The SIAC Investment Arbitration Rules are Here. And they look Good.

Abhishek Dwivedi, Advocate – Bombay High Court

Singapore International Arbitration Centre (SIAC) has published its first edition of the rules applicable to Investment Arbitrations (IA Rules) conducted under its aegis. These IA Rules were published on 1st January 2017 and have been drafted with specific requirements of investment arbitration in mind. While many institutions such as LCIA and ICC administer investment arbitration, there is no specialized procedure or separate set of rules for investment arbitration. The rules are an indication of the growing importance being given to investment claims in South Asia. In recent times, many South Asian countries such as India, Indonesia and Malaysia have received several investment claims and are contemplating a new regime of Investor-State Dispute Settlement (ISDS) mechanism. These IA Rules have to be seen in context of the recent aversion of developing countries to established regimes such as ICSID.  Another important point is that India, the largest contributor to SIAC in 2015, is not a party to ICSID.

Unlike commercial arbitration, investment arbitration has its basis and origin in public international law. There are more than 2000 Bilateral Investment Treaties and more than 15 multilateral instruments under international law that govern the Investment arbitration. The entire premise of crystallization of a dispute and the threshold of breach of legal principles under international law are fundamentally different from commercial transactions and disputes thereof. When the entire premise of a dispute and its resolution are different, there is no reason that there cannot be separate set of procedures for the two types of arbitration. Many issues such as jurisdiction, sovereign immunity and even the pleadings require a completely different level of procedural sensitivity in investment arbitrations. The IA Rules precisely attempt to bring that level of efficiency and sensitivity. Traditionally it has been seen that the investment arbitrations require a longer time to end than commercial arbitrations due to the complexities of the issues involved and higher threshold of evidence submission. In order to streamline the process and address the efficiency issues, it is always better to have a separate set of rules dealing with investment arbitration.

SIAC has attempted, quite successfully, to make the rules as customized to investment arbitrations as possible. The important aspects of the IA rules are:

  • The rules are applicable to disputes involving a State, State-controlled entity or intergovernmental organisation, whether arising out of a contract, treaty statute or any other instrument.

  • The IA rules however provide for a broad scope of application which is not subject to objective thresholds of whether the claiming party is an “investor” or the subject matter of the dispute qualifies as “investment” though such scope is subject to the underlying treaty or instrument in which the IA rules are incorporated by reference. Therefore, regarding the issues of preliminary qualification to bring claims, if there is a conflict between the IA Rules and the underlying treaty or instrument, the later will prevail.

  • Rule 1.3 provides for waiver of any right of immunity from jurisdiction in respect of the proceedings related to the arbitration which parties may otherwise possess, if the parties have entered into an agreement to refer the disputes to SIAC. The rule can be directly linked to issues of sovereign immunity i.e. once the parties have agreed to incorporate the arbitration agreement referring the disputes to SIAC administered arbitration, they cannot claim sovereign immunity in respect of the proceedings related to those disputes as envisaged under the agreement contained in underlying treaty or instruments.

  • Under Rule 16.5, the presiding arbitrator has been authorised to make procedural orders alone though the same may be revised by the Tribunal, if required. Such a step is likely to address the issues of efficiency and time management.

  • One of the most important points under these IA Rules is the procedure related to the pleadings. They provide for a memorial based submissions rather than the pleadings based submissions which are generally the preferred practice in commercial arbitrations. Under the Rules 17.2 and 17.3, the parties are required to file their memorial comprising of factual statements of claim/defence along with their legal submissions, fact and expert evidence and all other documents supporting the memorial. All legal authorities and documents supporting the parties’ respective cases shall be filed along with these memorials.

  • The Tribunal has also been authorised to appoint its own experts and require the parties to assist the expert so appointed. The Tribunal may also allow the parties to examine such an expert.

