But am I the only person who was wondering whether Spain might step forward to sue Argentina on behalf of Repsol?

To be sure, a state-to-state claim would swim against the tide of conventional wisdom. After all, modern Bilateral Investment Treaties contain investor-to-state arbitration clauses precisely so that investors can fight their own legal battles.

However, in recent years, at least one European government has exercised diplomatic protection on behalf of its nationals by invoking the state-to-state arbitration provisions of a bilateral investment treaty. The recently-documented decision by Italy to sue Cuba on behalf of 16 putative investors has illustrated the potential utility of the oft-neglected state-to-state arbitration mechanism found in many BITs.

Several aspects of the Repsol-Argentina controversy make it an intriguing candidate for state-to-state arbitration.

Spain is likely to be dragged in at some stage anyway

In the days after the announcement of Argentina’s nationalization plans, Spain was swift to announce that it would take retaliatory action against Argentine imports. Even if Spain stays its hand for now – and lets the European Commission handle any trade retaliation – the Spanish government is likely to be dragged into the Repsol-Argentina dispute down the road.

Unless Argentina alters it present strategy of not paying final arbitral awards voluntarily, any foreign investor that pursues investor-state arbitration will inevitably turn back to its home state for political and legal muscle during the enforcement and collection phase. Just as the United States and France have been dragged into disputes after their respective investors have failed to collect on final arbitral awards against Argentina, Spain would likely be asked by Repsol to help play the role of collections agent.

If it is inevitable that Spain will get dragged into the dispute during the enforcement end-game, then authorities might have fewer illusions about the supposed “depoliticization” offered by investor-state arbitration. If Spain can look forward to wrestling with Argentina over the enforcement of an arbitral award, perhaps Spanish government lawyers might like to have a hand in the running of the case that gives rise to that award.

A more active Spanish role does not have a huge diplomatic downside

Greater involvement by Spain in the arbitration with Argentina would not necessarily come at the expense of diplomatic relations between the two countries. Increasingly frayed diplomatic relations between Spain and Argentina in recent years mean that Spain is unlikely to play an effective role as facilitator or honest-broker vis a vis Spanish investors and Argentina.

Spanish Foreign Minister José Manuel García-Margallo admitted as much in a recent interview with The Wall Street Journal, where he conceded that Spain had expended considerable diplomatic energy – ultimately in vain – to heading off the nationalization of Repsol.

A source familiar with the resolution of earlier ICSID disputes between Spanish companies and Argentina tells me that the warmer relations between Spain and Argentina in previous years were instrumental in getting several investment disputes – like those involving Gas Natural and Telefonica – resolved without needing to arbitrate them fully.

With Spain bereft of any hope of playing such a facilitative role this time around – and less encumbered by the need to safeguard its good political relations – perhaps the Spanish authorities would have fewer qualms about stepping forward and playing a more central role in any arbitration with Argentina.

Nothing to lose, but what is to be gained?

While Spain might have less to lose, what would be gained by bringing a state-to-state claim?

Perhaps most obvious is that Spain – at a time when it is itself facing arbitral claims from disgruntled foreign investors – might have an interest in playing a more hands-on role in the arbitral processes through which concrete meaning is given to the terms of Spanish investment treaties.

Equally, if Spain were to climb into the driver’s seat, the European Union might be keen to do some “backseat driving”. As is well known, the E.U. has taken over the competence to negotiate investment agreements on behalf of E.U. member-states with non-E.U. member-states, and the Brussels-based European Commission would certainly expect to work closely with Spain on any claim against Argentina.

Given the E.C.’s extensive experience in active claims-management on behalf of E.U. trading interests in the World Trade Organization, I suspect that Brussels might not find a claim by Spain to be so unusual or off-putting. Indeed, managing such a case might provide a further opportunity for Brussels to place its own stamp on the development and evolution of investment law. For some time now, Brussels has been reduced to the role of a peeping tom, seeking to peer into closed investor-to-state proceedings, and to make its views heard (sometimes over the objections of the parties involved.)

The question of speed

Another factor which Spain might consider in deciding whether to bring an arbitration claim against Argentina could be the speed with which a state-to-state arbitration might play out. It remains to be seen whether a state-to-state proceeding could offer a faster alternative to the clearly glacial pace of many investor-to-state claims against Argentina.

In some cases, it seems that state-to-state arbitration would be markedly swifter.

Under the U.S.-Ecuador BIT, such claims must be resolved in a mere 6 months after the constitution of a tribunal. Such a timetable – if applicable in real life – would be a massive improvement on the time it takes to resolve investor-state claims.

Unfortunately for Spain, the Spain-Argentina BIT does not contain the type of extreme fast-track process prescribed in certain outlier treaties like the U.S.-Ecuador BIT. However, even without such a treaty-imposed deadline, it strikes me that state-to-state arbitration could be faster than investor-to-state proceedings in some instances.

To be fair, any head-start conferred on state-claimants by the Spain-Argentina treaty – which allows for claims to be filed a mere 6 months, rather than (an arguable*) 24 months after notification for investor-claimants – would be offset by the requirement for the exhaustion of domestic remedies that applies in diplomatic protection contexts. I’m not sure if the exhaustion requirement might be applied flexibly in this case, but there is certainly a possibility that domestic remedies could be protracted. If Repsol were obliged to spend years in the Argentine courts, then it might take Spain longer to get to the arbitral starting line than if Repsol proceeded in its own name.

It would remain to be seen whether the actual arbitration process would be faster or slower in a state-to-state context than in an investor-state one. However, until we see a few test-cases brought by states – and can measure their overall pace – I remain open-minded as to whether state-to-state claims could be arbitrated more swiftly than investor-state claims.

