Investment Treaty Arbitration Research Articles

Chronicle 2023 on European Investment Law and Arbitration Developments

In 2023, major developments took place in the field of investment treaty arbitration. In this Chronicle I have selected a few major developments, which highlight the impact of EU law on international investment law and arbitration practice. The conclusion is that further significant developments can be expected during 2024, which will be covered by this Review. ECT, UNCITRAL Working, Group III, enforcement of awards, CJEU, domestic courts of EU Member States

Article: Spain Fails to Set Aside Registration of intra-EU ECT ICSID Award in the English Commercial Court

In Infrastructure Services Luxembourg and another v. Kingdom of Spain [2023] EWHC 1226 (Comm), the English Commercial Court handed down a significant judgment in high profile proceedings seeking the enforcement of an ICSID award issued in a renewable energy sector dispute pursuant to the Energy Charter Treaty (ECT). The same parties have been engaged in multiple proceedings around the world, including in Australia, where the High Court recently rendered an important decision with regard to the waiver of a state’s enforcement immunity. The English Commercial Court provides a detailed assessment (and rejection) of Spain’s ‘intra-EU’ objection to the viability of investment treaty arbitration of its disputes with investors domiciled in EU Member States. The Infrastructure judgment has been heralded as a statement of the English courts’ readiness to straightforwardly enforce intra-EU awards in circumstances when enforcement through the courts of EU Member States may no longer be such an attractive prospect for intra- EU award creditors.

THE DICHOTOMY BETWEEN JURISDICTION AND ADMISSIBILITY IN INTERNATIONAL ARBITRATION

AbstractThe dichotomy between jurisdiction and admissibility developed in public international law has drawn much attention from arbitrators and judges in recent years. Inspired by Paulsson's ‘tribunal versus claim’ lodestar, attempts have been made to transpose the distinction from public international law to investment treaty arbitration, yielding a mixed reception from tribunals. Remarkably, a second leap of transposition has found firmer footing in commercial arbitration, culminating in the prevailing view of the common law courts in England, Singapore and Hong Kong that arbitral decisions on admissibility are non-reviewable. However, this double transposition from international law to commercial arbitration is misguided. First, admissibility is a concept peculiar to international law and not embodied in domestic arbitral statutes. Second, its importation into commercial arbitration risks undermining the fundamental notion of jurisdiction grounded upon the consent of parties. Third, the duality of ‘night and day’ postulated by Paulsson to distinguish between reviewable and non-reviewable arbitral rulings is best reserved to represent the basic dichotomy between jurisdiction and merits.

Investment Contracts and the Reform of Investment Arbitration: Towards Sustainability

Abstract This article aims to contribute to the debate surrounding the reform of international investment law and arbitration, focusing on the role of the investment contract. It will discuss how this instrument can make international investment law and arbitration more balanced, by imposing ad hoc obligations upon the investor to strengthen the sustainability of foreign direct investment (FDI); and by providing for State-investor arbitration in case of breach. The article will also assess how contractual provisions may have the effect of grounding counterclaims by States in investment treaty arbitration, allowing for new avenues for sustainable development in investor-State arbitration.

Zhongshan Fucheng Industrial Investment Co Ltd v The Federal Republic of Nigeria: Special Economic Zones and Investment Treaty Arbitration at Crossroads

Zhongshan Fucheng Industrial Investment Co Ltd v The Federal Republic of Nigeria: <i>Special Economic Zones and Investment Treaty Arbitration at Crossroads</i>

Challenging Orthodoxy: State Immunity from Court Supervisory Jurisdiction in Investor-State Disputes?

This article considers the role of national courts in investment treaty arbitrations between an investor and a host-State. While the ICSID arbitration regime provides for an a-national approach, the choice of alternative arbitral institutions or rules in an investment treaty could bring into issue the role of the courts of the place of arbitration. It is suggested that the involvement of a sovereign State as a party to such arbitration proceedings raises issues of state immunity not encountered in international commercial arbitrations. While an agreement in an investment treaty to arbitrate an investor-state dispute confers jurisdiction on an arbitral tribunal to determine the dispute, there is presently no global consensus that such an agreement alone amounts to a waiver of immunity of the host-State from the jurisdiction of other national Courts. Absent such waiver of jurisdiction, the court of the place of arbitration would lack legitimacy to exercise any ‘supervisory’ jurisdiction over the host-State party to ensure compliance under its domestic legislation. The authors suggest that national legislatures should consider this when reviewing applicable domestic laws on international arbitration and state immunity. Treaty negotiators should be aware as well of such limitations. State immunity, waiver of immunity, investment arbitration agreement, investor-State dispute, international arbitration, immunity from jurisdiction, court of the seat, supervisory jurisdiction

