Investment Treaty Arbitration Research Articles

The Need to Make Sense of a Practice in Investment Arbitration: A Response to Eric De Brabandere

Abstract In his article entitled ‘The (Ir)relevance of Transnational Public Policy in Investment Treaty Arbitration – A Reply to Jean-Michel Marcoux’, Eric De Brabandere argues that transnational public policy does not have any significant role to play in investment treaty arbitration, both as a matter of principle and as an avenue to address human rights violations by foreign investors. The present response suggests that a more fundamental point of disagreement between our positions relates to the role of the practice of tribunals in shaping legal norms in international investment law. Inspired by the ‘practice turn’ in the study of international law, it suggests that the relevance and the normativity of transnational public policy are constituted by the practice of tribunals. Addressing human rights violations as an integral part of transnational public policy can thus be considered as a potential evolution of this practice in investment arbitration.

The (Ir)relevance of Transnational Public Policy in Investment Treaty Arbitration – A Reply to Jean-Michel Marcoux

Abstract In his article ‘Transnational Public Policy as a Vehicle to Impose Human Rights Obligations in International Investment Arbitration’, Jean-Michel Marcoux investigates whether international investment tribunals can rely on transnational public policy to impose human rights obligations on investors. While I generally side with the idea that international human rights as such are highly relevant in (some) international investment arbitrations, I argue in this article that transnational or truly international public policy as a concept is largely, and as a matter of principle, irrelevant in investment treaty arbitration. Secondly, even if one were to accept that transnational public policy has a role to play, I question the usefulness of framing various human rights issues as questions of ‘transnational public policy’.

Protection of Legitimate Expectations in Investment Treaty Arbitration: A Theory of Detrimental Reliance, written by Teerawat Wongkaew

Protection of Legitimate Expectations in Investment Treaty Arbitration: A Theory of Detrimental Reliance, written by Teerawat Wongkaew

Environmental Claims by States in Investment Treaty Arbitration

Recent years have witnessed a number of counterclaims by State parties in investment treaty arbitrations based on environmental concerns and the need to protect local resources and safeguard the associated human rights of local communities. This article charts the development of the case law in this context, starting with the Urbaser v. Argentina award of December 2016, before examining its impact on the cases that followed in its wake, notably including the respective 2017 and 2018 awards in Burlington v. Ecuador and Aven v. Costa Rica. It concludes by considering whether these recent cases mark the beginning of a new era of international law claims which finds a parallel in the broader paradigm shift in public discourse on the critical role of all stakeholders in the conservation of the environment, and which may one day result in investors facing standalone claims as the respondent in future investment treaty claims brought by States.

No Green without More Green: The Importance of Protecting FDI through International Investment Law to Meet the Climate Change Challenge

The growing climate change crisis requires significant development in and implementation of sustainable and renewable energies. To bring about that development, greater foreign direct investment is needed. Investment treaty arbitration contributes to encouraging greater levels of foreign direct investment, including in the context of investment in climate-friendly energies, by giving foreign private investors that knowledge that they can have recourse to a neutral dispute forum, which can, in turn, help shape regulatory frameworks, resulting in attractive investment conditions for foreign private investors. In this article, the authors argue that the European Union’s forward thinking regulatory approach has been pivotal to the progression of a legal framework encouraging cleaner energy and more environmentally-friendly technology. Whilst enormous benefits have been derived from this approach, the authors argue that the European Union is at risk of overstepping the mark and of deterring, as opposed to encouraging, the necessary foreign direct investment, through, in part, its much publicised aversion to investment treaty arbitration.

The (ab)use of Third-Party Submissions

This contribution examines the use of third-party submissions, such as amicus curiae submissions, in investment treaty arbitrations. The author shows that a surprisingly low number of amicus curiae submissions have been submitted so far and consequently have not resulted in any discernible impact on the jurisprudence of arbitral tribunals. At the same time, interventions by non-disputing treaty parties appear to be more effective. The author also discusses the ambiguous nature of amicus curiae submissions made by the European Commission, which – it is argued – are actually more akin to non-disputing party interventions. The author concludes that amicus curiae submissions could be better crafted and used more often to achieve greater impact. In addition, they could also be targeted more often against States and their failures in implementing their international environmental obligations.