In the coming months, we’ll see if Spain decides to interpose itself into the legal phase of the Repsol controversy. Probably, it won’t.

However, the precedent set by the recent Italy-Cuba BIT arbitration – coupled with the recent tendency of home-states to get dragged into investor-state cases anyway during the enforcement end-game – should be enough to open the eyes of home-states to the long-overlooked prospect of bringing state-to-state arbitration claims under bilateral investment treaties.

(* Note that views will differ as to whether Repsol could, in light of recent arbitral developments, expect to use an MFN clause in order to steer around a treaty requirement of 18 months of local litigation prior to international arbitration.)


Luke Eric Peterson is Editor of Investment Arbitration Reporter, an online news and analysis service specializing in foreign investment law and policy. By invitation of Kluwer, he contributes occasional commentary to the Kluwer Arbitration Blog

Ever since the Supreme Court’s 2004 decision in Intel Corp. v. Advanced Micro Devices, Inc. that question has vexed lower federal courts. Although the Supreme Court did not address international arbitration directly, its reasoning appeared to support a broad interpretation that would encompass arbitral tribunals, which likewise act as “first-instance decision-makers” that render “dispositive rulings” subject to limited national court review. Moreover, in describing the scope of Section 1782, the Court found that Congress amended the statute in 1964 to “provide the possibility of U.S. judicial assistance in connection with administrative and quasi-judicial proceedings abroad” and quoted scholarly commentary that defined the term ‘tribunal’ to include “investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.”

In the wake of Intel, federal courts have struggled to apply the Court’s liberal Section 1782 standards to the context of international arbitration. Lower courts are divided on the question of whether a contract-based private international arbitral panel satisfies the statutory definition of “international tribunal.”

A majority have concluded that arbitral tribunals established by private contract are “foreign or international tribunals.” As the federal district court in In re Babcock Borsig AG, 583 F.Supp.2d 233 put it, addressing a Section 1782 petition involving an ICC arbitration, “[t]here is no textual basis upon which to draw a distinction between public and private arbitral tribunals, and the Supreme Court in Intel repeatedly refused to place ‘categorical limitations’ on the availability of § 1782(a).” Under this analysis, the functional approach adopted by the Supreme Court in Intel suggests that contract-based arbitral tribunals are first-instance decision-makers that issue decisions both responsive to the complaint and reviewable in court. As the court in Roz Trading, 469 F.Supp.2d 1221 put it, “it is the function of the body that makes it a ‘tribunal,’ not its formal identity as a ‘governmental’ or ‘private’ institution.”

Other federal district courts have concluded that private arbitral tribunals are not “international tribunals” within the meaning of Section 1782. These courts focus on arbitration as an alternative to litigation, foreclosing a key element of Intel’s analysis: judicial review. “[T]he very narrow circumstances in which [arbitral] decisions may be subject to review does not allow for judicial review of the merits of the parties’ dispute,” opined the federal district court in Norfolk Southern Corp., 626 F.Supp.2d 882. “Accordingly, the ‘arbitral tribunal’ at issue here does not fall within the definition the Supreme Court embraced in its Intel dictum.” Moreover, according to some courts, the fact that the source of judicial authority is derived from private agreement likewise militates against classifying it as a foreign or international proceeding under § 1782. Finally, pragmatic concerns have loomed large in the analysis. As one court put it, “[i]nterpreting § 1782 to apply to voluntary, private international arbitrations would be a body blow to such arbitration, since it would create a tremendous disincentive to engage in such arbitration wherever, as here, such a reading would create substantially asymmetrical discovery obligations.”

Whatever doubts there may be about the application of Section 1782 to contract-based international arbitration, federal courts uniformly agree that an arbitral tribunal established pursuant to a bilateral investment treaty constitutes an “international tribunal” within the meaning of the statute. Since Intel, over twenty federal courts have considered motions to compel Section 1782 discovery in aid of proceedings before treaty-based investment arbitration tribunals. Not a single federal court has held that such arbitral tribunals fall short of the statutory definition of an “international tribunal.”

Rather than take a functional approach that analyzes whether the investment tribunal is a first-instance decision-maker rendering decisions subject to judicial review, these courts either assume that such arbitral panels are “international tribunals,” or focus on the fact that the arbitral tribunal has its origins in a bilateral investment treaty. Although the absence of judicial review in the investment context is even more pronounced than in private commercial arbitration, this factor has not featured in any of the decisions applying Section 1782 to investment arbitration. In short, federal courts take a functional approach in defining an “international tribunal” in the commercial arbitration context, and a formalist approach in the investment arbitration context.

When focused on the content of good faith, the courts in different countries as well as academic commentators seem to be often baffled. Nor in the sources of the lex mercatoria such as the UNIDROIT Principle of International Commercial Contracts, the European Principles of Contract Law, and the United Nations Convention on Contracts for the International Sales of Goods (CISG or the Vienna Sales Convention) can one find a clear definition of the content of the notion of good faith. In order to rationalise good faith jurists have proffered various legal theories ranging from efficiency arguments to formal entitlements in the spirit of solidarity to its conceptualisation in a more specific sense as ‘a true behavioural standard’. This dilemma pervades in international law, in general, and in the emerging case law of international investment law in particular. Therefore, it proves the international arbitrator’s task in an investment dispute all the more difficult as in any other field when it comes to define the concept and to render any decision on the basis of it.

