The event was subject to the Chatham House rules, so my notes below should not be attributed to any particular panelist or audience members. However, in the case of moderator Michael Goldhaber, his views have been publicized in his magazine columns, one of which is referenced below. (Roger intends to blog about his own talk, so I’ll leave him to weigh in further in this space).

In no particular order, here a couple things that caught my ear at the NYU event:

• Until recently, arbitrators had been able to ride in the slipstream of the U.S. Courts, to borrow Michael Goldhaber’s expression. For instance, mere days after a U.S. Judge issued a preliminary injunction against enforcement of an 18 Billion (U.S.) Ecuadorian court judgment, an arbitral tribunal sitting in the Chevron v. Ecuador BIT arbitration issued its own interim measures. However, the U.S. injunction was overturned in September by a U.S. Appeals Court. That means, according to Goldhaber, that the BIT arbitration may have become Chevron’s “first or only line of defense”.

• And, as you may have heard, Chevron’s BIT claims may test the boundaries of available relief in such arbitrations. Based on the evidence of last week’s NYU event, there is a full spectrum of opinion as to the propriety of investment arbitration tribunals ordering states to do (or refrain from doing) certain things. Some advocates and arbitrators are keen to see such tribunals award non-pecuniary forms of relief. Others warn that they threaten to undermine the support of certain states for investment treaty arbitration. While a forthcoming decision on jurisdiction could touch on the available forms of relief, another possible flash-point could arise if Chevron were to ask for more clarity as to the types of actions required of Ecuador pursuant to an earlier (but notably terse) interim measures order.

• Many of the juiciest revelations and allegations in the Chevron-Ecuador saga have stemmed from the use of a U.S. statute (28 U.S.C. § 1782) that permits judicial discovery in the aid of foreign proceedings. Views differ as to whether such court-aided discovery complicates and lengthens arbitral proceedings. However, there was some suggestion last Monday night that the use of that statute will continue to grow – unless the U.S. Supreme Court curtails its availability – and that lawyers might risk a “malpractice” suit if they don’t brief their clients about the statute.

• Apparently, some corporate clients are so keen to avoid any use of U.S. judicial discovery that these companies are negotiating contracts whose arbitration provisions exclude such an option. One wonders if governments will begin to negotiate investment treaties that prohibit (or condone) such a discovery tool.

• Mind you, if a party does plan to use the 1782 statute – and their contract or treaty does not exclude such a possibility – they might want to tell their arbitral tribunal at the earliest possible juncture. Not only will this help to determine whether such evidence is likely to be admitted in the arbitration, it might also help to persuade a Federal Court Judge that the discovery request is not a vain exercise.

• Perhaps most intriguing is the potential for non-parties to an arbitration to use the U.S. statute to procure evidence that might be relevant to a given arbitration. The statute is worded so as to permit “interested persons” to petition a U.S. Federal Court for discovery. To date, a would-be amicus curiae in an international arbitration has not attempted to use this tool to gather evidence. But, watch this space.

Luke Eric Peterson
InvestmentArbitrationReporter.com

Although the Tribunal’s finding that it can hear mass claim has garnered the most interest, various aspects of the Decision have sparked debate.  The Tribunal held that the Claimants’ security entitlements in Argentinean bonds are investments for the purposes of Article 25, ICSID Convention and protected under the Argentina-Italy BIT.  Another controversy arises from the fact that the Decision was issued by the majority of the Tribunal without the simultaneous release of the dissenting opinion. The dissenting opinion, which the Decision states is “Forthcoming”, has yet to be released.

On 15 September 2011, the Argentine Republic filed a request for the disqualification of the majority of the Tribunal (Professors Pierre Tercier (President) and Albert Jan van den Berg), alleging that the two arbitrators could not be relied on to exercise independent judgment.   The disqualification request criticizes the two arbitrators in particularly strident language, arguing that the transmission of the Decision: “(a) without the dissenting opinion of the other arbitrator, (b) without his consent, and (c) without even waiting for a draft of said opinion” together with the majority’s rejection of Argentina’s request for provisional measures “is a manifestation of an absolutely inappropriate conduct” (para. 20).

Although the Decision raises a series of interesting issues (for example, see Sarah Ganz‘s post on the Decision’s treatment of the 18-month litigation requirement in the BIT), in this post I focus on the majority’s distinction between jurisdiction and admissibility, a subject of one of my previous posts.  In its Decision, the majority of the Tribunal (the Tribunal) states that it is appropriate and necessary to distinguish issues relating to jurisdiction and admissibility (para. 248) and that the “guiding thought of the Tribunal for distinguishing issues of jurisdiction from issues of admissibility has been the following cornerstone consideration:

 If there was only one Claimant, what would be the requirements for ICSID’s jurisdiction over its claim? If the issue raised relates to such requirements, it is a matter of jurisdiction. If the issue raised relates to another aspect of the proceedings, which would not apply if there was just one Claimant, then it must be considered a matter of admissibility and not of jurisdiction.” (para. 249)

The Tribunal’s analysis thus takes a two-fold approach.  First, it analyzes the mass claims issue within the context of the Parties’ consent to arbitration (a question of jurisdiction) and second, it analyzes the admissibility of mass claims.

