The 4th Annual Singapore International Investment Arbitration
Conference
International Investment Arbitration in Asia: The Road Ahead
Keynote Address by the Honourable the Chief Justice Sundaresh Menon
Singapore, 3 December 2013
I
INTRODUCTION
1.
Thank you for inviting me to deliver the keynote address for this third session
on what lies ahead for international investment arbitration in Asia. It is always
useful before looking ahead to take a quick look behind us and the impression
that jumps out is how quickly and dramatically things have changed. In the
last decade alone, investor-state arbitration has evolved into a robust system
of adjudication to resolve disputes arising out of a web of more than 3,000
bilateral investment treaties, regional free trade agreements and multi-lateral
agreements.1
2.
The caseload in the last decade has also been on a general upward trend.
The International Centre for Settlement of Investment Disputes or ICSID has
reported that 433 cases of investor-State arbitration have been administered
by the Centre since 1972.2 Almost 75% of these have been brought in the last
1
Chief Justice Sundaresh Menon, ‘The Impact of Public International Law in the Commercial Sphere
and its Significance to Asia’ (Lecture jointly organised by the International Council of Jurists and the
University of Mumbai, Mumbai, 19 April 2013) para 14.
2
Douglas Thomas, 'ICSID stats show rise in Central Asia claims', Global Arbitration Review (2 August
2013).
1
10 years.3 The size of claims has also ballooned, with a historic amount of
USD1.77 billion awarded to an investor in Occidental v Ecuador4 last year.
3.
How did we get to this point? What lessons does our journey hold for where
we might be headed? To be sure, as investment arbitration has assumed
greater importance, its legitimacy has come under intense scrutiny on multiple
fronts, with some suggesting that it is experiencing something of a backlash.
4.
The dynamics at play are undoubtedly evolving. International trade has
increased exponentially, even as globalisation and development has resulted
in more evenly balanced East-West capital flows.5 Notably, the past two
decades has witnessed something of a gradual reversal of roles. Historically,
the resolution of investment disputes involved States presenting claims under
Treaties of Friendship, Commerce and Navigation on behalf of their nationals
under the customary law mechanism of espousal, or when talks failed,
resorting to military force.6 Following the process of decolonisation after the
Second World War, developing countries, which came to form the majority in
the United Nations General Assembly, adopted the Declaration of the New
International Economic Order, declaring their full and permanent sovereignty
over natural resources and economic activities. Investor countries responded
3
International Centre for Settlement of Investment Disputes, “ICISD Caseload – Statistics (Issue
2013-2)”
<https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=ShowDocume
nt&CaseLoadStatistics=True&language=English42> accessed 29 November 2013.
4
Occidental Petroleum Corporation and another v The Republic of Ecuador, ICSID Case No
ARB/06/11, Award (5 October 2012).
5
Chief Justice Sundaresh Menon, ‘Transnational Commercial Law: Realities, Challenges and a Call
for Meaningful Convergence’ (26th LAWASIA Conference and the 15th Biennial Conference of Chief
Justices of Asia and the Pacific, Singapore, 27-30 October 2013), paras 2 and 9.
6
Kenneth J Vandevelde, ’A Brief History of International Investment Agreements‘ (2005) 12 University
of California at Davis Journal of International Law 157, 160-161.
2
by devising the BIT as a means of protecting its investors from
uncompensated expropriation, reflecting a North-South divide with insistence
on the protection of the investments of nationals from developed countries
sited within the territory of developing countries on a “take-it-or-leave-it”
basis.7 BITs were always somewhat asymmetrical instruments in that they
create rights for investors and duties for host States, but not vice versa. Yet
the narrative underlying this dichotomy has begun to dissolve as once capitalimporting countries become capital exporters, not only to other developing
countries, but increasingly to the developed world as well. Developed and
developing states alike now have renewed political awareness of the realities
of the international investment regime.
5.
Among the first impressions I had of the power of arbitration in this new world
was in the first years of this century. I had just become a partner of a major
US law firm and I was visiting offices across that country. Repeatedly, when I
was introduced as an arbitration lawyer, the conversation would turn to the
famous case of Loewen Group v the United States.8 Loewen, a Canadianbased conglomerate in the funeral business had engaged in a strategy of
buying up local undertakers throughout the States. Loewen was said to have
engaged in anti-competitive conduct and several actions were brought against
it. One such was an action brought by a private undertaker named Jeremiah
O’Keefe who sued Loewen in Mississippi. The jury returned a verdict of
$500m in O’Keefe’s favour. When Loewen sought to appeal it was required to
furnish a bond for the amount of the award to avoid execution proceedings
7
Ibid 167-171.
Loewen Group, Inc and Raymond L Loewen v United States of America, ICSID Case No
ARB(AF)98/3, Award (26 June 2003).
8
3
and an application to reduce the amount of the bond failed. Loewen settled
with Mr O’Keefe but it commenced arbitration at ICSID against the United
States a couple of years later pursuant to the provisions of the North
American Free Trade Agreement, or the NAFTA, Investment Chapter.
6.
Loewen’s case theory was that the manner in which the trial had been
conducted, the amount of the verdict and the requirement of the bond meant
that it had been denied justice or had its investment expropriated. The case
eventually failed because Loewen was found not to have exhausted its
domestic remedies and also because it underwent bankruptcy proceedings
after which it was reorganised as an American company which could not then
maintain a claim against its own government under the NAFTA. But the real
shock was the jurisdiction ruling: the tribunal held that the decision of the jury
and the court was a governmental measure susceptible to review under the
NAFTA even though it stemmed from private law litigation. But for the fact that
Loewen had been Americanised, the spectre had been raised of the possibility
of a jury decision, a cherished ideal of the American justice system, being
reviewed for propriety by an international arbitration tribunal.
7.
In the years since then, similar issues have arisen on a few occasions.
Perhaps, the most recent, and for present purposes, the closest to home is
the case of White Industries v India.9 White Industries is an Australian
company. It won an ICC award against Coal India, a state-owned enterprise
engaged in and responsible for the coal mining sector in India. An application
9
White Industries Australia Limited v The Republic of India, Final Award (30 November 2011),
<http://italaw.com/sites/default/files/case-documents/ita0906.pdf> accessed 29 November 2013.
4
was brought by Coal India to set aside the award, which White Industries
opposed on the basis that the Calcutta High Court lacked jurisdiction to
entertain the application. This trudged through the Indian court system for
almost a decade. White Industries in despair brought a treaty claim against
India, arising out of its inability to enforce the ICC award that had been
rendered some ten years or so earlier against Coal India.
8.
There was nothing to suggest that White Industries had in any way been
singled out for these hardships. The tribunal rejected White Industries’ claim
that India had breached the fair and equitable treatment clause found in the
India-Australia BIT. The tribunal also found that White Industries either knew
or ought to have known that the domestic court structure in India was
overburdened when it embarked on its investment; and that an investor must
generally take a host State as it finds it.10 The tribunal further found that the
proceedings in the domestic courts had not moved at an unreasonable pace
in the context of a denial of justice assessment. 11 There being no suggestion
of bad faith, it was thought that the delays faced by White Industries did not
amount to a “particularly serious shortcoming”, or “egregious conduct that
‘shock[ed] or at least surprise[d] a sense of judicial propriety’.”12
9.
