Unveiling Japan’s Modern BIT Policy: A Review of its Procedural Provisions

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.

The UNCITRAL Working Group III negotiations and the Multilateral Investment Court: Scrutinizing consistency in Investor State Dispute Settlement

by Sahaj Mathur

(Third Year Bachelor of Law Student at the National University of Juridical Sciences, Kolkata)

  1. Introduction

It has been widely suggested that the International Investment Arbitration regime is undergoing a legitimacy crisis. A major factor behind backlash against the regime is the lack of coherence and consistency in Investment Arbitration. Such inconsistency can be perceived to be a consequence of the existence of more than 3000 International Investment Agreements that form the legal foundation of International Investment Law. Inconsistency further arises due to the absence of binding precedent in Investment Arbitration. Thus, identical or similar Investment Treaty provisions may often be interpreted in different manner by different tribunals leading to inconsistency in lack of coherence in Investment Arbitration awards.

The lack of consistency in Investment Arbitral decisions is a core feature of the currently ongoing deliberations at the UNCITRAL Working Group III, which is assessing the reform of Investor State Dispute Settlement. To address this lack of consistency, among other issues, the European Union proposed the establishment of a Multilateral Investment Court (‘MIC’) as a possible reform option to replace the existing system of Investment Arbitration. The MIC is a permanent body comprising of tenured judges that would adjudicate investment disputes between host states and foreign Investors.

The proposal for the establishment of the MIC has evoked a mixed reaction from within the academic community. In particular, the issue of whether the MIC would lead to greater consistency presents a question of immense importance. The article attempts to contribute to the same by critically examining the interaction between the MIC and the consistency the MIC is proposed to establish in Investor State Dispute Settlement (‘ISDS’). In this regard, the paper identifies three issues that arise when assessing the issue of consistency in ISDS through the lens of the MIC. First, will the MIC necessarily lead to greater consistency in ISDS. Secondly, assuming that such consistency can be achieved by establishing the MIC, is this consistency always desirable? Thirdly, even if such consistency is desirable, what are the costs at which this consistency is achieved? 

2. Towards Resolving concerns of consistency in ISDS: Introducing The Multilateral Investment Court

The proposal to establish the MIC was developed in light of the significant concern regarding the inadequacy of the current mechanisms to ensure consistent decisions in investment disputes. The MIC forms one of the core reforms that is currently being considered by the UNCITRAL Working Group III which is deliberating reforms in ISDS. While the precise design, functioning and other technicalities of the MIC are dependent on these negotiations, the basic conception of the MIC broadly envisages two primary changes from the existing system of Investment Arbitration.

The first change envisaged is that MIC would comprise of tenured adjudicators that are permanently appointed and renumerated, as opposed to arbitrators that are appointed and remunerated by the parties. Secondly, the MIC would comprise of a court of first instance, as well as an appellate body. Therefore, as opposed to the limited grounds to challenge awards under the ICSID Framework, the proposal for the MIC is likely to expand the grounds to appeal a decision. The introduction of a limited number of permanent judges deciding investment disputes, along with the oversight of appeals chamber should, in principle, lead to a more consistent body of decisions in ISDS. As a Recent Report of the UNCITRAL Working Group III shows, it is likely that the appellate mechanism of the MIC would comprise of highly qualified professionals. Thus, in theory, the appellate mechanism can serve as a means to create higher consistency, particularly when the MIC is to rule on a series of non-consolidated cases from an analogous factual scenario, such as in the cases filed against Argentina in the 2000s. The assumption that the introduction of the MIC would lead to greater consistency has been largely unchallenged. However, this assumption merits further consideration. 

Firstly, the consistency proposed by the establishment of the MIC can be attained only if a high number of states become a party to the MIC. This caveat assumes importance given that numerous states such as the United States, Russia, Japan and Chile objected to such systematic reform of ISDS. In the absence of widespread participation, any consistency in decisions would be restricted to only a limited number of BITs and is unlikely to impact the Investment Regime generally.

Secondly, it is important to reiterate that the EU’s proposal for the MIC is inspired by World Trade Organisation’s(‘WTO’) system of dispute settlement. However, unlike the WTO regime which is based on a multilateral legal framework, International Investment Law is characterised by a fragmented framework comprising of over 3000 different International Investment Agreements. It is also important to note that the WTO Dispute Resolution forum interprets the same agreements. The establishment of the MIC could lead to more consistency in the interpretations of the same investment treaty. For instance, if the MIC is called to interpret the India-Brazil BIT, then the interpretation of the provisions of that BIT would be made consistent, as opposed to ad-hoc Investor-State arbitral tribunals that may interpret the same BIT in different ways. Similarly, the MIC could lead to more consistent interpretations of the same rules of Investment Arbitration. At the same time, unlike the WTO system, the MIC would have to interpret agreements from a fragmented network of International Investment Law which comprise of various treaties with diverse objectives, provisions and wordings. Given the fragmented nature of the International Investment Regime, it is unlikely that the MIC would offer the same coherence of decision making as that of the WTO Regime.

