by Takashi Yokoyama (SymBio Pharmaceuticals)[i] and Yosuke Iwasaki (Sidley Austin LLP)[ii]
This is the second post in two compositions analyzing Japan’s modern BIT policy.[iii] It aims to underline certain drafting hallmarks of Japan’s recently signed IIAs by examining the procedural provisions from Japan’s seven recent investment agreements, namely the Japan-Argentina BIT (JAGT), Japan-Armenia BIT (JAMT), Japan-Jordan BIT (JJT) and Japan-UAE BIT (JUT), which were all signed in 2018, the Japan-Cote d’Ivoire BIT (JCT) and Japan-Morocco BIT (JMT), which were both signed in 2020, and the Japan-Georgia BIT (JGT)[iv] signed on 29 January 2021 (all seven treaties collectively, “Treaties”). The capitalized terms used herein have the same meanings in the first post that the authors published on substantive provisions earlier last year.
Japan’s Position on ISDS Mechanism
Because the ISDS reform has not been raised as a topic during the negotiations on the modernization of the Energy Charter Treaty[v], the Japanese government’s position is still not clear. On the other hand, the Japanese government has clarified its positions to some extent in the UNCITRAL Working Group III. In the papers submitted by Japan and the other member countries[vi], they say that “[t]he Working Group should have maximum flexibility to develop a menu of relevant solutions, which may vary in form, and that Member States can choose to adopt, based on their specific needs and interests, including those of developing countries” and propose “suite” approaches for flexible solutions to each identified concern in the existing ISDS framework. While there is no reference to the EU’s proposal for Multilateral Investment Court or Investment Court System, it appears that Japan basically supports the existing ISDS framework. This seems to be evidenced by the provisions of the bilateral investment agreements that Japan has recently concluded as follows.
Scope of ISDS
Irrespective of whether the investment protection policy is classified either the Traditional Protection IIAs or Modern Liberalization IIAs, the Treaties adopt an Investor-State Dispute Settlement (ISDS) mechanism which enables investors to invoke their substantive rights under IIAs through arbitration. As we noted in the first post, it is the significant characteristic that the Modern Liberalization IIAs grant investment protection at the pre-investment stage, which is different from the scope of the Traditional Protection IIAs. However, among the Modern Liberalization IIAs, the scope of ISDS is further classified in two categories. The JAMT and JCT grant investors a right of admission or the status of investments at the pre-investment stage, while the JAGT and JGT exclude “an investment dispute with respect to the establishment, acquisition or expansion of its investment” from the ISDS mechanism.[vii] That said investors under the JAGT and JGT may not submit their claim to arbitration relating to a breach of obligations, e.g. National Treatment or Prohibition of Performance Requirement, at the stage of admission of investment. The JAGT and JGT exclusion may appear to prejudice the policy of the Modern Liberalization IIAs, but a mechanism on State-State Dispute Settlement (SSDS) still applies on these disputes. In that case, an investor may consult with the home state’s government about how to solve the situation under the breach of obligations, and the government would consider initiating an arbitration through the SSDS mechanism.[viii] While the SSDS mechanism relies on political questions whether the home state may claim the host state’s breaches under the Treaties on behalf of the investor, the authors humbly consider this is more meaningful for investors than the Traditional Protection IIAs in terms of investment protection at the pre-investment stage.
Condition Precedent to Initiating Arbitration
Except for the JMT, the Treaties mandate three procedural requirements before an investor may initiate arbitrations against the host state; i) consultations and negotiations between the investor and the host state; ii) some certain periods elapsed after an event giving rise to a claim or a written request for consultations or negotiations; and iii) a written notice of intention to submit the claim to arbitration.[ix] JMT Article 16.3 solely does not contain the third requirement.
We note that the Treaties commonly condition the elapse of six months, while each of the beginning date of that six months vary between the Traditional Protection IIAs and Modern Liberalization IIAs. In this regard, The Traditional Protection IIAs provide “six months from the date on which the disputing investor requested in writing the disputing Party for consultations or negotiations,”[x] while the Modern Liberalization IIAs stipulate “six months have elapsed since the events giving rise to the claim.”[xi] Because an investor does not always request a consultation to the host state soon after an event giving rise to the claim, the beginning date under the Traditional Protection IIAs might be behind the Modern Liberalization IIAs’.
