Call for Contributions: EFILA Blog

Given the present debate surrounding the investment and EU law community (enhanced by the Brexit, the TTIP or CETA negotiations), the EFILA Blog editorial board believes that a veritable dialogue must take place, allowing all arguments to be heard and all diverging positions to be defended.

Therefore, The EFILA Blog editorial board welcomes any contribution that pertains to the field of of international (investment) law and arbitration, EU law and public policy, as well as the dynamics of these multiple legal, political and economic spheres.

If you are interested in submitting any material to the EFILA Blog, please contact our Managing Editor, Horia Ciurtin, at the following e-mail address: h.ciurtin@efila.org

 

Report on the AIA, EFILA and CIArb Event: Updates on EU Law Related Arbitration: A Selection of New, Controversial and Hot Topics

Nikoletta Kallasidou and Michal Mojto, AIA, Brussels

The Arbitration for International Arbitration (AIA), EFILA and the CIArb jointly organised a well-attended event  at the VUB University in Brussels on the 27th of May, bringing two panels of experts to discuss recent developments on EU-related arbitration. Contentious issues such as the Brussels I Bis Regulation, the arbitrability of EU competition claims, state aid, human rights and investment arbitration under BITs/ MITs were raised and discussed. A lively discussion during the Q&A session following each panel, greatly benefiting both the panellists and the audience.

Thoughts on  Brexit – Effects on Investment Arbitration

In light of the upcoming EU referendum due to take place on the 23th of June 2016, Dr. Christophe Guilbert de Bruet, the first speaker of the day, provided a particularly useful insight on potential consequences of a Brexit in the context of investment arbitration. The presentation began with an overview of the Brexit process. Article 50 of the Lisbon Treaty shall be interpreted as requiring both parties to negotiate in good faith as well as obliging the EU to conclude a withdrawal agreement. Dr Christophe highlighted the importance of the negotiation process as a means of mitigating potential adverse effects of the Brexit.

Turning to the options of the UK has upon withdrawal, he  discussed 3 major models. The EEA model prescribes the departure of the United Kingdom of the European Union without, however, depriving it access to the EU Single Market. This outcome is what he described as the ‘least harmful option’ for both  the EU but also the UK itself. Then he discussed the option of adopting a Swiss model of membership, which allows the UK and the EU to enter into bilateral agreements on particular sectors. The last potential outcome of a Brexit is a drastic severance of the UK from the EU without any immediate negotiations for a trade-related agreement, which, he argued, could lead to severe consequences in the context of investment arbitration.

In the next part of his presentation, he  explained the grounds upon which a successful claim could be brought against the United Kingdom in the case of a Brexit. First, he referred to the concept of ‘fair and equitable treatment’ (FET) as the relevant legal standard, which is accorded to investors by most BITs and is the most relied upon standard of protection in investment disputes. The popularity of FET lies in the flexibility and wide-ranging nature,  encompassing fundamental standards, such as good faith,  due process and non-discrimination. Certain key aspects of the FET principle have however been identified in arbitral jurisprudence, which include protection of the legitimate expectations of investors as well as the requirements of transparency and stability.

Focusing on legitimate expectations, he  highlighted the controversy surrounding the concept, which as he pointed out has been inconsistently interpreted by various arbitration tribunals and has been subject to ‘vociferous criticism’. In an attempt to explain how the concept operates in practice, he employed two factual scenarios of potential Investor-State Dispute Settlements. One of them was ‘The Indian Car Manufacturer’ scenario. Under the India – United Kingdom BIT,  ‘investments of investors of each contracting party shall at shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting party.’ Considering that the investment on the part of the Indian manufacturer in the UK was driven by an expectation to access the internal market,  one may effectively contemplate a breach of legitimate expectations, since in a Brexit situation, such access may be severed or impaired. The chances of success of the claim are higher if the relevant investment agreement had specific assurances of access to the EU Single Market in this regard.

In the context of intra-EU BITs, the United Kingdom has some 100 BITs with other states,  12 of which are with other EU countries. While the European Commission, in its amicus curiae submissions, put forward a range of inter-related arguments to support its position that BITS are superseded by and are incompatible with EU Law, the Tribunals have generally noted that the submissions of the Commission are of persuasive force at best and have sometimes stated explicitly that they do not agree with the Commission’s position. However, if the Commission is right, there is an uncertain future ahead for all these BITs of a post-Brexit British State.

Brussels I Regulation

Up next, Dr Assimakis Komninos, Partner at White and Case, sought to address the ruling of the CJEU in CDC v Akzo Nobel et al, a landmark decision regarding questions of jurisdiction under the Brussels I Regulation in the case of cartel damage proceedings. The preliminary ruling procedure was initiated a German Regional Court, which, inter alia asked the CJEU to elaborate on the bearing of jurisdiction and arbitration clauses in the supply contracts on the German court’s jurisdiction, in light of the requirement for effective enforcement of Article 101 TFEU and Article 53 EEA Agreement.

He first summarised the view given by AG Jaaskinen in delivering his Opinion, who argued that national courts were required by EU law not to apply an arbitration clause, or a jurisdiction clause not governed by Article 23 of the Brussels I Regulation, in cases where the implementation of such clause would  have hampered the effectiveness of Article 101 TFEU. This rather restrictive approach, he explained, was not followed by the Court of Justice. In fact, the CJEU refrained from explicitly addressing arbitration. Instead, the Court of Justice invited national courts to ensure that jurisdiction clauses ‘actually bind the parties’. In other words, the CDC judgment made it clear that jurisdiction clauses cover cartel damage disputes insofar the victim has specifically consented thereto.

He  submitted that the Court’s silence with respect to EU jurisdiction clauses to arbitration clauses was rather intentional, since it could have gone further in its findings, but it chose not to, and as such, the status quo of the more favourable reading of arbitration clauses by national courts should not be affected. If anything, he added, national courts may only exercise a certain degree of caution in the presence of cartel damages claims when ruling on the scope of the arbitration clause. However, he concluded, this does not imply that national courts should routinely require the plaintiff’s explicit consent in order to refer the case to arbitration, since this would amount to serious retrogression.

The arbitrability of competition law claims

Jean-Francois Bellis, Managing Partner at Van Bael & Bellis, gave  a presentation focusing on the arbitrability of competition law issues. Bellis began with a reference to the landmark Eco Swiss case which established by implication the doctrine of arbitrability of competition law. The ordre public nature that is attached to antitrust related disputes, Bellis explained, requires national Courts, when reviewing an arbitral award, to consider EU competition law rules and annul the award where they find the award to be contrary to such principles.

However, the standard of review that is required on the part of the national courts when observing EU Competition rules, was left untouched by the Court of Justice, rendering it one of the key areas of discussion in the field of arbitrability. He referred to the two standards of judicial review, namely the minimalist view, where the Courts render any further examination of competition law issues unnecessary if they are satisfied that the arbitrators have investigated and ruled on potential competition law breaches, and the maximalist view, where the courts perform an in-depth review on how the arbitral tribunal addressed competition law issues and are satisfied that the award did not violate public policy.