However, the tribunal held that, pursuant to the most favoured nation (or
MFN) clause in the India-Australia BIT, White Industries could take advantage
of the “effective means of enforcement” obligation found in a subsequent BIT
10
Ibid paras 10.3.14-15.
Ibid para 10.4.21.
12
Ibid para 10.4.23.
11
5
that India had entered into with Kuwait.13 On that basis, the tribunal held India
liable for failing to provide an effective means for White Industries to enforce
the commercial arbitration award, and awarded White Industries AUD4.08
million (which was the amount due under the commercial arbitration award)
plus interest. It is less the amount than the principle that might invite scrutiny
and reflection.
10.
A number of questions arise. The tribunal found that no allegation of unfair
and inequitable treatment had been made out; no basis for any legitimate
expectation of timely enforcement of the first award; no misfeasance of any
sort on the part of the host State; and no denial of justice had been shown. It
nonetheless also held that the host State was obliged to provide an effective
means of enforcement for investors. Effective is perhaps a relative term.
Clearly, White Industries had a means of enforcement even if it entailed
ambling through the Indian judicial system. At what point did it become
ineffective? On what basis could it be said that the parties, who knew of the
realities of the justice system of the host State, in fact intended to contract for
what in effect was an obligation to provide a means of enforcement with a
level of sufficient expedition (whatever that means) that had not previously
been achieved in the host state by or for anyone else? What if the setting
aside application had succeeded after eight years but there was a prospect of
waiting another five for an appeal?
13
Ibid para 11.2.1.
6
11.
The tribunal reasoned that the “effective means” standard is a lower one than
the “denial of justice” standard and further held that the issue of whether or
not “effective means” had been provided by the host State is to be measured
against an objective, international standard. It also held that where delay is
concerned, the delay must be “indefinite” or “undue” to establish a breach.
Though the tribunal explained in some detail why certain deficiencies were not
a breach, this is what it had to say where it finally did find a breach:
The Tribunal has no difficulty in concluding the Indian judicial system’s inability to
deal with White Industries’s jurisdictional claim in over nine years, and the Supreme
Court’s inability to hear White Industries’s jurisdictional appeal for over five years
amounts to undue delay and constitutes a breach of India’s voluntarily assumed
obligations of providing White Industries with “effective means” of asserting claims
and enforcing rights.
12.
It seems odd to describe such a broad obligation as one that India voluntarily
undertook. If this is the legitimate construction of the treaty provision, then on
the premise that this was not an exceptional claim by Indian standards, it
would mean that India voluntarily undertook to overhaul its judicial system and
bring it up to a level where it would pass muster under international standards.
In the context of a system with a backlog of more than 30 million cases 14 this
is quite an undertaking! It might also mean that every successful claimant
against an Indian party potentially now has the benefit of a sovereign
guarantee from India.
13.
It seems that a decade or so after Loewen, the idea is gaining currency that
national courts and indeed entire judicial systems are answerable to
arbitrators appointed pursuant to BITs or the Investment Chapters of FTAs.
14
‘Courts will take 320 years to clear backlog cases: Justice Rao’, The Times of India (Hyderabad,
March 6 2010) <http://articles.timesofindia.indiatimes.com/2010-03-06/india/28143242_1_high-courtjudges-literacy-rate-backlog> accessed 29 November 2013.
7
White Industries demonstrates the growing power that investment arbitrators
are able to assert within the domestic policy spheres of states. States are
beginning to see certain public policy choices that can have dramatic
implications on resource allocation made on their behalf by persons they did
not elect through a process they are only now coming to grips with. These
choices represent a prioritisation of the private interests of investors and in
theory, the corresponding public good is the incentive for investment that is
created by entering into such agreements. But at what price is the surrender
justified?
14.
The White Industries scenario could well replay itself as countries in Asia
gradually begin to see the downstream impact of the many BITs they entered
into in the last twenty years or so. Indeed, two years before White Industries,
in Saipem v Bangladesh15, an ISCID tribunal held that certain orders of a court
in Bangladesh which effectively took away the fruits of an arbitration award
made in favour of the investor amounted to an expropriation. Where will the
line be drawn between judicial determinations that are acceptable and that will
not give rise to such a claim on the one hand and those that are not and will
result in liability for the state on the other? Will it come down to whether a
given tribunal is of the view that the host court got it wrong in ruling against a
foreign investor? Or very wrong? It has been suggested that developing
countries originally entered into BITs as a strategic means of increasing their
individual competitiveness in attracting foreign investment. 16 The real question
15
Saipem SpA v The People’s Republic of Bangladesh (ICSID Case No. ARB/05/7), Award (30 June
2009).
16
Andrew T Guzman, ‘Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral
Investment Treaties’ (1997) 38 Virginia Journal of International Law 639.
8
though is whether they knew the legal implications of the treaties they were
signing. Did they fully understand the legal implications of the treaties that
they were signing? Did the official who negotiated the India-Kuwait treaty have
the foggiest idea what he or she had evidently and voluntarily committed the
country to?
15.
A former Attorney-General of Pakistan, well-known to many of us in this
audience, once described the signing of a BIT as a “piece of paper, something
for the press, a good photo opportunity”.17 This is perhaps a little facetious
and somewhat tongue-in-cheek and might give a mistaken impression of
something benignly harmless. As the investment arbitration tide approaches
Asia, it is timely to take a step back and ask ourselves if this is sustainable.
Should we rather be attempting to implement reforms to the regime to address
these issues? In the time that remains, I would like to consider the aspects of
the international investment arbitration regime that have led to a pushback of
sorts and offer my tentative views on how Asia, and the global community,
might work within the present constraints and challenges that I have identified
to improve the system and salvage its utility.
II
CRITICISMS OF THE INTERNATIONAL INVESTMENT ARBITRATION
REGIME AND SOLUTIONS MOVING FORWARD
16.
The criticisms against international investment arbitration are at bottom
directed at the interpretations placed on treaties but this can be isolated to two
17
Lauge Skovgaard Poulsen and Damon Vis-Dunbar, 'Reflections on Pakistan’s Investment Treaty
Program after 50 Years, An Interview with the former Attorney-General of Pakistan, Makhdoom Ali
Khan’ Investment Treaty News (16 March 2009) <http://www.iisd.org/itn/2009/03/16/pakistansstandstill-in-investment-treaty-making-an-interview-with-the-former-attorney-general-of-pakistanmakhdoom-ali-khan/> accessed 29 November 2013.
9
distinct strands: the first is from the procedural perspective, which concerns
“who” are the ones vested with the power to decide and is manifested in
complaints over, for example, the composition of tribunals and the absence of
effective mechanisms for accountability in the process; and the second is from
a substantive perspective, which concerns the exercise of that power which is
reflected in the jurisprudence and outcomes emerging from tribunals, and
whether this jurisprudence coheres with the expectations of the State parties
at the time these treaties were signed. I touch on the procedural issues first
before turning to the substantive.
A.
