  Gaillard (2003), p. 863. 106

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Energy Charter Treaty, NAFTA and other FTAs with an investment chapter.110 For instance, the United States-Rwanda BIT, in force since 2012, establishes under Article 24(3): 3. Provided that six months have elapsed since the events giving rise to the claim, a claimant may submit a claim referred to in paragraph 1: (a) Under the ICSID Convention and the ICSID Rules of Procedure for Arbitration Proceedings, provided that both the respondent and the non-disputing Party are parties to the ICSID Convention; (b) Under the ICSID Additional Facility Rules, provided that either the respondent or the non-­disputing Party is a party to the ICSID Convention; (c) Under the UNCITRAL Arbitration Rules; or (d) If the claimant and respondent agree, to any other arbitration institution or under any other arbitration rules.111

Slightly stricter in its choice spectrum is the Energy Charter Treaty, which limits it to four definite possibilities, providing under Article 26(4): (4) In the event that an Investor chooses to submit the dispute for resolution under subparagraph 2(c), the Investor shall further provide its consent in writing for the dispute to be submitted to: (a) (i) the International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between states and National of other states opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph (a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the “Additional Facilities Rules”), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention; (b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as “UNCITRAL”); or (c) an arbitral proceedings under the Arbitration Institute of the Stockholm Chamber of Commerce.112

NAFTA is even more restrictive in the forum choice provided to the investor: it established, under Article 1120: 1. Except as provided in Annex 1120.1, and provided that six months have elapsed since the events giving rise to a claim, a disputing investor may submit the claim to arbitration under:

 Bernardini (2010).  Treaty Between The Government of The United States of America and The Government of The Republic of Rwanda Concerning the Encouragement and Reciprocal Protection of Investment, 2008. 112  Energy Charter Treaty (2016). 110 111

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(a) The ICSID Convention, provided that both the disputing Party and the Party of the investor are parties to the Convention; (b) The Additional Facility Rules of ICSID, provided that either the disputing Party or the Party of the investor, but not both, is a party to the ICSID Convention; or (c) The UNCITRAL Arbitration Rules.113

The second notion of forum shopping pertains to the choice to bring a claim before an arbitral tribunal, national courts, other international courts, or to make use of diplomatic protection. A way to limit forum shopping under this notion is, for instance, the one included in the 2012 United States Model BIT, which, under Article 26 Conditions and Limitations on Consent of Each Party, provides that, except for actions seeking interim injunctive relief during the arbitration proceedings: 2. No claim may be submitted to arbitration under this Section unless: (a) The claimant consents in writing to arbitration in accordance with the procedures set out in this Treaty; and (b) The notice of arbitration is accompanied,

(i) For claims submitted to arbitration under Article 24(1)(a), by the claimant’s written waiver, and (ii) For claims submitted to arbitration under Article 24(1)(b), by the claimant’s and the enterprise’s written waivers of any right to initiate or continue before any administrative tribunal or court under the law of either Party, or other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach referred to in Article 24.114

Article 29.3 CETA provides for rules on the choice of forum: Article 29.3 Choice of forum 1. Recourse to the dispute settlement provisions of this Chapter is without prejudice to recourse to dispute settlement under the WTO Agreement or under any other agreement to which the Parties are party. 2. Notwithstanding paragraph 1, if an obligation is equivalent in substance under this Agreement and under the WTO Agreement, or under any other agreement to which the Parties are party, a Party may not seek redress for the breach of such an obligation in the two fora. In such case, once a dispute settlement proceeding has been initiated under one agreement, the Party shall not bring a claim seeking redress for the breach of the substantially equivalent obligation under the other agreement, unless the forum selected fails, for procedural or jurisdictional reasons, other than termination under paragraph 20 of Annex 29-A, to make findings on that claim. 3. For the purposes of paragraph 2:

113 114

(a) Dispute settlement proceedings under the WTO Agreement are deemed to be initiated by a Party’s request for the establishment of a panel under Article 6 of the DSU; (b) Dispute settlement proceedings under this Chapter are deemed to be initiated by a Party’s request for the establishment of an arbitration panel under Article 29.6; and (c) Dispute settlement proceedings under any other agreement are deemed to be initiated by a Party’s request for the establishment of a dispute settlement panel or tribunal in accordance with the provisions of that agreement.

 NAFTA (1994).  US Model Bilateral Investment Treaty 2012.

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4. Nothing in this Agreement shall preclude a Party from implementing the suspension of obligations authorised by the WTO Dispute Settlement Body. A Party may not invoke the WTO Agreement to preclude the other Party from suspending obligations pursuant to this Chapter.115

Likewise, the EU-Singapore FTA establishes under Article 3.23 Role of the Parties to the Agreement: Neither Party shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its investors and the other Party shall have consented to submit or have submitted to dispute settlement under this Section, unless such other Party has failed to abide by and comply with the award rendered in such dispute (…).116

From a general perspective, naturally, investors have a tendency to choose the forum that has the most relaxed rules, that affords them a greater control over the dispute or that they perceive to enhance the likelihood of an outcome in their favour.117 However, scholarly opinions on the positivity or negativity of forum shopping within the ISDS system are conflicting. According to some researchers, investors are entitled to select the forum that is the most beneficial for a particular dispute and, in the event of an objection to jurisdiction, it is up to the tribunal to make a decision concerning jurisdiction.118 Others stress that lawyers have the responsibility to identify the forum that is the most favourable to their clients’ interests: forum shopping is an admissible option for them. Bassett wrote that, when more than one forum satisfies the requisite legal criteria, forum shopping and strategic choices are not a kind of ‘cheating’, but rather an expressly authorised and fully legitimate action.119 Since forum shopping is a possibility given to the investor, some authors argue that, based on the desired equality of arms,120 it tends to penalise the State. Hence, in multiple occasions, States have attempted to limit, or even forbid forum shopping. An example was the work of the MAI Negotiation Group,121 which took into consideration the problems deriving to dispute settlement from the relation between the MAI and other international agreements, among which are the WTO agreements. The MAI negotiators expressed the view that it would be desirable to avoid or at least minimise forum shopping.122 As a consequence, if states wish to limit

 Comprehensive Economic And Trade Agreement (CETA) Between Canada, Of The One Part, And The European Union [And Its member states]. 116  Investment Protection Agreement Between The European Union And Its Member States, Of The One Part, And The Republic Of Singapore, Of The Other Part 2018. 117  Anonymous expert, in an interview with the author in 2018. 118  Cocq-Rasmussen (2015), p. 36. 119  Bassett (2006), p. 335. 120  See Wälde (2010), p. 161. 121  Between the 1995 and 1998 the OECD members negotiated the Multilateral Agreement on Investment (MAI), an attempt to govern international investment with a comprehensive and integrated approach. 122  Houde and Yannaca-Small (2004), p. 13. 115

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forum shopping, they can institute appropriate regulations or include specific rules in investment treaties.123

7.7 Precedent 7.7.1 Introduction The role of tribunals is to adjudicate disputes based on the applicable norms. This function is performed with the utmost professionality and, as some scholars write, the decisions should never be arbitrary.124 In fact, any dispute settlement system of law requires a minimum of certainty and predictability. It can be assumed that, in a given system of law, similar situations are treated as comparable. This is the role of the precedent, which guarantees certainty and equality of treatment to all parties.125 In investment arbitration, however, contrarily to what happens in common law, no formal precedential status is ascribed to prior decisions. As it was found by the arbitral tribunal in WNC Factoring Ltd. v Czech Republic: ‘There is no principle of binding precedent in international law. Each case must be decided on its own merits and each tribunal must consider the case before it as pleaded by the disputing parties. Nonetheless, to the extent that they are based on sound legal reasoning, the decisions of tribunals in prior international law cases can provide useful insights to subsequent tribunals considering those issues’.126 In Cargill v Mexico, the tribunal found that it is desirable to review the reasoning of the tribunal in a parallel proceeding, although there is no binding precedent to be derived from that award; in any case, the duty of the tribunal to render its award in a timely manner outweighs the desirability of such consultation.127 The different combination of substantive law and arbitration rules applicable to each dispute exposes investment arbitration to the risk of unpredictability, which, in turn, could unforeseeably threaten the confidence in the system.128 Nonetheless, as pointed out by many scholars, there are some issues that repeatedly arise, and prior decisions can be used by later tribunals to gain insight into the scope of the obligations accepted by States in investment treaties.129

 Cocq-Rasmussen (2015), p. 52.  Guillaume (2011), p. 6. 125  Dworkin (1997), p. 89. 126  WNC Factoring Ltd. v Czech Republic, PCA Case No. 2014-34, Award, 22 February 2017, para. 310. 127  Cargill, Incorporated v United Mexican States, ICSID Case No. ARB(AF)/05/2, Award, 18 September 2009, para. 380. 128  Kupfer Schneider (1999), p. 710. 129  Bjorklund (2008), p. 265. 123 124

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As highlighted in 1993 by those scholars who commented the approximately thirty awards and decisions of the ICSID produced since 1973, the contribution of these awards and decisions to both the procedure of international arbitration and the substance of international investment law is of considerable importance, even though their number may not appear great.130 Indeed, the accumulation of arbitral decisions (not only those issued by ICSID tribunals), creates the structure for a system of precedents,131 providing an overview of the scope of the obligations of States parties and the legitimate expectations of investors under an investment treaty.132 In contrast, it is necessary to remember that, because of its characteristics of informality and fragmentation, the investor-State arbitration system cannot easily develop a system of formal precedents.133 In fact, according to some researchers, Article 53 of the ICSID Convention, establishing that ‘the award shall be binding on the parties’,134 excludes the applicability of the principle of binding precedent to successive ICSID cases.135 Other commentators, on the contrary, claim that this provides insufficient grounds for rejecting the idea that in this domain there are examples of precedents.136 In any case, as highlighted by some experts who have researched on a number of decisions on jurisdiction and final awards from 2001 onwards, reference to ICSID case law has occurred more and more often.137 Until 1994, not more than two citations of ICSID decisions or awards had been made in any ICSID decision or award. During 1994–2002, there was a gradual rise in the frequency of citation to previous ICSID decisions or awards, although quite inconsistently, with an average of two-­ four decisions being usually cited by tribunals. In the last years, we saw an increase not only in the number of publicly available awards, but also in the practice of ICSID tribunals of quoting prior ICSID awards.138 In El Paso v Argentina, the tribunal stated: ‘ICSID arbitral tribunals are established ad hoc, from case to case, in the framework of the Washington Convention, and the present tribunal knows of no provision, either in that Convention or in the BIT, establishing an obligation of stare decisis. It is, nonetheless, a reasonable assumption that international arbitral tribunals, notably those established within the ICSID system, will generally take account of the precedents established by other arbitration organs, especially those set by other international tribunals. The present

 Rayfuse and Lauterpacht (1993) p. ix.  Commission (2007), p. 129. 132  Bjorklund (2008), p. 265. 133  Bjorklund (2008), p. 265. 134  ICSID Convention, Regulations and Rules (ICSID, April 2006) 1. 135  Schreuer et al. (2009), p. 1082. 136  Kaufmann-Kohler (2007), p. 368. 137  Commission (2007), p. 149. 138  Commission (2007), pp. 149–150. 130 131

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tribunal will follow the same line, especially since both parties, in their written pleadings and oral arguments, have heavily relied on precedent.’139 Similarly, in SAIPEM v Bangladesh, the tribunal noted: The tribunal considers that it is not bound by previous decisions. At the same time, it is of the opinion that it must pay due consideration to earlier decisions of international tribunals. It believes that, subject to compelling contrary grounds, it has a duty to adopt solutions established in a series of consistent cases. It also believes that, subject to the specifics of a given treaty and of the circumstances of the actual case, it has a duty to seek to contribute to the harmonious development of investment law and thereby to meet the legitimate expectations of the community of states and investors towards certainty of the rule of law.140

Research stressed that instruments for facilitating identification of precedents should be taken into account if the rate of increase in the number of pending arbitration cases, awards, and decisions continues to be as high as it has been until now. In some common law legal systems, the ‘exploding number of reported cases was by itself a sufficient impetus for the development of legal citation indexes’.141 In investment arbitration as well, the frequent reference to earlier awards and decisions could give rise to a framework for a system of precedents, facilitating experts’ analysis of legal reasoning.142 Since the provisions in investment treaties are similar and so are the associated claims brought in investment arbitrations, this would allow experts to observe when tribunals applied the same reasoning of prior cases, or took distance from them and criticised them.143 Other scholars proposed that the expanding body of precedents should be structured in an organised system.144 Projects on the analysis of awards have been initiated by some organisations, including the Organisation for Economic Cooperation and Development (‘OECD’), the United Nations Conference on Trade and Development (‘UNCTAD’), and the International Law Association’s (‘ILA’) Committee on International Law on Foreign Investment.145 In fact, according to some experts, cases that are similar in some respects are gradually giving rise to a set of rules; however, inconsistency of results regarding other issues still occurs.146 In the view of some commentators, this depends significantly on input from arbitrators, especially if the corpus of rules is

 El Paso Energy International Company v La República Argentina, ICSID Case No. ARB/03/15, Decision on Jurisdiction, 27 April 2006, para. 39. 140  SAIPEM S.p.A. Claimant v The People’s Republic Of Bangladesh Respondent ICSID Case No. ARB/05/7, Award, 30 June 2009, para.90. 141  Ogden (1993), p. 18. 142  Commission (2007), p. 157. 143  Commission (2007), pp. 157–158. 144  Paulsson (2006), p. 5. 145  Bjorklund (2008), p. 265. 146  Kaufmann-Kohler (2007), p. 373. 139

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underdeveloped.147 Not only does investment law need coherent rules:148 it also needs the intention to remedy prior inconsistency.

7.7.2 Notion of Precedent Already in 1921, John Chipman Gray stressed that an opinion can rise to the level of a precedent if it is given by a decision-maker when deciding a case, and if it is essential to decide it.149 It must not be an obiter dictum, that is an incidental or collateral remark. From a general point of view, since the opinions of investment arbitration tribunals expressed in decisions and awards have both characteristics, they could qualify as precedents. In fact, the same investment tribunals have in different occasions qualified the developing corpus of awards by different investment tribunals as a ‘case-law’150 or ‘jurisprudence’.151 In the view of some scholars, with the aim of developing jurisprudence, some conditions are necessary: (i) the existence of treaties and other norms whose interpretation can evolve; (ii) that decisions and awards are publicly available; (iii) that an esprit de corps is developing among investment arbitrators.152 However, it can also be argued that, if in an award a certain legal reasoning is followed, it does not mean that it should necessarily form part of the jurisprudence. Some scholars wondered whether arbitrators could consider additional sources of law beyond those relied on by the parties.153 Because of the consensual character of international arbitration, the parties are the ones responsible for establishing the scope of the dispute, in terms of facts as well as law. According to these scholars, one of the main problems is the following: can tribunals resort to rules and legal principles not addressed by the parties?154 In the opinion of these researchers, not all awards have the same precedential value: in fact, they argue that a greater weight could be afforded to awards reached by unanimity compared to awards with dissenting opinions155 and to awards rendered by arbitrators having particular experience and knowledge of the issues of the case.156

 Bobbio (1968), p. 51.  Kaufmann-Kohler (2007), p. 376. 149  Chipman Gray (1909), pp. 187–227. 150  Enron Corp. & Ponderosa Assets, L.P. v Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction, January 14, 2004, para. 24. 151  Tokios Tokeles v Ukraine, ICSID Case No. ARB/02/18, Procedural Order No. 3, January 18, 2005, para. 11. 152  Commission (2007), p. 136. 153  Hobér (2013), p. 158. 154  Hobér (2013), p. 158. 155  Hobér (2013), p. 158; Ten Cate (2013), p. 51, 443. 156  Hobér (2013), p. 158. 147 148

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The same authors argue that arbitrators can demonstrate to have knowledge of the issues to solve in a given case by showing that they have reflected on earlier cases dealing with identical or similar issues. In turn, this requires not making references, but an explicit and detailed reasoning.157 As a consequence, if the arbitrators disagree with the reasoning of the tribunal that decided an earlier case, it is useful to draw a distinction between the two cases.158 However, in a number of cases, decision-makers follow earlier cases to a certain degree.159 In any event, the reference to a prior case entails risks. Even though this practice promotes ‘reliability, equality and uniformity of treatment’, ‘certainty and predictability’, and ‘convenience and expediency’,160 it is important for a tribunal to take distance from prior decisions if there is evidence that they are inaccurate.161

7.7.3 Value of Precedents The value attributed to precedents may vary: the most recurring situations are: (i) binding precedent; (ii) persuasive precedent; and (iii) jurisprudence constante. Precedents are binding if they apply the principle stare decisis et quieta non movere (‘to stand by things decided and not disturb settled points’),162 that is, if the adjudicators have a legal obligation to follow them. In investment arbitration there is no obligation of stare decisis. Nevertheless, researchers stressed that earlier awards and decisions should not be considered a merely subsidiary source of international law.163 Instead, as highlighted by Tams, previous decisions have usually been regarded as persuasive, and not as binding precedent.164 Certain scholars argue that persuasive authority implies that the validity of reasoning in previous awards persuades a tribunal that the law has been interpreted and applied adequately.165 Therefore, the decisions of other tribunals can be and are taken into account by tribunals, even though there is no formal obligation to do so.166 As established in the decision on jurisdiction by the tribunal in AES v Argentina: An identity of the basis of jurisdiction of these tribunals, even when it meets with very similar if not even identical facts at the origin of the disputes, does not suffice to apply system-

 Hobér (2013), p. 158.  Bjorklund (2008), p. 277. 159  Bjorklund (2008), p. 277. 160  Sprecher (1945), pp. 505–506. 161  Bjorklund (2008), p. 265, 277. 162  Garner (1995), p. 827. 163  Commission (2007), p. 132. 164  Tams (2006). 165  Ten Cate (2013), p. 472. 166  Bjorklund (2008), pp. 265, 268. 157 158

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atically to the present case positions or solutions already adopted in these cases. Each tribunal remains sovereign and may retain a different solution for resolving the same problem; but decisions on jurisdiction dealing with the same or very similar issues may at least indicate some lines of reasoning of real interest; this tribunal may consider them in order to compare its own position with those already adopted by its predecessors and, if it shares the views already expressed by one or more of these tribunals on a specific point of law, it is free to adopt the same solution.167

Therefore, according to the meaning of the term persuasive, tribunals shall decide to follow or depart from an earlier award or decision based on their perception of its solidity. To put it in Ten Cate’s words, ‘persuasive authority has the potential to persuade’.168 Are there, in general, conditions that allow adjudicators to more easily deem an earlier decision persuasive? According to some scholars, expertise justifies the attribution of importance to non-binding authority.169 Other commentators affirm that the belief that the expertise of one tribunal exceeds the expertise of others is not supported by any systemic reason. In practice, factors such as experience, expertise or reputation of different members of a tribunal are likely to influence later arbitrators to attribute greater importance to awards.170 As in any social and professional field, expressing disagreement is more difficult and riskier than following suit.171 When the legal reasoning in a decision or an award is considered well argumented and is endorsed by scholars and commentators, it establishes a persuasive precedent.172 Commentators reflect that it is opportune that tribunals consider whether prior cases have been ‘overruled’ by newer awards and/or if relevant later events and developments have occurred.173 According to the French doctrine of jurisprudence constante, an accurate law interpretation may be convincingly supported by a series of previous, consistent decisions.174 Algero writes that in France, the first step in any analysis is the careful consideration of the language of the law. However, domestic courts are influenced by how the law is interpreted by other domestic courts, if, in their view, these interpretations correctly interpret the law.175 Likewise, the language of the treaty constitutes the first step of the tribunal’s analysis in an investment treaty case. The next step is to address the decisions of other tribunals that interpreted the same or similar treaty language. In France, two distinct meanings can be attributed to precedent: it may represent the decision of a higher court, which is often followed  AES Corp. (US) v Argentina, ICSID (W Bank) Case No ARB/02/17, 30, Decision on Jurisdiction (26 April 2005), para. 30. 168  Ten Cate (2013), p. 442. 169  Schauer (2008), pp. 1948–1949. 170  Ten Cate (2013), p. 443. 171  Ten Cate (2013), p. 443. 172  Hobér (2013), p. 159. 173  Hobér (2013), p. 159. 174  Garvey Algero (2005), p. 783. 175  Garvey Algero (2005), p. 789. 167

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by lower courts despite being non-binding; and it may also be the decision of even a lower or equal court, which is sometimes used as a positive or negative example in a pending case, despite being non-binding.176 The second definition is most suitable for the investment treaty setting of ad hoc tribunals with the same level of authority. To be considered as persuasive precedents, the decisions of other tribunals interpreting the same or similar treaty provisions are, in turn, often supported by a series of consistent cases.177 Some scholars highlight that an approach based on jurisprudence constante acknowledges that the law evolves through interpretation: [P]recedent is very rarely an isolated decision. It is the result of an evolution. Once the principle has been accepted, the Cour de Cassation will proceed by way of continuous formulation of rules, related together and gradually forming a coherent system.178

In the view of some commentators, within an investment treaty arbitration setting, jurisprudence constante would ensure law stabilisation, homogenisation and development.179 In sum, it can be underlined that there is a general agreement between arbitrators for accepting some form of precedent.180 Several investment tribunals have discussed how their decision was influenced by the matter of precedent in investment arbitration: among them are El Paso v Argentina,181 Suez et  al. v Argentina,182 Gas Natural v Argentina,183 Jan de Nul v Egypt,184 and SGS v Philippines.185

7.7.4 The Single Case and Its Wider Impact As discussed above, in a situation where de facto precedent exists and has an intrinsic value, it is the duty of every tribunal to formulate a decision regarding the dispute brought before it, in accordance with a specific IIA and the applicable law.  Troper and Grzegorczyk (1997), p. 111.  Kaufmann-Kohler (2007), p. 377. 178  Troper and Grzegorczyk (1997), pp. 137–138. 179  Bjorklund (2008), p. 273; Schreuer (2006), p. 10. 180  Sicard-Mirabal (2016), p. 77. 181  El Paso Energy International Co. v Argentine Republic, ICSID Case No. ARB/03/15, Decision on Jurisdiction, 27 April 2006. 182  Suez, Sociedad General de Aguas de Barcelona S.A. and InterAguas Servicios Integrales del Agua S.A. v Argentine Republic, ICSID Case No. ARB/03/17, Decision on Jurisdiction, 16 May 2006. 183  Gas Natural SDG, S.A. v Argentine Republic, ICSID Case No. ARB/03/10, Decision on Jurisdiction, 17 June 2005. 184  Jan de Nul N.V., Dredging International N.V. v Arab Republic of Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, 16 June 2006. 185  SGS Société Générale de Surveillance S.A. v Republic of the Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004. 176 177

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Nevertheless, the award it yields will make a general contribution to the expanding investment arbitration case law. Scholarly research found that investment treaty arbitral tribunals decide the issues in the particular cases before them, and in this way they establish international law.186 They conclude that international investment law develops now less out of treaties, and mainly out of cases.187 Also the tribunal in Thunderbird v Mexico stated that every interpretation that is public will be taken up by counsel and tribunals in subsequent cases and is therefore likely to exercise a general effect.188 As a consequence, the following question arises: should the dispute under consideration concentrate the arbitrators’ entire attention, or should they display awareness that the awards they decide will affect a wider audience, including the tribunals that will decide future cases? Some commentators encourage tribunals to exclusively focus on resolving the dispute before them.189 On the other hand, adjudicators are aware of their contribution to the development of the law. In fact, some degree of generality is entailed in the actual concept of law.190 Article 42(1) of the ICSID Convention directs arbitrators to decide a dispute in accordance with such rules of law as may be agreed by the parties.191 If no such agreement exists, the tribunal shall apply the law of the Contracting State party to the dispute and rules of international law as may be applicable.192 Thus, on one hand, some commentators contend that reaching an optimal outcome in a case may be thwarted to some degree by the awareness of the wider implications of awards.193 On the other hand, research stressed that this awareness ‘also forces investment arbitrators to think about the dispute before them as one that falls in a category of cases. This exercise requires thinking through the applications of the law outside the confines of the specific disputes before them. The forward-­ looking aspects of investment arbitration, by broadening the scope of the inquiry, may ultimately result in better adjudication in individual cases’.194

 Bjorklund (2008), p. 265.  Wälde (2007), p. 68. 188  International Thunderbird Gaming Corp. v Mexico, UNCITRAL, Separate Opinion of Thomas Wälde, 1 December 2005, para. 128. 189  Ten Cate (2013), p. 474; Hobér (2013), p. 157. 190  Waldron (2012), pp. 18–20. 191  Article 42(1) of the ICSID Convention. 192  Article 42(1) of the ICSID Convention. 193  Ten Cate (2013), p. 475. 194  Ten Cate (2013), p. 475. 186 187

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7.7.5 Concluding Remarks In conclusion, the practice of reference to earlier decisions and awards is spreading: as stressed by some scholars, in investment disputes, tribunals often rely on previous decisions of other tribunals.195 In fact, research has found that “[g]iven the importance of past decisions to the adjudicative process in investment treaty cases, it is critical that the merits and deficiencies of each new award be scrutinised and debated in isolation from the party interests at stake in each particular dispute.”196 Other researchers highlighted that it is unavoidable that the legal rationale underpinning awards be analysed, critiqued and considered, so that the ‘good’ awards can set standards contributing to a higher level of consistent quality, chasing the ‘bad’ awards.197 Nevertheless, opinions on the practice of following precedents are divided. Some scholars argue that tribunals that did not follow precedents may have provided awareness that the decision in earlier awards was flawed, and instead followed their own path, searching for an optimal solution.198 Others maintain that in the interest of the rule of law, arbitral precedent is a requirement.199 It can be concluded that when tribunals deal with a specific legal issue, it is likely that they desire to know what other tribunals in similar situations have decided,200 since a legal system in which precedent plays no part at all is difficult to be conceived.201 Jeffery Commission concludes that, if it is in the interest of justice that some degree of ‘reasonable uniformity of decision’ is reached through a system, it is the duty of arbitrators and counsel to operate in order for investment treaty precedents to be used properly, neither distorted nor misrepresented.202

7.8 Review and Annulment One of the features of investment arbitration that can affect the awards’ consistency is the fact that a party that is dissatisfied with the award has little possibilities to obtain its review. In effect, arbitral awards were originally designed to be final and binding, and may be revisited under limited mechanisms: unlike other arbitral institutions, ICSID arbitration possesses its own internal mechanism for challenging awards.

 Schreuer (2006), p. 11.  Douglas (2006), p. 27. 197  Paulsson (2006), p. 5. 198  Ten Cate (2013), p. 469. 199  Kaufmann-Kohler (2007), p. 378. 200  Berger (1992), p. 18. 201  Zander (2004), pp. 302–303. 202  Commission (2007), p. 158. 195 196

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The mechanisms set forth in Chapter VII of the ICSID Convention are interpretation, revision and annulment. Interpretation is provided for by Article 50(1) of the ICSID Convention, establishing that if any dispute arises between the parties as to the meaning or scope of an award, either party may make an application in writing addressed to the Secretary-General, requesting interpretation of the award.203 According to this Article, the award’s finality is not challenged per se by its interpretation. Article 51(1) of the ICSID Convention provides that either party may address an application in writing to the Secretary-General, requesting revision of the award, on the ground of some fact of such a nature as decisively to affect the award has been discovered. That fact has to be unknown to the tribunal and to the applicant when the award was rendered, and the applicant’s ignorance of that fact must not be due to negligence.204 Differently from interpretation, revision potentially alters an award. Annulment is provided for by Article 52 of the ICSID Convention.

7.8.1 Annulment of an ICSID Award The procedures specified by the ICSID Convention must be followed when challenging awards issued under the ICSID Convention itself. Therefore, as far as recognition and enforcement are concerned, external award re-evaluation, or the option of vacatur by national courts are not considered by the ICSID Convention. Article 52(1) of the ICSID Convention205 states that: (1) Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds: (a) that the tribunal was not properly constituted; (b) that the tribunal has manifestly exceeded its powers;206 (c) that there was corruption on the part of a member of the tribunal; (d) that there has been a serious departure from a fundamental rule of procedure;207 or

 ICSID Convention, Regulations and Rules (ICSID, April 2006) art. 50.  ICSID Convention, Regulations and Rules (ICSID, April 2006) art. 51(1). 205  ICSID Convention, Regulations and Rules (ICSID, April 2006). 206  This ground was invoked in a number of cases: among them Klöckner Industrie Anlagen v United Republic of Cameroon, Ad hoc Committee Decision on Annulment, 3 May 1985, 2 ICSID Rep., 95; Amco Asia v Republic of Indonesia, Ad hoc Committee Decision on the Application for Annulment, 16 May 1986, 1 ICSID Reports, 509; Maritime International Nominees Establishment v Republic of Guinea, Decision of the Ad hoc Annulment Committee, 22 December 1989, 3 ICSID Rev.–FILJ, 1990, 95; Compañia de Aguas del Aconquija and Vivendi International v The Republic of Argentina, Decision on annulment, 3 July 2002; Wena Hotels v Arab Republic of Egypt, Decision (Annulment Proceedings), 5 February 2002; Patrick Mitchell v The Democratic Republic of Congo, Decision on the Application for Annulment of the Award, 1 November 2006; MTD Equity v Chile, Decision on Annulment, 21 March 2007. 207  This ground was invoked in Klöckner v Cameroon; Wena Hotels v Egypt; Vivendi v Argentina, and MTD v Chile. 203 204

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(e) that the award has failed to state the reasons on which it is based.208

The annulment proceedings may result in an annulment of the award. This is why the task to judge the annulment is not assigned to the same tribunal that issued the award, as instead occurs in cases of interpretation or revision: the ICSID annulment committee is appointed according to particularly strict rules, established by Article 52(3) of the ICSID Convention. Article 52(3) On receipt of the request [for annulment] the Chairman shall forthwith appoint from the Panel of Arbitrators an ad hoc Committee of three persons. None of the members of the Committee shall have been a member of the tribunal which rendered the award, shall be of the same nationality as any such member, shall be a national of the state party to the dispute or of the state whose national is a party to the dispute, shall have been designated to the Panel of Arbitrators by either of those states, or shall have acted as a conciliator in the same dispute. The Committee shall have the authority to annul the award or any part thereof on any of the grounds set forth in paragraph (1).209

Pursuant to Article 52(1) of the ICSID Convention, the scope within which decisions can be reviewed is not very broad. As stressed by some commentators, the significance of Article 52 of the ICSID Convention lies not only in what it includes, but also in what it leaves out.210 It implicitly pre-empts additional types of review, despite permitting an atypical review procedure under five grounds. The annulment was planned by the drafters as an exceptional means of review and the interpretation of the five grounds was intended to be as narrow as possible. From the perspective of the relevant standards that systemic review is subject to, the correctness of an award is not considered by Article 52 of the ICSID Convention, but only its procedural propriety.211 Nonetheless, it is not certain that this differentiation has always been adopted by annulment committees charged with reviewing ICSID awards. The final award was actually substantively reviewed by the annulment committees in Klöckner v Cameroon and Amco v Indonesia. In Klöckner v Cameroon, the grounds underpinning the decision made by the tribunal were rejected by the annulment committee, which effectively conducted a review of the decision on its merits.212 In Amco v Indonesia, the differentiation between non-application of law, representing reason for manifest excess of powers, and erroneous application of the

 This ground was invoked in Klöckner v Cameroon; CMS Gas Transmission Co. v The Republic of Argentina, 25 September 2007; Vivendi v Argentina; CDC Group v Republic of Seychelles; Wena Hotels v Egypt; MTD v Chile, and Mitchell v Congo. 209  ICSID Convention Article 52(3). 210  Tams (2006), p. 19. 211  Franck (2005), p. 1547. 212  Klöckner Industrie-Anlagen v Republic of Cameroon (Klöckner I) ICSID Case No. ARB/81/2, Decision on annulment, 3 May 1985, 2 ICSID Rep 95 (1994). 208

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relevant law, representing review of the decision’s merits, was blurred by the committee.213 There is still a great deal of controversy regarding the scope of Article 52 and annulment jurisprudence is nowhere near being determined, even though a more restrictive approach was adopted in the formulation of the second and third generation of annulment decisions.214 Several authors commented on the five grounds for review, and wrote that, in order to cover a large variety of perceived shortcomings in the awards under scrutiny, the last three grounds have been invoked in most cases.215 They reflect on the strategy used in annulment proceedings: ‘one of the most widely accepted strategic principles of litigation is to seek a remedy not by a single method but by a shrapnel tactic whereby a multitude of argument is fired off simultaneously in the hope that at least one of them will score a hit. Although one of the grounds listed in Article 52(1) would be sufficient to cause the award’s annulment, the applicants typically list several of them’.216 Since 1981, the following data on annulment cases has been registered: –– From 1981 to 1990: 4 applications for annulment, 3 granted annulments in part or in full, 1 rejected; –– From 1991 to 2000: 2 applications for annulment, 1 granted annulment in part or in full, 0 rejected; –– From 2001 to 2010: 26 applications for annulment, 8 granted annulments in part or in full, 13 rejected, 5 annulment proceedings discontinued; and –– From 2011 to 2020: 88 applications for annulment, 7 granted annulments in part or in full, 56 rejected, 25 annulment proceedings discontinued.217

 Amco Asia Corp v Republic of Indonesia (Amco Asia) ICSID Case No. ARB/81/1 Decision on annulment, 16 May 1986, 1 ICSID Rep 509 (1993). 214  Among them are the annulment decisions in Maritime International Nominees Establishment v Republic of Guinea, Decision on Annulment, 22 December 1989 (“MINE”), Amco Asia Corporation v Republic of Indonesia, Resubmitted the case (hereinafter “Amco II”), ICSID Case No. ARB/81/1, Annulment Decision, 17 December 1992; Klöckner Industrie-Anlagen GmbH and others v United Republic of Cameroon and Société Camerounaise des Engrais, Resubmitted the case, (hereinafter “Klöckner II”), ICSID Case No. ARB/81/2, Annulment Decision, 17 May 1990 (this is the “second generation”); Wena Hotels v Egypt, Annulment Decision, 5 February 2002, and Vivendi v Argentina, Annulment Decision, 3 July 2002 (this is the “third generation”). 215  Schreuer et al. (2009), p. 933. 216  Schreuer et al. (2009), p. 933. 217  ICSID, The ICSID Caseload – Statistics (Issue 2022-2). 213

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7.8.2 Annulment of a Non-ICSID Award The law of the seat of arbitration governs non-ICSID awards annulment, including awards issued under the ICSID Additional Facility Rules. The law governs the grounds for review, the deadlines, the competent court, as well as the impact of the annulment decision. In non-ICSID cases, the enforcement is not automatically stayed with the application for annulment.218 7.8.2.1 Annulment of an ICSID Additional Facility Award An internal annulment procedure is not applicable to ICSID Additional Facility awards. This may appear to reinforce awards, but an equivalent to Article 54 of the ICSID Convention does not exist. Instead, national courts must be petitioned for recognition and enforcement. However, national courts may have the necessary competence to conduct a review prior to accord recognition and enforcement. Challenges to investment awards outside the ICSID Convention may be brought in the seat of arbitration by way of an application to set aside and in the place where the recognition and enforcement is sought. Unlike appeal procedures, challenges to enforcement do not target the actual award, but only its enforcement. Therefore, the award is not annulled if its enforcement is denied by a national court. This means that other courts can be petitioned to perform enforcement. There are a number of factors that determine the circumstances under which such attempts might be successful. Among them, there are the formulation of national laws, the courts’ legal tradition, and the domestic or foreign nature of the award. 7.8.2.2 Annulment of an UNCITRAL Award Some arbitral proceedings apply the UNCITRAL Model Law on International Commercial Arbitration of 1985, as amended in 2006: in Articles 34 and 36, it establishes: Article 34. Application for setting aside as exclusive recourse against arbitral award (1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article. (2) An arbitral award may be set aside by the court specified in article 6 only if: (a) the party making the application furnishes proof that: (i). a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this state; or

218

 Bernardini (2010).