The Decision is perhaps the clearest example of an investment treaty tribunal distinguishing between jurisdiction and admissibility.  The Tribunal highlights at para. 247 that:

 (i)            While a lack of jurisdiction stricto sensu means that the claim cannot at all be brought in front of the body called upon, a lack of admissibility means that the claim was neither fit nor mature for judicial treatment;

(ii)            Whereby a decision refusing a case based on a lack of arbitral jurisdiction is usually subject to review by another body, a decision refusing a case based on a lack of admissibility can usually not be subject to review by another body;

(iii)            Whereby a final refusal based on a lack of jurisdiction will prevent the parties from successfully re-submitting the same claim to the same body, a refusal based on admissibility will, in principle, not prevent the claimant from resubmitting its claim, provided it cures the previous flaw causing the inadmissibility.

With respect to consent, the Tribunal rightly held that if, in principle, it had jurisdiction over one claimant, “it is difficult to conceive why and how the Tribunal could loose such jurisdiction where the number of Claimants outgrows a certain threshold.” Further, it highlighted that “the collective nature of the present proceeding derives primarily from the nature of the investment made.”:

The ICSID Convention aims at promoting and protecting investments, without however further defining the concept of investment and leaving this task to the parties through relevant instruments such as BITs … Thus, where the BIT covers investments, such as bonds, which are susceptible of involving in the context of the same investment a high number of investors, and where such investments require a collective relief in order to provide effective protection to such investment, it would be contrary to the purpose of the BIT and to the spirit of ICSID, to require in addition to the consent to ICSID arbitration in general, a supplementary express consent to the form of such arbitration. In such cases, consent to ICSID arbitration must be considered to cover the form of arbitration necessary to give efficient protection and remedy to the investors and their investments, including arbitration in the form of collective proceedings.  (para. 490).

In conclusion, the Tribunal, rightly held that “the “mass” aspect of proceedings relates to the modalities and implementation of the ICSID proceedings and not to the question whether Respondent consented to ICSID arbitration. Therefore, it relates to the question of admissibility and not to the question of jurisdiction.” (para. 492).

The Tribunal took a purposive approach to the interpretation of the ICSID Convention’s “silence” as to mass claims, holding that it would be “contrary to the purpose of the BIT and to the spirit of ICSID to interpret this silence as a “qualified silence” categorically prohibiting collective proceedings, just because it was not mentioned in the ICSID Convention” (para. 519).

With respect to the adaptations, the Tribunal identified the need to adopt mechanisms to allow a simplified verification of evidentiary materials with respect to each individual claim (para 531) and the manner of the representation of the claimants (paras. 531-532).  In finding that it had the power to adapt procedures to address the “mass claims” aspect of the case, the Tribunal states that adaptations must consider the principle of due process and a must seek a balance between the procedural rights and interests of each party (para. 519).  In assessing that balance the Tribunal considered: (i) under what conditions is it acceptable to change the method of examination from individual to group treatment; (ii) to what extent are Argentina‘s defense rights affected in comparison to 60,000 separate proceedings; and (iii) is it admissible to deprive Claimants of certain procedural rights (para. 539).

Argentina’s had argued that there are strong policy reasons why ICSID is an inappropriate forum to address issues with respect to sovereign debt restructuring.   The Tribunal flatly rejected this argument, rightly stating that “Policy reasons are for States to take into account when negotiating BITs and consenting to ICSID jurisdiction in general, not for the Tribunal to take into account in order to repair an inappropriately negotiated or drafted BIT.”

It its disqualification request, Argentina suggests that the procedural mechanisms set out in the Decision are an unjustifiable limit on Argentina’s right of defence and further evidence of the Tribunal’s alleged lack of independent and impartial judgment (paras. 25 et seq.).   Although Argentina has characterized the majority’s Decision as “egregious” and various Tribunal statements as “shocking” and “absurd”, this hyperbole should seen for what is—a regrettable attempt to appeal a tribunal decision through the guise of a disqualification request.  The majority of the Tribunal’s approach to mass claims is correct in principle and practical, objective and fair-minded in practice.  International arbitration can be an effective and efficient system of dispute resolution because of its ability to adopt flexible procedures to address myriad claims and issues.  The majority’s Decision reflects this approach and will stand the test of time.

At the time of this writing, a freezing request by German businessman Franz Sedelmayer remained under active review at a Swedish government debt enforcement agency.

Mr. Sedelmayer, you may recall, is the bearer of a real collector’s item: a vintage 1998 arbitral award in which the Russian Federation was ordered to pay some $2.35 Million (US) for helping itself to the German businessman’s St. Petersburg-based private security company.

Since 1998, Mr. Sedelmayer has made a second career out of enforcing that arbitral award. By his estimate, he has been involved in more than 70 litigations around the world, trying to identify and seize Russian assets, while defending against various legal actions brought by the Russian authorities against him.

More than one bailiff in Western Europe has broken into a cold sweat when tasked by Mr. Sedelmayer with slapping the handcuffs on Russian government assets. For a long time, the indefatigable German businessman accumulated plenty of anecdotes – including a quixotic bid to seize Russian cosmonaut gear at an international air show – but few liquid assets.

Recently, his luck has started to change, as he has begun to lay hands on certain buildings and real estate in Western Europe.

However, Mr. Sedelmayer’s latest enforcement tactic – seizing Russian funds deposited at arbitration centres and law firms – should occasion some soul-searching amongst proponents of foreign investment protection standards.

If the successful claimant in an investment treaty arbitration is reduced to targeting deposits ponied up in other more recently initiated arbitrations, the entire enterprise takes on the contours of a classic pyramid scheme: with the contributions of later entrants used to pay off earlier participants.