Deficiencies in procedural mechanisms
17.
The investment arbitration regime is a unique and hybridised one, in which it
has been said that a “clash” of the paradigms of international law, international
commercial arbitration and public law manifests itself.18 Taking the public law
paradigm for example, the regime has features of an international form of
judicial review because disputes often turn on the compatibility of a State’s
actions with its treaty obligations and the limits of governmental regulatory
action.19 In addition, the public scrutiny that these disputes attract and the fact
that any award against the State will be borne by its taxpayers demand that
the legitimacy of the process and outcome be of foremost importance.
18.
Yet, the private model of international commercial adjudication which prevails
in the current regime has allowed a select few individuals to rule on issues of
18
Anthea Roberts,’Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System’
(2013) 107 American Journal of International Law 45.
19
Gus Van Harten,’Perceived Bias in Investment Treaty Arbitration’ in Chester Brown and Kate Miles
(eds), Evolution in Investment Treaty Law and Arbitration (Cambridge University Press, 2012) (‘Gus
Van Harten’) 433, 435.
10
public policy and legality of state regulatory actions, with little or no
accountability to the constituency, and in the process, bypassing the
traditional protections and the often delicate and carefully arranged balance of
interests that are built into the domestic administrative law framework. 20 This
has led to questions of whether the institutional safeguards in the investment
arbitration regime to ensure the legitimacy and accountability of tribunals are
sufficiently robust, compared to those present in the judicial context. 21
19.
I propose to touch on three issues pertaining to the procedural mechanisms
on which the regime is built and to consider whether there is room for
improvement: the composition of tribunals, conflicts of interest, and the need
for public participation. Each of these is a critical factor because of the bearing
these have on the question of how the treaty will be interpreted substantively;
for instance, what should an effective means of enforcement mean in real
terms where it translates into the hard currency of building court houses and
training and recruiting judges to staff them?
1.
Composition of investor-State arbitral tribunals
20.
The tribunals that set the standards against which State actions are to be
reviewed, and which therefore can have a say on domestic economic and
monetary policy, tax incentives and even employment laws, often comprise
arbitrators who are experienced in commercial law but are not necessarily
attuned to the domestic public interest and policy concerns of the State
20
Sundaresh Menon, ‘International Arbitration: The Coming of a New Age for Asia (and Elsewhere)’
(ICCA Congress, Singapore, 2012) para 32.
21
Gus Van Harten (n 19), 434.
11
parties.22 A 2012 OECD report on government perspectives on investor-State
dispute settlement stated that members of the legal profession dominate the
field, with few arbitrators having public law experience or being drawn from
government bodies that might have counsel engaged in defence work against
treaty claims or in investment treaty negotiation.23
21.
A related concern is the perceived lack of representation amongst arbitrators
from developing countries and from Asia. Investment arbitration tribunals tend
to comprise persons drawn from a “small and tight-knit Northern hemispherebased community”.24 The ICSID report for 2013 indicated that 48% of
arbitrators, conciliators and ad hoc committee members in that fiscal year
were chosen from Western Europe, with just 17% from South and East Asia
and the Pacific region. Even where there is Asian representation in ICSID
tribunals, this in the main consists of a small group of repeat players.25
22.
To address these concerns, I highlight some modest ideas that are being
proposed and explored by some. The ICSID rules currently provide that
persons designated to serve on the Panels of Conciliators and Arbitrators
shall be competent in the fields of law, commerce, industry or finance, with
22
Sundaresh Menon, ‘The Coming of a New Age for Asia’ (n 20) paras 19, 22 and 32.
Organisation for Economic Co-operation and Development Investment Division, Directorate for
Financial and Enterprise Affairs, ‘Government perspectives on investor-state dispute settlement: a
progress report’ (14 December 2012) <http://www.oecd.org/daf/inv/investmentpolicy/ISDSprogressreport.pdf> accessed 29 November 2013, 13-14.
24
Sebastian Perry, ‘Investment arbitration under fire from think tank’, Global Arbitration Review (27
November 2012).
25
Luke Nottage and J Romesh Weeramantry, ‘Investment Arbitration in Asia: Five Perspectives on
Law and Practice (2012) 28 Arbitration International 19, 33 citing SM Pekkanen, H Gao & .Ahn, ‘From
Rule Takers, Shakers to Movers: How Japan, China and Korea Shaped New Norms in International
Economic Law’, (Second Biennial General Conference of the Asian Society of International Law,
Tokyo, Aug 1–2, 2009).
23
12
competence in the field of law of particular importance for arbitrators.26 This
leaves the field wide open and commercial lawyers and some public
international lawyers are likely to continue to dominate the field. But States
could acquire greater control over the composition of tribunals by negotiating
for and specifying in investment treaties the necessary criteria in terms of the
experience or the required qualifications of those who could sit as arbitrators.
Article 35(2) of the ASEAN Comprehensive Investment Agreement of 2009,
for example, provides that the arbitrator “shall have expertise or experience in
public international law, international trade or international investment rules”.
This still leaves a question over what expertise or experience means and
State parties might even consider agreeing beforehand on a list of persons
from which members of the tribunal can be chosen.
23.
Just last week, on 27 November 2013, the EU issued a communiqué
announcing a slew of measures applicable to its trade agreement with
Canada (“CETA”) to “bring very significant clarifications to the key substantive
provisions, which are also the most often invoked by investors when bringing
claims” 27. I regard this as a development of potentially great importance. Also
included are very important changes to the dispute-settlement scheme
including a requirement for agreement on the tribunal failing which the
members will be chosen from a list agreed by Canada and the EU.
26
Convention on the Settlement of Investment Disputes between States and Nationals of Other
States, art 14.
27
European Commission, ‘EU-Canada CETA: main achievements’ <
http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdf> accessed 2 December
2013.
13
2.
Lack of independence and impartiality (or the appearance thereof)?
24.
Secondly, in relation to the growing concerns over whether there are sufficient
safeguards to ensure the independence and impartiality of tribunals, it may be
noted that the typical conditions that assure impartiality in the judicial sphere
appear to be lacking in arbitration. Arbitrators are often drawn from the same
ranks of legal professionals and this creates its own set of issues.28
25.
One problem which has proved particularly difficult in the arena of investment
arbitration is what has been termed “issue conflict”, where the arbitrator may
be concurrently acting or may have acted as counsel in another case
pertaining to similar issues, or where the arbitrator acts as counsel in a
subsequent case raising issues similar to those he adjudicated on, or where
the arbitrator had previously issued awards or expressed strong personal
views on an issue in the arbitration.29
26.
Allegations of issue conflicts have thus far been settled in a piecemeal and ex
post facto fashion through the emergence of jurisprudence from courts or
tribunals. The weakness of this approach is that the outcomes are not always
easy to reconcile. In Ghana v Telekom Malaysia,30 Ghana challenged the
appointment of one of the arbitrators on the ground that he was concurrently
the counsel in an application to annul the award in RFCC v Morocco.31 Ghana
was seeking to rely on RFCC v Morocco in its defence, and argued that the
28
Sundaresh Menon, ‘The Coming of a New Age for Asia’ (n 20) para 37.
