Investor-state Dispute Research Articles

International Investment Law and Investor-State Disputes in Central Asia: Emerging Issues edited by Kiran Nasir GORE, Elijah Putilin, A.N. DUGGAL KABIR, and Crina BALTAG. Alphen a/d Rijn, The Netherlands: Wolters Kluwer, 2022. 528 pp. Hardcover: €175.00.

International Investment Law and Investor-State Disputes in Central Asia: Emerging Issues edited by Kiran Nasir GORE, Elijah Putilin, A.N. DUGGAL KABIR, and Crina BALTAG. Alphen a/d Rijn, The Netherlands: Wolters Kluwer, 2022. 528 pp. Hardcover: €175.00.

Harmonizing Dispute Resolution Mechanisms: Enhancing Efficiency and Synergy between WTO and ISDS System

This research article explores aligning and optimizing dispute resolution mechanisms in international law, particularly within the World Trade Organization (WTO) and Investor-State Dispute Settlement (ISDS) contexts. Addressing challenges arising from the "spaghetti bowl effect" of multiple treaty regimes, it examines the interplay between WTO and ISDS systems, aiming for harmonization and reduced jurisdictional inconsistencies. Traditional coordination methods are evaluated, revealing limitations in adapting to this evolving paradigm. Instead, an "articulation clause" and the "principle of comity" are proposed as innovative approaches for rationalizing dispute resolution. These strategies aim to transcend rivalry between WTO and ISDS mechanisms, expediting impasse resolution in the WTO Appellate Body. The study promotes a strategic shift, encouraging stakeholders to view dual mechanisms as mutually advantageous. This pragmatic outlook empowers informed decision-making, enhancing the global rule of law's predictability, efficiency, and integrity. The ultimate goal is strengthening the WTO's dispute resolution framework and ISDS mechanism, contributing to a more streamlined and cohesive international dispute resolution landscape. The qualitative research methodology has been applied to the following article.

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.

Counterclaims in Investment Arbitration: Towards an Integrated Approach

Abstract It is widely accepted that counterclaims may not be used as a means to exceed the limits of a tribunal’s jurisdiction, while they must at the same time be closely connected to the other party’s claim. However, in the particular context of investment arbitration, these two propositions create a tension that has led to a problematic and unfair construction of the investor-State dispute settlement mechanism. This article explores the foundations for a better, more integrated approach. It argues that jurisdiction over counterclaims should be seen as incidental to the one already established over the original claim, allowing tribunals to hear a wider range of counterclaims. This is inherent to the exercise of a tribunal’s adjudicative function, and rests on a foundation not only of implied consent, but also on one of principle. The approach presented here has the potential to protect counterclaims as a matter of procedural fairness and to address some of the reasons for the backlash against international investment arbitration law.

Addressing (In)Equality in Redress: Human Rights-Led Reform of the Investor-State Dispute Settlement Mechanism

Abstract In the context of ongoing debates concerning the reform of the investor-State dispute settlement (ISDS) mechanism, this article critiques the widely-accepted approach that seeks to fit international human rights law (IHRL) into the existing structure of ISDS and argues that IHRL should at least be treated as ‘primus inter pares’ vis-à-vis international investment law. Testing ISDS on the touchstone of the human rights to equality, non-discrimination, and an effective remedy, the authors demonstrate that ISDS is incompatible with IHRL. Considering various structural and systemic problems, abolishing ISDS is perhaps the only normatively sound solution to address this incompatibility with IHRL. However, as this may not be politically feasible in the near future, this article articulates eight principles for a human-rights compatible international dispute settlement mechanism. We argue that these principles should inform the current efforts to reform the ISDS mechanism to avoid the risk of making only cosmetic changes.

