by Blazej Blasikiewicz and Juan Pablo Valdivia Pizzaro
Maison du Barreau, Paris
February 5th 2016
The European Federation for Investment Law and Arbitration (EFILA) set out for a promising year with its Inaugural Conference in London in January of 2015. Last year proved to be full of notorious developments in the area of investment arbitration, especially as the TTIP negotiations and proposals evolved and materialized regarding the implementation of specific Investor State Dispute Settlement (ISDS) mechanisms. The ensuing months were characterized by a rich and often polarized debate on both specific aspects of investment arbitration and on the fundamentals, nature and aims of ISDS mechanisms.
In this context of agitated waters and contrasting ideas, once again EFILA brought together world-class dispute resolution practitioners, prominent arbitration experts, European government officials, leading scholars and representatives from market participants and international organizations in its 2016 Annual Conference entitled “Investment Arbitration 2.0?” which took place on February 5th, at La Maison du Barreau, in Paris.
The framework in which ISDS is being argued is characterized by controversy, heavy criticism and an imperative necessity for an open debate and innovative ideas. Therefore, the venue served as a meeting point for such a wide array of stakeholders to join in an analytical assessment of ISDS and exchange views on the many challenges and opportunities of investment arbitration. In doing so, not only some new features of investment arbitration regarding the EU policy on International Investment Agreements were discussed, but the speakers and participants engaged in a thought-provoking debate on diverse topics such as the pros and cons of investment arbitration, the rule of law and other complex issues such as transparency, states’ right to regulate, protection of property rights and democratic deficits.
This stimulating discussion was led by four panels, which critically explored some of the roots and primary issues of investment arbitration and presented provocative views on several of the most up-to-date issues on ISDS, with the objective of setting the ground for an improved and more robust framework of investment arbitration in the future.
II. Panel 1: Setting the scene: pros and cons of Investment arbitration
Prof. Dr. Gerard Meijer, Partner and Head of Arbitration team at NautaDutilh
Andrew Cannon, Partner at Herbert Smith Freehills LLP
Prof. Dr. Hans van Houtte, President of the Iran-United States Claims Tribunal
Prof. Dr. Robert Howse, Professor of International Law, New York University School of Law
Marie Talašová, Head of International Legal Services Department, Ministry of Finance, Czech Republic
Kamil Zawicki, Partner at Kubas Kos Galkowski
The first panel, acknowledging the importance of taking a step back in order to examine the roots and analyse some of its main traits, explored the pros and cons of investment arbitration. A refreshing view of its history and development was provided through the evolution of the International Centre for the Settlement of Investment Disputes (ICSID). Important emphasis was given to the revolutionary characteristics the system presented when it was introduced – it made the general rule of international law apply also to domestic investor-state contracts and it disconnected arbitration from domestic law – and to some remarkable victories that the system has achieved. The speakers recognized that many current features of the system represent an arguably unexpected feat, such as its importance for international law, the success of the system in relation to the number of cases brought to it, and its adaptation to a truly global era where the burgeoning number of BITs has shaped much of its evolution. In this respect the panel gave an interesting insight regarding ICSID being created primarily as an op-in system to be included in contracts between States and investors, and that it was not until the mid 1970s that BITs began including ICSID clauses. This practice has become standard and one of the main sources of ICSID arbitration.
However, it was also acknowledged that the system faces several important challenges, such as the trend to move towards broader regional economic agreements, the higher number of stakeholders involved (such as NGOs and supranational or regional organizations), new states’ policies regarding investment arbitration and foreign investment, and a growing opposition from different sectors of society. These issues, among others, have lead several States – such as Indonesia, South Africa and more than one South American country – to dramatically reassess their positions on BITs due to the perceived adverse impact that certain matters – e.g. treaty and forum shopping, lack of transparency, limitations to States’ right to regulate on issues of public interest and high costs of the proceedings – have in their internal affairs. This trend of criticism has also been materialized in the adoption of Model BITs by different countries, which reflect States’ policies regarding arbitration and foreign economic investment.
Speakers analysed the issue of contradictory case law in investment arbitration and the differences in the basis and instruments upon which such decision are made. The disparities among the wording or context of certain BITs was presented as one potential explanation for the different interpretations that arbitral tribunals have on arguably similar issues. The panel also put forward the view that time is of essence in the clarification of tendencies that constantly arise in investment arbitration.
There was agreement as to the importance of reforms regarding certain standards of protection, the controversial nature of the differentiated treatment between domestic and foreign investors, and the relevance of the wording of the related instruments and the role of states in shaping their content. Nevertheless, pertinent questions were raised as to the effectiveness of current attempts to solve part of the problem, like the establishment of appeal mechanisms in ISDS. In this regard, the limited success of somewhat similar mechanisms (such as the ICSID annulment mechanism) raises valid doubts as to the effectiveness of appeal bodies or instances within the framework of ISDS.