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7  Consistency in Investor-State Arbitration (ii). the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iii). the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or (iv). the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or (b) the court finds that: (i). the subject-matter of the dispute is not capable of settlement by arbitration under the law of this state; or (ii). the award is in conflict with the public policyPublic policy of this state.219

Article 36. Grounds for refusing recognition or enforcement (1) Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only: (a) At the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that: (i) A party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (ii) The party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or (b) if the court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this state; or (ii) the recognition or enforcement of the award would be contrary to the public policy of this state.220

As it can be noticed, these rules defer to the New York Convention.  UNCITRAL Model Law on International Commercial Arbitration 1985 With amendments as adopted in 2006. 220  UNCITRAL Model Law on International Commercial Arbitration 1985 With amendments as adopted in 2006. 219

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7.8.3 Challenges to Recognition and Enforcement Under the New York Convention Several foreign investment awards are enforced under the 1958 New  York Convention, which has 172 contracting States throughout the world.221 Enforcement may be refused on seven grounds, as outlined in Article V New York Convention: Article V 1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.







2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country.222

The New  York Convention provides that the enforcement of awards ‘may’ be refused. The court still has a certain discretion to overrule the defence and grant the enforcement of the award, as can be inferred by the employment of a permissive rather than mandatory language.223 The grounds for refusing recognition and enforcement are not very broad, and their list is exhaustive: the first five are related to procedural issues and prevent national courts from reviewing the substance of the award. They share general  Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), Contracting States. 222  Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), United Nations. 223  van den Berg (1981), p. 265. 221

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similarities with the annulment justification outlined in Article 52 of the ICSID Convention. The final two grounds for denying recognition and enforcement are related to the arbitrability of the subject-matter in Article V(2)(a), and public policy concerns in Article V(2)(b). The public policy ground is only relevant if, in the country where the award is invoked, enforcement is contrary to the basic principles of its legal system,224 as specified by the New York Convention Drafting Committee in its Report. Research pointed out that to substantively review awards, some courts have drawn on Article V(2)(b).225 In any case, even though national courts frequently have to address the substance of an award to apply the public policy exception, this signifies that enforcement is denied solely in extremely rare situations. The New York Convention does not allow for annulment or appeal of the award, but only provides grounds for the awards not to be recognised or enforced.226 This implies that the refusal to enforce a non-ICSID award can prevent enforcement only in the place of the court that ordered the stay, whereas the stay of enforcement of an ICSID award prevents enforcement in the location of any contracting State.227

7.8.4 Challenges Before National Courts Challenges to awards or their enforcement may be brought also under national law. In such cases, the applicable national law will be the national law of the seat of arbitration: domestic courts will refer to and apply principles of the domestic system.228 In terms of the review of awards and decisions, there is significant variation between States with regard to national laws. On the whole, highly restricted justifications for the challenge of awards are specified by the majority of national laws, or else they defer to the UNCITRAL Arbitration Rules.229 However, research has found that most of the annulment grounds outlined by national laws are likely to concern a manifest excess of powers or a serious departure from a fundamental rule of procedure and are therefore similar to the grounds for annulment specified by the ICSID Convention. As such, the most common ground found by national courts, namely, that the tribunal lacked the authority to make decisions regarding certain matters, is equivalent to a ‘manifest excess of powers’ under Article 52(1)(b) of the ICSID Convention.230 Other scholars

 United Nations, Report of the Committee on the Enforcement of International Arbitral Awards, 28 March 1955, UN Doc. E/2704 and E/AC.42/4/Rev.1. 225  Tams (2006), p. 19. 226  Franck (2005), p. 1521. 227  Bernardini (2010). 228  Bernardini (2010). 229  UNCITRAL Arbitration Rules. 230  Bernardini (2010). 224

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h­ ighlighted that generalisation of findings is not practically possible because it is allowed in certain States in cases of abuse of process, whereas in other States review is permitted on substantive issues.231 An example of annulment granted by a national court is the following: an ICC award was annulled by the Paris Court of Appeal for lack of independence of the president of the arbitral tribunal. This occurred even though the ICC Court had earlier investigated and dismissed a request for challenge of the same arbitrator.232 Only a few States have their own national laws on the topic: most of them defer to the UNCITRAL Model Law rules on this issue. In doing so, these States adopt a nearly homogeneous approach to the review of awards. In any event, national law does not play a central part in the review of international investment awards, because many international investment disputes are under the ICSID Convention. As a consequence, the application of national laws might have implications only in a minor number of cases.233

7.8.5 Correction of Awards Under the ICC, LCIA, and SCC Rules The 2021 ICC Rules of Arbitration establish under Article 36: Article 36: Correction and Interpretation of the Award; Remission of Awards On its own initiative, the arbitral tribunal may correct a clerical, computational or typographical error, or any errors of similar nature contained in an Award, provided such correction is submitted for approval to the Court within 30 days of the date of such Award. (…) 3) A decision to correct or to interpret the award shall take the form of an addendum and shall constitute part of the award. The provisions of Articles 32, 34 and 35 shall apply mutatis mutandis.4) Where a court remits an award to the arbitral tribunal, the provisions of Articles 32, 34, 35 and this Article 36 shall apply mutatis mutandis to any addendum or award made pursuant to the terms of such remission.234

The 2020 LCIA Rules provide under Article 27: Article 27 Correction of Award(s) and Additional Award(s) 27.1 Within 28 days of receipt of any award, a party may by written notice to the Registrar (copied to all other parties) request the Arbitral Tribunal to correct in the award any error in computation, any clerical or typographical error, any ambiguity or any mistake of a similar

 Tams (2006), p. 19.  S.A. J&P AVAX SA v Sociétè Tecnimont SPA, Paris Court of Appeal, Arrêt of 12 February 2009. 233  Balaš (2008), p. 1137. 234  ICC Arbitration Rules 2021. 231 232

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nature. If, after consulting the parties, the Arbitral Tribunal considers the request to be justified, it shall make the correction by recording it in an addendum to the award within 28 days of receipt of the request. If, after consulting the parties, the Arbitral Tribunal does not consider the request to be justified it may nevertheless issue an addendum to the award dealing with the request, including any Arbitration Costs and Legal Costs related thereto. 27.2 The Arbitral Tribunal may also correct any error (including any error in computation, any clerical or typographical error, any ambiguity or any mistake of a similar nature) upon its own initiative in the form of an addendum to the award within 28 days of the date of the award, after consulting the parties. 27.3 Within 28 days of receipt of the final award, a party may by written notice to the Registrar (copied to all other parties), request the Arbitral Tribunal to make an additional award as to any claim, counterclaim or cross-claim presented in the arbitration but not decided in any award. If, after consulting the parties, the Arbitral Tribunal considers the request to be justified, it shall make the additional award within 56 days of receipt of the request. If, after consulting the parties, the Arbitral Tribunal does not consider the request to be justified it may nevertheless issue an addendum to the award dealing with the request, including any Arbitration Costs and Legal Costs related thereto. 27.4 As to any claim, counterclaim or cross-claim presented in the arbitration but not decided in any award, the Arbitral Tribunal may also make an additional award upon its own initiative within 28 days of the date of the award, after consulting the parties. (…)235

Similarly, the 2017 SCC Arbitration Rules provide under Articles 47 and 48: Article 47: Correction and interpretation of an award (1) Within 30 days of receiving an award, a party may, upon notice to the other party, request that the arbitral tribunal correct any clerical, typographical or computational errors in the award, or provide an interpretation of a specific point or part of the award. After giving the other party an opportunity to comment on the request and if the arbitral tribunal considers the request justified, it shall make the correction or provide the interpretation within 30 days of receiving the request. (2) The arbitral tribunal may correct any error of the type referred to in paragraph (1) above on its own motion within 30 days of the date of an award. (3) Any correction or interpretation of an award shall be in writing and shall comply with the requirements of Article 42.236 Article 48 Additional award Within 30 days of receiving an award, a party may, upon notice to the other party, request that the arbitral tribunal make an additional award on claims presented in the arbitration but not determined in the award. After giving the other party an opportunity to comment on the request, and if the arbitral tribunal considers the request justified, it shall make the additional award within 60 days of receiving the request. When deemed necessary, the Board may extend this 60 day time limit.237

 LCIA Arbitration Rules 2020, Article 27.  SCC Arbitration Rules 2017, Article 47. 237  SCC Arbitration Rules 2017, Article 48. 235 236

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In brief, the cases taken into consideration by the arbitration rules above for issuing correctional awards or additional awards concern only awards containing computational, typographical or clerical errors, and claims or cross-claims not already decided.

7.8.6 Concluding Remarks Although arbitral rules have undergone substantive changes in the latest years, the grounds for revision of awards, both in terms of correction, annulment, set aside and refusal of enforcement, are very limited.238

7.9 Appellate Mechanism The highly debated issue of the inconsistency of awards opens the door to various solutions, one of these being the establishment of an appellate system. The proposal had raised heated discussions among researchers and experts.

7.9.1 Academic Opinions The idea of the creation of an appeal mechanism has been studied by numerous scholars. The debate focused especially on the following points: the importance of consistency vis-à-vis finality, rectification of errors, review by a neutral tribunal, additional delays, costs, caseload, and politicisation of the system. 7.9.1.1 The Importance of Consistency Vis-à-Vis Finality Some scholars wrote enthusiastically about a possible appellate system: many of them highlight that it would enhance legal certainty and predictability of outcomes, promoting coherence and cohesion. Subedi recognises that, compared to maritime and commodity arbitration systems, the notion of appeal against arbitral awards is not new,239 and argues that more legal certainty and more cohesion would be brought about to this body of law by an appeal mechanism in investment arbitration.240 He

 Younger (1999), p. 241.  Subedi (2012), pp. 205–206. 240  Subedi (2012), p. 207. 238 239

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claims it would attenuate the risk of conflicting awards by harmonising the interpretation of investment treaty clauses. According to Franck, the purpose of an appeal tribunal could be the provision of a public forum for the review of public disputes and the creation of a determinate and coherent jurisprudence.241 Dimsey supports the view that the development of an appellate body specifically intended to deal with investment arbitration appeals would greatly contribute to prevent the inconsistencies in decision-making and avoid the haphazard domestic frameworks that currently come into play in investment arbitration practice.242 However, for Legum the cure against inconsistency could be far worse than the disease: in his view, in fact, the critiques about inconsistency of arbitral awards do not have enough strength to justify a reform.243 The development of an appeal mechanism has been opposed also by Qureshi and Khan on several grounds. According to these scholars, inconsistency of decisions is rare and fragmentation and inconsistency might even be exacerbated by the development of an appeal mechanism.244 Despite being in favour of an appeal mechanism development, Dimsey observed that the value of the decision of the first instance tribunal as well as its finality would be compromised.245 Goldhaber stressed that the development of an appeal mechanism in investor-State arbitration would undermine two of the most commonly cited advantages of the current appeal-less system: finality and rapidity.246 7.9.1.2 Correction of Errors Franck maintains that ‘the ultimate utility of the system (…) will not be fully realized until an appellate court is created which permits correction of legal errors, which might otherwise inappropriately bankrupt developing nations, stifle legitimate regulatory activity, or deprive investors of their legitimate expectations’.247 Citing Brower, she declares that an appellate mechanism might be of substantial help in developing clear and consistent case-law and ‘correcting legal errors in specific cases’.248 As proposed by Qureshi and Kahn, appeal justifications should not go beyond situations in which there has been a clear error of law or any of the five grounds for annulment set out in Article 52 of the ICSID Convention.249

 Franck (2005), p. 1521.  Dimsey (2008), p. 177. 243  Legum (2008), p. 231, 238. 244  Qureshi and Gulzar Khan (2008), pp. 267, 269. 245  Dimsey (2008), pp. 184–185. 246  Goldhaber (2004), p. 26. 247  Franck (2005), p. 1521. 248  Franck (2005), p. 1607, citing Brower II (2000), p. 92. 249  Qureshi and Gulzar Khan (2008), p. 277. 241 242

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Goldhaber argues that the public nature of the proceedings makes it essential for investment arbitration to be accurate: as far as monetary claims and public interest are concerned, there is a lot at stake. He points out that, by expanding the grounds on which a review can be performed, an appeal mechanism would render awards more accurate and homogeneous. He contends that the available means of review are narrow, as they are limited to procedural grounds.250 Legum reflects that, whereas it could be argued that review should be restricted to errors of law to reduce the number of appeals sought, there is also support for an appeal mechanism where errors of fact can be rectified.251 Knull and Robinson suggest that the appeal should depend on the parties’ choice. They support the proposal on the appeal procedure on the basis that it would at the same time ensure predictability and clarity yet be flexible to some extent. The parties are afforded greater choice and control in relation to their dispute, as the procedures can be adapted to existing circumstances.252 7.9.1.3 Collateral Effects: Additional Delays, Costs, and Caseload Bjorklund and Tawil stress that the dispute proceedings would last longer and would be more expensive if an appeal were made.253 Knull and Robins propose to restrict the possibility to appeal to a minimum threshold of money at stake in order to avoid frivolous appeals. Some authors suggest that a deposit should be introduced as a security measure. In addition, they recommend that the appeal preclude other judicial proceedings, and be accompanied by a waiver to resort to judicial remedies.254 Wälde reflects on the implications of the possibility to appeal in relation to the position of investors.255 The scholar takes the view that the quality and therefore the longer-term acceptance and force of investment arbitration can be enhanced by an appeals facility, which should be neither very complicated nor very time consuming.256 According to Sornarajah, since developing States’ arbitration funds are limited,257 they will probably be unwilling to subject themselves to an appeal system, due to the extra costs that this would imply. Bette Shifman raises this issue and brings the example of the PCA, where member States provide the funding. Although under the ‘user pays’ principle, this method

 Goldhaber (2004), p. 26.  Legum (2008), p. 127. 252  Knull II and Robins (2000), p. 531. 253  Bjorklund (2008), p. 471; Santiago Tawil (2006), p. 131. 254  Knull II and Robins (2000), p. 531. 255  Wälde (2006), p. 135. 256  Wälde (2006), pp. 138–139. 257  Sornarajah (2008), pp. 39, 73. 250 251

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appears to be rational, developing countries may find paying the fee challenging.258 This problem applies, beyond States without substantial financial resources at their disposal, also to small and medium investors, with the risk of increasing criticisms of the system as favouring large multinational corporations and wealthy States.259 On the other side, proceedings before the appellate body could be free of charge, following the WTO model. This solution would in fact reduce the concerns that applicants might have in appealing an incorrect award due to the procedural costs. The problem concerning developing countries had already appeared when the WTO’s Working Group contemplated the possibility of extending the WTO’s existing appellate mechanism to the investment field.260 Several countries approved the proposal, including Japan, the European Union and Canada. However, the proposal was less warmly received by many other States, especially among developing countries.261 Qureshi and Khan stress that the principal interest of developing nations, which naturally is development, shall not be overlooked when the establishment of an investment appeal procedure is taken into consideration: they conclude that the contribution of developing countries must be guaranteed, as well as transparency and fairness at all stages.262

7.9.2 The Position of Institutions 7.9.2.1 The 2004 ICSID Appeals Proposal In 2004, with the aim of encouraging discussion on possible improvements of investment arbitration, the ICSID Secretariat examined various proposals for a reform, including the introduction of a comprehensive review of awards. In the discussion paper put forth by the Secretariat, the development of an appeals facility was advocated, geared towards fostering consistency and coherence in the case-law emerging under investment treaties,263 and enhancing the acceptability of investor-­ State arbitration.264 Besides preventing the development of ‘multiple mechanisms’, the project of a facility under the ICSID framework had the aim to achieve the goals of efficiency, cost-effectiveness, coherence and consistency.265 Its design was supposed to ensure  Shifman (2006), p. 113.  Anonymous expert, in an interview with the author in 2018. 260  See WTO, Report of the Working Group on the Relationship between Trade and Investment to the General Council of the WTO WT/WGTI/6 (2002). 261  Qureshi (2008), p. 1165. 262  Qureshi and Gulzar Khan (2008, pp. 276–278). 263  ICSID Secretariat (2004), pp. 14–15. 264  ICSID Secretariat (2004), p. 15. 265  ICSID Secretariat (2004), pp. 15–16. 258 259

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its compatibility with all investment arbitration types, such as under the ICSID Convention and Rules, the UNCITRAL Arbitration Rules or other rules.266 Under the new rules implemented by the Administrative Council of ICSID, an appeal facility was planned to be created and applied. A new international treaty would have consolidated its jurisdiction.267 The possibility for parties to consent to arbitration without appeal would have still been available.268 No in-depth discussion was undertaken regarding how feasible such a process would be under the ICSID Convention.269 Aside from the grounds provided in Article 52 of the ICSID Convention, ‘a clear error of law’ or ‘serious errors of fact’ could also have constituted a basis for challenging awards.270 In this way, the appellate body would not only be able to reassess dispute merits, but would also have the authority to uphold, modify, reverse or annul the award.271 Besides remanding a dispute to original arbitral tribunals, the appellate body could submit it to new tribunals.272 The discussion paper was published, and freely accessible, and comments from interested parties were welcomed.273 What emerged from this consultative process was that many ‘doubted the wisdom of the suggestion’ and that ‘most considered it premature at best’.274 After a year, the Secretariat argued that further elaboration of this initiative was unsupported.275 However, although the proposal was stayed, the Secretariat declared that, if it is decided to proceed towards the establishment of an ICSID appeal mechanism, the Secretariat would continue to study such issues in order to assist member countries.276 7.9.2.2 The OECD Study on Improving ISDS Also the OECD Investment Committee investigated how feasible and appropriate an appellate mechanism for investment arbitration was.277 According to the Committee, ‘One of the main advantages [for the creation of an appellate mechanism] advanced was the avoidance of inconsistent decisions (…).’ The notion of consistency was viewed from three angles:

 ICSID Secretariat (2004), Annex, p. 1.  ICSID Secretariat (2004), Annex, p. 1. 268  ICSID Secretariat (2004), Annex, p. 2. 269  ICSID Secretariat (2004), Annex, pp. 1-2. 270  ICSID Secretariat (2004), Annex, p. 4. 271  ICSID Secretariat (2004), Annex, p. 5. 272  ICSID Secretariat (2004), Annex, p. 6. 273  Parra (2014), p. 9. 274  Parra (2014), p. 9. 275  ICSID Secretariat (2004), p. 4. 276  ICSID Secretariat (2004), p. 4. 277  Yannaca-Small (2008), pp. 223–224. 266 267

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–– Avoiding conflicting opinions or different conclusions when two tribunals constituted under different agreements deal with the same set of facts; –– Fostering coherent interpretations of basic principles that may underlie differently worded provisions in various agreements, thereby enhancing the development of a more consistent international investment law; and –– Achieving uniformity in the challenging of awards.278 Among the advantages, the Committee found that there are: (i) the possibility to rectify both legal errors and serious errors of fact, (ii) the assurance that the review would be made by a neutral tribunal, and (iii) the enhancement of the expeditious and effective enforcement of awards.279 However, considering the possible disadvantages, namely the risk of flawed or erroneous decisions, the additional delays, costs, excessive caseload, and the potential politicisation of the system, the majority of the OECD members, with the exception of the NAFTA States, did not seem to consider the issue urgent enough to embark on a radical system change. Hence the discussion on the appeal proposal did not produce any positive results.280

7.9.3 Provisions in IIAs Recently concluded bilateral and multilateral IIAs contain language addressing the possibility of appellate mechanisms development. The creation of one appellate body in investment agreements has been considered particularly by the United States for over a decade.281 Refining the investment arbitration regime was a trade negotiating goal established by the 2002 Trade Promotion Authority Act, ‘through […] providing for an appellate body or similar mechanism to provide coherence to the interpretations of investment provisions in trade agreements’.282 From then on, programmatic, non-binding language was used in most investment treaties concluded by the United States to refer to a potential appellate body.283 Article 28(10) of the United States Model BIT (2004) establishes: 10. If a separate, multilateral agreement enters into force between the Parties that establishes an appellate body for purposes of reviewing awards rendered by tribunals constituted pursuant to international trade or investment arrangements to hear investment disputes, the

 Yannaca-Small (2008), p. 224.  Yannaca-Small (2008), pp. 224–225. 280  Yannaca-Small (2008), p. 226. 281  Parra (2014), p. 9. 282  Trade Promotion Authority Act (2002), P.L. 107-210, Section 2102(b)(3)(g)(iv), 19 USC § 3802(b)(3)(G)(iv). 283  See for instance Singapore-US FTA (2003), Article 15.19(10); Chile-US FTA (2004), Article 10.19(10); Dominican Republic-Central America-United States FTA (CAFTA-DR) (2004), Article 10.20(10); Uruguay-US BIT (2005), Article 28(10) and Annex E. 278 279

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Parties shall strive to reach an agreement that would have such appellate body review awards rendered under Article 34 in arbitrations commenced after the multilateral agreement enters into force between the Parties.284

Similarly, Article 28(10) of the 2012 United States Model BIT provides that: In the event that an appellate mechanism for reviewing awards rendered by investor-State dispute settlement tribunals is developed in the future under other institutional arrangements, the Parties shall consider whether awards rendered under Article 34 should be subject to that appellate mechanism. The Parties shall strive to ensure that any such appellate mechanism they consider adopting provides for transparency of proceedings similar to the transparency provisions established in Article 29.285

Besides the American IIAs, similar ‘declarations of intent’ supporting an appeal mechanism development have been included in other states’ treaties. For instance, the Canada-Korea FTA signed in 2014 includes the following provision: Annex 8-E: Possibility of a Bilateral Appellate Mechanism Within three years after the date this Agreement enters into force, the Parties shall consider whether to establish a bilateral appellate body or similar mechanism to review awards rendered pursuant to Article 8.42 in arbitrations commenced after they establish the appellate body or similar mechanism.286

Despite such provisions, the creation or accession to a bilateral or multilateral appellate facility for investment arbitration awards review has only been taken into consideration by the contracting States Canada and South Korea: the creation of such bodies under any of the existing agreements is yet to materialise.287

7.10 Permanent Bodies: Multilateral Investment Court and Investment Court System As a response to a widespread demand for a strengthened consistency,288 some EU treaties include provisions of appellate mechanisms or a duty to consider whether this kind of mechanism should be created in the future.289 Among them there are the EU-Singapore IPA, which under Article 3.12 Multilateral Dispute Settlement Mechanism provides that the establishment of a multilateral investment tribunal and

 US Model BIT 2004.  US Model BIT 2012. 286  Free Trade Agreement Between Canada and The Republic of Korea. 287  Kaufmann-Kohler and Potestà (2016). 288  Reinisch (2016). 289  See Sect. 8.3, The Multilateral Investment Court Project, and Sect. 9.9.3, Designing a Permanent Investment Court. 284 285

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appellate mechanism for the resolution of international investment disputes shall be pursued by the Parties with each other and other interested trading partners.290 The EU-Vietnam Investment Protection Agreement establishes under Article 3.39 that to hear appeals from the awards issued by the tribunal a permanent appeal tribunal is established. 291 The CETA establishes under Article 8.28(1) that to review awards of investment disputes between investors and States, an appellate tribunal is established.292 In a similar vein, the text for the TTIP proposed by the EU reads, under Article 10(1) that a permanent appeal tribunal is established to hear appeals from the awards issued by the tribunal.293 There are close similarities between these systems of dispute settlement, which are concerned with the establishment of a tribunal of first instance and an appellate tribunal. Examining CETA and the text proposed by the European Commission for the TTIP, it can be inferred that the EU aims to establish an investment court, characterised by several elements, among which a two-tier system, rules for the enforcement of the awards, transparency, and attribution of arbitration costs. A tribunal of first instance and an appellate tribunal make up a system of two tiers, and any award decided by the first instance tribunal is subject to the appellate jurisdiction of the appeal tribunal. It has the authority necessary for interpretation of the applicable law and determination of the pertinent domestic law. An award can be supported, changed or undone by the appeal tribunal.294 The matter can also be referred back to the tribunal,295 or the appeal tribunal’s own legal findings and conclusions can be applied to the facts and a final decision can be rendered.296 Pursuant to Article 8.28.2 CETA, an award can be annulled based on the same reasons outlined in Article 52(1) (a) through (e) of the ICSID Convention as well as errors in the application or interpretation of law and manifest errors in the appreciation of facts. Article 8.28.9(b) CETA governs the coordination between an award issued by the investment court system (‘ICS’) and the means of review. It provides that a disputing party shall not seek to review, set aside, annul, revise or initiate any other similar procedure as regards an award until an Appellate Tribunal has been established. In accordance with (and sometimes exceeding) the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (‘UNCITRAL Rules on  Investment Protection Agreement Between The European Union and its Member States, of the one part, and The Republic of Singapore, of the other part, 2018. 291  EU-Vietnam Investment Protection Agreement, 2019. 292  Comprehensive Economic And Trade Agreement (CETA) Between Canada, of the one part, and The European Union [and its Member States]. 293  European Union’s Proposal for Investment Protection and Resolution of Investment Disputes, Transatlantic Trade and Investment Partnership Trade in Services, Investment and E-Commerce Chapter II – Investment. 294  CETA, Article 8.28.2; EU-Vietnam Investment Protection Agreement, Article 3.39. 295  EU-Vietnam Investment Protection Agreement, Article 3.54. 296  EU-Vietnam Investment Protection Agreement, Article 3.54. 290

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301

Transparency’), proceedings and important documents must be completely transparent and open to the public.297 Pursuant to the loser pays principle, the arbitration costs will be covered by the unsuccessful party. To avert vexatious claims, the tribunal has the power to dismiss unsubstantiated claims on a summary application.298 To ensure proceedings do not go on interminably, it is a requirement that an award be issued within two years of claim submission, and any deferral demands a justification.299 The implementation of a Multilateral Investment Court and appeals tribunal in the future has been acknowledged as possible by both CETA and EU-Vietnam Investment Protection Agreement. Under the CETA: The [Contracting] Parties shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes. Upon establishment of such a multilateral mechanism, the CETA Joint Committee shall adopt a decision providing that investment disputes under this section will be decided pursuant to the multilateral mechanism and make appropriate transitional arrangements.300

Similarly, under the EU-Vietnam Investment Protection Agreement, the Parties ‘shall enter into negotiations for an international agreement providing for a multilateral investment tribunal in combination with, or separate from, a multilateral appellate mechanism applicable to disputes under this Agreement. The Parties may consequently agree on the non-application of relevant parts of this Section.’301 The new multilateral body would be granted jurisdiction and would replace the bilateral permanent body and/or the appellate tribunal referred to in both treaties. This proposal has been critically analysed within United States trade circles, with warnings from lawyers that exaggerating the advantages of a permanent investment system would be detrimental.302 A certain degree of opposition has been expressed also in some political settings. An announcement was made by Belgium just before 27 October 2016, that is the date when CETA was supposed to be signed, that it could sign the treaty only after every regional administration had agreed to it.303 However, on 28 October 2016, the Belgian regional governments agreed to an intra-Belgium statement and a Joint Interpretative Instrument, setting the conditions to give full powers to the federal State, and allowing Belgium to sign the CETA.304 These chained events permitted

 EU-Vietnam Investment Protection Agreement, Article 3.46; CETA, Article 8.36.  CETA: EU and Canada agree on new approach on investment in trade agreement, press release, 2016. 299  Gouiffès et al. (2016). 300  CETA, Article 8.29. 301  EU-Vietnam Investment Protection Agreement, Article 3.41. 302  Gallo and Nicola (2016), p. 1088. 303  Belgium, Déclaration du Royaume de Belgique relative aux conditions depleins pouvoirs par l’Etat fédéral et les Entités fédérées pour la signature du CETA (27 October 2016). 304  Van der Loo (2016). 297 298

302

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the EU and Canada to sign the CETA on 30 October 2016, which provisionally entered into force on 21 September 2017, after the European Parliament approved it in February 2017, and the Canadian Bill to implement it received royal assent in May 2017,305 while awaiting for the Member States’ national parliaments to ratify it. The establishment of this permanent court has been slightly delayed by the time needed for Opinion 1/17 to be issued, which was requested by Belgium’s regional Walloon government.306 Scholars have argued that the decision of the Court of Justice of the EU (‘CJEU’) in Slovak Republic v Achmea BV (the Achmea judgment),307 which determined the incompatibility with EU law of an arbitration clause included in an intra-EU investment agreement, would influence the conclusions of the Court of Justice in Opinion 1/17.308 On 29 January 2019, Advocate General Bot delivered his Conclusions on Opinion 1/17: CETA’s Investment Chapter is compatible with the EU acquis, as the agreement is entirely separate from the legal system of EU law and grants equal rights to Canadian investors in the EU and European investors in Canada. However, some experts feared that the reasoning of Advocate General Bot would not be compatible with Opinion 2/15, issued by the Grand Chamber of the CJEU on 6 March 2018. On 30 April 2019, the Court issued the awaited Opinion 1/17, following Advocate General Bot’s Opinion, in which the Court found that the investor-State dispute resolution mechanism provided in CETA, which consists of a permanent tribunal of 15 members and an appellate body, is compatible with EU law. Responding to the doubts presented by some experts, the CJEU explained that CETA has been drafted with the utmost attention, that the permanent tribunal will consider national and EU law only as a matter of fact and will determine the legality of a certain measure under national law, nor will it interpret EU law. In fact, if the tribunal interpreted EU law, its establishment would have been considered by the Court of Justice as incompatible with EU law. Finally, the CJEU concluded that the standing tribunal would not cause any issue regarding accessibility and independence. The permanent tribunal provided by the CETA has in fact become a model for other treaties the EU is negotiating. Some scholars were concerned that the Investment Court System under the CETA would be found to be incompatible with EU law because of the role it could have in interpreting EU law. In fact, there may be significant issues with the degree to which EU law can be taken into account by the investment court: indeed, this is allowed under Article 8.31(2) of CETA, which provides that the court may consider as a matter of fact the domestic law of the disputing Party, as appropriate.309

 Government of Canada, Chronology of events and key milestones of CETA, 20 June 2018.  Gouiffès et al. (2016). 307  Court of Justice of the European Union, Case C-284/16, Slowakische Republik (Slovak Republic) v Achmea BV, 6 March 2018. For more details on the Achmea case, see Sect. 8.1.2. 308  Eckes (2018). 309  Gouiffès et al. (2016). 305 306

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EU law specifies that compatibility must exist between any international agreement ratified by the EU and the EU constitutional framework: the Treaty on the European Union (‘TEU’), the Treaty on the Functioning of the European Union (‘TFEU’), and the Charter of Fundamental Rights.310 Article 218 (11) TFEU provides a mechanism by which Member States may seek an opinion from the CJEU as to whether an envisaged international agreement would be compatible with EU law prior to its entry into force in order to avoid future complications.311 In the past, the CJEU has clarified that an international agreement creating a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the CJEU, is not, in principle, incompatible with EU law.312 The compatibility of the WTO dispute settlement system, to which the EU is a party, and of the Court of Justice of the European Free Trade Association states (‘EFTA Court’) with EU law has been ascertained by the CJEU.313 Nonetheless, there is a significant difference between these judicial entities and the ICS. Whereas the WTO serves as a conduit for State-to-State dispute settlement between the EU and third countries, despite hearing individual claims, the EFTA Court is not governed by the legal framework of the EU.  Jurisdiction to formulate judgments on individual claims regarding the EU law and Member States is not possessed by either of the bodies.314 The capability of the EU to implement an investment court has been questioned by the German Magistrates Association, that feared that a standing body would disrupt the set court system within the EU and the Member States as well.315 The German Magistrates Association quoted Opinion 1/09 of 8 March 2011, where the CJEU found that: The judicial system of the European Union is moreover a complete system of legal remedies and procedures designed to ensure review of the legality of acts of the institutions (see, inter alia, Case C-50/00 P Unión de Pequeños Agricultores v Council [2002] ECR I-6677, paragraph 40).316

The CJEU additionally noted that the review of the legality of acts of the institutions is ensured by a complete system of legal remedies and procedures retained by the Union.317 The German Magistrates Association stressed that, similar to the suggested Patent Court that was under evaluation at the time, the ICS would be a kind

 Treaty on the Functioning of the European Union, art. 218 (11).  EU-Vietnam Investment Protection Agreement, Article 3.54. 312  CJEU, Opinion 2/13 Of The Court (Full Court) 18 December 2014, para. 182. 313  Opinion 1/92 of the Court, 10 April 1992. 314  Biel and Wheeler (2016). 315  Deutscher Richterbund (2016). 316  CJEU, Opinion 1/09, 8 March 2011, para. 70. 317  Opinion 1/09 of the Court of Justice of the European Union, 8 March 2011, para. 70. 310 311

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of court outside the institutional and judicial framework of the European Union and would not be part of the judicial system provided for in Article 19(1) TEU.318 The German Magistrates Association wrote that, similarly to the Patent Court, the standing investment court could be an organisation with a distinct legal personality under international law.319 With reference to the Patent Court, the CJEU found that: ‘It is clear that if a decision of the PC were to be in breach of European Union law, that decision could not be the subject of infringement proceedings nor could it give rise to any financial liability on the part of one or more member states’.320 ‘Consequently, the envisaged agreement, by conferring on an international court which is outside the institutional and judicial framework of the European Union an exclusive jurisdiction to hear a significant number of actions brought by individuals in [a specific field] (…) and to interpret and apply European Union law in that field, would deprive courts of member states of their powers in relation to the interpretation and application of European Union law and the Court of its powers to reply, by preliminary ruling, to questions referred by those courts and, consequently, would alter the essential character of the powers which the Treaties confer on the institutions of the European Union and on the member states and which are indispensable to the preservation of the very nature of European Union law’.321 The German Magistrates Association expressed its doubts on the establishment of a specialised investment court and recalled that every member State is a constitutional state, meaning that all parties requiring the intervention of the law are ensured access to justice in every domain under State jurisdiction, and that the Member States are responsible for supplying the courts with the resources they need to guarantee that justice is accessible to all citizens and feasibly accessible to foreign investors.322 Regarding the compatibility of other courts with the EU judicial system, it is opportune to remember that, as stressed by research, in its Opinion 2/13 323 the CJEU held that the EU constitutional law would be distraught if the EU accedes to the ECHR, interfering with the exclusive jurisdiction of the CJEU to interpret EU law: in fact, among other things, the accession would allow the European Court of Human Rights to interpret and apply EU law and to act as a forum for disputes between EU Member States.324 A similar decision has been taken in Achmea, where the CJEU found that the establishment of an arbitral tribunal for the resolution of a

 Opinion 1/09 of the Court of Justice of the European Union, 8 March 2011, para. 71.  Opinion 1/09 of the Court of Justice of the European Union, 8 March 2011, para. 71. 320  Opinion 1/09 of the Court of Justice of the European Union, 8 March 2011, para. 88. 321  Opinion 1/09 of the Court of Justice of the European Union, 8 March 2011, para. 89. 322  Deutscher Richterbund (2016). 323  Opinion 2/13 of the Court of Justice of the European Union (Full Court), 18 December 2014, paras. 157 to 177. 324  Schill (2015), p. 379. 318 319

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305

dispute between an investor from a certain member State of the EU and another Member State as respondent would be incompatible with the autonomy of EU law.325 Moreover, as decided by the same CJEU in Opinion 2/15, concerning the free trade agreement EU-Singapore, a regime that removes disputes between investors and States from the jurisdiction of the courts of the Member States falls within a competence shared between the EU and the Member States: therefore it cannot be established without the Member States’ consent.326 Some commentators argue that it is still a controversial matter for domestic law (that is EU law) to be interpreted by the suggested investment court system, even as a ‘fact’.327 According to some researchers, ‘a number of specific provisions indicate the European Commission’s awareness of the sensitivities of the court.’328 Reinisch further writes that by removing EU law from the scrutiny of investment courts, the European Commission intent is to make the latter EU-compatible.329 This partially derived from the award in Micula et al. v Romania, in which the conclusion reached by the ICSID tribunal was that the EU law was integrated in the ‘factual matrix’, which might have relevance to the interpretation of whether the duty of fair and equitable treatment was fulfilled by Romania under the relevant BIT.330 This matter is unlikely to be resolved, since investment disputes are frequently decided through determination of rights under domestic law (e.g. settling an expropriation claim by determining the existence of a property right).331 Some scholars recall the previous failed example of the 1990s Multilateral Agreement on Investment (‘MAI’), the frictions between South China Sea and the UN Convention on the Law of the Sea (‘UNCLOS’), those between certain African countries and the International Criminal Court, and the multiple requests for a budget increase for the WTO Appellate Body.332 They stress that, for the success of the initiative, it is important that it be discussed in a multilateral forum such as the UNCITRAL Working Group III on ISDS Reform, which allows all States parties to actively participate in the negotiations.333 Other researchers highlight the importance of revising substantive standards, besides the establishment of a standing mechanism for the resolution of investment disputes.334

 For a more detailed discussion on the issue, see Sect. 8.1.2.  Court of Justice of the European Union, Press Release No 52/17, 16 May 2017. 327  Lévesque (2016). 328  Reinisch (2016), p. 28. 329  Reinisch (2016), p. 28. 330  Ioan Micula, Viorel Micula, S.C. European Food S.A., S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v Romania, ICSID Case No. ARB/05/20; Award, 11 December 2013, para. 328. 331  See e.g. Douglas (2009), p. 52, on Rule 4: “The law applicable to an issue relating to the existence or scope of property rights comprising the investment is the municipal law of the host State, including its rules of private international law”; Kriebaum and Schreuer (2007), p. 743. 332  Chaisse and Vaccaro-Incisa (2018). 333  Chaisse and Vaccaro-Incisa (2018). 334  De Luca (2017). 325 326

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Contrary to the suggestion of the European Commission to better coordinate adjudicating disputes between investors and States at global level, Osgoode argues that private ordering and dispute settlement by domestic courts should be prioritised. In essence, the Osgoode Group proposes the reinstatement of the international investment structures preceding ISDS. In the settings of the TTIP agreement, this would mean that the around two-thirds335 of investor-State disputes regarding contract violations should be dealt with by domestic courts in the EU and United States, whereas private risk-insurers and other types of private ordering (e.g. social norms) should address the rest of the disputes.336 Schwieder highlights that the Osgoode Group’s proposal, although brought forward prior to the European Commission proposal, is the converse of the latter.