An investor shall deliver to the host state a written notice of its intention with the particularity of the claim to arbitration at least 90 days before the submission. For example, under the Treaties, an investor may submit a claim to arbitration soon after six months of consultation when it gave the 90 days prior written notice to the host state after three months of consultation.[xii]
Finally, the Treaties stipulate the statute of limitation for an investor to submit a claim to arbitration for three years (except for five years under JUT Article 17.9), which is calculated from the date on which the investor first knew or should have first known the alleged breach and the loss or damages incurred, whichever is the earlier.
Fork-in-the-Road/Interim Injunctive Relief
The Treaties manifestly proscribe parallel proceedings before an arbitral tribunal and local remedies under the law of the host state. For example, JAMT Articles 24.8(a)(ii) and (b)(ii) provide that an investor shall waive in writing any rights to access any domestic courts or other dispute settlement proceedings before submitting a claim to arbitration.[xiii] On the other hand, the Treaties prescribe that the waiver shall cease when the tribunal rejects the claim based on procedural or jurisdictional grounds.[xiv] Notwithstanding above, we note that the Treaties preclude an interim injunctive relief from application of the waiver as JUT Article 17.10 provides that “the disputing investor may initiate or continue an action that seeks interim injunctive relief that does not involve the payment of damages before an administrative tribunal or court of justice under the law of the disputing Party.”
An Investor-State Dispute Settlement (“ISDS”) system is sometimes criticized in terms of transparency for public interests.[xv] As a response, the CPTPP Article 9.24 obligates the host state to disclose all relevant information of investment arbitration in public, while the Treaties solely provide that the host state “may” make available such information to the public.[xvi] Confidential business information, privileged information under the laws and regulations of either Contracting Party, and information to be withheld under the relevant arbitration rules are also excluded in the scope of disclosure.[xvii] Compared to Article 48.5 of the ICSID Convention requesting both parties’ consents for disclosure, the authors humbly consider that Japan’s modern BIT policy attempts to respond to demands for transparency, while it does not sufficiently overcome this criticism yet.
Right of Non-disputing Party/Amicus Curiae
A right of non-disputing party’s submission and Amicus Curiae provisions function similarly in allowing third-party’s participation in investment arbitration, but the statutory objectives are different. The former grants an opinion’s submission of an investor’s home state who may not resort to diplomatic protection in investment arbitration, while the latter assures a non-party’s participation when an arbitral tribunal may accept its opinion which has its significant interest in the arbitral proceedings and a public interest in the subject matters in investment arbitration.[xviii] In this regard, the Treaties grant non-disputing party’s submissions to interpretation before an arbitral tribunal with a prior written notice to the disputing parties.[xix] For further assurance of a non-disclosing party’s right, they provide that the respondent country shall deliver to the non-disclosing party the notice of arbitration and copies of all pleadings submitted to the arbitral tribunal.[xx]
Amicus Curiae participation in investment arbitration sometimes becomes contentious issues in burdening undue delay and additional costs on the disputing parties, while it may present material benefits in promoting the dispute resolution and enhancing transparency of the proceedings on matters of public interests. In this regard, among the Treaties, JAGT Article 27.1 solely provides written amicus curiae submissions from a non-disputing party with the detailed rules in the arbitral proceedings in order not to unduly burden the arbitral proceedings and unfairly prejudice any disputing party. However, an Amicus Curiae provision is not yet common in Japan’s modern BITs.[xxi]
Appellate Review Body
One of the criticisms to an ISDS system is a lack of mechanisms to correct erroneous arbitral awards. In this regard, the EU advocates the new establishment of an Investment Court System (“ICS”) composing an appellate body as the Comprehensive and Economic Trade Agreement between the EU and Canada (CETA) and the EU-Vietnam Investment Protection Agreement (EUVIPA) endorse.[xxii] On the other hand, any Japan’s BITs manifestly preclude a right of appeal by disputing parties.[xxiii] We nonetheless note that the government of Japan does not clarify its standing to the ICS initiative by the EU.[xxiv] For example, at the UNCITRAL Working Group III for discussions of the ISDS’s reform, the government of Japan asserted with the governments of Chile and Israel that the identification of existing problems in the ISDS system to explore the possible solutions should be conducted without regard to whether the member states would employ a new dispute settlement mechanism such as the ICS or not.[xxv] In addition, Japan-EU EPA does not embrace any investment dispute settlement clauses and its negotiations are ongoing separated from the review negotiations on the EPA.[xxvi]
The Treaties do not adopt mediation provisions in the ISDS provisions. We may humbly assume that this is because settlement agreements of mediation are not enforceable under the existing uniform legal framework that Japan adopts, while arbitral awards are enforceable under the New York Convention. In this regard, the Singapore Convention on Mediation, which applies to international settlement agreements resulting from mediation, was adopted by the United Nations General Assembly on 20 December 2018 and entered into force on 12 September 2020. While 46 countries signed this new instrument, Japan is currently under consideration including adjustments or reforms of its Civil Execution Act and other relevant domestic laws.[xxvii] Nonetheless, we note that international mediation is becoming aware in Japan, as a first permanent dispute settlement body for international mediation, Japan International Mediation Centre in Kyoto (JIMC), is newly established in 2018. In preparation for accession of the Singapore Convention, Japan could discuss the possible mediation provisions in the ISDS provision of its upcoming BITs.