The panel also addressed the criticisms as to the lack of transparency and rising costs in investment arbitration, the alleged pro-investor bias and the role of the media, both from the arbitration practitioner’s and the state’s point of view. The relationship between investment arbitration, the media and public opinion, and the suggested lack of empirical evidence to support a claim for pro-investor bias gave rise to an encouraging debate among the panel and the audience. The speakers pertinently pointed out the necessity of embarking upon reforms that would not lead to “killing” a system that, being far from perfect, has proven to be of vital importance.
III. Panel 2: Rule of Law and Investment Arbitration: promoting or holding back its advancement?
Prof. Dr. Loukas Mistelis, Clive M Schmitthoff Professo of Transnational Commercial Law and Arbitration at the Queen Mery University of London
Sir David Baragwanath KNZM QC, Appellate Judge and former President of the Special Tribunal for Lebanon
John Gaffney, Senior Associate, Arbitration at Al Tamimi & Company
Dr. Richard Happ, Partner at Luther LLP
Barton Legum, Head of Investment Treaty Arbitration Practice at Dentons
Dr. Patricia Nacimiento, Partner at Norton Rose Fulbright LLP
Prof. Dr. Mathias Wolkewitz, Head of Legal Affairs, Tax and Insurance at Wintershall Holding
The second panel engaged in a fruitful discussion arising from the necessity of examining investment arbitration as a dispute resolution mechanism from three different – but equally important – perspectives: the point of view of the investors, the recipient state and the citizenship. The panel highlighted that the interplay among these actors is currently characterized by a growing gap, which is reflected in the public disquiet in seeing arbitration as an appropriate means for adjudication of issues relating to public interests. These concerns have echoed in specialized and reputable media, which has also championed the case against the necessity or convenience of using BITs at all. The panel advocated the importance of a prompt and adequate response from the investment arbitration system in order to bridge the gap between the ISDS mechanisms and the public interests from which it cannot be detached.
The panel also discussed the alleged thorny relationship between ISDS, the rule of law and public perception. Transparency, once again, was given a central role in the debate. However, the effectiveness of the mechanisms to achieve transparency was put into question, since their success is often related to the specific interests of the parties involved. Speakers also advanced views highlighting the power of the States and their influence on the media in order to impact public opinion. The current tension between the ISDS system, States and public perception was provocatively referred to as “BITs biting back”.
The panel also provided an enlightening historical account of the “international minimum standard of treatment” (IMST) as the predecessor of investment law and its protection mechanisms, as known today. The difference between standards of protection for foreign and domestic investors brought forward the complex and fundamentally undemocratic nature of investment law as a limit for state action. By putting the relationship between investment law, the IMST, state regulatory powers and the rule of law under the spotlight, a heated debate ensued as the panel presented the argument that the inherent undemocratic nature of investment law does not diminish its contribution to the rule of law. In this regard, the speakers raised an interesting comparison between the IMST, investment law and human rights, as setting the limits for sovereign regulatory power.
The panel also examined the tension between the alleged lack of legitimacy of investment arbitration and its position within a system of check and balances governed by general and legitimate legal rules. Speakers underlined the systemic need to have effective foreign investment protection, the fact that investment treaties increase legal certainty, that investment arbitration is not placed in a vacuum beyond general rules of law and the importance of applying the rule of law as an equal standard to all parties involved. In addition, they recognized the contribution of investment arbitration in levelling the playing field and ultimately upholding the rule of law.
IV. Panel 3: Evolution in dispute resolution: third party funding, the role of secretaries and security of data in investment arbitration
Dr. Daniella Strik, Partner at Linklaters LLP
Dr. Andrea Carlevaris, Secretary General, ICC International Court of Arbitration (Paris) and Director of Dispute Resolution Services of the ICC.
Anya George, Senior Associate at Schellenberg Wittmer Ltd.
Charles Nairac, Partner at White & Case LLP
Prof. Dr. Stavros Brekoulakis, Professor in International Arbitration and Commercial Law, Queen Mary University of London.
Jurriaan Braat, Partner at Omni Bridgeway
The following panel looked at several specific issues in investment arbitration. On third party funding, the panel carefully pointed at the main challenges this issue posts regarding matters of confidentiality, conflict of interests, security for costs, and the question of who ultimately owns the claim and makes the decisions of the funded party. Questions were raised by the speakers and participants as to the proper approach to be taken in relation to a party that is being funded on the merits, the presumptions that may arguably be placed on the funded party’s ability to pay, the difficulty in the determination of the “real party” in the arbitration and the responsibilities to be placed on the parties to the proceeding. On the specific topic of providing security for costs, it was discussed if the existence of a third party funding arrangement should affect the outcome of an application for such security and if a presumption against the funded party could be validly placed regarding its potential inability to pay. It was recognized that the current general approach to the issue is to grant such application only in specific and extreme circumstances. It was acknowledged that the increasing number of parties that have sought or secured third party funding in investment treaty claims, the unregulated nature of this issue and the difficulty to determine the content and the extent of disclosure obligations on the funded party are pressing matters in investment arbitration.