Michael Hwang SC and Kevin Lim, ‘Issue Conflict in ICSID Arbitrations’ (2011) 8 Transnational
Dispute Management (‘Hwang and Lim’).
30
The Republic of Ghana v Telekom Malaysia Berhad, HA/RK 2004.667, Decision of the District
Court of the Hague (18 October 2004).
31
Consortium RFCC v Kingdom of Morocco, ICSID Case No ARB/00/6, Award (22 December 2003)
29
14
arbitrator would not, by virtue of his involvement as counsel in that case, be
able to discharge his duties as arbitrator in the case at hand impartially. The
tribunal and the Permanent Court of Arbitration, which was the appointing
authority in this case, rejected Ghana’s challenge. Ghana pursued the
challenge to the District Court of The Hague, arguing that the arbitrator “would
not be able to be (or would not appear to be) unbiased in his evaluation of the
implications of RFCC v Morocco”.32 The District Court agreed, and stated that
“[a]ccount should be taken of the fact that the arbitrator in the capacity of
attorney will regard it as his duty to put forward all possibly conceivable
objections against the RFCC/Moroccan award” and “[t]his attitude is
incompatible with the stance… that he had to adopt as an arbitrator… to be
unbiased and open to all the merits of the RFCC/Moroccan award”.33 The
appearance of the arbitrator not being able to sufficiently distance himself
from his role as counsel in the RFCC/Morocco award was also an important
consideration. The District Court upheld the challenge against the arbitrator,
giving him ten days to notify the parties that he would resign as counsel in
RFCC v Morocco.
27.
The conflict of interest problem is likely to be exacerbated by the growing
incidence of third-party funding and the participation of vulture funds. The
growth of this phenomenon is demonstrated by the fortunes of Burford
Capital, a company which specialises in funding investment arbitration and is
one of the largest litigation funders in the US. Since it was listed in late 2009,
32
Hwang and Lim (n 29), 18.
The Republic of Ghana v Telekom Malaysia Berhad, Challenge No RFCC v Morocco, Challenge
No 13/2004, Petition No HA/RK 2004.667 (18 October 2004).
33
15
its profits have grown from US$1.5 million to US$34.1 million in 2012.34
Because a third party funder is likely to be involved in many different sets of
arbitrations involving different parties, the web of relationships between
arbitrators, counsel and the parties involved becomes significantly more
complicated and the rules on the accompanying disclosure obligations are far
from clear. This can give rise to a worrying alignment of interests and throw
into question the impartiality of the arbitrator concerned.
28.
Third party funding may also heighten the likelihood of unmeritorious cases
being commenced against States for the speculative prospect of return. The
possibility of funding a case and reselling the claim to third parties, much like
credit default swaps, has been raised.35 Although third party funders can be
expected to be rational actors who pursue claims with a reasonable prospect
of success, the recent financial crisis has taught us that even professional
investors are not always bound or even able to look behind the securitized
products that they purchase to the value of the underlying assets.
29.
Significantly, the EU communiqué on developments in the CETA refers to the
introduction of a binding code of conduct for arbitrators; the introduction of a
three year time bar on claims; a framework for “exceptionally strong”
protection against frivolous claims and the possibility of adverse costs orders
against claimants who advance unfounded claims. 36
34
Burford Capital’s Annual Reports 2010-12.
Alison Ross, ‘The Dynamics of Third-Party Funding’, Global Arbitration Review (7 March 2012),
cited at http://fulbrookmanagement.com/2012/02/27/the-dynamics-of-third-party-funding/.
36
See n 27, above.
35
16
30.
It is also heartening that leading arbitral institutions, stakeholders and think
tanks like the International Council for Commercial Arbitration, or ICCA, have
taken the lead in setting up project committees to study the implications of
third party funding and issue conflicts in international arbitration and to make
recommendations on the best practices moving forward.37 A commentary on
the best practices from the ICCA, for example, though non-binding, would be
a helpful starting point to address the problem of issue conflicts and third party
funding or at least put in place the processes to enhance the legitimacy of the
system. It is also heartening to see a growing tendency on the part of
practitioners to serve either as arbitrators or as counsel but not both.
3.
Lack of public information
31.
The third and final procedural aspect that I will touch on is the issue of public
participation in investor-State arbitration. The confidentiality of investment
arbitration proceedings developed by analogy with the practices of
international commercial arbitration. But as we have seen, investor-State
arbitration frequently calls into question the legality of government regulation
aimed at the protection of public welfare. As such, it has been suggested that
the argument that investment arbitration disputes ought to remain confidential
and private between the disputants has less force today.
32.
To be fair, arbitrators and adjudicating bodies alike have responded to calls
for transparency and greater participation from stakeholders. In 2006, ICSID
amended its rules to provide that the tribunal may, with the parties’ consent,
37
http://www.arbitration-icca.org/about.html
17
allow third parties to attend the hearings38 and to allow arbitrators to accept
written submissions from third parties after considering whether the
submission would assist in bringing a different perspective or insight from the
parties, to bear upon a matter within the scope of the dispute and whether the
third party has a significant interest in the proceedings.39 There does seem to
be a greater willingness on the part of tribunals to allow and consider
submissions from third parties, as seen in Biwater Gauff v United Republic of
Tanzania 40 and Suez, Sociedad General and Vivendi Universal v Argentina, 41
both of which concerned disputes arising from the privatization of water supply
services and in which non-governmental organisations were allowed to submit
briefs on human rights, public services access and sustainable development
issues.42
33.
A promising recent development in this regard is the UNCITRAL transparency
rules for treaty-based investor-state disputes, which will come into effect in
April 201443 and which evidently will soon be incorporated into CETA.44
Amongst other things, these rules provide for greater public access to
documents filed in the arbitration proceedings and the requirement that
hearings have to be open, with exceptions when these would jeopardize the
38
ICSID Rules of Procedure for Arbitration Proceedings (April 2006) r 32(2).
ICSID Rules of Procedure for Arbitration Proceedings (April 2006) r 37(2).
40
Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No ARB/05/22, Award (24
July 2008).
41
Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v the Argentine
Republic, ICSID Case No ARB/03/19, Order in Response to a Petition by Five Non-Governmental
Ogranisations for Permission to make an Amicus Curiae Submission (12 February 2007).
42
Eugenia Levine, ‘Amicus Curiae in International Investment Arbitration: The Implications of an
Increase in Third-Party Participation’ (2011) 29 Berkley Journal of International Law 200, 211-2
43
Christian Leathley and Deborah Wilkie, ‘UNICTRAL unveils new transparency rules for investorstate arbitrations’ < http://www.lexology.com/library/detail.aspx?g=04525d4d-f79c-47b4-8b261667c09c8bd5> accessed 31 Oct 2013
44
See n 27, above.
39
18
protection of confidential information and the integrity of the arbitral process. 45
It should be considered whether appropriate elements of these reforms should
be imported into the ICSID regime as well.
B.
Deficiencies in the substantive law
34.
I turn to some substantive issues that have arisen in investor-State arbitration.
These have centred mainly on the sometimes expansive interpretation placed
on certain provisions in treaties, and the seemingly inconsistent development
of jurisprudence in this area.