Dispute Resolution in the Energy Sector: Wither Thou Goest?

This article examines developments in international commercial arbitration and investment treaty arbitration relevant to the energy sector in Canada and the United States and discusses their advantages and disadvantages. Jurisdictions in Canada and the US have taken a wide variety of approaches to legislative schemes and their interpretation. This has created uncertainty respecting the involvement of the courts in cross-border disputes where the parties have agreed to an arbitration clause. Further, the Canada-United States-Mexico Agreement has eliminated investment treaty arbitration between Canada and the US which existed in the North American Free Trade Agreement, limiting the options of investors to pursue investment treaty claims. These developments may clarify how energy sector participants should strategically manage their contractual arrangements and arbitration clauses and approach disputes.

Passive Investments

Abstract Passive investments are a phenomenon in investment treaty arbitration. Arbitral jurisprudence is divided over the eligibility of investments represented by claimants who played little or no part in their establishment or nurturing for treaty protection. This note attributes the emergence of passive investments as a category of protected investments to a jurisdictional loophole present in the vast majority of investment treaties. It then considers the extent to which this loophole can be addressed by ‘denial of benefits’ clauses in applicable treaties, by reading an ‘action of investing’ jurisdictional condition into applicable treaties, and by the award of nominal damages when a claim arising from a passive investment prevails on the merits. This note concludes that so long as investment treaties continue to hold sway as regulatory tools, passive investments, for better or for worse, are protected investments.

The Role of Amici Curiae in Light of Recent Developments in Investment Treaty Arbitration: Legitimizing the System?

Abstarct Recent developments in investment arbitration and international investment law, in general, are prompting the review of the role of amici curiae in investment arbitration proceedings. The latest initiatives addressing the challenges to the investor-State dispute settlement (‘ISDS’) system, including under the auspices of the UNCITRAL Working Group III, alluded to the participation of the amici in ISDS proceedings. The new generation of international investment agreements (‘IIAs’) is also tackling an enhanced role of amicus curiae, whereas the proposal for the amendment of the ICSID Arbitration Rules includes sizeable amendments to Rule 37(2), to reflect these developments and other concerns raised so far in the practice. This paper addresses the role of amici curiae in these turbulent times for ISDS, emphasizing that, before anything, the role of these non-disputing parties is to assist arbitral tribunals.

Extracting Legal Causation from International Investment Law

For any investment-treaty arbitration that reaches the merits phase, the following question will invariably arise: did the state’s conduct cause the investor’s loss? This is the causation question. If the investor proves the causal link, it takes a significant step towards ultimate success, whereas failure delivers a terminal blow. To determine this question, arbitral tribunals have adopted a two-tiered test consisting of ‘factual causation’ and ‘legal causation’. Because the same test has been endorsed by the International Law Commission in the commentary attaching to the Articles on State Responsibility, they appear to be right in this adoption. But they are wrong. Testing for legal causation has no place in investment-treaty arbitration. For one, testing for legal causation is such an imprecise process that it usually makes arbitral tribunals’ legal reasoning on questions of causation obscure. Second, the purpose that testing for legal causation serves in domestic law, where it was developed, is not a purpose that international investment law is concerned with. In domestic-law cases, legal causation is a tool to place losses arising from unavoidable accidents where adjudicators think that they most fairly fall. By contrast, investor-state disputes do not involve unavoidable losses. The fear will be that without legal causation, states face indeterminate legal responsibility for investment losses. For various reasons, however, this fear is unfounded.

Enforcing transboundary water obligations through investment treaty arbitration: China, Laos and the Mekong River

AbstractThe study of the intersection between international investment law and international water law is not new. However, this intersection may be better understood through the analysis of specific case studies, regions and/or economic sectors. This article observes the relationship between China and Laos in connection to the construction of dams in the Lancang/Mekong River. In so doing, it addresses China’s attitudes towards the negotiation and conclusion of economic integration and transboundary water agreements, observing a sharp contrast between the two. Against this background, the article examines some of the most important agreements between China and Laos regarding both the protection of foreign investment and the management of shared waters. The article argues that investor‐State dispute settlement may lend some ‘teeth’ to the enforcement of transboundary obligations with regard to the Mekong River.