National law jurisprudence, he noted, reflects an overall hesitancy to exercise anything above an extrinsic control, which dates back to the case of Thales. In the latter, the French Courts ruled that in order to set aside an arbitral award, the violation of public policy in an international arbitration case must be ‘flagrant, effective and concrete’. The Thales standard has since been reaffirmed on multiple occasions by the French courts, in both enforcement and setting-aside proceedings. However, despite the little support for the maximalist approach, Advocate General Wathelet, in his recent opinion issued in Genentech v Hoechst, emphatically rejected the minimalist approach and called for a more detailed review on the part of the MS Courts on the basis that such fundamental public policy rules cannot be placed under the scope of arbitration proceedings.

In his concluding remarks, Bellis welcomed the new approach initiated by AG Wathelet, highlighting that the existence of an infringement to EU competition law may always be scrutinized ex officio, independent of whether the arbitral tribunal dealt with the issue and irrespective of whether the parties raised such question before the Courts. It now remains to be seen to which extent the CJEU would adopt AG’s Wathelet opinion in the future.

Moving further  from the Minimalist – Maximalist Approach: Let’s talk Pragmatism

Founding Partner of EDGE Legal, Dr Damien Geradin, on the other hand, argued that the two approaches, namely the minimalist and maximalist are extreme positions and endorsed a more pragmatic approach. In practice, he asserted, the reviewing process should not be restrained in its ability to review the award in any matter of depth when it is necessary. While in the vast majority of cases the minimalist approach is sufficient for review purposes, he emphasised that on certain occasions it is necessary for an in-depth review of the arbitral award to be implemented.

In support of his view, he referred to the opinion of AG Saggio in Eco Swiss, which highlighted the need to supervise arbitration awards to ensure that they are compatible with EU Competition rules, which are of great interest in the smooth functioning of the common market.

In relation to the means of investigation that can be used by a domestic Court in its review of the award, it was explained that the starting point is looking at the reasoning of the award. In most instances the reasoning of the award will suffice to identify whether the arbitral tribunal failed to detect anti-competitive behaviour which in turn amounted to a public policy breach. However, on situations where such reasoning is flawed, courts may need to go beyond the reasoning award.

More specifically, he  asserted that where the competition issues relevant to the dispute have been treated by the arbitral tribunal, the reviewing court should rely on the elements of fact that have been submitted to the tribunal without being necessarily bound by the legal characterization of these facts by the tribunal when it has reasons to  believe that it is incorrect. Yet, the reviewing court in principle should only require from the parties to submit factual elements that were not submitted to the tribunal or to produce testimonies in exceptional circumstances when the reviewing court has strong suspicions that the award may condone serious violations of competition law, such as for instance the existence of cartel, which would create a grave prejudice to the interests protected  by competition law. Hence, he  concluded that dismissing the minimalist – maximalist approach altogether and opting for a pragmatic approach, would enable a fair balance to be stricken between the finality of the award, a principle that sits at the core of international arbitration, and the need for domestic courts to ensure that the award does not amount to a serious breach of EU competition law, which is one of the main tools to protect free, undistorted trade within the EU internal market.

The new Investment Court System

Zena Prodromou, Associate in White and Case, followed up next, aiming to shed light on the European Commission’s radical proposal for a new Investment Court System for use in TTIP and future EU trade and investment negotiations. Prodromou opened her speech with some facts and figures on the TTIP and emphasised how the TTIP agreement is intended to enhance the EU-US partnership in the context of trade and investment. Subsequently, she explained that following the inclusion of ‘foreign direct investment’ as part of the common commercial policy under the Lisbon Treaty, the European Commission now negotiates on the basis of the mandates/negotiate directives given by the European Governments with various negotiating rounds. This negotiation, however, is no easy task, since, considering its material scope and the monumental size of economic relations.

Turning to the issue of dispute settlement between investors and states, which has been the most contentious point in the negotiations, she presented the latest proposal of the European Commission which seeks to replace the investor-state dispute mechanism and address scepticism against the ICS instrument. The new system comprises of standing tribunals at two instances: a Tribunal of First Instance, with 15 judges appointed jointly by the EU and the US governments, with 5 appointees each from among EU nationals, US nationals and third party nationals, and a Permanent Appeal Tribunal with 6 members jointly appointed for a six year term.

In terms of the interplay of the new Investment Protection System with domestic law, Prodromou highlighted the strict application of international law, since the Investment Courts would apply exclusively to the provisions of TTIP and would only be allowed to consider a domestic law of each Party taken into account as a matter of fact.  Where the Tribunal would be required to ascertain the meaning of a provision of a domestic law of a Party it would have to follow the interpretation made by that Party’s domestic courts.

Prodromou concluded by observing that the Commission’s proposal sought to address a sense of public distrust towards investment protection. The proposed changes to the ISDS, however, in essence touch upon the very fundamental elements and traits of arbitral proceedings. It is less clear whether, following this, we would be still talking about investment protection granted through arbitration or rather through a new dispute resolution mechanism.

The event was concluded by Dr. Nikos Lavranos, Secretary General of the European Federation for investment Law and Arbitration (EFILA). The animating and controversial topics continued to be discussed in the reception following the event, and all participants left with some new perspectives.

EFILA, AIA and CIArb Event in Brussels: International Arbitration and EU Law Issues

EFILA together with the AIA and the Chartered Institute of Arbitrators are co-hosting an event which focuses on some of the hot issues regarding the interaction between EU law and International Arbitration. Speakers will deal both with commercial arbitration and investment treaty arbitration issues, as well as their interaction with EU law.

This half-day event takes place in Brussels on 27 May.

See registration form here.

Brexit: Implications for the EU Reform of Investor-State Dispute Settlement

Sophie Nappert, 3 Verulam Buildings

Nikos Lavranos, EFILA

“Reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com or call 020 7542 6664.”

Investor-state dispute settlement (ISDS) is an international arbitration mechanism that allows an investor from one country to bring arbitral proceedings directly against the state in which it has invested, provided that the investor’s home country and the host country of the investment have so agreed by treaty (see box ISDSbelow). ISDS is currently found in most modern international trade and investment agreements.

In the period since the entry into force of the Treaty of Lisbon, conferring on the EU exclusive competence over foreign direct investment in the European space, the European Parliament and the trade ministers of key member states, such as Germany, France and the Netherlands, have perceived that ISDS presents a number of shortcomings. These concerns were crystallised in the responses to a public consultation on the Transatlantic Trade and Investment Partnership (TTIP), currently being negotiated between the EU and the US (see Transatlantic Trade and Investment Partnership (TTIP): tracker).

ISDS

Investor-state dispute settlement (ISDS) is a dispute resolution mechanism modelled on international arbitration, allowing an investor from one country to bring arbitral proceedings directly against the country in which it has invested, pursuant to the provisions of a treaty between the investor’s home state and the state hosting the investment.

ISDS provisions are contained in most modern international agreements including free trade agreements, bilateral investment treaties and multilateral investment agreements. If an investor from one country (the “home state”) invests in another country (the “host state”), both of which have agreed to ISDS, and the host state violates the rights granted to the investor under the international agreement between the home state and the host state (such as the right not to have property expropriated without prompt, adequate and effective compensation), then that investor may take the host state to international arbitration rather than sue in the domestic courts of the host state.

