RUSSIAN INVESTORS IN AFRICA:HE WHO DOES NOT RISK WILL NEVER DRINK CHAMPAGNE

(Russian Proverb)

Izabella Prusskaya, Associate, CAREY OLSEN (BVI) L.P.

Africa needs more Russian foreign direct investments to enhance the current Africa-Russian trade ties

Albert M. Muchanga, Commissioner for Trade and Industry of the African Union, during the St. Petersburg International Economic Forum 2018, “Business Dialogue: Russia-Africa”

A changing landscape: industry focus and the nature of investors

Trade between Russia and African countries has strengthened in recent years. For example, the total turnover in trade in 2016 amounted to US$14.5 billion, which is US$3.4 billion more than in 2015,[1] and 2017 again saw record levels of investment.[2] According to the Eurasian Economic Commission, Africa is the only region with which Russia increased its trade in 2016.[3] To dig deeper: in the face of sanctions and unstable political relationships with the United States and Western Europe, Russia is looking for new economic partners.

Russian business interests in sub-Saharan Africa today still mainly lie in the commodities industry. Alrosa, Rosneft, Rostec and Rosatom are already involved in mining projects in Angola, Namibia and Zimbabwe among others. KamAZ and Sukhoi Civil Aircraft are also developing trade projects in the region. VTB has recently opened an office in Angola. Congo, Sudan and Senegal are also cooperating with Russia in the field of oil and gas exploration.

However, these are far from the only areas attracting investment. Agriculture also plays an important role in Russian-African economic relations, with Africa becoming a promising market for Russian grain and agricultural equipment.[4] In turn, many African countries[5] have recently increased the numbers of fruits and vegetables exported to Russia, taking advantage of the favorable market conditions arising after Russia imposed “counter-sanctions” on produce imported from the EU.[6]

Although large companies are still most engaged in the energy and mining sectors, manufacturing, transportation and infrastructure are also growing areas of focus. And this is not the end of a long list of investment opportunities Russian businesses are pursuing in Africa. One interesting example is Lisma, a company from Mordovia, which established a joint venture in Burundi for the production of lamps supplied to the entire East African market. African investors substantially finance the project, and Lisma in turn supplies equipment and technology.

There are some common features associated with the structure of Russian investment into Africa. As a general rule, it is relatively large Russian companies that are operating on the continent. Led by companies such as Gazprom, Lukoil, Rostec and Rosatom, which have investments or interests in Algeria, Egypt, South Africa, Uganda and Angola, Russians are mainly investing in oil, gas and African infrastructure. Most large Russian corporations investing in Africa are at least partially state-owned. Thus, most Russian economic interest in Africa effectively takes the form of public-private partnerships, with the majority of investment projects originating in Moscow, Russia’s financial and industrial center.

New frontiers for Russian investment: two innovative case studies

It is clear that there are an increasing number of Russian investment projects in African nations – and the following examples from Angola highlight that Russia’s presence on the continent is constantly forging new frontiers, in terms of both reach and scale.

Roskosmos has long been a partner of Angola in the space industry and Roskosmos currently plans to produce and launch the second satellite in Angola, Angosat-2.

The first satellite, Angosat-1, was launched into orbit at the end of 2017. The export contract for Angosat-1 amounted to US$327.6 million and was signed on 26 June 2009 between the Angolan Ministry of Telecommunications and Information Technology and Rosoboronexport. The Russian corporation Energy was appointed as the main contractor. In 2011, Vnesheconombank, Roseximbank, VTB and Gazprombank entered into a loan agreement with the Angolan Ministry of Finance, under which the African country got a credit line for US$278.46 million for a period of 13 years. In 2015, the construction of a satellite flight control center began in Luanda, the capital and largest city in Angola. Angola financed the construction of ground infrastructure at a cost of US$54.3 million.

In some cases, Russian investors play a dominant role in key industries – and they are using this position to deepen cooperation with host states. Another large Russian investor in Angola is Alrosa, a Russian group of diamond mining companies accounting for 95% of country’s diamond production and 27% of the global diamond extraction.[7]

According to those documents, Alrosa will participate in the project through the subsidiary company Katoka (Alrosa owns 32.8%), which will receive a 50.5% share in the new structure. Taking into consideration the results of a preliminary feasibility study, the development of Luashe is of a considerable economic interest to the project participants. The Luele kimberlite pipe found in the Luashe exploration field is the largest discovered in the world in the last 60 years.[8]

Substantive protections for investors under bilateral investment treaties

Currently, Russia is a party to eleven BITs with African countries,[9] of which six are currently in force – namely with Angola (2011), Egypt (2000), Equatorial Guinea (2011), Libya (2010), South Africa (2000) and Zimbabwe (2014).[10] Interestingly, while South Africa has terminated its BITs with a significant number of Western nations, its BIT with Russia remains in force.

The BITs in force between Russia and African nations have several features in common as regards the dispute resolution mechanisms. Each of them contains an article providing for investor-state dispute settlement (“ISDS”) and generally reflects a so-called “traditional” approach to dispute resolution, providing for arbitration as one of the available options. All of the dispute resolution clauses in those BITs are multi-tier and provide for negotiations as a preliminary step in resolving investor-state disputes (the “cooling-off period”). If the parties are not able to resolve their disputes in the course of negotiations, then the investor may apply to the competent court of the country where the investment was made or resort to arbitration.

Other features of the BITs’ provisions on arbitration do, however, vary – in particular, as regards the applicable arbitral rules, which govern proceedings between parties and can impact on a wide range of issues including timing of the arbitration, composition of the tribunal, confidentiality and emergency relief. For example, Article 10 of the South Africa-Russia BIT provides for either arbitration under the Arbitration Institute of the Stockholm Chamber of Commerce Rules (“SCC Rules)” or through an ad hoc arbitration in accordance with UNCITRAL Arbitration Rules (“UNCITRAL Rules”) – but not ICSID Rules. The older BITs, which entered into force in 2000, provide a more limited choice of arbitration options for the investors. The Egypt-Russia BIT provides only for UNCITRAL ad hoc arbitration, in its Article 10.

In contrast to the older BITs, the more modern Russian BITs with Angola, Libya and Zimbabwe represent a new generation of texts, which explains why they provide for an ICSID arbitration option. This is in line with Article 11 of the Angola-Russia BIT, Article 12 of the Zimbabwe-Russia BIT and Article 8 of the Libya-Russia BIT, all of which provide for investors to bring a claim via either ad hoc arbitration in accordance with UNCITRAL Arbitration Rules, or arbitration under the ICSID Convention. In practice, the arbitral rules most frequently used by Russian investors in claims against states are UNCITRAL Rules (12 cases) and SCC Rules (6 cases), with three filed under the ICSID Additional Facility Rules, two of which in 2018.[11]

The Russian-African BITs in force provide various types of protection for investors. Compensation shall correspond to the actual value of the expropriated investment and shall be paid without an unjustified delay.

Another substantive protection available for Russian investors under BITs with African countries is an obligation of host states to provide fair and equitable treatment of the investment (“FET” standard). The standard has been developed through case law, protection from discriminatory treatment or damage to investments (that amount to less than expropriation). FET is contained in the vast majority of international investment agreements as one of the main standards for the protection of foreign investors,[12] including in those six Russian-African BITs currently in force.

A third frequently used standard of investment protection, which is closely connected with FET standard, is the Most-Favoured Nation Treatment (“MFN” standard). It requires the host state not to treat an investor differently than other foreign or domestic investors based on the fact that it comes from a particular country. Based on MFN clauses contained in all Russian-African BITs in force, Russian investors shall receive equal trade advantages as the “most favoured nation”, for example, trade or tax advantages.

Where BITs are in force, therefore Russian investors in Africa are covered by the main substantive protections. Enforcing such protections is a matter of dispute settlement, subject to the clauses in the treaty covering the investor’s recourse.

Investor-state dispute settlement under bilateral investment treaties.

Russia is no stranger to investment arbitration – and even though Russia has more famously participated in such proceedings on the side of the host state, there have also been 22 cases where Russian investors filed claims against states under investment treaties.[13] The first such case was brought in 2004,[14] with several investment arbitration proceedings initiated by Russian investors in previous years still pending[15]. There has been a recent surge in claims by Russian investors, with six such cases brought in 2018[16] following just two in 2017[17] and three in 2016.[18] However, only one of these cases to date has involved an African host state – Egypt.

The PCA case of MetroJet (Kogalymavia) Limited v. Arab Republic of Egypt relates to a plane crash that took place in the Egyptian desert region of the Sinai in 2015. This crash killed all 224 passengers, the majority of which were Russian citizens. The Russian airline, Metrojet, together with the Turkish tour operator, Prince Group, are claiming at least US$200 million in an investment treaty claim against over the suspected terrorist attack.[19]

The Claimants brought their claim in 2017, seeking compensation for both direct damages caused by the crash and the loss of their investment in the Egyptian economy. The airline, which stopped flying shortly after the crash and filed for bankruptcy shortly after, is seeking US$90 million in damages. The Turkish tour operator is seeking US$111 million.