Exploring the prospects of host-state counterclaims in corruption disputes

Abstract While the regime of investment treaty arbitration has evolved manifold over the decades, has the position of the host-states as a Respondent improved? The authors argue that it has not. Bilateral Investment Treaties (hereinafter BIT(s)) are still asymmetrical in nature where the states are obliged to protect the rights of the foreign investors but are not provided with any remedy against the corrupt activities of the investors. While tribunals have denied jurisdiction over the investors’ claims tainted with corruption, they have provided states with no consequent remedy against such investors. Consequently, the states have to first bear the loss of a failed investment in its territory and then pay for the exorbitant costs of international arbitration as well. Where scholars are arguing for attribution of liability of corrupt activities of the public officials to the states, the authors here raise an important question of what if the liability cannot be attributed to the states due to lack of apparent authority? Should the states be then allowed to move forward from the jurisdictional stage to raise counterclaims to seek damages for the loss caused by the investors? In this article, the authors explore these questions and present arguments in favour of the inclusion of corruption-based counterclaims.

Contributory Fault under International Law: A Gateway for Human Rights in ISDS?

Abstract The intersection between foreign investment and human rights is gaining attention, as is evident from an increasing number of investment treaty awards analysing legal issues relating to human rights. In the recent International Centre for the Settlement of Investment Disputes (ICSID) arbitration of Bear Creek v Peru, Philippe Sands QC posited, in a dissenting opinion, that the investor’s contribution to events—ie protests against its allegedly adverse environmental impact and disregard of indigenous rights, namely resulting from its ‘inability to obtain a “social licence”’—which led to the unlawful expropriation of its investment, was ‘significant and material’. He further noted that the investor’s ‘responsibilities are no less than those of the government’ and found that damages should thus be reduced. Last year, the Netherlands adopted a new model bilateral investment treaty (BIT), which allows tribunals to ‘take into account non-compliance by the investor with the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises’ when assessing damages. These recent developments shed light on how states and tribunals, as part of their decision-making process, can take into account human rights in practice, and crucially in respect of damages analyses. By first dissecting the concept of contributory fault, then shedding light on the intersection of investment treaty law and human rights, as elucidated in recent jurisprudence, this article questions whether there now exists a gateway for human rights obligations (soft or hard) in the investment treaty arbitration realm through the concept of contributory fault.

Tobacco, Health and Investor-State Dispute Settlement: Australia’s Recent Treaty Practice

The claim brought by Philip Morris Asia Ltd against Australia’s tobacco plain packaging scheme under Australia’s bilateral investment treaty (‘bit’) with Hong Kong was this country’s first experience as respondent in an investment treaty arbitration. Since then, Australia has faced two more claims, although they do not appear to be proceeding very far or very quickly (unsurprisingly, since they are brought pursuant to an international investment agreement (‘iia’) that contains no mechanism for investor–state dispute settlement (‘isds’)).

Pleas of illegality and the application of domestic law in investment treaty arbitration

It is generally accepted that State Parties can rely on ‘in accordance with the host State law’ clauses (or legality clauses) with a view to curtailing arbitral tribunals' jurisdiction to disputes arising from lawful investments. Given the increasing attention dedicated to legality in modern investment treaty practice, it is likely that ‘in accordance with the host State law’ clauses will continue playing an important role in arbitration proceedings. In light of the foregoing, this article examines how arbitral tribunals interpret and apply domestic law when dealing with jurisdictional challenges based on pleas of illegality. Drawing upon the limitations to legality clauses elaborated by the case law, the authors demonstrate that tribunals tend to adopt an ‘international’ approach in interpreting and applying domestic law. The authors explain why this international approach is fundamentally flawed and suggest an alternative approach to use in future disputes.