It thus merits a fresh look at the concept of good faith in order to understand its scope and function in a contractual relationship which is the focus of this blog. In order to apply the concept to a particular context good faith could be considered a functional or objective one in the sense of a framework of relationship between the parties to a contract and cooperation being its underlying current. In this respect good faith is a framework concept based on cooperation as its philosophical foundation. In international business-contracting the consideration of mutual interests of the contracting parties in the spirit of cooperative dealing seems to get favour in some quarters as a manifestation of modern trend of collectivism as opposed to the nineteenth century legacy of individualism. Farnsworth, however, observes:

“Good faith performance has always required the cooperation of one party where it was necessary in order that the other might secure the expected benefits of the contract. And the standard for determining what cooperation was required has always been an objective standard, based on the decency, fairness or reasonableness of the community and not on the individual’s own beliefs as to what might be decent, fair or reasonable. Both common sense and tradition dictate an objective standard for good faith performance.” [E. Allan Farnsworth, Good Faith Performance and Commercial Reasonableness Under the Uniform Commercial Code, 30 U. CHI. L. REV. 666 (1963)].

It needs to be stressed that co-operation should not be understood in the sense of familial relationship such as motherly love or brotherly affections, but must be confined to the contractual relationship, hence the notion of good faith as a framework concept, i.e. fidelity to the bargain, as mentioned earlier. As far as the content of good faith is concerned the focus has to be specific in a particular context concerned in the contractual framework to see if the parties have acted in the spirit of cooperation, i.e. ‘good-faith cooperation’ [L Carvajal-Arenas, ‘Good Faith in the Lex Mercatoria: An Analysis of Arbitral Practice and Major Western Legal Systems’ (PhD thesis, University of Portsmouth 2011)]. In numerous domestic court decisions (e.g. United Group Rail Services Limited v Rail Corporation New South Wales and in international judicial (e.g. the North Sea Continental Shelf cases (ICJ), and arbitral decisions [e.g. Wintershall v Qatar (1990), Mechema Ltd. (England) v S.A. Mines, Minérais et Métaux (MMM) (Belgium) (1982)] there seems to be a tendency to give weight to the context in which the concept is to be meant. Article 31 (1) of the Vienna Convention on the Law of Treaties also points out the importance of the context of the terms of the treaty while interpreting it in good faith. Therefore, the content of the concept of good faith is more of a contextual nature than the concept itself understood in the abstract sense. The International Court of Justice observed: “(t)he principle of good faith is ‘one of the basic principles governing the creation and performance of legal obligations’; it is not in itself a source of obligation where none would otherwise exist.” [Border and Transborder Armed Actions Case (ICJ), (Nicaragua v. Honduras), Jurisdiction and Admissibility, Judgment, 20 December 1988, ICJ Rep 69, at 105 (1988)].

One may thus wonder if good faith can be understood in two senses, viz., ‘macro good faith’ and ‘micro good faith’. In respect of the former the abstract notion of good faith in the sense of honesty, fairness, reasonableness signifying its subjectivity may be meant, i.e. ‘macro good faith’ – a horizontal approach, a layer of idea which is generic (i.e. an idea at a higher level of abstraction) and may not be understood the same in different factual patterns as it will depend on its application to them. Thus, from the notional point of view good faith in the macro sense is considered to act as a major interpretative principle. While, on the other hand, it should be appreciated that what appears to be good faith in one context may not appear the same in another context with a different pattern of facts, situations or surrounding circumstances. Thus, the notion of good faith focusing on the particular context concerned – i.e. the vertical approach – may be understood as ‘micro good faith’ which brings with it the sense of objectivity rather than subjectivity understood in the horizontal sense, i.e. ‘macro good faith’. It should be appreciated that the pacta sunt servanda principle, being the foundation of all contracts, is the manifestation of ‘macro good faith’. But ‘micro good faith’ being applied in specific factual contexts may limit the application of the pacta sunt servanda principle in order to conform to it, even in changed circumstances that affect the contract. Therefore, the pacta sunt servanda principle in a contractual relationship may not be applied as an incantation or in the abstract sense, rather it should be assessed in terms of ‘micro good faith’.

In international investment law, substantive standards of treatment (investment treaty provisions) such as ‘fair and equitable treatment’, ‘full protection and security’, ‘protection of legitimate expectation’, ‘transparency’, ‘non-discrimination’, ‘national treatment’ and ‘most favoured national treatment’, etc., are considered fundamentally based on good faith, or manifestations or corollaries of good faith, but their content depends on the specific contexts in which they are applied. Here comes the crunch point when one asks: even if a state literally complies with the foregoing standards in respective cases, will it be always considered to have acted in good faith in its relationship to the other contracting party? Inversely, if a state acts in good faith to comply with its non-investment international treaty obligations relating to human rights, the environment or climate change that may interfere with investors’ rights, will it be implicated in bad faith vis-à-vis the foreign investors? It is difficult to give any straightforward answers to these questions; the answers, however, may be found specifically in the contexts in which the notion of good faith is to be examined. In investment arbitration jurisprudence such a contextual extrapolation seems to be increasingly endorsed rather than the simple meaning attributed to a standard of treatment (e.g., the S.D. Myers, Mondev, ADF, Loewen and Waste Management cases). Often, in order to reflect good-faith cooperation in an investment contract situation the aforementioned standards of treatment for foreign investors may have to be weighed against the state party’s competing public interests, such as the protection of the environment, the promotion and protection of human rights and the securing of the economic development of the host country. There seems to be a growing support for such a stance amongst various stakeholders such as host countries, NGOs, international organizations (the World Bank and the IMF, etc.) and others, though this aspect of international investment law is still in the early stage of development.

The scope and content of the standards of treatment for foreign investors may differ from contexts to contexts entailing the understanding of good faith in the micro sense. As the comments to section 205 of the U.C.C. also states, in a different domain of law though, that “[t]he phrase ‘good faith’ is used in a variety of contexts, and its meaning varies somewhat with the context.” To get a result then it would be advisable to look at the notion of ‘micro good faith’ – a context-based one with the objectivity that underscores the framework of relationship, co-operation being its philosophical foundation. Good faith in a particular situation should thus be understood not as an abstract concept but as a functional or objective one, i.e. in the micro sense, covering all stages of a contract.