7.11 Conclusions The reflections included in the present Chapter start with the premise according to which although IIAs might be quite similar in terms of structure, scope, and content, they constitute an uncoordinated aggregation. This fragmentation entails consequences that may be considered, depending on the perspective, positive or negative. Among them, there are: the possibility that investors belonging to the same group of companies may submit multiple claims with the same factual basis, same goals and intentions, the possibility to carry out treaty shopping and forum shopping, the non-­ application of the notion of precedent, the limited possibility to annul or set aside an award. The first situation takes place when shell companies act as claimants, with the aim to use the different chances offered by the various applicable IIAs. Treaty shopping has been defined as the practice of seeking the most advantageous IIA with the host country, selecting the home State based on the favourable provisions contained therein. Although some commentators do not hide their disapproval for such practice, it is not explicitly prohibited by any treaty.337 Nevertheless, restructuring a company for the sole purpose of commencing an arbitration case has been considered an abuse of rights sanctioned with denial of jurisdiction in cases such as Philip Morris Asia Limited v Australia.338 Forum shopping is defined as ‘the process throughout which one of the parties to a dispute attempts to bring a claim before the forum most advantageous to him or her’:339 this is made possible by the fact that IIAs provisions often grant the investor

 Van Harten (2013), pp. 122–124.  Schwieder (2016), p. 209. 337  Chaisse (2005), p. 225. 338  Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015. 339  Yannaca-Small (2006), paras. 79–80. 335 336

7.11 Conclusions

307

with the possibility to bring a claim before different courts and tribunals: the State courts of the host State, and several arbitration tribunals, under different rules, such as the ICSID Convention, the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules, the 2021 ICC Rules of Arbitration, the 2020 LCIA Arbitration Rules, the 2017 SCC Arbitration Rules. Forum shopping and treaty shopping may be practiced in parallel. With the aim to treat similar situations in a similar way, in common law regimes the notion of precedent is applied, which guarantees certainty and equality of treatment to all parties.340 In investment arbitration, whereas formally the status of precedent is not ascribed to previous awards, often tribunals make reference to earlier cases in their reasoning. Research has stressed that even reference to a precedent entails some risks, such as, for instance, the possible spread of decisions that apply the same reasoning to different facts, and do not consider the peculiarity of the latter. In fact, it may happen that an award contains errors of fact and of law: in these cases, the party feeling dissatisfied with the award has little chance to obtain its review. This chance depends on the arbitral institution issuing the award: for instance, ICSID possesses an internal mechanism for the annulment of the awards, whereas in other cases, national provisions for setting aside awards are applied. The lack of consistency of investor-State arbitration awards creates room for improvement in the arbitration system: one of the proposals is the establishment of an appeal mechanism. On this issue, scholars and experts have various opinions. They highlighted on one side, the possibility for a greater coherence in the interpretation of basic principles underlying differently worded provisions in various agreements and offering the chance to correct mistakes potentially present in the challenged awards, and on the other, the lack of finality of the award, and the appearance of undesired collateral effects, such as additional delays, costs, and a heavier caseload. Among the most recent suggestions in this regard, one that stands out is the European Commission’s proposal to establish a Multilateral Investment Court and/ or an Investment Court System, which would provide for a first instance and an appellate court. However, some scholars have remarked that such courts could judge, at least as a factual element, EU law. This task, according to several decisions by the CJEU, more recently reiterated in Achmea, belongs solely to the courts system, and not to investment tribunals. To conclude, the discussions on enhancing consistency in investment arbitration are intensifying, and several proposals have been brought forward. A standing mechanism for the resolution of investment disputes is one of the proposals that would improve the level of consistency through a two-tier system.

340

 Dworkin (1997), p. 89.

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Lévesque C (2016) The European Commission proposal for an investment court system: out with the old, in with the new?. Investor-State Arbitration Series, Paper No. 10 McCarthy C (2016) The problems of fragmentation and diversification in the resolution of complex international claims: OAO Neftyanaya Kompaniya Yukos v Russia, European Court of Human Rights, Application No. 14902/04, Judgment (Just satisfaction), 31 July 2014. J World Invest Trade 140 NAFTA, Chapter Eleven: Investment Nightingale DJ, Rhodes DH (2015) Architecting the future enterprise. The MIT Press, Cambridge Nigro C, Prosperi L (2009) L’irragionevole durata dei processi. Experta, Forlì Ogden P (1993) Mastering the lawless science of our law: a story of legal citation indexes. Law Library J 85:18 Palombino FM (2012) Il trattamento giusto ed equo degli investimenti stranieri. Il Mulino, Bologna Parra AR (2014) Advancing Reform at ICSID. Transnatl Disp Manage 11:1 Paulsson J (2006) International arbitration and the generation of legal norms: treaty arbitration and international law. TDM 5 Pauwelyn J (2014) At the edge of chaos? Foreign investment law as a complex adaptive system, how it emerged and how it can be reformed. ICSID Rev 29(2):372 Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015 Pinos T (1988) Res Judicata Redux. Osgoode Hall Law J 26:713 Qureshi A, Gulzar Khan S (2008) Implications of an appellate body for investment disputes from a developing country point of view. In: Sauvant KP (ed) Appeals mechanism in international investment disputes. Oxford University Press, Oxford, pp 267–278 Qureshi AH (2008) An appellate system in international investment arbitration? In: Muchlinski P, Ortino F, Schreuer C (eds) The Oxford handbook of international investment law. Oxford University Press, Oxford, pp 1155–1170 Rayfuse R, Lauterpacht E (eds) (1993) ICSID reports, vol 1. Grotius Publications Limited, Cambridge Reinisch A (2016) The European Union and investor-state dispute settlement: from investor-state arbitration to a permanent investment court. Investor-State Arbitration Series, Paper No. 2 Salacuse JW (2010) Making transnational law work through regime-building: the case of international investment law. In: Bekker PHF, Dolzer R, Waibel M (eds) Making transnational law work in the global economy – essays in honour of Detlev Vagts. Cambridge University Press, Cambridge, pp 406–430 Santiago Tawil G (2006) An international appellate system: progress or pitfall? In: Ortino F et  al (eds) Investment treaty law: current issues, vol 1. British Institute of International and Comparative Law, Cambridge, p 131 Savarese E (2012) La nozione di giurisdizione nel sistema ICSID. Editoriale Scientifica, Napoli SCC (2017) Arbitration Rules Schauer F (2008) Authority and authorities. Va Law Riv 94:1931 Schill SW (2015) Editorial: Opinion 2/13—the end for Dispute Settlement in EU Trade and Investment Agreements. J World Invest Trade 379 Schill SW (2008) The multilateralization of international investment law: the emergence of a multilateral system of investment protection on the basis of bilateral treaties. SIEL Working Paper No. 18/08 School of International Arbitration Survey (2015) Improvements and Innovations in International Arbitration. Queen Mary School of International Arbitration Schreuer CH (2006) Diversity and harmonization of treaty interpretation in investment arbitration. Transnatl Disp Manage 3:2 Schreuer CH, Malintoppi L, Reinisch A, Sinclair A (2009) The ICSID convention: a commentary. Cambridge University Press, Cambridge Schwieder RW (2016) TTIP and the investment court system: a new (and Improved?) paradigm for investor state adjudication. Columbia J Transnatl Law 55:178

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Scott AW (1942) Collateral Estoppel by Judgment. Harv Law Rev 56(1):1 Shifman B (2006) The challenges of administering an appellate system for investment disputes. In: Ortino F, Sheppard A, Warner H (eds) Investment treaty law: current issues, vol 1. British Institute of International and Comparative Law, London, p 113 Sicard-Mirabal J (2016) Precedential value of international arbitral awards. In: Rovine AW (ed) Contemporary issues in international arbitration and mediation: the Fordham Papers 2015. Brill Nijhoff, Leiden, pp 72–86 Singapore-US FTA (2003) Slowakische Republik (Slovak Republic) v Achmea BV, Court of Justice of the European Union, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018 Sornarajah M (2008) A coming crisis: expansionary trends in investment treaty arbitration. In: Sauvant KP (ed) Appeals mechanism in international investment disputes. Oxford University Press, Oxford, pp 39–45 Sprecher RA (1945) The development of the doctrine of stare decisis and the extent to which it should be applied. ABA J 31:501 Subedi SP (2012) International investment law: reconciling policy and principle. Hart, Oxford Tams CJ (2006) An appealing option? The debate about an ICSID appellate structure. Essays Transnatl Econ Law 57:19 Ten Cate IM (2013) The costs of consistency: precedent in investment treaty arbitration. Columbia J Transnatl Law 51:418 The International Energy Charter Consolidated Energy Charter Treaty, with Related Documents (2016) Trade Promotion Authority Act (2002), P.L. 107-210, Section 2102(b)(3)(g)(iv), 19 USC § 3802(b) (3)(G)(iv) Treaty Between the Government of the United States of America and the Government of the Republic of Rwanda Concerning the Encouragement and Reciprocal Protection of Investment (2008) Treaty on the Functioning of the European Union (2007) Troper M, Grzegorczyk C (1997) Precedent in France. In: MacCormick DN, Summers RS (eds) Interpreting precedents. Routledge, Abingdon, pp 103–140 UK Arbitration Act (1996) UNCITRAL Arbitration Rules UNCITRAL Model Law on International Commercial Arbitration 1985 With amendments as adopted in 2006 United Nations (1955) Report of the Committee on the Enforcement of International Arbitral Awards, 28 March 1955, UN Doc. E/2704 and E/AC.42/4/Rev.1 van den Berg AJ (1981) The New York Arbitration Convention of 1958. Kluwer Law International, Alphen aan den Rijn Van der Loo G (2016) CETA’s signature: 38 statements, a joint interpretative instrument and an uncertain future. CEPS, 31 October 2016 Van Harten G (2005) Private authority and transnational governance: the contours of the international system of investor protection. Rev Int Polit Econ 12(4):600 Van Harten G (2007) Investment treaty arbitration and public law. Oxford University Press, Oxford Van Harten G (2013) Sovereign choices and sovereign constraints: judicial restraint in investment treaty arbitration. Oxford University Press, Oxford Vienna Convention on the Law of Treaties (1969) Vestal AD (1964-1965) Rationale of preclusion. St. Louis Univ Law J 9:29 Waincymer J (2012) Procedure and evidence in international arbitration. Wolters Kluwer, Alphen aan den Rijn Wälde TW (2010) Equality of arms in investment arbitration: procedural challenges. In: Yannaca-­ Small K (ed) Arbitration under international investment agreements: a guide to the key issues. Oxford University Press, Oxford, pp 161–188 Wälde T (2006) Alternatives for obtaining greater consistency in investment arbitration: an appellate institution after the WTO, authoritative treaty arbitration or mandatory consolidation?

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Chapter 8

Investor-State Arbitration and European Union Law

8.1 Intra-EU Investor-State Arbitration For several years, EU institutions have stressed that intra-EU investor-State arbitration is incompatible with EU law: one of the main concerns regards the possibility that ad hoc tribunals might interpret and evaluate acts and omissions of EU authorities, posing a threat to the uniform application of EU law.

8.1.1 The European Commission as Amicus Curiae in Intra-EU Investor-State Arbitration Two types of investment treaties can be identified as a potential basis for intra-EU investor-State arbitration: on one side, international investment agreements (‘IIAs’) involving Central and Eastern European States (‘CEE’) and on the other side, the Energy Charter Treaty.1 The IIAs with the former Eastern bloc were initially agreements with non-EU countries, and became intra-EU BITs when, in 2004 and 2007, Bulgaria, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia integrated the fifth and sixth wave of EU enlargement.2 The European Commission recalled that intra-EU arbitration is  incompatible with EU law as it poses a threat to its correct and uniform application. The European Commission has often intervened as amicus curiae and filed briefs in pending intra-­EU arbitrations. This Section will discuss two of intra-EU arbitrations: Micula v Romania and Slovak Republic v Achmea BV.  Herrmann and Hoffmann (2021), p. 9.  European Commission (2012).

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In Micula v Romania,3 the Swedish investors contested that the revocation of certain incentives by the Romanian government harmed their investment. The European Commission filed an amicus curiae brief, claiming that the economic incentives initially offered by Romania were incompatible with EU legislation on State aid.4 Awarding compensation to the claimant, the European Commission continued, would amount to granting a new State aid, which would lead Romania to infringe EU law on State aid once again.5 The final award referred multiple times to the submission of the European Commission6 even though the arguments were rejected. Ultimately, the award was in favour of the investor.7 In Achmea v Slovak Republic, the respondent proposed that the European Commission be invited to participate as amicus curiae in the intra-EU jurisdictional phase of the arbitration proceeding.8 The tribunal asked for a comment from the European Commission and the Netherlands government (the home State of the investor) on the issue of jurisdiction.9 The European Commission responded by explaining its views on the intra-EU jurisdictional objection.10 In its submission, the European Commission drew a distinction between extra-EU Bilateral Investment Treaties (‘BITs’) and intra-EU BITs,11 addressed the discrimination issues with intra-EU BITs,12 analysed the relevant competing judicial and arbitral mechanisms,13 the appropriateness to terminate the Netherlands-Slovakia BIT,14 and the applicability of Article 30(3) Vienna Convention on the Law of Treaties (‘VCLT’), which renders some BIT clauses inapplicable.15 It suggested that the arbitration be

 Ioan Micula, Viorel Micula and others v Romania (I), ICSID Case No. ARB/05/20.  See Arts. 107, 108 and 109 of the Treaty on the Functioning of the European Union (TFEU). 5  See the procedural history of the case, as detailed in the Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38,517 (2014/C) (ex 2014/NN) implemented by Romania— Arbitral award Micula v Romania of 11 December 2013. 6  Micula (and others) v Romania (ICSID Case No. ARB05/20), Final Award 11 December 2013. 7  See also Sect. 8.1.7, European Commission v European Food SA and Others, Case C-638/19 P. 8  Achmea v The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, paras. 26, 151. 9  Achmea v The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, para. 30. 10  Achmea v The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, paras. 37, 175–96. 11  Achmea v The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, paras. 176–182. 12  Achmea v The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, paras. 183–184. 13  Achmea v The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, 26 October 2010, paras. 185–186. 14  Achmea v The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, para. 187. 15  Achmea v The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, paras. 188–193. 3 4

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suspended until the Court of Justice of the EU clears the doubts on EU law issues in the then pending infringement proceedings.16 The second type of intra-EU investment agreement concerns the Energy Charter Treaty (‘ECT’). In 1994, the ECT was concluded by the EU, its Member States, and 23 third States with the aim to promote international cooperation in the energy sector. After a number of years in which governments have granted subsidies for the production of energy through renewable sources, such subsidies were removed or reduced. This triggered several investment arbitration cases, where investors were residents of one EU Member State, and filed a request for arbitration against the Member State where they had developed their investment, seeking compensation for the alleged damages under the ECT.17 The European Commission requested authorisation to participate in investor-­ State arbitrations as amicus curiae in a number of cases.18 Where the European Commission was authorised to file an amicus curiae brief, depending on the applicable rules and on the position of the disputing parties, different scenarios took place: (i) the European Commission received a page-limit for its submission, such as in Novenergia v Spain; (ii) it was granted or denied a copy of the parties’ written submissions, as it happened respectively in Electrabel v Hungary and AES v Hungary; and (iii) its request to participate in the hearing was rejected, as in Tallin v Estonia.19 Some scholars highlighted that European Commission’s amicus curiae submissions tend to be more complex than other amicus curiae briefs, and that they come close to intervention, a different form of third party participation. Yet, under the applicable arbitration rules, intervention might not be available.20 The arbitration rules of the main arbitral institutions clarify what aspects distinguish a third-party intervention from an amicus curiae brief. Based on the Singapore International Arbitration Centre (‘SIAC’) Investment Arbitration Rules 2017, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) Rules 2017, the International Centre for Settlement of Investment Disputes (‘ICSID’) Arbitration Rules 2006, the China International Economic and Trade Arbitration Commission  Achmea v The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, para. 293. 17  Jagusch and Sullivan (2011). 18  Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v Kingdom of Spain, SCC Case No. 2015/063, Foresight Luxembourg Solar 1 S.À.R.L., et al. v Kingdom of Spain, SCC Case No. 2015/150, BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v Kingdom of Spain, ICSID Case No. ARB/15/16, Stadtwerke München GmbH and others v Kingdom of Spain, ICSID Case No. ARB/15/1, OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v Kingdom of Spain, ICSID Case No. ARB/15/36, Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v Kingdom of Spain, ICSID Case No. ARB/15/42, 9REN Holding S.a.r.l v Kingdom of Spain, ICSID Case No. ARB/15/15, Cube Infrastructure Fund SICAV and others v Kingdom of Spain, ICSID Case No. ARB/15/20. 19  United Utilities (Tallinn) B.V. and AS Tallinna Vesi Claimants v Republic of Estonia Respondent, ICSID Case No. ARB/14/24. 20  Gerlich (2017), p. 255. 16

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(‘CIETAC’) International Investment Arbitration Rules 2017, and the Permanent Court of Arbitration (‘PCA’) Arbitration Rules 2012, there are several elements that third parties need to fulfil in order to be able to intervene in an investment arbitration case. They include the suitability of the subject matter, the amicus curiae’s ability to bring unique knowledge, and the holding of a significant interest in the outcome of the case. Concerning the appropriateness of the subject matter, for the European Commission to participate as amicus curiae the dispute must have a public law dimension arising from a potential violation of EU law.21 Concerning the amicus curiae’s ability to bring unique knowledge, the European Commission, as guardian of the Treaties, is responsible for monitoring whether EU laws are applied correctly and on time. It follows that it holds an ideal position to illustrate the specificities of EU law. Concerning the amicus curiae’s specific interest in the case, it is necessary to consider to what extent the outcome of the arbitration may affect the EU.22 On the other side, it should be reminded that pursuant to Article 6 ECT the EU’s interests are safeguarded by the respondent state in cooperation with the European Commission: it follows that if the Member State does not cooperate with the EU, it might leave the latter’s interests unprotected.23 This Section shows that the European Commission constantly endeavoured to protect the interests of the EU and its legal order by applying to intervene as amicus curiae in intra-EU investor-State arbitration, striving for the uniform and correct application of EU law. The different scenarios descending from the applicable IIA, the applicable law and arbitration rules, and the position of the disputing parties have led arbitral tribunals to make different decisions concerning the admissibility of the intervention of the European Commission as amicus curiae.

8.1.2  Slovak Republic v Achmea BV, Case C-284/16 On 6 March 2018, the Court of Justice of the EU issued a landmark decision in Slovak Republic v Achmea BV,24 a dispute between the Dutch insurer Achmea B.V. (‘Achmea’), previously known as Eureko B.V., and Slovakia. The dispute originated in 2006, when Slovakia overturned the liberalisation of the health insurance market, thus preventing Achmea from distributing its profits generated in the

 Sanches Afonso (2019), pp. 242–243.  See, for example, Alicia Grace and others v Mexico, ICSID Case No UNCT/ 18/ 4, Procedural Order No 4, 24 June 2019, para. 52. 23  Sanches Afonso (2019), p. 243. 24  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018. 21 22

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Slovakian market from its health insurance activities.25 In 2008, Achmea filed a request for arbitration against Slovakia.26 The ad hoc tribunal constituted pursuant to the UNCITRAL Rules issued its award on 7 December 2012, finding that the respondent had breached its obligations under the Netherlands-Slovakia BIT, and ordered to pay EUR 22.1 million in damages to the investor.27 Slovakia launched setting-aside proceedings before the German courts: it challenged the arbitral award claiming that the tribunal lacked jurisdiction based on the incompatibility of Article 8 of the Netherlands-Slovakia BIT with Articles 18, 267, and 344 TFEU.28 The Higher Regional Court of Frankfurt, competent for the setting aside proceedings, rejected Slovakia’s arguments, and found that the BIT was not incompatible with EU law.29 On appeal, the German Federal Court of Justice30 made a preliminary reference to the Court of Justice of the EU pursuant to Article 267 TFEU. It is important to recall that the preliminary reference submitted by national courts defines the legal questions the Court of Justice of the EU has to answer,31 and defines the scope of the EU judgment. In this case, the German Federal Court of Justice specifically focused on the ISDS clause.32 The Court of Justice of the EU was asked whether Articles 344 and 267 TFEU preclude a clause providing for ISDS, such as the one in the main proceedings.33 The core of the discussion centred on the existence of a valid offer to arbitrate.34 The Court of Justice of the EU, when invested of the preliminary question, circumscribed the scope of its analysis by referring to ‘a provision in an international agreement concluded between Member States, such Article 8 of the BIT, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the

 Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 8. 26  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 9. See also Achmea B.V. (formerly known as “Eureko B.V.”) v The Slovak Republic, UNCITRAL, PCA Case No. 2008-13, Final Award, 7 December 2012, para. 12. 27  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 12. 28  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 14. 29  Oberlandesgericht Frankfurt, Decision of 18 December 2014 – Case 26 Sch 3/13. 30  Bundesgerichtshof, Decision of 3 March 2016 – Case I ZB 2/15. 31  In contrast to the Achmea judgment, Opinion 1/17 also concerned the compatibility of substantial investment protection standards with EU law. 32  Lavranos and Singla (2018), p. 777. 33  See Order for reference of the BGH, 3 March 2016, I ZB 2/15. 34  In this sense, the tribunal in Vattenfall v Germany (II) analysed the potential relevance of the Achmea judgment in the context of its jurisdiction. See ICSID, Vattenfall AB and others v Federal Republic of Germany, Decision on the Achmea issue, 31 August 2018, ICSID Case No. ARB/12/12, para. 139. 25

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latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.’35 The judgment in Slovak Republic v Achmea BV makes recurrent references to investors from one Member State and investments in the territory of another Member States, recalling that the purpose of the judgment is to clarify the relationship between investment arbitration and EU law in an intra-EU setting.36 The Court of Justice of the EU established that whether an ISDS clause included in an intra-EU investment treaty is incompatible with EU law depends on ‘all the characteristics of the arbitral tribunal […] set out in paragraphs 39 to 55 [of the judgment]’.37 These features are analysed by the Court: (i) the arbitral tribunal’s capacity to take account of EU law; (ii) the nature of the dispute resolution mechanism of investment arbitration, outside of the judicial system of the EU; and (iii) the limited judicial review of the arbitral award.38 The Court of Justice of the EU found that the arbitral tribunal might be asked to apply or interpret EU law on a dual basis.39 The Court refers to provisions concerning the fundamental freedoms, including free movement of capital and freedom of establishment,40 suggesting that EU law could be pertinent, and pursuant to Article 31(3)(c) of the Vienna Convention on the Law of Treaties (‘VCLT’) it should be considered a relevant rule of international law applicable in the relations between the parties.41 This conclusion is consistent with arbitral case law, which considers that EU law stemming from the EU Treaties constitutes international law.42 The Court of Justice of the EU noted that, in order to ensure consistency and uniformity in the interpretation of EU law, adjudicatory bodies established in Member States need to form an integral part of the judicial system of the EU. In this  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 31. 36  This corresponds to the Courts findings in Opinion 1/17, at paras. 127, 129, where it is recalled that the Achmea judgment is based on the principle of mutual trust and therefore not transferable to an extra-EU context. Opinion 1/17 of the Court (Full Court), 30 April 2019. See also Segoin (2019), p. 238. 37  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 56. 38  Landesbank Baden-Württemberg et al. v Kingdom of Spain, ICSID Case No. ARB/15/45, Decision on the “Intra-EU” Jurisdictional Objection, 25 February 2019, para. 138;  Landesbank BadenWürttemberg et al. v Kingdom of Spain, ICSID Case No. Arb/15/45, Decision on the Respondent’s Application for Reconsideration of the ‘Intra-EU’ Jurisdictional Decisions, 22 February 2023; Lemaire (2018), p. 434. 39  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 42. 40  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 42. 41  Particularly relevant in cases where the host State acceded to the EU after concluding the applicable BIT, EU treaties are considered as successive treaties relating to the same subject-matter in the sense of Art. 30 VCLT. See Glinski (2018), pp. 47, 60. 42  See Vattenfall AB and others v Federal Republic of Germany, Decision on the Achmea issue, 31 August 2018, ICSID Case No. ARB/12/12, paras. 147–150. 35

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way, ‘[their] decisions are subject to mechanisms capable of ensuring the full effectiveness of the rules of the EU’.43 The Grand Chamber established that the arbitral tribunal in Achmea B.V. v The Slovak Republic, UNCITRAL, PCA Case No. 2008-13 is not part of the judicial system of Slovakia or the Netherlands44 and that it cannot be considered as a tribunal or court of a Member State within the meaning of Article 267 TFEU.45 The Court of Justice of the EU identified the exceptional nature of the ISDS mechanism: Slovak Republic v Achmea BV therefore concerns all arbitral tribunals established by an intra-EU investment agreement. The Court of Justice of the EU further elaborated: one of the major reasons for the existence of Art. 8 of the BIT is in fact its independence and disconnectedness from the judicial system of the host State.46 The Grand Chamber affirmed that the arbitral tribunal’s power to determine its own procedure and seat, as well as the finality of the awards were incompatible with EU law. In particular, the Court of Justice of the EU found that judicial review of the arbitration award rendered pursuant to Article 8 of the Netherlands-Slovakia BIT was not sufficient to ensure the effectiveness of EU law and could therefore hinder the principle of autonomy.47 Pursuant to the UNCITRAL Arbitration Rules, the tribunal has the power to determine its own seat, and the ‘law applicable to the procedure governing judicial review of the validity of the award (…)’.48 The arbitral tribunal’s power in the PCA arbitration case between Achmea and the Slovak Republic to determine its own procedure and seat under Art. 8(5) of the applicable BIT in combination with Article 18 (1) UNCITRAL rules was a central element for the Court of Justice of the EU when it established that judicial review of the award could not ensure the full effectiveness of EU law. Following the publication of the Achmea judgment on 6 March 2018, numerous respondent States in intra-EU arbitrations have raised Achmea-based jurisdictional objections. In several cases, arbitral tribunals were constituted under the ECT, and had to decide whether the Achmea judgment was relevant for determining their jurisdiction in an intra-EU application of the ECT. Although these arbitral tribunals had different arguments and applied diverse reasoning when assessing their own

 Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 43. 44  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 45. 45  Slovak Republic v Achmea BV, Case C-284/166, Judgment of the Court (Grand Chamber), 6 March 2018, para. 43. 46  Soloch (2019), p. 13. See also Bonnitcha et al. (2017), p. 86. 47  Slovak Republic v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 59. 48  Slovak Republic v Achmea BV, Case C-284/166, Judgment of the Court (Grand Chamber), 6 March 2018, para. 51. Art. 18 (1) UNCITRAL Arbitration Rules stipulates that ‘if the parties have not previously agreed on the place of arbitration, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case’. 43

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jurisdiction, they have all rejected the Achmea-based objection to jurisdiction.49 Many based their conclusion on the fact that Achmea concerned an intra-EU BIT, whereas the judgment was silent on the applicability of its outcome to the ECT.50 In other arbitral cases, tribunals did not find that the reasoning of the Court of Justice of the EU in Achmea could be transferred to the ECT for two main reasons: (i) the ECT is a Multilateral Investment Treaty to which third countries are parties, and (ii) the EU itself is a party to the ECT. Similarly to earlier cases, the arbitral tribunals in Vattenfall, Rockhopper, and Eskosol established that EU law is a special regime of international law, which is found outside of the scope of ‘applicable rules and principles of international law’ in the sense of Article 26(6) ECT.51 In sum, the Court of Justice of the EU clarified that intra-EU investor-State arbitration is not compatible with fundamental principles of EU law. It remains unclear how, under the ECT, the jurisdiction of disputes opposing a host Member State and an investor established in another Member States will be addressed. In the aftermath of Achmea, the European Commission issued a Communication to the European Parliament and the Council on the protection of intra-EU investments, in which it explained that the substantive rules of intra-EU BITs became a parallel treaty system overlapping with single market rules, thereby preventing the full application of EU law. The Communication serves as a reminder that the EU legal system offers adequate and effective protection for cross-border investors in the single market.52  See Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, Award, 16 May 2018, ICSID Case No. ARB/14/1; UP and C.D Holding Internationale v Hungary, Award, 9 October 2018, ICSID Case No. ARB/13/35; Greentech Energy Systems A/S, et al. v Italian Republic, Award, 23 December 2018, SCC Case No. V 2015/095; CEF Energia BV v Italian Republic, Award, 16 January 2019, SCC Case No. 158/2015; 9REN Holding S.a.r.l. v Kingdom of Spain, Award, 31 May 2019 ICSID Case No. ARB/15/15; Vattenfall AB and others v Federal Republic of Germany, Decision on the Achmea issue, 31 August 2018, ICSID Case No. ARB/12/12; Eskosol S.p.A. in liquidazione v Italian Republic, Decision on Termination Request and Intra-EU Opinion, 7 May 2019, ICSID Case No. ARB/15/50. 50  Vattenfall AB and others v Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue, 31 August 2018, para. 163; Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award, 16 May 2018, para. 682; Eskosol S.p.A. in liquidazione v Italian Republic, ICSID Case No. ARB/15/50, Decision on Termination Request and Intra-EU Opinion, 7 May 2019, paras. 167–168. 51  Vattenfall AB and others v Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue, 31 August 2018, para. 133; Eskosol S.p.A. in liquidazione v Italian Republic, ICSID Case No. ARB/15/50,  Decision on Termination Request and Intra-EU Opinion, 7 May 2019, paras. 115, 174; Rockhopper Italia S.p.A., Rockhopper Mediterranean Ltd, and Rockhopper Exploration Plc v Italian Republic, ICSID Case No. ARB/17/14,  Decision on the Intra-EU Jurisdictional Objection, 26 June 2019, para. 174. See also Greentech Energy Systems A/S, et al. v Italian Republic, SCC Case No. V 2015/095,  Award, 23 December 2018, para. 397; Eiser Infrastructure Limited and Energía Solar Luxembourg S.à.r.l. v Kingdom of Spain, ICSID Case No. ARB/13/36, Award, 4 May 2017, paras. 197–198. 52  European Commission, Communication from the Commission to the European Parliament and the Council, Protection of intra-EU investment, Brussels, 19.7.2018 COM(2018) 547 final. 49

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It details the protections afforded by EU law to intra-EU investors, such as the internal market freedoms, protection against unjustified restrictions, compliance with fundamental rights, and EU competition rules. It recalls the remedies available to intra-EU investors before national and EU courts, the independence, quality, and efficiency requirements for national judiciary, and the European Commission’s role as a guardian of the EU Treaties, and its active role in increasing the effectiveness of the enforcement system in the EU. The Communication aims to provide guidance on existing EU rules for the treatment of cross-border EU investments, increase awareness and confidence in the EU’s investment environment.

