James D. Fry & Odysseas G. Repousis The University of Hong Kong Stripping the Jurisdiction from Established Investment Arbitral Tribunals James D. Fry & Odysseas G. Repousis ILA Regional Conference - Cape Sounion, Greece © Fry & Repousis 2013

Investment Arbitration: Current State and Backlash Backlash against International Investment Law? Against what? Amplitude? © Fry & Repousis 2013

Investment Arbitration: Current State and Backlash Backlash against International Investment Law? Specific Concerns: i) Withdrawal from the ICSID Convention Bolivia Ecuador Venezuela © Fry & Repousis 2013

Investment Arbitration: Current State and Backlash Backlash against International Investment Law? Specific Concerns: i) Withdrawal from the ICSID Convention ii) European Policy towards BITs European Parliament resolution of Apr. 6, 2011 Interpretation of EU law © Fry & Repousis 2013

Investment Arbitration: Current State and Backlash Backlash against International Investment Law? Specific Concerns: i) Withdrawal from the ICSID Convention ii) European Policy towards BITs iii) Australia’s opposition towards investor-State clauses © Fry & Repousis 2013

Investment Arbitration: Current State and Backlash iii) Australia’s opposition towards investor-State clauses Need to renegotiate old BITs to remove access to investment arbitration: Kyla Tienhaara (ANU) Luke Nottage (UOS) Goal – stop future arbitrations and existing arbitrations Context of Argument? © Fry & Repousis 2013

Philip Morris Asia Arbitration Brought under the 1993 Hong Kong-Australia BIT Over the alleged expropriation of intellectual property by Australia through its laws on the plain packaging of tobacco Pending Notice of Arbitration - December 21, 2011 Procedural Order on Seat of Arbitration (Singapore) - October 26, 2012 (6 more procedural orders) © Fry & Repousis 2013

General Questions What will happen to investors who invested under those treaties and have not started an arbitration process yet? (II) What will happen if investors already have started an arbitration process? (III) © Fry & Repousis 2013

Inter-temporal Principle Max Huber in the 1949 Island of Palmas arbitration: Contemporary interpretation – viewing facts “in light of the law contemporary with it [the fact], not the law in force at the time when a dispute arises or falls to be settled” Evolutionary interpretation – “The same principle which subjects the act creative of a right to the law in force at the time the right arises demands that the existence of the right, in other words its continued manifestation, shall follow the conditions required by the evolution of law.” 2-element approach confirmed by scholars and case law (Higgins, Elias, Fitzgerald) © Fry & Repousis 2013

What will happen to investors who have not started an arbitration. A. Powers of the states B. Temporal Effects © Fry & Repousis 2013

What will happen to investors who have not started an arbitration. A. Powers of the states: 1. Amendment VCLT Art 39 - “A treaty may be amended by agreement between the parties.” © Fry & Repousis 2013

What will happen to investors who have not started an arbitration. A. Powers of the states: 1. Amendment 2. Interpretation © Fry & Repousis 2013

What will happen to investors who have not started an arbitration. A. Powers of the states: 1. Amendment 2. Interpretation 3. Termination VCLT Art. 42(2) – “The termination of a treaty, its denunciation or the withdrawal of a party, may take place only as a result of the application of the provisions of the treaty or of the present Convention.” © Fry & Repousis 2013

What will happen to investors who have not started an arbitration. A. Powers of the states: 1. Amendment 2. Interpretation 3. Termination B. Temporal Effects: VCLT art. 28 applies: Temporal Effect of Entry into Force – flexible  Flexible Temporal Effects for Amendment, Interpretation or Termination © Fry & Repousis 2013

What will happen to investors who have not started an arbitration. A. Powers of the states: 1. Amendment 2. Interpretation 3. Termination B. Temporal Effects: 1. Prospective effect 2. From the moment of amendment 3. Retroactive effect © Fry & Repousis 2013

What will happen to investors who have not started an arbitration. A. Powers of the states: 1. Amendment 2. Interpretation 3. Termination B. Temporal Effects: VCLT Art. 70(1) – “Unless the treaty otherwise provides or the parties otherwise agree, the termination of a treaty under its provisions or in accordance with the present Convention: (a) releases the parties from any obligation further to perform the treaty; (b) does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination. © Fry & Repousis 2013