3. The Multilateral Investment Court and the limits of consistency

As established in part II, the establishment of the MIC is unlikely to lead to the consistency in ISDS that is assumed by its proponents. However, let us assume for the sake of argument, that the MIC would lead to greater consistency. Existing scholarship on ISDS reform(see, here and here) has typically viewed greater consistency in the Investment Regime as an unconditional positive. However, such a theorisation would amount to an oversimplification.

It is crucial to consider ‘what’ rules are being made consistent and whether the rules being made consistent in their application are desirable. These questions are of particular importance due to the nature of the MIC. In Investment Arbitration, the tribunals are constituted on an ad hoc basis. Therefore, the decision of the tribunal would impact only the outcome of a single case. However, in the case of the MIC, the rules that are created by the judges of the MIC would apply to all subsequent Investment disputes. This concentrates the power to interpret the inconsistent and ambiguous rules of International Investment Law in the hands of the few judges of the MIC. In other words, the judges of the MIC possess an unfettered power to create and develop International Investment Law’s jurisprudence.  Thus, unlike Investment Arbitral tribunals, the MIC possess the power to crystallize the rules of International Investment Law. However, such crystallization and consistency are not an unconditional positive. The establishment of the MIC presents the risk of crystallizing undesirable rules, which would then be universally applied. If such rules are made consistent, it would weaken the regime further, rather than strengthen it.

In large part, the issue of whether the rules that are made consistent are desirable to the regime at large is hinged on the question of who are the judges that are appointed to the MIC, and what are the rules and interpretations they uphold. Based on the current negotiations, the judges of the MIC would be appointed unilaterally by the constituent states. Owing to this, States are likely to appoint judges that typically favor State parties in investment disputes. This would not be wholly unsurprising, given that respondent states in an Investor-State arbitration also appoint arbitrators that are likely to favor them. At the same time, the appointment process would also become more politicised, with the interests of states, rather than investors being upheld. This may lead to the crystallization of rules that are skewed in favour of states, thereby impacting the interests of investors.

Aside from this, an inherent advantage of the Investment Arbitration model has been the appointment of highly qualified arbitrators. However, the lucrative salaries associated with arbitral appointments in Investor-State Disputes, as well as the flexibility of such appointments, where the most sought after investor-state arbitrators often serve as counsel in other matters may diminish the possibility of the MIC appointing a permanent body of judges with a similarly high caliber.

Owing to these reasons, it may be possible that the ‘consistent’ rules created by the MIC are unlikely to represent the high standard of decision making that Investment Arbitration has come to be associated with. In fact, it may be so that the rules created by the judges of the MIC may themselves suffer from deficiencies. However, unlike in investment arbitration, these rules would apply to all subsequent cases, becoming rigid and difficult to modify. These considerations would equally apply to rules created by an appeal’s chamber of the MIC given that it is the same appointment process that would constitute the appeals chamber. This can be juxtaposed with the case of Investment Arbitration, where the decision of a tribunal would be applicable only between the parties, thereby reducing the consequences of on the regime at large. In sum, if undesirable rules are made consistent and predictable by the MIC, it is likely to further contribute to ISDS’s legitimacy crisis, rather than resolve it.

4. Concluding Remarks: The MIC and the costs of consistency

Given the severe backlash against Investment Arbitration, the importance of the ongoing UNCITRAL negotiations cannot be understated. At the core of the UNCITRAL’s deliberations, which range from minor procedural reform of Investment Arbitration to an overhauling structural reform of ISDS, lies a trade-off of values. When the reform process is viewed as a trade-off of values, the UNCITRAL negotiations can undertake reform that best embodies the values that the investment regime aspires to uphold. In this regard, even if we were to assume that the MIC can achieve a desirable form of consistency in ISDS, the need for greater consistency must be weighed against the ‘costs’ of the establishment of such consistency.

Firstly, the widening of the possibility of appealing decisions would impact the efficiency and finality of the proceedings given the proclivity of the losing party to appeal against the decision of the court of first instance.