8.1.3 The Member States’ Declarations of 15 and 16 January 2019 To recapitulate, the Achmea saga starts in 2008, when Achmea B.V., a Dutch private company previously known as Eureko B.V., filed a request for arbitration against the Slovak Republic. In 2012, the final award was rendered. In 2016, during setting-­ aside proceedings, the German Federal Court of Justice made a preliminary reference to the Court of Justice of the EU to assess whether Article 8 of the Netherlands-Slovak Republic BIT was compatible with EU law. 53 In March 2018, the Court of Justice of the EU concluded that a clause such as Article 8 was not compatible with EU law,54 based on the inconsistency with the autonomy of EU law, the constitutional structure of the EU and the very nature of EU law,55 and because it calls into question the principles of mutual trust and sincere cooperation enshrined in EU law.56 On the basis of the Court of Justice of the EU judgment in Achmea, on 31 October 2018 the German Federal Court of Justice set aside the award in Achmea B.V. v The Slovak Republic.57 In June 2018, the Svea Court of Appeal stayed the enforcement of the award of 28 September 2017 in Republic of Poland v PL Holdings.58 The Svea Court of Appeal concluded that there was sufficient reason to order the stay. Instead, in Vattenfall et al. v Germany (II), the arbitral tribunal concluded that the State parties to the ECT did not intend to carve-out intra-EU disputes from the

 Slowakische Republik (Slovak Republic) v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018. 54  Slowakische Republik (Slovak Republic) v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018. 55  Slowakische Republik (Slovak Republic) v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 33. 56  Slowakische Republik (Slovak Republic) v Achmea BV, Case C-284/16, Judgment of the Court (Grand Chamber), 6 March 2018, para. 58. 57  German Federal Court of Justice, Decision, Case I ZB 2/15, 31 October 2018. 58  Republic of Poland v PL Holdings, Svea Court of Appeal, Case No. T 8538-17, 13 June 2018. 53

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dispute resolution mechanism in the ECT and that EU law was not superior to international law.59 This situation led EU Member States to issue three declarations on the legal consequences of the Achmea judgment and on investment protection: (i) the 15 January 2019 Declaration by 22 Member States, (ii) the 16 January 2019 Declaration by five Member States; and (iii) the 16 January 2019 Declaration by Hungary. In Landesbank Baden-Württemberg and others (‘LBBW’) v Spain, the respondent based its position on Article 31(3)(c) VCLT, which provides that in the interpretation of the treaties any relevant rules of international law applicable in the relations between the parties must be considered (emphasis added).60 From this premise, Spain argued that the declaration signed by 22 Member States was a subsequent agreement pursuant Article 31(3)(a) VCLT to exclude intra-EU disputes from the scope of Article 26 ECT. The tribunal rejected Spain’s argument. According to the tribunal, a declaration issued by certain States party to the ECT does not have any legal effect on the commitments of those States towards other Members of the ECT, nor on the obligations of those States between each other.61 The tribunal gave priority to the ECT as an instrument of international law over the Member States’ Declaration dated 15 January 2019.62 Concerning ICSID arbitrations, tribunals have declined that Achmea and the Member States’ Declaration of 15 January 2019 had any effect on their jurisdiction, rejecting the jurisdictional objection or refusing to reopen the proceedings. Examples thereof are the following: Masdar Solar & Wind Cooperatief v Spain,63 Eiser and Energia Solar v Spain,64 Antin v Spain,65 Vattenfall v Germany,66 Antaris and Göde v Czech Republic,67 Athena Investments v Spain,68 and RWE Innogy v Kingdom of Spain.69

 Vattenfall AB and others v Federal Republic of Germany, ICSID Case No. ARB/12/12.  Vienna Convention on the Law of Treaties, 1969, Article 31(3)(c). 61  Landesbank Baden-Württemberg Et Al. v Kingdom Of Spain, ICSID Case No. ARB/15/45, Decision on the “Intra-EU” Jurisdictional Objection, para. 192. 62  Landesbank Baden-Württemberg Et Al. v Kingdom Of Spain, ICSID Case No. ARB/15/45, Decision on the “Intra-Eu” Jurisdictional Objection, para. 194. 63  Masdar Solar & Wind Cooperatief U.A. v the Kingdom of Spain, ICSID Case No Arb/14/1. 64  Eiser Infrastructure Limited and Energia Solar Luxembourg S.à.r.l. v the Kingdom of Spain, ICSID Case No. ARB/13/36. 65  Antin Energia Termosolar B.V. v the Kingdom of Spain, ICSID Case No. ARB/13/31. 66  Vattenfall AB and others v Federal Republic of Germany, ICSID Case No. ARB/12/12. 67  Antaris Solar GmbH and Dr. Michael Göde v Czech Republic, PCA Case No. 2014-01. 68  Athena Investments A/S v the Kingdom of Spain, SCC Case No. 150/2015. 69  RWE Innogy GmbH and another v Kingdom of Spain, ICSID Case No. ARB/14/34. 59 60

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8.1.3.1 The 15 January 2019 Declaration by 22 Member States The first declaration, dated 15 January 2019, was signed by all EU Member States except for Finland, Hungary, Luxembourg, Malta, Slovenia, and Sweden.70 It provides that, pursuant to their obligations under Union law, Member States are bound to draw all necessary consequences from the Achmea judgment.71 The signatory countries declared that the agreement to arbitrate included in intra-EU BITs is contrary to EU law, that intra-EU investment arbitration tribunals have no jurisdiction, and that the sunset provisions do not produce effects.72 The 15 January 2019 Declaration lists a number of obligations that the Member States agree to undertake. The most important are the following: –– The signatory Member States agreed to inform investment arbitration tribunals of pending cases of the legal consequences of Achmea; –– Home States of investors who have brought intra-EU arbitration agreed to cooperate with respondents Member States to inform the tribunals concerned of the consequences of Achmea; –– By the 15 January 2019 Declaration, the signatories States inform investors that new intra-EU investment arbitration should not be initiated; –– Member States will take steps under national law so that state-controlled entities withdraw pending investment cases; –– Member States will terminate all BITs concluded between them by a multilateral treaty or bilateral ones; –– Member States will ensure effective legal protection against State measures that are the object of pending intra-EU investment arbitration proceedings; –– Member States will not challenge settlements and arbitral awards in intra-EU cases that can no longer be annulled or set aside and that were voluntarily complied with or definitely enforced before Achmea; –– The Member States will enter into a multilateral treaty to terminate intra-EU BITs by 6 December 2019; and –– The Member States will discuss together with the European Commission whether additional steps are necessary in relation to an intra-EU application of the Energy Charter Treaty.

 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, Council of the European Union, Draft Minutes, Council of the European Union (Foreign Affairs), 15 July 2019. 71  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, Council of the European Union, Draft Minutes, Council of the European Union (Foreign Affairs), 15 July 2019. 72  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, Council of the European Union, Draft Minutes, Council of the European Union (Foreign Affairs), 15 July 2019. 70

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8.1.3.2 The 16 January 2019 Declaration by Five Member States On 16 January 2019, five Member States signed a declaration: Finland, Luxembourg, Malta, Slovenia, and Sweden.73 Many provisions are similar to the 15 January 2019 Declaration. However, with regard to intra-EU investment arbitration under the ECT, the 16 January 2019 Declaration provides that, in the absence of a specific judgment on this matter, it would be inappropriate to express views as regards the compatibility of the intra EU application of the Energy Charter Treaty with EU law.74 The 16 January 2019 Declaration by five Member States observed that several investment arbitration tribunals decided that Achmea does not have consequences on their jurisdiction, noted that Novenergia v Spain was pending at the time,75 and recalled the importance of allowing due process.76 8.1.3.3 The 16 January 2019 Declaration by Hungary The third Declaration was signed by Hungary (the ‘Hungary Declaration’).77 It is different from the previously discussed Declarations as it excludes the commitment on pending investor-State arbitration cases brought by Member State-controlled entities against other Member States, and affirms that Achmea only concerns intra­EU BITs.78 Unlike the 16 January 2019 Declaration by five Member States, the Hungary Declaration does not refer to Novenergia v Spain, but reflects that, as Achmea does not address investor-State arbitration under the ECT, it is inappropriate for a Member State to express its view as regards the compatibility with EU law of the intra-EU application of the ECT.79 The Hungary Declaration doubtlessly took a stricter and more general perspective compared to the standing taken by other Member States in the 16 January 2019 Declaration by five Member States.

 Declaration Of The Representatives Of The Governments Of The Member States, Of 16 January On The Enforcement Of The Judgment Of The Court Of Justice In Achmea And On Investment Protection In The European Union. 74  Declaration Of The Representatives Of The Governments Of The Member States, Of 16 January On The Enforcement Of The Judgment Of The Court Of Justice In Achmea And On Investment Protection In The European Union. 75  Novenergia II  - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v The Kingdom of Spain, SCC Case No. 2015/063. 76  Novenergia II  - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v The Kingdom of Spain, SCC Case No. 2015/063. 77  The Hungary Declaration was dated 16 January 2019 as well. 78  Statement by Hungary, Council of the European Union, Draft Minutes, Council of the European Union (Foreign Affairs), 15 July 2019. 79  Statement by Hungary, Council of the European Union, Draft Minutes, Council of the European Union (Foreign Affairs), 15 July 2019. 73

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8.1.4 The Termination Agreement On 24 October 2019, the European Commission announced that various developments stemming from Achmea led to the launch of consultations between Member States for reaching a plurilateral agreement for the termination of about 190 intra­EU BITs. On 5 May 2020, twenty-three Member States — all but Austria, Sweden, Ireland, Finland, and the United Kingdom, signed the ‘Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union’ (the ‘Termination Agreement’). Ireland has no intra-BIT in place. Whereas Austria and Sweden have agreed to bilaterally terminate their BITs, the Commission has sent letters of formal notice to Finland and the United Kingdom for failing to effectively remove intra-EU BITs from their legal orders, urging them to terminate their BITs with other EU Member States. The Termination Agreement enters into force for each Member State Party following their ratification procedures, and does not cover intra-EU cases based on Article 26 of the Energy Charter Treaty (ECT). The Termination Agreement identifies three different types of proceedings under an intra-EU BIT: ‘concluded’, ‘pending’, and ‘new’, and governs them in different ways. ‘Concluded’ arbitration proceedings are defined as those whose final award was rendered before 6 March 2018, in two situations: (i) if the award was issued before that date, and no post-award proceedings, whether to challenge the award or to enforce it, were pending on that date, or (ii) the award was annulled or set aside before the Termination Agreement enters into force.80 Awards are most frequently challenged in the form of a setting-aside proceeding in the domestic court of the seat of the arbitration. Challenges to ICSID arbitration award are instead heard by the Annulment Committee, an ad-hoc body.81 The enforcement of awards can take place in the seat of arbitration or in any other country where the investor has assets. Typically it is governed by the New York Convention.82 Settlement agreements of cases initiated before 6 March 2018 will not be affected by the Termination Agreement.83 It follows that payments already received by investors will not need to be reimbursed. Some experts argued that, by not affecting enforced awards and settled cases, the Termination Agreement has a reduced impact compared to the intent of the Declarations of 15 and 16 January 2019.84  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Official Journal of the European Union L 169/1. 29.5.2020. 81  Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 17 U.S.T. 1270, T.I.A.A. 6090, 575 U.N.T.S. 159, Article 52 (done at Washington on March 18, 1965, entered into force on October 14, 1966). 82  The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517, T.I.A.S. 6997, 330 U.N.T.S 3, Articles III-VI (done at New York in June 10, 1958, entered into force on June 7, 1959, entered into force for the United States on December 29, 1970). 83  Termination Agreement, Arts. 6(1) and (2). 84  Urquhart and Sullivan (2020). 80

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The Termination Agreement also governs arbitration awards whose setting aside procedure or challenge to enforcement procedure are currently pending. The intra­EU BIT party is required to request the court to annul or set-aside the award, or refrain from recognising or enforcing it.85 ‘Pending arbitration proceedings’ are defined as all arbitrations commenced before 6 March 2018 and that are not concluded, regardless of the stage of the proceeding.86 The Termination Agreement imposes obligations concerning pending arbitration proceedings to the two EU Member States that are parties to the applicable intra-EU BIT. Regarding pending cases, Member States must inform the tribunal before which the case is pending that intra-EU arbitration clauses are contrary to EU Treaties, issuing a statement whose text is included in Annex C.87 The statement specifies that intra-EU BITs ‘cannot serve as a legal basis for Arbitration Proceedings’.88 The Termination Agreement also provides for a structured dialogue for pending arbitration proceedings, allowing the investor and the host State to enter into settlement procedures.89 Pursuant to Article 9(3) of the Termination Agreement, if the Court of Justice of the EU or a national court found that the contested measure violates EU law in a judgment that has become final, the disputing parties shall enter into settlement procedures. Article 9(7) provides that the settlement procedure is coordinated by an impartial facilitator, selected by common accord by the investor and the Contracting Party acting as respondent. If within one month from the start of the settlement procedure an agreement on the selection of the facilitator has not been reached, one of the parties can ask the Director General of the Legal Service of the European Commission to appoint a former Member of the Court of Justice of the EU, who shall designate the facilitator after having consulted with the parties, according to Article 9(8) of the Termination Agreement. ‘New arbitration proceedings’ are defined as those initiated on or after 6 March 2018.90 The Termination Agreement provides that arbitration clauses included in intra-EU BITs shall not serve as the legal basis for the arbitration proceedings.91 The

 Termination Agreement art. 7(2).  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Art. 1. 87  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Art. 7. 88  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Annex C. 89  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Arts. 8–10. 90  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Art. 1. 91  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Art. 5. 85 86

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Member States need to issue the statement in Annex C to the tribunal,92 and, if they are party to judicial proceedings regarding the award, they shall request the competent national court to set the arbitral award aside, annul it or to refrain from recognising and enforcing it. However, no transitional measures are applicable to new arbitrations: they apply only to pending arbitration cases.93 Sunset clauses extend the protection of investments made prior to the date of termination of an investment treaty for a further period of time. They mitigate the risk that investors take when deciding to invest abroad in a large-scale project that takes years to generate returns. These investments can include, for instance, construction projects. Typically, sunset clauses involve long timeframe: the protection granted by the sunset clause often lasts ten years.94 The Termination Agreement, however, provides for the termination of sunset clauses in intra-EU BITs, and declares that they will not produce any legal effect.95 The Termination Agreement entered into force on 29 August 2020.96

8.1.5  République de Moldavie v Komstroy LLC, Case C-741/19 In République de Moldavie v Komstroy LLC, the Court of Justice of the EU (Grand Chamber) established that the acquisition of a claim arising out of a contract for the supply of electricity does not constitute an ‘investment’ within the meaning of the ECT, and that the intra-EU application of the ECT’s ISDS mechanism is incompatible with EU law. 8.1.5.1 The Facts of the Case In 1999 and 2000, Ukrenergo, a Ukrainian electricity producer, concluded contracts with Energoalians, a Ukrainian electricity distributor, who then resold the electricity to Derimen Properties Limited (‘Derimen’), a company established in the British Virgin Islands, who, in turn, resold the electricity to Moldtranselectro, a Moldovan public owned company.97  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Art. 7. 93  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, Art. 8. 94  U.S. Model BIT 2012 Article 22(3). 95  Termination Agreement, Articles 2 and 3. 96  Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European Union. 97  Conclusions of Advocate General M. Maciej Szpunar, 3 March 2021, Case C-741/19, République de Moldavie v Komstroy LLC, successor to the company Energoalians, para. 10. 92

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Moldtranselectro failed to honour its debt towards Derimen. On 30 May 2000, Derimen sold to Energoalians its credit from Moldtranselectro.98 Moldtranselectro partially reimbursed Energoalians by transferring several credits that were owed to Moldtranselectro.99 In an attempt to recover the remaining credit from Moldtranselectro, Energoalians filed a request for arbitration against the Republic of Moldova under Article 26 ECT.100 On 13 October 2013, the arbitral tribunal found by majority that Moldova had breached the obligation to provide ‘stable, equitable, favourable and transparent conditions’ under Article 10(1) of the ECT and accord fair and equitable treatment to claimant’s investment,101 and ordered Moldova to pay damage compensation to Energoalians.102 8.1.5.2 The Procedure Moldova initiated setting-aside proceedings before the Paris Court of Appeal, arguing that there was a violation of public order under Article 1520 of the French Civil Procedure Code, based on the composition of the ad hoc arbitral tribunal.103 On 12 April 2016, the Paris Court of Appeal set aside the award based on the lack of competence of the arbitral tribunal.104 The Paris Court of Appeal considered that the dispute between Energoalians and Moldova pivoted on a credit transferred by Derimen to Energoalians on electricity sale. This could not be considered as an investment under the ECT, and could not be the basis of the competence of the arbitral tribunal. Komstroy, successor of Energoalians, challenged the Paris Court of Appeal decision before the French Cour de Cassation, which on 11 April 2018 annulled the decision and referred the case to the Paris Court of Appeal in a different composition.105 Before the Paris Court of Appeal (II), Moldova reiterated that the arbitral

 Conclusions of Advocate General M. Maciej Szpunar, 3 March 2021, Case C-741/19, République de Moldavie v Komstroy LLC, successor to the company Energoalians, paras. 12–13. 99  Conclusions of Advocate General M. Maciej Szpunar, 3 March 2021, Case C-741/19, République de Moldavie v Komstroy LLC, successor to the company Energoalians, para. 14. 100  Conclusions of Advocate General M. Maciej Szpunar, 3 March 2021, Case C-741/19, République de Moldavie v Komstroy LLC, successor to the company Energoalians, para. 15. 101  Energoalians TOB v Republic of Moldova, UNCITRAL, Award, 13 October 2013, para. 356. 102  Energoalians TOB v Republic of Moldova, UNCITRAL, Award, 13 October 2013, para. 436. 103  Conclusions of Advocate General M. Maciej Szpunar, 3 March 2021, Case C-741/19, République de Moldavie v Komstroy LLC, successor to the company Energoalians, para. 17. 104  Cour D’appel De Paris, Pôle 1 - Chambre 1 Arrêt Du 12 Avril 2016, Numéro d’inscription au répertoire général: 13/22531, République De Moldavie contre Société Komstroy venant aux droits de la société Energoalians. 105  Cour de cassation, chambre civile 1, N° de pourvoi: 16-16568, ECLI:FR: CCASS:2018:C100352, 11 April 2018. 98

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tribunal lacked jurisdiction because no investment was made under the meaning of the ECT. On 24 September 2019, the Paris Court of Appeal (II) stayed the proceedings and referred three questions to the Court of Justice of the EU for preliminary ruling: –– ‘Shall Article 1(6) ECT be interpreted as preventing a credit from an electricity sale contract, which implied no contribution from the investor in the Host State, from being considered as an ‘investment’ in the meaning of that Article? –– Shall Article 26(1) ECT be interpreted as establishing that an investment can be constituted by the acquisition by an investor of a Contracting Party of a credit originally held by an economic operator established in a country that is not a Contracting Party? –– Shall Article 26(1) ECT be interpreted as establishing that a credit held by an investor, arising out of an electricity sale contract where the electricity is delivered to the border of the Host State, can constitute an investment realized in a territory of another Contracting Party, in the absence of any economic activity exercised by the investor on the territory of the latter?’106 Even though this case involved a non-EU investor (Energoalians, established in Ukraine), and a non-EU host State (Republic of Moldova), the European Commission and a number of Member States invited the Court of Justice of the EU to rule whether intra-EU investor-State arbitration under the ECT was incompatible with EU law.107 8.1.5.3 The Judgment of the Court The Court of Justice of the EU decided that the ISDS mechanism provided for by the ECT is not applicable to intra-EU disputes, and that the acquisition of a claim arising from an electricity supply contract does not constitute an ‘investment’ in the meaning of Articles 1(6) and 26(1) of the ECT. The Court of Justice of the EU found that it had jurisdiction based on the EU’s interest in the uniform interpretation of the disputed provisions, and because the Paris Court of Appeal was competent to hear the action for annulment against the arbitral award whose seat of arbitration was, indeed, Paris. French law was the lex fori, and the Paris Court of Appeal was called to apply French law, with the obligation to ensure compliance with EU law according to Article 19 TFEU.108 The Court of Justice of the EU recognised that the dispute was an extra-EU dispute, concluded that this did not preclude its jurisdiction, and established that nowhere could it be inferred that Article 26(2)(c) ECT also applies to intra-EU

 Paris Court of Appeal (Chamber 1), 24 September 2019, No. 18/14721.  Conclusions of Advocate General M. Maciej Szpunar, 3 March 2021, Case C-741/19, République de Moldavie v Komstroy LLC, successor to the company Energoalians, para. 23–24. 108  République de Moldavie v Komstroy LLC, Case C-741/19, para. 34. 106 107

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disputes.109 The Court of Justice of the EU evoked the principle of autonomy of the EU legal order and the importance of a judicial system that ensures uniformity and consistency in the interpretation of EU law. The Court of Justice of the EU found that: (i) arbitral tribunals constituted under Article 26(6) ECT are required to interpret and apply EU law; (ii) these tribunals cannot be considered as a court or tribunal of a Member State within the meaning of Article 267 TFEU; and (iii) awards rendered pursuant to Article 26 ECT are not subject to review by a court of a Member State able of ensuring compliance with EU law and guaranteeing that questions on the interpretation of EU law can be submitted to the Court of Justice of the EU for a preliminary ruling. This decision fits into the broader endeavors for a reform of ISDS promoted by the European Union, and is consistent with the ECT modernisation and the MIC project proposed by the European Commission.

8.1.6  Republic of Poland v PL Holdings S.à.r.l., Case C 109/20 With its decision in Republic of Poland v PL Holdings S.à.r.l. dated 26 October 2021,110 the Court of Justice of the EU continues the line adopted in République de Moldavie v Komstroy LLC. 8.1.6.1 The Facts of the Case PL Holding is a company incorporated under the law of Luxemburg that held shares in two Polish banks. When in 2013 the two Polish banks merged, PL Holding became the 99.59% shareholder of the new bank resulting from the merger. Based on Directive 2013/36/EU,111 the Komisja Nadzoru Finansowego (Polish Financial Supervision Authority) ordered PL Holding to sell its shares and prohibited it from exercising its voting rights.

 République de Moldavie v Komstroy LLC, Case C-741/19, para. 41.  Republic of Poland v PL Holdings S.à.r.l., Case C-109/20. 111  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms. 109 110

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8.1.6.2 The Procedure PL Holding complied with the order received from the Polish Financial Supervision Authority, but then launched an arbitration case against Poland under the Belgium-­ Luxembourg Economic Union (‘BLEU’) — Poland BIT of 1987, claiming that its investment had been unlawfully expropriated. In 2017, the arbitral tribunal decided that it had jurisdiction to decide the dispute under public international law. In its final award, the arbitral tribunal found that the BLEU – Poland BIT of 1987 had been breached by the Polish measures, amounting to unlawful expropriation, and awarded damage compensation to the investor. In September 2017, Poland brought an action before the Svea Hovrätt (Svea Court of Appeal, Stockholm, Sweden), seeking to have the arbitral awards set aside. It claimed, inter alia, that the arbitration clause included in the BLEU—Poland BIT was invalid, pursuant to the Achmea judgment. The Svea Court of Appeal of Stockholm established that, following the Achmea judgment, the permanent offer to arbitrate made by Poland in the BLEU—Poland BIT should be considered as invalid. However, it concluded that the ad hoc arbitration agreement, which had been concluded separately between the investor and Poland, was valid. It found that the arbitral tribunal had jurisdiction and upheld the validity of the award. Poland challenged the judgment of the Svea Court of Appeal of Stockholm before the Swedish Supreme Court, which, in turn, referred to the Court of Justice of the EU a preliminary question, asking whether Articles 267 and 344 TFEU must be interpreted as precluding national law which allows a Member State to conclude an ad hoc arbitration agreement with an investor from another Member State, that makes it possible to continue arbitration proceedings initiated on the basis of an invalid arbitration clause contained in a BIT. 8.1.6.3 The Judgment of the Court The Court of Justice of the EU found that an ad hoc arbitration agreement such as the one de quo breaches EU law ‘by effect’, as it replicates the effects of an arbitration clause incompatible with EU law. The Court of Justice of the EU added that, based on the principles of primacy of EU law and sincere cooperation, following the Achmea judgment and the Agreement for the termination of Bilateral Investment Treaties between Member States of the European Union, Member States have the obligation to challenge the jurisdiction of an arbitral tribunal established on the grounds of an arbitration clause that is contrary to EU law.112 This decision does not leave room for national legislation allowing Member States to conclude an ad hoc arbitration agreement with an investor from another

112

 Republic of Poland v PL Holdings S.à.r.l., Case C-109/20, para. 52.

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Member State. Following this decision, some investors raised concerns claiming an uneven judicial protection across Member States. With the aim to address all concerns, in 2020 the European Commission launched a public consultation on an intra-EU investment protection and facilitation framework, seeking to strike a balance between investment protection and the Member States’ right to regulate in the public interest.

8.1.7  European Commission v European Food SA and Others, Case C-638/19 P On 25 January 2022, the Court of Justice of the EU set aside the judgment of the General Court in European Food and Others v Commission (T-624/15, T-694/15 and T-704/15), which annulled Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 implemented by Romania on the arbitral award Micula v Romania (ICSID Case No. ARB/05/20). In the arbitral award dated 11 December 2013, the tribunal found that, by repealing the tax incentives scheme, Romania had violated the legitimate expectations of the claimants in the arbitration, had failed to act transparently by failing to inform those applicants in a timely manner and had failed to ensure fair and equitable treatment of the investments under Article 2(3) of the Romania-Sweden BIT (2002). The arbitral tribunal ordered Romania to pay damage compensation to the claimants in the amount of approximately EUR 178 million. On 31 January 2014, the Commission informed the Romanian authorities that any implementation of the arbitral award would be constitute new State aid and would have to be notified to the Commission. On 20 February 2014, the Romanian authorities informed the Commission that they had paid part of that amount by offsetting it against taxes owed by European Food to the Romanian authorities. On 26 May 2014, the Commission adopted Decision C(2014) 3192 final, ordering that Romania suspend any action that might lead to the implementation of the award, as such action could constitute unlawful State aid, until the Commission had taken a decision on the compatibility of that State aid with the EU internal market. On 9 March 2015, the Romanian authorities transferred the outstanding balance due under the arbitral award and considered that award as having been fully implemented. On 30 March 2015, the Commission adopted Commission Decision (EU) 2015/1470, in which it provided that the payment of the compensation awarded by the award constituted State aid within the meaning of Article 107(1) TFEU, which is incompatible with the EU internal market. Pursuant to Article 2 of Commission Decision (EU) 2015/1470, Romania was required not to pay out any incompatible aid and to recover the aid that it had already paid, and any further aid paid after the date of Commission Decision (EU) 2015/1470.

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On 28 and 30 November 2015, the applicants brought an action pursuant to Article 263 TFEU for annulment of Commission Decision (EU) 2015/1470. The General Court annulled Commission Decision (EU) 2015/1470 in its entirety, finding that the Commission did not have competence to adopt Commission Decision (EU) 2015/1470 under Article 108 TFEU. On 25 January 2022, the Court of Justice of the EU set aside the judgment of the General Court, finding that the Commission is competent to adopt the decision at issue under Article 108 TFEU, since the entitlement to the State aid was granted by the arbitral award after Romania’s accession to the European Union. The Court of Justice of the EU also found that the General Court did not examine the merits of Commission Decision (EU) 2015/1470 and referred back to the General Court to give judgment on whether the compensation granted by the arbitral award satisfies the conditions laid down in Article 107(1) TFEU.

8.1.8 Impact on Investments The Court of Justice judgments in Slovak Republic v Achmea BV, République de Moldavie v Komstroy LLC, Republic of Poland v PL Holdings and the Micula saga established that ISDS provided for by intra-EU investment treaties or under the ECT is not compatible with EU law and is not applicable to intra-EU disputes, that intra­EU arbitration awards seated in a Member State on the basis of the ECT cannot be enforced by courts of EU Member States, and that Member States cannot agree to arbitrate with an EU investor. In response, investors who intended to rely on existing intra-EU BITs, or are looking to enforce intra-EU arbitral awards that pre-date Achmea, are planning their alternatives. They have acted on several levels: (i) They have re-structured their investments, and invested in an EU Member State through a subsidiary established in a non-EU country that has an investment agreement in force with an EU Member State; (ii) They have included an arbitration clause in the investment contract in order to have access to commercial arbitration; and (iii) They have tried to enforce an award rendered in an intra-EU arbitration case in a country outside the EU where the debtor has assets. In fact, over 50 arbitral tribunals in intra-EU investment arbitration considered Achmea not to be an impediment to their jurisdiction. The Termination Agreement, which entered into force on 29 August 2020, provides that arbitration clauses included in intra-EU BITs cannot serve as legal basis for the jurisdiction of the arbitral tribunal. In pending arbitration cases, Member States must declare so and, in judicial proceedings regarding the award, they must request the national court to set the arbitral award aside, annul it or to refrain from recognising and enforcing it.

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The Commission’s participation in intra-EU arbitration as amicus curiae or non-­ disputing party, the jurisprudence of the Court of Justice of the EU, the Member States’ Declarations of 15 and 16 January 2019, and the Termination Agreement proceed in the same direction and provide a consistent body of sources on the EU approach to intra-EU investment disputes.

8.2 Landmark Opinions of the Court of Justice of the European Union on ISDS 8.2.1 Opinion 2/15 In March 2010, the negotiations for an FTA between the EU and Singapore were launched. The sections on goods and services were completed in 2012, and the one on investment protection was completed in 2014.113 The EU—Singapore FTA (‘EUSFTA’) was aimed at replacing a number of BITs concluded between certain Member States and Singapore.114 However, when the EUSFTA was negotiated, the internal division of competences between the EU and its Member States lacked clarity. Some commentators investigated on the power to conclude investment agreements and reflected on who holds the competence to conclude them: whether it is the European Union alone, or the European Union acting together with the Member States in the so-called ‘mixed agreements’.115 The difference has an important impact, as the conclusion of ‘mixed agreements’ requires the ratification by the national parliaments of all Member States.116 This can cause delays in their entering into force and can, in principle, increase the risk of non-ratification. The applicable procedure is a matter of legal competence.117 Article 216(1) TFEU on the competence to conclude international agreements, based on Article 5(1) TEU on the principle of conferral provides that, where the Treaties so provide, the EU may conclude an agreement with one or more third countries or international organisations.118 The Common Commercial Policy (‘CCP’) is an exclusive competence of the EU under Article 207(1) TFEU and Article 3(1)(e) TFEU. However, the power of the EU to conclude ‘EU-only’ agreements is limited to the extent to which the content of the agreement is covered by the scope of Article

 EU-Singapore Free Trade Agreement.  Cremona (2018), pp. 231–259. 115  Hainbach (2018), p. 200. 116  Wessel (2008), p. 175. 117  Kleimann and Kübek (2016), pp. 13–46. 118  Article 216(1) TFEU. 113 114

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207(1) TFEU, whereas the post-Lisbon CCP has not been defined in the EU Treaties nor in the case-law. In its appraisal included in the request for an opinion, the European Commission argued that the EU has exclusive competence to sign and conclude the agreement with Singapore.119 It observed that: (i) all the provisions of the EU—Singapore agreement fall within the scope of the common commercial policy, with the sole exception of those concerning cross-border transport services and non-direct foreign investment, and that (ii) cross-border transport services fall within the European Union’s exclusive competence in the light of the rules of secondary EU law which are in force in that field.120 On the other hand, the Council, and all the Member States that have submitted observations contend that certain provisions of the EU-Singapore agreement do not fall within the exclusive competence of the European Union, the agreement having the characteristics of a ‘mixed agreement’.121 In order to find a solution to these differing positions, the European Commission asked the Court to answer the following questions: 1 . ‘Which provisions of the agreement fall within the Union’s exclusive competence? 2. Which provisions of the agreement fall within the Union’s shared competence? and 3. Is there any provision of the agreement that falls within the exclusive competence of the Member States?’122 On 16 May 2017, the Court of Justice of the EU found that the EUSFTA cannot, in its entirety, be concluded by the EU alone.123 Whereas certain EUSFTA chapters concerning trade in goods, services or antidumping measures were expressly covered by Article 207(1) TFEU, the four contentious areas of transport, investment protection, intellectual property and sustainable development had to be examined in detail by the Court of Justice. In particular, with regard to investment protection, the Court of Justice of the EU concluded that the EUSFTA’s ISDS mechanism is outside the scope of the CCP.124  Opinion 2/15 of the Court of Justice of the European Union (Full Court), Opinion pursuant to Article 218(11) TFEU [2017] ECLI:EU: C:2017:376, paras. 12–14. 120  Opinion 2/15 of the Court of Justice of the European Union (Full Court), Opinion pursuant to Article 218(11) TFEU [2017] ECLI:EU: C:2017:376, paras. 12–14. 121  Opinion 2/15 of the Court of Justice of the European Union (Full Court), Opinion pursuant to Article 218(11) TFEU [2017] ECLI:EU:spiepr Par234C:2017:376, para. 19. 122  Request for an opinion submitted by the European Commission pursuant to Art. 218(11) TFEU (Opinion 2/15) (2015/C 363/22), 3 Nov. 2015. 123  Opinion 2/15 of the Court of Justice of the European Union (Full Court), Opinion pursuant to Article 218(11) TFEU [2017] ECLI:EU: C:2017:376, para. 305. 124  Opinion 2/15 of the Court of Justice of the European Union (Full Court), Opinion pursuant to Article 218(11) TFEU [2017] ECLI:EU: C:2017:376, para. 305. 119

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The Court of Justice found that ISDS cannot constitute an exclusive competence of the EU as it has the effect of removing disputes from the jurisdiction of the Member States’ courts, and that this required the consent of the Member States.125 The Court of Justice established that investor-State dispute settlement is a shared competence between the EU and Member States,126 thus requiring the ratification of Member States’ national parliaments. Since Opinion 2/15, some agreements have been concluded without investment arbitration provisions, such as the EU-Japan Agreement.127 A section on the disputes between the contracting parties concerning the interpretation and application of the provisions of the agreement is included in the agreement in principle of the EU— China Comprehensive Agreement on Investment (‘CAI’),128 the EU—New Zealand Trade Agreement,129 the EU—Australia Trade Agreement,130and the EU—Mercosur Association Agreement.131 However, the negotiations of these trade agreements do not include a section on investor-State dispute resolution. Instead, the New EU-Mexico Agreement in principle is currently being negotiated including provisions on ISDS.132

8.2.2 Opinion 1/17 In August 2014, the negotiations between the EU and Canada aimed to the stipulation of the Comprehensive Economic and Trade Agreement (‘CETA’) were concluded. As a mixed agreement, CETA must be ratified by the EU and all EU Member States in order to be fully applied. 133 On 27 October 2016, Belgium conditioned its consent to the ratification of CETA to the issuance by the Court of Justice of the EU (‘CJEU’) of an opinion on the