Following nine years of fruitlessly attempting to enforce an ICC award in India against state-owned mining company, Coal India, over the supply of equipment and development of a coal mine, White Industries Australia Limited (‘White’) commenced UNCITRAL proceedings in Singapore against India under the Australia-India BIT. The claim was for failure to provide investors with an ‘effective means of asserting claims and enforcing rights’ owing to undue delay in the Indian courts. This claim was brought using the Kuwait-India BIT, whose obligations were imported via a Most Favoured Nation clause contained in the Australia-India BIT. Kuwaiti investments were allegedly treated more favourably by India than those of Australian investors as a result of this wording. In addition, White brought a claim for denial of justice, in breach of the fair and equitable treatment standard in the Australia-India BIT.

White also complained more generally of the Indian courts’ willingness to engage in the extensive and protracted review of foreign arbitral awards, contrary to their obligations under the New York Convention – a recognised issue where arbitration seated outside India involves an Indian party and the parties have not excluded Part I of the Indian Arbitration Act 1996.

The delay they alleged was both in enforcement and setting aside proceedings; enforcement proceedings brought by White in the High Court of New Delhi and set aside proceedings brought by Coal India in the High Court of Calcutta. The enforcement proceedings were eventually stayed pending a decision on the set-aside proceedings. White applied to have the set-aside application dismissed and pursued its appeal to the Indian Supreme Court where it waited for a date to be set for more than five years.

The UNCITRAL Tribunal delivered its award in November 2011, granting White the amount due under the original ICC award plus interest. Effectively, therefore, the treaty arbitration afforded White a second bite at the proverbial cherry, to recover damages in relation to its original claim.

In the context of the set-aside proceedings, the tribunal accepted White’s assertion that delays in the court system (the nine year jurisdictional claims) amounted to a breach of the obligation to provide ‘effective means to assert justice and enforce rights’, although not a ‘denial of justice’, which it considered (following Chevron-Texaco v. Ecuador) to be a more demanding standard under the BIT.

However, in the context of the enforcement proceedings, the tribunal did not accept either of these claims. Its argument was that White had not taken all measures available to prevent delay. With regard to White’s complaints about the Indian courts’ failure to adhere to their New York Convention obligations, the Tribunal was unsympathetic. It held that White should have known the attitude of the Indian judiciary towards implementing the Convention and should have been aware of India’s ‘seriously overstretched judiciary’. Such presumed knowledge meant that there could have been no legitimate expectation on White’s part that the Indian courts would comply voluntarily with its obligation to enforce. The nuances of India’s legal system were taken into account and it was decided, in context, that the time taken to process the claims was not excessive.

Therefore, the decision is something of a double-edged sword. On the one hand it provides a remedy of last resort to investors with a presence in countries such as India where judicial interference in the enforcement of arbitral awards is commonplace. In so doing, it, builds on the decisions in the cases of Saipem S.p.A v. The People’s Republic of Bangladesh (ICSID Case No ARB/05/7), and more recently Chevron Corporation (USA) and Texaco Petroleum Company (USA) v. The Republic of Ecuador (UNCITRAL arbitration): Partial Award on the Merits of 30 March 2010.), both of which upheld claims of judicial delays as amounting to an infringement of the rights of an investor.

However, it is unlikely to open the floodgates for claims relating to delays in enforcement. Several hurdles would need to be overcome in any comparable case:

First, the relevant BIT relied upon by the investor would need to include ‘effective means’ wording, or, as was the case in White v. India, a Most Favoured Nation clause capable of importing such wording into the BIT.

Second, the Tribunal in question would need to accept that an arbitral award falls within the definition of an ‘investment’ under the respective BIT, which remains a contentious issue. In White v. India, for example, the Tribunal held that the ICC award fell within the definition of ‘investment’ not as an investment per say, but as a ‘crystallisation of White’s rights and obligations’. However, there is, of course, no formal doctrine of precedent within investment arbitration so it cannot be assumed that the same conclusion would be drawn, even in like circumstances.

Third, the counter-argument raised by the UNCITRAL tribunal – that there could be no legitimate expectations in respect of enforcement in the Indian courts could apply in most similar scenarios where a court system is subject to systemic delays.

In any case, commencing a BIT arbitration is not a quick or an easy route to obtaining enforcement of a commercial award. There is, after all, the necessary pre-requisite of long delays in enforcement in the commercial arbitration award. This will be followed by an investment treaty arbitration, the average length of which is currently over three years and at a substantial cost to the investor – costs which may not be recoverable. Even then, enforcement does not happen automatically. Despite the procedures in place, notably under the ICSID framework, when States choose not to pay, the procedure can be equally protracted and fruitless.

For those investing in India, attention must be paid to the Department of Industrial Policy and Promotion’s (DIPP) recent pronouncement that India is likely to exclude investor-state arbitration clauses from its future BITs (including the BIT that it is negotiating with the EU) on the basis that ‘the state should not get drawn into private disputes’. It is not yet suggested that this might extend to the renunciation of current BITs and/or withdrawal from the ICSID convention, as per the trend in Latin America. Nonetheless this may well impose a further limitation on remedies for some investors into India.

In White v. India the foreign investor was entitled to a second bite at the cherry in order to eventually successfully enforce a commercial arbitral award. However, given the limitations – both from the point of view of applicable investment treaty frameworks and the procedural burden, this is likely to remain a remedy of last resort.

