Investment Law 2

Question 1

Investor-state dispute claims can be separated into two types of claims, which?

Answer 1

1) Treaty-claim
2) Contract-claim

Question 2

When are contract claims also treated as treaty claims?

Answer 2

When there is an umbrella clause in the treaty.

Question 3

What two types of treaty claims do we make?

Answer 3

1) Where the state seizes or cancels property rights owned by an investor
2) Where the state changes legislation or regulations, causing economic detriment of the investment, protected by a treaty

Question 4

What are the 4+1 basic features of Investor-State Disputes?

Answer 4

1. Disputes are not just a matter of simple contract claims
2. Public policy question
3. Political in nature
4. State of interdependence between investor and host country
   +1. Costs

Question 5

4+1 Basic Features of Investor-State Dispute

1. Disputes are not just a matter of simple contract claims

Explain this

Answer 5

Such disputes are not just a matter of simple contract claims governed by contract law. Given the international legal nature of these disputes, unilateral attempts by a host state to deal with them through domestic laws and regulations may well be unsuccessful. That’s why they are governed by public international law. Independence of courts cannot be taken for granted in many states. Neither separation of powers. Loyalty to the state may eschew independent rulings.

Question 6

4+1 Basic Features of Investor-State Dispute

2. Public policy question

Name two consequences for host states from disputes

Answer 6

1. Obvious answer: It hinders their power to regulate in many vital areas that need regulation (e.g., environment, taxes) for public welfare2
2. Potential chain effect: Breach of obligations might entail more proceedings from other investors. Made worse through high awards.

Question 7

4+1 Basic Features of Investor-State Dispute

3. Political in nature

Explain what influences exacerbate controversy and how it affects governments and investors in the dispute

Answer 7

Political groups, non-governmental organizations (NGOs), the media, and ultimately the general public come to have definite views on the dispute and how it should be settled, the controversy may become highly politicized.

The political nature of these disputes influences the strategies of both the governments and investors involved in seeking to resolve them.

Question 8

4+1 Basic Features of Investor-State Dispute

4. State of interdependence between investor and host country

Explain this with an extreme case

Answer 8

• In the case of privatization of public services, such as water, gas, or telecommunications, the investor and the host country are linked in a more or less permanent relationship. Such relationships are far more difficult to unravel, for example, than undoing a simple contract for the sale of a commodity in international commerce.
• In these more complicated relationships, the host country is dependent on the continued supply by the investor of a needed public service and, at least in the short run, has no option but to continue to deal with the investor.
• Similarly, the investor, having committed substantial capital to the privatized enterprise, is dependent on the host country for continued revenues. For this reason, at least in the short run, the investor also has few opportunities to disengage from the investment.

Question 9

4+1 Basic Features of Investor-State Dispute

+1. Talk about the costs (direct and indirect)

Answer 9

Settlement awards are high.

The costs of investor–state arbitration are usually substantially greater than those incurred in an ordinary commercial dispute.

Indirect costs: such as the time of government officials and corporate executives
devoted to preparing and participating in the matter

Substantial direct costs: (1) the expenses of a party’s legal representation and needed expertise; and (2) a party’s share of the costs of administering the arbitration

Average costs are 8 M USD (OECD data).

Question 10

Why are domestic courts of the host and home state not considerable for disputes?

Answer 10

Domestic courts of the host State - not considered attractive by foreign investors
Domestic courts of the home state ? Jurisdictional issues and state immunity

Question 11

Arbitration has emerged as the preferred method to settle investor-state disputes, first in contracts concluded between foreign investors and host States and then later in international investment agreements. Give three reasons why.

Are these the same benefits for non-ICSID arbitration proceedings?

Answer 11

1) Arbitration has been seen as a tool to depoliticize the settlement of these disputes. Arbitration is a legal, as opposed to a political, method of dispute settlement.

2) Arbitration is usually more efficient than litigation through regular courts. It offers the parties the opportunity to select arbitrators who enjoy their confidence and who have the necessary expertise in the field.

3) The private nature of arbitration, assuring the confidentiality of proceedings, is often valued by parties to major economic development projects.

Yes.

Question 12

The standard clause in a BIT with state-state dispute resolution mechanism looks as follows:

(1) Disputes between the Contracting Parties concerning the interpretation
or application of this Agreement should, if possible, be settled through the
diplomatic channel.

What do the interpretation and application mean?

Answer 12

• The ‘interpretation’ is the determination of the meaning of an investment treaty provision,
• The ‘application’ refers to the process of evaluating whether an action or measure by a treaty state complies with treaty requirements.