 Opinion 2/15 of the Court of Justice of the European Union (Full Court), Opinion pursuant to Article 218(11) TFEU [2017] ECLI:EU: C:2017:376, para. 292. 126  Opinion 2/15 of the Court of Justice of the European Union (Full Court), Opinion pursuant to Article 218(11) TFEU [2017] ECLI:EU: C:2017:376, para. 305. 127  Agreement Between The European Union and Japan for an Economic Partnership. 128  EU – China Comprehensive Agreement on Investment (CAI), Agreement in Principle, Section V Dispute Settlement, 30 December 2020. 129  European Union’s proposal for the EU-New Zealand FTA, Dispute Settlement. 130  European Union’s proposal for the EU-Australia FTA, Dispute Settlement. 131  Trade Part of the EU-Mercosur Association Agreement, Text of the Agreement in Principle, Dispute Settlement, 28 June 2019. 132  Modernisation of the Trade Part of the EU-Mexico Global Agreement, Text of the Agreement in Principle, Resolution of Investment Disputes, 21 April 2018. 133  European Parliament, CETA ratification process: Recent developments, 2017. 125

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compatibility of some aspects of CETA with the EU Treaties. In particular, Belgium referred to the new system of dispute settlement provided for in CETA, the so-called Investment Court System, positing that it could violate some basic rights granted to EU citizens by the Treaties, relating to the following points: (i) the CJEU’s exclusive competence to give the definitive interpretation of EU law; (ii) the ‘practical effect’ requirement and the general principle of equality of EU law; (iii) the right to have access to the courts; (iv) the right to an independent and impartial tribunal.134 The first question posed by Belgium takes on great importance: asking the CJEU about its own exclusive jurisdiction to interpret EU law, the question inquires more generally whether the ICS provided for in CETA conforms to the principle of autonomy of EU law. Opinion 1/17 issued by the CJEU on 30 April 2019 established that the institutional ISDS mechanism provided for in CETA is compatible with EU law.135 This Opinion is the last, thus far, in a series of decisions taken by the CJEU, focusing on the relationship between international tribunals or courts and EU law. In the previously issued Opinions, Opinion 1/91 on the creation of the European Economic Area, Opinion 1/09 on the creation of a unified patent litigation system, Opinion 2/13 on the accession of the European Union to the European Convention for the Protection of Human Rights and Fundamental Freedoms, the CJEU established that the principle of autonomy of the EU legal order would be breached by the EU membership in or accession to an international dispute settlement system. Instead, in Opinion 1/17, the Court chose to open up to international tribunals. The Court analysed the compatibility of CETA’s ISDS recalling that in previous decisions it had already established that an international court whose judgments are binding on the EU can, in principle, be considered compatible with EU law if the autonomy of the EU legal order is not threatened.136 The provisions in CETA stipulate that the EU Treaties established a judicial system in which the CJEU has exclusive jurisdiction to interpret EU law by issuing preliminary rulings at the request of Member States under Article 267 TFEU. This guarantees the autonomy of the EU legal order.137 The Court stressed that, in principle, the ICS being distinct from the EU judicial system does not prejudice the autonomy of the EU legal order.138 The CJEU concluded that the EU may enter into an agreement which provides for the creation of an international court that is not subject to the interpretations of that agreement issued by the national courts of any of the State parties to that agreement.139 Although EU law does not preclude the establishment of the tribunal provided for in CETA, the principle of autonomy requires that: (i) the CETA tribunal

 Opinion 1/17 of the Court of Justice of the European Union, 30 April 2019.  Opinion 1/17 of the Court of Justice of the European Union, 30 April 2019. 136  Opinion 1/17 of the Court of Justice of the European Union, paras. 106–107. 137  Opinion 1/17  of the Court of Justice of the European Union, para. 111. 138  Opinion 1/17 of the Court of Justice of the European Union, para. 115. 139  Opinion 1/17 of the Court of Justice of the European Union, para. 117. 134 135

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can decide the case at hand only on the basis of the international law applicable between the parties, in primis the CETA provisions, whereas it does not have the power to interpret or apply EU rules; and (ii) that the awards of the CETA Tribunal cannot prevent the EU institutions from acting pursuant to the EU constitutional framework. The CJEU established that the jurisdiction of the CETA Tribunal does not overstep the interpretation and application of the pertinent CETA provisions, in accordance with the international law principles and rules applicable between the parties.140 An important provision of the CETA, Article 8.31.2, provides that the bodies established under the CETA have no jurisdiction ‘to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of a Party.’141 These stipulations ensure that the Tribunal established under CETA rules does not have the power to interpret and apply EU law.142 There are four main ‘autonomy safeguards’ included under Article 8.31, paragraphs 1 and 2 CETA: (i) only the provisions of CETA, in conjunction with the relevant rules of international law applicable between the parties shall be applicable by the CETA Tribunal;143 (ii) the CETA Tribunal is prohibited from determining the domestic legality of a measure;144 (iii) domestic law can be considered by the CETA Tribunal only ‘as a matter of fact’, according to the prevalent interpretation given by domestic authorities and courts;145 (iv) the interpretation of domestic law given by the CETA Tribunal ‘shall not be binding upon the courts or the authorities of that Party’.146 In this way, the Court made a distinction between CETA and previous case law: contrary to the CJEU’s findings in Opinion 1/09, EU law could not be interpreted and applied by the CETA Tribunal, as it has no jurisdiction to do so; as opposed to the CJEU’s findings in Achmea, the principle of mutual trust would not be challenged, because there would be an agreement between Member States establishing the rules for the creation of the CETA Tribunal. Even though the CETA Tribunal might still interpret EU law as an abstract possibility, that interpretation would not be binding on the EU courts. It would only take EU law into consideration ‘as a matter of fact’. This situation contrasts with the scenario in Opinion 2/13, where a judgment of the ECtHR would have been binding on the EU and its Member States. As it is known, since 2015 the EU is striving to create an investment court system which will replace the ad hoc investment arbitration tribunals in the treaties between the

 Opinion 1/17 of the Court of Justice of the European Union, para. 122.  Article 8.31.2 CETA. 142  Opinion 1/17 of the Court of Justice of the European Union, paras. 122 and 133. 143  Opinion 1/17 of the Court of Justice of the European Union, para.121. 144  Opinion 1/17 of the Court of Justice of the European Union, para. 121. 145  Opinion 1/17 of the Court of Justice of the European Union, para. 130–131. 146  Opinion 1/17 of the Court of Justice of the European Union, para. 130. 140 141

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EU and third States.147 There are two main changes distinguishing the new dispute settlement system from the traditional one. Firstly, in the investment court system the court is permanent and the disputing parties cannot select their adjudicators:148 the proceedings lose their ad hoc quality.149 Moreover, whereas investment arbitration provides very limited grounds for review, the investment court system gives disputing parties the opportunity to file an appeal.150 The decision of the first instance tribunal can be reviewed or modified if incorrect.151 Depending on the treaty, the appeal tribunal can render a final decision or can remand the dispute to the first instance tribunal. Although Opinion 1/17 is a domestic decision, its consequences will be felt outside the EU. The CETA’s investment court will set the standard for future bilateral investment courts. For instance, the EU Singapore and EU-Vietnam Investment Protection Agreements refer investment disputes to an institutionalised dispute settlement body similar to the CETA’s ICS. At the multilateral level, Opinion 1/17 set binding conditions that will have to be respected in all the future dispute settlement mechanisms provided for in agreements to which the EU is party.152

8.3 The Multilateral Investment Court Project 8.3.1 The Contribution of the EU to the UNCITRAL Working Group III on ISDS Reform Since 2015, the EU and its Member States have been planning and designing the Multilateral Investment Court (‘MIC’), which should replace the system of ad hoc arbitral tribunals in the investment treaties between the EU and third countries that designate it as the applicable dispute settlement mechanism.153 In fact, the EU’s endeavours to establish a decision-making body replacing ad hoc arbitral tribunals are shown both in the bilateral and in the multilateral  Titi (2017).  Titi (2017). 149  Submission from the European Union and its Member States, UNCITRAL Working Group III, A/CN.9/WG.III/WP.159/Add.1, 24 January 2019, paras. 22–24. 150  Article 8.28 of CETA; Article 3.10 of the EU-Singapore IPA; Article 3.39 of the EU-Vietnam IPA; Article 12 of the EU-Mexico Trade Agreement, Section on Resolution of Investment Disputes. 151  Article 8.28(2) of CETA; Article 3.19(1) of the EU-Singapore IPA; Article 3.54(1) of the EU-Vietnam IPA; Article 30(1) of the EU-Mexico Trade Agreement, Section on Resolution of Investment Disputes. There is however a certain debate as to whether the term ‘correctness’ is appropriate when applied to international decisions. 152  Titi (2021). 153  See Sect. 9.9.3, Permanent Investment Court. 147 148

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dimension. In the bilateral sphere, clauses referring to an Investment Court System are inserted in IIAs negotiated with third countries, such as Canada, Singapore, and Vietnam. In the multilateral sphere, the EU is actively participating in the negotiations in the UNCITRAL Working Group III on ISDS reform, which are taking place since 2017 and involve representatives of more than 95 State delegations and 50 international organisations. Since the failed attempt of the OECD to establish a Multilateral Agreement on Investment (‘MAI’), this negotiation is the first multilateral initiative to resume discussion on this theme, with the aim of reaching an agreement. In July 2017, the UNCITRAL gave the Working Group III (‘WG III’) a wide mandate to develop a possible ISDS reform. The main points included in the EU submission of 24 January 2019,154 presented as a basis for the discussion held during the thirty-seventh session of WG III, which took place from 1 to 5 April 2019, were the following. 8.3.1.1 The Features of the MIC Proposal The European Union and the Member States expressed their views on the possible establishment of a standing mechanism for the settlement of investment disputes. The submission was aimed to contribute to multilateral reflections on how to reform ISDS. Although the European Union and the Member States reflected that foreign investment contributes to the achievement of the Sustainable Development Goals, they also considered that it is important to address certain concerns that have been expressed in the Working Group III. Among the issues highlighted by the EU and its Member States, the following are the most relevant for the purposes of this study: –– Concerns pertaining to the lack of consistency, coherence, predictability, and correctness of arbitral decisions by ISDS tribunals; –– Concerns pertaining to arbitrators and decision makers, including concerns related to the lack or apparent lack of independence and impartiality of decision makers in ISDS;155 and –– Concerns pertaining to cost and duration of ISDS cases. The EU and its Member States deem these concerns as systemic and intertwined. The multitude of ad hoc tribunals may lead to divergent interpretations of the law. Lack of consistency of decisions is linked to concerns with the methods used for the appointment of arbitrators, which is in turn linked with issues on legitimacy pertaining to their independence and impartiality. In order to address these concerns, the  Possible reform of investor-State dispute settlement (ISDS) Submission from the European Union and its Member States A/CN.9/WG.III/WP.159/Add.1. 155  Possible reform of investor-State dispute settlement (ISDS) Submission from the European Union and its Member States A/CN.9/WG.III/WP.159/Add.1, para. 83. 154

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EU and its Member States propose the establishment of a standing mechanism for the settlement of investment disputes. 8.3.1.1.1 Transparency The minimum standard of transparency to be applied is the one provided by the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration. The aim is to ensure a high level of transparency throughout the proceedings. Under this set of rules, the participation of third parties, such as representatives of civil society affected by the proceedings, is allowed. 8.3.1.1.2  Consistency and Correctness Predictability and consistency would be ensured through a standing mechanism with full-time adjudicators and a two-tier system. The number of overall cases would decrease thanks to a stable understanding of provisions and consistent legal interpretation. The amount of ‘adventurous’ or ‘frivolous’ claims would decline as well. Correctness would be ensured by the appeal mechanism, which will review the legal correctness of the first instance tribunal decisions. If the appeal tribunal finds that the factual record is incomplete, it would remand the case to the lower courts. First Instance  The proposed standing mechanism has two levels of adjudication. A first instance tribunal would have its own rules of procedure. It would conduct fact finding and would apply the law to the facts. It would also hear the cases remanded back by the appellate tribunal. Appellate Tribunal  An appellate tribunal would hear appeals from the tribunal of first instance, based on error of law or manifest errors in the understanding of the facts. There would be no de novo review of the facts heard by the first instance tribunal. There would be a mechanism to ensure that no frivolous appeals are launched. Enforcement  A lot of attention was dedicated to ensuring that the decisions cannot be challenged or set aside. There would be no review of the decisions at domestic level, and no setting aside procedures. The award would be capable of being enforced under the New York Convention.156  For an example of such a mechanism, see the Investment Protection Agreement between the European Union and its Member States, of the one part, and the Republic of Singapore, of the other part which provides in Article 3.22 that “Final awards issued pursuant to this Section by the Tribunal shall be binding between the disputing parties and shall not be subject to appeal, review, set aside, annulment or any other remedy,” and in Article 3.7(1)(f)(iii) that requires a declaration that the claimant “will not seek to appeal, review, set aside, annul, revise or initiate any other similar procedure before an international or domestic court or tribunal, as regards an award pursuant to 156

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8.3.1.1.3  Decision Makers The adjudicators would be appointed full-time for a long, non-renewable term, and no double-hatting would be allowed.157 This would also eliminate incentives from the phenomenon of repeat appointments. The counsel for investors and the counsel for states would no longer be able to appoint arbitrators. Appointment Process  In order to ensure independence and impartiality of the adjudicators, a transparent mechanism for their appointment would be put in place. The standing mechanism would be divided into divisions, and adjudicators would be appointed from each division on a randomised basis so that no disputing party would be in a position to know beforehand which adjudicators will decide their dispute.158 Full-Time Adjudicators  The mechanism would employ full-time adjudicators, with no outside activities.159 Their salary would be comparable to the salary paid to adjudicators in other international courts. Ethical Requirements  The ethical requirements for adjudicators would be strict. Adjudicators would not be allowed to hold any other remunerated or political activity. There would be a strict control against conflict of interest: adjudicators would be required to disclose past financial interests, interpersonal relationships or other matters that could have an impact on their independence or impartiality. Ethical requirements would remain applicable even after the end of the adjudicators’ term. Adjudicators would be independent from governments. They would be appointed for a long term, for instance nine year-long, and the appointment process would be transparent. Qualifications  The qualification requirements would be comparable to those for other international courts: adjudicators would need to hold the qualifications required in their respective country of origin to be appointed to the highest judicial offices or are jurisconsults of recognised competence in international law. In certain areas of law, specific expertise could be requested. Expertise  An expertise in public international law will be required, solving the currently diffused issue of lack of expertise in public international law. In the

this Section”. See also The Comprehensive Economic and Trade Agreement between Canada and the EU and its Member States (Article 8.28(9)(b)) and the Investment Protection Agreement between Viet Nam and the EU and its Member States (Articles 3.36(3)(b) and 3.57(1)(b)). 157  See Langford et al. (2017), p. 328. 158  This idea draws on Rule 6(2) of the Working procedures for appellate review of the Appellate Body of the WTO. 159  Most domestic and international courts allow full-time adjudicators to engage in teaching: this could be permitted.

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t­wo-­tier dispute settlement system there would be more opportunities for a gender balance and a fair representation of geographical regions. Diversity  Both geographical and gender diversity would be ensured by dedicated mechanisms.

8.3.2 The Goals of the MIC Proposal Several reasons make the UNCITRAL Working Group III the most appropriate forum for formal negotiations between States. First, since a wide number of States are parties to the United Nations, this offers an ideal forum for the design of an international court with the broadest possible legitimacy. Moreover, the UNCITRAL proceedings can be ‘observed’ and ‘participated in’ by other international organisations. Due to this inclusive policy, the UNCITRAL is deemed to be ‘a center of global governance where states, networks, clubs, international governmental bodies, trade groups, among others, sat side-by-side in lawmaking chambers practically as deliberative equals.’160 Even though the EU, as an international organisation, is not a party to the United Nations, thanks to its status of observer in the Working Group III, it has the opportunity to file submissions and actively participate in the meetings. In this way, the EU endeavours to promote an international system based on good global governance and stronger multilateral cooperation and to encourage multilateral solutions to common problems, particularly in the framework of the United Nations, pursuant to Article 21 TEU.161 In consideration of the EU’s commitment towards multilateralism, expressing its views in the UNCITRAL Working Group III and promoting the effective development of the negotiations was for the EU a rational and predictable choice. As an observer, the European Commission has the opportunity to represent the EU in attending meetings, without having significant limitations in its submissions and interventions.162 However, observers cannot take part in the decision-making.163 The topics under the eye of the Working Group III, as it emerges in the Notes by the UNCITRAL Secretariat,164 largely coincide with the areas needing reform identified in the previous Chapters of this book, demonstrating that the improvement of those procedural aspects would not only lead to a fairer resolution of investment

 Susan Block-Lieb and Halliday (2017), p. 323.  Article 21, Treaty on European Union. 162  See also Wessel (2011), pp. 629–630. 163  United Nations Commission on International Trade Law, Frequently Asked Questions - Methods of Work. 164  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP. 149 to 152. 160 161

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cases, as corroborated in this research, but it would also benefit investor-State arbitration as a whole.165 The Working Group III stressed the importance of striking a balance between rights and obligations of the States on one side, and of the investors on the other,166 as Chap. 3 finds as well. The lack of transparency is one of the topics addressed by the Working Group III as an aspect needing improvement167 and this confirms the conclusions reached in Chap. 5. The Secretariat recalls the possibilities that States have to strengthen their role and ensure that treaties contain provisions drafted according to their intentions, or that they are interpreted accordingly: for instance, by providing joint interpretations, such as the ones issued by the NAFTA parties, and those amending and updating investment treaties.168 The Working Group III also highlighted the importance of the enhancement of legitimacy of ISDS169 through building confidence in the system,170 as also found in Chap. 6. The Secretariat identified consistency as an additional core issue and paired it with the need to ensure correctness and predictability of decisions. In fact, the importance of ensuring a consistent and coherent method of dispute resolution supports the rule of law: it is overarching and comprehends the entire system. A new perspective focuses on guidance to arbitral tribunals and claims commissions and concerns their coordination. For instance, the situation of different bodies within the same company structure that have a right of action against a state relating to the same investment, regarding the same public measure and under the same applicable investment treaty, might lead to parallel proceedings, a topic addressed also in Chaps. 5 and 6. In this regard, the Working Group III points out the possibility of consolidation of such proceedings, exchange of information among arbitral tribunals, stay of proceedings, as well as use of the doctrines of lis pendens and res judicata.171 A further idea for reform concerns introducing a system of binding precedent, as suggested in the discussions of the Working Group,172 was also discussed in Chap. 6. Whereas arbitral tribunals agree on the need to take earlier cases into consideration, this has not spared the emergence of conflicting decisions on similar cases. However, it is not easy to achieve consistency in a decentralised dispute resolution  See Sect. 9.9.3, Permanent Investment Court.  UNCITRAL Working Group III, Report A/CN.9/935, para. 14. 167  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.149, paras. 21, 24, and 34. 168  UNCITRAL Working Group III, Note by the Secretariat,  A/CN.9/WG.III/WP.150, paras. 32 to 36. 169  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.149, para. 23. 170  UNCITRAL Working Group III, Note by the Secretariat, Note A/CN.9/WG.III/WP.149, para. 26, and A/CN.9/WG.III/WP.150. 171  UNCITRAL Working Group III, Note by the Secretariat A/CN.9/915, paras. 10–33. 172  UNCITRAL Working Group III, Note by the Secretariat A/CN.9/WG.III/WP.150, paras. 37–41. 165 166

8.3  The Multilateral Investment Court Project

347

system composed of ad-hoc tribunals. The Secretariat stressed the importance of a consistent interpretative approach, where tribunals take into account pre-existing case law in order to contribute to the development of investment law and case law: this was found also in Chap. 6. A further reform proposal concerns the introduction of an appeal mechanism allowing for a substantive review, broader than the currently available annulment process and aiming at substantive correctness of decisions, increasing predictability of treaty interpretation,173 as was also discussed in Chap. 6. In the design of such appeal system, attention should be dedicated to its relationship with the ICSID annulment mechanism and the New  York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.174 Proposals have been put forward concerning an appellate mechanism, and in the 38th Session of the Working Group III, it was suggested that there would be merit in discussing the reform options of an appellate mechanism and a multilateral investment court jointly.175 One of the options included in the Secretariat Notes is the establishment of a permanent international institution, that would solve the problems of inconsistency and incorrectness of decisions, and have strict ethical standards for the appointment of arbitrators,176 as also suggested in Chap. 6. A further reform line concerns the appointment mechanisms of arbitrators and decision makers in the entire system of investment arbitration, and more generally their role as a whole, in line with the proposals for amendment of ICSID Rules, addressing the declaration of impartiality and independence for arbitrators and a new procedure for challenging arbitrators:177 these themes have been presented in Chap. 6. The Secretariat brings forwards the ideas of a code of conduct for arbitrators,178 a control system for challenges to arbitrators, and to enlarge the pool of arbitrators and organise training.179 The matter of the code of conduct has also been addressed.180 It has been highlighted that the code should be binding, mandatory and enforceable,181

 UNCITRAL Working Group III, Note by the Secretariat A/CN.9/WG.III/WP.149, para. 43, and Note by the Secretariat, A/CN.9/WG.III/WP.150, paras. 44–45. 174  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.149, para. 41. 175  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.166. 176  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.149 para. 44; and Note by the Secretariat, A/CN.9/WG.III/WP.150 para. 47. 177  UNCITRAL Working Group III, Note by the Secretariat,  A/CN.9/WG.III/WP.150, para. 46; Note by the Secretariat, A/CN.9/WG.III/WP.151, A/CN.9/WG.III/WP.152. 178  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.149, para. 49; and Note by the Secretariat, A/CN.9/WG.III/WP.151, para. 19. 179  UNCITRAL Working Group III, Note by the Secretariat,  A/CN.9/WG.III/WP.149, paras. 52 and 56, Note by the Secretariat, A/CN.9/WG.III/WP.151, paras. 49 to 67. 180  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.167, 31 July 2019. 181  UNCITRAL Working Group III, Report, A/CN.9/1004 dated 12 October 2019, paras. 52 and 77. 173

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and that it should promote independence and impartiality, diligence,182 efficiency,183 and specific expertise.184 Additional topics discussed by the UNCITRAL Working Group III include the concerns raised by the practice of third-party funding, the methods to ensure that it could facilitate access to justice to those with insufficient resources, particularly SMEs and, in limited instances, to States, promoting equality of arms between the disputing parties,185 and the establishment of an advisory centre dedicated to the assistance to the least developed countries.186 Moreover, the Secretariat announced that further themes would be tackled in the following Sessions of the UNCITRAL Working Group III, including dispute prevention and mitigation, exhaustion of local remedies, frivolous claims, security for costs, and an appeal mechanism.187 The issue of counterclaims, analysed in this book in Chap. 5, has been discussed in detail in the Working Group, resulting in a suggestion to provide guidance on addressing counterclaims in a consistent manner, and encouragement to include the possibility to file counterclaims in investment treaties.188 These issues, together with treaty interpretation by States parties, multiple proceedings, shareholder claims on reflective loss, and costs of the procedure, have also been discussed.

8.4 Conclusions The European Commission and the Court of Justice of the EU, in their respective roles, are committed to the proper and uniform application of EU law. In a series of judgments and opinions, the Court of Justice prevented that quasi-judicial bodies outside the EU could have jurisdiction to scrutinise EU’s legal acts and omissions. Since 2017, the European Commission negotiates trade and investment treaties that include provisions on a standing mechanism for the resolution of investor-State disputes. This permanent system of tribunals will replace the traditional ad hoc arbitral tribunals. These endeavours complement those of the Court of Justice, who, in Opinion 1/17, proclaimed the institutionalised dispute settlement mechanism provided for in the CETA to be consistent with EU law. In parallel, the European Commission is actively participating in the negotiations within the UNCITRAL Working Group III on ISDS reform, and strives for the institution of a Standing Multilateral Mechanism. The latter could take the role now

 UNCITRAL Working Group III, Report, A/CN.9/1004 dated 12 October 2019, para. 57.  UNCITRAL Working Group III, Report, A/CN.9/1004 dated 12 October 2019, para. 72. 184  UNCITRAL Working Group III, Report, A/CN.9/1004 dated 12 October 2019, para. 74. 185  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.166, paras. 80–98. 186  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.166, paras. 31–49. 187  UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.166. 188   UNCITRAL Working Group III, Note by the Secretariat, A/CN.9/WG.III/WP.193, 22 January 2020. 182 183

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Cube Infrastructure Fund SICAV and others v Kingdom of Spain, ICSID Case No. ARB/15/20 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 July 2019 Declaration of the Representatives of the Governments of the Member States, of 16 January on the Enforcement of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union, 16 January 2019 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms Eiser Infrastructure Limited and Energía Solar Luxembourg S.à.r.l. v Kingdom of Spain, ICSID Case No. ARB/13/36, Award, 4 May 2017 Eskosol S.p.A. in liquidazione v Italian Republic, ICSID Case No. ARB/15/50, Decision on Termination Request and Intra-EU Opinion, 7 May 2019 European Commission (2012) Capital Movements And Investments In The Eu Commission Services’ Paper On Market Monitoring European Commission (2018) Communication From The Commission To The European Parliament And The Council, Protection of intra-EU investment, Brussels, 19.7.2018 COM(2018) 547 final European Parliament (2017) CETA ratification process: Recent developments European Union’s (EU) proposal for the EU-Australia FTA, Dispute Settlement European Union’s (EU) proposal for the EU-New Zealand FTA, Dispute Settlement Foresight Luxembourg Solar 1 S.À.R.L., et al. v Kingdom of Spain, SCC Case No. 2015/150 Gerlich O (2017) More than a friend? The European Commission’s Amicus Curiae participation in investor-state arbitration. In: Adinolfi G et  al (eds) International economic law. Springer International Publishing Switzerland/G. Giappichelli Editore, Cham/Torino, pp 253–269 German Federal Court of Justice, Decision, Case I ZB 2/15 (31 October 2018) Glinski C (2018) Achmea and its implications for investor dispute settlement. ZEuS 1:47 Greentech Energy Systems A/S, et al. v Italian Republic, SCC Case No. V 2015/095, Final Award, 23 December 2018 Hainbach P (2018) The CJEU’s Opinion 2/15 and the future of EU investment policy and law-­ making. Legal Issues Econ Integr 45(2):199–210 Herrmann C, Hoffmann M (2021) Investment in the European Union: competences, structures, responsibility and policy. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international investment law and policy. Springer Singapore, Singapore, pp 1–49 Hillebrand Pohl J (2018) Intra-EU investment arbitration after the Achmea case: legal autonomy bounded by mutual trust? Eur Const Law Rev 14:767 Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v Kingdom of Spain, ICSID Case No. ARB/15/42, Decision on Jurisdiction, Liability and Directions on Quantum, 9 March 2020 ICSID, Vattenfall AB and others v Federal Republic of Germany, Decision on the Achmea issue, 31 August 2018, ICSID Case No. ARB/12/12 Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. (formerly Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V.) v. Kingdom of Spain, ICSID Case No. ARB/13/31, Award, 15 June 2018 Investment Protection Agreement Between Viet Nam and the EU and its Member States Jagusch S, Sullivan J (2011) Arbitration under the Energy Charter Treaty: recent decisions and a look to the future. In: Coop G (ed) Energy dispute resolution: investment protection, transit and the Energy Charter Treaty. Juris, Huntington, pp 67–95 Kleimann D, Kübek G (2016) The Signing, Provisional Application and Conclusion of Trade and Investment. European University Institute, Working Paper 2016/58 Komstroy (formerly Energoalians) v. Republic of Moldova, UNCITRAL, Award, 13 October 2013 Landesbank Baden-Württemberg et al. v Kingdom of Spain, ICSID Case No. Arb/15/45, Decision on the “Intra-EU” Jurisdictional Objection, 25 February 2019

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Chapter 9

Conclusions

9.1 Retracing the Research Path Before drawing the conclusions of the book, it is worth retracing the research path, dedicating particular attention to clarifying the motive behind the choice of the topics discussed, and the connection between each Chapter in the order they have been laid out. The theoretical framework was built through the examination of norms and doctrine and was accompanied by case law analysis. With the purpose to present the field of investment law and arbitration, it was important in Chap. 2 to define the term of investment and describe how investment protection has developed in time. Colonialism represents the crib in which some of the currently used investment protection provisions blossomed, and this explains why these have been criticised by many scholars as being non-balanced. Chapter 3 focused on adaptability as the main strength of investment arbitration beyond its neutrality. It showed that the success of this method of dispute resolution is due mainly to the flexibility to the needs of the parties concerning the procedure, the possibility of the system to adapt to cultural changes and practically implement ethical considerations, its capacity to promptly respond to global health crises and embrace cutting-edge technology, and its capacity to respond to geopolitical challenges such as the Russian invasion of Ukraine, which began in 2022. Chapter 4 has demonstrated that, no matter the outcome of the case, every arbitral award has a significant impact on the investor’s business, the State’s national budget, and on the stakeholders. Beyond these observations, several commentators have underlined that the main areas deserving attention and improvement in investment arbitration to strike a balance between the interests of all stakeholders involved are those of transparency, legitimacy, and consistency: three areas that are strongly interconnected.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Marisi, Rethinking Investor-State Arbitration, Studies in European Economic Law and Regulation 27, https://doi.org/10.1007/978-3-031-38184-3_9

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Chapters 5–7, have therefore been dedicated to deepening the reasons why scholars deem that transparency, legitimacy, and consistency in investor-State arbitration should be improved. Chapter 5 shows that there are historical reasons that led States to outline an investment arbitration system characterised by confidentiality, similarly to commercial arbitration. Moreover, Chapter Five illustrates that there are various stages of investment arbitration where a certain degree of transparency could be attained (such as the registration of the notice of arbitration, the accessibility of procedural documents and publication of the final award, the participation of non-disputing parties, amicus curiae submissions, and the openness of hearings to the public) while at the same time keeping safeguards for the protection of sensitive or confidential information. The research highlighted that the first-generation IIAs did not include such details, being succinctly drafted, and often even the most recently signed IIAs do not contain specific provisions, although they use a more precise wording. The lack of transparency has favoured doubts on the legitimacy of investment arbitration by the press and some parts of civil society, fuelled by the practice of double-hatting and by certain episodes where shares in a business having some connection with the claimant were owned by an arbitrator. A particular connection can be found between the perceived lack of legitimacy and the lack of consistency. The latter is currently unavoidable, due to the fragmentation of the legal framework, characterised by the presence of more than 3200 among bilateral and regional IIAs, each one with a different breadth in the set of rights and obligations of the parties. Furthermore, as demonstrated in Chapter Six, awards reaching opposite conclusions have been issued, although based on the same investment treaty and against the same respondent, not only producing inconsistency, but also causing a perceived lack of legitimacy of investment arbitration overall. Chapter 7 has conducted a reflection on consistency, highlighting that fragmentation of international investment law gave origin to provisions allowing treaty shopping and forum shopping, and limiting the impact of precedent in awards, and the possibility to obtain an annulment on behalf of the party who is unsatisfied by the outcome of the award. Chapter Seven has also focused on the possibility for an appeal mechanism to be introduced, as proposed in various investment arbitration reform projects: an appeal mechanism could promote greater coherence in interpreting fundamental principles enshrined in IIAs, and could at the same time offer a means of review to correct potential errors in awards. The conclusions of Chaps. 4–7 have underlined the need to balance improvements in transparency, legitimacy, and consistency with party autonomy, based on which the States that negotiate an IIA can, on one side, choose a higher level of confidentiality, and include in the IIAs provisions that do not prevent investors from practicing treaty shopping and forum shopping, or vice-versa, provisions promoting transparency, such as the application of the UNCITRAL Rules on Transparency in Treaty-based investor-State Arbitration, increasing in this way the legitimacy of the system.

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Chapter 8 has examined the intersection between investor-State arbitration and EU law. In landmark rulings and in various Opinions, the Court of Justice of the EU highlighted the importance of the uniform and correct application of EU law, stressing the need to reinforce consistency in the ISDS system, and finding that intra-EU ISDS is incompatible with the autonomy of the EU legal order. In some trade and investment agreements concluded by the EU and its partner States, an Investment Court System has been included. In parallel, the European Commission suggested the establishment of the Multilateral Investment Court in the discussions within the UNCITRAL Working Group III on the reform of ISDS. With the proposal of a centralised adjudicatory body, the European Union intends to solve several of the issues concerning transparency, legitimacy and consistency, identified as the most controversial aspects of the ISDS system.

9.2 History of ISDS A look back to the origins of international investment law and the protection of foreign investment allows us to understand how the system of investment treaties has evolved in centuries and what motivations have driven its development. The key features of investor-State arbitration have been preserved during centuries notwithstanding the changing political and economic framework in the countries involved, and the subsequent evolution of their mutual relationships. Some of the key provisions in investment protection treaties blossomed in a colonial era: this allows to understand why some features of the current system of investment arbitration may be perceived by some scholars as unbalanced. In the long period of Western expansionism, which extends from the first century B.C. to the early nineteenth century, European and non-European States signed treaties with the aim to guarantee a strong protection to the commercial interests of the European States. These treaties were often concluded between countries with a different bargaining power. For example, capitulations between European States and Turkey between the eighteenth and the nineteenth century were based on the concept of sovereignty in force back then: it was considered that sovereignty concerned the nationals of a specific State, rather than the territory of that State. It follows that, although merchants and missionaries of Western countries lived abroad, they were subject to civil and criminal law of their home State. The European powers had extraterritorial jurisdiction on persons, goods and services of their nationals living in the host State, in both civil and criminal law. They could exercise their jurisdiction also against the nationals of the host State, and other foreigners involved in disputes against their own nationals. In this way, the European powers continued to expand their businesses abroad. Starting from the seventeenth century, sovereigns of Western States governed the economic activities of their subjects, establishing rules on trade and investment protection both for foreign investments in their territory, and for investments abroad. From the end of the eighteenth century until the twentieth century, numerous

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treaties of Friendship, Commerce and Navigation were signed between Western and non-Western States and included several provisions on the protection of foreign investments. These provisions can be considered the forerunners of the currently used clauses in the contemporary investment treaties. Starting from the eighteenth century, States have developed other forms of protection of their citizens and their property abroad, such as ad hoc commissions and diplomatic protection. The latter still applies under specific circumstances. Further progress took place in the 1930s, when the United States Secretary of State Cordell Hull declared that, in case of expropriation of American citizens’ investments abroad, compensation provided by the host State had to be ‘prompt, adequate and effective’, whereas the doctrine by the Argentinian scholar Carlos Calvo maintained that the foreign investors wishing to bring a claim against the host State must do so before the national courts of the latter. After the end of World War II, when, during the process of decolonisation, several States such as Chile, Cuba, Egypt, Iran, Lybia, and Venezuela expropriated and nationalised the property of foreign investors, the international community suggested ways to protect both States’ sovereignty over their national resources and foreign investments. Starting from 1959, numerous investment agreements were negotiated and signed, providing foreign investors with a number of rights, including the possibility to bring their claims against specific measures of the host State before an arbitral tribunal not subject to the authority of the host State, and whose arbitrators can be appointed jointly by the claimant and the respondent. This Chapter has allowed to highlight how certain standards of protection derive from centuries-long practices, which contributed to shape the modern investment treaties in the form they are written today. Moreover, Chap. 2 has studied the historical development of the notion of investment, key to outline the scope of protection of the relevant international investment treaty. It is generally drafted in a broad and comprehensive manner, and each investment dispute provides the opportunity to better define the scope of the covered investments. Lately, recently concluded  investment agreements have started to include a more detailed and precise definition of investment. Notwithstanding the criticisms of investor-State arbitration raised by some commentators, and despite the fact that some States have denounced the treaties that bound them, this method of dispute resolution is still widely used: the number of treaties signed is on the rise, counting 3291 Bilateral Investment Treaties (‘BITs’) and Treaties with Investment Provisions (‘TIPs’) at the time of writing, as well as the number of cases, reaching 1257 in August 2023. This depends on the fact that foreign investments, bringing capital and know-­ how in the host State, can be beneficial for both the host State and the home State of the investor. Therefore, both States have an interest in promoting and protecting foreign investments, committing to determined standards of treatment and non-­ discrimination to investors. Among the rights granted to foreign investors, there is the possibility to bring a claim before an arbitral tribunal which is independent and impartial in respect of the disputing parties. The procedural aspects of investor-State

9.3 Adaptability

357

dispute settlement (‘ISDS’) as they developed in time are at the core of this research, and they focus on one greatly appreciated value, that is the adaptability of investor-­ State arbitration, and three main aspects with room for improvement: transparency, legitimacy and consistency, in order to reach a more balanced and sustainable system of dispute resolution.