The Investor-State Dispute Settlement Damages Playbook: To Infinity and Beyond

Abstract The evolution of claimed damages valuation in investor-State dispute settlement (ISDS) has raised concerns with States, who are coming to believe that quantum is out of control. The magnitudes keep growing of ISDS claims predicated on speculative assumptions that render the future operations of claimants extremely profitable. Further, the common approach to inflating ISDS by means of discounted cash flow (DCF) calculations, is being boosted by novel and complex methodological approaches beyond the grasp of most arbitrators. Case examples illustrate how claimants and their experts have successfully exploited structural defects of ISDS to exaggerate quantum by overwhelming adjudicators with evidence inadmissible in a court setting. A string of indefensible decisions and exaggerated claims raises the possibility that investors may even be motivated to promote expropriation of projects, because of the prospect of inflated damages claims down the road.

Investment Treaty Law and Matters of Recognition: Locating the Concerns of Local Communities

Abstract This article reconsiders the political economy of investment treaty law. It starts by focusing on the broad consensus of investors, capital-exporting and capital-importing countries, and international organizations. These constituencies diverge over matters of distribution and, to certain extent, representation. Yet, they likely agree on matters of recognition. They see many regions and local communities simply as backward or traditional. Foreign investment gets represented as a road towards modernization. However, many of the local communities disagree. Locals are not systematically opposed to investment. Rather, they are likely to have legitimate concerns beyond those of the usual constituencies of investment treaty law. They want local institutions by which to articulate their positions, and they want investment projects to be embedded within local culture and traditions. Matters of recognition complicate the job of arbitrators, calling into question whether investor-State dispute settlement (ISDS) is an appropriate mechanism to govern foreign investment involving local communities.

Designing a Multilateral Investment Court for Procedural Justice

Abstract Working Group III of the United Nations Commission on International Trade Law has embarked on a mandate to reform investor-State dispute settlement (ISDS), through identifying a set of concerns that merit multilateral procedural reform. In response, the EU has proposed creating a standing multilateral investment court. Despite the importance of procedural justice theory in domestic legal systems, its value as a resource in international dispute resolution is under-recognized. This article focuses on procedural justice through the literature on the social psychology of justice, as offering an empirically-based theoretical foundation that helps identify key elements and options in designing investment adjudication. Within ISDS reform, the authors focus on necessary innovations in independence and impartiality, transparency, participation, and correction of error, the key pillars of procedural justice research. The EU proposal suggests substituting a more traditional judicial model of dispute resolution for the current and problematic arbitral model, which aligns to a greater degree with the principles of procedural justice.

ASEAN INVESTMENT DISPUTE SETTLEMENT MECHANISM THROUGH REGIONAL INVESTMENT COURT FRAMEWORK

In this paper, the authors provide an overview and comparison of the ASEAN dispute settlement mechanism (DSM) in the 2004 Protocol on EDSM and the ASEAN Comprehensive Investment Agreement (ACIA 2009) and review ASEAN's experience with investor-state dispute settlement (ISDS). The paper then examines the challenges and possibilities of restructuring ASEAN DSM through a Regional Investment Court. This includes discussing the potential benefits and drawbacks of such restructuring and its potential implications for regional integration. Finally, the paper offers some thoughts on possible future developments in this area, including the potential impact of a Regional Investment Court on the overall stability and effectiveness of the ASEAN DSM.

Last year’s model? Investment arbitration, negotiation, and the gap between Model BITs and IIAs

ABSTRACT With more than 3000 international investment agreements (IIAs) worldwide, states negotiate similar agreements multiple times with numerous partners. Accordingly, many states have developed template agreements known as ‘Model bilateral investment treaties (BITs)’. Nevertheless, concluded IIAs commonly deviate from the corresponding Model BITs, albeit to varying degrees. Investigating this variation, we examine the impact of Model Countries and their Partner Countries’ investor–state dispute settlement (ISDS) experience. Specifically, we argue that the Model Country adopts changes sought by the Partner Country during the negotiation process in order to accommodate the latter’s preferences, which were shaped by lessons learned from ISDS cases. Empirically, we introduce novel measures of divergence between Model BITs and IIAs, based on the concept and scheme of state regulatory space, with respect to several key aspects of investment rules. Coding a large number of Model BITs and IIAs on these variables and controlling for a host of alternative explanations, we find that the higher number of investment claims filed against the Partner Country, but not the Model Country, is associated with greater divergence between the Model Country’s Model BITs and its IIAs. This effect is especially noticeable with respect to important substantive investment rules.