Question 13

What are the three potential situations to invoke state-state arbitration?
In which cases does the investor needed to have exhausted local courts?

Answer 13

1) Matter of interpretation. A difference of opinion between contracting states
concerning the interpretation of treaty language. There is no conflict.
2) Violation of treaty. Resolution through diplomatic channels (diplomatic channels).
3) Violation of treaty. Invocation of arbitration tribunal.

In 2+3

Question 14

How many cases of state-state arbitrations have there been? What was the most important one?

Answer 14

Three.

Cuba v. Italy 2003. Resulted in an award.

Question 15

If two states have treaties allowing for both state-state and investor-state arbitration, can a state-state arbitration still take place after an investor has started an investor-state claim?

Answer 15

No, that is no longer possible.

Question 16

How are interstate arbitration tribunals composed?

Answer 16

Interstate investment treaty arbitration is ad hoc, rather than institutional, and tribunals usually consist of three arbitrators: one appointed by each contracting party and a third, a national of a third country, who is agreed upon by the other two arbitrators. If the arbitrators cannot agree on a third member, or if one of the parties refuses to appoint an arbitrator, the treaty provides for an ‘appointing authority’ (such as the President of the International Court of Justice, the UN Secretary-General), to make the appointment.

Question 17

What is the “negotiation requirement” for contracting parties before resorting to arbitration?

Answer 17

Many treaties require a minimum period of negotiation between the
contracting parties before one of them may resort to arbitration.

Question 18

Can arbitration decisions be appealed to?

Answer 18

The decision of the arbitrators is final and binding on the contracting parties to the treaty.

Question 19

Explain in three points how parties can keep control over the arbitration

Answer 19

1) They can choose the procedure to be follow
2) They can choose the law applicable to the settlement of the dispute
3) They can choose the arbitrators who will settle the dispute

Question 20

Which is the most commonly used tribunal for contract-based disputes?

Answer 20

ICC Paris

Question 21

Can parties to ICSID also choose UNCITRAL rules?

Answer 21

Yes.

Question 22

Does ICSID make any decisions?

Answer 22

No, ICSID administrates proceedings, the decisions are made by arbitrators.

Question 23

Can non-parties to the ICSID Convention benefit from proceedings under ICSID? For which treaty was this important?

Answer 23

Yes. ICSID Addition Facilities 1978.

Those proceedings are available for disputes between a State and a foreign investor, where either the host State or the State of nationality is not a party to the ICSID Convention. This was especially important during most of the period of NAFTA’s existence because only the United States had ratified the ICSID Convention but Canada and Mexico had not. Many cases under the NAFTA were thus conducted under the Additional Facility.

Question 24

Is it possible that domestic courts can intervene in non-ICSID proceedings?

Answer 24

Yes. In non-ICSID proceedings, the law of the place of arbitration determines the extent to which local courts can intervene in arbitral proceedings and the applicable procedural law.

Question 25

Are treaty claims and contract claims mutually exclusive?

Answer 25

No. In absence of an umbrella case, parties might have disputes from both contract and treaty claims at the same time

Question 26

Vivendi v Argentina I (ICSID Case No. ARB/97/3, Award 21 Nov 2000). The contract contained a forum selection that referred disputes arising from the contract to the jurisdiction of the province’s courts. The investor, seeking to bring its claim before an international tribunal rather than before a domestic court, relied on the BIT between Argentina and France to establish the jurisdiction of ICSID. This was challenged by Argentina. What was the outcome? What principle did the case establish?

Answer 26

The forum selection clause in the Concession Contract did not affect the claimant’s right to go to international arbitration to pursue violations of the BIT.

Nevertheless, because all claims were closely linked to the performance of the Concession Contract and it was impossible to separate the two types of claims, resort to ICSID arbitration should be open to claimants only after they had failed in the pursuit of their claims before the domestic courts.

The Decision on Annulment in Vivendi established the principle that a forum selection clause in a contract pointing to domestic courts will not oust the jurisdiction of an international tribunal based on a treaty.

The decisive reason is that contract claims and treaty claims have different legal bases.

Question 27

The separate treatment of contract claims and treaty claims leads to situations where the claimant may be compelled to pursue part of its claim through national and another part through international procedures. What are the undesirable consequences?

Answer 27

The need to dissect cases into contract claims and treaty claims to be dealt with by separate fora requires claim splitting and has the potential of leading to parallel proceedings. This is uneconomical and contrary to the goal of reaching final and comprehensive resolutions of disputes.