9.3 Adaptability Investor-State arbitration owes its success to two main features: neutrality and adaptability. In 1985, the Supreme Court of the United States acknowledged that arbitration’s most prominent features were its adaptability, informality, and the accessibility of specialised experts.1 Neutrality is shown by the emphasis placed on the arbitrators being impartial and independent, and by the nature of a system not attached to any State’s jurisdiction. The awards are easily enforceable in the States parties to the New York Convention or the ICSID Convention. On the other side, adaptability is shown by a high level of party autonomy, and by its flexibility to adjust to the ever-changing challenges brought by the contemporary world. Further than being an alternative dispute settlement mechanism2 where the adjudicators are impartial and independent arbitrators whose decisions can be more easily enforced in the States parties to the New York Convention, arbitration has among its core features a high level of party autonomy. Party autonomy indicates parties’ freedom to determine the procedure, as recognised by the New York Convention, other international arbitration conventions, national laws on arbitration, and procedural rules of many administering institutions. For example, in an ad hoc arbitration, the disputing parties have considerable liberty in determining their own procedural rules. Similarly, when arbitral institution rules are applicable, they grant the disputing parties the right to agree on several aspects of the procedure, including the place of arbitration,3 some of the rules governing the proceedings,4 the language of the proceedings,5 and some of the applicable rules of law. The freedom that the disputing parties have to agree on the arbitral procedure has been one of the main features since the rise of arbitration. More recently, the high

 Mitsubishi Motors Corp. v Solar Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985).  Malanczuk (2011), p. 273. 3  This is provided for, for instance, by Article 18 of the ICC Arbitration Rules 2021. 4  For instance, Article 19 of the ICC Arbitration Rules 2021  provides that “where the [ICC Arbitration Rules] are silent, the proceedings before the arbitral tribunal shall be governed (…) by any rules which the parties may settle on”. 5  This is provided for, for instance, by Article 20 of the ICC Arbitration Rules 2021. 1 2

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9 Conclusions

level of flexibility of arbitration makes it suitable to adapt not only to the needs of the parties, but also to the persistent tests and crises brought by the world we live in. These include the reactions to pandemic and post-pandemic circumstances, technology advancements, diversity and gender representation, human rights concerns, the application of Corporate Social Responsibility principles, geopolitical developments, international crises, and refining the balance between investors’ rights and obligations. Concerning diversity, for instance, research has found that teams that include participants with different backgrounds, training, geographical origin, gender, age, and sexual orientation have the ability to achieve the best solutions to problems and make the best decisions.6 Science and institutions agree that decision-making bodies need to be inclusive and represent the groups of stakeholders that will be affected to some extent by the outcome of their decisions.7 Therefore, it is advisable that decision-making bodies include members with different backgrounds to fully grasp the different aspects of the interests at stake.8 Quality, accuracy and consistency of the decisions will be improved with a diverse composition of the members of decision-making bodies, and the overall level of fairness9 and legitimacy of ISDS10 will increase. Data concerning the appointment of arbitrators in 2021 is encouraging, as an increase in the number of women arbitrators is discernible, showing the adaptability of investor-State arbitration to cultural and social sensitivity change. The system of protection of FDI demonstrates adaptability in response to geopolitical crises as well. From a general perspective, the thick network of international investment agreements and mechanisms for a peaceful settlement of investment disputes offers a major contribution to the maintenance of global peace and security under international law, in favour of economic interdependency for mutual growth. With regard to the Russian invasion of Ukraine armed conflict, both direct and indirect negative consequences are instantly perceptible: fatalities, social and environmental costs, loss of jobs, business losses, reduction of economic flows, divestments, disruption of global economic exchanges, sanctions and responses to sanctions. In this regard, investment treaty protection can contribute to recovering economic losses by foreign investors in Russia and Ukraine. One legal instrument that shows the adaptability of investment protection to geopolitical challenges is the denial of benefits clause, included in certain investment agreements such as the ECT. It allows a State party to deny the advantages of investment protection to the investments of investors of a country with which the denying State no longer entertains diplomatic relations. In August 2022, Ukraine invoked the denial of benefits clause against investments of Russian investors: this confirms the

 Phillips (2014).  Bjorklund et al. (2020), p. 412. 8  Kidane (2017), pp. 145–147. 9  Bjorklund et al. (2020), p. 413. 10  Sommers (2006), p. 598. 6 7

9.4 Criticisms

359

adaptability of the investment protection regime to the shifts in political equilibria and alliances.

9.4 Criticisms Investor-State arbitration has as many supporters as it has critics. Among its strength, we observe the possibility granted by this method of dispute resolution to solve conflicts between investors and host States in a neutral forum and with a leaner and swifter iter vis-à-vis national proceedings. On the other side, doubts have been cast on the overall coherence and consistency of the body of case law, with vivid debates on the lack of predictability of the decisions and discussions on the perceived legitimacy and level of transparency. Moreover, the system is sometimes perceived as unbalanced: the actors that expressed doubt include the UNCTAD, which suggests a reform of investor-State dispute settlement based on a perceived deficit of legitimacy and transparency, and Latin American States Affected by Transnational Interests, which, at their first Ministerial Meeting held in 2013, declared that there are disputes between States and transnational corporations where the judgment violates the sovereignty of the States as well as its legal institutions. Moreover, one additional critique that has been raised against ISDS is the lack of balance between the possibility granted to investors to request damage compensation to the State, compared to the limited circumstances under which a State can file a claim against the investor. A further point elaborated by the critics concerns statistics, which show a higher percentage of cases found in favour of the investor or settled, compared to those found in favour of the respondent or where jurisdiction was declined. However, the publicly accessible cases cannot offer a complete depiction of the scenario, as there are several cases that are resolved before initiating the arbitration, and others that are not pursued.11 The Court of Justice of the EU has dissipated some of the doubts concerning intra-EU ISDS, finding in Slovak Republic v Achmea B.V. that a dispute settlement mechanism between an investor from an EU Member State and a different Member State as respondent could lead to a non-uniform interpretation of EU law, threatening the autonomy of the EU legal system. It concluded that the establishment of such arbitral tribunal is incompatible with EU law. Thus, national courts will be required to set aside and preclude the enforcement of awards issued by arbitral tribunals established by intra-EU BITs. Since the 2010s, the critiques moved to investor-State arbitration have been the basis for multilateral, bilateral, and independent action. Initiatives include denouncing the ICSID Convention, like Bolivia, Ecuador, and Venezuela did in 2011–2012;

11

 Franck & Wylie (2015), p. 463, 497.

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9 Conclusions

terminating investment agreements, like the unilateral termination Italy pursued in 2016 when it denounced the Energy Charter Treaty (‘ECT’), and the EU Member States’ termination of their 190 intra-EU BITs with a Termination Agreement in 2020; opting out of ISDS, like Canada did in the United States-Mexico-Canada Agreement (‘USMCA’); renegotiating investment agreements, like the ECT modernisation; and not including ISDS in newly negotiated investment treaties, like Australia did in 2011. Other critics question the reconcilability of the difference between investors’ rights and other policy objectives such as empowerment policies in favour of certain groups: an example of this clash can be found in Foresti et  al. v South Africa.12 Overall, several scholars and experts highlight the possibility of a regulatory chill that the threat of investment claims can have on States’ policies.13 Chapter 4 focused on the procedural aspects of ISDS that have raised critics’ eyebrows, identifying transparency, legitimacy, and consistency as the main areas deserving consideration and refinement in investor-State arbitration.

9.5 Transparency This Section will recall the features of the main cases discussed in the book, and explain the reasons why some of them, despite having similar facts, have had different outcomes. The main issues related to transparency concern the availability of parties’ submissions, decisions, and procedural documents, non-disputing parties’ participation, and amicus curiae intervention. Concerning the accessibility of documents, in Suez v Argentina, in deciding the request brought by five NGOs ‘to allow timely, sufficient, and unrestricted access to all of the documents in the case’,14 the tribunal found that Rule 37(2) of the ICSID Arbitration Rules provided no guidance as it did not deal with the amicus curiae’s access to the record.15 The claimant argued that: (…) The Petitioners offer no new factual elements to the arbitration and will only make inappropriate legal arguments that the Parties are fully competent to make; (…) none of the issues which the Petitioners propose to raise concern the public interest identified by the tribunal in its earlier Order or fall within the subject matter of the dispute; (…) the Petition has been filed too late and its timing is likely to cause disruption of the proceedings; (…)

 Piero Foresti, Laura de Carli v The Republic of South Africa, ICSID Case No. ARB (AF)/07/01, 04 August 2010. 13  Risse (2015). 14  Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. v The Argentine Republic, ICSID Case No. ARB/03/19, Order in Response to a Petition by Five Non-Governmental Organizations for Permission to Make an Amicus Curiae Submission, February 12, 2007, para. 1. 15  Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. v The Argentine Republic, ICSID Case No. ARB/03/19, Order in Response to a Petition by Five Non-Governmental Organizations for Permission to Make an Amicus Curiae Submission, February 12, 2007, para. 24. 12

9.5 Transparency

361

the documents filed in the proceeding are confidential and the claimants expressly refuse their consent to disclosing them to the Petitioners.16

Ultimately, the tribunal denied access to the record requested by the petitioners, ruling that under the circumstances of the case, they could still submit their brief without that access.17 The participation of non-disputing parties is expressly provided for by certain agreements, such as the NAFTA, CAFTA, CETA, and TTIP: in the examined cases governed by NAFTA Chapter Eleven, both tribunals have granted the participation of non-disputing parties.18 Amicus curiae participation can take place both as presence as observers to hearings, and as submission of amicus curiae briefs. In Aguas del Tunari v Bolivia and Biwater Gauff v Tanzania, the tribunals have denied the participation to hearings based on the objection that the claimant had raised, pursuant to ICSID Arbitration Rule 32(2). On the contrary, in Pacific Rim v El Salvador, the tribunal granted the permission to submit amicus curiae briefs based on Article 10.20.3 of the Dominican Republic-Central America-United States Free Trade Agreement, which expressly confers such power to tribunals, stating ‘The tribunal shall have the authority to accept and consider amicus curiae submissions from a person or entity that is not a disputing party’19 and pursuant to Rule 37(2) of the 2006 ICSID Arbitration Rules, which establishes that ‘After consulting both parties, the tribunal may allow a person or entity that is not a party to the dispute (in this Rule called the “non disputing party”) to file a written submission with the tribunal’.20 The adoption of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration has significantly improved the balance between openness and confidentiality by providing that each published case will include the notice of arbitration, the response to the notice of arbitration, the statement of claim, the statement of defence, any further written statements or written submissions by a disputing party, a table listing all exhibits to those documents, any written submissions by the non-disputing treaty Party/Parties and by third parties, transcripts of hearings, and orders, decisions and awards of the arbitral tribunal. The UNCITRAL Rules on Transparency further provide that expert reports and witness statements are being published upon request by any person to the arbitral tribunal, and subject to confidentiality provisions in the Rules. The hearings are open, subject to certain  Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. v The Argentine Republic, ICSID Case No. ARB/03/19, Order in Response to a Petition by Five Non-Governmental Organizations for Permission to Make an Amicus Curiae Submission, February 12, 2007, para. 9. 17  Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. v The Argentine Republic, ICSID Case No. ARB/03/19, Order In Response To A Petition By Five Non-Governmental Organizations For Permission To Make An Amicus Curiae Submission, February 12, 2007, para. 25. 18  Glamis Gold, Ltd. v United States of America, UNCITRAL, Award, 8 June 2009; Merrill & Ring Forestry L. P. v The Government Of Canada, ICSID Case No. UNCT/07/1, Award, 31 March 2010. 19  Article 10.20.3 of the Dominican Republic-Central America FTA (CAFTA-DR FTA). 20  Arbitration Rule 37(2), ICSID Arbitration Rules. 16

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9 Conclusions

safeguards. Additional safeguards are in place to ensure that submissions do not disrupt or burden the arbitral proceedings, or unfairly prejudice any disputing party.

9.6 Legitimacy The main identified issues related to legitimacy concern the situation in which a public interest purpose measure is challenged by the claimant, the connection between arbitrators and ethics, and the possibility of the host State to file counterclaims against an investor who has allegedly breached national laws. Chapter 6 has discussed the relevant arbitration cases on these issues, which will be briefly recalled and compared in this Section. In Tecmed v Mexico, the tribunal considered that the Hazardous Materials, Waste and Activities Division of the National Ecology Institute of Mexico (‘INE’) had issued a resolution which the investor equated to arbitrary expropriation, whereas the respondent viewed it as a non-arbitrary measure, taken in a sector subjected to strict regulations and intended to serve public interests.21 However, the tribunal stressed, the INE Resolution did not state any reasons of public interest, public use or public emergency that may justify it:22 for this reason the tribunal dismissed the respondent’s defence and qualified the measure as unjustified and arbitrary. In Unglaube v Costa Rica, the respondent decided to create a national park in an area in which some foreign investors had made an investment, and expropriated a portion of the claimants’ property, arguing that the measure served public interest.23 The tribunal acknowledged the importance of protecting endangered species, but noted that whereas the government of Costa Rica had the right to expropriate property for a bona fide public purpose, expropriation must nonetheless be compensated.24 Therefore, in Tecmed v Mexico, the tribunal considered that the measure enacted by the host State breached the legitimate expectations of the investor, and was thus unlawful per se. On the contrary, in Unglaube v Costa Rica, the tribunal recognised the legitimacy of the state measure, but declared that even in this case the expropriated investor had right to be compensated. Regarding the challenge of arbitrators, Azurix v Argentina and Perenco v Ecuador have resulted in different outcomes. In Azurix v Argentina, the circumstance lamented by the respondent, linked to an indirect link between the president of the   Técnicas Medioambientales Tecmed v. United Mexican States, ICSID Case No. ARB(AF)/00/2), Award, 29 May 2003, para. 46. 22  Técnicas Medioambientales Tecmed v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, para. 125. 23  Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, ICSID Case No. ARB/09/20, Award, 16 May 2012, paras. 127, 133, 134, 140, and 144. 24  Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, ICSID Case No. ARB/09/20, Award, 16 May 2012, para. 167. 21

9.7 Consistency

363

tribunal, Andrés Rigo Sureda, and Guido Tawil, one of the legal counsel of the claimant, was deemed insufficient to sustain the challenge.25 On the contrary, in Perenco v Ecuador, the challenge to Judge Brower has been sustained, based on the remarks that the arbitrator had made in an interview that called into question his impartiality or independence.26 In particular, the strictness of this decision may have resulted from the composition of the tribunal who had the power to decide on the matter: whereas in Azurix v Argentina the decision was made by the other two arbitrators part of the same panel, in Perenco v Ecuador it was made by the Secretary-General of the Permanent Court of Arbitration. It emerges from the examined case law that the challenge to an arbitrator is examined with great attention but is sustained only when it is deemed not specious but effectively founded. Some commentators expressed doubts in the legitimacy of investment arbitration based on the mono-directional possibility to file an arbitration claim against the host State, whereas the latter does not have the corresponding right against the investor, in case of breach of its domestic laws. The cases discussed in Chap. 6 have highlighted the following main issues on counterclaims: i) some IIAs provide for the possibility to each party to an investment arbitration to submit a claim against the other, as stressed for instance by arbitral tribunals in Saluka v Czech Republic and Urbaser v Argentina; ii) if the conditions of jurisdiction and admissibility are fulfilled, the State can successfully file a counterclaim against the investor, as in Burlington v Ecuador. It can be concluded that the possibility for the State to file a counterclaim against the investor, if the latter did not comply with domestic law, significantly contributes to balancing the rights of the parties to an investment arbitration case, and therefore to enhance its perceived legitimacy.

9.7 Consistency A legal system can be defined as consistent when coherent outcomes derive from it. These, in turn, encourage predictability, and foster the credibility and legitimacy of the system. It follows that consistency is a valuable feature: conversely, a mechanism producing contradicting results and being unpredictable inspires less trust. In the domain of investment arbitration, the same decentralised nature partly contributes to its inconsistency. Each treaty is different, each arbitration clause refers to a different administering arbitration institution, a different set of arbitral rules and a different applicable law. The facts of each case vary greatly, and the evidence provided by each disputing party can be very different. Lastly, the strategy  Mourra (2008), p. 36.  Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador (“Petroecuador”), ICSID Case No. Arb/08/6, PCA Case No. IR-2009/1, Decision on Challenge to Arbitrator, 8 December 2009. 25 26

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9 Conclusions

put in place by legal counsel can also vary and affect the outcome of each arbitration case. Hence, it is partly true that predictability is increased by consistency of decisions: this allows both investors and States to be more confident about the consequences of their potential conduct and act accordingly. Many newly concluded treaties include similar provisions, building a common substratum on rights and obligations of parties in investment arbitration. This tendency provides clarity in the obligations taken by the States and the rights and protections granted to investors. Various options have been suggested to tackle the lack of consistency: one of them provides for the possibility to make a preliminary reference, according to which ICSID tribunals would ask for guidance to an expert panel on the interpretation of certain issues. Finally, a certain degree of inconsistency is inherent to any legal system, and it is advisable to accommodate the possibility of evolutive interpretation, based on changing societal values.

9.8 Investor-State Arbitration and EU Law Focusing on the complex relationship between investment arbitration and EU law, the study has examined the legal acts that EU institutions and Member States have adopted in addressing the most relevant issues that were brought to their attention. EU law is an autonomous legal order that has the capacity to operate as a self-­ sufficient and coherent system of norms, distinguished from ordinary international law. The European Commission often intervened in intra-EU investment arbitration cases to protect EU legal order and EU’s broader interests. The Court of Justice of the EU has clarified multiple times, in various Opinions, that for the correct and uniform application of EU law, it is essential that no adjudicatory body external to the EU courts has the power to interpret and apply EU law. Moreover, in Slovak Republic v Achmea BV, the Court of Justice of the EU found that intra-EU BITs are contrary to EU law, and that intra-EU investment treaty arbitration is incompatible with fundamental principles of EU law. At the EU level, the ruling in Slovak Republic v Achmea BV has encouraged Member States to agree on the termination of intra-EU BITs, removing the possibility that investors based in a Member State could file a request for arbitration against a host Member State. At the international level, the European Commission has acted bilaterally and multilaterally. At the bilateral level, the European Commission has promoted the establishment of investment courts including provisions in recent trade and investment agreements with various partner States. At the multilateral level, the European Commission has intervened several times in the UNCITRAL Working Group III aimed to discuss a possible reform of ISDS, promoting the creation of a Multilateral Investment Court, which would solve many of the issues in the areas of transparency, legitimacy, and consistency, as identified by various stakeholders.

9.9  Projects for ISDS Reform

365

9.9 Projects for ISDS Reform The high levels of cross-border investments and capital flows increase the likelihood of investment disputes involving investors and host States who, up to that moment, had not been involved in this type of conflict. Whereas on one side, this confirms the vitality of investor-State arbitration, on the other it requires that the criticisms of this dispute resolution system be addressed, in order to limit or possibly fully eliminate its suboptimal features. Critiques moved to investment arbitration, especially on behalf of some scholars, NGOs officials, and civil society derive from a deeply felt need to improve ISDS, related to the different issues discussed in detail in each Chapter. Merits and demerits of the system have become largely public, and its critiques have appeared not only on specialised publications, but also on leading media. Some of the most debated issues concern the use of confidentiality, the appointment of arbitrators, the role of amicus curiae, guidelines on the conduct for arbitrators, a two-tier system, the role of precedent, counterclaims, and the issue of parallel proceedings. Proposals for a reform have been prepared in different fora and focus on: (i) the amendement of arbitration rules by several arbitral institutions; (ii) the renegotiation of investment treaties; and (iii) the proposal to establish a permanent investment court discussed at the UNCITRAL Working Group III.

9.9.1 Amending Arbitration Rules Acknowledging that public perception about investor-State arbitration could be based, on one side, on sub-optimal features of the system, and on the other side, on allegations and misunderstandings on behalf of non-experts, major arbitral institutions have amended their arbitral rules aiming to resolve some of the thorny issues raised in the debate. In 2016 ICSID gave the possibility to publicly comment amendments to ICSID rules and regulations,27 in preparation for the drafting and release of the 2022 ICSID Rules and Regulations for resolving international investment disputes.28 In 2017, the Arbitration Institute of the Stockholm Chamber of Commerce (‘SCC’) amended its arbitration rules, and the Singapore International Arbitration Centre (‘SIAC’) released the first edition of its dedicated Investment Arbitration Rules.29 In 2020, the London Court of International Arbitration (‘LCIA’) updated its arbitration and

 ICSID, Public Comments to Amendment of ICSID’s Rules and Regulations (2016–2018).  2022 ICSID Rules and Regulations. 29  2017 SCC Arbitration Rules; 2017 SIAC Investment Arbitration Rules. 27 28

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mediation rules.30 The ICC published a revised version of its arbitration rules in 2021.31 Concerns raised by several commentators on high costs and considerable length of proceedings in their different phases have induced ICSID to favour improvement of time and cost efficiency, and the ICC Rules have introduced an expedited procedure, with the aim to reduce both the duration and the scale of fees. The purpose of these reforms is to facilitate access to arbitration to small and medium enterprises and, on the other side, to not excessively burden developing States who are respondents. With similar purposes, the SCC Rules have introduced a summary procedure under Article 39, through which the tribunal can determine one or more issues of fact or law. Regarding the request brought forward by civil society for more transparency in investment arbitration, as discussed in Chap. 5, this possibility has been taken into consideration and supported by the 2022 ICSID Arbitration Rules, the ICC Arbitration Rules, SIAC Investment Arbitration Rules, and UNCITRAL Working Group III. In particular, on 3 August 2018, the ICSID Secretariat published a comprehensive ‘Proposal for Amendments of the ICSID Rules’.32 On 21 March 2022, the 2022 ICSID Arbitration Rules were finally adopted after five years of consultations with the Member States involving State officials, legal experts and business representatives. The 2022 ICSID Arbitration Rules increase the overall level of transparency: Rules 62-67 are dedicated to publication, access to proceedings and non-disputing party submissions. Under Rule 62 of the 2022 ICSID Arbitration Rules, the parties can object to the publication of an award, supplementary decision on an award, rectification, interpretation, and revision of an award, and decision on annulment, within 60 days after the dispatch of the document. The lack of objection will be considered by ICSID as consent to the publication. In order to protect confidential information, the parties can agree to publish a jointly redacted text. Where the parties do not give their consent to publication, ICSID will publish anonymised excerpts of awards and annulment decisions. Similarly, pursuant to Rule 63, procedural orders and decisions will be published with redactions as agreed to by the parties. Rule 64 provides that with consent of the parties, ICSID will publish any written submission or supporting document filed by a party in the proceeding, with any redactions agreed to by the parties. According to Rule 65, the hearings are public unless either party objects. Rule 67 governs the participation of non-disputing parties, also known as amicus curiae, and provides that, following the application of leave to file a submission by a non-­ disputing party, the disputing parties can provide their observations before the

 2020 LCIA Arbitration Rules and the LCIA Mediation Rules.  2021 ICC Arbitration Rules and 2021 ICC Mediation Rules. 32  ICSID, Proposals for Amendment of the ICSID Rules  — Consolidated Draft Rules, 2 August 2018. 30 31

9.9  Projects for ISDS Reform

367

decision of the tribunal. The disputing parties also have the right to comment in writing the non-disputing party’s submission. Interestingly, in deciding whether to allow a non-disputing party submission, the tribunal will consider how the submission would contribute to the tribunal’s understanding of the facts of the case or the relevant legal issues by bringing a different perspective, knowledge or insight; whether the non-disputing party has a significant interest in the case; and by whom the non-disputing party will be financed or helped to file the submission. Rule 68 governs non-disputing treaty parties’ submissions. The tribunal has the power to allow the submission of a non-disputing treaty party on the interpretation of the relevant treaty. The parties have the right to make observations on this submission. What is noticeable is an effort to improve transparency, while respecting the will of the Parties in order to not disrupt the core of international arbitration. The publication of excerpts of the award, the rules aimed at facilitating the participation of amicus curiae and non-disputing treaty parties, the possibility for the tribunal to decide for open hearings, unless a party objects: these expedients demonstrate an endeavour to find a balance between the value of transparency and the need to preserve confidential and sensitive information. Transparency is also pursued by Rule 29 of the SIAC Investment Rules 2017, which now permits submission by non-disputing parties, both on their own initiative and by invitation of the tribunal, and by third parties, provided that they are found to have sufficient interest in the arbitral proceedings or any other related proceedings.33 Moreover, Rule 38 SIAC establishes that the parties are deemed to consent to the publication of the nationality of parties, identity and nationality of arbitrators, the treaty/statute/other instrument under which the dispute was commenced, and the date of commencement of proceedings and whether they have terminated. The SIAC may also publish redacted excerpts of the reasoning of the tribunal and redacted decisions of the SIAC Court on challenges. Further amendments concern other problems discussed in the book: in favour of consistency—focus of Chap. 6—we can find Rule 46 of the 2022 ICSID Arbitration Rules on Consolidation or Coordination of Arbitrations, which provides that disputing parties to two or more pending arbitrations administered by ICSID may agree to consolidate or coordinate these arbitrations. Whereas consolidation joins all aspects of the arbitrations and results in one award, coordination aligns specific procedural aspects, but the pending arbitrations remain separate proceedings and result in separate awards. Rule 46 aims to prevent parallel proceedings and is a visible move toward improving consistency in ISDS. Concerning the third main procedural aspect addressed in this book—legitimacy—Rule 48 of the 2022 ICSID Arbitration Rules covers Ancillary Claims and establishes that a party may file an incidental or additional claim or a counterclaim (‘ancillary claim’) arising directly out of the subject-matter of the dispute, provided

33

 SIAC Investment Rules 2017, Rule 29.

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9 Conclusions

that such ancillary claim is within the scope of the consent of the parties and the jurisdiction of the Centre, except if the parties agree to renounce to this possibility. The 2022 ICSID Arbitration Rules cover also subjects such as optional expedited arbitration (Rules 75–86), disclosure of third-party funding (Rule 14), time-limits for the acceptance of appointment of arbitrators (Rule 19), time-limits for the filing of a disqualification motion (Rule 22), an express rule allowing bifurcation (Rule 42), consideration of the criteria of urgency and necessity for provisional measures as well as the effect they have on the disputing parties (Rule 47), the possibility to order security for costs (Rule 53), schedule for discontinuance for failure to take any steps for 150 consecutive days (Rule 57), and time-limits for rendering awards (Rule 58): however, these amendments are beyond the scope of this research. To conclude, in the latest years we can observe visible efforts on the part of arbitration institutions to amend their arbitral rules and improve various aspects of the proceedings, with a special focus on transparency, consistency, and legitimacy.

9.9.2 Renegotiating Investment Treaties Following important investment disputes in which they acted as respondents, Indonesia, Ecuador, Venezuela, and Bolivia terminated their investment agreements. Some authors commented that the termination of investment treaties indicates the protectionist journey that the country’s economic policy is embarking on.34 However, other States that had terminated their BITs, including India, Indonesia, and South Africa, have quickly started to renegotiate their investment agreements or publish their new model BIT with ISDS provisions.35 In June 2022, the text of the Modernised Energy Charter Treaty reached an agreement in principle among the 53 Contracting Parties: it focuses on facilitating sustainable investments in the energy sector, reflects clean energy transition goals, and excludes new fossil fuel related investments from investment protection.36 However, on 7 July 2023, the European Commission withdrew its previous proposal to ratify the modernised ECT, which did not gather the required majority among Member States in the Council vote of 18 November 2022.37 On the same day, the European Commission proposed that the EU, its Member States, and Euratom withdraw in a coordinated manner from the ECT.38

 Calvert (2018).  Huikuri (2022). 36  European Commission, Agreement in principle reached on Modernised Energy Charter Treaty, News Article, 24 June 2022. 37  European Commission (2023b). 38  European Commission (2023a). 34 35

9.9  Projects for ISDS Reform

369

The UNCTAD reports that 130 investment treaties have been terminated and replaced by newer treaties.39 The practice of replacing investment treaties with newer ones shows a tendency by States to not necessarily taking distance from ISDS overall, but instead reshape foreign investment protection in agreement with other contracting parties. Terminating treaties can constitute a strategic move to obtain leverage in successive treaty renegotiations. Capital-importing countries that in the past had accepted in BITs provisions that limited their regulatory space, nowadays often face criticism pressuring them to renegotiate those agreements and reassess the priority of the right to regulate in the fields of environment, health, and finance. In the past, a clearer distinction could be drawn between capital-importing countries and capital-exporting countries, where capital-exporting countries tended to prefer broader protection of their investors in the host country. However, recently most States both import and export significant levels of capital: in the past decades, there has been a visible increase of South-­ South investment, and traditionally capital-exporting European States started to be respondents in investment disputes. It follows that the need for more balanced rules emerged for all the parties involved, and the right to regulate was introduced in some of the renegotiated investment agreements. Nonetheless, the renegotiation of investment agreements needs to be seen from a wider perspective: in the absence of a centralised hub, it only concerns the contracting parties and is inevitably tailor-made to their needs, priorities, and bargaining power. Any changes in the level of bargaining power of the contracting parties in the duration of a treaty can push these States to no longer accept the status of the treaty. Instead, factors such as an increasing economic weight in the international scene, higher FDI flows and signing multilateral agreements can all play a role in the desire to modify the terms of an investment treaty concluded several decades prior.40 Where that State tended to offer a wide-ranging protection as it did not have much leverage, now it might express more assertively the limits of its willingness to come to an agreement on a new BIT. The termination of investment treaties represents an interesting tactic, as it effectively invites the other contracting party back to the bargaining table, provided that both parties consider that the foreign investment flows will be advantageous for them.41 In the context of the scope of treaty provisions, certainty and precision in the clauses of an investment agreement would allow State authorities and investors to develop their line of action, either in regulation or investment, being more aware of its potential implications. Moreover, when an investment claim arises, both parties to the dispute will be able to prepare sounder strategies if the exact scope of the provisions is known. Such clarity will also be helpful to arbitrators in their

 UNCTAD Investment Policy Hub, International Investment Agreements Navigator.  Fisher and Ury (2012). 41  Kydd (2015). 39 40

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interpretation task and would place counsel of both parties in a better position to plan their actions during the arbitral proceedings. It emerges that it is in the interest of all States negotiating IIAs that the negotiated provisions are sufficiently precise, clear, and detailed: in fact, today FDI flows are bi-directional and numerous countries are both capital importers and capital exporters. It is therefore important that negotiators engage to agree on clearly defined provisions, and that the agreed texts are accompanied by official interpretations, following the example of the NAFTA Notes of Interpretation and the Joint Interpretation Statement signed by India and Mauritius to the India-Mauritius BIT.42 A further actor in the reform of IIAs is the UNCTAD Investment and Enterprise Division, which aims to promote investment and enterprise for sustainable and inclusive development.43 In 2018, UNCTAD launched its Reform Package for the International Investment Regime. The Reform Package combines the work since 2015 in one single document. It includes the research and policy analysis from the World Investment Report 2015 (the ‘Road Map for international investment agreement Reform’), the World Investment Report 2017 (the ‘10 Options for Phase 2 of IIA Reform’) and the World Investment Report 2018 (the ‘Guidance for Phase 3 of IIA Reform’).44 Every year, UNCTAD publishes a note on selected IIA reform issues, written for an audience of policymakers and IIA negotiators. It provides an overview of arbitral findings in publicly available ISDS decisions rendered each year that may have an impact for the drafting of future IIAs and the modernisation of old-generation treaties.45 UNCTAD holds an Annual IIA Conference on this theme, where more than 300 experts participate, including high-level IIA negotiators, representatives from intergovernmental organisations, civil society, scholars and the private sector. In November 2020, UNCTAD launched the Reform Accelerator to help accelerate the reform of unbalanced treaty provisions prevalent in the old-generation IIAs.46 The documents published by UNCTAD have had a significant impact on the negotiation of new investment treaties. Most new treaties include key reform elements as set out in UNCTAD’s Road Map. Some parts of the Reform Package have affected the efforts to foster transparency in investment dispute settlement and promoted the initiatives for a standing mechanism for the settlement of investment disputes.47 To sum up, 130 investment agreements were terminated, renegotiated and replaced by newer agreements: renegotiated provisions such as the definition of investment in the Modernised ECT show that investment agreeemnts are able to

 India and Mauritius, Joint Interpretation Statement (‘JIS’) to the India-Mauritius BIT (1998), 11 July 2022. 43  UNCTAD (2018), p. 2. 44  UNCTAD (2018), p. 2. 45  UNCTAD (2021). 46  UNCTAD (2020). 47  UNCTAD (2018), p. 4. 42

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371

reflect the values of the States involved. This shows the dynamicity of investment treaties and the capacity of the States to reassess their priorities, resulting in a positive sum game for all contracting parties.