Not only does this enforcement model appear deeply embarrassing for devotees of investment arbitration, its limits are also plainly apparent. Even if a bailiff agrees to seize arbitration deposits, and such a seizure is not quashed by the courts on sovereign immunity grounds, it can only offer succor to those with debts small enough to be satisfied by the deposits used to finance other arbitral proceedings.

If a tiny award against a highly-globalized G8 economy can remain unpaid for more than a decade, what of those seeking larger sums from regimes that tend to stuff their cash into the sofa cushions, rather than scattering it beyond their borders?

One answer that has been bandied about in the Argentine context is for home governments – or all governments with an interest in binding dispute settlement – to bring diplomatic pressure to bear against dilatory debtors. However, this “re-politicization” of the dispute settlement process comes with all of the usual baggage. States expend precious diplomatic capital when they go to battle for investors-creditors on the foreign relations playing field. Sometimes that capital is worth spending. At other times it is not.

Another solution is to expect claimants to bear the cost of enforcement – either by carrying insurance which covers the risk of award-default, or by selling their awards at a discount to vulture funds or organizations specializing in debt-collection. This pathway may be attractive for some, but for bearers of modest awards it may be neither viable nor equitable. (Try explaining to the owner of an expropriated family business, that they should take a haircut after gambling everything and “winning” in arbitration.)

There may be no silver bullets when it comes to dealing with recalcitrant debtor states.

However, the fact that an arbitral award-creditor has been reduced to targeting deposits laid down in other arbitral proceedings strikes me as something of a watershed.

Mr. Sedelmayer’s long struggle – and his increasingly audacious tactics – remind us that it is one thing to erect a system of 3,000+ international investment treaties, but quite another thing to make it work.

As the 15th anniversary of his arbitration victory looms, it is time to take some of the energy devoted to investment treaty rule-making and to re-focus it on the vexing question of enforcement.

Luke Eric Peterson
InvestmentArbitrationReporter.com

The claim alleges that Guatemala is failing to enforce its own labour laws, thus falling afoul of international legal obligations written into the U.S. Free Trade Agreement with Central America and the Dominican Republic (CAFTA-DR).

While there have been a handful of arbitration claims brought under the CAFTA-DR’s investor-state dispute process, the U.S.-Guatemala proceeding is apparently the first state-to-state claim to be brought pursuant to Chapter 20 of the same agreement.

Those familiar with the rather leisurely investor-state arbitration process might be surprised to discover that the CAFTA’s state-to-state process provides for a fast-track form of dispute resolution.

Indeed, from the moment that a state-to-state claim is launched, parties have 15 days to select a chair for the three-member arbitration panel. And, once the chair is selected, the parties have a further 15 days to pick their respective arbitrators.

Failure to select a wing-arbitrator within that 15 day period, means that the choice will be made by lot – within a matter of 3 days – from a roster of approved Chapter 20 panelists.

(By contrast to this hasty process of arbitrator selection, parties in investor-state proceedings under the CAFTA-DR have 75 days in which to set up an arbitral panel, after which further time can elapse if an appointing authority needs to nominate the remaining panelists.)

All going according to plan, an arbitral panel in the U.S.-Guatemala case could be in place inside of a month. And, not only are arbitrators empaneled very swiftly under the state-to-state dispute resolution process, they are also expected to resolve cases in months, rather than years.

Within 120 days, and definitely no later than 180 days, arbitrators should have prepared an initial report setting forth findings of facts, and a preliminary determination as to whether the respondent state has breached its CAFTA obligations.

The parties then have two weeks to comment on the initial report, and the arbitrators must issue their final report a mere 30 days after the release of their initial report. While there is a bit of discretion for extending certain deadlines set out in Chapter 20 of the CAFTA, the default timetable for state-to-state arbitrations clearly envisions a very swift form of justice.

By my back-of-the-envelope math, an arbitral claim could be resolved in about 8 months.

By contrast, it took nearly 8 months to put together an arbitral tribunal to hear the first claim under CAFTA’s investor-state chapter. That unrelated case, which also involves Guatemala, will celebrate its 4th anniversary later this month and oral hearings are still some distance off.

So, in principle, the newly-minted claim against Guatemala under Chapter 20 could be fully arbitrated before the longer-running investor-state proceeding sees a final award.

By Luke Eric Peterson
InvestmentArbitrationReporter.com

The Act is Pakistan’s answer to the Supreme Court of Pakistan’s 2002 decision in the SGS v. Pakistan proceedings that the ICSID Convention, although ratified by Pakistan, having not been incorporated into the laws of Pakistan by implementing legislation, the domestic courts had no power to enforce the provisions of the Convention while ignoring the existing national statutes relating to arbitration. This case saw parallel arbitration proceedings in Pakistan and before ICSID, and the Supreme Court upheld the lower courts’ decision not to stay the arbitration proceedings under the Pakistani Arbitration Act following the commencement of the ICSID arbitration.

However, the SGS v. Pakistan case had highlighted the need for national legislation in order to give full force and effect to the ICSID Convention. The enactment of this legislation, however, was not exempt of obstacles. The legislation was first promulgated by presidential ordinance in November 2006, but lapsed. Under the Constitution of Pakistan, presidential ordinances have a limited life of four months unless earlier repealed or enacted into a statute. A new presidential ordinance was promulgated in March 2007 followed by another in July 2007, but the state of emergency was thereafter declared in Pakistan, which gave it permanent life. The permanent life however was cut short by a judgment of the Supreme Court which declared the emergency as illegal. This resulted in promulgation of another presidential ordinance in November 2009 followed by another in April 2010. The current Act is the result of a government sponsored bill introduced in Parliament in 2010.