What will happen to investors who have not started an arbitration. Can states terminate the rights given to third parties by the treaty? YES, either through termination, amendment, or interpretation, inasmuch as each simply requires the agreement of the parties. BUT it is not that easy where an arbitration has already started. WHY? © Fry & Repousis 2013

What will happen to investors who have started an arbitration. Host of different ways to interpret: VCLT Art 31(1) - A treaty shall 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. VCLT Art 31(2) – Context – other agreements relating to that treaty VCLT Art 31(3) – Subsequent Agreements and Subsequent Practice © Fry & Repousis 2013

What will happen to investors who have started an arbitration. VCLT Art 31(3) – Subsequent Agreements and Subsequent Practice: There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation. © Fry & Repousis 2013

What will happen to investors who have started an arbitration. Observations on VCLT Art 31 No Hierarchy Reflects the inter-temporal principle in interpreting law Later agreements and practice are not binding on the way the tribunal interprets the law (including determinations over its jurisdiction, especially once it has determined it has jurisdiction). Tribunals can give weight to common positions, but investment tribunals have a stricter approach © Fry & Repousis 2013

What will happen to investors who have started an arbitration. Example 1 – Aguas del Tunari v. Bolivia arbitration Dutch ministers said in parliament that the Netherlands-Bolivia BIT was not applicable to the dispute. Bolivia said it agreed Tribunal said “it is the Tribunal, and not the contracting parties, that is the arbiter of its jurisdiction”, and continued with the arbitration. © Fry & Repousis 2013

What will happen to investors who have started an arbitration. Example 2 – NAFTA Free Trade Commission Interpretation of NAFTA Article 1105(1) on the meaning of the “fair and equitable treatment” standard to mean the customary international law standard for the minimum standard of treatment – high standard that required bad faith (Neer arbitration of the 1920s) Later NAFTA tribunals interpreted this interpretation from an evolutionary perspective (2nd element of the inter-temporal principle) Mondev –“reasonable evolutionary interpretation of Article 1105(1)” ADF – customary international law is not “frozen in time” and that it had evolved since Neer. Law is not a “static photograph”. © Fry & Repousis 2013

Consent to Arbitrate and Perfected Consent Dual Role of Dispute Settlement Clause regulates the procedure to settle disputes Acts as consent of the states to arbitrate disputes involving the investors of the other state © Fry & Repousis 2013

Consent to Arbitrate and Perfected Consent Dual Role of Dispute Settlement Clause Consent to Arbitration Not in a Single Instrument Investor consent given through written acceptance of the offer to arbitrate (Schreuer) Amending or terminating a BIT retroactively not the same as withdrawing consent to arbitration Need the investor’s agreement to end arbitration once consent has been perfected © Fry & Repousis 2013

Consent to Arbitrate and Perfected Consent Parties to the arbitration are the investor and the respondent state, not the two states. Example - once the investor’s consent to arbitration has been given, the state of the investor’s nationality cannot provide diplomatic protection or bring an international claim (ICSID Conv art. 27) © Fry & Repousis 2013

Consent to Arbitrate and Perfected Consent Parties to the arbitration are the investor and the respondent state, not the two states. Irrevocability comes into effect once the consent has been perfected, or in other words, when it has been given by both parties © Fry & Repousis 2013

Consent to Arbitrate and Perfected Consent Parties to the arbitration are the investor and the respondent state, not the two states. Irrevocability comes into effect once the consent has been perfected, or in other words, when it has been given by both parties Only the parties to the arbitration can withdraw their consent to arbitration © Fry & Repousis 2013

Conclusions States may amend or terminate a treaty; Amendment or termination does not have retroactive effects, unless the parties agree otherwise; The inclusion of investor-state arbitration clauses in international investment agreements acts as an offer made by those states to arbitrate disputes with investors; When investors accept that offer to arbitrate, the consent to arbitration is perfected; The parties to the arbitration are the investor and the state; and Once the parties to the arbitration have consented to arbitration, their consent is irrevocable. © Fry & Repousis 2013

Thank you jamesfry@hku.hk odysseas@hku.hk © Fry & Repousis 2013