  • Under Rule 24, the Tribunal has been given a wide range of powers. However, it remains to be seen whether such powers, if exercised by the Tribunal, can go along with the notions of sovereign acts and freedom that form the premise of international law and public policy. The IA Rules are silent on whether the Tribunal will have the jurisdiction to direct a party to not proceed with civil or criminal investigation and/or prosecution against an investor pending the arbitration before it. Another important point is that the Tribunal has been empowered to impose sanctions on a party for its refusal to comply with the rules, agreed procedure, directions of the Tribunal or any partial award rendered thereof. It remains to be seen if the sovereign states will be willing to concede to SIAC on this point and how the Tribunals will interpret the scope of this unusual power.

  • Similar to the ICSID Rule 41 (5), the IA Rules also allow for summary dismissal of a claim or defence in order to save time and cost provided an application is made by the party and after hearing the parties, the Tribunal is of the opinion that a claim/defence is without legal merit or is outside the jurisdiction of the Tribunal or is inadmissible.

  • The IA Rules also provide for interim and emergency relief to the parties. They also provide that a relief of such nature obtained from a judicial authority prior to constitution of the Tribunal under these rules will not be incompatible with the IA Rules. This is a clear indication that merely approaching a national court and obtaining a relief from a national court will not disentitle a party from bringing a claim for interim or emergency relief and neither a failure to obtain a relief from a judicial authority prejudice the right of the party to request the Tribunal for interim/emergency relief.

  • The Tribunal will be governed by international treaties, customs and general principles of law along with relevant national laws in case the parties have failed to provide for a designated law governing the substance of the dispute.

  • The IA Rules also provide for written submissions (and it Tribunal deems fit, oral arguments) by non-disputing contracting party as well as non-disputing party. While a non-disputing contracting party can make submissions with respect to the treaty interpretation as well as on matters within the scope of the arbitration, the non-disputing party can only make submissions on matters within the scope of the arbitration. The IA Rules define a non-disputing party as a party which is neither a party to the arbitration nor a party to the underlying treaty or instrument. Such a submission by non-disputing parties and non-disputing contracting parties must comply with the criteria given under Rule 29.3 before their submissions can be taken on record by the Tribunal i.e. the submissions must assist the tribunal, must address a matter that is within the scope of arbitration and the party making the submission must have sufficient interest in the matter. The Tribunals may have to use their discretion judiciously while allowing third party submissions, especially on the issues of sufficient interest.

  • The draft award has to be sent to the registrar within 90 days of closing of the proceedings. Interestingly, the IA Rules allow the presiding arbitrator to make the award in case the Tribunal is unable to render a majority award.

The IA rules are promising and more than welcome. Their publication could not have been at a better time when many Asian, African, Latin American and few European countries (Poland) are eager to renegotiate their BITs or are reconsidering the ICSID regime. These IA Rules can be an attractive proposition to countries like India and Indonesia who have a successful record of enforcing SIAC awards. There can be no doubt that SIAC has taken the lead in the field and we can only expect others to follow. Especially, one can expect LCIA to publish rules on investment arbitration in coming months as it readies to overcome the post-Brexit challenges and tries to maintain its position as the preferred choice of arbitration in Europe.

However, in our eagerness to welcome these rules, we may tend to overlook the crucial issues that have forced many developing nations to move away from the traditional ISDS mechanisms. The IA Rules provide for waiver of sovereign immunity, power of Tribunal to impose sanctions and involvement of non-disputing parties in the arbitration process which may not go down well with the States. However, it can be argued and quite successfully so, that these IA rules will be subject to the underlying treaty or instrument that may clearly provide for such exclusions. It remains to be seen whether SIAC will accept reservations to its rules within the arbitration agreements that are present in these underlying instruments or treaties. Whatever the case maybe, these rules are an indication of times to come in the field of investment arbitration (which are bound to be interesting).

The continued lack of adequate investment protection in Europe

Nikos Lavranos, Secretary General, EFILA

Recently, the UNCTAD Investment Division announced that it had “completed its regular semi-annual update of the Investment Dispute Settlement Navigator, which is now up-to-date as of 1 January 2017”.

The Navigator is a useful web-based search tool containing information regarding pending and closed investor-State disputes based on the thousands of investment treaties.

According to UNCTAD, the key findings of this update are as follows:

“In 2016, investors initiated 62 known ISDS cases pursuant to international investment agreements (IIAs). This number is lower than in the preceding year (74 cases in 2015), but higher than the 10-year average of 49 cases (2006-2015).