The purpose of the Act is to implement the International Convention on the Settlement of Investment Disputes between States and Nationals of other States, with an aim to bringing transparency in the settlement of investment disputes. The Act attaches the ICSID Convention as a schedule.

Under the ICSID Convention, awards are insulated from review by national courts at the recognition and enforcement stage, but no such guarantees are offered when specific assets are targeted in execution of the award. Article 54(1) of the ICSID Convention provides that each contracting state shall “recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State”. Article 54(3) of the ICSID Convention provides that the execution of the award is governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought, and Article 55 emphasizes that “nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any State from execution”.

The Act leaves a great discretion to the Pakistan courts for the enforcement of ICSID awards. Article 4 provides that an award registered in Pakistan must “be of the same force and effect for the purposes of execution as if it had been a judgment of the High Court” and, if the award “relates to pecuniary obligations”, “proceedings may be taken on the award” and “the High Court shall have the same control over the execution of the award, as if the award had been a judgment of the High Court”. High Courts in Pakistan are generally courts of appeal, which are to be found in each province. The purpose of giving jurisdiction to a High Court is to ensure the quality of judicial expertise. With respect to its binding effect on the government itself, the Act provides that the principles set forth in Article 4 bind the government but “not so as to make an award enforceable against the Government in a manner in which a judgment would not be enforceable against the Government”. Moreover, the Act provides that these principles do not apply if the government is not a party to the award (Article 5).

In effect, therefore, the Act does not provide for a foolproof execution of ICSID awards in Pakistan. Execution of awards is subject to the review of the High Court and, if the award has been rendered against the Government, it can only be enforced if it were enforceable in the same circumstances if it were a judgment. In practice, the High Court will have the power to attach and sell assets, as long as such assets are not related to defense and national security. High Court decisions can be appealed. However, in execution matters, the grounds of appeal are very limited.

The Act, however, removes a lacuna and one can hope that it will render the enforcement of ICSID awards in Pakistan easier. It has also the advantage of a providing an effective reference for the execution of awards in Pakistan. In contrast, in many a state, the execution of ICSID awards is left to the civil procedure provisions applicable to the execution of judgments, which can lead to confusion and unsatisfactory decisions.

In addition to this Act, Pakistan is also preparing the enactment of two statutes relating to international arbitration. First, a law to enforce the New York Convention has been passed by the National Assembly and is currently pending consideration before the Senate. Second, a new Arbitration Act, based on the UNCITRAL Model Law, is pending before the National Assembly.

Ijaz Ahmed, Ijaz Ahmed & Associates, Karachi, Pakistan

Laurence Burger, Winston & Strawn LLP, Geneva, Switzerland

Such sums may be “small change” compared to the more conventional forms of economic compensation claimed for treaty breaches. Still, it’s become de rigeur for claimants – and even some states – to tack on claims for a few million Dollars in moral damages.

Arbitrators have been slower to award moral damages. However, in a recently-concluded ICSID arbitration proceeding, a tribunal grappled at considerable length with the claimant’s $3Million (US) moral damages request.

You can find a fuller accounting of the Joseph Charles Lemire v. Ukraine case here, so I won’t rehearse all of its facts. It suffices to mention that Mr. Lemire is a U.S. investor in Ukraine’s radio broadcasting industry, and that he accused Ukrainian broadcasting authorities of unfairly rejecting a long string of applications for new radio frequencies that would have permitted him to expand his radio business.

Arbitrators ultimately held that Ukraine’s treatment of Mr. Lemire did not meet the standards of fairness set out in the U.S.-Ukraine bilateral investment treaty, and awarded him $8.7 Million (US) for his financial losses.

Mr. Lemire made a further request for moral damages, complaining that he had suffered indignity, stress, humiliation and other forms of moral harm as a result of the state’s serial (and legally unfair) rejection of radio licensing applications. He also cited the stress and anxiety occasioned by state-harassment, including a series of (allegedly irregular) inspections, and license renewal delays.

What “exceptional circumstances” would justify moral damages?

In its March 28, 2011 Award, the tribunal debated whether Mr. Lemire’s treatment constituted the type of “exceptional circumstances” that warrant an award of moral damages.

To elucidate the meaning of “exceptional circumstances” the arbitrators looked to certain arbitral awards plead by the parties. They identified three criteria:

• the State’s actions imply physical threat, illegal detention, or other analogous situations in which the ill-treatment contravenes the norms according to which civilized nations are expected to act;
• the State’s actions cause a deterioration of health, stress, anxiety, other mental suffering such as humiliation, shame and degradation, or loss of reputation, credit and social position; and
• both cause and effect are grave or substantial

Mr. Lemire’s injuries don’t meet the test

The tribunal acknowledged that Ukraine’s repeated and unfair rejection of Mr. Lemire’s licensing applications had led to some “negative impact” to his reputation and entrepreneurial image. However, the gravity of this harm could not be likened to the hurt caused from armed threats, or by witnessing the deaths of others, or the other types of suffering endured by claimants in earlier cases where moral damages were warranted.

The tribunal also found that the allegedly harassing inspections carried out on Mr. Lemire’s company were not undertaken in order to “intimidate” the foreign investor.

Thus, while the tribunal expressed sympathy for Mr. Lemire’s stress and anxiety, it held that the economic compensation awarded was sufficient to compensate for the moral aspects of his injuries.

Ukraine urged that any moral damages be calculated in line with human rights law

Because Mr. Lemire’s suffering did not rise to the level where moral damages were warranted, arbitrators did not need to address an argument by Ukraine that such damages should be quantified in line with the practice under international human rights law.

