International Investment Agreements: Recent Trends in Investor-State Case Law and Treaty Negotiation Roberto Echandi Taipei, March, 2011 Investor-State Dispute Settlement (ISDS)

Types of Dispute Settlement State-to-State: applies only between State parties to the Agreement. (like the DSU in the WTO, the ASEAN DSB) Investor-to-State: allows private investors to submit claims against a host State to international arbitration (eg. NAFTA and BITs) Most IIAs contain both types of mechanisms

Differences between dispute settlement procedures DSU under WTO No access of private parties to DSU No award of damages Bring the measure into conformity with WTO Affected Member can resort only to the remedies available under DSU Investor-to-State Direct access to international arbitration Monetary compensation No requirement to change policies If non-compliance: home State can resort to inter- State procedures or to international law remedies

State-to-State mechanism Consultations and negotiations (time-period) Ad-hoc arbitration Constitution of tribunal (standard) Applicable law (not always specified): provisions of the IIA and rules and principles of international law Decision: final and binding Most IIAs are silent on the nature of remedies to be awarded by tribunals and on the implementation of arbitral awards Special provisions for financial services disputes in some recent IIAs

Investor-to-State mechanism Different Scope of Application –All disputes related to an investment? –Only to violations leading to damage? Consultations and negotiations (time-period) Most IIAs do not require exhaustion of local remedies In some, resort to local courts precludes subsequent submission to international arbitration Direct resort to international arbitration (institutional or ad hoc): – ICSID Convention – ICC, KLC or the Stockholm Chamber of Commerce – UNCITRAL Arbitration Rules Arbitral awards: final and binding, but require exequatur (except in the case of ICSID awards) –ICSID Members shall recognize and enforce the awards in their territory as if they were final judgements of a State court

ISDS: Seven sequential phases Preparation of the case Start of the arbitration process The written submissions The hearing Post-hearing activity Awards Execution of awards

ISDS: Preparation of the case Beginning –Investor: dispute arises –State: communication of potential dispute Initial case assessment –Each party conducts a legal and factual assessment of the case –Documents collected, translated, witnesses selected and interviewed, chronology of events prepared and facts analyzed in terms of the substantive and jurisdictional standards of the IIA –Decision as to propose multiple phases for jurisdiction, liability and damages and determination of specific procedures to negotiate with other party and to propose to the tribunal

ISDS: Start of the Arbitration Process Request for arbitration See Treaty requirements –Substantive Violation of the IIA and damages in some agreements –Procedural Consultations, cool-off periods and notice of intent UNCITRAL –notice of arbitration (not definitive and complete statement of claims, that is made in the statement of claim) –UNCITRAL arbitrations begin as Notice of Arbitration is received by the respondent

Selection of arbitrators –IIAs tend to contain specific procedures for this –Claimant names first arbitrator, respondent names the second, and then either the parties or the two arbitrators agree on a third and presiding arbitrator. (UNCITRAL Art.7) –If tribunal is not constituted within a given period, designated authority may appoint remaining arbitrator or arbitrators. (UNCITRAL Art.7) Non-legal considerations for selection –Experience –Attitudes –Specialized knowledge –Persuasion to other members of the tribunal ISDS: Start of the Arbitration Process

First session with the Tribunal –Often 6-12 weeks after tribunal is constituted –Session where procedure for arbitration is organized –Arbitration: flexible procedure, take into account strategic considerations –Single or Multiple phase cases Jurisdiction and admissibility of the claim Liability Damages Issues often discussed at the first session –Language of proceedings –Place of arbitration –Confidentiality of information related to the arbitration –Scheduling of written submissions –Collection and disclosure of documentary evidence (in some cases period of disclosure before first written submissions) –Organization of testimonial evidence: both before and after evidentiary hearing After first session, tribunals enters a procedural order ISDS: Start of the Arbitration Process

ISDS: Written Submissions Often four substantial pleadings: –Memorial –Counter-memorial –Reply –Rejoinder Memorial and counter-memorial –In practice present the entirety of the arguments and evidence offered by each party to support of its case Reply and Rejoinder –Responsive pleadings, limited in content to responding to the points and evidence offered in the immediately preceding pleading

ISDS: The Hearing Purpose –Engage the tribunal with respect to the essential issues in the case and for witnesses to be cross-examined in a manner that tests the accuracy of their testimony –Multiday affairs: average 3-5 days Testimonies –Examination tends to focus on cross-examination, no repetition of written testimony Interaction between Tribunal and parties –Questions about fact and arguments

ISDS: Post Hearing Activity Deliberations and prepare decision or award Often tribunal requests additional submissions from the parties on a issues raised at the hearing, or additional evidence on a particular point. Arbitration rules provide that tribunals have the authority after the hearing to close proceedings to further submissions (UNCITRAL Art.29) Time: often an award on jurisdiction may take 6 months and one year for the merits.

Awards Awards are final, binding and not subject to appeal. (UNCITRAL Art.32) Awards including monetary relief may be enforced against available assests through national court systems. Loosing party: –Can ask the same tribunal to correct the decision on limited grounds –Ask a national court to «set aside» the award Winning party: –Seek enforcement of the award

Enforcement of Awards In ISDS practice, in the overwhelming majority of cases parties voluntarily comply with arbitration awards Very few cases where succesful claimants have had to resort to national courts for judicial enforcement of their awards. Enforcement possibilities –ICSID Convention –Non-ICSID ad-hoc arbitrations, UNCITRAL, ICC, Stockholm Chamber of Commerce or other arbitration centres Under customary international law, no country is obliged to recognize foreign arbitral awards Key role of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitratl Awards (New York Convention)

New York Convention Requirement of existence of an «agreement in writing» expressing consent to arbitration between the parties Express of consent disassociated in time –Compulsory juridiction clauses in IIAs –Mutual consent deemed to exist when investor submits the claim to arbitration Core obligation of the New York Convention –Obligation to recognize and enforce arbitral awards which do not suffer from some grave defects as outlined in the Convention itself.

New York Convention: Grounds for not recognizing a foreign award Invalidity of arbitration agreement Lack of notice or violation of due process Excess of power by arbitral tribunal Irregular composition of arbitral tribunal Award has not yet become binding If subject matter of the dispute is considered «not capable of settlement by arbitration», or if it would be contrary to the public policy of the country of enforcement.

Execution of Awards and Rules on State immunity New York Convention regulates recognition and enforcement in general. It does not exclude obstacles to enforcement measures as a result of general international law, such as rules on State immunity. Rules on enforcement immunity applicable in the forum State where an award is sought to be enforced will ultimately decide whether enforcement through execution of assets of the State will be possible or not –National rules on enforcement immunity are often contained in specific immunity legislation (U.S., UK, Canada & Australia) –International Agreements, i.e. European Convention on State Immunity Assests immune from enforcement –Property serving governmental purposes, as opposed to property serving commercial purposes. –Sedelmayer vs. Russia Other enforcement possibility: diplomatic protection under applicable IIA

Execution of Awards Other execution mechanisms Diplomatic protection –State-to-State arbitration under IIA –Case under ICJ –Other political measures GSP World Bank Warnings

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