Optimizing BIT protections: structuring investment through a third country

In the case that Russian investors are unable to access adequate protections under the applicable BIT between Russia and the African host nation, investment structuring is an important means of optimizing the protections available to the investor. This is generally achieved by choosing a state with a favorable BIT between it and the target nation, in which to incorporate an investment vehicle to act as a conduit for funds. The purpose is to allow the Russian investor, by virtue of the domicile of the investment vehicle, to achieve superior investment protection pursuant to the terms of the preferred BIT.

The United Kingdom is a popular choice for such investment structuring, with 21 BITs with African countries currently in force.[20] However, it remains to further see whether Brexit will make it more attractive to structure investments in certain EU member states through the UK in order to take advantage of BIT protection.

It is to be noted that in March 2018 the Court of Justice of the European Union held, in the famous Achmea case that BITs between EU member states are invalid as their investor-state dispute settlement provisions are incompatible with the EU single market. Based on this, a treaty of 29 August 2020, the so-called “Termination Agreement” will terminate all intra-EU BITs between ratifying states. The UK has declined to join it, so investments under those BITs may continue to be structured via the UK so as to attract relevant BIT protection. This would have the added advantage to Russian investors of potential treaty protection in EU States that would not be provided by structuring through States – such as those mentioned below – which have signed the Termination Agreement. However, this may be in danger due to the infringement procedure which the EC has commenced against the UK for refusing to sign the Termination Agreement.

Another popular choice for investment structuring is France, with 23 BITs in force with African states.[21] Other jurisdictions such as the Netherlands may also be favorable, particularly in circumstances where they offer additional taxation benefits to an investor. These considerations should ideally be considered at the outset of an investment, or at least well before it could be said that any potential treaty dispute has arisen or could likely arise. If a switch comes only after the start of a dispute it is unlikely to benefit from protection.[22] The latter approach may lead an arbitral tribunal to reject a claim on the grounds that the claimant engaged in an abuse of process by switching the investment vehicle after knowing that a dispute had arisen or was likely to arise, as happened for example in Mobil Corporation v Venezuela and Banro American Resources Inc. v. Congo.[23]

There are already two examples of Russian investors taking advantage of third-country investment vehicles in bringing a claim under an alternative BIT, although not yet in Africa. In Naumchenko and others v. India (2012) the claim was brought under the Cyprus-India and Russia-India BITs; and in Nadel & Ithaca Holdings Inc v. Kyrgyzstan (2012), the claim (now discontinued) was brought under the Kyrgyzstan-United States of America BIT. Insofar as alternative BITs provide greater protection, Russian investors considering a new venture should seek advice on the most appropriate jurisdiction for incorporating an investment vehicle, taking into account substantive protections, the ISDS mechanism and any enforceability benefits.

Enforcement of awards: the availability of ICSID arbitration and the New York Convention

Famously, the ICSID Convention provides the most widespread and effective means of enforcing investment arbitral awards among its member states, with mandatory recognition and enforcement of arbitral awards by local courts. According to the survey conducted by ICSID in 2017, Member States reported 85% compliance with ICSID awards of costs and/or damages in favor of the claiming party and post-award decisions issued from 14 October 1966 until 1 April 2017.[24] The ICSID Convention applies only to disputes between state members of the Convention, and nationals and companies of member states. To be a member, a state must both sign and ratify the Convention.

As Russia has signed but not yet ratified the ICSID Convention,[25] Russian investors will need to use third country investment structuring, in order to participate in conventional ICSID arbitrations and benefit from the associated enforcement mechanism. Availability of the ICSID enforcement mechanism will, of course, also depend on the ratification status of the host state. To date, 38 African nations have ratified the ICSID Convention,[26] so the mechanism is in principle quite widely available on the continent.

The ICSID Additional Facility Rules provide one alternative for Russian investors, where investment structuring is not an option. These Rules are available for the arbitration of investment disputes where only one side is a party or national of a party to the ICSID Convention.[27] As such, Russian investors can in principle bring arbitration against an African host state under the ICSID Additional Facility Rules where the host state has ratified the ICSID Convention, and the applicable BIT permits ICSID arbitration. Although awards under the Additional Facility Rules are not enforceable pursuant to the ICSID Convention, such awards still have the advantage of credibility and are generally favorable for enforcement. Further, one of the proposals in ICSID’s current Rules Amendment Project is to extend the Additional Facility Rules to cases where both the claimant and the respondent are not ICSID Contracting States or nationals thereof. If this proposal is ultimately approved, Russian investors would (subject to the terms of the BIT) have access to arbitration under ICSID Additional Facility Rules regardless of the counterparty state.

The New York Convention provides an alternative enforcement mechanism to the ICSID Convention, where the arbitration has been carried out pursuant to other arbitration rules such as UNCITRAL. It is subject to local laws (where assets are based) regarding sovereign assets. However, it is applicable simply if the award is rendered and enforced in New York Convention contracting states – which represent a significant majority of African states.[28] As such, this enforcement mechanism will be more widely accessible to Russian investors in cases where investment structuring is not employed.

Contractual protections and contract-based arbitration

Beyond general investor-state protections, investors may also seek to incorporate an arbitration clause into a written and binding investment agreement with the state – although of course, this is likely to be a heavily negotiated point. Where successful, this approach will enable investors to bring claims against the host state in circumstances where there is no applicable BIT, the applicable BIT offers inadequate substantive protections, or the BIT does not provide for resolution of disputes via international arbitration. In all cases, investors will need to ensure that the investment agreement is drafted to incorporate the requisite substantive protections directly, and that the arbitration clause is appropriately drafted. This mechanism is a powerful but underutilized option: the statistics show that around 16% of all the arbitration cases filed under different ICSID Rules are based on contractual agreements between the parties in the dispute (112 out of 704), with the majority of Respondents from either Latin American or African countries.

ICSID permits arbitration on a contractual basis as well as pursuant to a BIT[29] and suggests a well-developed set of model clauses for this purpose.[30] As for treaty claims, Russian investors will need to structure their investment through a third party vehicle in order to allow investors to take advantage of the ICSID enforcement mechanism, although the arbitration clause could of course specify alternative rules, for example UNCITRAL, and seek to rely on alternative enforcement mechanisms. Contract-based arbitration is also permissible under the ICSID Additional Facility Rules, which as noted above may apply where either the host State or the State of origin of the investor is a Party to the ICSID Convention. ICSID also provides suggested drafting for this scenario in its model clauses.

A role for BRICS organizations in investment disputes?

Since South Africa joined the BRICS in 2010, the dispute resolution mechanisms of this informal grouping of nations have rapidly evolved, leading to new means of settling disputes between Russia and South Africa. The Shanghai International Economic and Trade Arbitration Commission established the BRICS Dispute Resolution Center Shanghai (“BRICS DR Center Shanghai”) in October 2015. This center accepts cases involving parties from BRICS countries and provides arbitration and alternative dispute resolution services. A similar center is now operational in New Delhi.

Moreover, the Moscow Declaration signed on 1 December 2017 proposed the “establishment of a Panel of Arbitrators and common institutional rules to coordinate and merge the functioning of the BRICS Dispute Resolution Centers already established […] and the proposed Centers in Brazil, Russia and South Africa“. Though such a panel has not yet been established, the representatives of the BRICS member states are actively discussing the future structure and functioning of such a panel. The proposed centers in Brazil, Russia and South Africa will, most likely, use BRICS DR Center Shanghai as an analogue.

The BRICS seem to be a good example of regionalizing dispute resolution mechanisms by setting up various centers for settling disputes between the member states. Together with the ever-increasing integration of African economies, recently heralded by the newly implemented African Continental Free Trade Area (“AfCFTA”), and its forthcoming Investment Protocol, this ongoing trend towards regionalization may yet see a specialized dispute resolution center for investment claims between CIS and the African Union.

Conclusion

Africa is a promising investment target with rapidly developing use of arbitration due to the continent’s progressive integration into the global economy and its evolving experience in resolving international disputes. The investment protection measures included in investment treaties allow investors to adapt the structure of their investment to benefit from those protections.

A variety of instruments provide for investment protection for Russian investors in Africa. The scope and level of protection will vary from country to country and depend on the local legislation and treaties in force. Importantly, the scope and level of protection must be evaluated before investing into Africa, since potential investors might be better served by structuring their investment through a third country in order to benefit from stronger protections. While the significant majority of African states have now ratified the New York Convention,[31] which provides a good means of award enforcement, innovation by Russian investors via third-country structuring may allow access to the ICSID Convention, under the egide of the World Bank.