As a result, the European Commission has now tabled a proposal for a new dispute settlement system, the international court system (ICS), to be used in the EU’s future trade and investment treaties and, in the Commission’s words, “paving the way for a multilateral investment court” (see Legal update, European Commission proposes Investment Court System for EU trade agreements).

Instead of investor-state disputes being determined by an arbitral tribunal appointed by the parties, the Commission’s proposal is to create a judicial, two-tiered body consisting of a Tribunal of First Instance and an Appellate Tribunal. Party-appointed arbitrators would be replaced with “judges” unilaterally pre-selected by the state parties. As a result, the resolution of investor-state disputes by way a one-shot final arbitral award will be replaced with a two-instance procedure allowing for appeals on points of both fact and law.

The ICS proposal constitutes a strong push towards the institutionalisation and judicialisation of investor-state dispute settlement and is inspired by the WTO (World Trade Organisation) dispute settlement model applicable to state-to-state trade disputes. The important hallmarks of arbitration such as flexibility, finality and party autonomy will be essentially erased (see box ICS proposal: the concerns).

The EU’s seismic shift on its ISDS policy coincides with the UK’s consideration of its future as a member of the EU. If Brexit comes to pass, there will be legal repercussions on a number of levels as regards the UK’s trade and investment commitments at international law, and the protections currently enjoyed by UK investors abroad, including the ability to enforce arbitration awards worldwide pursuant to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). This is uncharted territory in many respects, and the opacity surrounding the progress of the current negotiations on the TTIP with the US adds to the uncertainty and lack of clarity.

ICS proposal: the concerns

While ISDS has been tested for decades and is a known quantity, it remains to be seen whether the benefits claimed by the proponents of the ICS will actually materialise. The EU’s proposal assumes that the ICS will not be declared by the Court of Justice of the European Union to be incompatible with EU law, as the CJEU has done consistently for other international tribunals, latterly the European Court of Human Rights).

For example, critics of ISDS claim that it has failed to take proper account of other relevant policy areas such as human rights, environmental law, intellectual property law and the “regulatory policy space” of states generally. The current ICS proposal does not specifically address those issues, and thus on its face provides little more credibility and legitimacy than does ISDS.

Another example concerns the qualifications required by the “judges” and the process of their selection by the contracting parties.

The proposal states that the only qualifications required of ICS “judges” for appointment to the Tribunal of First Instance is that they should be qualified for judicial office or a “recognised jurist”. For the Appeal Tribunal, the requirements are of qualification for the highest judicial office or being a “recognised jurist”. Interestingly, while the ICS proposal insists on expertise in public international law for its judges, expertise in investment law is deemed merely to be “desirable”. There is no requirement that (any of) the judges should demonstrate expertise in the policy areas that have fired up public debate and the anti-ISDS sentiment, such as human rights or environmental law.

The ICS proposal leaves the judge selection process entirely to the contracting parties. No transparency, public hearing or consultation with users or investors is currently envisaged. In addition, the “judges” are to be paid by the contracting parties and can be re-appointed by them. The anti-ISDS debate at the root of the ICS proposal claimed that the party selection and payment of arbitrators cast doubt as to the independence and impartiality of those arbitrators. The ICS proposal is open to precisely the same criticism.

Moreover, ISDS has been recognised as providing flexibility and a dispute resolution process which engages both parties, the state and the investor, on an equal footing. By contrast, the ICS replaces this flexibility with a fixed set of rules, removing any participation from the investor claimant regarding for example the choice of arbitration rules and the selection of arbitrators.

These points highlight some of the concerns which call for further reflection and analysis regarding whether the ICS proposal is the improvement on the arbitration-modelled ISDS claimed by its proponents.

We set out below some of the potential implications, at both macro- and micro-levels.

Macro-level implications

The first macro-level issue is that Scotland and Northern Ireland have indicated that they may not wish to remain part of the UK post-Brexit. The prospect of a fragmented Britain (no longer the UK) raises the question of whether the EU or the US would consider it worthwhile to negotiate a trade and investment agreement with a dismembered Britain. It also raises the question of what leverage Britain in its new incarnation would have in such treaty negotiations, as opposed to that which it now enjoys as part of the EU.

Another question is Brexit’s potential impact on the existing 100 or so bilateral investment treaties (BITs) that the UK has with individual EU member states (intra-EU BITs), as well as with third states. A post-Brexit British state might be able to keep all these BITs containing the classic ISDS provisions assuming that its respective state counterparties agreed.

In this scenario, Britain would avoid the untested ICS proposal and its potential shortcomings, and become an interesting safe harbour for foreign investors who may find it attractive to structure their investments through it, thereby avoiding the current insecurity created by the ISDS reforms. If it considers it necessary and useful, post-Brexit Britain could seek to negotiate BITs with the EU (as a single entity), as well as those countries with which the EU has either signed or is negotiating trade and investment agreements, namely Canada, China, the US, Singapore and Vietnam.

The question arises, however, whether Britain, which currently appears to favour retaining ISDS over the ICS, would be able to impose ISDS provisions on potential counterparties given the EU’s push for the ICS to apply to future trade and investment treaties, and the willingness of at least some of the countries on this list to accept ICS.

Britain’s ability to do this is likely to be affected by which dispute settlement system ends up being included in the TTIP. If the ICS comes to feature in the TTIP, ISDS in its current, arbitration-based form faces an uncertain future.

One important aspect of post-Brexit Britain retaining ISDS in its arbitration form rests on the question whether Britain in its new incarnation has the ability to remain a party to the New York Convention, to which over 150 states are parties, and which is a significant part of the protection afforded to investors by ISDS.

Micro-level implications

At a micro-level, the international investment agreements (IIAs) that have recently been agreed by the EU and its relevant trading partners, but are still awaiting signature or ratification (namely, CETA (the Comprehensive Economic and Trade Agreement with Canada), the EU-Singapore Free Trade Agreement (FTA) and the EU-Vietnam FTA), would have to be amended to reflect Brexit.

Whether these trading partners would consider it attractive to negotiate new deals with Britain is an open question. The time and effort involved in the negotiation and conclusion of IIAs is not to be underestimated. The intervening period would be marked by legal uncertainty, to the detriment of UK investors abroad and Britain’s economy.

Another question is whether Brexit would have any impact on the ongoing TTIP negotiations, in particular with regard to the EU’s internal process of consulting with member states in adopting certain negotiating positions. Prime Minister David Cameron is said to be in favour of closing the TTIP as soon as possible because he considers it to have the potential of delivering huge benefits for the UK. At the same time, he appears generally untroubled by the anti-ISDS debate currently raging in many other EU member states.

A real and potentially significant impact

In conclusion, Brexit’s impact on the EU’s trade and investment policy would be real, as would its impact on post-Brexit Britain’s geo-political clout in the trade and investment arena. In contrast, it might offer interesting advantages, for both the UK as a host state and for investors who perceive the EU’s current investment policy as counter-productive. These advantages, however, are likely only to be felt after a significant period of uncertainty whilst post-Brexit Britain finds its footing, and in the short term are outweighed by that uncertainty.

