Investor – State Arbitration Armand de Mestral

What is ISA? Special form of international arbitration provided by bilateral investment treaties (BITs) to protect the interests of foreign investors and foreign investments 2700 total today Most BITs between developed and LDCs Several hundreds between developed states (Canada – USA; EU Member States; Promoted by regional trade associations ASEAN, MERCOSUR etc Major LDCs also – China, India major negotiators

Why is ISA significant? Legally Profesionally Politically

Legal Basis of ISA BITs FTAs NAFTA Ch 11 ICSID

Where is ISA conducted? ICSID ICC Paris LCIA London Stockholm Chamber of Commerce Dubai, HK, SPORE

Rights usually granted to “foreign investors” and “foreign investments” under BITs MFN NT Fair and equitable treatment No performance requirements No expropriation (direct or indirect) without compensation

How does ISA operate? Treaty promise to the foreign investor to arbitrate claims No need to negotiate the establishment of an arbitration

ISA Arbitrators Who is chosen? How are they chosen? To whom are they responsible?

Claims Notice of arbitration Statement of claim Must be from a foreign investor in respect of a foreign investment Must allege economic loss due to failure to respect standards required by the treaty Claim seeks monetary compensation only

Kinds of claims made Asian Agricultural Products v Sri Lanka 1987 Wena Hotels v Egypt 1998 Argentine claims since 2002 (40) Loewen v USA 2002 Methanex v USA UPS v Canada Canadian Cattlemen V USA Waste Management v Mexico 1998 HFCS Cases v Mexico Dow Chemical v Canada

Procedure Notice – Statement – Procedural orders Challenge to Jurisdiction Merits- presentation of evidence – written pleadings – oral pleading – deliberation – Award Damages Costs Review - ICSID only Time needed – 2 – 5 years

Complex litigation Teams of lawyers and other experts Governments Private practice Canadian expertise

How do arbitrators decide? Duty to conduct a fair hearing Equality of the parties Independence of the arbitrators Decision must be motivated and grounded in law

Applicable law Domestic law BIT International law General principles of law Delicacy of the process Novel use of international law – determining the rights of private persons and companies

The state as a party – consequences? Compare with WTO or NAFTA ch 20 Can the state still control the proceedings? Does the state enjoy all the privileges of sovereignty? Are parties really to be treated as equals? Yes

ISA public or private? Is this just another form of international commercial arbitration? No Is it purely public? No Issues are mixed and arbitrators have to be aware of the public and private dimensions of issues before them

Necessary balance Sri Lanka – defence that there was a military operation which could not be second guessed Argentine cases – plea of necessity by Argentina – need to protect public interest in a crisis Waste Management – need to give the state room to regulate but sanction unfair and disproportionate means chosen

Criticisms of ISA Secret Private disposition of public issues Avoiding normal national courts Promotion of an international corporate agenda Blindness to the public interest Special privilege given to foreigners Quis custodiet ipsos custodes? Unfair to LDCs Inappropriate in a democracy

How have governments responded to criticisms Agree – try to get out – Venezuela, Bolivia, Ecuador Accept - as the price of attracting investment – Mexico Legislate to make enforcement harder - Grave political crisis – Argentina today Canada and USA – decision to make all documents, pleadings and decisions and hearings public ICSID attempt to follow

Situation of ISA Today? 2700 BITs Many trade agrements have investment chapters China has 110 BITs Over 200 cases decided Another 150 cases pending Challenge to ISA or ICSID by Venezuela, Bolivia and Ecuador Considerable concern in developed democracies – Canada, USA, Japan, EU Member states Canada and USA changing model BITs to incorporate provisions on public interest and exceptions

Why did Canada buy into this process? NAFTA 1994 Ch 11 (Canada – USA FTA 1988) Ethyl, S.D. Myers Canadian BITs (FIPAs) – 30 in force 15 more under negotiation Possible inclusion in future Canada – EU trade agreement