Ukraine pointedly noted that Mr. Lemire had offered no explanation for his decision to claim $3 Million (US). Moreover, the government observed that awards of moral damages before international human rights courts and tribunals “are much lower than that requested by Claimant.”

I’ve made a similar argument in a 2009 article, in my Investment Arbitration Reporter newsletter. Frankly, it’s unheard of for human rights tribunals to award 1 Million (US), much less 3 Million (US), even in cases of the gravest indignities such as torture or extra-judicial killing.

I happen to favour the award of moral damages in certain investment treaty cases. Such a remedy can be a crucial one where claimants have suffered grave indignities, particularly when calculable business losses may be minimal. However, I can’t see a principled reason why the same manner of indignities visited upon claimants – be they in human rights or investment law contexts – should result in the award of wildly divergent sums by international tribunals

If arbitrators were to engage in a comparative analysis of the quantification of moral damages it might help, in its own small way, to alleviate the perception that investment treaty arbitration is a system of “concierge-level” international justice that puts aliens (or at least foreign investors) on a privileged plane above all other claimants in international dispute resolution.

Inter-governmental negotiations over these rules start this month, and while it would be an expedient conclusion to say that this is simply “one to watch”, such a conclusion is not warranted here because if UNASUR’s plans do proceed, we will be unable to ignore it.

The birth of UNASUR can be traced back to the First South American Summit, held in Brasilia in 2000, but it was not until the Third South American Summit that the predecessor to UNASUR was officially constituted by the Cusco Declaration. The Cusco Declaration, dated 8 December 2004 established the South American Community of Nations (or CSN). Eventually, at the South American Energy Summit held in Venezuela on 16 April 2007, the member states of CSN adopted the name Union of South American Nations (UNASUR).

The UNASUR Treaty was signed on 23 May 2008 in Brasilia, requiring nine ratifications to enter into force. In the following order, Bolivia, Ecuador, Guyana, Venezuela, Peru, Argentina, Chile, Suriname, Uruguay and Colombia all ratified the Treaty. As of today, the two countries that have not yet ratified it are Brazil and Paraguay.

* * * * *

In June 2009, the UNASUR heads of state approved a mandate to create a UNASUR mechanism for the resolution of investment disputes. The heads of state have met on a number of occasions, including on 4 May 2010 when they reaffirmed the importance of reaching an agreement on this initiative.

In November 2010, during the IV UNASUR summit of the heads of state, held in Georgetown, Guyana, it was announced that a working group would be established that would look at creating (1) a centre for the resolution of investment disputes, (2) an advisory centre for investment disputes, and (3) a code of conduct for the members of the arbitral tribunals constituted under the centre’s rules. The working group will hold its first meeting in mid-April 2011. Thereafter, it has 90 days to present its conclusions.

As this initiative gained support in November 2010, Ecuador took the lead to develop this proposal, and published draft provisions for the centre. (These have already evolved slightly, and are considered here below.) Simultaneously, President Correa of Ecuador emphasised his desire that an arbitration centre be established promptly. Focusing his criticism on mid-level public officials, President Correa accused them of “mental atavism.” In particular, President Correa noted that some mid-level officials continue to believe that UNASUR member states are incapable of establishing an alternative investment arbitration regime that meets international standards. He recognised the “serious problems” in trying to establish such a system, however, he also expressed exasperation at the “intellectual colonialism” that plagues many, and compounds what he sees as the misconceived belief of some that to resolve an investment dispute one must go to Washington, London or Paris.

While the establishment of an alternative court or tribunal to resolve investment arbitration disputes has been on the agenda for a while (not least in Latin America, and with the support of institutions such as UNCTAD), the fact UNASUR has now come into formal existence is a significant development. UNASUR is the first regional institution for some time that comprises all South American countries. This is quite an achievement, and some even fear UNASUR may displace the Organisation of American States (OAS) in terms of its regional significance. Perhaps a critical advantage of UNASUR is that policies can be introduced and implemented by consensus rather than unanimity.

* * * * *

The object of the centre is described as providing a regulatory basis for disputes between UNASUR member states, including between investors and UNASUR states. The centre would hear such State-State disputes as are submitted to it. In addition, it would also hear such State-State or investor-State disputes as are referred to it by virtue of any contractual provision or provision in an “international instrument.” However, it is envisaged that the centre’s dispute resolution system will apply to different investors and States on an incremental basis.

First, the centre will be available exclusively for the use by UNASUR member states (and investors from UNASUR member states) for a period of three years. Second, from the start of the third year of the centre’s existence, its services would be extended to Central American and Caribbean states (and their investors). Third, from the sixth year onwards, the centre’s services would be available to any States and investors that wish to either submit their dispute to the centre, or have so agreed to submit their disputes in any contract or international instrument. The idea is that the centre would be permitted time to establish itself and develop a reputation – during which time non-UNASUR investors and States could consider incorporating reference to UNASUR into their contracts/treaties.

The draft rules of procedure for the centre in many ways reflect the modern practice of international arbitration however, they also display key differences. Naturally, there will likely be movement between member states as they negotiate these draft provisions in the coming weeks, but the starting point offers an insight to the ambitions of UNASUR. Selected provisions of interest include the following:

• Article 3(2) of the proposed rules limits the jurisdiction of the centre – precluding disputes concerning health, education, taxation, energy, the environment and others, unless expressly stated otherwise in the relevant treaty or contract. This is clearly a critical provision that will require elaboration.