9.9.3 Designing a Permanent Investment Court For the time being, BITs and Multilateral Agreements are the main source of regulation of FDI, whereas there is no supranational organisation promoting and regulating foreign investment, contrarily to what happens in the trade sector where the WTO governs and encourages coordinated trade policies. In line with the topics brought to the attention of the UNCITRAL Working Group III, as reported by the Secretariat Notes,48 some commentators consider that the current fragmentation of international investment law, as reflected by the numerous IIAs in force, causes several difficulties in the investment sector, and express the need to establish a permanent World Investment Court or a Standing Multilateral Mechanism that could issue consistent investment decisions and create a coherent body of investment law.49 They believe, in fact, that a consistent interpretation of international investment treaties might have the effect of enhancing outflows and inflows of FDI because of an increased confidence in the regime of investment protection. As in any international court, the World Investment Court would be deemed as legitimate if its authority will be considered as just, namely if it operates according to the principles of transparency, independence, impartiality, fairness and neutrality, and its decisions are predictable or consistent. The possibility to establish a permanent court has been explored by several experts. Some of them highlight that such a court might put an end, at least partially, to the fragmentation of international investment law,50 whereas others affirm that it could ensure that more policy space could be reserved to States while in parallel protecting foreign investment, in this way improving the legitimacy of investment arbitration.51 Some scholars write that the establishment of a permanent court will ease the management of ISDS cases and reduce the bureaucratic load in that regard.52 They focus on the time it would be saved in the phase of appointing arbitrators and conflict of interests check. Certain researchers maintain that removing the possibility for disputing parties to appoint the arbitrators would be an advantage in terms of avoiding conflict of

 UNCITRAL Working Group III, Notes by the Secretariat, A/CN.9/WG.III/WP.149 para. 44, and A/CN.9/WG.III/WP.150 para. 47. 49  Howard (2017), p. 1. 50  Lee (2018), p. 1. 51  European Commission (2015). 52  Lee (2018), p. 1. 48

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interests.53 Moreover, these commentators argue that a multilateral investment court could ensure independence and impartiality because of both, the prohibition of double-­hatting and the stability of the adjudicators’ position.54 Finally, one of the advantages applauded by some scholars regards the possibility to improve the predictability of outcomes, which might represent an important feature for an international dispute settlement mechanism.55 Other commentators suggest that, for the establishment of a permanent court, a very large number of States would have to agree to it,56 and that the new court would supplement the current system, adding complexity to it and increasing the fragmentation phenomenon.57 Although the aim is to encourage greater consistency, the risk of inconsistent decisions still exists.58 From the economic point of view, some scholars argue that a permanent court would be more expensive for the disputing parties,59 because there would be a need for a permanent secretariat, which would require funding.60 From the point of view of legitimacy, some researchers comment that a permanent court could be perceived as less legitimised, since, whereas states could appoint the judges, investors could not do so, and since there would be fewer chances to challenge a judge.61 Finally, some scholars fear the emergence of political influence that States might exercise to favour some investors compared to others, based on logics that are distant from the legitimate expectations of the relevant investors.62 However, the examples of the European Court of Human Rights (‘ECtHR’) and the  Inter-American Court of Human Rights (‘IACtHR’) witness the establishment of courts where adjudicators are appointed by States, and that  do not refrain from asserting State’s responsibility in disputes against private parties. The European Commission’s proposed Multilateral Investment Court (‘MIC’) is an advanced plan of building a permanent investment court. The designed features of the MIC Project are aimed to address and effectively resolve the three main issues discussed in this book: transparency, consistency and legitimacy. By creating a standing mechanism for the resolution of investor-State disputes with the application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, ethical requirements for arbitrators, an appeal mechanism, the MIC will meaningfully contribute to improving investor-State dispute settlement, while preserving its core features of adaptability and neutrality.

 Lee (2018), p. 1.  Van Harten (2008). 55  U.N.G.A. (2017). 56  Zuleta (2015), p. 403. 57  Lee (2018), p. 1. 58  Zuleta (2015), p. 403. 59  Lee (2018), p. 1. 60  Zuleta (2015), p. 403. 61  Zuleta (2015), p. 403. 62  Zuleta (2015), p. 403. 53 54

9.10  Reflections on Selected Issues

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9.10 Reflections on Selected Issues From the treaty-making perspective, we are now facing a turning point. Since 2012, more than 150 States have started to rewrite their model investment treaties, and they have additionally begun to issue interpretations, and replace old treaties with newer ones. Calls for a reform are getting louder, and moves towards rethinking both investment arbitration and investment treaty making have been initiated in several fora: procedures to reform arbitral rules were launched in various administering institutions; multilateral reform talks are currently taking place at the United Nations level, with developed countries providing funds in order to allow developing States to take part in meetings; innovative proposals about an investment court composed by tenured adjudicators have been made by the European Commission; and finally, discussions hosted by UNCTAD stressing the importance of sustainable development for an IIA reform see countries actively cooperating. In fact, numerous voices have expressed dissatisfaction with the current method of dispute resolution: several aspects have been identified as being susceptible of improvement. The most common critiques moved to the investment protection system include foreign investors’ access to protection that is not afforded to domestic investors; and the dichotomy between the legitimate expectations of the investors on one side and all other interests on the other. To this aim, different options can be put forward. At the two extremes of the solutions proposed by scholars we find a conservative one, i.e. preserving the status quo, and a radical one, i.e. phasing out the system, terminating investment treaties containing ISDS and entering into new agreements that do not include such method of dispute resolution. In between these two extremes, we can find more balanced solutions. One proposal is based on an integrated approach and focuses on designing and establishing a Standing Mechanism for the resolution of investment disputes, such as the Multilateral Investment Court proposed by the European Commission or the World Investment Court proposed by Howard. Another proposal concerns the amendment of arbitration rules and the renegotiation of IIAs. The radical option of eliminating ISDS from investment treaties is a route already chosen, for instance, by Australia, in the Guide to the Australia-United States Free Trade Agreement: concerning this FTA, the Australian Government of Foreign Affairs and Trade stated that the Investment Chapter does not establish an investor-­ State dispute settlement mechanism, recognising the Parties’ open economic environments and shared legal traditions, and the confidence of investors in the fairness and integrity of their respective legal systems.63 One more country that has eliminated ISDS in its negotiation for a United States-­ Mexico-­Canada Agreement (‘USMCA’), which replaced NAFTA, is Canada. In particular, for investors from and in Canada, ISDS will still be available for existing investments for only three years before NAFTA is terminated. However, this route 63

 Australia – United States Free Trade Agreement, Guide to the Agreement.

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may seem risky especially to capital-importing countries, who may fear that investors could choose to develop their projects elsewhere if they are not protected by a neutral method of dispute resolution, which represents one of the main features of investment arbitration. In fact, it can be observed that Mexico’s position in USMCA differs from Canada’s, giving origin to the following situation: the consent to arbitration expressed from the United States and Mexico is much more limited than that provided for by NAFTA Chapter Eleven, but some protection for United States investors in Mexico, and for Mexican investors in the United States remain in force, due to a strong commitment by Mexico during the negotiations to include them in the new Agreement. On the other side, due to the strong connections between FDI and trade, that positively affect numerous United States businesses operating both in the sector of semi-finished products and in the trade sector, also the United States have eventually agreed to the possibility to maintain some protection for foreign investment in the USMCA in the relationship between the United States and Mexico. Moreover, in the case of investment between Canada and Mexico, investors could bring investment claims relying on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (‘CPTPP’), which entered into force on 30 December 2018 among the first six countries that have ratified the agreement. As the USMCA analysis has demonstrated, if investment arbitration is fully rejected, and the recourse to domestic courts, human rights courts, or State-to-State arbitration is perceived as not feasible, foreign investors can feel that they were not granted the due process they had the right to. Considering this situation, prospective investors can decide to not invest in a particular host State, and this could lead to negative economic consequences both for the host State (loss of employment opportunities, know-how, and tax revenues) and for the home State (loss of semifinished products and export shares). Going back to the reasons why investor-State arbitration has originally been included in different treaties, we can observe that its aim is to provide investors with an alternative, more neutral method of dispute resolution compared to domestic litigation; accessible without the need to involve the home State of the investor as it happens in State-to-State arbitration; and adaptable to the needs of the parties, to cultural changes, and geopolitical challenges. This book finds that it is advisable to modify some aspects of the existing system, entailing a multifaceted and multi-angled approach where a plurality of actors play an operational role, in order to comprehend an ampler series of objectives that includes the protection of the public interest. This research shows that procedural amendments of the investment arbitration system can solve the problems related to transparency (Chap. 5), legitimacy (Chap. 6) and consistency (Chap. 7). One of the most fascinating issues that emerged is the deep level of interconnectedness between the identified procedural aspects. In fact, legitimacy is affected by both transparency and consistency, and amendments increasing the level of

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375

transparency and consistency will ultimately result in greater legitimacy of the whole system.64 To start with, a level of transparency is essential because it contributes to the legitimacy of investment arbitration. In fact, if arbitration was confidential for the most part, awards, procedural orders, other decisions, parties’ submissions, expert reports and amicus curiae briefs, decisions and awards would be available only to the parties, their counsel, and the tribunal: in this way, only a restricted group of people would have access to the arguments and the reasoning of the arbitral tribunal, whereas the non-accessibility of such information would come to the detriment of all other stakeholders. On the other side, if this is requested by the parties, it is also necessary to maintain confidentiality on certain sensitive issues, such as, for instance, business information, classified or protected information. To solve the issue of consistency, intimately connected with the issue of legitimacy, a solution is self-regulation: the adoption of a self-regulation code by administering institutions is advisable, in particular, for an overall coherence of the system of investment arbitration. Taking a step back, when parties to an investment dispute make a parallel to a previous investment case, the tribunal may choose to address such parallel, explaining in the award why the present case differs from or is similar to the preceding one, or it may also choose to disregard the matter in its entirety, leaving the issue unaddressed. In the latter case, lacunae are formed in the body of investment law with regard to the interpretation of a certain rule in a certain context. This is where the code of self-regulation comes into play: by voluntarily deciding to address and evaluate the parallels made by the parties in their submissions to previous cases deemed similar, the tribunals will make a significant step in clarifying and contextualising the interpretation of investment law with reference to previous cases, making a meaningful contribution to the consistency and legitimacy of investment arbitration. Moreover, the establishment of an appeal mechanism would undoubtedly mitigate the risks of errors by arbitration tribunals. The creation of a consistent body of investment law awards increases predictability, enabling the parties to make a more solid estimate on the possible outcome of an investment case, adjusting their conduct accordingly. This development would be positive for the totality of investor-­ State cases and would have a positive impact on the legitimacy of ISDS. Moving to legitimacy tout court, concerning the allegation that investment arbitration is an unbalanced system, it is important to recall that some IIAs include the possibility for the State to file counterclaims against the investor who has not complied with national legislation. Although a claim and a counterclaim are separate and distinct, the possibility to file counterclaims emerges as a fundamental instrument for the equality of arms, since they can provide the State with a method to seek redress for unlawful actions potentially committed by the investor. Section 6.6 has found desirable that the provision of availability of counterclaims be included in

64

 Marisi (2021).

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new or renegotiated IIAs, integrating counterclaims in the scope of the dispute resolution mechanism.

9.11 Conclusive Remarks Over the past 60 years, ISDS attracted both users and critics. Several commentators have argued that investor-State arbitration is a system that lacks transparency, legitimacy, and consistency, that favours the investor and developed countries, and whose body of case law is incoherent. Originally, States responded to the various issues of the ISDS system with dispersed, uncoordinated solutions. States’ responses ranged from terminating investment agreements to drafting revised versions of their model BIT and renegotiating existing investment agreements. In parallel, arbitration institutions have started to revise procedural rules, the UNCTAD has conducted studies and issued recommendations, and discussions have begun at the UNCITRAL Working Group III. Concerning transparency, thanks to an appropriate level of transparency, different regulatory systems can be harmonised, case law can evolve, precision in international law can be promoted, trust in investor-State arbitration can be developed, investor-State arbitration can be legitimised, its outcomes can become more predictable, and public participation can be increased. A higher level of transparency is inherently connected to greater accountability of arbitral tribunals and a stronger level of approbation by stakeholders. In this regard, by developing new rules on transparency, the work of the arbitration community has aimed to increase the level of transparency through the publication of awards, procedural orders, and other decisions, and through the authorisation to participate in the proceedings, although in a limited manner, granted to third parties and non-disputing parties to the investment treaty.65 The participation of third parties was the object of analysis in the UNCITRAL Working Group III,66 and discussion on concrete solutions for an ISDS reform were discussed as of the 38th Session.67 The participants to the UNCITRAL Working Group III acknowledged that the UNCITRAL Transparency Rules govern amicus curiae briefs under Article 4, however, they questioned the level of protection of third parties’ rights, casting doubts on its adequacy. In fact, it is well known that the interests of different kinds of stakeholders might be affected by ISDS disputes. This happens, for instance, when the dispute involves  The concept of non-disputing party to the investment treaty usually indicates the home State of the investor. 66  UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-seventh session (New York, 1–5 April 2019), A/CN.9/970, 9 April 2019, para. 32. 67  The deliberations and decisions of the UNCITRAL Working Group III at its 38th to 45th sessions are set out in Reports A/CN.9/1004*; A/CN.9/1004/Add.1; A/CN.9/1044; A/CN.9/1050; A/ CN.9/1054; A/CN.9/1086; A/CN.9/1092; A/CN.9/1124; A/CN.9/1130; and A/CN.9/1131. 65

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local entities or authorities with rights over land, local communities, or individuals or groups with claims to the property at stake. An example thereof is the situation in which an indigenous community and an investor have clashing claims over the same land, and the investor starts an arbitration case, requesting that the tribunal order the State to issue a clear property deed over the land. Although in general, the State represents the interests of all of its citizens and residents, there might be cases in which its interests conflict with those of a group of stakeholders, leading to the situation where the State will not argue in favour of advancing the rights of that group of stakeholders. As discussed in Chap. 5, depending on the applicable rules, third parties can file a request for leave to intervene as amicus curiae, and an arbitral tribunal may grant this leave under certain conditions. In fact, the UNCITRAL Transparency Rules authorise tribunals to grant leave to intervene to amicus curiae, but they do not require tribunals to do so. The tribunal has the power to impose a number of conditions and to exclude the participation of the amicus curiae from the hearing. Certain tribunals have established the requirement of neutrality for a third party. This has raised criticism, as it does not allow the participation of stakeholders who are potentially affected by the outcome of the dispute. Within the larger group of third parties, the UNCITRAL Working Group III has distinguished the ‘general public’ and the ‘local communities affected by the investment or the dispute’. The mandatory or permissive intervention of third parties has been regulated in several jurisdictions, including Argentina, France, Germany, India, Italy, Russia, Switzerland, and the United States. Similarly, other international dispute settlement mechanisms provide for third party intervention under certain circumstances. Other States or groups of States could consider these experiences, acknowledging that the issue of amicus curiae participation in ISDS has a systemic importance that affects the capacity of ISDS to produce fair solutions and is not merely limited to individual cases. Concerning the issue of legitimacy, some of the topics addressed in Chapter Six have been discussed in the sessions of the UNCITRAL Working Group III. The following can be recalled: the appointment of the members of the tribunal, conflict of interest, issue of conflict, multiple hats, disclosure obligations, the Code of Conduct of adjudicators, and counterclaims. Among these, the issue of counterclaims is of the utmost importance. It was highlighted that counterclaims play a pivotal role in rebalancing ISDS, because the focus of investment treaties is to impose obligations on host States, and not on investors, while granting investors the right to submit a request for arbitration against the host State. It was then found that, based on the applicable rules, few counterclaims have been found in favour of the respondent State, and the majority has been rejected based on lack of jurisdiction or admissibility. This leads to consider the possibility of designing a legal framework in which host States had the right to submit counterclaims: this solution would contribute to making the ISDS system more equitable and fairer. The implementation of such legal framework could be explicitly included in investment agreements under negotiation, revised arbitration rules or under a multilateral instrument for the reform of

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ISDS. It is recommended that the criteria on counterclaims be defined so that arbitral tribunals can decide in a coherent fashion. A further important theme is the Code of Conduct of adjudicators, which was discussed since 2019. The comprehensive term ‘adjudicator’ was used to ensure that the code of conduct would apply to any person that decides investor-State disputes, including arbitrators, judges in a standing tribunal, members of an annulment committee, and judges in an appeal tribunal. This confirms that it was considered important that adjudicators in each phase of the proceedings be required to respect the same rules of conduct, in the protection of transparency of proceedings and of the disputing parties. Moreover, other elements have been identified that make a distinction between arbitrators serving in standing tribunals and arbitrators serving in ad hoc tribunals. Moving to the topic of consistency, the following paragraphs will focus on multiple proceedings and an appellate mechanism. The opportunity to establish measures to prevent the occurrence of multiple proceedings or limiting their impact was examined by the UNCITRAL Working Group III.  The discussions focused on instruments such as the definition of investor and investment, shareholder claims and reflective loss, abuse of process, consolidation, coordination and concentration mechanisms. It was observed that only few of the investment treaties have such mechanisms, and further instruments that are already applied in national legal systems were proposed, including joinder, stay or suspension of proceedings, information-­sharing, lis pendens, res judicata and forum non conveniens. Moreover, it was recommended that the following clauses be formulated and included in investment agreements, arbitral rules or a multilateral instrument on procedural reform: ‘(i) providing the level of indirect ownership required for an investor to acquire standing under an investment treaty; (ii) prohibiting claims by investors where the company itself is pursuing a remedy in a different judicial forum; (iii) permitting a submission of a claim 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; and (iv) limiting forum selection options to claims that have not yet been asserted elsewhere.’68 With regard to the opportunity to introduce an appellate mechanism, the UNCITRAL Working Group III opened the floor to discuss the scope and impacts of an appellate mechanism. Among the main advantages lauded by the intervening countries, we can recall the coherence, fairness and correctness of decisions, and the possibility to rectify errors that could have an impact on public finances. Some delegations have argued that the States parties to the investment treaty should have the right to issue joint interpretations, which should be considered as binding by the appellate tribunal. The delegations did not agree on all points: for instance, whether the States parties have the power to review to a certain extent the

  UNCITRAL Working Group  III, Note by the Secretariat, A/CN.9/WG.III/WP.193, 22 January 2020. 68

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content of a decision of an appellate tribunal. This debate confirms that they are issues of great significance, for which a deeper reflection is needed. A different route for ISDS reform is to found a Standing Multilateral Mechanism. Moving away from ad hoc arbitration, the European Union has been promoting the establishment of a Multilateral Investment Court since 2015. In 2018, the Council issued a mandate to the European Commission to negotiate a convention establishing a multilateral court for the settlement of investment disputes in the framework of the UNCITRAL Working Group III. Provisions on an Investment Court System (‘ICS’) were included in investment treaties negotiated by the European Union, including CETA, EU-Singapore, EU-Vietnam and EU-Mexico. Opinion 1/17 of the Court of Justice of the European Union clarified that the ICS is compatible with the EU treaties. In the discussions on the design of a permanent multilateral body, drafts of texts have started to circulate: on the selection of ISDS tribunal members, talks focused on the requirement of cognizance of public international law and international trade and investment law, expertise in private international law, understanding of the different policies underlying investment, industry-specific knowledge, and knowledge of the relevant domestic legal system. In order to achieve diversity, it was considered that geographical, gender and linguistic diversity and an equitable representation of the different legal systems and cultures would be at the core of the system. Two main options were considered for the appointment of ISDS tribunal members: on the one side, a roster of candidates, and on the other, the establishment of a permanent body composed of full-time adjudicators. The need to revisit the party-­ appointment mechanism in ISDS and to limit the involvement of the disputing parties, thereby limiting party autonomy, was also discussed. In order to ensure neutrality, it was agreed that a cooling-off period between the end of adjudicators’ term and their subsequent professional activities would be introduced. A further path taken with the aim to have IIAs corresponding to the novel demands of States and their communities is the negotiation of new treaties and modernisation of old ones. Since the early 2000s, a new generation of investment agreements has emerged. The more recent treaties include precise definitions, detailed standard, narrower protection, novel exceptions, and additional clarification. These modifications to the earlier treaties have been inserted to strike a balance between offering a welcoming environment for foreign investment and ensuring their protection, while reserving a space for public policy making. States have started to reassess their investment agreements and clarify the scope of vague provisions, with the aim to bring more legal certainty and avoid leaving excessive room to interpretation, which had led to an incoherent body of case law. It is likely that other States will choose to replace older BITs with regional treaties. A multilateral reform on investment agreements will bring innovation and greater balance to investment protection, with a strong impact also on investor-State arbitration. The years 2019–2023 have witnessed a sharp increase in the number of visible changes in the investment protection regime. The negotiations on the ECT modernisation between 2019 and 2022, the proposal for a coordinated withdrawal from the

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ECT in 2023,  the signature of the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union in 2020, the adoption of the UNCITRAL Expedited Arbitration Rules in 2021, the release of the revised version of the ICSID Arbitration Rules and Regulations in 2022: all of these signs show a crescendo in the voices that are crafting a reform of investor-State dispute settlement, and they allow to predict that the near future will see even deeper changes. In the latest years, beyond negotiating investment treaties with third countries and working on the design of the Multilateral Investment Court, the European Union has also been active in the ECT modernisation process, where Executive Vice-­ President Dombrovskis declared that the Commission would guard on the alignment of the reform with core EU values.69 In parallel, the decisions and opinions of the Court of Justice of the EU acted as catalysts in the development of the relationship between investment arbitration and EU law, finding that intra-EU ISDS has an adverse impact on the autonomy of EU law. In Slovak Republic v Achmea BV, the Court of Justice found that intra-EU investment agreements and arbitration provisions are incompatible with EU law. In République de Moldavie v Komstroy LLC, the Court of Justice clarified that intra­EU cases arising out of the Energy Charter Treaty are incompatible with EU law. In Republic of Poland v PL Holdings Sàrl, the Court of Justice of the EU reached the same conclusion on ad hoc arbitration agreements with the same content as arbitration clauses of intra-EU BITs. To conclude, there is undoubtedly room for improvement in several features of ISDS. Options for a reform have been proposed at different levels by practitioners, stakeholders, scholars, and policymakers. The interactions of users and thinkers create a fertile ground to exchange, select and cultivate ideas. Globally, only a fraction of States have walked away from offering foreign investors a dispute settlement method to protect their investments. Instead, several States and other actors are actively participating in the UNCITRAL Working Group III negotiations, in conferences and in public consultations, and are presenting their views on how the system can be refined. The discussion, adoption, and enactement of the proposals in consideration of various stakeholders’ interests will enable the improvement of the system. The involved stakeholders include the investor, the investor’s employees and contractors working on the ongoing projects, and indirect stakeholders such as those who have an interest in the activity of the investor, including customers, inhabitants of the host State, NGOs, and civil society. Moreover, global commons such as the earth’s shared natural resources, the oceans, and the atmosphere are affected by certain investments, which therefore have a worldwide impact. Conversely, the interdependence of our global supply chains, which sees the materials sourced in several countries, the manufacturing of

 Answer given by Executive Vice-President Dombrovskis on behalf of the European Commission, 2 December 2020, P-005555/2020. 69

References

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various components occurring in various countries, the assembling taking place in a further country, and the final product being exported in numerous other countries, shows that those who can benefit from a refined and more balanced ISDS system do not only include the investor and the host State, but the entire planet. The interconnectedness of the world’s economies substantiates the inescapability of the need to reform and redesign an effective and fair system, treasuring from the success stories and positive experiences thus far and building sustainable and multilaterally-agreed ways to promote and protect investments, walking with faith and trust towards a shared and brighter future.

References Australia – United States Free Trade Agreement, Guide to the Agreement Bjorklund AK, Behn D, Franck SD, Giorgetti C, Kidane W, de Nanteuil A, Onyema E (2020) The diversity deficit in international investment arbitration. J World Invest Trade 21:410–440 Calvert J (2018) Constructing investor rights? Why some states (fail to) terminate bilateral investment treaties. Rev Int Polit Econ 25(1):75–97 Dominican Republic – Central America FTA (CAFTA-DR FTA) European Commission (2015) Why the New EU Proposal For An Investment Court System in TTIP is Beneficial to both States and Investors European Commission (2023a) Proposal for a Council Decision on the withdrawal of the Union from the Energy Charter Treaty, 7 July 2023, COM(2023) 447 final European Commission (2023b) Commission Decision of 7.7.2023 withdrawing the Proposal for a Council Decision on the position to be taken on behalf of the European Union the 33rd meeting of the Energy Charter Conference, 7 July 2023, COM(2022) 521 final Fisher R, Ury W (2012) Getting to yes (new edition): Negotiating an agreement without giving in, Random UK, London Franck S & Wylie LE (2015) Predicting Outcomes in Investment Treaty Arbitration. Duke Law Journal 65:459 Glamis Gold, Ltd. v United States of America, UNCITRAL, Award, 8 June 2009 Howard DM (2017) Creating consistency through a world investment court. Fordham Int Law J 41(1):1 Huikuri T-A (2022) Constraints and Incentives in the Investment Regime: How bargaining power shapes BIT reform. Rev Int Organ ICC (2014) Mediation Rules ICC (2017) Arbitration Rules ICSID (2006) Convention, Regulations and Rules ICSID (2016-2018) Public Comments to Amendment of ICSID’s Rules and Regulations ICSID (2018) Proposals for Amendment of the ICSID Rules  — Consolidated Draft Rules, 2 August 2018 India and Mauritius, Joint Interpretation Statement (‘JIS’) to the India-Mauritius BIT (1998), 11 July 2022 Kidane W (2017) The culture of international arbitration. Oxford University Press, Oxford Kydd AH (2015) International relations theory. Cambridge University Press, Cambridge Lee J (2018) Mending the wound or pulling it apart? New proposals for international investment courts and fragmentation of international investment law. Northwest J Int Law Bus 39(1):1 Malanczuk P (2011) Akehurst’s modern introduction to international law. Routledge, London Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, ICSID Case No. ARB/09/20, Award, 16 May 2012

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Marisi F (2021) The importance of transparency for legitimizing investor-state dispute settlement. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international investment law and policy. Springer, Singapore, pp 1576–1580 Merrill & Ring Forestry L. P. Claimant v The Government Of Canada, ICSID Case No. UNCT/07/1, Award, 31 March 2010 Mourra MH (2008) The conflicts and controversies in Latin American treaty-based disputes. In: Mourra MH, Carbonneau TB (eds) Latin American investment treaty arbitration: the controversies and conflicts. Wolters Kluwer, Alphen aan den Rijn, pp 5–68 Perenco Ecuador Limited The v Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador, ICSID Case No. ARB/08/6 Phillips KW (2014) How diversity makes us smarter. Scientific American, 1 October 2014 Risse J (2015) A new “Investment Court System” – reasonable proposal or nonstarter?. Global Arbitration News SCC (2017) Arbitration Rules SIAC (2017) Investment Arbitration Rules Sommers SR (2006) On racial diversity and group decision making: identifying multiple effects of racial composition on jury deliberations. J Pers Soc Psychol 90(4):597 Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. v The Argentine Republic, ICSID Case No. ARB/03/19, Técnicas Medioambientales Tecmed S.A. v The United Mexican States, Case No. ARB (AF)/00/2, Award, 29 May 2003 UNCITRAL Working Group III (2019a), A/CN.9/970, 9 April 2019 UNCITRAL Working Group III (2019b–2022), A/CN.9/1004*; A/CN.9/1004/Add.1; A/ CN.9/1044; A/CN.9/1050; A/CN.9/1054; A/CN.9/1086; and A/CN.9/1092 UNCITRAL Working Group III (2020), A/CN.9/WG.III/WP.193, 22 January 2020 UNCTAD (2018) UNCTAD’s Reform Package for the International Investment Regime. October 2018 UNCTAD (2021) IIA Issue Notes, Review of ISDS Decisions in 2019: Selected IIA Reform Issues. January 2021 UNGA (2017) Possible Future Work in the Field of Dispute Settlement: Reforms of Investor-State Dispute Settlement (ISDS) Van Harten G (2008) A Case For an International Investment Court. Society for International Economic Law (SIEL) Inaugural Conference Paper Zuleta E (2015) The challenges of creating a standing international investment court. In: Joubin-­ Bret A, Kalicki J (eds) Reshaping the investor-state dispute settlement system: journey for the 21st century. Brill Nijhoff, Leiden, pp 403–423

Tables of Cases

ICSID 9REN Holding S.a.r.l v Kingdom of Spain, ICSID Case No. ARB/15/15 Abaclat and Others v Argentine Republic (formerly Giovanna Beccara and Others v The Argentine Republic), ICSID Case No. ARB/07/5 Adriano Gardella S.p.A. v. Côte d’Ivoire, ICSID Case No. ARB/74/1 AES Corporation v Argentine Republic, ICSID Case No. ARB/02/17 Aguas dal Tunari SA v The Republic of Bolivia, ICSID Case No. ARB/03/02 Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v The Republic of Estonia, ICSID Case No. ARB/99/2 Alicia Grace and others v Mexico, ICSID Case No. UNCT/ 18/ 4 Amco Asia Corp v Republic of Indonesia (Amco Asia), ICSID Case No. ARB/81/1 Antoine Goetz v Rep. of Burundi, ICSID Case No. ARB/95/3 Azurix Corp. v Argentina, ICSID Case No. ARB/01/12 Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v Democratic Republic of the Congo, ICSID Case No. ARB/98/7 BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v Kingdom of Spain, ICSID Case No. ARB/15/16 Bernhard von Pezold and others v Republic of Zimbabwe, ICSID Case No. ARB/10/15 Biwater Gauff (Tanzania) Limited v United Republic of Tanzania, ICSID Case No. ARB/05/22 Blue Bank International & Trust (Barbados) Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/20 Burlington Resources Inc. v Republic of Ecuador, ICSID Case No. ARB/08/5 Caratube International Oil Company LLP and Devincci Salah Hourani v Republic of Kazakhstan, ICSID Case No. ARB/13/13

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384

Tables of Cases

Conoco Phillips Company et al. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30 Continental Casualty Company v The Argentine Republic, ICSID Case No. ARB/03/9 Cube Infrastructure Fund SICAV and others v Kingdom of Spain, ICSID Case No. ARB/15/20 EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v Argentine Republic, ICSID Case No. ARB/03/23 Eiser Infrastructure Limited and Energía Solar Luxembourg S.à.r.l. v Kingdom of Spain, ICSID Case No. ARB/13/36 Electrabel SA v The Republic of Hungary, ICSID Case No. ARB/07/19 Eskosol S.p.A. in liquidazione v Italian Republic, ICSID Case No. ARB/15/50 Fábrica De Vidrios Los Andes, C.A.  And Owens-Illinois De Venezuela, C.A. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/21 Fedaz N.V. v Venezuela, ICSID Case No. ARB/96/3 Greentech Energy Systems A/S, et al. v Italian Republic, SCC Case No. V 2015/095 Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v Kingdom of Spain, ICSID Case No. ARB/15/42 Inceysa Vallisoletana S.L. v Republic of El Salvador, ICSID Case No. ARB/03/26 Infrastructure Services Luxembourg S.à.r.l. and Energia Termosolar B.V. (formerly Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V.) v. Kingdom of Spain, ICSID Case No. ARB/13/31 Ioan Micula, Viorel Micula, S.C.  European Food S.A., S.C.  Starmill S.R.L. and S.C. Multipack S.R.L. v Romania, ICSID Case No. ARB/05/20 Jan de Nul N.V. and Dredging International N.V. v Arab Republic of Egypt, ICSID Case No. ARB/04/13 Joseph Charles Lemire v Ukraine, ICSID Case No. ARB/06/18 Klöckner Industrie-Anlagen v Republic of Cameroon (Klöckner I), ICSID Case No. ARB/81/2 Landesbank Baden-Württemberg et  al. v Kingdom of Spain, ICSID Case No. ARB/15/45 Loewen Group Inc and Raymond L Loewen v United States, ICSID Case No. ARB(AF)/98/3 Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, ICSID Case No. ARB/09/20 Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1 Merrill & Ring Forestry L. P. v The Government of Canada, ICSID Case No. UNCT/07/1 Metalclad Corporation v The United Mexican States, ICSID Case No. ARB(AF)/97/1 Metal-Tech Ltd. v Republic of Uzbekistan, ICSID Case No. ARB/10/3 MTD Equity SDN. BHD. and MTD Chile S.A. v Republic of Chile, ICSID Case No. ARB/01/7 Occidental v Republic of Ecuador, ICSID Case No. ARB/06/11 OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v Kingdom of Spain, ICSID Case No. ARB/15/36

Tables of Cases

385

Pacific (Pac)  Rim Cayman LLC v Republic of El Salvador,  ICSID Case No. ARB/09/12 Perenco Ecuador Limited v The Republic of Ecuador, ICSID Case No. ARB/08/6 Plama Consortium Limited v Republic of Bulgaria, ICSID Case No. ARB/03/24 Repsol, S.A. and Repsol Butano, S.A. v Argentine Republic, ICSID Case No. ARB/12/38 Rockhopper Italia S.p.A., Rockhopper Mediterranean Ltd, and Rockhopper Exploration Plc v Italian Republic, ICSID Case No. ARB/17/14 Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5 RWE Innogy GmbH and another v Kingdom of Spain, ICSID Case No. ARB/14/34 Salini v Kingdom of Morocco, ICSID Case No. ARB/00/04 Saint-Gobain Performance Plastics Europe v Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13 Spyridon Roussalis v Romania, ICSID Case No. ARB/06/1 Stadtwerke München GmbH and others v Kingdom of Spain, ICSID Case No. ARB/15/1 Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v Argentina, ICSID Case No. ARB/03/19 Swisslion DOO Skopje v Former Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16 Técnicas Medioambientales Tecmed S.A. v the United Mexican States, ICSID Case No ARB(AF)/00/2 Telefónica S.A. v United Mexican States, ICSID Case No. ARB(AF)/12/4 Tidewater Inc. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5 United Parcel Service of America Inc. v Government of Canada, ICSID Case No. UNCT/02/1 United Utilities (Tallinn) B.V. and AS Tallinna Vesi Claimants v Republic of Estonia Respondent, ICSID Case No. ARB/14/24 UP and C.D Holding Internationale v Hungary, ICSID Case No. ARB/13/35 Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Bizkaia Ur Parzerguoa v The Argentine Republic, ICSID Case No. ARB/07/26 Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG &Co. KG v Federal Republic of Germany, ICSID Case No. ARB/12/12 Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v Federal Republic of Germany (I) (ICSID Case No. ARB/09/6) (formerly Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG & Co. KG v The Federal Republic of Germany) Waguih Elie George Siag and Clorinda Vecchi v Arab Republic of Egypt, ICSID Case No. ARB/05/15

386

Tables of Cases

NAFTA Chemtura Corporation v Government of Canada, NAFTA/UNCITRAL GAMI Investments, Inc. v Mexico, NAFTA/UNCITRAL Glamis Gold Ltd. v United States of America, NAFTA/UNCITRAL Methanex Corporation v United States of America, NAFTA/UNCITRAL S.D. Myers Inc. v Canada, NAFTA/UNCITRAL