The setting aside and enforcement of intra-EU investment arbitration awards after Achmea

Abstract By rendering its preliminary ruling in Achmea v Slovakia, the European Court of Justice (ECJ) declared intra-EU investment treaty arbitration to be incompatible with fundamental principles of the European legal order. This decision does not only illustrate the challenge of regime interaction in international economic law but is also of highest practical relevance. Diverse and critical reactions from arbitral practice and legal scholarship suggest that it will ultimately be up to the courts within and outside of the EU to clarify how the ECJ’s findings in Achmea relate to the legal fate of arbitral awards. Against this background, the aim of the present contribution is to shed light on the judgment’s legal consequences on the post-award phase. As a starting point, an analysis of the judgment finds that the ECJ’s reasoning in Achmea is applicable to investor–State dispute resolution (ISDS) clauses contained in all intra-EU investment treaties, including the Energy Charter Treaty (ECT) when applied in an intra-EU context (Section 2). Based on these findings, we evaluate how the incompatibility of intra-EU investment treaty arbitration with the law of the European Union (EU law) affects setting aside proceedings (Section 3) and applications for recognition and enforcement of awards (Section 4) within and outside of the EU. We show that possible solutions may range from fully enforcing intra-EU investment awards to completely disregarding any legal effect. Evaluating the complex legal landscape applicable to both types of proceedings clearly illustrates that there is no simple ‘yes-or-no’ rule. Instead, factors such as the applicability of the ICSID Convention, the seat of the arbitral tribunal or the jurisdiction in which enforcement is sought are relevant but should not be considered in isolation. Instead, it is concluded that these factors must be considered as inter-related aspects of an analytical framework which may lead to a coherent understanding of the relationship between the European legal order and the settlement of intra-EU investment disputes (Section 5).

Arbitrator-Made (Jurisdictional) Law in Investment Treaty Arbitration: Application, Creation and Control

The law-making function of international courts and tribunals is well-known in both theory and practice, including such function of arbitral tribunals in the field of investment treaty arbitration. However, no clear guidance exists regarding the conduct of arbitrators in their decision-making and law-making. This chapter offers such guidance in respect of one peculiar law-making activity of arbitral tribunals, namely their regulatory function regarding their own jurisdiction, and to that end discusses the proper application, creation and control of arbitrator-made jurisdictional rules. Such guidance is warranted because arbitral jurisdictional regulation has so far remained unrecognized, usually disguised as varieties in treaty interpretations, due to the consensual foundations of the process of jurisdictional regulation. The chapter argues that the recognition of the arbitral jurisdictional regulation, by employing the discussed methods of application, creation and control of arbitrator-made rules in practice, would provide conditions for a better performance of the system of investor-State dispute settlement, including the advancement of legal certainty regarding the questions of jurisdiction. Such recognition can be implemented within the existing framework of investment arbitration, but the implementation would be particularly fertile in the context of institutionalized adjudicatory mechanisms. While these recommendations are made in the context of arbitral jurisdictional regulation, this can be a starting point for similar considerations in the sphere of substantive law.

The Incompatibility of Intra-EU Investment Treaty Arbitration With European Union Law – Assessing the Scope of the ECJ’S Achmea Judgment

In March 2018, the European Court of Justice rendered its Achmea judgment, by which the Court considered the investor-State dispute settlement (ISDS) clause contained in the Dutch-Slovakian investment treaty to be incompatible with EU law. Even though the judgement is considered to be a landmark decision, its potentially far-reaching consequences remain, due to a rather obscure legal reasoning, difficult to assess. The aim of the present contribution is to assess the scope of the Achmea judgment in order to shed light on its relevance for pending and future intra-EU investment arbitrations. In view of the ECJ’s Opinion 1/17 rendered in April 2019 and in consideration of recent arbitral practice it is concluded that the scope of the Achmea judgement concerns the incompatibility of intra-EU investment treaty arbitration with EU law. This means on the one hand that the reasoning in Achmea is transferable not only to ISDS clauses in other intra-EU BITs, but also to Art. 26 of the Energy Charter Treaty. On the other hand, the analysis shows that contract-based investment arbitrations are not concerned by the ECJ’s findings. Finally and in view of its clarified scope of application, the relevant factors for analyzing the consequences of the Achmea judgement are identified.