35.
BITs were originally conceived as lex specialis instruments during a period of
ideological conflict between the developed and developing world. 46 The
present landscape of international investment law consists of a diffuse
network of bilateral and regional agreements without a universally applicable
format. However, the field of international investment has increasingly been
described as an emerging global regime where the expectations of States
have “‘converged’ around a given set of principles, norms, rules, and decision
making processes”.47 When cases come before disparate ad hoc bodies and
tribunals in a fragmented manner, the interpretation placed on a treaty
between two States can form the basis for the interpretation of a similar term
between two other States. But these subsequent interpretations might bear
little correspondence to what those parties in fact intended those terms to
45
UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (Pre-release
publication, 2 October 2013) arts 3, 6, 7 <http://www.uncitral.org/pdf/english/texts/arbitration/rules-ontransparency/pre-release-UNCITRAL-Rules-on-Transparency.pdf> accessed on 29 November 2013.
46
M Sornarajah, ‘Evolution or revolution in international investment arbitration? The descent into
normlessness’, in Chester Brown and Kate Miles (eds), Evolution in Investment Treaty Law and
Arbitration (Cambridge University Press 2012), 634.
47
Jeswald Salacuse, ‘The Emerging Global Regime for Investment’ (2010) 51 Harvard International
Law Journal 427, 468.
19
mean. Nor is there any effective mechanism to right the course if an
erroneous conceptual approach has been adopted.
1.
Liberal interpretation of treaty terms
(a)
Examples
36.
Among the most frequently cited complaints by States is the concern that the
interpretation of treaty terms have taken expansionary paths, imputing
obligations that States did not themselves envisage at the time the treaties
were signed. I demonstrate the concern by reference to a few examples.
(i)
Expropriation
37.
I begin with the evolution of the concept of “expropriation”. Under the
traditional law of state responsibility, expropriation was concerned with the
physical seizure of or the transfer of legal title to property or the nationalization
of industries held by foreign interests. The protection against expropriation
has since been extended from tangible property to a broad range of assets of
economic value, including contractual rights, intellectual property rights and
concessions.
38.
Straightforward direct expropriations, while not extinct, are no longer
commonplace, and problems of expropriation have now shifted to indirect
expropriation or measures that are “tantamount to expropriation” or “having
equivalent effect”. The arbitral tribunal in Metalclad v United Mexican States 48
described expropriation as including “covert or incidental interference with the
48
Metalclad Corporation v The United Mexican States, ICSID Case No ARB(AF)/97/1, Award (30
August 2000).
20
use of property which has the effect of depriving the owner, in whole or in
significant part, of the use or reasonably-to-be expected economic benefit of
property even if not necessarily to the obvious benefit of the host State”. 49
Under this broad definition, claims of expropriation have succeeded in
situations removed from the traditional conception of “takings” of property. In
CME v The Czech Republic 50, the Czech Media Council was found to have
interfered with a foreign investment through its broadcasting licensing regime
and media policies that caused a business partner to terminate its contractual
relationship with CME’s subsidiary. The investment depended on the
existence of this contract. The tribunal held that as a result of coercion by the
Media Council, the commercial value of the investment had been destroyed.
39.
More controversially, the involvement of the national courts – through the
issuance of injunctions restraining an ICC arbitration tribunal and the refusal
to enforce the subsequent award – was found to be an expropriation of
property in Saipem v Bangladesh.51 The ICSID tribunal held that these actions
amounted to an abuse of the court’s supervisory jurisdiction over the
arbitration process, which substantially deprived Saipem of the benefit of the
ICC award and the residual contractual rights that had crystallised in that
award.
40.
The expansion of the concept of expropriation has led to one of the most
challenging debates in investment arbitration – where should the divide be
49
Ibid.
CME Czech Republic B.V. (The Netherlands) v The Czech Republic , Partial Award (13 September
2001).
51
Saipem (n 15).
50
21
drawn between expropriation and regulation? The characterisation of state
action has far reaching consequences for the host state’s regulatory space
and the political legitimacy of the international investment system. The
perception that arbitrators function at the expense of the host State’s
regulatory autonomy to legislate for public interest purposes, such as public
health and environmental protection, may underlie the increasing unease and
even outright hostility of States towards the institution of investment
arbitration. The BIT claims that deluged Argentina following its economic
collapse in 2001 and the government’s devaluation of the peso demonstrate
the extent to which government regulatory measures, even those taken to
deal with an impending crisis, may be fettered.52
(ii)
Fair and equitable treatment
41.
Similar issues have been raised in relation to fair and equitable treatment
clauses. Although such clauses are not new, it was not until after the year
2000 that they began to gain currency.53 This growth coincided with the
expansion of the content given to that clause by arbitral tribunals. An early
and representative example of this is the case of Tecmed v Mexico,54 where
the investor commenced arbitration after its licence to operate a landfill was
not renewed, purportedly because of certain licence infringements. The
tribunal concluded that the regulatory agency involved was motivated by the
52
William W Burke-White, ‘The Argentine Financial Crisis: State Liability under BITs and the
Legitimacy of the ICSID System’, in Michael Waibel et al (eds), The Backlash against Investment
Arbitration – Perceptions and Reality (Wolters Kluwer, 2010), 417.
53
M Sornarajah (n 50), 650; Christopher Campbell, ‘House of Cards: The Relevance of Legitimate
Expectations under Fair and Equitable Treatment Provisions in Investment Treaty Law’ (2013) 30 J
Int’l 361, 361.
54
Técnicas Medioambientales Tecmed, SA v United Mexican States, ICSID Case No ARB(AF)/00/2,
Award (29 May 2003).
22
community’s opposition to the continued operation of the landfill and not by
concerns of whether it was being properly operated. In finding that this
amounted to a breach of the fair and equitable treatment clause, the tribunal
held that:
“[the fair and equitable treatment] provision … requires the Contracting Parties to
provide to international investments treatment that does not affect the basic
expectations that were taken into account by the foreign investor to make the
investment. The foreign investor expects the host State to act in a consistent manner,
free from ambiguity and totally transparently in its relations with the foreign investor
...”
42.
It has been famously observed that the “Tecmed ‘standard’ is actually not a
standard at all; it is rather a description of perfect public regulation in a perfect
world”.55 The breadth of the Tecmed tribunal’s holding also appears to have
given little weight to the principle that investors must take host States as they
find them.
43.
Further, such an interpretative approach leaves little room to States to adapt
their actions to changed circumstances. In CMS v Argentina, the tribunal
found that the respondent State had breached its obligations in failing to
maintain a stable framework for investments in its attempts to resolve an
economic crisis of catastrophic proportions.56 The host State had suspended a
tariff adjustment formula for gas transportation applicable to an enterprise in
which the claimant was an investor, causing its returns to fall markedly. This
decision was an attempt to ameliorate a crisis that would eventually lead to a
fall in GDP of 28%, inflation as high as 41% as the peso’s value plummeted,
55
Zachary Douglas, ‘Nothing if Not Critical for Investment Treaty Arbitration: Occidental, Eureko and
Methanex’ (2006) 22 Arbitration International 27, 28.