As of today, African countries are parties to more than 900 BITs, generally with non-African countries;[32] and the majority of African states are also Member States of ICSID Convention. Although there has only been one known investment claim by a Russian investor in Africa, cases are likely to develop alongside the growth of Russian investments on the continent. It may be too early to determine whether any of the investors would face particular problems in Africa in connection with the initiation of investment arbitration. However, “forewarned is forearmed” and Russian investors are well advised to analyse investment protections applicable to them, in order to invest and risk with confidence before they drink champagne.

  1. FDI Intelligence. The Africa Investment Report 2016. Available at: Analyseafrica.com.
  2. Trends Report by FDIMarkets.com, 2017: as at the date of this publication, 2017 was the year “in which the highest numbers of projects were recorded”.
  3. Id.
  4. For example, Russia supplies wheat to Morocco, South Africa, Libya, Kenya, Sudan, Nigeria and Egypt.
  5. Egypt, Côte d’Ivoire, Benin, Nigeria, Guinea-Bissau, Central African Republic, Guinea, Burkina Faso, and Mali.
  6. More about Russia’s counter-measures at: https://www.politico.eu/article/putin-extends-counter-sanctions-against-eu/
  7. 2017 global natural diamond production forecasted at 142M carats worth US $15.6B”. Available at: MINING.com
  8. See at: http://www.alrosa.ru/алроса-примет-участие-в-освоении-круп/
  9. BITs not in force with: Morocco, Namibia, Nigeria, Algeria, Ethiopia.
  10. UNCTAD Investment Policy Hub, accessed at https://investmentpolicy.unctad.org/international-investment-agreements/countries/175/russian-federation
  11. UNCTAD Investment Policy Hub, accessed at https://investmentpolicy.unctad.org/investment-dispute-settlement/country/175/russian-federation/investor
  12. FAIR AND EQUITABLE TREATMENT. UNCTAD Series on Issues in International Investment Agreements II. P. 7. Available at: https://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf
  13. UNCTAD Investment Policy Hub, accessed at: https://investmentpolicy.unctad.org/investment-dispute-settlement/country/175/russian-federation/investor
  14. Bogdanov v. Moldova (I), which was initiated in 2004 under SCC Rules (Stockholm Chamber of Commerce). Mr. Bogdanov initiated three more claims against Moldova in 2005, 2009 and 2012, with two awards in favour of the investor and two in favour of the state.
  15. See for example Paushok v. Mongolia (2007), Naumchenko and others v. India (2012), Tatarstan v. Ukraine, Deripaska v. Montenegro (2016) and Boyko v. Ukraine (2017).
  16. Gazprom v Ukraine (2018), GRAND EXPRESS v. Belarus (2018), Lazareva v. Kuwait (2018), Manolium Processing v. Belarus (2018), MTS v Turkmenistan (II) (2018), RusHydro v Kyrgystan (2018).
  17. Boyko v. Ukraine (2017); MetroJet (Kogalymavia) Limited v. Arab Republic of Egypt (2017).
  18. Deripaska v. Montenegro (2016), Tatarstan v. Ukraine (2016), Evrobalt and Kompozit v. Moldova (2016).
  19. Garrigues. PCA to decide claim against Egypt over plane crash. Available at: https://www.garrigues.com/en_GB/new/international-arbitration-newsletter-march-2020-regional-overview-middle-east-and-africa
  20. UNCTAD Investment Policy Hub, accessed at https://investmentpolicy.unctad.org/international-investment-agreements/countries/221/united-kingdom
  21. UNCTAD Investment Policy Hub, accessed at https://investmentpolicy.unctad.org/international-investment-agreements/countries/72/france
  22. See, for example: Philip Morris Asia Limited v. The Commonwealth of Australia, (PCA Case No. 2012-12)
  23. Banro American Resources, Inc. and Société Aurifère du Kivu et du Maniema S.A.R.L. v. Democratic Republic of the Congo, ICSID Case No. ARB/98/7
  24. Including both Convention and Additional Facility awards
  25. Database of ICSID Member States, accessed at https://icsid.worldbank.org/en/Pages/about/Database-of-Member-States.aspx
  26. Database of ICSID Member States, accessed at https://icsid.worldbank.org/en/Pages/about/Database-of-Member-States.aspx
  27. Article 2 of the ICSID Additional Facility Rules
  28. Database of ICSID Member States, accessed at https://icsid.worldbank.org/en/Pages/about/Database-of-Member-States.aspx
  29. Article 25(1) of the ICSID Convention
  30. See at: https://icsid.worldbank.org/en/Pages/resources/ICSID-Model-Clauses.aspx
  31. New York Convention Contracting States, accessed at http://www.newyorkconvention.org/countries
  32. See at: http://aefjn.org/en/bilateral-investment-treaties-a-continuing-threat-to-africa/

Young ISDS Club – ICSID and UNCITRAL Draft Code of Conduct for Adjudicators in ISDS disputes

By Suksham Chauhan, International Arbitration Trainee, Quinn Emanuel Urquhart & Sullivan, Paris  

Young ISDS Club for the second time provided a great platform for a very engaging and interesting discussion on 8 June 2020. The Young ISDS Club remained steadfast to its core value of open discussion. It was a most candid discussion where participants and speakers took strong stances and critically analysed the Draft Code without any inhibitions.

1. Introduction

Ketevan Betaneli (Freshfields), who moderated the session, commenced the webinar by introducing the topic: “ICSID and UNCITRAL Draft Code of Conduct for Adjudicators in ISDS”. She gave a brief overview of the Draft Code of Conduct for Adjudicators (the “Draft Code”).

She noted that the Draft Code was jointly prepared by the Secretariats of ICSID and UNCITRAL and that it deals with duties and responsibilities and independence and impartiality, as well as with conflicts of interest and confidentiality relating to adjudicators. At the outset, she stated that the definition of “Adjudicators” is comprehensive and includes arbitrators, members of international ad hoc, annulment or appeal committees, and judges of a permanent mechanism for the settlement of investor-State disputes.

Thereafter, she introduced the speakers : Margaret Ryan (Shearman & Sterling); Tim Rauschning (Luther); and Nandakumar Srivatsa (Dentons). She remined the participants that the discussions in the webinar remain confidential and no participant or speaker should be quoted unless they had so agreed. She also pointed out that all the speakers and participants would be speaking in their personal capacity and the views expressed did not reflect those of their respective law firms or clients.

In line with the spirit of Young ISDS Club discussions rules – no statement or comment is attributed to any participants or speakers in this report.

2. The First Speaker – Conflicts of Interest: disclosure obligations (Article 5)

At the outset, the first speaker pointed out that Article 5 of the Draft Code is one of the most widely discussed provisions for its extensive and detailed disclosure obligations for adjudicators and candidates.

Discussion then moved onto the second sentence of Article 5 (1) of the Draft Code which states that adjudicators and candidates shall disclose any interest, relationship, or matter that could reasonably be considered to affect their independence or impartiality. The second sentence adopts an objective standard based on the perspective of what a reasonable third person would consider affecting an arbitrator’s independence and impartiality. The current ICSID Rules and the IBA Guidelines on Conflict of Interest in International Arbitration (IBA Guidelines), on the other hand, are based on a subjective test, and require the disclosure of circumstances that might cause the parties to question the arbitrator’s independence and impartiality.

Policy of enhanced disclosure

Thereafter, the first speaker stated that on a bare reading of Article 5 (2) of Draft Code, it is clear that the policy is to enhance disclosures. This is abundantly clear from the Draft Code’s commentary which states that “the policy reason underlying the disclosure requirement is to permit a full assessment by all parties and to avoid possible problematic situations during the proceedings”. The question which arises is whether this formalistic approach to disclosure will have unintended consequences, and might lead to more arbitrator challenges overall resulting in higher cost and delay and eliminating honest candidates. On the other hand, the approach could lead to consistent practice among arbitrators.

Further, the Draft Code under Article 5 (2) (a) proposes that adjudicators and candidates be required to disclose any relationships that have existed within the previous five years. The commentary states that the existence of relationships earlier than five years previous is presumed to be too remote to create a conflict. A relationship that existed before the five-year threshold but could reasonably affect the adjudicators’ independence or impartiality would still be subject to a duty of disclosure in accordance with Article 5(1). It is interesting to note that the amendment to the ICSID Rules also adopts the five -year period. In this context, the question arises whether the five-year period strikes the right balance? Or is it overly burdensome, given the list of items that need to be disclosed under 5(2)(a)?