Joanne Greenaway and Luanna Schultz, Herbert Smith LLP

I have the honor to co-chair the meeting with Cymie Payne and Harlan Cohen and, together with a wonderful Program Committee, we put together a great program centered around the theme of “Confronting Complexity”.

The meeting includes many events of interest to international arbitration practitioners, including panels on the preparation of cases, fact-finding, ethics, sport arbitration, sanctions, the Ecuador/Chevron dispute and the emerging system of international arbitration.

At the meeting, James Crawford will be honored with the Hudson Medal, the highest honor of the society, and will deliver the Manley O. Hudson Medal Lecture on “International Law as Discipline and Profession.”

You can find the entire program here. Some of the many highlights include:

- Fact-Finding in Interstate Disputes. Moderated by Dame Rosalyn Higgins and featuring Lisa Grosh, Sean D. Murphy, Lucy F. Reed and Bruno Simma;

- Preparation of Cases before International Courts and Tribunals. Moderated by Sir Michael Wood and with speakers Sir Frank Berman, Meg Kinnear, Martin Pratt and Paul Reichler;

- Ethics for Advocates in International Adjudication. Moderated by James R. Crawford and with speakers Yas Banifatemi, Catherine Rogers, Margrete L. Stevens and V.V. Veeder;

- The Emerging System of International Arbitration. Moderated by Andrea Bjorklund and with speakers Teresa Cheng, Emmanuel Gaillard, Jan Paulsson, Anthea Roberts and Stephan W. Schill;

- A panel on the Chevron/Ecuador Dispute “A Paradigm of Complexity.” Moderated by Dan Bodansky and featuring Judith Kimerling, Lucinda A. Low, Ralph Steinhardt and Christopher Whytock;

- Conflicts in International Sports: London 2012. Moderated by Jan Paulsson and with speakers James L. Bikoff, Angela Ciccolo, Stefan Lorenzmeier and Ank Santens;

- Courts, Commissions, and the Complexity of Claims Against States. Moderated by Francis McGovern and with speakers Joan Donoghue, Timothy J. Feighery and Royce C. Lamberth;

- New Trends in the Administration of Justice of International Organizations. Moderated by Stephen Schwebel and with speakers Antigoni Axenidou, Olufemi Elias, Brian Gorlick and Maritza Struyvenberg;

- Sanctions in International Investment Law. Moderated by Céline Lévesque and with speakers Roberto Echandi, Anna Joubin-Bret, Elizabeth Lin Forder and Theodore R. Posner.

Also note the there is going to be a reception with the Presidents of the International Court of Justice, the International Criminal Court, the International Criminal Tribunal for the Former Yugoslavia and the Secretary General of the Permanent Court of Arbitration with a discussion on “Confronting Complexity in the Hague: The View from the Courts and Tribunals.”

ASIL, ABA WIN and Arbitral Women are also again co-sponsoring a “Women in Arbitration Reception” that is open to all women practicing or interested in arbitration.

Last, but not least, there will be a presentation by representatives of ICC Palestine and Israel on the newly created Jerusalem Arbitration Center.

And what else? Participants at the 2012 ASIL Annual Meeting have the opportunity to select from forty-two (42) courses and can earn up to 12 CLE credit hours, including 1.5 credit hours dedicated to ethics!

The Annual Meeting will be held March 28-31, 2012 at the Fairmont Hotel in Washington, DC. Registration is here.

I hope many of you will be able to make it!

Chiara Giorgetti
White & Case LLP

From the Jay Treaty (1794) to the current investor-state arbitration regime under investment treaties, states have used international arbitral mechanisms to resolve complex disputes involving key areas of national interest.   Although arbitration has often been used to deal with legal disputes arising out of times of crisis, in most cases the arbitral institution in question, whether called a commission or tribunal, has been a bespoke institution, created after the fact and designed to address the specific type of dispute at issue.   In contrast, a defining feature of the investment treaty claims against Argentina resulting from its emergency laws is the use of “all-purpose” tribunals based on a standing offer to arbitrate in an investment treaty, rather than a custom-made mechanism created after the fact.

The modern history of international arbitration is often traced to the Jay Treaty (1794), which established three mixed commissions to decide boundary, debt and shipping related claims.  The Jay Treaty was significant in reviving the state practice of arbitrating claims before mixed commissions, comprising commissioners or arbitrators appointed by the two states.  Further, it is an early example of a Friendship, Commerce and Navigation Treaty, precursor to international investment treaties.   From that early history, claims to injuries to persons and property have often been addressed through arbitral mechanisms.  Indeed, from 1840-1940, states established over sixty arbitral commissions to deal with disputes arising from injuries to foreign nationals.

The Conference will examine three important claims mechanisms in the 20^th century: the Mexican Mixed Claims Commission, the Iran-US Claims Tribunal and the United Nations Claims Commission.  What lessons can be learned from these mechanisms in terms of dealing with mass claims arising out of crises?  How did these institutions manage a large number and variety of claims, the consistency and coherence of awards, and funding and enforcement mechanisms?

The second part of the conference will turn to the investor-state arbitration cases arising out of the Argentine economic crisis.  Unlike the three institutions that will be discussed in the first part of the conference, which were designed after the fact, the investor-state arbitration process under investment treaties was not specifically designed to address mass claims arising out of crises.  At the same time, investment treaties were created in part to provide investors protection in periods of fundamental economic and political change.   Can the investor-state mechanism, which arguably is best suited to address one-off cases of nationalization, expropriation and breaches of other minimum standards of treatment, deal efficiently and coherently with mass claims?  Are the control mechanisms for review of arbitral awards in ICSID and the New York Convention suitable in the case of mass claims?  And, is the mechanism failing the ultimate test because awards are not being paid?