Arbitrating Investment Disputes in Time of Geopolitical Unrest: Focus on Investment Protection in Russia

Russia’s illegal full-scale invasion of Ukraine in February 2022 and the resulting war have had profound humanitarian and economic consequences affecting the lives of people in Ukraine and the region’s economic stability. The international community imposed unprecedented economic sanctions on Russian entities and individuals to condemn Russia’s actions in Ukraine. As expected, Russia retaliated and issued a series of counter-measures targeting foreign investors within Russia and occupied territories in Ukraine. Such measures will give, and have already given rise to claims by foreign investors in Russia for breaches of international investment law. This article analyses the restrictive measures targeting foreign investment imposed by Russia in response to international sanctions. It further discusses their legal implications for foreign investors. An overview of investment protections afforded under international investment treaties and international conventions as potential sources of redress for foreign investors follows in section 3. The final section highlights the challenges of pursuing investment treaty claims against Russia in the current geopolitical context (section 4). investment treaty arbitration, sanctions, counter-sanctions, investment protection in Russia, Ukraine, foreign investors, expropriation, fair and equitable treatment, narrowly worded arbitration clause, nationalization

Shareholder reflective loss: a bogeyman in investment treaty arbitration?

Abstract Most advanced national legal systems bar shareholders from claiming the diminution in value of their shareholding in a company arising from wrongful acts committed against the company. In contrast, investment arbitral tribunals consistently allow investors to recover such loss because most investment treaties are formulated broadly to protect investments in the form of direct and indirect shareholding. Despite recent calls for reform by governments and inter-governmental organizations, there is nothing inherently wrong with such dissonance. First, the recoverability of ‘shareholder reflective loss’ is doctrinally in sync with the lex specialis characteristics of investment treaty claims. Second, as recently and rightly recognized by the apex courts of the UK and Singapore, the principle of ‘no reflective loss’ is founded upon separation of legal personality rather than prevention of double recovery. In investment treaty arbitration, the latter concern is sufficiently addressed by solutions ranging from jurisdictional barriers (fork-in-the-road and denial of benefits clauses), procedural devices (consolidation and joinder), and substantive defences (res judicata, collateral estoppel, and abuse of process). Hence, the growing fear of shareholder reflective loss undermining the investor–State dispute settlement system is but a bogeyman that States need not be afraid of.

Beyond Consent: Revisiting Jurisdiction in Investment Treaty Arbitration, written by Relja Radović

Beyond Consent: Revisiting Jurisdiction in Investment Treaty Arbitration, written by Relja Radović

Global Regulatory Standards in Environmental and Health Disputes

In a time of rising environmental and health disputes, Global Regulatory Standards in Environmental and Health Disputes (OUP 2021), authored by Caroline E Foster, is one of the first books to attempt to comprehensively condense the legal principles and standards that have been applied by courts and tribunals thus far. It does so by focusing on jurisprudence from the International Court of Justice, law of the sea dispute settlement, Permanent Court of Arbitration, World Trade Organisation (WTO), and investment treaty arbitration. Regulatory coherence, due regard and due diligence are identified by the author as the three main principles relevant to environmental and health disputes. Within this structure, the book provides a useful analysis of the principles of reasonableness, due regard, due diligence, necessity testing and proportionality. The author suggests that considerable similarity between emerging regulatory standards and these standards could be predicted in many other fields, including for example, human rights law. European Union (EU) law is also a potentially rich source of environmental and health regulatory standards.

What Place Does an Umbrella Clause Have in the New Generation of Bilateral Investment Treaties?