• Article 3(3) provides that in no circumstances will an arbitral tribunal, constituted in accordance with the rules of the centre, have jurisdiction to resolve disputes concerning the internal laws of a UNASUR member state. This preclusion also extends to the economic effects of a general norm. Again, this will require careful elaboration to have any meaning.

• Article 3(4) provides that states can require, as a precondition to their consent to arbitrate, the exhaustion of domestic judicial and administrative remedies. In circumstances where a claim arises in relation to an administrative act of a State, it will always be necessary to exhaust domestic remedies. (See also Article 6(1)).

• In the event the parties are unable to reach agreement, the parties can resort to international arbitration in accordance with the rules of the centre. Those rules provide that where an investor brings a dispute against a UNASUR member state, the investor must first inform its own State of the dispute. In a unique reinstatement of the principle of diplomatic protection, it is also stated in the rules (Article 6(2)), that if it is in the “highest interests” of the home State, it should commence a mediation between its investor and the host State, if the host State agrees.

• Arbitrators appointed to the arbitral tribunals established under this system would be selected from an Indicative List of Arbitrators that would be comprised of lawyers with experience in public law, arbitration, and commercial and investment law – or have experience in the subject matter relevant to the dispute. Two arbitrators could be added to the Indicative List, by each member state, and their name would be held for four years. For new arbitrators to be added to the list, they would have to satisfy certain qualifications, and complete certain public exams as stipulated by each member state. The centre would also envisage promulgating a code of conduct for arbitrators.

• Without entering into details of the arbitral process, awards would have to be rendered by the arbitral tribunals constituted under the centre within a period of 240 days from the date of the constitution of the tribunal, extendable up to 120 days with the agreement of the parties. Unless the parties agree otherwise, hearings could take place at UNASUR’s headquarters in Quito, Ecuador. Awards would be published and have precedential value, thus leading to a UNASUR arbitral jurisprudence.

• Awards could be appealed to an appellate tribunal which would have the power to review questions of law. Eight arbitrators would constitute the pool for the appeal tribunal, which would be comprised of three arbitrators for any given case. Appeals would have to be decided within 60 days from the appellate tribunal’s constitution.

• The enforcement regime envisaged by the centre demands parties to comply immediately with an award, or in the event this is not possible, within a time frame agreed by the parties. Such time limit can be extended to 180 days in the event of justifiable circumstances, such as civil or economic emergencies. The only basis for denying recognition and enforcement of the award would be when, in accordance with the host state’s constitution, the subject of the dispute is not arbitrable or is contrary to public policy. This also is an area that will require further elaboration, in particular in terms of how such a system would co-exist with State obligations owed under both the New York and Panama Conventions.

• In the event the award is not honoured, the matter may be returned to the original arbitral tribunal that heard the dispute. Subject to certain criteria, in investor-State disputes where the respondent State does not comply (wholly or partially) with the award, the home State may suspend temporarily concessions and obligations owed to the host state, in the sector that is relevant to the dispute. Such suspension would have to be proportional to the degree of non-compliance.

* * * * *

Any observer would be forgiven for, on first impression, dismissing UNASUR as an initiative much like others in the region, and assume that real change and pan-regional convergence of practice is unlikely. However, already UNASUR has achieved success at the intergovernmental level – for example, diffusing internal tensions in Bolivia, diffusing tensions between Venezuela and Colombia, as well as finding common ground on the question of Las Malvinas (The Falkland Islands). Therefore, is UNASUR in danger of becoming a success, and could that success spill over into the world of international arbitration, in terms of effecting real change for South America?

In January 2011, Dr. Marcos Albuja Martinez, the Government of Ecuador’s Legal Coordinator was named Ecuador’s representative to UNASUR. Dr. Albuja Martinez’s responsibilities include liaising with other UNASUR representatives to negotiate the creation of a centre for the resolution of disputes and a legal advisory centre in the context of investment arbitration. It is anticipated in the UNASUR working group schedule that all member states will have designated representatives by mid-April when the first working group meeting is convened. To date, in addition to Dr. Albuja’s appointment by Ecuador, Chile, Peru, Bolivia, Uruguay and Paraguay have also designated representatives. The remaining six countries (Argentina, Brazil, Colombia, Guyana, Suriname and Venezuela) have yet to do so. In the 90 days commencing from mid-April, an ambitious schedule of negotiations is expected to be led by Dr. Albuja who shall seek to finalise a text agreeable to all member states. These proposals would then fall to be discussed at the VI Summit of the UNASUR heads of state in mid-2011.

Christian Leathley, a member of Herbert Smith LLP’s International Arbitration Group, is author of “International Dispute Resolution in Latin America: An Institutional Overview” published by Kluwer Law International, a revised edition of which is due to be published in 2011.

The Draft Statement highlights the positive and vital role that investment can serve in promoting green growth and proposes finding in seven areas:

(i) support for effective international environmental law; (ii) vigilance against green investment protectionism; (iii) updating investment treaty practices; (iv) ensuring the integrity and competence, and improving the transparency of investor-state  dispute settlement; (v) strengthening compliance with international investment law through prior review of proposed environmental measures; (vi) encouraging business’ contribution to greening the economy; and (vii)  spurring  green growth through FDI.

With respect to investor-State arbitration, the Draft Statement recommends as follows:

Governments should seek to ensure that, where relevant, the ISDS system adequately integrates and balances the goals of international environmental and investment law. To the greatest extent possible, governments should strive to ensure that the ISDS system adequately addresses the application of investment law to environmental measures in a transparent and publicly accountable manner that allows, where  appropriate,  participation by interested third parties. In order to ensure a consistent treatment of this issue, governments should consider including provisions on transparency of ISDS in their investment agreements.

