Investor-state Dispute Settlement Clauses Research Articles

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

Abstract: 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 judgment 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 judgment concerns the incompatibility of intra-EU investment treaty arbitration with EU law. This means on the one hand that the reasoning in Achmea is transferrable not only to ISDS clauses in other intra-EU BITs, but also to Article 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 analysing the consequences of the Achmea judgement are identified.

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.

Novel and Noteworthy Aspects of Australia’s Recent Investment Agreements and ISDS Policy: The CPTPP, Hong Kong, Indonesia and Mauritius Transparency Treaties

Investment treaties, and especially investor-state dispute settlement (ISDS) provisions, became a political hot potato from around 2011 when Philip Morris brought the first-ever ISDS claim against Australia under an old bilateral investment treaty (BIT) with Hong Kong. A Labor-Greens Government declared that it would no longer agree to ISDS provisions in future treaties, but when a centre-right Coalition Government regained power from 2013 it reverted to concluding treaties containing ISDS clauses on a case-by-case assessment. Australia therefore agreed to ISDS in FTAs with Korea and China, but not bilaterally with Japan. However ISDS-backed provisions apply between Australia and Japan since the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) can into force between them (and five other Asia-Pacific nations so far) from January 2019. Yet the Australian parliament engaged in robust debate about ratification of the CPTPP, with Labor Opposition (and Greens) parliamentarians continuing to voice concerns over ISDS provisions, despite the Philip Morris claim against Australia’s tobacco plain packaging having been rejected on jurisdictional grounds in 2015. This paper examines how (US-style) CPTPP drafting compares with two important recent investment agreements subsequently signed by Australia over 2019, namely with Indonesia as part of a wider free trade agreement (IA-CEPA), and with Hong Kong (AHKIA, alongside a bilateral FTA covering non-investment matters). AHKIA came into force from 17 January 2020, while IA-CEPA has been ratified by Australia but not yet by Indonesia. IA-CEPA adds a provision unique in the universe of over 3000 investment agreements world-wide, probably proposed by the Indonesian side: a compulsory mediation step prior to arbitration, if the host state requests mediation after the foreign investor initiates ISDS. The paper also highlights other features of both treaties that may help reduce delays and hence costs in ISDS. The paper summarises empirical data about delays and costs, as well as transparency around ISDS as another growing public concern, including some of our own empirical data provided as evidence to an Australian parliamentary inquiry into ratifying the CPTPP. We also examine the 2019 parliamentary inquiry that agreed with the submission that Australia should ratify the Mauritius (“UN ISDS”) Convention, thereby retrofitting extensive transparency provisions on pre-2014 treaties between Australia and other states that might also accede to that framework Convention. Even if Mauritius Convention ratifications proliferate, however, it will not retrofit extra transparency provisions to treaties concluded even after 1 April 2014 even among those states (say between Australia and Indonesia, where the investor chooses the ICSID Rules rather than UNCITRAL Rules option for arbitration). Accordingly, states ratifying the Mauritius Convention will still need to agree bilaterally to expand any still-limited transparency provisions in such post-2014 treaties, which is quite inefficient compared to a multilateral solution. Nonetheless, we conclude from these new developments that Australia is now better placed to play a more active role in guiding the future path of international investment treaty-making multilaterally and especially in the Asia-Pacific region.

Investor-state dispute settlement and infrastructure projects: a potential impediment to good engineering and planning outcomes in Australia?

ABSTRACTOver recent years, Investor State Dispute Settlement (ISDS) clauses have been a feature of Australia’s negotiations of Free Trade Agreements (FTAs). ISDS clauses are drafted to provide increased protections for foreign investors of the contracting country parties. Some Australian newspaper journalists, politicians, academics and NGOs continue to promote the view that such provisions will disadvantage Australia. The paper explains the ISDS provisions, enumerates the number of bilateral investment treaties and FTAs to which Australia is party and notes whether they include ISDS provisions. The authors explore whether the ISDS provisions pose a real threat to good engineering and planning outcomes which might impact adversely on infrastructure investments by foreign enterprises. Whilst the initial impression, based on a little known but significant toll road arbitration case from Thailand, is that the potential risk is relatively high. Closer analysis, however, shows that the risk to Australian governments is probably moderately low and can be mitigated further.

Balancing The State’s Right To Regulate with Foreign Investment Protection: A Perspective Considering Investment Disputes in the South American Region

Some of the challenges in reforming the international investment framework have derived from investor-state disputes, where host states have been sued for environmental or health regulations. Clauses regarding investor-state dispute settlement mechanisms have been therefore improved in modern investment treaties. However, most developing countries, which tend to be most of the host countries to investments, still have Bilateral Investment Treaties from the 1990s where investor-state dispute settlement clauses remain unchanged. This paper analyses different strategies that host countries are taking in light of these challenges. These are particularly noteworthy in the South American region, where one can identify three different approaches concerning the international investment framework. Reflecting on these approaches, the paper addresses the relevance of the multilateral efforts to reform the framework as a way forward, and a more promising strategy, towards the aim of balancing the states and foreign investors’ interests.