Regarding the issue of arbitral secretaries, it was recognized that the main debate revolves around the issue of tasks and duties that secretaries may fulfil without interfering with the nature of the obligations placed on the arbitrators by the parties, often cited as intuito personae. The controversial issue of the core content and scope of the arbitrators’ mandate and the issues of parties’ expectations in relation to the conduct of the arbitration tribunal and the transparency in fulfilling its duties were addressed by the speakers as well. Reference was made to seminal articles on this issue (such as Partasides’ “The Fourth Arbitrator?”), and the importance of the distinction between the decision-making process (which would arguably not be a pre-defined matter of personal mandate) and the decision-making function (which would be much more closely related to the personal mandate entrusted upon the tribunal). Cultural differences between arbitral tribunals – and among the members of the tribunals themselves – were also given a place in the debate, an aspect often overlooked when analysing this issue. The panel underlined the importance of disclosure and strict supervision of the duties of the tribunal’s secretaries. The challenges that the notably large grey area in this topic represent, were also discussed by the speakers and the audience.
Finally, on the issue of data protection, the significant practical implications of the issue were argued and recognized by the panel. The main issues set forth in the debate related to transparency, data integrity protection and data manageability. Speakers encouraged the audience to engage in proper data protection techniques within the setting of investment arbitration despite the technical challenges that this may entail. Attention was drawn into the potential conflict between data protection, confidentiality and the right of free access to information in investor-state disputes.
V. Panel 4: Towards Institutionalization and Judicialisation. The Proposal for a Permanent Court
Dr. Erhard Böhm, Partner at Baier Rechtsanwälte
Yves Derains, Founding Partner at Derains & Gharavi
David Gaukrodger, Senior Legal Advisor, Investment Division, OECD Directorate of Financial and Enterprise Affairs
Dr. Nikos Lavranos, Secretary General of EFILA
Andrea Menaker, Partner at White & Case LLP
Yasmin Mohammad, Senior Counsel at Vannin Capital
The final panel analysed one of the hot topics of investment arbitration nowadays in the European arena. In an energizing fashion and through a more informal and open debate among the speakers and the participants in the audience, the panel set out to touch upon many of the issues related to the EU Commission’s proposal for the creation of the Permanent Court for ISDS. The panel put forward a critical analysis of the structure, traits and alleged objectives and benefits of the creation of such a Permanent Court; of the interplay between the proposed system, EU law and the Court of Justice of European Union; and of the effectiveness of the proposed alternative in solving the problems facing the ISDS system.
The problem of recognition and enforcement of awards rendered under the proposed system was critically assessed, including the potential problems that such decisions may face in being recognized as “awards” under and as referred to in the New York Convention of 1958. The panel and the participants also examined the interplay between the proposed alternative and the ICSID system, especially in relation to issues of jurisdiction. In this regard, the proposed mechanism was elegantly criticised as a “medicine being given to the wrong patient”.
The panel also referred to a common perception of an alleged trend of investment arbitration not truly resembling arbitration after the several significant changes that the system has undergone. The perceived standardization, judicialization and lack of adaptability may be seen as drawbacks by investors and may decrease the amount of trust that economic agents may be willing to place in the system.
Also, questions were framed regarding the legitimacy of such a drastic change in the way of dealing with potential investment claims, specifically arguing that a possible cause for such significant deviation could be found in the shift in the position of several countries from usual “claimants” to potential “defendants” in investment disputes. Speakers and the audience advanced provoking arguments on the financial incentives that the judges of such court would have, as well as on possible issues on conflict of interests, political independence, level of required expertise and the challenge of legitimately having both investors and states resorting to a system that enjoys the benefit of their confidence.
The controversial nature of many of the topics presented and discussed during the Conference gave rise to a rich variety of opinions, positions and further debates on related issues. The diversity in the background of the speakers and the participants during the session gave the all parties the opportunity to argue and analyse the most salient matters in investment arbitration from a wide range of angles. Speakers and participants agreed on the importance of strengthening the investment arbitration’s legal framework through properly founded and necessary reforms, of assuring a more transparent relationship between ISDS system and the citizenship, of reaffirming investment arbitration as a vital means for upholding the rule of law and of recognizing and confronting the challenges and drawbacks of the system that have lead to a widespread emergence of social opposition and resistance.
The current state of affairs regarding the future of investment arbitration in the European Union made it important to go back to the fundamentals of investment arbitration with a critical view in order to thoroughly assess the new trends, latest proposals and pressing matters regarding ISDS. The legitimacy and effectiveness of the proposal of the EU Commission regarding the Permanent Court under the TTIP were heavily debated and the complex relationship between investment arbitration, states’ regulatory powers, public opinion, transparency and the rule of law has proven to be a fertile field for further debate and much-needed reforms. Despite the many different positions confronted during the debate regarding the current attempts to modify the framework of investment arbitration, it was generally agreed that amendments must take place in order to reinforce the position of investment arbitration as a modern, legitimate and efficient means for the resolution of investor-state disputes.
The quality and depth of the debate during the session, the presence of many of the top investment arbitration experts, practitioners and authorities, and the wide array of topics covered, keep placing EFILA at a unique position as an open and stimulating meeting point for future debates that are to shape the policies that will impact the ISDS system, its evolution and improvement in the years to come.