Finally, the prospect of Brexit might cause the European Commission, the European Parliament and other member states to re-think the scope of their proposed “reforms” of investment treaties and ISDS.


Sophie Nappert is an arbitrator in independent practice at 3 Verulam Buildings, and Nikos Lavranos is Secretary General at EFILA.

European Investment Law and Arbitration Review (EILARev) Launched

EFILA and Queen Mary University are delighted to launch the new legal journal entitled European Investment Law and Arbitration Review, which will be published by Brill/Martinus Nijhoff.

The Editor-in-Chief is Prof. Loukas Mistelis (QMU) and the Managing Editor is Dr. Nikos Lavranos (SG of EFILA).

The journal welcomes submissions within the scope of it. The deadline is 15 May 2016.

About the Review

With the entrance of the European Union into the field of International Investment Law and Arbitration, a new specialist field of law, namely “European investment law and arbitration” is in the making. This new field of law draws on EU Law, International Investment Law, International Arbitration Law and Practice, International Economic Law and Public International Law, while others fields of law such as Energy Law are also relevant.

The first EU integrated investment treaties with Canada (CETA), US (TTIP) and Singapore (EU-SING) are either negotiated or about to be signed and ratified by the EU and its Member States. These are “integrated” investment treaties in that they combine free trade agreement provisions with international investment agreement norms. Moreover, the Court of Justice of the EU (CJEU) is about to deliver its first judgments and Opinions directly relating to intra-EU BITs and the EU-SING FTA. More generally, the public debate and discussions within academic and practitioner circles about the pros and cons of investor-state dispute settlement (ISDS) and investment treaties in general is intensifying with the day.

This Review is the first law journal that is specifically dedicated to the field of “European Investment Law and Arbitration”. While the developments in Europe and the efforts of the EU institutions is the focus of this Review, the developments in other parts of the world are equally relevant. We therefore especially welcome submissions from all parts of the world, which are related to the developments of European Investment Law and Arbitration.

The Review covers long scholarly articles, shorter articles, case-notes and book reviews. The Review is peer-reviewed by the Editorial Board Members and will only publish high quality contributions.

Initially, the Review will be published once a year, but aims to publish twice a year in the future.

Call for Papers 2016

The Editorial Board invites submissions for publication for the 2016 issue.

The deadline for submission is: 15 May 2016.

​ Submissions should be in English and must be in conformity with the house style of the journal. ​All submissions must be unpublished and original material.

​Submissions should be send as MS-WORD doc to: EILARev2016@gmail.com

​ All submissions will be peer-reviewed. The Editorial Board reserves the right to accept, reject a submission or make publication conditional on modifications, which have been suggested to the author.

All information about the journal and the Call for Papers is available at: http://europeaninvestmentlawarbitrationreview.weebly.com/

Report on EFILA’s Annual Conference

by  Blazej Blasikiewicz and Juan Pablo Valdivia Pizzaro

Maison du Barreau, Paris

February 5th 2016

I. Introduction

The European Federation for Investment Law and Arbitration (EFILA) set out for a promising year with its Inaugural Conference in London in January of 2015. Last year proved to be full of notorious developments in the area of investment arbitration, especially as the TTIP negotiations and proposals evolved and materialized regarding the implementation of specific Investor State Dispute Settlement (ISDS) mechanisms. The ensuing months were characterized by a rich and often polarized debate on both specific aspects of investment arbitration and on the fundamentals, nature and aims of ISDS mechanisms.

In this context of agitated waters and contrasting ideas, once again EFILA brought together world-class dispute resolution practitioners, prominent arbitration experts, European government officials, leading scholars and representatives from market participants and international organizations in its 2016 Annual Conference entitled “Investment Arbitration 2.0?” which took place on February 5th, at La Maison du Barreau, in Paris.

The framework in which ISDS is being argued is characterized by controversy, heavy criticism and an imperative necessity for an open debate and innovative ideas. Therefore, the venue served as a meeting point for such a wide array of stakeholders to join in an analytical assessment of ISDS and exchange views on the many challenges and opportunities of investment arbitration. In doing so, not only some new features of investment arbitration regarding the EU policy on International Investment Agreements were discussed, but the speakers and participants engaged in a thought-provoking debate on diverse topics such as the pros and cons of investment arbitration, the rule of law and other complex issues such as transparency, states’ right to regulate, protection of property rights and democratic deficits.

This stimulating discussion was led by four panels, which critically explored some of the roots and primary issues of investment arbitration and presented provocative views on several of the most up-to-date issues on ISDS, with the objective of setting the ground for an improved and more robust framework of investment arbitration in the future.

II. Panel 1: Setting the scene: pros and cons of Investment arbitration

Prof. Dr. Gerard Meijer, Partner and Head of Arbitration team at NautaDutilh

Andrew Cannon, Partner at Herbert Smith Freehills LLP

Prof. Dr. Hans van Houtte, President of the Iran-United States Claims Tribunal

Prof. Dr. Robert Howse, Professor of International Law, New York University School of Law

Marie Talašová, Head of International Legal Services Department, Ministry of Finance, Czech Republic

Kamil Zawicki, Partner at Kubas Kos Galkowski

The first panel, acknowledging the importance of taking a step back in order to examine the roots and analyse some of its main traits, explored the pros and cons of investment arbitration. A refreshing view of its history and development was provided through the evolution of the International Centre for the Settlement of Investment Disputes (ICSID). Important emphasis was given to the revolutionary characteristics the system presented when it was introduced – it made the general rule of international law apply also to domestic investor-state contracts and it disconnected arbitration from domestic law – and to some remarkable victories that the system has achieved. The speakers recognized that many current features of the system represent an arguably unexpected feat, such as its importance for international law, the success of the system in relation to the number of cases brought to it, and its adaptation to a truly global era where the burgeoning number of BITs has shaped much of its evolution. In this respect the panel gave an interesting insight regarding ICSID being created primarily as an op-in system to be included in contracts between States and investors, and that it was not until the mid 1970s that BITs began including ICSID clauses. This practice has become standard and one of the main sources of ICSID arbitration.

However, it was also acknowledged that the system faces several important challenges, such as the trend to move towards broader regional economic agreements, the higher number of stakeholders involved (such as NGOs and supranational or regional organizations), new states’ policies regarding investment arbitration and foreign investment, and a growing opposition from different sectors of society. These issues, among others, have lead several States – such as Indonesia, South Africa and more than one South American country – to dramatically reassess their positions on BITs due to the perceived adverse impact that certain matters – e.g. treaty and forum shopping, lack of transparency, limitations to States’ right to regulate on issues of public interest and high costs of the proceedings – have in their internal affairs. This trend of criticism has also been materialized in the adoption of Model BITs by different countries, which reflect States’ policies regarding arbitration and foreign economic investment.

Speakers analysed the issue of contradictory case law in investment arbitration and the differences in the basis and instruments upon which such decision are made. The disparities among the wording or context of certain BITs was presented as one potential explanation for the different interpretations that arbitral tribunals have on arguably similar issues. The panel also put forward the view that time is of essence in the clarification of tendencies that constantly arise in investment arbitration.