Under the Treaties, arbitral tribunals may render an investor an arbitral award: i) payment of monetary damages and applicable interest; and ii) restitution of property when the host state breaches the substantive provisions. However, we note the statutory language differences between the JUT and the other Treaties that, JUT Article 17.19 allows a tribunal to interpret other remedies except for the two possible remedies by stipulating that “[t]he award rendered by the arbitral tribunal shall include:” while the other Treaties limit the two remedies by prescribing that “[t]he arbitral tribunal may award only:” In addition, the JAGT and JMT preclude “punitive damage” in the award.[xxviii] Regarding cost and attorney’s fees, the Treaties delegate applicable arbitration rules that the parties agree.[xxix]
Unlike the substantive provisions introduced previously, this post concludes that each Treaty basically own almost the similar procedural provisions that may comprehensively unveil the Japan’s modern BIT policy. However, there are still conceivable provisions remained for upcoming Japan’s BITs. For example, Japan could consider provisions for prevention of frivolous claims which is manifestly without legal merits as CPTPP Article 9.23.4 and Article 9.19.2 clearly prescribe preliminary objections or counterclaims. With reforms of its domestic law and participation of the Singapore Convention, Japan has initiated discussions at the Ministry of Justice.[xxx] Further discussions of the newly established ICS or other dispute settlements mechanism could be leverage for awareness of the ISDS system that Japanese investors may trigger their investment claims to the host state. Finally, the government of Japan has recently published “Action Plan for the Improvement of the Investment Environment, including the Promotion of the Conclusion of Investment-Related Agreements” in March 2021. The Action Plan demonstrates that their BIT strategic policy balancing investment protection and preservation of State rights and holds a flexible position to related discussions of multilateral dispute settlement mechanism including ISDS reforms. Further attention should be paid how the government of Japan moves forward with the Action Plan to the Substantive and Procedural provisions of the forthcoming BITs respectively.
[i] Takashi Yokoyama is a Legal Counsel at SymBio Pharmaceuticals. He has over nine years of experience in the legal departments of Sojitz Corporation and other major companies in Tokyo.
[ii] Yosuke Iwasaki is an Associate at Sidley Austin LLP in Tokyo, Japan. Prior to joining Sidley, as a legal counsel to the Ministry of Foreign Affairs of Japan, he led the negotiation of Japan’s economic treaties including the EPAs and BITs, and engaged in the dispute settlement procedures under WTO.
[iii] The first post for substantive provisions of Japan’s modern BIT policy published on 25 February 2021 may be read at: https://efilablog.org/2021/02/25/unveiling-japans-modern-bit-policy-a-review-of-its-substantive-provisions/.
[iv] The first post does not analyze substantive provisions of the JGT signed after the submission to the editorial committee. For further clarification to readers, we note that the JGT is categorized as the Modern Liberalization IIA that entails neither an umbrella clause nor investment agreement provision.
[v] See the history of the Modernization of the Energy Charter Treaty.