Disclosure of Third-party interest

The first speaker then discussed Article 5(2)(a)(iv) which obligates the adjudicator or candidate to disclose any significant relationship with any third-party funder within the past five years. It was pointed out that the provision raises various questions. An arbitrator can only know whether it has a relationship with a third-party funder if the identity of the third-party funder is known. This may be possible under the proposed amendments to the ICSID Rules which incorporates an affirmative duty for the parties to disclose the existence of third-party funding when filing the Request for Arbitration. However, the problem arises where the applicable rules don’t require disclosure of third-party funder. In view thereof, how is a prospective arbitrator to know whether they have a relationship with a third-party funder involved in the arbitration?

The Draft Code does not seek to regulate repeated appointments but instead proposes extensive disclosure of “all ISDS [and other [international] arbitration cases]” where the arbitrator has been or is involved in one of various capacities i.e., as counsel, arbitrator, annulment, committee member, expert, [conciliator or mediator]. There is no five-year time limit and it suggests that all ISDS and International cases (both commercial and investment cases) will have to be disclosed. This requirement is wider than under the proposed amendments to the ICSID Rules.

Issue conflict

Similarly, Article 5(2)(d) requires disclosure of all publications and [relevant speeches] without any time limit. Questions arise on necessity and practicability of this requirement, which diverges from the approach of the IBA Guidelines which include previous expressed legal opinions in the list of green items that do not need to be disclosed.

General questions for discussion

The first speaker concluded by stating that various other issues may arise from the interaction between the Draft Code and other rules on disclosure that might govern the arbitration. E.g. the current proposal for amendments of the ICSID Rules has less extensive disclosure obligations as compared to the Draft Code. Similarly, specific investment treaties at issue might have rules on disclosure that differ from the code.

Article 12 addresses the enforcement of the code and contemplates various options for enforcement. However, the Draft Code does not address how the disclosure obligation has to be implemented. Whether the disclosure procedure should be under the control of a central mechanism or should instead rest with the arbitrator (self-policing)? Who might play the role of enforcing the disclosure obligation?

3. The Second Speaker – Article 6 – Limiting of roles

At the outset, the second speaker stated that Article 6 of the Draft Code addresses the concern that an adjudicator who is involved in other ISDS or other international proceedings in different roles would lack sufficient independence and impartiality because of the multiple roles played. Article 6 of the Draft Code essentially aims at limiting additional roles and it is a hotly debated article which is evident from the various square brackets in the Draft Code. Four elements may be considered under Article 6 of the Draft code:

(i) The consequences arising from Article 6 – whether it should prohibit multiple roles or merely seek disclosure of multiple roles;

(ii) The scope of Article 6 – whether it should extend only to counsel and arbitrators or also to witness, experts or any other relevant role;

(iii) Time period – whether it should be limited to concurrent service as arbitrator in one case and counsel (or any other role) in another case or also extend to previous and subsequent service as counsel; and

(iv) The factors to be considered when regulating multiple roles – (a) same parties involved; (b) same facts involved; and/or (c) same treaties involved.

Thereafter, the second speaker stated that, as a code of conduct, the draft does not necessarily only reflect perceived existing rules relating to conflict of interest but may also reflect much broader rules desired for policy considerations. In view thereof, the second speaker first provided an overview of (arbitral) jurisprudence and guidelines addressing conflict of interest due to arbitrators wearing multiple “hats”. Thereafter, various issues from a policy perspective were addressed i.e., issues that may be regulated and the potential consequences of regulating these issues.

Overview of jurisprudence and guidelines regarding multiple roles

The second speaker focused on the most frequent combination of roles, namely that of arbitrators also acting as counsels, and distinguished the following constellations: (i) same parties involved; (ii) same facts involved; or (iii) same treaty involved.

(i) It was explained that, under the IBA Guidelines, serving as an arbitrator concurrently with representing or advising one of the parties in another case is considered a red list item, i.e. one which raises justifiable doubts as to the arbitrator’s impartiality and independence. Additionally, past service as counsel for one of the parties within the last three years is considered an orange list item, i.e. one which should be disclosed.

(ii) Where arbitrators concurrently serve as counsel in cases involving the same or similar facts, in a number of challenge decisions the person concerned has been given a choice to withdraw either as a counsel or as an arbitrator. Accordingly, this jurisprudence takes no issue with past service, including counsel work just terminated. Once a person has terminated their role as counsel, a conflict of interest no longer exists. As an illustration of what kind of issues some courts and tribunals consider as similar or having something in common with another case, the second speaker referred to the example of The Republic of Ghana vs Telekom Malaysia Berhad, where the District Court of The Hague decided that Prof. Gaillard’s role as counsel in the annulment proceedings in RFCC v Morocco was incompatible with Prof. Gaillard’s position as arbitrator in the Telekom Malaysia arbitration because in the latter Ghana relied on the RFCC Award. The District court therefore asked Professor Gaillard to step down from the counsel position which he eventually did.

(iii) As regards cases where the same treaty is involved, the decision in the ECT arbitration KS Invest vs Spain was referred to, where Kaj Hobér was challenged as arbitrator because he was concurrently acting as a counsel for North Stream 2 in an ECT arbitration against the European Union. Spain argued that there would be a conflict of interest as similar legal problems under the same treaty (the ECT) will be discussed. The Chairman of the ICISD Administrative Counsel ruled on the challenge and held that there is no conflict of interest as the disputes concern different parties, different sub-sectors of the energy industry, and different measures.

In conclusion, the second speaker summarised the above jurisprudence and guidelines as follows: Service as arbitrator in one arbitration and as counsel for one of the parties in another is considered incompatible if such service is concurrent, while prior counsel work within the last three years has to be disclosed. In relation to the same facts, concurrent service of arbitrators and counsel is considered to be incompatible. Prior counsel work does not appear to be incompatible. As regards cases involving the same treaty, there is still only limited jurisprudence

Policy Considerations

It was pointed out that if one wanted to further restrict multiple roles for policy reasons, likely the most relevant areas would be rules relating to counsel work before and after acting as arbitrator and whether to limit “double hatting” restrictions to having multiple roles in disputes under the same treaty. In this context, reference was made to the approach adopted by the EU in different multilateral treaties (e.g. CETA, EU-Singapore, and EU-Vietnam). Under these treaties, the provisions dealing with multiple roles are very broad: Concurrent service is prohibit under “any international agreement”. After acting as arbitrator, the person may inter alia not act for one of the parties in arbitrations under the same treaty. The 2019 Dutch Model BIT not only prohibits concurrent counsel work but also prior counsel work in any ISDS disputes in the five years prior to acting as arbitrator. Conversely, the US-Mexico-Canada agreement (USMCA) is less strict as it only prohibits concurrent counsel work in cases under the USMCA.

Questions for discussion

As questions for discussion, the following were proposed, inter alia: What is the reason behind prohibiting arbitrators from subsequently acting as counsel, in particular in cases under the same treaty or with regard to the same facts? Do the participants share the analysis of tribunals that an arbitrator is not influenced by positions argued as counsel on a similar issue? And, of course, what would be the consequence of far-reaching limitations on multiple roles?

4. The Third Speaker – Article 8 – Arbitrator’s availability

The Third Speaker considered a few seminal questions that arose in the context of Article 8 of the Draft Code.

Genesis and drafting history of Article 8 of the Draft code

In considering the genesis and drafting history of Article 8, the third speaker stated that it was manifestly clear from ICSID’s Working Papers II and III on the amendments to the ICSID Arbitration Rules, that member States and the public desired that arbitrators be made to adhere to a code of conduct in relation to their availability. At its 38th Session, the UNCITRAL through its Working Group III considered the possibility of a code of conduct for arbitrators and deliberated on whether such a code should contain any provisions governing the availability of arbitrators. This was a part of the genesis of Article 8 of the Draft Code.

Then the discussion moved on to the drafting history of Article 8. It was pointed out that Article 8 was based on the model declaration annexed to the UNCITRAL Rules on Arbitration, which requires arbitrators to devote the time necessary to conduct the arbitrations in which they sit. The UNCITRAL Rules, however, do not provide any mechanism for enforcing the declaration. UNCITRAL’s Working Group III did not address this issue during the 38th Session and simply noted that arbitrators should not accept appointments if they cannot carry out their duties promptly.

ICSID had a more comprehensive discussion on the question, as is evident from paragraph 307 of the Working Paper I, which reads as follows: “…This requirement has been added in light of the comments expressing concern about delays in proceedings occasioned by extended periods of arbitrator unavailability, and by some arbitrators accepting appointments despite insufficient availability. The requirement is intended to provide the parties with specific information regarding the availability of the arbitrators in their dispute. The addition of this requirement does not convey any change in the applicable standards for the challenge of an arbitrator.”

In view thereof, it is clear that the intention of the declaration under Draft Arbitration Rule 19(3)(b) of ICSID Working Paper IV was to provide the parties with specific information regarding the availability of arbitrators. However, the scope of Article 8 (2) of the Draft Code is much wider, i.e. it does not merely provide information to the parties concerning the availability of arbitrators, but attempts to limit the number of appointments that an arbitrator can accept.