In my comments on the Draft Statement, I questioned whether there really has been “significant progress in improving transparency of ISDS since 2005”, as suggested in the text of the Draft Statement.  Although North American BIT practice has certainly embraced transparency, there are still many agreements being concluded that do not include provisions for transparency in investor-State arbitration.

The Draft Papers are excellent, particularly the paper on “Environmental Concerns in International Investment Agreements: A Survey”.  This paper provides a comprehensive empirical survey of investment treaty practice on environmental provisions.  Based on a sample of 1,623 international investment agreements, the study finds that only 133, or 8.2%, contain a reference to environmental concerns.  The paper provides a very useful survey of treaty practice and the language used in various treaty provisions.

With respect to investment treaty practice and the environment, the Draft Statement recommends that:

Governments should examine whether their investment treaty practices are up-to-date with regard to environmental concerns and consider including language in investment treaties or environmental treaties to provide guidance about how environmental and investment law goals are to be reconciled.

What undoubtedly will remain contested is whether IIAs adequately integrate and balance the goals of international environmental and investment law and what constitutes up-to-date treaty practice.

On the issue of integrating and balancing the goals of international environmental and investment law, readers may be interested in a new edited collection published earlier this year called Sustainable Development in World Investment Law.  This collection of 30 papers analyzes the state of international investment law through the lens of sustainable development. The various chapters in the volume identify, characterize, and analyze existing rules, innovations, and best practices in international investment agreements, including the investment measures used by other sustainable development treaties and instruments.  The table of contents and introductory chapter are available here.

If time permits, I may do another list for 2011. But, first I thought I’d take a look back at last year’s list and offer a brief update on those cases. Rather, than do all of the heavy-lifting here, I’ll direct readers of this blog to relevant reporting in my Investment Arbitration Reporter newsletter (not to be confused with Kluwer’s ITA newsletter) where appropriate. (You won’t need a subscription to view the articles that are referenced below, as we’ll make them publicly available.)

Without further ado, here’s a run-down of the ten cases from last year.

Suez, Vivendi, Anglian Water, et al. v. Argentina

In August, decisions on liability were finally rendered, holding Argentina liable for breaching investment protections owed to a Who’s Who of foreign investors in that country’s water and sewage sector. However, for those interested in the running debate about the coherence or fragmentation of public international law, the decisions may be something of a disappointment. While the arbitrators found breaches of Argentina’s bilateral investment treaty obligations, they gave short shrift to Argentina’s invocation of international human rights law obligations in its defence of these claims. Check out our reporting for a fuller run-down of what happened.

Fraport v. Philippines

Next on last year’s list was Fraport’s bid to annul an ICSID jurisdictional decision which had grounded the company’s bid for compensation over an expropriated airport terminal. In 2007, a divided tribunal ruled that the company’s claim should fail due to the fact that the claimant had quietly circumvented local laws designed to limit foreign control of the terminal project.

Well, tell your friends that you read it on the internet: Fraport got an early Christmas present on December 23rd when an ICSID annulment committee annulled the 2007 ruling. The annulment paves the way for a new arbitration, and one imagines that this will land on ICSID’s doorstep early in the new year. Keep an eye on the IAReporter newsletter for the fuller story on this one.

Brandes Investment Partners v. Venezuela

Last year, we noted that a decision should be forthcoming by a panel of arbitrators in a telecoms nationalization claim whose viability hinges on the ambiguous-looking arbitration clause in a domestic investment protection statute. Yeah, that’s a mouthful. But you’ve got time to digest it because, as of this writing, a decision in the Brandes case is still awaited.

Mind you, a different ICSID panel weighed in earlier this year with a notably restrictive interpretation of the same statute at issue in the Brandes case. Our report on that dimension of the Mobil v. Venezuela case is here. Now it remains to be seen what the Brandes tribunal makes of the ruling in the Mobil case.

El Paso v. Argentina

Nothing new to report here. El Paso turned to arbitration against Argentina back in 2003, alleging that the country’s handling of an earlier financial crisis triggered breaches of protections owed to El Paso. Arbitrators are still dotting their ‘I’’s and crossing their ‘t’’s on this long-anticipated decision. El Paso must be thoroughly demoralized given that the most likely outcomes are A) a dismissal of its case or B) a “victory” followed by a protracted annulment process.

AES v. Hungary

There is rather more to report in relation to another claim highlighted in last year’s list. AES was one of three foreign power producers to sue Hungary for allegedly failing to respect the terms of long-term power purchase agreements. However, in September, arbitrators handed down a verdict in favour of Hungary, finding no breaches of the country’s obligations under the Energy Charter Treaty. A fuller accounting of the case can be read here.

Foresti and others v. South Africa

A group of foreign miners drew international headlines when they alleged that South Africa’s Black Economic Empowerment program – and the country’s new BEE-inspired mining regime – had breached protections owed under South Africa’s bilateral investment treaties.

As was noted last December, the politically contentious dispute seemed to be fizzling out after the claimants signaled that they were prepared to lay down their arms. However, the claimants and South Africa could not agree on the peace terms, so it fell to arbitrators to hold a hearing and issue an award which drew a line under the case. Read all about it here.