Secondly, the establishment of a permanent roster of judges is unlikely to offer the same level of expertise offered by arbitration, particularly in highly complex, technical or emerging industries and fields of law, where the existence of specialist arbitrators significantly contributed to the precision, efficiency and accuracy of ISDS proceedings.

Thirdly, the establishment of the MIC would lead to significant issues the recognition and enforcement of the judgement of the MIC, given that the judgement is unlikely to fall within the ambit of an ‘arbitral award’ which can be enforced under the New York Convention. This would, in turn, require deliberation on the possibility of a different enforcement regime, similar to the ICSID Convention. Such an argument, however, is beyond the scope of this piece.

At the same time, this is not to wholly disregard the MIC as a viable reform option. It is merely to outline the trade-off of values that the UNCITRAL Working Group is presented with. While the its obvious benefits of the MIC cannot be disputed, it is important to note that the MIC is not the cure to every problem. In the absence of substantive reform of Investment Treaties, even the establishment of the MIC is unlikely to resolve the underlying issues with Investment Arbitration. The conversation surrounding ISDS reform does not, and should not, end with the MIC.


Krishna Agarwal (Gujarat National Law University, India)

1. Introduction

The unprecedented COVID-19 pandemic has grappled the world and is comparable to the Argentine crisis as the States have taken emergency measures like Argentina in the wake of economic crisis.[1] However, unlike Argentina, the States have taken multiple emergency measures to curb the adverse effects of COVID-19 such as enactment of Emergency Laws, imposition of lockdown, closing non-essential businesses, restricting border movements etc.

Such measures may breach different standards in the Bilateral Investment Treaty (“BIT”) as they may lead to the violation of due process, or constitute abusive treatment to the investors, arbitrariness and discrimination, causing Expropriation, violation of Fair and Equitable Treatment or full protection and security.  Article 36 of the ILC Articles on the Responsibility of State for Internationally Wrongful Acts, 2001 (“ARSIWA”) obligates the State to compensate for the damages caused due to the international wrongful acts and which shall include lost profits if it comes within the ambit of financially assessable damages.

In pursuance of this the Host-State may attempt to apply different defenses provided under the Investment treaty such as the Right to Regulate clause or Non-Precluded Measures (“NPM”) clause or rely on customary international law provided for the plea of necessity or the application of force majeure clauses.

However, a pertinent question which remains is that if such defenses are not accepted by the Tribunal given the facts of the dispute, does the Host-State have any other method to reduce the compensation to take into account the economic well-being of the Host-State?

2. Analysis of Argentinian Cases

In the backdrop of the Argentine crisis, the Tribunals in several cases have dwelled into the concerns pertaining to economic factors. While analyzing the cases, it is important that the researchers comprehend the reasoning given by tribunals while calculating the amount of compensation. Some of the important case-laws during Argentinian crisis are as follows-

2.1 CMS, Enron & Sempra

In CMS v. Argentina, though the Tribunal noted that the Argentinian crisis was severe, yet it came to the conclusion that wrongfulness cannot be precluded by invoking Article 25, ARSIWA keeping in view the relative effect of the crisis and the contribution of Argentinian policies towards the crisis. Additionally, even if the wrongfulness of the act is precluded due to the necessity, still according to the interpretation of Article 27, ARSIWA it does not exclude the duty to compensate the one whose right is violated.[2]

A similar view was taken in Enron v. Argentina and Sempra v. Argentina where Tribunals acknowledged that since the term ‘essential interest’ is not defined under the Article XI, Argentina-US BIT cannot be applied for rescue of the host-state.[3]

However, with regard to the calculation of the quantum of compensation, despite finding that neither the customary international law nor the investment treaty can preclude the wrongfulness of the act, on account of a severe economic crisis, tribunals interestingly in CMS, Enron and Sempra have reduced the compensation.

The Tribunal in CMS has reduced the amount of compensation calculated by the expert by adjusting the demands and tariffs by taking into account the magnitude of the crisis faced by Argentina.[1] In Sempra, the Tribunal differentiated between the standard of compensation and the manner in which law has to be applied; the latter is required to assess the effects of crisis and was duly considered while calculating the Cost of Equity, Market Discount, Tariff increase and other adjustments.[2]  Similarly, in Enron the Tribunal while granting compensation adjusted the Tariff across the time period of six years for a better spread of Weighted Average Cost of Capital.[3] 

The Tribunal while calculating the quantum of compensation noted:-

While these unfortunate events do not in themselves amount to a legal excuse, neither would it be reasonable for the Claimants to believe they are not affected by some of the effects…This is something the Tribunal will duly take into account in considering the compensation that follows such finding of liability and how the crisis period influences its determination.”