Permanent Court of Arbitration and Other Cases Achmea B.V. v The Slovak Republic, UNCITRAL, PCA Case No. 2013-12 Antaris Solar GmbH and Dr. Michael Göde v Czech Republic, PCA Case No. 2014-01 British Caribbean Bank Ltd. v Belize, PCA Case No. 2010/18 CME Czech Republic BV v Czech Republic, UNCITRAL Egypt v Suez Canal Company, 1864 EnCana Corporation v Ecuador, LCIA Case No UN3481 (formerly EnCana Corporation v Government of the Republic of Ecuador) Hesham T. M. Al Warraq v Republic of Indonesia, UNCITRAL Jan Oostergetel and Theodora Laurentius v Slovak Republic, UNCITRAL Komstroy (formerly Energoalians) v. Republic of Moldova, UNCITRAL Luigiterzo Bosca v Republic of Lithuania, PCA Case No. 2011-04 Oxus Gold v Republic of Uzbekistan, UNCITRAL Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12 Republic of Italy v Republic of Cuba, ad hoc State-State arbitration, 2008 Ronald S. Lauder v Czech Republic, UNCITRAL Saluka Investments BV v Czech Republic, UNCITRAL Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v Mongolia, UNCITRAL Texaco Overseas Petroleum Company v. The Government of the Libyan Arab Republic The Factory at Chorzów (Germany v Poland), Permanent Court of International Justice, 1928 Vito Gallo v Canada, UNCITRAL Westinghouse Electric Corp v Islamic Republic of Iran, Case No. 389, 12 February 1987, Award 6 Iran-US CTR II, 1984

Tables of Cases

387

Stockholm Chamber of Commerce Athena Investments A/S v the Kingdom of Spain, SCC Case No. 150/2015 CEF Energia BV v Italian Republic, SCC Case No. 158/2015 Foresight Luxembourg Solar 1 S.À.R.L., et al. v Kingdom of Spain, SCC Case No. 2015/150 Novenergia II  - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v The Kingdom of Spain, SCC Case No. 2015/063

International Court of Justice Ambatielos Claim (Greece v U.K.) 23 I.L.R. 306, 344 (1956) Elettronica Sicula S.p.A. (ELSI) case (U.S. v Italy), International Court of Justice, 1989 Interhandel (Switzerland v United States of America), 1959 ICJ Rep. 6, 27 Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v. Nigeria: Equatorial Guinea intervening) Mavrommatis Palestine Concessions (Greece v U.K.), P.C.I.J. Reports, 1924, Series A, No. 2, 12 Nottebohm (Liechtenstein v Guatemala), International Court of Justice, 1955 Panevezys Saldutiskis Railway case (Estonia v Lithuania), P.C.I.J. Reports, 1939, Series A/B, No. 76, 16

WTO DS248: United States — Definitive Safeguard Measures on Imports of Certain Steel Products DS257: United States — Final Countervailing Duty Determination with respect to certain Softwood Lumber from Canada DS265: European Communities — Export Subsidies on Sugar DS269: European Communities—Customs Classification of Frozen Boneless Chicken Cuts DS308: Mexico — Tax Measures on Soft Drinks and Other Beverages DS332: Brazil — Measures Affecting Imports of Retreaded Tyres DS342: China — Measures Affecting Imports of Automobile Parts DS434: Australia  — Certain Measures Concerning Trademarks and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging DS435: Australia  — Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging

388

Tables of Cases

Court of Justice of the European Union European Commission v European Food SA and Others, Case C-638/19 P Genentech Inc. v Hoechst GmbH, formerly Hoechst AG, Sanofi-Aventis Deutschland GmbH, Case C-567/14 Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co. KG and Reederei Friedrich Busse Hochseefischerei Nordstern AG & Co. KG., Case C-102/81 République de Moldavie v Komstroy LLC, Case C-741/19 Republic of Poland v PL Holdings S.à.r.l., Case C-109/20 Slovak Republic v Achmea BV, Case C-284/16

National Courts Green v Biddle, 21 US 1, 17, 1823 Kiobel v Royal Dutch Petroleum Co., 621 F.3d 111, 149 (2d Cir. 2010) National Iranian Oil Company (NIOC) v the State of Israel, Cour de Cassation, France, Judgment No. 404 of 1 February 2005 Republic of Ghana v Telekom Malaysia Berhad, District Court of The Hague, civil law section, provisional measures judge, Challenge No. 13/2004 République De Moldavie contre Société Komstroy venant aux droits de la société Energoalians, Cour d’Appel de Paris, Pôle 1 - Chambre 1 Arrêt du 12 Avril 2016, Numéro d’inscription au répertoire général : 13/22531 Republic of Poland. v PL Holdings, Svea Court of Appeal, Case No. T 8538-17

Table of Treaties and Other Documents

• Acuerdo de Cooperación y de facilitación de las inversiones entre la Repùblica federativa del Brasil y los Estados Unidos Mexicanos, 2015 • Acuerdo Para La Promoción Y La Protección Reciproca De Inversiones Entre El Reino De España Y La Repùblica Argentina, 1991 • Agreement between Japan and the Republic of Iraq for the Promotion and Protection of Investment • Agreement Between The European Union And Japan For An Economic Partnership • Agreement Between the Government of Canada and the Government of the People's Republic of China for the Promotion and Reciprocal Protection of Investments, 2012 • Agreement Between The Government Of Japan And The Government Of The Independent State Of Papua New Guinea For The Promotion And Protection Of Investment, 2011 • Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Arab Republic of Egypt for the Promotion and Protection of Investments, 1975 • Agreement between The Swiss Confederation and The Arab Republic of Egypt on the Promotion and Reciprocal Protection of Investments, 2010 • Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, 2020 • Articles of Agreement of the International Bank for Reconstruction and Development (IBRD), 1945 • ASEAN Comprehensive Investment Agreement, 2009 • Benin – Canada BIT, 2013 • Brazil-US, Treaty of Amity, Commerce, and Navigation, 1828 • Burkina Faso – Canada BIT, 2015 • Cameroon – Canada BIT, 2014 • Canada - Côte d’Ivoire BIT, 2014 © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Marisi, Rethinking Investor-State Arbitration, Studies in European Economic Law and Regulation 27, https://doi.org/10.1007/978-3-031-38184-3

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390

• • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Table of Treaties and Other Documents

Canada – Guinea BIT, 2015 Canada – Honduras FTA, 2013 Canada – Korea FTA, 2014 Canada – Mali BIT, 2014 Canada – Mongolia BIT, 2016 Canada – Senegal BIT, 2014 Canada – Serbia BIT, 2014 Canada Model FIPA, 2004 China and Denmark Agreement concerning the encouragement and reciprocal protection of investments, 1985 Civil Procedure Code of Azerbaijan Republic, 1999 Civil Procedure Code of the Russian Federation, 2002 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), 2018 Comprehensive Economic And Trade Agreement (CETA) Between Canada, Of The One Part, And The European Union, 2016 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) 1958 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 Council of the European Union, Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes, 20 March 2018 Déclaration du Royaume de Belgique relative aux conditions depleins pouvoirs par l’Etat fédéral et les Entités fédérées pour la signature du CETA, 27 October 2016 Declaration of the 1st Ministerial Meeting of Latin American States Affected by Transnational Interests, 22 April 2013 Decree No. 8.413 of Venezuela published in the Gaceta Oficial No. 39.759 on 16 September 2011 Deutscher Bundestag, Plenarprotokoll 18/54, 25 September 2014 Dominican Republic-Central America-United States FTA (CAFTA-DR), 2004 Draft Convention on Investments Abroad (ABS-Shawcross Draft Convention), 1959 EU  – China Comprehensive Agreement on Investment (CAI), Agreement in Principle EU  – Mercosur Association Agreement, Trade Part, Text of the Agreement in Principle EU – Mexico Global Agreement, Trade Part, Text of the Agreement in Principle EU – Singapore FTA, 2018 EU – Singapore IPA, 2018 European Commission, Investment Protection and Investor-to-State Dispute Settlement (ISDS) in EU agreements. Executive Summary: A New Start of Investment and Investment Protection, 2013 European Commission, Overview of FTA and Other Trade Negotiations, 2022

Table of Treaties and Other Documents

391

• European Commission, The Multilateral Investment Court Project, 2015 • European Commission, Why the New EU Proposal For An Investment Court System in TTIP is Beneficial to both States and Investors, 2015 • European Convention on International Commercial Arbitration, 1961 • European Convention on Human Rights, 1950 • EU – Vietnam Investment Protection Agreement, 2019 • Free Trade Agreement Between The Government Of Australia And The Government Of The People’s Republic Of China, 2015 • General Agreement On Tariffs And Trade, 1994 • HKIAC Administered Arbitration Rules, 2018 • Hungary – Kyrgyzstan BIT, 2020 • Hungary – San Marino BIT, 2022 • ICC Arbitration Rules, 2021 • ICDR International Dispute Resolution Procedures, 2021 • ICSID Convention, Regulation and Rules, 2006 • ICSID, Proposals for Amendment of the ICSID Rules, Working Paper, 2018 • India Model BIT, 2015 • Investment Agreement For The COMESA Common Investment Area (Common Market For Eastern And Southern Africa), 2007 • Iran-United States Claims Tribunal, 1981 • LCIA Arbitration Rules, 2020 • Mexico – Panama FTA, 2014 • Mexico – Trinidad and Tobago BIT, 2006 • Multilateral Agreement on Investment, 1995-1998 • NAFTA Free Trade Commission, ‘Note on Interpretation of Certain Chapter 11 Provisions’, 31 July 2001 • Netherlands draft model BIT, 2018 • New Zealand – Taiwan Economic Cooperation Agreement, 2013 • North American Free Trade Agreement (NAFTA), 1992 • Norwegian Dispute Act, 2005 • OECD, Benchmark Definition of Foreign Direct Investment, 2008 • OECD, Draft Convention on the Protection of Foreign Property, 1962 • OECD, Draft Multilateral Agreement on Investment, DAFFE/MAI (98)7/ REV1, 1998 • OECD, International Investment Law: Understanding Concepts and Tracking Innovations, 2008 • OECD, Latin American Economic Outlook, 2008 • OECD, International Investment Law: A Changing Landscape, 2005 • OHCHR, EU Trade agreements: UN rights expert warns against bypassing national parliaments, press release, 2016 • PCA Arbitration Rules, 2012 • Protocol Pacific Alliance, 2014 • Republic of Korea – New Zealand FTA, 2015 • SCC Arbitration Rules, 2017 • Seoul Protocol on Video Conference in International Arbitration, 18 March 2020

392

Table of Treaties and Other Documents

• SIAC Investment Rules, 2017 • Statement of Canada on Open Hearings in NAFTA Chapter Eleven Arbitrations, 7 October 2003 • Swedish Code of Judicial Procedure, 1942 • The Hague Convention for the Pacific Settlement of International Disputes 1899 • The International Energy Charter Consolidated Energy Charter Treaty, with Related Documents, 2016 • The Universal Declaration of Human Rights, 1948 • Treaty Between The Government Of The United States Of America And The Government Of The Republic Of Rwanda Concerning The Encouragement And Reciprocal Protection Of Investment, 2008 • Treaty of Amity and Commerce between His Majesty the King of Prussia, and the United States of America, 1785 • Treaty of Amity Commerce and Navigation, between His Britannick Majesty and The United States of America, by Their President, with the advice and consent of Their Senate, 1794 • Treaty of Friendship, Commerce and Economic Development, United States-­ Uruguay, 1950 • Treaty of Friendship, Commerce and Navigation Between Argentina and the United States, 1853 • Treaty of Friendship, Commerce and Navigation, United States-Denmark, 1951 • Treaty of Friendship, Commerce and Navigation, United States-Israel, 1951 • Treaty of Friendship, Commerce and Navigation, United States-Italy, 1948 • Treaty of Friendship, Commerce and Navigation, United States-­Netherlands, 1956 • Treaty of Friendship, Commerce and Navigation, United States-Nicaragua, 1956 • Treaty of Friendship, Commerce, and Navigation, United States-West Germany, 1954 • Treaty of Friendship, Establishment and Navigation, United States-­ Luxembourg, 1962 • Treaty of Friendship, Establishment and Navigation, United States-­Belgium, 1961 • Treaty of Friendship, Limits, and Navigation Between Spain and The United States, 1795 • Treaty of Functioning of the European Union, Official Journal of the European Union, 2012 • Treaty of Peace and Friendship between the United States of America and Morocco, 1786 • UK-Tanzania BIT, 1994 • United Kingdom Model BIT, 2008 • U.S. Model Bilateral Investment Treaty - Treaty Between The Government Of The United States Of America And The Government Of [Country] Concerning The Encouragement And Reciprocal Protection Of Investment, 2012 • U.S.  Model BIT Treaty Between The Government Of The United States Of America And The Government Of [Country] Concerning The Encouragement And Reciprocal Protection Of Investment, 2004 • UN Convention on the Law of the Sea, 10 December 1982, 1982

Table of Treaties and Other Documents

393

• UNCITRAL, Report, Settlement of commercial disputes: preparation of a legal standard on transparency in treaty-based investor-State arbitration, Working Group II (Arbitration and Conciliation) of the work of its fifty-third session (Vienna, 4–8 October 2010), A/CN9/712, 20 October 2010 • UNCTAD, Reform of Investor-State Dispute Settlement: In Search of a Roadmap, 2013 • United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, 2014 • United Nations General Assembly (UNGA) Possible Future Work in the Field of Dispute Settlement: Reforms of Investor-State Dispute Settlement (ISDS), 2017 • United Nations General Assembly (UNGA) Resolution 1803 (XVII) ‘Permanent sovereignty over natural resources’, 1962 • United Nations, Report of the Committee on the Enforcement of International Arbitral Awards, UN Doc. E/2704 and E/AC.42/4/Rev.1, 28 March 1955 • United Nations Security Council, ‘The rule of law and transitional justice in conflict and post-conflict societies’, Report of the Secretary-General, 2004 • United Nations, Draft Articles on Diplomatic Protection with commentaries, 2006 • VIAC Rules of Arbitration and Mediation 2018 • Vienna Convention on the Law of Treaties, 1969

Index

A Abaclat and Others v Argentine Republic (formerly Giovanna Beccara and Others v The Argentine Republic), 120, 131, 211 Accessibility, 101, 109, 112, 113, 125, 182, 302, 354, 357, 360 Achmea B.V. v The Slovak Republic, 321 See also Slovak Republic v Achmea BV Ad hoc commissions, 20–22, 41, 356 ADF Group Inc. v United States of America, 207 AES Corporation v Argentine Republic, 24, 27, 259 Aguas dal Tunari SA v The Republic of Bolivia, 158, 161, 162, 270 Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v The Republic of Estonia, 233 Alicia Grace and others v Mexico, 318 Am. Mfg. & Trading Inc. (AMT) v Zaire, 259 Amco Asia Corp v Republic of Indonesia, 129–131, 232, 236, 284, 286 Amicus curiae, 68, 89, 101, 113, 114, 133, 138, 148, 182, 315–318, 336, 354, 360, 361, 365–367, 375–377 Anglian Water Group (AWG) v Argentina, 92 Annulment of awards, 5, 244, 283–293, 307, 327, 331, 347, 354, 366 Antaris Solar GmbH and Dr. Michael Göde v Czech Republic, 324 Antin Energia Termosolar B.V. v the Kingdom of Spain, 324 Antoine Goetz v Rep. of Burundi, 232, 259

Appeal, 5, 6, 27, 118, 149, 195, 208, 255, 263, 287, 290, 293–300, 307, 319, 330, 331, 333, 341, 343, 347, 348, 354, 372, 375, 378 Appointment criteria, 210 Appointment of arbitrators, 39, 210–213, 342, 347, 358, 365, 368 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v United Mexican States, 24 Asian Agric. Prod. Ltd. (AAPL) v Sri Lanka, 259 Association of Southeast Asian Nations (ASEAN), 118, 150 Athena Investments A/S v the Kingdom of Spain, 324 Australia – Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, 140 Azurix Corp. v Argentina, 229, 259 B Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v Democratic Republic of the Congo, 271 BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v Kingdom of Spain, 317 BG Group Plc. v The Republic of Argentina, 92

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 F. Marisi, Rethinking Investor-State Arbitration, Studies in European Economic Law and Regulation 27, https://doi.org/10.1007/978-3-031-38184-3

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396 Bilateral Investment Treaties (BITs), 10, 11, 35, 54, 113, 119, 194, 269, 270, 316, 327–329, 333, 356, 360, 364, 368, 369, 371, 379, 380 Biwater Gauff (Tanzania) Limited v United Republic of Tanzania, 99, 108, 112, 130, 131, 160, 162–169, 361 Blue Bank International & Trust (Barbados) Ltd. v Bolivarian Republic of Venezuela, 211 British Caribbean Bank Ltd. v Belize, 131 Bundesgerichtshof, Case I ZB 2/15, 319 Burlington Resources Inc. v Republic of Ecuador, 211, 232, 233, 243 C Calvo Doctrine, 25–28 Camuzzi International S.A. v Argentine Republic (II), 259 Capital exporting countries, capital exporting states, 9, 13, 15, 26, 31, 32, 36, 85, 181, 182 Capital importing countries, capital importing states, 9, 14, 28, 31, 369, 374 Capitulation system, 15–17 Caratube International Oil Company LLP and Devincci Salah Hourani v Republic of Kazakhstan, 225 CEF Energia BV v Italian Republic, 322 Central America Free Trade Agreement (CAFTA), 39, 141, 170, 172, 361 Chemtura Corporation v Government of Canada, 130 CMS Gas Transmission Company v The Republic of Argentina, 92, 259, 266, 285 COMESA Common Investment Area (CCIA), 118 Commercial arbitration, 34, 35, 37–41, 103, 107, 128, 129, 131, 174, 177, 196, 199, 225, 236, 335, 354 Common Market for Eastern and Southern Africa (COMESA), 234 Compañia de Aguas del Aconquija, S.A. and Vivendi Universal S.A. v Argentine Republic, 259, 284 Comprehensive Economic and Trade Agreement (CETA), 5, 66, 73, 116–117, 142–144, 170, 174, 194, 195, 211, 212, 222, 273, 274, 300–302, 338–341, 344, 348, 361, 379

Index Confidentiality, 4, 6, 35, 38, 93, 94, 99, 100, 102–106, 108, 112, 116, 120, 125, 127–131, 133–135, 137, 145, 155, 158, 162, 164, 178, 182, 214, 247, 354, 361, 365, 375 Conflict of interest, 210–211, 215–218, 220, 344, 371, 377 Conoco Phillips Company et al. v Bolivarian Republic of Venezuela, 211 Consortium Groupement L.E.S.I.-Dipenta v Algeria, 260 Continental Casualty Company v The Argentine Republic, 93 Copper Mesa Mining Corp v Ecuador, 68 Corporate social responsibility (CSR), ix, 50, 71–74, 80, 106, 358 Cost, 35, 53, 55, 57, 76, 80, 105, 107, 143–146, 151, 155, 157, 242, 243, 247, 260, 262–264, 293, 295–296, 298, 300, 301, 307, 342, 348, 358, 366, 368 Counterclaims, 6, 67, 68, 87, 232–245, 292, 348, 362, 363, 365, 367, 375, 377, 378 Cour D’appel De Paris, 330 Cour de cassation, 207, 209, 281, 330 Court of Justice of the European Union (CJEU), 12, 40, 95, 302–305, 307, 336–341, 379 Covid-19, ix, 6, 54–55, 79 Cube Infrastructure Fund SICAV and others v Kingdom of Spain, 317 Customary International Law (CIL), 15, 22–24, 32, 68, 149, 241 D Daimler Financial Services AG v Argentine Republic, 92 Developed countries, 91, 193, 194, 268, 348, 373, 376 Developing countries, 28–32, 36, 37, 42, 86, 91, 94, 158, 194, 242, 268, 296 Diplomatic protection, 21–25, 27, 28, 41, 139, 140, 170–173, 271, 273, 274, 356 Disclosure, 108, 127, 128, 132–136, 156, 158, 161, 164, 165, 168, 214, 215, 217, 218, 224, 246, 247, 368, 377 Diversity, ix, 6, 50, 62–66, 79, 345, 358, 379 Due process, 39, 53, 55, 61, 205–209, 247, 263, 264, 326, 374

Index E EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v Argentine Republic, 93, 200 Eiser Infrastructure Limited and Energía Solar Luxembourg S.à.r.l. v Kingdom of Spain, 322, 324 El Paso Energy International Co. v Argentine Republic, 93, 277, 281 Electrabel SA v The Republic of Hungary, 200, 201, 225 Elettronica Sicula S.p.A. (ELSI) case (U.S. v Italy), 140 Energoalians TOB v Republic of Moldova, 330 Energy Charter Treaty (ECT), 39, 78–80, 99, 100, 106, 109, 225, 272, 315, 317, 318, 321–327, 329–332, 335, 358, 360, 368, 370, 379, 380 Equality of arms, 9, 274, 348, 375 Eskosol S.p.A. in liquidazione v Italian Republic, 322 EU law, 3, 6, 39, 40, 89, 95, 150, 302–305, 307, 315–326, 328, 329, 331–333, 335, 337, 339, 340, 348, 355, 359, 364, 380 European Commission, 5, 36, 37, 57, 102, 106, 117, 150, 174, 194, 195, 220, 222, 300, 305–307, 315–318, 322, 323, 325, 327, 328, 331, 332, 334, 337, 345, 348, 355, 364, 368, 371–373, 379, 380 European Commission v European Food SA and Others, 316, 334–335 See also European Commission v European Food SA and Others; Ioan Micula, Viorel Micula, S.C. European Food S.A., S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v Romania European Court of Justice (ECJ, CJEU), 40, 302–305, 307, 338–340 F Fábrica De Vidrios Los Andes, C.A. And Owens-Illinois De Venezuela, C.A. v Bolivarian Republic Of Venezuela, 211 Fair and equitable treatment (‘FET’), 9, 32, 36, 102, 109, 132, 147, 179, 194, 200, 204, 207, 213, 229, 243, 259, 305, 330, 334

397 Fedaz N.V. v Venezuela, 11, 317 Foreign direct investment (FDI), 1, 10, 15, 19, 89, 92, 104, 116 Foresight Luxembourg Solar 1 S.À.R.L., et al. v Kingdom of Spain, 317 Forum shopping, 271–274, 306, 307, 354 Free Trade Agreements (FTAs), 35, 66, 75, 139, 176, 272, 299, 305, 336, 373 G GAMI Investments, Inc. v Mexico, 201 Gas Natural SDG, S.A. v Argentine Republic, 259, 281 Gender representation, ix, 6, 50, 62–66, 79, 358 Genentech Inc. v Hoechst GmbH, formerly Hoechst AG, Sanofi-Aventis Deutschland GmbH, 40 Glamis Gold Ltd. v United States of America, 93, 146–147, 196, 201, 361 Greentech Energy Systems A/S, et al v Italian Republic, 322 H Home State of the investor, 69, 121, 124, 139, 171, 267, 316, 356, 374 Host State, 1, 9, 67, 85, 104, 193, 261, 320, 321, 328, 331, 355 Hull formula, 25–28, 31 Hulley Enterprises Limited (Cyprus) v The Russian Federation, 260 Human rights, 6, 32, 50, 101, 197, 339, 358, 374 Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v Kingdom of Spain, 317 I ICS Inspection and Control Services Limited (United Kingdom) v The Argentine Republic, 92 ICSID Arbitration Rules, 38, 120, 134–136, 152, 167, 168, 170, 177, 179, 217, 236, 239, 247, 317, 360, 361, 366–368, 380 Impregilo S.p.A. v Argentine Republic, 93 International Centre for Settlement of Investment Disputes (ICSID), 3, 11, 55, 87, 99, 193, 265, 316, 357, 359–361, 364–367

398 International Chamber of Commerce (ICC), 5, 36, 39, 50, 60, 66, 119, 125, 128, 137, 177, 207, 208, 210, 212, 224, 227, 228, 235–237, 291–293, 307, 366 International Investment Agreement (IIAs), 4, 20, 49, 90, 100, 241, 265, 315, 354, 363, 370, 371, 373, 375, 379 International law, 4, 14, 58, 92, 101, 196, 256, 320, 358, 364, 376, 379 International Monetary Fund (IMF), 20, 25–28, 42, 150 International Thunderbird Gaming Corp. v Mexico, 282 Intra-EU investment arbitration, 325, 326, 335, 364 Investment Court System (ICS), 7, 143, 222, 299–307, 339–342, 379 Investor-state dispute resolution (‘ISDS’), 3, 9, 63, 85, 102, 193, 255, 319, 355 Ioan Micula, Viorel Micula, S.C. European Food S.A., S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v Romania, 305, 316 See also European Commission v European Food SA and Others J Jan de Nul N.V. and Dredging International N.V. v Arab Republic of Egypt, 207, 281 Jan Oostergetel and Theodora Laurentius v Slovak Republic, 12 Joseph Charles Lemire v Ukraine, 201 Judicial economy, 6, 258, 262–264 K Klöckner Industrie-Anlagen v Republic of Cameroon (Klöckner I), 285 L Lanco Int’l Inc. v Argentine Republic, 259 Landesbank Baden-Württemberg et al. v Kingdom Of Spain, 320, 324 Legal certainty, 6, 108, 206, 258–262, 293, 379 Legitimacy, 3, 15, 62, 86, 102, 193, 258, 342, 353–355, 357–360, 362–364, 367, 368, 371, 372, 374–377

Index LG& E Energy Corp., LG& E Capital Corp. and LG& E International Inc. v Argentine Republic, 93, 259 Lisbon Treaty, 39 Loewen Group Inc and Raymond L Loewen v United States, 91, 92, 130, 131 London Court of International Arbitration (LCIA), 5, 53, 54, 66, 119, 128, 137, 196, 227, 228, 235, 237, 291–293, 365 Luigiterzo Bosca v Republic of Lithuania, 12 M Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, 204, 362 Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, 322, 324 Mauritius Convention, 123–124 Mergers and acquisitions (M&A), 1, 2, 11, 32 Metalclad Corporation v The United Mexican States, 129–131 Metalpar S.A. and Buen Aire S.A. v The Argentine Republic, 92, 259 Methanex Corporation v United States of America, 159, 178–180 Mexico-Taxes on Soft Drinks, 153 Micula v Romania, 315, 316, 334 See also European Commission v European Food SA and Others; Ioan Micula, Viorel Micula, S.C. European Food S.A., S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v Romania Mitsubishi Motors Corp. v Solar Chrysler-­ Plymouth, Inc., 49, 357 Most-Favoured Nation (‘MFN’), 9, 36, 147, 257 MTD Equity SDN BHD and MTD Chile S.A. v Republic of Chile, 202 Multilateral Agreement on Investment (MAI), 91, 113, 141, 274, 305, 342 Multilateral Investment Court (MIC), 5, 7, 222, 299–307, 332, 341–348, 355, 364, 372, 373, 379, 380 Multilateral Investment Guarantee Agency (MIGA), 31–32 Multinational corporations (MNCs), 2, 150, 296 Multiple hats, 219–223, 247, 377

Index N National Gas S.A.E. v Arab Republic of Egypt, 266 National Grid PLC v Argentina, 93 National Iranian Oil Company (NIOC) v the State of Israel, 207 National treatment (‘NT’), 9, 18, 36, 147, 180, 181, 204, 243 Natural resources, 13, 28–30, 107, 205, 380 9REN Holding S.a.r.l v Kingdom of Spain, 317, 322 Non-disputing parties (NDP), 113, 116, 119, 127, 139–148, 152, 159, 167, 170–175, 182, 272, 336, 354, 360, 361, 366, 367, 376 Non-Governmental Organisations (NGOs), 33, 63, 91, 112, 113, 133, 150, 151, 154, 157, 167, 182, 360, 365, 380 Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co. KG and Reederei Friedrich Busse Hochseefischerei Nordstern AG & Co. KG., 40 Nottebohm case (Liechtenstein v Guatemala), 171 Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v The Kingdom of Spain, 326 O Oberlandesgericht Frankfurt, 319 Online Dispute Resolution, 58–62 Open hearings, 175, 367 OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v Kingdom of Spain, 317 Opinion 1/17, 302, 319, 320, 338–341, 348, 379 Opinion 2/15, 12, 302, 305, 336–338 Organization for Economic Co-operation and Development (OECD), 1, 10, 12, 26, 32, 64, 72, 76, 91, 109–111, 113, 121, 138, 140, 141, 151, 271, 274, 277, 297, 298 P Pacific Rim Cayman LLC v Republic of El Salvador, 169–170

399 Pan Am. Energy LLC & BP Argentina Exploration Co. v Argentine Republic, 260 Parallel proceedings, 6, 244, 258–260, 262–267, 275, 346, 365, 367 Party-appointed arbitrators, 208–210 Perenco Ecuador Limited v The Republic Of Ecuador, 244, 245 Perenco Ecuador Limited v The Republic Of Ecuador & Empresa Estatal Petróleos Del Ecuador, 230, 231, 363 Philip Morris Asia Limited v The Commonwealth of Australia, 120, 131, 140, 269, 306 Phoenix Action Ltd. v Czech Republic, 270 Piero Foresti, Laura de Carli v The Republic of South Africa, 93, 360 Plama Consortium Limited v Republic of Bulgaria, 79 Precedent, 5, 6, 19, 133, 245, 257, 275–283, 306, 307, 346, 354, 365 Predictability, 90, 102, 111, 137, 142, 182, 245, 255, 258, 261, 275, 279, 293, 295, 342, 343, 346, 347, 359, 363, 372, 375 Preferential Trade Agreement with an investment chapter (PTIA), 113 Public access to hearings, 127, 145, 173–181 Public participation, 105, 107–109, 112, 174, 182, 376 Public policy, 40, 51, 58, 68, 70, 102, 107, 154, 194, 197, 203, 205, 208, 209, 289, 290, 379 Publication of the award, 89, 125–138 Q Quasar de Valores and others v The Russian Federation, 260 R Regional Trade Agreements (RTAs), 35 Repsol, S.A. and Repsol Butano, S.A. v Argentine Republic, 211 Republic of Ghana v Telekom Malaysia Berhad, 219 Republic of Poland v PL Holdings S.à.r.l., 332–334 République de Moldavie v Komstroy LLC, 329–332, 335, 380

400 Rockhopper Italia S.p.A., Rockhopper Mediterranean Ltd, and Rockhopper Exploration Plc v Italian Republic, 322 Ronald S. Lauder v Czech Republic, 259 RosInvest UK Ltd v The Russian Federation, 260 Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, 204, 205 S S.A. J& P AVAX SA v Sociétè Tecnimont SPA, 291 S.D. Myers Inc. v Canada, 130, 172 SAIPEM S.p.A. Claimant v The People’s Republic Of Bangladesh Respondent, 277 Salini v Kingdom of Morocco, 11 Saluka Investments BV v Czech Republic, 266 SAUR Int’l v Argentine Republic, 259 Sempra Energy Int’l v Argentine Republic, 259 Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v Mongolia, 201 SGS Société Générale de Surveillance S.A. v Republic of the Philippines, 281 Siemens A.G. v Argentine Republic, 259 South American Silver Limited v The Plurinational State of Bolivia, 69 Sovereignty, 16, 26, 28–30, 86, 87, 154, 197–198, 355, 356, 359 Stadtwerke München GmbH and others v Kingdom of Spain, 317 Stockholm Chamber of Commerce (SCC), 5, 36, 39, 54, 66, 103, 119, 125, 128, 137, 177, 210, 212, 227, 259, 260, 291–293, 307, 317, 322, 324, 326, 365, 366 Suez, Sociedad General de Aguas de Barcelona S.A. and Interagua Servicios Integrales de Agua S.A. v The Argentine Republic, 93 Suez, Sociedad General de Aguas de Barcelona, S.A., and Vivendi Universal S.A. v Argentina, 153 Swisslion DOO Skopje v Former Yugoslav Republic of Macedonia, 206 T Tax incentives, 2, 334 Taxes, 2, 196, 199, 243, 334, 374 Tecnicas Medioambientales Tecmed S.A. v The United Mexican States, 362

Index Telefònica S.A. v Argentine Republic, 260 Telefónica S.A. v United Mexican States, 99, 131 Tembec Inc. et al. v United States of America, 130 Termination Agreement, 327–329, 335, 336, 360 See also Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union The Factory at Chorzów (Germany v Poland), 26 The Slovak Republic v Achmea BV, 41, 89, 95, 302, 315, 318–323, 335, 364, 380 Tidewater Inc. v Bolivarian Republic of Venezuela, 225 Tokios Tokeles v Ukraine, 278 Total S.A. v Argentine Republic Transatlantic Trade and Investment Partnership (TTIP), 102, 113, 117, 118, 143, 144, 174, 222, 300, 306, 361, 371 Transparency, 3, 41, 87, 99, 199, 255, 343, 353–355, 357, 359–361, 364, 366–368, 370–372, 374–376, 378 Treaty shopping, 6, 267–271, 306, 307, 354 TSA Spectrum de Argentina S.A. v Argentine Republic, 266 U UNCITRAL Arbitration Rules, 36, 38, 52, 53, 59, 115, 119, 120, 122–124, 134, 136, 178, 181, 210, 212, 218, 226, 236, 238, 239, 247, 263, 265, 272, 273, 290, 297, 307, 321 UNCITRAL Working Group III, Investor-­ State Dispute Settlement Reform, 37, 63, 213, 376 United Nations Conference on Trade and Development (UNCTAD), 1, 35–37, 71, 75–77, 86–88, 94, 95, 102, 106, 113, 119, 126, 139, 157, 159, 175, 193, 197, 207, 220, 233, 268, 277, 359, 369, 370, 373, 376 United Nations General Assembly (UNGA), 28, 42 United Parcel Service of America Inc. v Government of Canada, 180, 181 United Utilities (Tallinn) B.V. and AS Tallinna Vesi Claimants v Republic of Estonia Respondent, 317 UP and CD Holding Internationale v Hungary, 322

Index Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Bizkaia Ur Parzerguoa v The Argentine Republic, 232 US CTR II (1984), 238 V Vacuum Salt v Ghana, 266 Vattenfall AB and others v Federal Republic of Germany, ICSID Case No. ARB/12/12 (Vattenfall II), 324 Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v Federal Republic of Germany, 196 VCLT, see Vienna Convention on the Law of Treaties (VCLT)) Veteran Petroleum Limited (Cyprus) v The Russian Federation, 260 Vienna Convention on the Law of Treaties (VCLT), 69, 257, 265–267, 316, 320, 324

401 Vincent J. Ryan, Schooner Capital LLC, and Atlantic Investment Partners LLC v Republic of Poland, 12 W Waguih Elie George Siag and Clorinda Vecchi v Arab Republic of Egypt, 241 Wena Hotels Ltd. v Arab Republic of Egypt, 284 Western colonialism, 13 Westinghouse Electric Corp v Islamic Republic of Iran, 238 Wintershall Aktiengesellschaft v Argentine Republic, 92 WNC Factoring Ltd. v Czech Republic, 275 World Bank (WB), 28–32, 35, 42, 86, 163 Y Yukos Universal Ltd. (Isle of Man) v Russian Federation, 260, 266