RosInvestCo v. Russian Federation

On December 19, 2010, we reported that an arbitral award in one of three pending Yukos-related arbitrations against Russia had been quietly rendered back in September. The ruling had remained under lock and key until the Russian Federation moved earlier this month to set aside the award. Here’s our quick run-down of what happened, but keep an eye on our newsletter for a full accounting of the award’s holdings.

Chemtura v. Canada

Canada walked away victorious after arbitrators ruled in August of 2010 that a U.S. chemical company had failed to make out any of its claims under the North American Free Trade Agreement (NAFTA). The case had been watched nervously by public health advocates as Chemtura was attempting to second-guess Canada’s phase-out of the controversial agro-chemical, lindane. But, in the end, Canadians were left only with a hefty legal bill – not an arbitral edict requiring them to put a teapoon of lindane on their morning oatmeal. See this report for the crux of the tribunal’s ruling.

Chevron v. Ecuador (Round One)

While a bruising multi-front legal fight over liability for Amazonian oil pollution gathered pace last year, arbitrators also weighed in with a ruling on a less-publicized under-card battle between the two combatants: Chevron corporation and the Republic of Ecuador.

In what could be a hefty victory for Chevron, arbitrators ruled that Ecuador was liable for delaying the judicial resolution of a series of contract disputes. As we made clear in an analysis of the arbitral ruling, the tribunal appeared to break new ground in ruling that an international tribunal can step into the shoes of domestic courts that are failing to deliver justice in a timely fashion.

Libananco v. Turkey


Various claimants came out of the woodwork to sue Turkey following that country’s winding up of the Uzan family business empire. Libananco, a Cyprus-based entity, has long maintained that it has the most credible claims. The off-shore company insists that it held stakes in two valuable electricity concessions prior to their being taken over by the government. With all of the other known arbitration claims brought by shell-companies now having been dispatched on jurisdictional grounds, a ruling in the Libananco case is the only thing left to be written.

However, if Libananco should prevail, it will have to contend with a recent ruling by a New York judge that any ICSID arbitration winnings must accrue to the benefit of those who suffered a Billion Dollar fraud at the hands of the Uzans. See our story here.

Luke Eric Peterson
Editor
http://www.InvestmentArbitrationReporter.com

On a domestic level, the establishment of a sound legal system is the prerequisite for a stable framework within which a community can operate. To build a sustainable framework not only requires know-how and experience, but also the unyielding resolution to promote change. Such a system should cater to the state’s and its population’s needs, but should also reflect international standards as, from a public international law perspective, a state’s ability to act on the international stage usually depends on the degree of recognition afforded to it by the international community.

Europe’s youngest state is currently undergoing the process of optimising its legal system and gaining international recognition. Kosovo’s declaration of independence on February 17, 2008 was the subject of intense political debate, but the country has made substantial efforts to position itself within the international community. Kosovo’s political leaders have recognised the importance of attracting foreign investments and the resulting requirement to provide a stable framework for resolving disputes.

Therefore, Kosovo has started to negotiate and conclude its first bilateral investment treaties (BITs) as an independent nation. In 2010, the first BIT was completed with Belgium and Luxembourg. Other treaties, such as the Austria – Kosovo BIT, are currently in the process of ratification. Additionally, Kosovo has a BIT with Albania originating from the time when it was a UN Protectorate. The time frame for establishing a reliable investment protection framework, based on major numbers of BITs, of course depends largely on Kosovo’s recognition as a state by the international community. It remains to be seen how the recently rendered ICJ Advisory Opinion, concluding that the Kosovo declaration of independence did not violate international law, will influence this development in the long term.

Since 29 June 2009, Kosovo is also a party to the ICSID convention. In addition, Kosovo has passed a number of domestic laws and regulations relating to and dealing with the promotion of foreign investments. Its arbitration law was passed in 2007 and is based largely on the UNCITRAL Model Law in its version before the 2006 amendment.

Furthermore, given the present absence of a greater number of BITs, Kosovo has undertaken to close the gap in foreign direct investment protection by setting down principles of protection in a domestic legislative act. The Law on Foreign Investment 2005 offers investors substantive protection, relying on terminology that is well known from international investment treaties. Examples include provisions on fair and equitable treatment, and full and constant protection and security. Also, it refers to various arbitral mechanisms for dispute resolution, including arbitration under the ICSID Convention. Finally, it explicitly stipulates the state’s obligation to enforce awards rendered in these arbitration proceedings in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), “regardless as to whether or not that convention is otherwise binding on Kosovo”. At the moment, Kosovo is not a party to the New York Convention. It can be expected that, given the state’s efforts in creating a reliable environment for arbitration, the question of accession to the New York Convention will be raised in the near future.

In cooperation with the United States Agency for International Development (USAID), the state is currently also pursuing further means of establishing an effective local alternative dispute resolution (ADR) system. The overall goal is to promote ADR as a whole in Kosovo and to create a framework for the swift enforcement of contractual rights. Specific steps planned for the near future include the establishment of a permanent arbitral institution in alliance with the Kosovo Chamber of Commerce as well as the creation of training programs for judges, practising lawyers, and law students in order to provide a broad base of specialist expertise within the country.

On an overall level, Kosovo is ambitiously striving to establish an investment protection and arbitration system. Kosovo has clearly recognised the importance of foreign direct investment for building a growing economy. It has a modern arbitration law and provides unusually high standards of investment protection on the basis of domestic legislation. Its recent ratification of the ICSID Convention and its fervent pursuit in negotiating and concluding BITs are strong evidence of this. However, its role as a seat for international arbitration in the future will depend considerably on the international enforceability of awards rendered within its territory and, ultimately, on its performance and reception on the international political stage.