56
CMS Gas Transmission Co v Argentine Republic, ICSID Case No ARB/01/8, Award (12 May 2005),
paras 274-280.
23
and a poverty rate of 57.5%.57 Professor Sornarajah has observed that the
result of applying fair and equitable treatment clauses in such a manner is “as
if a stabilisation clause, though not negotiated by the parties, is driven into
every foreign investment transaction as the expectations created at the
commencement of the contract are frozen for all time”. 58
(iii)
Most-favoured-nation clauses
44.
An expansive reading of most-favoured-nation clauses or MFN clauses is
another area that has been cited. Such clauses were originally intended to
ensure that host States would not discriminate in terms of the competitive
opportunities offered to its treaty partners.59 There are certainly a number of
contesting ideas as to how these clauses should be given effect. Some
suggest that it connotes nothing more than an undertaking not to
discriminate.60 Others suggest that whatever the clause means, it cannot give
the interpreting tribunal the power to ignore the context and matrix of each
treaty. Does the clause contemplate the ability to import the absence of
procedural rules or hurdles from one treaty into another that had those rules
or hurdles included after negotiations? Does it go beyond equalising
substantive provisions? And just how does one decide whether a provision is
more favourable than another without looking at the package of trade-offs in
57
Joint Economic Committee, United States Congress, Argentina’s Economic Crises: Causes and
Cures (June 2003).
58
M Sornarajah (n 50), 651.
59
United Nations Conference on Trade and Development, ‘Most-Favoured-Nation Treatment’ in
UNCTAD Series on Issues in International Investment Agreements II (2010)
<http://unctad.org/en/docs/diaeia20101_en.pdf> accessed on 29 November 2013 (“UNCTAD MFN”)
60
Sumeet Kachwaha, ‘The White Industries Australia Limited – India BIT Award: A Critical
Assessment ‘(2013) 29 Arbitration International 275.
24
each treaty?61 Despite these textured questions, tribunals have adopted
interpretations that arguably go beyond the intentions of the contracting
States.
45.
The adoption of the “effective means of enforcement” obligation found in the
India-Kuwait BIT through the MFN clause in the India-Australia BIT by the
tribunal in White Industries v India is a case in point. It bears emphasis that
the Australian treaty was concluded in February 1999, well before the Kuwait
treaty was concluded in November 2001. In response to the host State’s
argument that the incorporation of a clause from another BIT would
fundamentally subvert the carefully negotiated balance of the India-Australia
BIT, the tribunal simply noted that “it achieves exactly the result which the
parties intended by the incorporation in the BIT of an MFN clause”. 62 Such
interpretations mean that potential claimants can in effect pick and choose
from amongst all of the terms present in BITs between the host State and third
party States to construct causes of action that might never have been in the
contemplation of the contracting States.
46.
Such clauses have been utilised to enable investors to circumvent procedural
restrictions that the States in question expressly intended to raise. In
Maffezzini v Spain,63 a claimant was allowed to circumvent a clause providing
for the exhaustion of remedies in the Argentine-Spain BIT by relying on an
MFN clause to import the dispute settlement clause in the Chile-Spain BIT,
61
Alejandro Faya Rodigues, ‘The Most Favoured-Nation Clause in International Investment
Agreements – A Tool for Treaty Shopping’ (2008) 25 Journal of International Arbitration 89.
62
White Industries (n 9) para 11.2.4.
63
Emilio Agustin Maffezini v Kingdom of Spain, ICSID Case No ARB/97/7, Decision of the Tribunal on
Objections to Jurisdiction (25 January 2000).
25
which did not contain such a requirement. This was followed in subsequent
cases on the basis that the investor-State arbitration provisions “form an
integral part of the protection of foreign investors”.64
47.
The end result of this will be that over time, a State will find that its obligations
are defined by a patchwork of the provisions most favourable to investors
contained in a raft of treaties where these are linked by MFN clauses. This
jurisprudence could undermine the finely calibrated result of often protracted
and painstaking negotiations.
(b)
Thoughts for a gentler way forward
48.
A system rooted in consent cannot survive if States increasingly come to the
view that the substantive law has strayed beyond the interpretation of
obligations to the imputation of obligations. The various participants in the
investment arbitration system, and most importantly, States themselves, need
to consider how the system might be reconnected with its original foundations.
(i)
Interpretative approaches
49.
I suggest that tribunals need to return to the starting point for the interpretation
of treaties in Article 31 of the Vienna Convention on the Law of Treaties,
which requires treaties to be “interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the treaty in their context and in
the light of its object and purpose”. This fundamental interpretative
methodology should be kept in mind by tribunals: the text of the treaty
including where relevant, expressions of State intent in preambles and in
64
UNCTAD MFN (n 63), 70.
26
statements of objectives should take precedence, and should not give way to
a transplant of the reasoning in arbitral decisions from different contexts or the
tribunal’s intuitive sense of how the investment arbitration system ought to
operate. Reasoning through analogy with customary international law
concepts which arise in other areas should also be done cautiously, and only
when it is clear that the contracting States had intended to incorporate such
customary norms as part of their treaty. Interpretation is an exercise which
should generally be confined within the text of the treaty in question, and
tribunals should be careful to ensure that recourse to other sources of law
should not result in a conflict with a treaty’s provisions having regard to the
parties’ objects and purposes expressed there.
50.
An internationally respected entity such as the ICCA, which has a
membership that includes many leading investment arbitration experts, could
in consultation with the stakeholders, perhaps attempt to take the lead by
setting out studied guidelines on the minimum core content of recurring
concepts that are found in every international treaty. These guidelines may
not be binding on states, and the guidelines may not have political legitimacy
in the form of delegated legislative authority; but a new form of legitimacy
might be established if the interpretations issued are principled, well-reasoned
and show sufficient sensitivity to the expectations of States. This is especially
likely to be well received in a world where capital is beginning to flow in all
directions. In this context, it was somewhat unsurprising to read in GAR also
last week that a report from the LSE commissioned by the British government
had concluded that the forthcoming EU–US FTA was likely to have “few or no
27
benefits” but “considerable economic and political cost”.65 Among the
concerns underlying this conclusion were the prospect of successful treaty
claims, the high cost of defending such claims, uncertainty over the meaning
of terms such as “fair and equitable treatment” and the consequent incursion
into the domestic policy space of states.
(ii)
Specificity in treaty terms and exclusions
51.
I also suggest that States can assert greater control over the delineation of the
limits of investor rights and domestic policy-making space through careful
negotiation and inserting greater specificity in framing the obligations
contained in investment treaties. Indeed, some of the provisions in recent
treaties entered into by Asian States reflect that that the region has been
monitoring
the
jurisprudence
in
investor-State
arbitration
and
their
implications.66 And beyond Asia, in 2012, the United States released a revised
Model Bilateral Trade Investment Treaty, which was “more than twice as long
as earlier versions [with] greater specificity on a number of obligations”.67
52.