Availability of an arbitrator

The current declaration (under Rule 6.2 of 2006 ICSID Arbitration Rules ) does not require arbitrators to make any commitment as to their availability. However, the declaration under Draft Arbitration Rule 19(3)(b) of ICSID Working Paper IV requires arbitrators to commit their time and availability to the effective and efficient performance of their duties.

Further, ICSID’s Working Paper II reveals that States raised concerns about arbitrators’ availability and one State proposed that there should be a cap on the number of appointments accepted by arbitrators. This suggestion was originally brushed aside by ICSID, which stated that the proposal had already been dealt with in its Working Paper III. Curiously, however, the proposal was implemented in Article 8.2 of the Draft Code, which incorporates a provision capping the number of appointments accepted by an arbitrator.

Thereafter, the third speaker pointed out that the reason for discussing the Draft Code is ICSID’s suggestion to annex the Draft Code, once it has been finalised and adopted, to the arbitrators’ declaration under Draft Arbitration Rule 19(3)(b) . This essentially means that any arbitrator appointed under the ICSID rules will be bound by all of the provisions incorporated in the Draft Code. Therefore, the questions for discussion include whether (i) an arbitrator can be restrained from accepting more than a certain number of appointments, (ii) any efforts can be made to enforce such a policy and (iii) self-restraint on the part of arbitrators is the only plausible approach to the question.

Further, it was pointed out that the rule on incapacity under the ICSID Arbitration Rules has been amended to include an arbitrator’s disqualification on account of his or her failure to perform the required duties. In this regard, it has been suggested that where arbitrators are found not to have sufficient time for tribunal proceedings or hearings, the parties may seek to disqualify the arbitrator in question on the ground that he or she did not perform the required duties. Thus, the rule allowing for the disqualification of an arbitrator owing to his or her failure to perform the required duties is arguably one of the greatest checks against arbitrators’ lack of availability.

The third speaker concluded by pointing to the example of Vacuum Salt, where Judge Jennings advised ICSID that he would accept his appointment (as President) only if he were allowed to remain absent from the Tribunal’s oral proceedings. Further to this arrangement, Judge Jennings was not present at the Tribunal’s first session. He was absent from the Tribunal’s second session too. He ultimately did participate in the deliberations allowing issuance of the award. There was however no suggestion form either party that Judge Jennings had failed to perform the duties required of him as president of the Tribunal.

5. Discussions

Thereafter, Ketevan opened the floor for discussion to the participants. In addition to the questions raised by the speakers, this section incorporates the questions, queries, and issues raised throughout the discussion. Some of the issues raise pertinent legal questions – it would be nice to have the views of the readers on these issues.

1. Overall the feeling was that the Draft Code is a weak document. In addition to the lack of effective substantive provisions, the Draft Code is poorly drafted creating confusion and contradictory statements.

2. Some participants considered that the distinction in Article 6 with respect to the same parties, the same facts, and the same treaties does not answer the problem of double hatting. There were suggestions that the code should have taken a stronger stand regarding double hatting, i.e. either to retain the possibility of multiple roles or do away with multiple roles completely. In this regard, as drafted, the participants questioned the benefit of restrictions on double-hatting and raised concerns with regard to failing to promote diversity and the disadvantage it might have on un-represented groups, or young practitioners, for whom the current article might further reduce the chances of being appointed.

3. Article 5(2)(d) of the Draft Code requires disclosure of any relevant publications or public speeches. It was echoed that this provision is vague, as drafted, as it uses ambiguous terms (e.g. relevant public speeches) that can be interpreted broadly, while serving little purpose for meaningful disclosure, which is likely to aid unmerited arbitrator challenges.

4. Some participants were of the view that issue conflict vis-à-vis prior publication is not a critical point as it is in the green list under the IBA Guidelines. The critical issue which needs consideration is whether there is an issue conflict in relation to a legal position taken by adjudicators in prior cases. The debate of issue conflict vis-à-vis the legal positions taken by adjudicators in prior cases is not dealt with in the commentary on the Draft Code. It was considered unclear whether the Draft Code thereby wanted to leave the debate of issue conflict arising from the legal positions taken by adjudicators in prior cases wide open or confirms the understanding that prior legal positions taken in a case do not pose an issue conflict.

5. Third-party funders – what would be the consequences if an arbitrator were not to disclose the relationship with the third party which has an indirect interest in the dispute? Will mere non-disclosure of a relation with the third party funder amount to lack of independence and impartiality? Some participants were of the view that mere violation of the disclosure obligation in relation to the third party funder without any additional violation is not sufficient for a successful challenge.

The discussion went beyond the scheduled time and Ketevan stepped-in to close an engrossing discussion, which gives reason to continue the discussion with the participants on another occasion, hopefully soon.

Stakeholder meeting on a possible future Multilateral Investment Court: Establishment of a Multilateral Investment Court (Brussels, 9 October 2019)

José Rafael Mata Dona[1]

 A week before the autumn session in Vienna of the UNCITRAL Working Group III, the EC held a Stakeholder meeting in Brussels on the subject of the establishment of a Multilateral Investment Court. The initiative took place as part of the EC Commitment to Transparency.

During the introductory speech, Collin Brown (Dispute Settlement and Legal Aspects of Trade Policy, Directorate General for Trade, European Commission) traced the history of the proposal for a multilateral court for the settlement of investment disputes back to September 2017. This was followed by Collin’s general comments on UNCITRAL discussions, mandate and the content covered through its three distinct phases of progress, the last of which ‘Development of relevant solutions for the reform of ISDS’ started on the 4th of April 2019 and is still ongoing in two parallel tracks: one focusing on structural reforms and another involving other types of solutions. Collin highlighted the celebration of inter-sessional meetings, as in September 2019 in Conakry, Guinea.

The EC’s expectation for the 14–18 October 2019 meeting is that the WG will agree to discuss substantive issues and proceed as per the UNCITRAL Secretariat paper on reform options. Also, the EC expects the WG to develop relations to other international bodies e.g. OECD and UNCTAD. Among the submissions to UNCITRAL WG III on possible reform of ISDS, Collin said particular attention should be paid to China’s proposal of a permanent appellate mechanism. He generally commented on the UNCITRAL Secretariat thematic papers and the multidisciplinary approach of the Academic Forum papers. Along those lines, he specifically mentioned the proposal for the creation of ‘An Advisory Centre on International Investment Law’ (See here and here). The slides of the presentation and the video of the meeting are available here.

All the foregoing led to the exchange of views described below.

 

In the first round of questions, participants asked about (i) the role of the USA in the WG (ii) the jurisdiction of the Multilateral Court (iii) the maintenance of the term ‘arbitrator’ in the EC proposal for a multilateral court (iv) the status of the EC in the WG and (v) any particular contribution the EU is or is not willing to support.

In reply to those questions, Collin clarified the US has not submitted a paper but takes a fairly active role in the WG with more focus on reforms already put in place.

He said the EU view on the jurisdiction of the MIC is that it should be kept fairly open, though that debate is yet to happen. Further, he mentioned the EC does not refer any longer either to ‘arbitrators’ nor ‘judges’ in its proposal. It now refers to ‘adjudicators’ as a more neutral term.

Collin signalled accreditation to the WG is directly handled by the UNCITRAL Secretary. The EC submitted a paper on behalf of both, the EU and EU Member States.

For the EC, the WG is not the appropriate forum to discuss about withdrawal of consent. On the contrary, the EC sees coming as a genuine part of the discussions the use of domestic remedies, which in its opinion should be encouraged but not necessarily exhausted.

In the second round of questions, participants asked about (i) the use of an opt-in clause (ii) the level of consent expressed by African groups during the regional meeting in Conakry (iii) expectations in Vienna regarding the two parallel tracks of work streams (iv) the support behind the MIC and how long it could take, (v) how many EU countries have ratified the Mauritius Convention and applied it (vi) the applicability of the New York Convention to the enforceability of the MIC decisions (vii) EU Law conformity in regard with Opinion 1/17 of the CJEU, and (viii) the ability of third parties to have more extended rights than an amicus curiæ.

Collin explained the idea of the opt-in clause is to create an umbrella treaty and remarked there is a discussion as to whether it would be automatically applicable or not. As previous examples of implementation, he quoted the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the ‘Mauritius Convention’) and the Convention on Mutual Administrative Assistance in Tax Matters developed jointly by the OECD and the Council of Europe.

Collin argued he could not speak on behalf of any African groups. Allegedly, there was a concern on costs, duration of proceedings, how to address more the use of Conciliation, Mediation and other ADRs, cultural diversity in arbitration and the difficulties developing countries face in managing to defend themselves.