Therefore, we can draw a conclusion that the Tribunals in these cases have accepted the view that even if the economic crisis does not preclude the wrongfulness of the act under customary international law still it might have a bearing on the issue of valuation of the compensation.

2.2 LG&E v. Argentina

The LG&E v. Argentina, the Tribunal has taken an opposite view and held that Argentina is liable for damages for the breach of the treaty except during the time period of economic crisis. It considered the Argentinian crisis in different light and has justified the emergency and application of doctrine of necessity for a limited period of time. The Tribunal considered that though Article 25, ARSIWA is not fully satisfied still the findings could be used to conclude that on the application of Article XI, Argentina-US BIT, the state of necessity is the ground of exclusion from the liability till certain level of stability has been recovered. Further as Article XI, Argentina-US BIT and Article 27, ARSIWA are silent on the question if the compensation for the losses is payable during the state of necessity; the damages suffered should be borne by the investor only.[4]

2.3 CMS, Enron, Sempra Annulment Committees

The CMS Annulment Committee has acknowledged the reasoning of the CMS Tribunal for considering the impact of Argentinian crisis with respect to the calculation of the quantum of compensation.[5] At the same time, the CMS, Enron & Sempra Annulment Committees found that the defences provided under Article 25, ARSIWA and Article XI, Argentina-US BIT are distinct in their operation and the Tribunals while assessing them should adopt a two-step approach wherein only if the present circumstances of the dispute are not covered under the NPM clause, customary international law should be applied as a subsidiary means.[6]

This two-step approach was followed by Continental Casualty v. Argentina and the compensation awarded was only concerned with specific commitments in contracts which were not covered by the defence of necessity and Article XI, Argentina-US BIT.[7]

2.4 El Paso & Impregilo

In El Paso v. Argentina and Impregilo v. Argentina, the majority Tribunal observed that Argentina has substantially contributed to its own economic crisis and therefore neither the BIT nor Article 25, ARSIWA can come to rescue.

Whereas, the minority arbitrator, Arbitrator Stern was not convinced with the evidence that Argentinian authorities has substantially contributed to the economic crisis and was against the light assumption of the economic crisis.[8] She was inclined to accept the reasoning given in Continental and if needed she was open to accept the arrangement sort out by the Tribunal in LG&E.[9]

2.5 BG & Suez

In BG v. Argentina, the Tribunal believed that Argentina was unable to meet the conditions laid down in Article 25, ARSIWA and Argentina-UK BIT. However, the Tribunal while calculating the damages did not rely on the MetroGAS 2001 projections which was referred in Wood Collins Report because such projections were oblivious to economic crisis and therefore no compensation for the historical losses were granted.[10]  Similarly, in Suez v. Argentina, the Tribunal has considered the economic crisis while calculating the quantum of compensation, using a but-for scenario with respect to a reasonable regulator.[11]

3. Valuation of Compensation- Balancing the interests

We find that the tribunals were primarily divergent with respect to two questions. First, if the plea of necessity provided in BIT or customary international law is satisfied or not. Second, even if the plea of necessity is not satisfied, can the valuation of the compensation be reduced. We are interested with the second question and the Tribunals in Argentinian cases have taken varied approaches to the answer the second question.

A probable dimension to the divergent reasoning could be seen with reference to the difference between two conceptions of ex aequo et bono and equitable principles. The former is applied when the Tribunal is allowed to disregard a legal rule, after the prior consent of the parties i.e. equity contra legem.[12] Whereas, to apply the latter, no special consent is required as it is inherent in the paradigm of ‘Rule of Law’.

Hence, the Tribunal may reduce the compensation because the objective of the BIT is not to protect foreign property but rather to protect the process of foreign investment. It will be inequitable if the outcome of the BIT entails catastrophic consequences of the livelihood and the economic well-being of the population.[13]. Therefore, in wake of serious economic crisis, even if the host-state has breached the treaty obligations, the process of valuation of compensation can be tweaked to ensure that injustice is not done to the public at large.

4. Doctrine of Abuse of Rights

The Tribunal in Himpurna v. PLN after recognizing the unfettered right of the Claimant to compensation has declined to assess the lost profits and awarded less than 10% of the amount claimed by the investor as it believed that it would lead to ‘abuse of rights’ against the backdrop of economic crisis.[14] In Mobil v. Venezuela, the Tribunal observed that to determine the abuse of rights, it is necessary to take into account all the circumstances of the case.[15] Thus, the concept of doctrine of abuse of rights is generally used in investment jurisprudence when the party seeks to avail the benefit of BIT with regard to the circumstances which were not foreseeable.[16]

Undoubtedly, there might be treaty violations but the question that is needed to be answered is if the circumstances of COVID-19 were foreseeable enough that the host-state has voluntary put the economy and public at large at risk?