Penyelesaian Sengketa Investasi Asing Melalui Mekanisme Arbitrase Internasional (Studi Kasus: Rafat Ali Rizvi Melawan Republik Indonesia)

One of the goals of the state is to create fair and prosperous society by carrying out development in various fields including the fields of economy, education and infrastructure. The country's development certainly requires large amounts of funds, but not all countries have these funds. The lack of funds which needed by the state is an entry point for investors to invest their capital, which is through foreign investment. Besides the investment, foreign investment also brings expertise, technology transfer, and can increase the productivity of the host country. However, the implementation of foreign investment do not always go well, investment problems will arise and in the end it can become foreign investment dispute. Investment dispute settlement is an important part of foreign investment in Indonesia and that is the form of protection for foreign investors. Investment disputes settlement in Indonesia begins with deliberation and consensus. If the deliberation and consensus not achieved, then the parties can take investment dispute settlement through international arbitration. The most common international investment dispute settlement mechanism is Investor-State Dispute Settlement (ISDS). Beside that, there is State-State Dispute Settlement (SSDS) mechanism. Submission of international investment disputes can be submitted to international arbitration forums, through International Centre for Investment Dispute (ICSID). One of the cases of foreign investment disputes that involved Indonesia is between Rafat Ali Rizvi and Republic of Indonesia.

ISDS and States’ Ability to Deal with Financial Crisis

This article reports on the results of an empirical study focused on ‘carve outs’ with respect to financial regulation in bilateral investment treaties (BITs) and free trade agreements (FTAs) entered into during the five-year period between 2015 and 2019. It did so by analysing the eighty-five BITs and FTAs signed in the period 2015 to 2019 inclusive, which were available in English in the UNCTAD Investment Policy hub, identifying three primary types of carve outs. We define carve outs as clauses which either provide an exception or defence to investor-state dispute settlement (ISDS) claims in certain circumstances or exempt altogether particular conduct by a state from the scope of ISDS, in order to protect state sovereignty. The article explores the likely effectiveness of those carve outs in protecting state sovereignty and minimizing ISDS claims against states arising out of regulatory measures taken to protect national economies in the event of crisis. The inclusion of appropriate carve outs is likely to support perceptions of the legitimacy of ISDS in BITs and FTAs. The article considers some earlier cases of ISDS relating to financial regulation and considers the impact that some of the more modern carve outs might have had on those scenarios. The article concludes with recommendations for model clauses and approaches in BITs and FTAs. Investor-state arbitration, financial regulation, state sovereignty, regulatory carve outs, BITs and FTAs

Comparing Comparability: A Study of EU, ISDS, and WTO Tax ‘Like’ Cases

This article addresses the fundamental element of non-discrimination provisions, i.e., the comparability analysis. Comparisons of treatment between different persons, goods, services, and capital that are present within a specific market are necessary to ensure a level playing field for competition within a globalized world. Comparability analyses are often the deciding factor of cases, and thus a thorough understanding of how they work is essential for practitioners and academics alike. This kind of test is present within several types of international treaties and is often the subject of intense debate and discussion within case law. This is in spite of the fact that there are few cases in which comparability is assumed without any type of analysis whatsoever. This work performs a comparative analysis of comparability analyses throughout the different international regimens of the European Union, Investor-State Dispute System (ISDS), and World Trade Organization (WTO) within the context of tax disputes. For each, it considers the peculiarities of the system, analysing case law, and proposes a way to further the fairness and specificity of comparability analysis. It also proposes the possible implementation of a different comparability analysis based on the impact on value created by companies from a given measure. Comparability analyses, EU, WTO, ISDS, ROIC, transfer pricing, international taxation, dispute resolution, litigation, likeness.