There was agreement as to the importance of reforms regarding certain standards of protection, the controversial nature of the differentiated treatment between domestic and foreign investors, and the relevance of the wording of the related instruments and the role of states in shaping their content. Nevertheless, pertinent questions were raised as to the effectiveness of current attempts to solve part of the problem, like the establishment of appeal mechanisms in ISDS. In this regard, the limited success of somewhat similar mechanisms (such as the ICSID annulment mechanism) raises valid doubts as to the effectiveness of appeal bodies or instances within the framework of ISDS.

 The panel also addressed the criticisms as to the lack of transparency and rising costs in investment arbitration, the alleged pro-investor bias and the role of the media, both from the arbitration practitioner’s and the state’s point of view. The relationship between investment arbitration, the media and public opinion, and the suggested lack of empirical evidence to support a claim for pro-investor bias gave rise to an encouraging debate among the panel and the audience. The speakers pertinently pointed out the necessity of embarking upon reforms that would not lead to “killing” a system that, being far from perfect, has proven to be of vital importance.

III. Panel 2: Rule of Law and Investment Arbitration: promoting or holding back its advancement?

Prof. Dr. Loukas Mistelis, Clive M Schmitthoff Professo of Transnational Commercial Law and Arbitration at the Queen Mery University of London

Sir David Baragwanath KNZM QC, Appellate Judge and former President of the Special Tribunal for Lebanon

John Gaffney, Senior Associate, Arbitration at Al Tamimi & Company

Dr. Richard Happ, Partner at Luther LLP

Barton Legum, Head of Investment Treaty Arbitration Practice at Dentons

Dr. Patricia Nacimiento, Partner at Norton Rose Fulbright LLP

Prof. Dr. Mathias Wolkewitz, Head of Legal Affairs, Tax and Insurance at Wintershall Holding

The second panel engaged in a fruitful discussion arising from the necessity of examining investment arbitration as a dispute resolution mechanism from three different – but equally important – perspectives: the point of view of the investors, the recipient state and the citizenship. The panel highlighted that the interplay among these actors is currently characterized by a growing gap, which is reflected in the public disquiet in seeing arbitration as an appropriate means for adjudication of issues relating to public interests. These concerns have echoed in specialized and reputable media, which has also championed the case against the necessity or convenience of using BITs at all. The panel advocated the importance of a prompt and adequate response from the investment arbitration system in order to bridge the gap between the ISDS mechanisms and the public interests from which it cannot be detached.

The panel also discussed the alleged thorny relationship between ISDS, the rule of law and public perception. Transparency, once again, was given a central role in the debate. However, the effectiveness of the mechanisms to achieve transparency was put into question, since their success is often related to the specific interests of the parties involved. Speakers also advanced views highlighting the power of the States and their influence on the media in order to impact public opinion. The current tension between the ISDS system, States and public perception was provocatively referred to as “BITs biting back”.

The panel also provided an enlightening historical account of the “international minimum standard of treatment” (IMST) as the predecessor of investment law and its protection mechanisms, as known today. The difference between standards of protection for foreign and domestic investors brought forward the complex and fundamentally undemocratic nature of investment law as a limit for state action. By putting the relationship between investment law, the IMST, state regulatory powers and the rule of law under the spotlight, a heated debate ensued as the panel presented the argument that the inherent undemocratic nature of investment law does not diminish its contribution to the rule of law. In this regard, the speakers raised an interesting comparison between the IMST, investment law and human rights, as setting the limits for sovereign regulatory power.

The panel also examined the tension between the alleged lack of legitimacy of investment arbitration and its position within a system of check and balances governed by general and legitimate legal rules. Speakers underlined the systemic need to have effective foreign investment protection, the fact that investment treaties increase legal certainty, that investment arbitration is not placed in a vacuum beyond general rules of law and the importance of applying the rule of law as an equal standard to all parties involved. In addition, they recognized the contribution of investment arbitration in levelling the playing field and ultimately upholding the rule of law.

IV. Panel 3: Evolution in dispute resolution: third party funding, the role of secretaries and security of data in investment arbitration

Dr. Daniella Strik, Partner at Linklaters LLP

Dr. Andrea Carlevaris, Secretary General, ICC International Court of Arbitration (Paris) and Director of Dispute Resolution Services of the ICC.

Anya George, Senior Associate at Schellenberg Wittmer Ltd.

Charles Nairac, Partner at White & Case LLP

Prof. Dr. Stavros Brekoulakis, Professor in International Arbitration and Commercial Law, Queen Mary University of London.

Jurriaan Braat, Partner at Omni Bridgeway

 

The following panel looked at several specific issues in investment arbitration. On third party funding, the panel carefully pointed at the main challenges this issue posts regarding matters of confidentiality, conflict of interests, security for costs, and the question of who ultimately owns the claim and makes the decisions of the funded party. Questions were raised by the speakers and participants as to the proper approach to be taken in relation to a party that is being funded on the merits, the presumptions that may arguably be placed on the funded party’s ability to pay, the difficulty in the determination of the “real party” in the arbitration and the responsibilities to be placed on the parties to the proceeding. On the specific topic of providing security for costs, it was discussed if the existence of a third party funding arrangement should affect the outcome of an application for such security and if a presumption against the funded party could be validly placed regarding its potential inability to pay. It was recognized that the current general approach to the issue is to grant such application only in specific and extreme circumstances. It was acknowledged that the increasing number of parties that have sought or secured third party funding in investment treaty claims, the unregulated nature of this issue and the difficulty to determine the content and the extent of disclosure obligations on the funded party are pressing matters in investment arbitration.

Regarding the issue of arbitral secretaries, it was recognized that the main debate revolves around the issue of tasks and duties that secretaries may fulfil without interfering with the nature of the obligations placed on the arbitrators by the parties, often cited as intuito personae. The controversial issue of the core content and scope of the arbitrators’ mandate and the issues of parties’ expectations in relation to the conduct of the arbitration tribunal and the transparency in fulfilling its duties were addressed by the speakers as well. Reference was made to seminal articles on this issue (such as Partasides’ “The Fourth Arbitrator?”), and the importance of the distinction between the decision-making process (which would arguably not be a pre-defined matter of personal mandate) and the decision-making function (which would be much more closely related to the personal mandate entrusted upon the tribunal). Cultural differences between arbitral tribunals – and among the members of the tribunals themselves – were also given a place in the debate, an aspect often overlooked when analysing this issue. The panel underlined the importance of disclosure and strict supervision of the duties of the tribunal’s secretaries. The challenges that the notably large grey area in this topic represent, were also discussed by the speakers and the audience.

Finally, on the issue of data protection, the significant practical implications of the issue were argued and recognized by the panel. The main issues set forth in the debate related to transparency, data integrity protection and data manageability. Speakers encouraged the audience to engage in proper data protection techniques within the setting of investment arbitration despite the technical challenges that this may entail. Attention was drawn into the potential conflict between data protection, confidentiality and the right of free access to information in investor-state disputes.