The host-state is not a commercial entity; its special character and the responsibilities towards the well-being of the people has to be recognized. It is unreasonable to presume that a State already having a deregulated economy has agreed to a national economic disaster when it has accepted foreign investments. Therefore, when the breach of the IIAs is caused due to the measures taken by the Host-State to curb the adverse effects of COVID-19, the grant of lost profits should be discouraged.

5. Conclusion

To facilitate balance of rights of the Host-State and the investors, the future Investment Treaties should entail an exhaustive list of the exceptions which should clarify the extent of economic crisis covered under the ambit of ‘public interest’ and the reduction of compensation for the same. One such exception should be of ‘public health’ and a caveat may be attached that measures taken in pursuance of public health should not be arbitrary or discriminatory to the investors/investments and shall be temporary and confirm with the basic notions of proportionality.[17]

Additionally, the force-majeure clause included in the IIA should have the scope for the States to limit their financial liabilities that are concerned with COVID-19. States might expressly include a self-judging clause which excepts the measures taken by the States during a serious economic crisis and public health.[18]

With respect to the investment treaties before COVID-19, the Tribunal if not satisfied with the application of Article 25 of the ARSIWA and the NPM clause, should on the basis of equitable principles determine the valuation of the compensation. This is because it is an accepted fact that the investors and their investments to some extent are affected by the unprecedented crisis of COVID-19 and thus all the losses cannot solely be attributed to the host-states.

Moreover, while quantifying the compensation amount according to a particular standard of compensation, the calculation by Tribunal should consider the measures which should have been taken by the reasonable regulatory authority during COVID-19. It can agree not to grant lost profits to the foreign investors as it might lead to catastrophic consequences and in legal perspective might lead to ‘abuse of rights’. It can also mitigate the amount of compensation while calculating the rate of interest and allowing the cost of proceedings to be borne by the respective parties rather than the unsuccessful party i.e. the Host-State.

[1] CMS Gas Transmission Company v. The Republic of Argentina ICSID Case No. ARB/01/8 ¶¶ 456-457.

[2] Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Award.

[3] Enron Corporation and Ponderosa Assets v. Argentine Republic ICSID Case No. ARB/01/3 ¶¶ 232 415.

[1] Suksham Chouhan, Young ISDS Club- Corona Pandemic investment disputes, Efila Blog, Young ISDS Club – Corona pandemic investment disputes – EFILA Blog (9 June 2020).

[2] CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award ¶ 390.

[3] Enron Corporation and Ponderosa Assets v. Argentine Republic, ICSID Case No. ARB/01/3, Award ¶ 334.

[4] LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc .vArgentine Republic, ICSID Case No. ARB/02/1, Decision on Liability.

[5] CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Decision of the Ad-Hoc Committee on the Application for Annulment of the Argentine Republic ¶¶ 156.

[6] CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Decision of the Ad-Hoc Committee on the Application for Annulment of the Argentine Republic ¶¶ 119-128; Enron Creditors Recovery Corp. Ponderosa Assets, L.P. v. The Argentine Republic, ICSID Case No. ARB/01/3, Decision on the Application for Annulment of the Argentine Republic ¶¶ 147-161; Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Decision on the Argentine Republic’s Application for Annulment of the Award pp. 29-34.

[7] Continental Casualty Company v. The Argentina Republic, ICSID Case No. ARB/03/9, Award pp. 70-94.

[8] Impregilo S.p.A. vArgentine Republic, ICSID Case No. ARB/07/17, Award, ¶ 360.

[9] El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15 ¶ 670.

[10] BG Group Plc. v. The Republic of Argentina, UNCITRAL (1976), Final Award ¶ 449.

[11] Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. vArgentine Republic, ICSID Case No. ARB/03/19 ¶ 41.

[12] Christoph Schreuer, Decisions Ex Aequo et Bono Under the ICSID Convention, 11(1) ICSID Rev. 37-63 (1996).

[13] Ian Brownlie, CME Czech Republic B.V. v. Czech Republic, UNCITRAL (Separate Opinion) ¶¶ 77-80.

[14] Himpurna California Energy Ltd. v PT. (Persero) Perusahaan Listruik Negara, Final Award

[15] Venezuela Holdings B.V. et. al. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Award.