In the new wave of international investment treaties, investor protections are under scrutiny as states seek to ‘restore’ their right to regulate. The umbrella clause is one investor protection under reconsideration. The perception, held by some, is that the umbrella clause permits an ‘unjustified intrusion’ into a state’s right to regulate within its territory. For that reason, the clause is increasingly being omitted from modern-day treaties. This article undertakes a detailed analysis of the umbrella clause and its divergent construction by investment treaty tribunals. It focuses on four particular complexities associated with the umbrella clause that have confronted tribunals to date. In conducting this analysis, the author seeks to demonstrate that, properly construed, the umbrella clause does not have far-reaching ramifications or interfere with a state’s right to regulate. It has an important place in the new wave of international investment treaties but should be carefully drafted. A suggested formulation, which has in mind the four complexities discussed, is offered up. Umbrella clause, obligations observance clause, observance of undertakings clause, international investment agreements, bilateral investment treaties, next generation of BITs, investor protections, state’s right to regulate, privity of obligation, investment treaty arbitration

The international validity of domestic law in investment-treaty arbitration

The international validity of domestic law in investment-treaty arbitration

Domestic Investment Laws, International Economic Law, and Economic Development

Abstract‘Development’ is a legal concept which has been central to the practice of international economic law (IEL). This Article examines how ‘development’ continues to be at the heart of struggles between domestic investment laws (DILs) and international economic law. By examining over 3000 international investment agreements (IIAs) and DILs signed in the last seven decades, this Article identifies the ways in which the concept of development has evolved in tandem with the growth of international economic law by dividing the history of international investment law into six main phases. It traces the emergence of ‘development’ in DIL to the decolonization era arguing that post 1990, the proliferation of international investment treaties and growth of investment treaty arbitration have been used as tools of liberalization on the weak premise that this would lead to economic development. In this context, this Article examines closely the interpretation of ‘investment’ by ICSID tribunals, promotion of international arbitration for economic development, attempts to internationalize economic development contracts, continued relevance of the New International Economic Order, and shift to sustainable development in IEL discourse.

Against Imperial Arbitrators: The Brilliance of Canada's New Model Investment Treaty

Investment treaty arbitration has become politically “toxic” even in states that pioneered the development of investment treaties. There is consensus on the need for reform. But there is a dearth of historical research on what went wrong with investment treaties, when it happened, or how to find the way forward in light of the past. As a result, reform efforts have a stumbling quality. One can see this in multilateral fora, such as the United Nations Commission on International Trade Law (UNCITRAL), where over four years of study and negotiations have produced little consensus. One can also see it in the investment treaty practice of individual states, such as Canada, which has recently lurched across the spectrum from investment treaty arbitration to a permanent international investment court, to the abandonment of investor-state dispute settlement (ISDS), and back to investment treaty arbitration. This article fills the gap in understanding by explaining what went wrong with investment treaty arbitration and when it happened. It demonstrates that the customary international law on state responsibility for injuries to aliens evolved during the 19th century to protect foreign investors against exceptional failures of the nightwatchman and rule-of-law states. As the consensus regarding customary international law standards of treatment unraveled during the 20th century due to the spread of communism, decolonization, and economic nationalism, capital-exporting states turned in bilateral investment treaties (BITs) to uphold traditional principles regarding the protection of foreign investment. Starting in the late 1990s, however, an unexpected surge of claims brought under NAFTA’s investment chapter fortuitously opened the door to the central problem of modern investment treaty practice: the rise of “imperial arbitrators” who do not merely police exceptional failures of the nightwatchman and rule-of-law states, but who choose to second-guess the normal operations of modern regulatory states without any meaningful checks or balances. Although the NAFTA Parties nipped that development in the bud, the rise of imperial arbitrators leapt to the broader universe of investment treaty arbitration, where it flourished until claims against developed states for measures such as the phaseout of nuclear power brought investment treaty arbitration to a crisis point. Seeking a way forward in light of the past, the article examines Canada’s recent experimentation with investment treaty reforms, including the development of a permanent international investment court in relations with the EU, the complete elimination of ISDS in relations with the United States, and a return to traditional investment

Assessing Recent Proposals to Reform the Investment Treaty Arbitration System

Supervisory Committee Supervisor Dr. A. Claire Cutler (Department of Political Science) Outside Member Andrew Newcombe (Faculty of Law) Economic globalization, the liberalization of markets, and the opening of once closed societies have all heralded the remarkable emergence of the current system of investment treaty arbitration. The current system, however, has attracted significant criticism and calls for reform. This thesis reviews the historical employment of arbitration in international society and the circumstances that lead to the emergence of the current system of investor-state dispute settlement. Following this, two recent proposals for reform of the current system are outlined: the creation of an international court of investment and the implementation of appellate mechanisms for investment treaty arbitration. The thesis concludes by offering an assessment of these proposals and argues for the rejection of the proposal to replace the current system with an international investment court, but offers a cautious endorsement of appellate mechanisms.