V. Panel 4: Towards Institutionalization and Judicialisation. The Proposal for a Permanent Court

Dr. Erhard Böhm, Partner at Baier Rechtsanwälte

Yves Derains, Founding Partner at Derains & Gharavi

David Gaukrodger, Senior Legal Advisor, Investment Division, OECD Directorate of Financial and Enterprise Affairs

Dr. Nikos Lavranos, Secretary General of EFILA

Andrea Menaker, Partner at White & Case LLP

Yasmin Mohammad, Senior Counsel at Vannin Capital

 

The final panel analysed one of the hot topics of investment arbitration nowadays in the European arena. In an energizing fashion and through a more informal and open debate among the speakers and the participants in the audience, the panel set out to touch upon many of the issues related to the EU Commission’s proposal for the creation of the Permanent Court for ISDS. The panel put forward a critical analysis of the structure, traits and alleged objectives and benefits of the creation of such a Permanent Court; of the interplay between the proposed system, EU law and the Court of Justice of European Union; and of the effectiveness of the proposed alternative in solving the problems facing the ISDS system.

The problem of recognition and enforcement of awards rendered under the proposed system was critically assessed, including the potential problems that such decisions may face in being recognized as “awards” under and as referred to in the New York Convention of 1958. The panel and the participants also examined the interplay between the proposed alternative and the ICSID system, especially in relation to issues of jurisdiction. In this regard, the proposed mechanism was elegantly criticised as a “medicine being given to the wrong patient”.

The panel also referred to a common perception of an alleged trend of investment arbitration not truly resembling arbitration after the several significant changes that the system has undergone. The perceived standardization, judicialization and lack of adaptability may be seen as drawbacks by investors and may decrease the amount of trust that economic agents may be willing to place in the system.

Also, questions were framed regarding the legitimacy of such a drastic change in the way of dealing with potential investment claims, specifically arguing that a possible cause for such significant deviation could be found in the shift in the position of several countries from usual “claimants” to potential “defendants” in investment disputes. Speakers and the audience advanced provoking arguments on the financial incentives that the judges of such court would have, as well as on possible issues on conflict of interests, political independence, level of required expertise and the challenge of legitimately having both investors and states resorting to a system that enjoys the benefit of their confidence.

VI. Conclusion

The controversial nature of many of the topics presented and discussed during the Conference gave rise to a rich variety of opinions, positions and further debates on related issues. The diversity in the background of the speakers and the participants during the session gave the all parties the opportunity to argue and analyse the most salient matters in investment arbitration from a wide range of angles. Speakers and participants agreed on the importance of strengthening the investment arbitration’s legal framework through properly founded and necessary reforms, of assuring a more transparent relationship between ISDS system and the citizenship, of reaffirming investment arbitration as a vital means for upholding the rule of law and of recognizing and confronting the challenges and drawbacks of the system that have lead to a widespread emergence of social opposition and resistance.

The current state of affairs regarding the future of investment arbitration in the European Union made it important to go back to the fundamentals of investment arbitration with a critical view in order to thoroughly assess the new trends, latest proposals and pressing matters regarding ISDS. The legitimacy and effectiveness of the proposal of the EU Commission regarding the Permanent Court under the TTIP were heavily debated and the complex relationship between investment arbitration, states’ regulatory powers, public opinion, transparency and the rule of law has proven to be a fertile field for further debate and much-needed reforms. Despite the many different positions confronted during the debate regarding the current attempts to modify the framework of investment arbitration, it was generally agreed that amendments must take place in order to reinforce the position of investment arbitration as a modern, legitimate and efficient means for the resolution of investor-state disputes.

The quality and depth of the debate during the session, the presence of many of the top investment arbitration experts, practitioners and authorities, and the wide array of topics covered, keep placing EFILA at a unique position as an open and stimulating meeting point for future debates that are to shape the policies that will impact the ISDS system, its evolution and improvement in the years to come.

The Shortcomings of the Proposal for an “International Court System” (ICS)

by Dr. Nikos Lavranos LLM, Secretary General of EFILA*

During 2015 it became clear that the European Commission was under mounting pressure from the European Parliament (EP), Trade Ministers of several EU Member States, anti-ISDS NGOs and the media to propose more “reforms” of the investor-State dispute settlement (ISDS) system that is contained in CETA and envisaged to be included in TTIP as well.

EFILA decided to establish a Task Force – consisting also of non-EFILA members – to analyse the final proposal for a so-called “International Court System” (ICS), which the European Commission formally adopted on 12 November 2015 and transmitted it to the US as a basis for further negotiations within the context of the TTIP negotiations.

During the debate in the European Parliament and among several Trade Ministers of EU Member States one key issue pointing towards a “solution” and which was continuously repeated was the creation of a permanent investment court consisting of publicly appointed judges. It was argued that in contrast to the current system of ad hoc arbitration consisting of party-appointed arbitrators, which has been characterized as “private”, behind closed doors dispute resolution, which biased towards the investor, a permanent investment court with judges would ensure fairer and better adjudication of investment disputes. Another related key issue, which was considered important for a “solution” was the creation of an appeal mechanism. Again the rather simplified characterization that ISDS disputes have no appeal possibility and are completely beyond the control of national courts, was used as a justification for the need of an appeal mechanism.

The European Commission had to incorporate these points otherwise a ratification of TTIP by the EP and the Member States would seem rather illusory. Having had significant experience as a disputing party in the WTO, which happens to include the Appellate Body as a permanent (quasi)judicial body, it was a small step for the European Commission to copy and paste many of the WTO dispute settlement elements into its ICS proposal.

The structure of the 60-pages EFILA Task Force analysis is as follows:

Chapter 1 analyses not only the ICS proposal as such, but also the process that preceded the proposal. This is important in order to understand the political context in which this proposal is embedded. It critiques certain aspects of the ICS proposal and raises a number of issues which the Task Force considers should be addressed in developing the ICS proposal further.

Chapter 2 provides an extensive overview of the already existing forms of appeal and annulment of investment awards. It also highlights the reform efforts in this regard by the PCA and the ICSID Secretariat. This overview provides a detailed picture of the status quo (including both the mechanisms and methods of operation), from which the ICS proposal departs. This analysis also draws critical attention to features or elements of the current system of ISDS which could be addressed in developing the ICS proposal.

Chapter 3 turns towards the WTO dispute settlement system by first explaining the features of the appeal system and then by examining to what extent this system could successfully be transplanted into the ICS and the limitations in so-doing.

Finally, Chapter 4 wraps up this analysis by providing some general conclusions as to matters which require consideration by the Contracting Parties in developing the ICS proposal further. In particular, the issues highlighted concern the methods of selection of the judges (and the implications of a move towards a system whereby the Respondent maintains, but the Claimant is deprived of, a role), the size of the pool of candidates for the two-tiered system, the relationship between the ICS and the CJEU and how the ICS will operate in the wider context of resolution of investor-state disputes under other instruments.