Bilateral Investment Treaties - a Potential Trap for Developing Economies: A Lesson from Thailand

There is a growing concern amongst both developing and developed countries concerning the potential impact of Investor-State Dispute Settlement (ISDS) awards on the ability of a government to act in the best interest of its citizens. ISDS clauses are included in Bilateral Investment Treaties (BITs) and increasingly, but not always, in Free Trade Agreements (FTAs). The potential impacts on the ISDS clauses may considerable and affect the decision-making ability of the government. Unfortunately, the government officers making those decisions may not be aware of the potential conflict with the requirements of a BIT or FTA. This paper focuses on the litigation between Walter Bau AG (in liquidation) and the Government of Thailand in relation to a concession agreement to design, construct, operate and maintain the Don Muang Tollway in Bangkok. Walter Bau alleged the lack of Fair and Equitable Treatment (FET) in relation to its investment due to the Thai government reducing tolls; continuing to improve roads in the vicinity of the toll road thus affecting traffic volumes and subsequently closing the Bangkok International Airport at Don Muang. Arbitral proceedings were conducted in Switzerland and resulted in a significant award to Walter Bau which was unsuccessfully challenged by Thailand. It describes the circumstances that led to the government’s actions and the lessons that have been learnt from them. It also discusses how these issues have been addressed in Investor State Dispute Settlement in recent Free Trade Agreements entered into by Thailand and its trading partners, including Australia. Walter Bau provides a significant lesson for government’s developing Public Private Partnership (PPP) projects which can have multiple investors at both the construction and operations stages. These investors are often foreign companies who have no other interest other than the return on capital from their investment.Keywords: Innovation, Creativity, Business Producer, Diamond Model, Communication

Case Note: Philip Morris Asia v Australia

This case has been a flashpoint for recent debates over investor-state dispute settlement (ISDS). For Australia, subjected to its first ISDS claim, the case triggered extensive public discussion over whether to continue including ISDS clauses in future bilateral investment treaties (BITs) and investment chapters of free trade agreements (FTAs). More broadly, the case has been seen as epitomising all that is wrong with treaty-based ISDS: an unlikeable, pseudo-American multinational invoking a little-known treaty and an opaque arbitral procedure to claim billion-dollar damages arising from legislation enacted to protect public health. This distasteful image is likely to remain, especially in the public consciousness, despite the claim eventually being dismissed for treaty-shopping, and even though the award deserves to be analysed in broader context. Notably, the case is a rare successful invocation of abuse of right under general international law and even lowers the threshold for such an argument. The case may also encourage states to enhance their screening processes specifically to assess and manage litigation risks flowing from admitting a particular foreign investment.

Australia’s trade diplomacy and the Trans-Pacific Partnership: ‘you’ve got to row your own boat’

ABSTRACTAs part of its economic diplomacy, Australia has directed intense effort into both bilateral and plurilateral trade negotiations such as the Trans-Pacific Partnership. According to then Minister for Trade and Investment Andrew Robb, with no major multilateral trade deal in decades, you have to ‘row your own boat’ or risk missing out. With the fundamentals of trade and the nature of trade negotiations changing, trade liberalisation has become an increasingly sophisticated and difficult negotiating area. A case study of the controversial TPP shows the tensions for a middle power navigating this space. The benefits of the TPP are contested and the government faces criticism of the adverse impacts of the agreement, especially investor-state dispute settlement clauses, impact on human rights and suspicion that the TPP is motivated by geopolitical drivers. In order not to lose more than it gains in moving away from the multilateral trade system, Australia must ensure that trade agreements are consistent with WTO rules and have open and fair accession regimes as a basis for signing. Finally, there is the need for higher levels of transparency and democratic accountability than has historically applied. A new white paper is necessary to make the case for trade liberalisation.

The Scope of Investor-State Dispute Settlement in International Investment Agreements

International investment agreements contain a number of different investorstate dispute settlement clauses ranging from offering a very limited jurisdiction over specific compensation issues to broad options to arbitrate any (contractual or treaty based) investment dispute. Investment arbitration practice has demonstrated that uncertainty about the precise scope of dispute settlement clauses often leads to protracted jurisdictional battles. Reducing this uncertainty by drafting clearer dispute settlement clauses is likely to deter investors from bringing hopeless claims, and states fom raising indefensible jurisdictional objections. A limited set of jurisdictional and procedural obstacles should allow tribunals to deal with the real (substantive) issues of investment law, ie whether and to what extent the standards of investment protection enshrined in bilateral investment treaties (BITs) and investment chapters of international investment agreements (HAs) have been complied with or not. This would also serve the primary purpose of investment arbitration as protection of foreign investments.