Does the Court of Justice of the EU Misunderstand Investment Law and Investment Treaty Arbitration in European Commission v. Micula?

Does the Court of Justice of the EU Misunderstand Investment Law and Investment Treaty Arbitration in European Commission v. Micula?

Fair And Equitable Treatment And Evolving Standards Under Investment Treaty Arbitration

Fair And Equitable Treatment And Evolving Standards Under Investment Treaty Arbitration

Does the cjeu Misunderstand Investment Treaty Arbitration in Commission v Micula?

This article focuses on the recent judgment of the Court of Justice of the EU (CJEU) in European Commission v Micula (C-638/ 19 P) concentrating on two paragraphs in particular, namely paragraphs 144–145. These passages lead us to believe that the Court of Justice’s more recent and hostile attitude towards intra-EU investment treaty arbitration (in Achmea, Komstroy, and PL Holdings) might be a result of several misunderstandings by the Court on how investor-state arbitration and bit s work. The first concerns the nature of consent to arbitrate under an investment agreement. The second concerns the purpose of investor-state dispute settlement (ISDS), and the third relates to the retroactive effects of the Court’s judgment in relation to Romania’s consent to arbitrate under the Romania-Sweden BIT. From these three issues the fourth misunderstanding follows, which is a lack of clarity on the relationship between EU law and the Member States’ existing obligations under the ICSID Convention. This discussion is relevant because it shows that when a court which is foreign to a system and uses the features of that system to define and develop its own legal system, the chances that the foreign system will be potentially misunderstood or mischaracterised are very high. This in turn will not only cause legal problems, such as issues with legal certainty and the finality of decisions for already concluded arbitrations, but it will also set in motion other unexpected consequences.

Thailand’s debut in investment treaty arbitration: the curious case of Walter Bau and its lessons for participants in international investment law

Abstract Thailand’s first experience with investment treaty arbitration has not been a pleasant one. Nevertheless, it offers important lessons to States, foreign investors, and arbitral tribunals regarding their respective participation in the process of decision-making. First, States must be meticulous in concluding investment treaties while bearing in mind that their subsequent practice affects the way those treaties are interpreted and applied. Second, foreign investors’ due diligence when making investments and their selection of a suitably qualified lawyer to represent them in arbitral proceedings will both affect the outcome of their case. Third, arbitral tribunals’ understanding of international law is critical for the credibility of investment treaty arbitration and will contribute to its legitimacy—or lack thereof. In fulfilling their role, arbitral tribunals should consider economic realities within the confines of an applicable investment treaty. Furthermore, to determine their jurisdiction ratione materiae and jurisdiction ratione personae for non-ICSID arbitration, they should adopt the single keyhole approach, following the definition of ‘investment’ and ‘investor’ given by the parties as lex specialis and acting in accordance with the principle of procedural economy.

Article: European Union Law and Global Investment Regime: Unshell Proposal as a Next (Mis)step of the EU Against Investment Treaty Arbitration?

This article addresses a largely unchartered interdisciplinary research area of the global investment regime and European Union (EU) law with an emphasis on the prevention of international tax avoidance in the EU. It focuses on the intersections between newly proposed anti-tax avoidance legislation by the European Commission that is known as the Unshell Directive (UD) and international investment agreements (IIAs). In this article, the author sets a stage for the intersections by discussing the Court of Justice of the European Union (CJEU) case law and the commission’s actions aimed against the most powerful enforcement tool in the global investment regime, i.e., the investor-state dispute settlement (ISDS) mechanism, by attempting to render it illegal and ineffective within the EU. The corresponding reactions from the arbitral tribunals are also addressed. The discussion evolves to identify and analyse the interplay between the proposal of the UD (also the Unshell Proposal or UP) and the IIAs to reveal that the impact of the former on the latter is ambiguous by design in order to minimalize legal certainty vis-à-vis protection of foreign investment in the EU via shell entities. This constitutes a foundation for potential, seismic tensions between the UD and the global investment regime that are not beneficial for marketing and development of the EU internal (single) market and may thus weaken the EU’s global competitiveness in the area of foreign investments. international investment law, EU law, good faith, ISDS, tax avoidance, shell entities