The conclusions of the Task Force report can be summarized as follows:

  1. The paper concludes that the ICS proposal is, first and foremost, a bold move to appease the EP and the public opinion in many EU Member States, which are critical against TTIP generally, and in particular against including any type of ISDS. The ICS proposal attempts to make the inclusion of an investor-state dispute settlement mechanism in TTIP politically acceptable, while at the same time trying to address the perceived shortcomings of the existing ISDS.
  1. The paper notes that – in contrast to the public perception – mechanisms for limited review of investment arbitration awards are already in place, such as the ICSID annulment mechanism and the setting aside procedure for non-ICSID awards by national courts. These mechanisms – while not perfect – provide useful corrective tools.
  1. The analysis of the WTO dispute settlement mechanism illustrates that caution should be exercised in simply transplanting it to investor-state disputes. The reason is that WTO law is structurally different from investment law, serves different purposes and has different users.
  1. Generally, it can be concluded that the ICS proposal clearly breaks with the current party-appointed, ad-hoc ISDS as provided for in practically all BITs and FTAs. The main result is that it deprives claimants of any role in the appointment of the judges, while giving the respondent States the exclusive authority to do so, albeit in advance of a particular case. The appointment of the judges by the Contracting Parties raises several problems, which the ICS proposal does not sufficiently address.
  1. The pre-selection of the TFI and AT judges by the Contracting Parties carries the inherent risk of selecting “pro-State” individuals, in particular since they are paid by the States (or rather their tax payers) alone. Apart from this danger, it remains doubtful whether a sufficient number of appropriately qualified individuals with the necessary expertise can be found. This is particularly true since many professionals currently working in arbitration may be excluded on the basis that they could be considered to be biased. The pool of TFI and AT judges would seem to be limited to academics, (former) judges and (former) Governmental officials. That might not be sufficient to guarantee the practical experience and expertise needed and/or independence from the State.
  1. The standard of impartiality and independence of the judges is highly subjective, and their independence on a practical level is not assured by the proposed text. Also, the system of challenging TFI judges and AT members can be further criticised for envisaging that the presiding judge will decide the challenge against one of his own colleagues on the bench, rather a decision being made by an independent outside authority.
  1. The system of determination of Respondent (in the case of the EU or Member States), in particular the binding nature of that determination, which is done by the EU and its Member States alone, creates significant disadvantages for the claimant and does not allow the ICS tribunals to correct any wrong determinations. This could result in cases being effectively thrown out because of a wrong determination of the Respondent.
  1. Since the ICSID Convention is not applicable to the EU, the recognition and enforcement of

ICS decisions remains limited to the EU and the US. The proposal also fails to clarify the difficulties elated to the New York Convention 1958.

  1. The ICS proposal does not address the difficult legal situation between the CJEU and other international courts and tribunals. There is no reason to believe that the CJEU would be more positive towards the ICS as compared to its outright rejection of the European Court of Human Rights when it comes to the potential interpretation or application of EU law. Also, the CJEU’s consistent rejection of any direct effect of WTO AB panel reports – even those that have been approved by the DSB and after the implementation deadline has lapsed – raises doubts as to the legal effects of ICS decisions within the European legal order.
  1. In sum, the suggested creation of a two-tier (semi)permanent court system would give the Contracting Parties a significantly stronger role in the whole dispute settlement process – potentially at the expense of both the investor/claimant and the authority of the ICS. In particular, the appeal possibility carries the risk of burdening small and medium investors by increasing the potential length of the proceedings and costs.
  1. While the US position towards the ICS proposal remains unclear for the time being, it also remains unclear how the ICS proposal could be multilateralized. Indeed, the perceived shortcomings of the current ISDS system is based on the fact that more than 3,000 BITs/FTAs are in place, which have been concluded by practically all countries in the world. The ICS proposal – limited to TTIP and perhaps extended to CETA – does not change that. The way the UNCITRAL Transparency Rules of 2014 are incrementally applied by way of an opt-in system established by a separate international treaty could be a possible way forward.
  1. As the TTIP negotiations between the US and the EU are now focusing on the ICS proposal, this is a perfect moment to further improve the proposal by addressing the matters identified in this analysis.
  1. Finally, the US and the EU should also consider whether it would not be more preferable to modify and improve existing systems, such as turning the ICSID annulment procedure into a full appeal mechanism.

This in-depth analysis is very timely and arguably one of the first ones following the formal adoption of the ICS proposal by the European Commission last November.

The EFILA Task Force paper raises many issues and provides some answers, but certainly leaves many problems untouched. At the EFILA Annual Conference which will take place on 5 February in Paris, the last panel will specifically discuss this report. All members of the investment arbitration community are welcome to (still) register for the conference or to submit their constructive comments to Dr. Nikos Lavranos, LLM, Secretary General of EFILA, at: n.lavranos@efila.org

Right to Regulation & Investment Court System: Alternative to ISDS? (Part II) – Mediation in Investor-State Dispute: An Option 

 Pratyush Nath Upreti*, Upreti & Associates

In my previous contribution to the EFILA blog, titled Right to Regulation & Investment Court System: Alternative to ISDS?, I analyzed the debate raised by the ISDS provision in TTIP and how the proposed Investment Court may not be able to solve the issues raised by ISDS. It is important to analyze the reasons behind such a huge cry over ISDS set up in the Trade/Investment Agreement. The European Federation for Investment Law and Arbitration (EFILA) in its paper titled A response to the criticism against ISDS has balanced an analysis on the criticism of ISDS.

It is evident that in recent years, there has been a diversion of opinions, which is painful to investors and also encroaching on the national matters of State. Therefore, the global community has to realize that the present ISDS is not always working effectively and alternatives should be proposed. The European Commission’s proposed ‘Investment Court’ might be a step towards formulating an alternative.  No doubt that the proposal is a good attempt but it still needs to be revised.

Recent Trends of International Investment Agreements

In recent years, more countries have been opting for IIAs to continue their existing co-operation with countries or as a way to find an economic development. According to the United Nations Conference on Trade and Development (UNCTAD), there has been rapid growth of IIA from 1980 till 2014 (see Figure 1.)

1

Figure 1: Trends of IIAs (Preliminary data for 2014UNCTAD, IIA database)

The above graph highlights the recent trends of IIAs from 1980-2014. It is expected that IIAs number will increase, but the graph indicates that there has been a decline in the last few years. According to UNCTAD data, in 2004 there were 27 IIAs, out of which 14 were Bilateral Investment treaties (BITs) and 13 were ‘other IIAs’, i.e. economic agreements other than BITs like

Free trade agreements (FTAs), bringing the total number of agreements to 3,268 (2,923 BITs and 345 ‘other IIAs). The total number of IIAs was lower down in 2014 as compared to 2013 where there was a total of 44 IIAs (30 BITs and 14 Other IIAs). The interesting fact is that in 2013 the number of BITs terminated was 148, out of which a new treaty replaced 105, 27 were unilaterally denounced and 16 were terminated by consent.

2

Figure 2: Most Active negotiator of ‘other IIAs’; treaties under negotiation and partners involved. Source: UNCTAD, IIA database.

The above figure emphasizes the number of treaties under negotiation and partner countries involved in a negotiation. At present, the European Union has 28 treaties under negotiation among 70 different countries as partners. Although the data highlights seven countries under negotiation, but at present there are 45 countries and four regional integration organizations that are revising their model IIAs.