The legitimate expectation of regulatory stability under the Energy Charter Treaty

AbstractOne of the main catalysts for the shift towards renewable energies has been the practice of support schemes in a key number of EU member states. Some of these states have since withdrawn or revoked much of their original support, which has resulted in investment treaty arbitrations being filed against them under the Energy Charter Treaty. Arguably, a balance should be found between investors’ legitimate expectations concerning the stability of the legal framework and the host states’ right to adapt regulations to new needs. This can be achieved by clarifying and delimiting the principle of fair and equitable treatment, and by encapsulating it in a more precise set of rules. Due to its open character, this principle could otherwise become too intrusive a standard of judicial review for the exercise of sovereign power by host states. It could be diluted into a rhetorical framework inviting uncertainty and subjective judgment. While the focus of this article is on energy, the concern for legal stability equally applies to all those sectors where large upfront investments are required, which can only be recouped in the long run.

Applying the Model Law’s Standard for Interim Measures in International Arbitration

Commentators and practitioners regard Article 17A of the Model Law on International Commercial Arbitration as the international standard for interim measures in international arbitration. Practitioners apply Article 17A often, even when the jurisdiction whose law is relevant to the case has not adopted it as domestic legislation, and even in emergency arbitrations and in investment treaty arbitrations. To apply Article 17A correctly, however, practitioners must look at Article 2A(1) of the Model Law, which orders practitioners applying any Article of the Model Law, including Article 17A, to follow several mandatory principles of construction. Specifically, Article 2A orders practitioners to have ‘regard’ to the ‘international origin’ of the Model Law, ‘the need to promote uniformity in its application,’ and ‘the observance of good faith.’ Those principles of construction of Article 2A(1) have four specific and mandatory consequences on the application of the standard set forth in Article 17A, namely, that practitioners (1) must consider Article 17A’s travaux préparatoires, and must apply Article 17A in a way that does not contradict those travaux préparatoires; (2) must consider, but are not bound to follow, the publicly-available decisions by courts and arbitrators around the world that have applied Article 17A and the scholarly writings that have analysed it; (3) cannot construe Article 17A only under the canons of construction that they would apply to a domestic statute in the jurisdiction relevant to the case; and (4) must factor in equitable considerations. This article helps practitioners with the first two of those four consequences. Specifically, to help practitioners apply the standard for interim measures set forth in Article 17A uniformly and correctly, i.e. in a way that complies with Article 2A’s mandatory principles of construction, this article analyses the travaux préparatoires of Article 17A, the scholarly writings that have analysed that article, and the publicly available decisions by courts and arbitrators around the world that have applied it, including decisions issued by arbitrators acting for the International Centre for Settlement of Investment Disputes (ICSID), the Permanent Court of Arbitration (PCA), and excerpts of non-publicly available decisions issued by arbitrators acting for the International Chamber of Commerce (ICC) and the Stockholm Chamber of Commerce (SCC). For the reader’s convenience, this Article analyses the travaux préparatoires and applicable authorities separately for each of the following elements of Article 17A’s standard: burden of proof; urgency; likely harm not adequately reparable by an award of damages; balance of convenience; reasonable possibility of success on the merits; jurisdiction; and other elements and considerations. That analysis results in several principles of construction relevant to each element of Article 17A’s standard. The article ends with a chart – effectively a cheat sheet for practitioners – that lists those principles of construction for each element of the standard, and explains the rationale of those principles. It is the author’s hope that this chart will help practitioners apply each element of Article 17A’s standard correctly and uniformly. Interim measures, Conservative measures, Model Law, Article 17A, Article 2A, UNCITRAL Rules, Article 26, Emergency arbitration, Preliminary orders, Standard for interim measures, Conditions for interim measures, Standard for emergency arbitration, Standard for preliminary orders, Uniformity