ASEAN and The Reform of Investor-State Dispute Settlement: Global Challenges and Regional Options

As a 10-country bloc, the Association of Southeast Asian Nations (ASEAN) is poised to ascend to the fourth largest economy in the world by 2030.2 The ASEAN-centered framework premised on the ASEAN Economic Community and ‘ASEAN Plus Six’ free trade agreements (FTAs) has led to new Asian regionalism, which has galvanized paradigm shifts in the international order.3 This framework also culminated in the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade pact by economic scale. Given ASEAN’s pivotal role in regional trade and security, recent Indo-Pacific strategies of major powers reinforce the importance of ASEAN centrality and ASEAN-led mechanisms.4 The legalization of ASEAN’s internal and external trade and investment pacts has transformed the ASEAN way, which conventionally denotes the code of conduct and the decision-making process based on consultations and consensus. Distinct from the European Union (EU), ASEAN has developed the approach of pragmatic incrementalism to enable structural flexibilities for binding rules, thus balancing soft and hard law obligations. Along with trade law, investment law forms an integral part of ASEAN’s legal architecture and is paramount to the sustainable growth of ASEAN developing countries. One of the most challenging issues in investment law is investor-State dispute settlement (ISDS), which has encountered massive backlash.5 At the multilateral stage, the United Nations Commission on International Trade Law (UNCITRAL) entrusted Working Group III to discuss procedural reforms for ISDS under investment agreements.6 Asian States have yet to form a unified stance on reform proposals. However, in light of ongoing ISDS debates, ASEAN’s experience will provide valuable lessons for the Global South and enrich discussions about reforming investment legislation and treaties.

Shareholder Claims for Reflective Loss in Investor-State Dispute Settlement: Proposing Reform Options for States

Abstract The rule against reflective loss claims by shareholders is a fundamental tenet of corporations law, accepted across numerous domestic law jurisdictions and under customary international law. Yet bilateral investment treaties (BITs) have long broken from this conventional approach by allowing shareholders to bring claims for their indirect loss. UNCITRAL Working Group III has identified that this anomalous approach to shareholder claims may be an issue in relation to which reform is desirable. In support of Working Group III’s multilateral reform agenda, this article examines a range of reforms options available to States concerning shareholder reflective loss claims, and suggests that treaty-based derivative claims mechanisms are a suitable choice for reform. Derivative claims mechanisms have been included in a number of international investment agreements (IIAs), although the arbitral practice in relation to such provisions has not previously been the subject of close scrutiny. The examination of this arbitral practice, drawing in particular from past practice applying the North American Free Trade Agreement, reveals that tribunals have not consistently interpreted these mechanisms as precluding shareholder reflective loss claims, indicating that States need to include explicit clarificatory treaty language to render these clauses effective.

Absence of and Options for Investor-State Dispute Settlement Mechanisms in Regional Comprehensive Economic Partnership Agreements

Absence of and Options for Investor-State Dispute Settlement Mechanisms in Regional Comprehensive Economic Partnership Agreements

The Quadrilemma: Appointing Adjudicators in Future Investor–State Dispute Settlement

ABSTRACT Concern with the selection and appointment of arbitrators has been central in the ‘legitimacy crisis’ surrounding investor–state dispute settlement (ISDS). The regime has been criticized for the outsized role of litigating parties in appointment, absence of transparency in the appointment procedure, potential for conflicts of interests, lack of diversity, and little emphasis on public international law competence. However, attempts to reform the selection and appointment of adjudicators involve confronting dilemmas, requiring trade-offs between different normative values. We therefore introduce a quadrilemma that captures the underlying values of independence, accountability, diversity, and procedural fairness that actors often seek to realize through adjudicatory design. We then set out seven idealized selection and appointment reform options under discussion in the ISDS reform process at UN Commission on International Trade Law (UNCITRAL) (from incremental reform through to new permanent mechanisms and removal of ISDS). The quadrilemma is employed to analyse their advantages and disadvantages of each model. In light of empirical and doctrinal evidence, it is clear that some reform options are more likely than others to optimize the quadrilemma. However, the effects are often conditional and sometimes there is a need for accompanying mechanisms.