[16] Orascom TMT Investments S.a.r.l v. People’s Democratic Republic of Algeria, (Award), ICSID Case No. ARB/12/35, 31 May 2017, Award.

[17] Investment Policy Response to the COVID-19 Pandemic, UNCTAD (4 May 2020), https://unctad.org/system/files/official-document/diaepcbinf2020d3_en.pdf.


Call for Papers:

2nd Bucerius Conference on Investment Law & Arbitration

The 2nd BCILA is supported by Dr. Yas Banifatemi and Prof. Dr. Kaj Hobér as Honorary Patrons as well as by the Arbitration Institute of the Stockholm Chamber of Commerce, the Vienna International Arbitral Centre, and the Bucerius Center for International Dispute Resolution as institutional partners.

In preparation for the two conference days, all participants will prepare research papers on issues of international investment law and arbitration. During the conference, the papers will then be discussed in cross-topic discussion panels. All panels will be moderated by experienced professionals from academia and practice. After the conference, the papers will be revised and published in an edited conference volume. Panelists will be admitted based on abstracts submitted in response to our Call for Abstracts.

More information at: www.law-school.de/ila-conference

Moldova v Komstroy: A Moment Of Reckoning For Intra-EU Investment Arbitration Under The ECT?  Considering Its impact On Tribunals, Investors And EU Member States

Stephanie Collins, Associate Attorney, Gibson, Dunn & Crutcher UK LLP

On 2 September 2021, the Court of Justice of the European Union (the “CJEU”) issued its ruling in Republic of Moldova v Komstroy concluding that, as a matter of EU law, Article 26 of the Energy Charter Treaty (“ECT”) is not applicable to “intra-EU” disputes.  This post is concerned with the following questions: (i) to what extent (if indeed at all), can we expect intra-EU ECT tribunals to take  into account the CJEU’s reasoning; (ii) what steps (if any) should investors be taking in light of Komstroy; and (iii) what are the implications of Komstroy on EU Member States? 

To What Extent Can We Expect Intra-EU ECT Tribunals To Take Into Account The CJEU’s Reasoning?

Unquestionably, Komstroy will be relied upon by respondent EU Member States seeking to challenge a tribunal’s jurisdiction in intra-EU ECT proceedings.  Yet, so far as arbitration proceedings brought under the auspices of ICSID are concerned, such tribunals should, in principle, consider Komstroy irrelevant.  This is for numerous reasons. 

First, questions of jurisdiction for an ICSID tribunal are a matter exclusively for the tribunal.  Pursuant to Article 41(1) of the ICSID Convention, the tribunal “shall be the judge of its own competence”.  Thus, an ICSID tribunal can reach a different conclusion to that of the CJEU.

Second, ICSID proceedings (and awards) are creatures of international law and part of a self-contained dispute resolution system.  The EU legal order is separate from international law; accordingly, proceedings (and awards) are, in theory, unaffected by EU law and its developments.   

Third, tribunals are likely to take issue with the CJEU’s conclusion that the ECT should be construed as containing a reference to EU law simply because the EU is a signatory to the ECT.  Does this hence mean that every international agreement to which the EU is a signatory should now be considered as an instrument of EU law? 

In any event, the CJEU’s reasoning is at odds with the CJEU’s Opinion 1/17, in which it was accepted that CETA tribunals – though outside of the EU judicial system – could nonetheless interpret and apply the CETA itself without running afoul of EU law.  The decision does not explain how the CETA – to which the EU is also a party and must likewise be considered an “act of the EU” by the CJEU – can be compatible with EU law, but the ECT cannot. 

Fourth, tribunals are also likely to take issue with the CJEU’s lack of interpretative analysis.  Indeed, Komstroy (like the Achmea judgment)contains no analysis under the Vienna Convention on the Law of Treaties, which – as a matter of public international law – governs the interpretation of the ECT.  It is therefore unclear how the CJEU can purport to explain how the ECT should be “interpreted”.  Further, the judgment does not address the substantial body of case law under the ECT on the interpretation of Article 26 of the ECT.  To date, all ECT tribunals that have considered jurisdictional objections based on the intra-EU nature of the dispute have rejected the suggestion that the ECT does not apply on an intra-EU basis.  Those cases set forth what is now a well-established principle: that EU law is not relevant to the question of jurisdiction under the ECT. 

For all these reasons, Komstroy is unlikely to have a significant impact on ECT tribunals considering whether they have jurisdiction to hear intra-EU disputes.  It is also notable that despite the CJEU’s decision in Achmea, all ICSID tribunals in intra-EU BIT arbitrations have upheld their jurisdiction over intra-EU claims. 