As to the two parallel tracks of work streams, the EC will actively participate in both. However, its priority is to work more on a permanent structure. Collin said the idea of the multilateral court has found not only support but also interest. Countries realize there is an opportunity to engage in significant reform and are keen to do that. Obviously, it is quite difficult to predict how long this will take despite the celebration of intersectional sessions to accelerate the process to move forward.

Collin said the number of countries that have ratified the Mauritius Convention is growing steadily, but international law does not move very quickly. So, it takes time. During the last 4 years, the EU has been discussing a Council decision on the adoption of the Convention, but a very small number of EU States does not want to get there. Once that decision is made, it will open the door for EU Member States to ratify the Mauritius Convention, which already many EU Member States have signed.

On enforceability, Collin distinguished two elements. On the one hand, there should not be the ability for domestic courts to review a decision which has been subject to appeal. These rules should be modelled or similar to ICSID enforceability rules. On the other hand, the EC foresees an argument on the enforceability of the decisions of the MIC in third countries. According to the EC, the solution to the latter is to apply the New York Convention. And in this regard, the Iran-United States Claims Tribunal is quoted as an example of the applicability of the New York Convention to the enforceability of the decisions of a permanent body. This does not properly clear the fact that equality of the parties in the appointment of arbitrators constitutes a principle of international public policy. Article V(2)(b) of the New York Convention is understood as providing grounds for nonrecognition of awards for a lack of due process or violation of public policy.

As to EU Law conformity in regard with Opinion 1/17 of the CJEU, the EC envisions to ensure it in part in the MIC itself but much more likely also in the underlying treaties with non-binding decisions on EU Law and the same for the type of remedies.

For the EC, the question on the ability of third parties to have more extended rights than an amicus curiæ is not on the horizon of the discussions that will take place in Vienna from 14 to 18 October 2019. It is a subject for future discussion in a later stage of the reform.

Finally, during the last round of questions Collin observed that it is not immediately clear the Multilateral Court should be a specific structure or have a particular relation to the International Court of Justice.


[1] Member of the Brussels, Barcelona and Caracas Bars.

Investment Tribunals Are Too Quick to Establish the Existence of Issue and Cause of Action Estoppel in International (Investment) Law

Alexandros-Cătălin Bakos[1]

There is no denying that there is a serious backlash against investment arbitration at the moment. The signs are everywhere: from the latest discussions occurring within UNCITRAL’s Working Group III to the more recent practice of states (see the 22 European Union Member States’ declaration concerning the termination of their intra-EU Bilateral Investment Treaties); the latest ‘battlefront’ seems to be the Energy Charter Treaty, where the investment tribunals seized of disputes on the basis of this treaty consider it immune from the effects of the Achmea decision. The causes for this backlash are manifold. For present purposes, however, I would like to focus my attention on only one of the causes: incorrect decisions. And I would like to go even further and look at a very specific example of incorrect decisions: the application of the principle of estoppel by investment tribunals. I will focus exclusively on the procedural aspect of estoppel, as a bar to a claim. This seems to be its main, although not its only (para. 831), function – at least in international investment law.

Some background information on estoppel

Generally, estoppel is a very strong mechanism which has a preclusive effect against a party contradicting itself if another party has relied (usually to the latter’s detriment) on the initial position of the former (para. 231). Essentially, the party which contradicts itself is prevented from averring the contradictory fact (the subsequent one). ‘[W]hat is relevant for estoppel is that there has been a declaration, representation, or conduct which has in fact induced reasonable reliance by a third party, which means that the State, even if only implicitly, has committed not to change its course’ (idem, para. 246). Furthermore, the element which induces reliance must be unambiguous (paras. 8.46-8.47). Other tribunals refer to the fact that representations must be ‘clear and consistent’ (for example, the Chagos Marine Protected Area Arbitration, para. 438).

In international law, the application of estoppel dates back to the days of the Permanent Court of International Justice: for example, in the Legal Status of Eastern Greenland case, Norway was precluded from asserting sovereignty over Greenland, as the former had expressly recognized the latter as part of Denmark. This form of estoppel, however, seems to heavily overlap with vaguer principles – including the principle of good faith (para. 483).

There are voices in international law which argue that estoppel as such exists in a single form in international law and not in its various iterations found in the domestic common law systems (para. 436). This view, however, is not shared by all international law practitioners. Whether due to fragmentation of international law or not, this divergence becomes obvious once one analyzes arbitral practice. One example of how arbitral tribunals have looked at estoppel in its specific iterations concerns procedural aspects. There, estoppel acts as a more specific and technical mechanism designed to prevent an already litigated claim from being pursued again (similar to res judicata, although with a few important differences which will be mentioned below). The important branches of estoppel which may preclude a claim from being relitigated are: cause of action estoppel;[2] and issue (or collateral) estoppel.[3] It is important to mention that both these doctrines ‘prevent the parties from re-litigating a question that has been determined by a Court of competent jurisdiction, between the same parties or their privies, in a previous action. Once those elements have been made out, and unless there are special circumstances, the parties are precluded from raising the issues. [footnote omitted] The special circumstances which would permit the issue to be raised again include the discovery of further material relevant to issues in the first set of proceedings [footnote omitted] or fraud’.[4] The essential difference between the two doctrines, according to Griffith and Seif, is that cause of action estoppel concerns the claim itself which is precluded, whereas issue estoppel prevents relitigation of a point of law or of fact already decided by a tribunal.[5] Wilken QC and Ghaly point out that the difference is one of specificity.[6] According to them, ‘issue estoppel bites on the facts and issues required to establish the cause of action whereas cause of action estoppel looks only at the cause of action’.[7] Sheppard equates ‘cause of action’ with ‘claim’.[8]

A very important point of difference between estoppel – in both its iterations – and res judicata is that the latter requires (at least traditionally, as Judge Anzilotti mentioned in his dissenting opinion to the Factory at Chorzów case) a three-element identity between the concerned claims (the same person, the same claim and the same legal grounds); also known as the ‘three-element test’. Moreover, estoppel extends to the privies of the relevant parties, while res judicata – if interpreted strictly – does not.[9] Without going into the details of how the three elements of res judicata have been interpreted, especially in investment arbitration (as this is another subject for another date), it can be reasonably stated that estoppel is a stronger tool (than res judicata) in the arsenal of investment tribunals which can be used to prevent abusive re-litigation. The problem, however, is that the existence of such an instrument in international law is not clearly evident and tribunals seem to have taken its existence for granted.

The problems with the investment tribunals’ application of estoppel

Although not a general principle of law,[10] some arbitral tribunals seem to have applied estoppel as such. As will be seen below, however, there is at best inconclusive evidence as to the existence of a general principle of estoppel and at worst clear attempts to disregard this non-existence and apply a principle out of nothing.

At the same time, there are arbitral tribunals which may suggest or clearly determine that estoppel is a principle of law,[11] although this is usually not explained clearly and the reasoning is incomplete. As such, one is left wondering how did the tribunal uncover such a principle and whether it really exists.

For example, the Petrobart tribunal mentioned that ‘while the doctrine of collateral estoppel seems to have primarily developed in American law, other legal systems have similar rules which in some circumstances preclude examination of an issue which could have been raised, but was not raised, in previous proceedings. A doctrine of estoppel is also recognised in public international law’ (at pp. 66-67).

The tribunal, however, was unclear whether this amounted to a principle of law or not. The fact that there exist rules which establish preclusion of issues which could have been raised but were not raised and that these rules occur outside of the American legal system, as well, does not transform estoppel into a principle of law. At the same time, the tribunal did not mention in what form is estoppel recognised in public international law. It may have suggested that this would be applied as a principle, but it stopped short of fully clarifying whether such a principle indeed exists. The alternative may have been the customary law nature of estoppel, but the tribunal neither identified the underlying state practice and opinio juris nor referred to awards/ judgements in which such a custom was established. In the end, the claim preclusion argument was anyway rejected, since – among others – there was no identity between the legal grounds relied on in the relevant proceedings (at pp. 67-68).

Another example is RSM v. Grenada. There, the tribunal explicitly endorsed collateral estoppel as a general principle of law (para. 7.1.2). The tribunal noted ‘that the doctrine of collateral estoppel is now well established as a general principle of law applicable in the international courts and tribunals such as this one. [footnote omitted] (ibid.). However, it did not come to this conclusion itself, but rather relied on other tribunals’ conclusions.[12] What is surprising after looking at the cited cases is that neither of them clearly endorses estoppel as a principle of law.

For example, the Amco v. Indonesia tribunal referred to res judicata as a principle of law (paras. 26-46). One cannot exclude the possibility of this encapsulating estoppel as well, but such a conclusion is not clear. This lack of clarity is further compounded by the fact that the Amco v. Indonesia tribunal mentioned that ‘it is by no means clear that the basic trend in international law is to accept reasoning, preliminary or incidental determinations as part of what constitutes res judicata’ (idem, para. 32). As issue/collateral estoppel necessarily implies the fact that the reasoning of an award must be considered for this mechanism to arise,[13] the finding of the Amco v. Indonesia tribunal raises serious doubts as to the conclusion that estoppel was part of the principle to which that tribunal referred.