Some of the measures that have been adopted over the years bear reflection
and consideration. First, States have limited the meaning of “investments” and
“investors” that fall within the investment treaties in question, these being
jurisdictional requirements for treaty protection.68 For example, Article II.1 of
the ASEAN Agreement for the Promotion and Protection of Investments of
65
Douglas Thomson, ‘UK warned of costs of investment protection’ Global Arbitration Review (28
November 2013) <http://globalarbitrationreview.com/news/article/32083/uk-warned-costs-investmentprotection/> accessed 2 December 2013.
66
Locknie Hsu, ‘Asian Treaty-makers and Investment Treaty Arbitration: Negotiating with a Wary Eye’
(2012) 5 Contemp Asia Arb J 243, 245.
67
Roberts (n 18).
68
Hsu (n 69), 247.
28
198769 only applied to investments “specifically approved in writing and
registered by the host country”. In Yaung Chi Oo v Myanmar,70 a Singapore
investor
who
brought
arbitration
proceedings
against
Myanmar
for
cancellation of its licence to operate a brewery failed to show that its
investment was expressly approved by the host State and the tribunal found
that it did not have jurisdiction over the dispute. Similarly, in Philippe Gruslin v
Malaysia71, a Belgian national brought arbitration proceedings against
Malaysia on the strength of the 1979 Intergovernmental Agreement between
Malaysia and the Belgo-Luxemburg Economic Union for the imposition of
exchange controls which allegedly resulted in the loss of his entire investment
in securities listed on the Kuala Lumpur Stock Exchange. However, his claim
failed because he could not show that the investment was an “approved
project”
under
the
Intergovernmental
Agreement.72
The
ASEAN
Comprehensive Investment Agreement or the ACIA which has superseded
the 1987 agreement and entered into force on 29 March 2012 also contains
similar requirements.73
53.
Second, States have included detailed language in their treaties to put
concepts such as “fair and equitable treatment” and “expropriation” in context.
69
Agreement Among The Government Of Brunei Darussalam,
The Republic Of Indonesia, Malaysia, The Republic Of The Philippines, The Republic Of Singapore,
And The Kingdom Of Thailand For The Promotion And Protection Of Investments Manila, 15
December 1987, <http://www.asean.org/communities/asean-economic-community/item/the-1987asean-agreement-for-the-promotion-and-protection-of-investments>.
70
Yaung Chi Oo Trading Pte Ltd v Government of the Union of Myanmar, ASEAN ID Case No
ARB/01/1 (31 March 2003).
71
Philippe Gruslin v. Malaysia, ICSID Case No. ARB/99/3, Award (27 November 2000)
72
see
http://cil.nus.edu.sg/rp/id/arbcases/introdnotes/1%20Gruslin%20v%20Malaysia%20Introductor%20No
te.pdf
73
ASEAN Comprehensive Investment Agreement (29 March 2012) art 4(a) read with Annex 1
<http://www.asean.org/images/2012/Economic/AIA/Agreement/ASEAN%20Comprehensive%20Invest
ment%20Agreement%20(ACIA)%202012.pdf> (‘ACIA’)
29
Annex 10A of the Singapore-Peru Free Trade Agreement,74 for example,
provides that the determination of whether an act amounts to indirect
expropriation should take into account: one, the economic impact of the
government action; two, the extent to which the action interferes with distinct,
reasonable investment-backed expectations; and three, the character of the
government action. This is based on a similar provision in the US Model BIT. 75
It may be reasonable to expect that States will increasingly resort to greater
specificity of such terms in their treaties to ensure some control over the
outcomes issued by tribunals on disputes.
54.
Third, States have reflected in the preambles to their investment treaties that
investment protection is not an end in and of itself, and that States retain the
power to take regulatory action in furtherance of the public interest. The
preamble to the Comprehensive Economic Cooperation Agreement between
India and Singapore reaffirms the parties’ “right to pursue economic
philosophies suited to their development goals and their right to regulate
activities to realise their national policy objectives”.76 Some States have gone
further to introduce general exceptions clauses to exempt certain regulatory
measures from the scope of the investment treaty. Examples of this can be
found in Article 17 of the ACIA and Article 33 of the Canada-China BIT.77
74
http://www.fta.gov.sg/PeSFTA/10a_annex_expropriation_final_2008_05_20.pdf
Treaty between the Government of the United States of America and the Government of [Country]
Concerning the Encouragement and Reciprocal Protection of Investment, 2004, art 6 read with Annex
B < http://www.state.gov/documents/organization/117601.pdf>; see also Treaty between the
Government of the United States of America and the Government of [Country] Concerning the
Encouragement and Reciprocal Protection of Investment, 2012, art 6 read with Annex B
<http://www.ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf>
76
Comprehensive Economic Cooperation Agreement between the Republic of India and the Republic
of Singapore (1 August 2005) <http://www.fta.gov.sg/ceca/ceca_preamble.pdf>.
77
Agreement between the Government of Canada and the Government of the People’s Republic of
China for the Promotion and Reciprocal Protection of Investments.
75
30
Article 17 of the ACIA provides that nothing in the ACIA shall be construed to
prevent the adoption or enforcement by member States of measures
necessary to protect, amongst other things, public morals, human, animal or
plant life or health, provided the measures are not applied in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between
member States or their investors.78
55.
Fourth, to guard against an unduly expansive interpretation of MFN clauses,
some treaties now state that dispute settlement provisions are excluded from
the scope of MFN clauses.79 States are likely to consider whether such
exclusions should be incorporated into future investment treaties (or even in
present treaties through amendment or renegotiation) to preserve the
necessary regulatory space and enhance certainty of outcomes that may be
issued by tribunals.
56.
Fifth, States have also attempted to recapture the authority to interpret
treaties. Under the NAFTA, the Free Trade Commission, a body composed of
representatives of the three state parties, may issue binding interpretations of
the treaty. In 2001, following a number of decisions that threatened to take an
expansionary approach towards the fair and equitable treatment clause in the
NAFTA80, the signatories confirmed by way of a note of interpretation that the
fair and equitable clause prescribed the customary international law minimum
78
ACIA (n 76) art 17(1).
Hsu (n 69), 251; see for example, Article 5.4 in the ASEAN-China Investment Agreement (February
2010).
80
Metalclad (n 52), para 76; Pope & Talbot Inc v Government of Canada, UNCITRAL (NAFTA),
Award on the Merits of Phase 2 (10 April 2001) para 118.
79
31
standard of treatment of aliens, and no more. 81 In ADF Group Inc v United
States of America82 the tribunal found that there was no more “authentic and
authoritative source of instruction on what the Parties intended”. Similarly, in
the Singapore-United States FTA, provision is made under Article 15.21 for a
joint committee composed of government officials of each party to issue
binding interpretations of a provision of the agreement, and any award must
be consistent with the decision. Recent treaties, such as the Malaysian-New
Zealand FTA and ASEAN-Australia-New Zealand FTA, also incorporate
express provisions for tribunals to request joint decisions from the parties
declaring their interpretation of any disputed provision.
57.
Older boilerplate BITs do not contain express mechanisms for the issuance of
authoritative interpretations, but I would leave open the door to the possibility
of adoption of joint statements of interpretation as States increasingly find
commonalities of interests.83
58.