Le Mexique et l’arbitrage international d’investissement: un paysage pluraliste

This article examines Mexico’s experience with investment arbitration, focusing on its impressive evolution. Since the adoption of North American free trade agreement (NAFTA) in 1994, Mexico has signed several bilateral investment treaties (BITs) and free trade agreements (FTAs) containing investor-state dispute settlement (ISDS) arbitration clauses. An analysis of these various clauses reveals that Mexico has chosen the path of pluralism, adopting various investment arbitration options in its international investment agreements. This stance on arbitration reflects the lack of a regional standard for foreign investment protection and the difficulty of finding a genuine alternative path. In the absence of such an alternative, flexibility becomes the most pragmatic option. In this sense, unlike Brazil, which has its own model agreement and is an important political force in the balance of power in international investment law, Mexico is a rule taker state. Mexico; bilateral investment treaty; free trade agreement; Latin America; dispute settlement mechanism; international investment arbitration; pluralism; rule taker.

Modernization of the Investor-State Dispute Settlement System: reform or revolution?

INTRODUCTION. The UN Commission on International Trade Law established Working Group III in 2017. Within the framework of this Working Group, States’ delegations and representatives of international governmental and non-governmental organizations seek to work out solutions to the identified problems of the investor-State dispute settlement system. Such problems include: lack of consistency and predictability of arbitral awards, lack of independence and impartiality of arbitrators, cost and duration of proceedings. Part of the ways suggested by the UNCITRAL Secretariat and States to remedy problems could be estimated as reform of the system, but several proposals seem to be a revolution.MATERIALS AND METHODS. The authors researched the provisions of bilateral investment treaties, case law of tribunals demonstrating the problems of the ISDS system, as well as the works of Russian and foreign scholars. The methodological basis of the research contains general scientific and special methods.RESEARCH RESULTS. The authors have analyzed several ways of the ISDS system reform overviewed by the Working Group III. Firstly, the authors have considered the draft code of conduct for arbitrators, provisions on third-party funding and an advisory center in the ISDS system. It has been stated that each of these initiatives is able to solve certain problems of the system. Secondly, the authors have analyzed the documents on the creation of an appellate mechanism and a standing multilateral mechanism for the settlement of investment disputes. The authors have concluded that initiatives may bring the fundamental changes to the system.DISCUSSION AND CONCLUSIONS. The authors have concluded that the identified shortcomings of the ISDS system can be remedied only by its reform. Every problem of the system can and should be rectified through consistent work, and not by radical changes. The revolutionary ways considered, such as the appellate instance and the court, not only will not solve existing problems, but rather will add new ones. For example, such a “revolution” of the system may result in establishment of the two parallel regimes of investorstate dispute resolution.

International investment law and data, copyrights and performance requirements: a closer look at Einarsson v Canada

... The interface between international investment law and IP law is continuing to develop.1 After high profile investor–state dispute settlement (ISDS) cases, in which investment tribunals decided disputes involving trade marks and patents,2 copyrights and data are next. In Einarsson v Canada, the Claimants argue that Canada—through legislation and government action—confiscatedtheir IP rights (IPRs) in seismic data in breach of investment protection standards provided for in NAFTA.3 This is the first known case in which copyright and data4 issues arise in investment arbitration, so the tribunal’s decision will have broad implications for the development of this area of law. With more than US$2.5 billion claimed, the financial stakes are extremely high as well. Against this backdrop and on the basis of existing case law, this article aims to analyse the many questions relating to IP protection under investment law that are still unresolved. The legal issues range from the question, whether and under what circumstances copyrights and data constitute a covered investment under international investment law, to the extent and contours of the level of protection offered to those investments under international law (specifically under the fair and equitable treatment (FET) standard and the prohibition against uncompensated expropriations) and its relationship with domestic law and international and multilateral IP treaties. In a first, the prohibition against performance requirements is also at issue. The case also showcases the continuing propertization and expansion of IP protection through investment arbitration from patents and trademarks to copyrights and data. The article thus also offers a case study for the general critique offered by some commentators in this regard.