The findings of UNCTAD data highlights that the countries’ willingness to enter into agreements and few IIAs are under revision. This implies three things. First, negotiation is getting more complex because of the increase in the number of countries in the negotiation process, as every country has a share of interest. Furthermore, even if a deal is negotiated in the broader package, then also the question of commitment to those issues is very important.

Second, the interrelation between IIAs and domestic concerns comprising ‘social, environmental and public health’ matters makes negotiation more difficult. Ignoring this issue means that negotiation has a severe impact on the development of host countries. Therefore, finding the proper balance may take more time, which makes negotiation slow.

Third, some of the most recent investment disputes might show that IIAs go beyond the protection and promotion issues and leave no flexibility on some issues that allow member countries to peruse their development agenda, according to their needs.

Fourth, the transparency in negotiation deals creates a public nuisance on some contingent issues, diverse opinions on other issues, which may or may not be discussed, would have a negative impact on negotiations and, as a result, it creates negative public opinion.

Fifth, recent claims of investors under the investor-state dispute settlement mechanism have raised concern on such negotiation deals particularly such claims are encroaching upon host state sovereignty and domestic regulation.

The critics fear that the growing frivolous claims brought to ISDS will slowly discourage investors and states to opt for ISDS.  The data shows that the average cost of arbitration is $8 million per party. Therefore, at international level, there is a need to offer an alternative, which balances both the interest of investors and states. Moreover, such an alternative should be acceptable by both the parties.

Investor-State Mediation

In recent years, the relationship between the state and investors is getting salvaged. The development will be fragile when rift exists between the investor and state. Parties – for own benefit – use the increasing diverse opinions of the arbitration tribunals. This will result in negative consequences in global investment regime. The possible way to balance the system is by revising ISDS provisions or adopting investor-state mediation.

The very idea of arbitration, mediation and conciliation is to resolve the dispute. Among the three, arbitration is overwhelmingly accepted for several years. The growing criticism of ISDS has sorrowed relation between investors and the State and should be looked at with immediate concern. Perhaps, the time has come to also use the mediation process in Investor-State Disputes. There has been an attempt to use mediation in Investor-state disputes with success in a limited jurisdiction. However, scholars argue the very nature in which mediation aims to settle a dispute is different from arbitration, making it difficult for acceptance of mediation.

According to Jacqueline Nolan-Haley in her work ‘Mediation: The ‘New Arbitration’ argues that “the morality of mediation lies in the optimum settlement, a settlement in which early party gives up what he values less, in return for what he values more. The morality of arbitration lies in a decision according to the law of contract.”  The author explains this observation, as the nature of mediation is more adversarial than that of arbitration.

Similarly, authors Welsh & Schneider in their work ‘Becoming Investor –State Mediation’ (2012) analyze a very fundamental difference between ‘mediation’ and ‘arbitration’. According to the authors, mediation is an ‘interest-based’ system of negotiation, which looks like a meeting. Whereas, ‘arbitration’ is a ‘right-based’ system which looks like a hearing. The very fundamental concept, which the authors are trying to convey, is that the mediation facilitates parties to arrive to a decision unlike arbitration, which focuses on adjudication.  Also, the authors clear the misnomer attached to ‘mediation’. They identify several models of  ‘mediation’ such as ‘facilitative’, ‘elective’, and ‘understanding-focused’, ‘therapeutic’ ‘Humanistic,’ ‘narrative,’ ‘insightful,’ ‘transformative’ and focus on facilitating the development of understanding and ‘integrative (or interest-based) solutions’.

Among these models, the authors suggest adopting a model which will improve relationships between the parties and able to acknowledge volatile political situations.  In other words, the authors suggest the last model as a suitable model in the context of investment treaties. Also somewhere in their article, the authors touch the possibilities of the role of state officials as potential ‘quasi-mediators’. I tend to disagree on this, particularly in the context of investor-state disputes. The role of state officials as quasi-mediators will further complicate the process and may create a trust-deficit environment. Therefore, it is important to note that the very foundation of the mediation process is ‘trust’.

Mediation in Investment Agreements

The recent studies show that mediation has been used with great success in international commercial law. The critics argue that success of mediation in commercial law cannot be an assurance for success in the international investment regime. However, the recent Investment Agreements such as EU-Canada: Comprehensive Economic and Trade Agreement (CETA) and ASEAN Comprehensive Investment Agreement (ACIA) have incorporated ‘mediation’ in their provisions..

Also, mediation features in some Model BITs. For example Article 10.4 of the Thai BIT Model states that:

The disputing parties may at any time agree to good offices, conciliation or mediation. Procedures for good office, conciliation or mediation may begin at any time and may be terminated at any time. Such procedures may continue while the matter is being examined by an arbitral established under this article, unless the disputing parties agree otherwise. Proceedings involving good offices, conciliation and mediation and positions taken by the disputing parties during these proceedings shall be confidential and without prejudice to the rights of disputing investor in any further or other proceedings.

This shows that mediation appears in some Investment Agreements and it is just a matter of time until such practice will gain momentum.

Mediation as an alternative?

There is a diversion of opinion within the scholar’s milieu arguing that arbitration is more favorable than other forms of dispute settlement. However, the recent trends urge us to rethink arbitration and finding beyond the arbitration.  This forum shift has been realized in other international communities, as a result of IBA rules on Mediation developed to encourage good practices of mediation. One of the important features of the IBA rules on mediation gives the liberty to the state to make the mediation process private. This will take away unwanted public opinion.

At the end, I think every modern Investment agreement should include ‘Consultation’ & ‘Mediation’ among the methods for amicable settlement of disputes arising out of International Investment Agreements.  I believe adopting mediation would be a right approach because the process does not abide with a strict interpretation of law unlike in ISDS.

Similarly, the mediation process is a more informal proceeding than ISDS and involvement of a neutral party to the dialogue would give rise to a win-win situation for both parties. Moreover, in the broader sense, the inclusion of mediation in IIAs will make a country less skeptical about consequences of litigating intellectual property rights through regular ISDS mechanism. In other words, the mediation process will help the state to main regulatory rights in the host country.

On the other side, it is important to note that the decision of mediation does not gain force as like of arbitration under the ICSID Convention, making mediation a toothless weapon.  This would be the reason for Europe to opt for ‘Investment Court’ model in spite of reference to mediation in CETA, which is similar to the WTO mediation process for trade dispute settlement.

However, there is a school of thought believing that mediation may create transparency and a proper environment to negotiate between the parties.  But the lack of enforcement of such a decision might make the situation worse.  Therefore, it would not be rational to jump to a conclusion that the ‘mediation’ process will immediately solve the problems raised by ISDS. Moreover, the mediation process is yet to be tested in International Investment Agreements.


Pratyush Nath Upreti – is a Lawyer at Upreti & Associates a Kathmandu based law firm, where he is leading commercial and research department. He holds Advanced Master (LLM) Intellectual Property Law & Knowledge Management (IPKM) degree from Maastricht University, Netherlands. He is also an executive member of New IP Lawyers Network, a wing of school of Law and its research centre SCule (Science, Culture and the Law) under University of Exeter, United Kingdom. He can be reached by   p.upreti@student.maastrichtuniversity.nl