The Conference is co-chaired by Prof. John R. Crook and Prof. Andrew Newcombe and will begin with keynote address by V.V. Veeder, Q.C. on “Economic Crises and Investor-State Arbitrations – A Historical Perspective”.   The Conference will host a stellar faculty of presenters: José E. Alvarez, Mark Clodfelter, L. Yves Fortier, Cymie R. Payne and Jennifer Thornton.

Reports on the Conference, as well as the ASIL Annual Meeting, will be available on ASIL Cables.

This post is written by Andrew Newcombe as a member of the ITA Academic Council.

In the recent case of Riqo Diq, the Supreme Court again could not restrain itself from entertaining an application to interfere in the international arbitration proceedings. The dispute arose when the Government of Balochistan refused to grant lease to Tethyan Copper Company (TCC) to mine copper at Riqo Diq in Balochistan. The matter was pending before the Supreme Court when Tehyan Copper Company Australia (TTCA) initiated two arbitration proceedings against the Government of Balochistan at International Council for Commercial Arbitration (ICCA) and International Center for Settlement of Investment Disputes (ICSID). One of the parties before the Supreme Court filed an application for contempt of court against TCC and requested the Court to stay the arbitration on the ground that TCC intends to “frustrate the laws of the land through international arbitration.”

The three-member bench of the Supreme Court, headed by the Chief Justice of Pakistan, delivered the order on the application to stay the arbitration proceedings on February 7, 2012. In a fairly straight forward order, the Court directed the

Government of Balochistan… to make a request to the ICC and ICSID… not to take further steps and extend the period for nomination of the Arbitrator, so that in the meantime this Court, which is already seized of the matter since the year 2007… may dispose of the same finally.

The ruling of the Court merits a few observations.

Firstly, the Supreme Court’s order is a slight departure from the earlier rulings where the Court restrained the party that had initiated arbitration to pursue or participate in international arbitration proceedings on the ground that the international forum lacked jurisdiction. The international tribunals squarely rejected the Court’s attempts to limit their jurisdiction and to frustrate arbitration proceedings. In SGS v Pakistan (2002), the Arbitration Tribunal confronted a judgment from the Supreme Court of Pakistan restraining a Claimant from appearing in arbitration proceedings conducted under the ICSID Convention. The Tribunal thwarted the Court’s attempt to restrict the Tribunal’s jurisdiction and passed a procedural order stating that “although the Supreme Court Judgment… is final as a matter of the law of Pakistan, as a matter of international law, it does not in any way bind this Tribunal.”

The Supreme Court’s February 7th order is positive in so far as the Court implicitly recognized the jurisdiction of the international tribunals and exercised discretion. Not only the Court made no comment about the forums’ jurisdiction, it did not enjoin anyone from pursuing international arbitration. It’s is, however, not clear whether the Court passed the order “as a matter of international law” or because of the procedural reason that TCCA, the claimant in arbitration proceedings, is not directly arrayed as a party before the Supreme Court. In any case, asking a party to make a request to the arbitration tribunals to temporarily halt the proceedings is qualitatively different from restraining a Claimant before the arbitration tribunal to pursue the proceedings.

Secondly, on a critical note, it’s highly unclear what the Supreme Court wants to achieve by asking the arbitration tribunals through the Government of Balochistan “not to take further steps.” If the Court’s intention behind February 7th order is to deliver a final ruling in the Riqo Diq dispute, then there is a clear misunderstanding as far as international arbitration law is concerned. As the Tribunal in SGS v Pakistan (2002) pointed out in the procedural order, finality in domestic law is different from finality in international law. The Supreme Court may give an order which will be considered final under the law of Pakistan, but that will not cause any International Tribunal to dither in making its own finding. International Tribunals in the past have strongly resisted the efforts of the domestic courts to encroach on their authority to give a final ruling. Some tribunals have even enjoined parties from pursuing certain claims in domestic courts in search of favorable results. (Tokios Tokeless v Ukraine, Procedural Order No. 1 (2003)). In Amco v Indonesia (1984), the Tribunal stated:

an international tribunal is not bound to follow the result of a national court. One of the reasons for instituting an international arbitration procedure is precisely that parties—rightly or wrongly—feel often more confident with a legal institution which is not entirely related to one of the parties. If a national judgment was binding on an international tribunal such a procedure could be rendered meaningless.

What then does the Supreme Court aims to achieve by “finally” disposing the matter? The Court’s determination will have no bearing on the outcome of international arbitrations initiated by TCCA at ICCA and ICSID. The Supreme Court, it seems, has failed to take into account the recent trends in International Law and the fact that the State of Pakistan may have a bear the financial and economic brunt of Court’s misdirected interference in international arbitration proceedings.

The tribunal was at pains to emphasize the interim award was final and binding under Article 32 of the UNCITRAL Rules, which means that Chevron could pursue recognition and enforcement of the award in jurisdictions around the world. It could do so offensively by seeking declaratory relief in Ecuador (or elsewhere), or defensively in response to an attempt by the Ecuador plaintiffs to seek enforcement of the Ecuador judgment. Of course, the Interim Award is only binding on Ecuador and Chevron, so it is not clear what a domestic court outside Ecuador would do with an award imposing injunctive relief on Ecuador.

Meanwhile, on Thursday the Second Circuit issued its long-awaited opinion in Chevron v. Naranjo. The Second Circuit’s crucial holding was that New York’s Uniform Foreign Money-Judgments Recognition Act precludes declaratory injunctive relief by a foreign judgment debtor. “There is … no legal basis for the injunction that Chevron seeks, and, on these facts, there will be no such basis until judgment-creditors affirmatively seek to enforce their judgment in a court governed by New York or similar law.”

The Second Circuit had little sympathy for Chevron’s attempt to pursue an antienforcement injunction, particularly given the comity concerns at stake.