The situation may be more difficult, however, in the non-ICSID intra-EU ECT context – for example,  ad hoc arbitrations conducted under the UNCITRAL Rules or Stockholm Chamber of Commerce (options under the ECT), where the arbitral seat is within the EU.  These arbitrations are subject to the domestic jurisdiction of their seat and its lex arbitri.  Domestic courts in this context will be competent to hear set-aside applications on the basis of Komstroy

What Steps Should Investors Be Taking In Light Of Komstroy?

Notwithstanding the above analysis, EU-based investors considering energy investments in EU Member States may wish to consider their position.  EU Member States will likely rely on Komstroy to challenge a tribunal’s jurisdiction before an ECT tribunal, and to resist enforcement and support a set-aside application before an EU Member State court (where there is an EU seat).   

What steps, then, should EU-based investors be taking?  In circumstances where no dispute is in existence or reasonably foreseeable, EU investors may wish to restructure their investments through a non-EU jurisdiction which benefits from the protections of an extra-EU BIT or is a third state in the context of the ECT (such as through Switzerland).  Post-Brexit, the UK is another option since there should be no issue from an EU law perspective with a UK investor bringing a claim against an EU Member State (the UK has a number of BITs with EU Member States and is a Contracting Party to the ECT).

In the event disputes do arise in an intra-EU context, and an EU investor is seeking to rely upon the ECT, it is advisable that investors opt for arbitration under the auspices of ICSID or else avoid an EU seat.  Where available, investors might also look to enter into bespoke contractual arrangements with the relevant EU Member State with specific arbitration agreements.

At the enforcement stage, Komstroy may decrease the chances of successful enforcement of any resulting intra-EU ECT award within the EU domestic courts.  Intra-EU investors with existing or planned investments may wish to identify whether the EU Member State in which they are seeking to invest has commercial assets (not covered by immunity) outside of the EU.   A number of recent decisions in Australia and the US provide some comfort that enforcement of an intra-EU arbitral award will not be resisted on EU law grounds.  The same can be said for the UK where, in February 2020, the Supreme Court in Micula v Romania lifted a stay of enforcement of an ICSID arbitral award despite an extant State-aid investigation by the European Commission.

What Are The Implications Of Komstroy On EU Member States?

For now, the ECT remains in force between all Contracting Parties, which includes all EU Member States, as well as the EU.  Indeed, a modification of the ECT to remove its application as between EU Member States would require the participation of all 53 Contracting Parties.  Komstroy does not (and cannot) modify the express terms of the ECT itself.  This may be contrasted with the situation post-Achmea: the judgment ultimately led to a treaty between most EU Member States to terminate intra-EU BITs, though the treaty left the signatories to “deal with [the ECT] at a later stage”. 

Meanwhile, the process of “modernising” the ECT is on-going, and Komstroy is likely to accelerate the European Commission’s efforts to make substantial amendments (though the Commission’s draft proposal for Article 26 does not expressly exclude intra-EU disputes).  Indeed, in December 2020, Belgium submitted a request to the CJEU for an opinion on the compatibility of the intra-EU application of the arbitration provisions of the future modernised ECT with the European Treaties in view of the fact that the mechanism could be interpreted as allowing its application intra-EU.

Aside from ECT-related questions, there remains the issue of how EU Member State courts address Komstroy in the context of enforcement proceedings of ICSID awards.  On the one hand, from an EU law perspective, national courts of EU Member States have a duty of “sincere cooperation” under Article 4(3) of the TFEU, pursuant to which they must assist each other in carrying out tasks which flow from the Treaties.  On the other, Article 54(4) of the ICSID Convention places an obligation on Contracting States to recognise awards as bindingand to enforce them as if they are final judgments of a court in that State.  EU institutions have indicated that they will oppose any such enforcement, even if it places an EU Member State in breach of its other public international law obligations.  It is certainly conceivable that an EU Member State court could conclude that its EU obligations trump its ICSID obligations.

Beyond the legal realm, Komstroy may have a more practical impact on EU Member States; EU-based investors considering energy investments in those countries may now view them as too risky.  First, the applicability of Article 26 to intra-EU disputes was not a question that was before the CJEU (it was not one of the three referred to the CJEU by the Paris Court of Appeal) and had no impact on the Komstroy case.  This might undermine investor confidence in the EU judicial system.  Second, Komstroy might create uncertainty regarding the extent of investor protection within the EU.  This could make investments more expensive as it will drive up risk-premiums.  Komstroy may, therefore, undermine investor confidence at a time when the EU and its Member States are seeking substantial private investment in its energy sector as part of its efforts to de-carbonise. 