[vi] A/CN.9/WG.III/WP.163 – Submission from the Governments of Chile, Israel and Japan and A/CN.9/WG.III/WP.182 – Possible reform of investor-State dispute settlement (ISDS), Submission from the Governments of Chile, Israel, Japan, Mexico and Peru.
[vii] See JAGT Article 25.7 and JGT Article 23.4
[viii] See JAGT Article 24 and JGT Article 22
[ix] See, e.g., JAMT Articles 24.1-24.4
[x] See, e.g., JUT Article 17.4
[xi] See, e.g., JAGT Article 25.4
[xii] See JAGT Article 25.3, JAMT Article 24.3, JJT Article 23.3, JUT Article 17.4, JCT Article 23.3 and JGT Article 23.5. Noted that among the Treaties, the JMT Article 16.3 does not stipulate a prior written notice requirement to an investor when bringing a claim to arbitration.
[xiii] See, cf., JUT Article 17.5 does not demand a writing format in waiving, while the other Treaties request.
[xiv] See JAMT Article 24.9 provides that “[t]he waiver provided pursuant to subparagraph 8(a)(ii) or 8(b)(ii) shall cease to apply where the arbitral tribunal rejects the claim on the basis of a failure to meet the requirements of paragraph 3, 4, 7 or 8, or on any other procedural or jurisdictional grounds.”
[xv] Rudolf Dolzer and Christoph Schreuer, Principles of International investment law 2nd ed., Oxford University Press (2012), p.286. the authors shared its views that “[c]onfidentiality is traditionally considered one of the major advantages of international commercial arbitration between private parties. But in investment arbitration the presence of issues of public interest have increasingly led to demands for more openness and transparency…”
[xvi] See, e.g., JCT Article 23.17. Please note the JGT does not have disclosure provisions on ISDS such as JCT Article 23.17.
[xvii] See, e.g., JCT Article 23.17. Please note JGT does not have disclosure provisions on ISDS such as JCT Article 23.17.
[xviii] Gary Born and Stephanie Forrest, Amicus Curiae Participation in Investment Arbitration, ICSID Review, Vol. 34, No. 3 (2019), pp. 626–665. This article highlights the requirements for Amicus participation in investment arbitration: i) an applicant’s ability to provide an assistance to the tribunal; ii) matters within the scope of the dispute; iii) an applicant’s significant interest; iv) a public interest in the subject-matter of the investment arbitration; v) fairness and efficiency of arbitral proceedings; and vi) independence and impartiality of the applicant.
[xix] See, e.g., JAMT Article 24.13 “The non-disputing Party may, upon written notice to the disputing parties, make submissions to the arbitral tribunal on a question of interpretation of this Agreement.”
[xx] See, e.g., JAMT Article 24.12
[xxi] See, c.f., CPTPP Article 9.23.3
[xxii] See, CETA Articles 8.27-8.30 and EUVIPA Articles 3.38-3.41
[xxiii] See, e.g., JAMT Article 24.19 “The award rendered by the arbitral tribunal shall be final and binding upon the disputing parties.”
[xxiv] Shingo Yamagami’s response at Foreign Affairs Committee of the House of Representatives, the Japan’s Diet on 28 November 2018.
[xxv] See A/CN.9/WG.III/WP.163 – Submission from the Governments of Chile, Israel and Japan.
[xxvi] See Japan EU Review Negotiations for Investment Chapters on FTA and EPA. See also Japan-UK EPA Article 8.5.3 that “[i]f, after the date of entry into force of this Agreement, a Party signs an international agreement with an investment chapter that contains provisions for investment protection or provides for investor-to-state dispute settlement procedures, the other Party, after the date of entry into force of that agreement, may request that the Parties review this Section and Section B. Such a review shall be conducted with a view to the possible inclusion within this Agreement of such provisions that could provide for the improvement of the investment environment. Unless the Parties otherwise agree, any such review shall be commenced within two years from the date of the request and shall be concluded within a reasonable period of time.”
[xxvii] See Ministry of Justice, Material 7 “United Nations Convention on International Settlement Agreements Resulting from Mediation” in August 2020.
[xxviii] See JAGT Article 25.17 and JMT Article 16.10.
[xxix] See, c.f., JUT Article 17.19 solely does not describe “attorney’s fee.”
[xxx] See, First Session at Arbitration Law Section of Legislative Council on 23 October 2020.
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