“[W]hen a court in one country attempts to preclude the courts of every other nation from ever considering the effect of that foreign judgment, the comity concerns become far greater. In such an instance, the court risks disrespecting the legal system not only of the country in which the judgment was issued, but also those of other countries, who are inherently assumed insufficiently trustworthy to recognize what is asserted to be the extreme incapacity of the legal system from which it emanates. The court presuming to issue such an injunction sets itself up as the definitive international arbiter of the fairness and integrity of the world’s legal systems.”

But at the same time, the Second Circuit emphasized that it expressed “no views on the merits of the parties’ various charges and counter-charges regarding the Ecuadorian legal system and their adversaries’ conduct of this litigation, which may be addressed as relevant in other litigation before the district court or elsewhere.” It also avoided any decision with respect to the underlying RICO claims that Chevron has filed against the Ecuador plaintiffs and their lawyers, focusing simply on the improper procedural device that Chevron sought to employ to enjoin enforcement of the Lago Agrio judgment abroad.

Where does the case go from here? In Ecuador, Chevron has appealed to Ecuador’s highest court to review the case. No word yet as to whether Chevron will seek to have the arbitral tribunal’s Interim Award recognized and enforced in Ecuador. The arbitral tribunal is scheduled to hold hearings on February 11-12 to determine what steps Ecuador is taking to prevent enforcement of the Lago Agrio judgment.

As for the Ecuador plaintiffs’ efforts to enforce the judgment, there is no indication that Chevron will post an appeal bond, which means that the Ecuador plaintiffs are free to pursue enforcement anywhere in the world where Chevron has assets.

It appears that the Ecuador plaintiffs will not seek to have the judgment enforced within the United States. Ecuador Plaintiffs’ lawyer James Tyrrell stated yesterday that “The Ecuadorean plaintiffs are not coming to New York to enforce this judgment.” Given the locus of Chevron’s assets, it is not obvious why the plaintiffs have adopted this strategy, unless they have reason to believe that there is a high probability that the judgment would not be enforced.

There is, of course, the option of pursuing enforcement abroad. If the Invictus Memo is reliable, the Ecuador plaintiffs have identified twenty-seven nations where Chevron has substantial activities, including countries that are friendly with Ecuador, such as Colombia and Venezuela. That memo candidly states the ultimate end game strategy for the Ecuador plaintiffs:

“After approximately seventeen total years of litigation in the United States and Ecuador, the case against Chevron now enters its most critical, multi-faceted, and labor intensive…. With the ultimate goal of effecting and swift and favorable settlement, the strategy of the Plaintiffs’ Team will incorporate the following components: … managing the public relations impact of Chevron’s manipulation of the Cabrera narrative … [and] identifying jurisdictions globally that are most hospitable to an enforcement action.”

PMI contends that the Uruguayan regulations violate several provisions of the Switzerland-Uruguay BIT. Furthermore, PMI is arguing, inter alia, that the intellectual property rights of Abal Hermanos (PMI’s subsidiary in Uruguay) have been infringed as a consequence of the limitations imposed on the right to use its legally protected trademarks.² This is not, however, the only case where this international corporation has launched an arbitration claim against a state as a result of similar plain packaging measures.

In November 2011, Hong Kong-based Philip Morris Asia Limited (PM Asia), which owns Australian affiliate Philip Morris Limited, initiated arbitration proceedings against the Australian government over new legislation on plain packaging of cigarettes. The new Australian law imposes strict limitations on the use of registered trademarks. For instance, it requires cigarettes to be sold in generic olive green packages, without brands or logos. This legislation is expected to come into force in December 2012. ³

As in the claims of PMI against Uruguay, PM Asia is arguing, inter alia, that it has, whether as owner or licensee, rights to use registered and unregistered trademarks. PM Asia claims that the new Australian legislation infringes its intellectual property rights and diminishes the value of its trademarks. Furthermore, it contends there has been a violation of the Australia-Hong Kong BIT. ⁴

At this stage, it is important to distinguish between two different types of trademarks: non-word marks and word marks. Plain packaging of tobacco products involves the prohibition of the use of non-word marks (such as logos, colour schemes and graphics) and the limitation on the use of word marks (brand name).

Several questions arise in relation to these two arbitration claims. One of them is whether these anti-tobacco schemes contravene the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) and the Paris Convention for the Protection of Industrial Property (Paris Convention). In particular, whether plain packaging infringes the right to use trademarks as well as affects the core function of trademarks.

There are strong arguments to suggest that the plain packaging measures adopted by Uruguay and Australia are consistent with their international obligations under the TRIPS Agreement and the Paris Convention. In this sense, it is important to point out that these measures do not impose limitations on the sale of tobacco products but on the use of trademarks related to such products.

The tobacco corporation claims that plain packaging unfairly limits its rights to use its legally protected trade mark. However, the right to use trademarks is not expressly granted by the TRIPS Agreement and the Paris Convention. Trademark owners only have the exclusive right to prevent third parties from using their trademarks without their consent. This is a negative right relating to the ‘exclusion’ of use rather than to the use per se. ⁵ Neither PMI nor PM Asia are claiming protection from an unlawful use of their trademark by a third party.

It can nonetheless be argued that the registration of a trademark provides an inherent right to use it. In this sense, under the TRIPS Agreement, WTO Members may make registrability depend on use.⁶ This argument could therefore be sustained in cases where the WTO Member in question established that the use of a trademark is a compulsory requirement for obtaining its registration.

In addition, it might be argued that plain packaging prevents consumers from distinguishing PMI´s tobacco products from others competitors, thereby affecting the core function of a trademark. ⁷ A trademark would lose its value if it creates the likelihood of confusion with other trademarks. However, the fact that the brand name can be displayed in the package raises doubts as to the strength of this argument.