Reference to the CETA communiqué is again enlightening. The communiqué
states that the EU and Canada have reaffirmed their right to regulate and to
pursue legitimate public policy objectives to provide a precise definition of
“Fair and Equitable Treatment” to avoid wide interpretations and to guide
tribunals and to include detailed language on indirect expropriation. There is
also now a mechanism for the parties to the agreement, namely the EU and
Canada, to issue binding interpretations on “what they originally meant in the
81
North American Free Trade Agreement, Notes of Interpretation of Certain Chapter 11 Provisions,
NAFTA Free Trade Commission (July 31, 2001).
82
ADF Group Inc v United States of America, ICSID Case No. ARB (AF)/00/1, Award (9 January
2003) para 177.
83
See UNCTAD, Interpretation of IIAs: What States Can Do, IIAS Issues Note No 3 (Dec 2011),
where states are described as “the drafters and masters of their treaties”.
32
agreement” and to take part in arbitrations in relation to questions of
interpretation. 84
59.
There is an intuitive attraction to the argument that the consensual basis of
treaties means that the subsequent practice of the contracting parties should
go towards establishing agreement, and there is scope for tribunals to apply
Article 31(3) of the Vienna Convention, which provides that treaty interpreters
shall take into account any subsequent agreement between the parties
regarding the interpretation of the treaty or its application. But this solely
international law paradigm of horizontal obligations between sovereign States
perhaps fails to adequately capture the vertical State-investor relationship,
and it remains to be seen how far the legal limits on a State’s interpretative
power may stretch and how the future jurisprudence will attempt to balance
the interests of states and the expectations of investors.85
2.
Lack of doctrinal consistency
60.
On the second problem of doctrinal consistency in the investment arbitration
jurisprudence, some writers have noted that the law of international
investment arbitration has begun to coalesce into a form of jurisprudence
constante, but the reality is that the present law is far from harmonised. This is
inevitable to some extent based on drafting differences – often minor, but not
insignificant – between individual BITs. But the fragmentation may perhaps
also be attributed to inconsistent decision-making by differently constituted
84
See n 27, above.
See for example, Christoph Schreuer, ‘Diversity and Harmonisation of Treaty Interpretation in
Investment Arbitration’ (7 February 2006) < http://www.univie.ac.at/intlaw/pdf/cspubl_85.pdf>
accessed on 29 November 2013, expressing the view that the “occasional view expressed by States
parties to treaties on the meaning of particular provisions are not a viable method to achieve
uniformity of interpretation”.
85
33
tribunals.86 The well-known SGS decisions, where the same umbrella clause
was given opposing interpretations by two tribunals in SGS v Philippines87 and
SGS v Pakistan88 respectively, is one illustration of this. Consistency is not a
value to be blindly adhered to; and indeed, a willingness to make reasoned
departures from prior incorrect decisions or to accommodate factual difference
is always to be encouraged. However, a lack of coherence and predictability
that goes against the expectations of States will likely further undermine the
legitimacy of the system. Perhaps a modest step in this direction might be the
wider publication of decisions. The ICSID regime allows for excerpts of legal
reasoning to be published. There is much to be said for a greater practice of
releasing awards in full so that a body of jurisprudence may be built.
61.
89
This leads me to revive the suggestion for an appellate body to bring
coherence to investor-State jurisprudence. A suitable appellate body will be
able to provide an authoritative enunciation of what the law is and what it
should be, and to reconcile disparate threads. This idea was mooted by the
ICSID Secretariat in 2004 but not pursued further.90
62.
There is already an example of a successful appellate body in international
trade law, namely the Appellate Body of the World Trade Organisation, which
has the mandate to hear appeals from panel cases, limited to issues of law
and legal interpretations. The Appellate Body has over time, developed
86
Sundaresh Menon, ‘The Coming of a New Age for Asia’ (n 20) paras 33-34.
Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6.
88
Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13.
89
ICSID Rules of Procedure for Arbitration Proceedings (April 2006) r 48(4).
90
ICSID Secretariat, Possible Improvements of the Framework for ICSID Arbitration (22 October
2004).
87
34
distinct interpretative approaches that states can rely on for certainty and
predictability. There is no formal doctrine of stare decisis, but the Appellate
Body plays the role of guardian of the WTO dispute settlement system,
ensuring the development of a cogent body of jurisprudence that resolves
legal questions in a consistent and predictable manner.91
63.
A proposed appellate model for investment arbitration could draw from the
elements of the WTO Appellate system. I suggest this as an idea and a hope
and nothing more. The success of the WTO Appellate Body perhaps has less
to do with form than the supranational context within which it operates. Also,
unlike the WTO system, we must recognise the relative proliferation of
disparate regimes ranging from ICSID to ad hoc procedures in investment
treaty arbitration, which poses limitations on the creation of a broad reaching
appellate mechanism. Horizontal consistency might require the imposition of
normative standards beyond the specific obligations undertaken in individual
BITs, undermining the integrity of the consensual basis of treaties. 92 On the
other hand, as States gain a greater awareness of the growing space
occupied by those in the investment treaty arbitration space, perhaps a
collective political or economic will might yet emerge to subscribe to a vision
of a harmonised law of international investment that would restore some
measure of institutional legitimacy by establishing such a body to pronounce
the law in a principled and consistent way. Let me close with a final reference
here to CETA communiqué which speaks of providing a possibility to establish
an appellate mechanism.
91
Donald McRae, ‘The WTO Appellate Body: A Model for an ICSID Appeals Facility?’ (2010) Journal
of International Dispute Resolution 371, 379.
92
Ibid 384.
35
IV
CONCLUSION
64.
While the road ahead looks bumpy, it is not quite impassable. The focus of the
regime has moved towards Asia together with the growing volume of both
inward and outward foreign direct investment, and while Asia has thus far
largely enjoyed the benefits of BITs, it is but a matter of time before we come
to grapple with the cost of the regime. Governments, arbitrators and
practitioners in Asia should actively consider whether the evolution of the
investment arbitration system can continue to be left to uncoordinated private
interests or economic forces. Our collective willingness to actively shape the
system in a way that is fair, equitable and efficient might on the other hand
help ensure that investment arbitration remains sustainable.
65.
Perhaps the most important lesson we can take away from the developments
of the past two decades is the urgent need to align the goals of the investment
arbitration regime with its practices. It has been said that with great power
comes great responsibility. The power that the investment arbitration
community has wrested from States is evident. It is perhaps unsurprising then
that the bulk of the criticisms are directed at a lack of accountability.
66.
If the stakeholders within this industry fail to acknowledge the concerns over
first, who are those saying what these treaties mean and second, what is it
that they are saying; and if solutions are not devised so as to strike a more
sustainable balance between the interests of individual investors, the
obligations of host States and the interests of their tax payers, the way ahead
could get much more difficult. In the final analysis, the issues are perhaps too
important to be seen only or primarily in terms of the tremendously exciting
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and lucrative legal work it promises to the lawyers or to their funders. There
are serious questions of public policy at stake and I believe these will have to
be accommodated in the years to come. Perhaps, we will see States
increasingly taking the initiative in this regard.
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