Like Achmea, Komstroy is unlikely to be a moment of reckoning – at least from the perspective of intra-EU ECT tribunals determining their jurisdiction in an ICSID context.  Enforcement of intra-EU ECT awards within the EU has become more challenging – but in the wake of Achmea such proceedings were unlikely to have been brought in any event. 

With another preliminary reference on the applicability of Article 26 pending before the CJEU, and discussions around the “modernisation” of the ECT on-going, there are undoubtedly many more developments to come.     

Report on the 7th Annual EFILA Lecture delivered by Annette Magnusson (Climate Change Counsel), Brussels, 28 October 2021

Pieter Fritschy (Senior Associate, Nauta Dutilh)


On 28 October 2021, Annette Magnusson delivered the 7th Annual EFILA Lecture in Brussels. The topic of her lecture concerned the relationship between the Energy Charter Treaty and the Paris Agreement, more specifically the question of whether Energy Charter Treaty Arbitrationand the Paris Agreement should be considered “friends or foes”.

First, Prof. Dr. Nikos Lavranos, Secretary-General of EFILA, welcomed both the physical and the digital attendees of the lecture. In this introduction, he also updated the audience on some exciting new developments at EFILA (including the impending establishment of a Young EFILA Network and the upcoming Call for Papers for the European Investment Law and Arbitration Review for the 2022 issue) and on some of the upcoming EFILA events (most notably, the 7th EFILA Annual Conference on 4 February 2022 at NautaDutilh’s offices in Amsterdam).

After that, Annette Magnusson started her lecture by pointing out that there should be no doubt that all lawyers have to play a pro-active role in accelerating the reduction of carbon emissions in the coming years. As John Kerry recently put it at a meeting of the American Bar Association: “you are all climate lawyers now“.

Another observation fundamental to Magnusson’s lecture was that energy-related investments, as well as the stable, long-term policies that foster them, are an essential element of the necessary transition to clean energy. Seen from that perspective, it should be clear that the ECT has the potential to significantly influence the speed of that transition. Indeed, as Magnusson noted, the ongoing ECT modernization process will no doubt play an important role in determining the relationship between the (future) ECT and the Paris Agreement. For instance, one crucial and contentious issue is the question of whether the ECT should remain neutral between fossil and green investments or whether it should rather somehow differentiate between the two.

With respect to the present interplay between the ECT and the Paris Agreement, Magnusson pointed out that there exists a host of views with respect thereto. On one side of the spectrum, there are those who claim that the ECT already supports and strengthens the Paris Agreement, as the ECT provides a framework for the protection of green investments. On the other side of that spectrum, however, there are those who claim that the ECT in fact hinders the goals of the Paris Agreement, as the fear for ECT claims can undermine States’ willingness to implement policies aimed at phasing out fossil fuels. The coal phase-out cases of RWE and Uniper against the Netherlands could, for example, deter States from implementing similar phase-out policies.

With an aim to shed more light on the question of what the interplay between the ECT and the Paris Agreement actually is, the Climate Change Counsel is currently in the process of performing a review of ECT awards. The preliminary findings were presented by Magnusson (a final report is expected in the course of 2022).

Strikingly, although Article 19 ECT (“Environmental Aspects”) is sometimes referred to in ECT awards, climate change turns out almost never to be mentioned in those awards. The same goes for the energy transition, which, remarkably, is similarly missing in the reasoning of most of those awards. Magnusson noted that this raises the question of whether parties to ECT arbitrations might not be underestimating the potential of Article 26(6) ECT (“A tribunal established under paragraph (4) shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law“), which refers to the full spectrum of international law, including the Paris Agreement. As said, as things stand, references to the Paris Agreement have hardly ever made it to ECT awards, although this will no doubt be different in the future awards in the aforementioned phase-out cases of RWE and Uniper against the Netherlands.

So, are the ECT and the Paris Agreement friends or foes? Well, they are neither: as the preliminary findings show, they have never even talked to one another. This is unfortunate because, as Magnusson concluded, the Paris Agreement needs all the friends it can get.

After a lively Q&A session, which prompted questions from both digital participants and the audience physically present in Brussels, the 7th Annual EFILA Lecture came to an end. EFILA looks forward to welcoming everyone interested in investment law and arbitration at the 7th EFILA Annual Conference on 4 February 2022 at NautaDutilh’s offices in Amsterdam (https://efila.org/annual-conference-2022/).

The 7th Annual EFILA Lecture is available online at: https://www.youtube.com/watch?v=Nt1-5_kstYM