The new ISDS cases were brought against a total of 41 countries. With four cases each, Colombia, India and Spain were the most frequent respondents in 2016.

Developed-country investors brought most of the 62 known cases. Dutch and United States investors initiated the highest number of cases with 10 cases each, followed by investors from the United Kingdom with 7 cases.

About two thirds of investment arbitrations in 2016 were brought under bilateral investment treaties (BITs), most of them dating back to the 1980s and 1990s. The remaining cases were based on treaties with investment provisions (TIPs).

The most frequently invoked IIAs in 2016 were the Energy Charter Treaty (with 10 cases), NAFTA and the Russian Federation-Ukraine BIT (three cases each).

The total number of publicly known arbitrations against host countries has reached 767.”

Some of these above key findings are of particular interest and should be put into a broader perspective.

First, it is interesting to note that the number of new ISDS cases has fallen. This is a trend that can also be seen for example in the ICSID statistics, which show that the number of ICSID cases has been falling as well (in 2015 52 new cases were registered, while in 2016 48 new cases were registered).

UNCTAD does not give any explanation as to the possible reasons for the fall in cases. One could of course think of several reasons: the States have improved their behaviour vis-à-vis foreign investors or investors consider the use of investment treaty arbitration as a less attractive option for dispute resolution and instead prefer to use other options. In this context, it is interesting to note that according to the same UNCTAD Navigator, States continue to win more cases (36.4%) than investors (26.7%), while 24.4% of the cases are settled. Investors/Claimants could perceive this as not such an attractive option to resolve a dispute with a State, in particular in conjunction with the high costs associated with the proceedings.

Second, it is noticeable that the Energy Charter Treaty (ECT) is the most frequently invoked investment treaty in 2016. This has been a trend of the past years with the explosion of disputes in the renewable energy sector, mainly against Spain but also against several other European States. Moreover, in the past 3 months it has been reported that investment arbitration proceedings – not only based on the ECT – have been initiated against Italy, Croatia, Bosnia-Herzegovina, Latvia, Greece and Serbia.

This suggests that European States have a poor track record when it comes to the protection of foreign investors and their investments. Again, one wonders what the reasons are for the fact that the ECT is so popular and why European States face some many disputes. Whatever the reasons may be, the fact that the ECT and BITs are used so frequently against European States underlines the continued lack of adequate investment protection in Europe, which in turn confirms the necessity of investment treaties.

In fact, the World Rule of Law index 2016 indicates very clearly the stark differences among European States regarding their Rule of Law track record. This index ranks Denmark (1), Norway (2), Finland (3), Sweden (4), Netherlands (5), Austria (6), Czech Republic (17), France (21), Spain (24), Romania (32), Italy (35) and Bulgaria (53) out of 113 countries.

The Corruption Transparency index 2016 of Transparency International ranks Denmark (1), Finland (3), Sweden (4), Switzerland (5), Norway (6), Netherlands (8), Germany (10), Poland (29), Lithuania (38) Czech Republic (47), Croatia (55), Romania (57), Italy (60), Greece (69) out of 176 countries.

The Doing Business Report 2017 ranks Denmark (3), Norway (6), UK (7), Sweden (9), Finland (13), Germany (17), Lithuania (21), Bulgaria (39) and Malta (76) out of 190 countries.

Obviously, these rankings have their limitations and must be treated with caution but the emerging general picture is nonetheless very clear. The “Nordic” European countries simply have a better track record than the “Southern” and “Eastern” European countries. In other words, they not only treat foreign investors better but they also have less perceived corruption and less red tape for doing business.

It is about time that this reality is generally accepted also in the European institutions living in the “Schuman bubble”.

These obvious conclusion from this is that – contrary to UNCTAD’s and European Commission’s repeated call for “reforming” the current system by inter alia also terminating investment treaties – all efforts should be focused on improving the Rule of Law track record in those European countries which clearly show deficiencies.

However, in the past decades little progress has been made and there is no reason to believe that things will improve very soon. Consequently, in these circumstance investment treaties are still very much needed – in particular in Europe.