As regards the other relevant case (Southern Pacific Railroad Co. v. United States, which arose before the Supreme Court of the United States) it is true that what the cited tribunal referred to was issue estoppel (pp. 48-49). It mentioned that a general principle existed which mandated ‘that a right, question, or fact distinctly put in issue, and directly determined by a court of competent jurisdiction as a ground of recovery cannot be disputed in a subsequent suit between the same parties or their privies, and, even if the second suit is for a different cause of action, the right, question, or fact once so determined must, as between the same parties or their privies, be taken as conclusively established so long as the judgment in the first suit remains unmodified’ (ibid.). What the tribunal does not mention, however, is whether this general principle is a general principle common to all nations or whether this was a general principle specific only to the common law system.

There are tribunals which even seem to rely on estoppel, although, in reality, they are applying res judicata. This was the case with the Marco Gavazzi and Stefano Gavazzi v. Romania tribunal (paras. 164-166). In the first place, the tribunal analyzed whether an initial decision (which was alleged to preclude the claims before the forum) had ‘conclusive effects on the Parties to the present proceedings under the doctrine of res judicata or issue estoppel’ (idem, para. 164). Subsequently, it went on to mention that ‘under international law, three conditions need to be fulfilled for a decision to have binding effect in later proceedings: namely, that in both instances, the object of the claim, the cause of action, and the parties are identical’ (idem, para. 166). Although it did expressly refer to issue estoppel at one point, the tribunal referred to the conditions which were necessary to be fulfilled in order for res judicata to operate (the three-element test, as mentioned above). Moreover, it conflated issue estoppel with cause of action estoppel. As shown earlier, identity of cause of action is only necessary in the case of cause of action estoppel and not in the case of issue estoppel.

All the above examples demonstrate that estoppel as such is not applicable in investment arbitration (by virtue of international law, at least) and that tribunals seem to ignore this. There is no general principle – as understood by Article 38 (1) (c) of the Statute of the International Court of Justice, as an authoritative reflection of the sources of international law – of estoppel. At least no principle which could cover cause of action or issue estoppel. There is no evidence of a customary rule encapsulating estoppel either.[14] Moreover, not even investment treaties seem to contain this mechanism. For example, the 2012 US Model BIT – selected for being relevant to a common law jurisdiction – does not make any reference to estoppel. Neither does one of the latest UK BITs (the UK-Colombia BIT) contain any reference to estoppel – although it does allow the tribunal to address abuse of process; however, this is different than estoppel.


[1] Editor at avocatnet.ro and Associate Expert at DAVA | Strategic Analysis. This post is based on part of my thesis, submitted for the completion of an LL. M. in Law and Economics at Utrecht University. I would like to express my gratitude to Dr. Yulia Levashova, for her continuous support and for an in-depth and comprehensive feedback. In any case, I take full responsibility for the opinions and they are exclusively mine, not reflecting anyone else’s or any other institution’s.

[2] Audley Sheppard, ‘Chapter 8. Res Judicata and Estoppel’ in Bernardo M. Cremades Sanz-Pastor and Julian D.M. Lew (eds.), Parallel State and Arbitral Procedures in International Arbitration, p. 225 (hereinafter referred to as ‘Sheppard’).

[3] Ibid.

[4] Sean Wilken QC, Karim Ghaly, The Law of Waiver, Variation and Estoppel. Third Edition (Oxford University Press 2012), para. 14.08 (hereinafter referred to as Wilken QC, Ghaly).

[5] Gavan Griffith; Isabella Seif, ‘Chapter 8: Work in Progress: Res Judicata and Issue Estoppel in Investment Arbitration’, in Neil Kaplan and Michael J. Moser (eds), Jurisdiction, Admissibility and Choice of Law in International Arbitration: Liber Amicorum Michael Pryles (Kluwer Law International 2018), p. 124 (hereinafter referred to as ‘Griffith; Seif’).

[6] Wilken QC, Ghaly, para. 14.09.

[7] Ibid..

[8] Sheppard, p. 225.

[9] Griffith; Seif, p. 126.

[10] Charles T. Kotuby Jr. and Luke A. Sobota, General Principles of Law and International Due Process. Principles and Norms Applicable in Transnational Disputes (Oxford University Press 2017), footnote 262, p. 200. Such a conclusion (that estoppel is not a general principle of law) is in accordance with one of the major views in international legal relations as to what constitutes a general principle of law: one ‘which can be derived from a comparison of the various systems of municipal law, and the extraction of such principles as appear to be shared by all, or a majority, of them [emphasis added]’, Hugh Thirlway, The Sources of International Law. Second Edition (Oxford University Press, 2019), p. 108.

[11] Stating that estoppel is a principle of law serves two aims: firstly, the tribunal justifies the application of estoppel by reference to a source of international law (usually, part of the applicable law). Secondly, this gives the tribunal legitimacy, as the tribunal grounds its decision to rely on estoppel on a widely-applicable source of law (whether objectively true or not is not as important).

[12] The cases to which the RSM tribunal referred were mentioned at page 27, footnote 34 of the award: Amco Asia Corporation v Republic of Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction (Resubmitted Case), 10 May 1988, para. 30; Company General of the Orinoco Case, 10 R.I.A.A. 184 (1905); and Southern Pacific Railroad Co. v. United States, 168 U.S. 1 (1897). The second tribunal quoted in turn the third one. As such, I will refer only to the first and third tribunals in the remainder of this part.

[13] Sheppard, p. 234; Griffith, Seif, p. 121.

[14] Christopher Brown, ‘A Comparative and Critical Assessment of Estoppel in International Law’, University of Miami Law Review [Vol. 50:369 1996], pp. 384-385;Pan Kaijun, ‘A Re-Examination of Estoppel in International Jurisprudence’, 16 Chinese Journal of International Law (2017), p. 761.

Ensuring Equitable Access to All Stakeholders: Critical Suggestions for the MIC (EFILA Submission to the UNCITRAL WG no. 3 on ISDS Reforms)

EFILA has recently submitted its suggestions to the UNCITRAL Working Group no. 3 on ISDS Reform. The entire document can be found here. An extract can be read below.

The European Federation for Investment Law and Arbitration (EFILA) believes that no discussion about the reform of the investor-State dispute settlement (ISDS) system should occur without taking stock of the interests of all stakeholders. This is particularly true for the proposal for a Multilateral Investment Court (MIC), which is currently being discussed and negotiated in UNCITRAL Working Group III. Without the active participation of all stakeholders (i.e. all potential users of the MIC) – including investors and their legal counsel – any ISDS system will lack legitimacy.

With this in mind, EFILA submits the following, non-exhaustive suggestions for ISDS reform and, in particular, for the MIC proposal:

The Appointment & Selection of MIC Judges: Central to the ISDS system’s ability to effectively resolve disputes between investors and States is the confidence of all stakeholders in their decision-makers. For this reason, EFILA believes that investors should continue to have a direct and indirect say in the choice of their decision-makers. The MIC should:

  1. Let a college of representatives chosen by the investors, as users of the system, participate in choosing candidates for the MIC;
  2. Give all stakeholders a right to strike out a given number of judges assigned to their panel; and
  3. Allow all stakeholders to retain the right to challenge MIC judges on the basis of clearly defined standards before an independent body.

Consistency of MIC Decisions: EFILA agrees that consistency in legal decisions is an important element of any well-functioning dispute resolution system. Consistency, however, must be objective. It cannot be used as a means to “correct” awards that arrive at unwelcome results. Any responses to consistency must respect the rule of law and the equality of the parties.

Accordingly, any final design of the MIC should:

  1. Not allow joint binding interpretations with potentially retroactive effect;
  2. Avoid unnecessarily reducing the material scope of the standards of investment and investor protection; and
  3. Limit exclusions of certain types of investors, investments and sectors to only to the
    extent objectively and reasonably necessary.

Access To Justice For SMEs: Small and medium sized enterprises (SMEs) are an integral part of the global economy. Any proposed reform of the ISDS system cannot disregard SMEs or discourage them from making full use of the ISDS system. The MIC, therefore, must include structural and systemic solutions that effectively ensure access to the system for SMEs. These include:

  1. Adopting cost-efficient rules that promote access to justice by SMEs;
  2. Establishing a process that informs and educates SMEs about the ISDS system and helps them to assess their claims; and
  3. Creating a financial support system for accessibility to the ISDS system for SMEs.

Enforcement of MIC Decisions: The application of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) to MIC decisions (even if just on an interim basis) raises serious potential obstacles to the enforceability of those decisions. Further thought should be given to ensuring that MIC decisions will be enforceable.