The outcome of these cases will certainly set a precedent that could be adopted by future arbitral tribunals and national courts deciding disputes arising out of plain packaging schemes. Furthermore, the decisions adopted by the respective tribunals will have significant repercussions on the investment relationships between PMI and the countries in which it operates.

This ‘anti-tobacco movement’ has just begun. In fact, other countries, such as the United Kingdom, Canada and New Zealand, are considering introducing similar measures in their national laws, which will inevitably lead to an increasing wave of investment claims brought by tobacco companies against states.

There are of course further questions that arise in the context. For example, does plain packaging amount to indirect expropriation? Is it possible to strike a balance between the WTO Members’ obligations under the World Health Organisation Convention on Tobacco Control (WHO FCTC) and the intellectual property rights conferred to investors such as PMI? Does plain packaging amount to an unfair and inequitable treatment under the said BITs? Such questions will be examined in upcoming blogs. For now, we open the floor for discussion and invite the readers to comment on what has been discussed in this blog.

By Martin Hunter and Javier García Olmedo

Much to the surprise of many seasoned international arbitration practitioners, the D.C. Circuit vacated a US$ 185.3 million Final Award against Argentina, essentially nullifying a hard-fought, four-and-a-half year arbitration between the parties. The court vacated the Award on the basis that the “arbitral panel rendered a decision . . . without regard to the contracting parties’ agreement establishing a precondition to arbitration,” namely the clause in the Argentina-UK bilateral investment treaty (BIT) requiring claimants to submit disputes to the Argentine courts for 18 months before resorting to arbitration. In the underlying UNCITRAL arbitration, the tribunal had considered whether the dispute was admissible without having been first submitted to the Argentine courts. It ruled that such submission was not essential because it in this case it would have been an exercise in futility: the claimant could not have obtained relief anyway from the Argentine courts, given the Republic’s apparent interference with access to the courts and its punishment of all would-be local court litigants by excluding them from contract renegotiations. The tribunal concluded that in these circumstances, the 18-month provision could not “be construed as an absolute impediment to arbitration,” and therefore deemed BG Group’s arbitration claims admissible.

By contrast, the D.C. Circuit concluded that this entire analysis was misplaced, since in its view the BIT terms—which it analyzed principally by reference to U.S. domestic law on contractual intent to arbitrate, rather than under the Vienna Convention—were clearly designed to require prior recourse to the Argentine courts. The court found that the tribunal had exceeded its powers by permitting direct access to arbitration contrary to that expressed intent. Indeed, the court suggested that under U.S. case law, the tribunal should not have even engaged in an analysis of the feasibility or usefulness of prior resort to the Argentine courts, because as a threshold matter it had no proper authority under the BIT to admit such issues for substantive consideration.

In the most narrow sense, the D.C. Circuit’s decision did not directly repudiate the years of fairly consistent rulings by ICSID and UNCITRAL tribunals with respect to the 18-month local court requirement under similar Argentine BITs. That is because the BG Group tribunal had not relied on the BIT’s most-favored-nation (MFN) clause, upon which prior tribunals had rested their decisions, even though BG Group did argue that point. Nonetheless, the D.C. Circuit’s analysis implicitly suggests that it also might have overturned an MFN-based decision, since by the Court’s logic, the tribunals who rendered those decisions likewise would have had no authority to bypass the BIT parties’ allegedly clear intent to require local court proceedings in all circumstances. If the decision is read in this broader way, it can be seen as impugning the core logic of many prior decisions. This would include Maffezini v. Spain (ICSID Case No. ARB/97/7, 1 September 2000), where the tribunal allowed an Argentine investor to invoke (by way of an MFN clause) the Chile-Spain BIT to avoid the domestic court prerequisite in the Argentina-Spain BIT; Siemens v. Argentina (ICSID Case No. ARB/028, Decision on Jurisdiction, 3 August 2004), where the tribunal permitted a German investor to invoke the Argentina-Chile BIT to proceed directly to arbitration; National Grid plc v. Argentina (UNCITRAL, Decision on Jurisdiction, 20 June 2006), where the tribunal permitted a British investor to invoke a more favorable term in the Argentina-US BIT to avoid 18 months of litigation in the Argentine courts; and several other cases in the same line. Until the D.C. Circuit’s opinion, the jurisprudence appeared to be converging on consensus regarding the 18-month waiting requirement, even though much controversy remained about the broader application of MFN clauses in other, less procedural, contexts.

Now, with one 17-page decision, a national court not only has completely up-ended the result in one major case, but also in the process unsettled what most observers had thought to be a progression towards certainty, predictability and finality with respect to this issue. Much can—and undoubtedly will— be written about the substance of the court’s analysis. But at heart, it serves as a reminder that some degree of uncertainty is inherent in international arbitration in any forum, so long as there is any mechanism for review and challenge of arbitral awards. This is just as true for the “alternative” routes of ad hoc UNCITRAL or non-ICSID institutional arbitration as it is for ICSID arbitration, since all non-ICSID mechanisms allow for national court challenges under the New York Convention, and national courts (once vested of the matter) may be tempted to apply their own national laws, including on core issues such as arbitrability. Arguably, the uncertainty of national court review may be even greater than that of ICSID annulment review, since most national court judges are comparatively unfamiliar with investment treaty jurisprudence and may be less concerned about contributing to the growth of consensus or emerging doctrine. The choice between the two systems, thus, should not be framed as a quest for predictability and finality, but rather as something more fundamental: a decision about which decision-makers will evaluate challenges, and what rules and standard of review they will use in deciding.

By Jean E. Kalicki and Dawn Yamane Hewett