These suggestions, EFILA believes, will encourage confidence from all stakeholders in the MIC system and thus make the MIC a fair dispute settlement system for all users.

The entire document can be found here.

The first steps towards a Multilateral Investment Court (MIC)

by Prof. Nikos Lavranos, Secretary-General of EFILA

 

On the instigation of the EU, the UNCITRAL Commission adopted a broad mandate for a Working Group to:

  • identify and consider concerns regarding ISDS;
  • consider whether reforms are desirable in light of the identified concerns;
  • if the Working Group were to conclude that reform is desirable, to develop and recommend any relevant solutions;

This mandate was adopted after a heated debate in which the USA and Japan were the strongest opponents to such a mandate, while the EU, Canada, Mauritius, South Africa and several Latin American countries vigorously pushed for such a mandate.

The debate reflected the different views as to whether, and if so, to what extent the ISDS system needs to be reformed or even preferably replaced by a permanent multilateral investment court (MIC).

Eventually, all present states accepted to give UNCITRAL such a broad mandate.

Although, the proponents of this mandate repeatedly reassured each other that the outcome of the work of the UNCITRAL Working Group should not be prejudged and that all options should be on the table, it was obvious for everybody in the room that the only outcome will be the creation of the MIC.

Indeed, the template for the negotiation process and draft text for the MIC will replicate the ‘Mauritius Convention approach’, which was successfully adopted for the UNCITRAL Transparency Rules for investment treaty arbitrations adopted in 2014 and which will enter into force in October 2017. A detailed report by Gabrielle Kaufman-Kohler and Michele Potestà in which they describe how the Mauritius Convention approach could serve as a model for creating the MIC provided the basis for the discussion and the eventual adoption of the mandate.

The ‘Mauritius Convention approach’ allowed for an extraordinarily fast negotiation process and contains a flexible opt-in menu for the contracting parties. Accordingly, states are free to select whether or not the UNCITRAL Transparency Rules will also apply for disputes initiated under pre-existing BITs or only for BITs which entered into force after the Transparency Rules become applicable. In addition, the unusual low requirement of only 3 ratifications for the entering into force of the Mauritius Convention is another feature, which allows for turning a negotiated text into a formally applicable legal instrument.

Considering the fact that work on the MIC is slated to start already next November and assuming that the ‘Mauritius Convention approach is’ followed, a draft text for the MIC could be on the table by the end of 2018, so that the first signatures could be put under such a text in 2019, making the MIC a reality by 2020.

In sum, the EU has successfully managed to instrumentalize UNCITRAL for its MIC idea.

Only time will tell how much traction there actually will be among states for creating the MIC.

The debate on the mandate showed that there is not yet consensus for the MIC throughout the world. While the EU, most EU Member States, Canada, some Latin American countries and South Africa seem very eager to create the MIC, in the Asian and Pacific region there seemed to be considerably less appetite. In particular, Japan, China, Singapore, South Korea, NZ and Australia, but also the USA were much more cautious and less convinced about the urgent need to replace the current ISDS system with something completely new, which may very well create new legal and policy problems.

 

Arbitration in Iran: With Focus on International Commercial Arbitration

 

Nasim Gheidi & Parham Zahedi, Gheidi & Associates*

Part one – Historical Background

Following the historic deal known as the Joint Comprehensive Plan of Action (JCPOA) between Iran and five permanent members of the Security Council plus Germany, Iran is again at the center of companies’ attention from all over the world. Iran, with vast area of land and extremely rich natural and human resources, undoubtedly stands as a major target for sustainable foreign investment. Despite being enthusiastic for doing business in Iran, companies may still remain baffled as to legal implications and consequences of their entering into the market, in particular, as to the efficiency of the dispute settlement system.

Investors have always preferred arbitration to national courts so that a fair and professional trial is ensured. The question, however, arises as to whether Iran’s legal system guarantees resorting to such internationally recognized and renowned method.

The Iranian legal system is based on Sharia, which is derived from the religious precepts of Islam, particularly the Quran and the Hadith, so that every code will be in compliance with Sharia. The perennial question as to emergence of each legal institution is whether it could be adopted by Sharia. As regards dispute settlement, arbitration is suggested by Quran in family disputes under Nesa Surah Verse 35 and by various Hadiths in business affairs.  Therefore, this is certainly a consensus between Islamic law experts that disputes can be referred to arbitration rather than to the courts.

Arbitration laws are adopted by Iranian legislative powers since the beginning of new legislation era as part of procedural law first and then as a separate law governing arbitration independently. After the Islamic revolution and further challenges and developments with regard to legislation, the Law on International Commercial Arbitration (“LICA”) enacted in 1997 and Civil Procedure Law (“CPL”), last modified in 2001, are the latest applicable laws governing international commercial disputes and local disputes respectively.

Chapter 7 of the CPL deals with arbitration. The provisions of this chapter is applicable only to arbitration where both parties to the dispute have Iranian nationality. In 1997, in order to harmonize and facilitate the provisions of the arbitration with international practice, the parliament passed the LICA, which is largely based on the UNCITRAL Model Law on “International Commercial Arbitration”. According to Art 1 (B) of LICA, “International arbitration is in the case where one of the parties, at the time of conclusion of the arbitration agreement, is not a national of Iran under the Iranian laws.” LICA applies to arbitration in international commercial relationships including, inter alia, sales of goods and services, transportation, insurance, financial matters, consulting, investment, technical cooperation, representation, factoring or similar activities as per Art 2 (1).

LICA recognizes the autonomy of the parties to organize the arbitral proceedings e.g. the right to appoint arbitrators, choose the applicable law, location and language of arbitration proceedings. Other features of LICA to be noted are competence of arbitral tribunal to rule on its jurisdiction, non-intervention of Iranian courts in the proceedings, severability of the arbitration clause, power of the arbitral tribunal to take provisional measures and above all recognition of institutional arbitration, allowing the parties to refer subject matter of their dispute to arbitration institutions.

The major (and the most active) arbitration institutions in Iran are Arbitration Center of Iran Chamber (“ACIC”) and Tehran Regional Arbitration Center (TRAC), which provide an immune and secure environment for conducting arbitration proceedings. As cited in their websites, ACIC was established in 3 February 2002 by virtue of a specific piece of law called “The Law on Articles of Association of ACIC” approved by the parliament of Iran. ACIC is organized as an affiliate to the Iran Chamber of Commerce but enjoys independent legal personality. ACIC is the first Iranian independent arbitration institution established for the purpose of settlement of both domestic and international disputes through arbitration or conciliation. Tehran Regional Arbitration Centre (TRAC) is an independent international organization under the auspice of the Asian-African Legal Consultative Organization (“AALCO”). TRAC has been established pursuant to the Agreement signed on 3 May 1997, between the Islamic Republic of Iran and ALLCO. TRAC enjoys the necessary privileges and immunities provided for an international organization. The TRAC Rules of Arbitration (the “Rules”) are essentially based on the UNCITRAL Rules of Arbitration.

In subsequent years to the enactment of LICA, in 2001, Iran ratified the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (the “NY Convention”) to take a notable further step to be known as a suitable country for foreign investment. The accession to the NYC has paved the way for foreign investors to refer their disputes to international arbitration outside of Iran as foreign arbitral awards are recognized and can be enforced in the country as long as there is no ground for refusal in accordance with Article V of NY Convention.

The above-mentioned developments, including enactment of LICA based on UNICTRAL Model Law, accession to the NY Convention, establishment of international arbitration institutions and above all organizing and conducting training and commercial seminars for students, lawyers and businessmen have opened up novel convenient avenues for the development of international arbitration as one of the prerequisite for foreign investment promotion and protection in Iran.

In addition, Iran has signed more than 60 Bilateral Investment Treaties (52 of them are in force) with capital-exporting and neighboring countries to encourage and attract foreign investments. Under all these BITs, International arbitration is allowed in the event of investment disputes, which is a key protection and promotion for foreign investment.

However, despite all these valuable developments, Iran as a developing country is still struggling with some ambiguities in its legal system especially when it comes to recognition, enforcement or annulment of arbitral awards. Some conflicts exist between laws and practice and some improper judicial precedents are in place. The role of legal scholars and professionals in the country is to attune special attention to the challenges and obstacles so that a more favorable environment is provided for international arbitration and foreign investment in general.

In this first article of our upcoming series, we tried to give a historical introduction about arbitration in Iran. We will further discuss the potentials to be realized and developed as well as obstacles and barriers to be tackled. In the next article the focus will be laid on Principle 139 of Iranian Constitutional Law, which challenges arbitrability of the disputes where public or governmental properties are involved and the conflicts therewith arisen with BITs that Iran has made with other states. In the end, possible solutions will be presented for the purpose of foreign investor’s protection.