On 31 August 2010, a group of over 35 academics (not including the current author), published a Public Statement on the International Investment Regime (Statement).  The preamble to the three-page Statement states that:

We have a shared concern for the harm done to the public welfare by the international investment regime, as currently structured, especially its hampering of the ability of governments to act for their people in response to the concerns of human development and environmental sustainability.

The Statement highlights a number of concerns, including that investment treaties have been given unduly pro-investor interpretations; the award of damages as a remedy of first resort poses a serious threat to democratic choice; and investment treaty arbitration as currently constituted is not a fair, independent, and balanced method for the resolution of investment disputes.

The Statement recommends that governments:

should review their investment treaties with a view to withdrawing from or renegotiating them in light of the concerns expressed above; should take steps to replace or curtail the use of investment treaty arbitration; and should strengthen their domestic justice system for the benefit of all citizens and communities, including investors.

I will focus my comments in this blog on my objection to the guiding premise in the Statement’s preamble—that the regime hampers “the ability of governments to act for their people in response to the concerns of human development and environmental sustainability” and will discuss concerns regarding threats to environmental protection.

Since the mid-1990s beginning with the first NAFTA investment arbitrations, critics have argued that investment protection standards are a threat to environmental law and protection.  Many of the critiques focused on the early NAFTA cases that involved environmental issues:  Azianian, Ethyl, Metalclad and S.D. Myers.  Later, critics highlighted the claims in Methanex and Glamis as confirming their worst fears.  Yet, these concerns simply have not been reflected in the final results.  On the whole, tribunals have done a good job distinguishing between legitimate environmental legislation and arbitrary and discriminatory government conduct. In the NAFTA context, there have only been two awards—Metalclad and S.D. Myers—where tribunals have found respondent states, Mexico and Canada respectively, in breach of NAFTA.  In Metalclad, among other things, a cacti reserve was created and Mexico had to pay for the expropriation of the investment.   In S.D. Myers, the border ban on PCB waste was motivated by pure protectionism, not environmental protection.  Although one can criticize aspects of the reasoning in both awards, the tribunals reached the correct result.  In the one other high profile environmental case under an investment treaty (Tecmed), the tribunal’s findings were that Mexico took the measures based on public pressure and not because of environmental infractions.

Overall, the trend is towards a definite rejection of claims challenging environmental measures—Glamis, Methanex and, on 2 August 2010, the award in Chemtura Corporation v. Canada, another NAFTA claim.  All of Chemtura’s claims with respect to the regulatory treatment of lindane, a pesticide primarily used on canola seed, were rejected.  Chemtura was ordered to pay the costs of the arbitration and an additional CAD 2.8 million—half of Canada’s fees and costs.  In Chemtura, the tribunal recognized that its role was not to second judge science-based decision-making (para. 133); characterized the minimum standard requirement under NAFTA as one of “regulatory fairness” (para. 179); and also recognized that valid exercises of a state’s police powers do not constitute an expropriation (para. 266).

Although I have argued elsewhere that the investment treaty regime could do more to promote sustainable development, I do not agree with the Statement that the regime has done more harm than good.  The regime has and is serving an important and key role in securing the rule of law–a vital function in a global economy.  Although there have been a number of recent high-profile withdrawals from investment treaties and ICSID, states on the whole appear to continue to have confidence in the system.  The number of new treaties (over 100 in 2009 according to World Investment Report 2010), overwhelms the few terminations.  State support for the system is also reflected in other developments, such as negotiations on a Latin American Advisory Facility on Investor-State Disputes and UNCTAD’s work programme on international investment agreements.  It seems doubtful that many states are going to take up the call in the Statement to withdraw from the current system.  Nor, in my view, should they.

So far in 2010, at least two jurisdictions have established specialized courts to handle international arbitration matters ─ Australia (in the state of Victoria) and India (in Bombay).

Australia: Within Australia’s federal structure, international arbitration matters are in the jurisdiction of state supreme courts. In 2009, Australia’s Parliament gave the Federal Court concurrent jurisdiction over international arbitration. In addition, a practice note recommended the appointment of an “Arbitration Coordinating Judge” for each registry. In January 2010, the Supreme Court of Victoria made such an appointment, creating an arbitration list (“List G”) that centralizes arbitration matters. The list is managed by a judge with international arbitration experience who, along with several other commercial judges, will hear all arbitration-specific cases.

India: At the beginning of August 2010, Bombay’s High Court announced the creation of a court dedicated to arbitration-related applications and petitions. The decision was taken when the new Chief Justice realized that there is an immense backlog of applications to appoint arbitrators because a judge hears these applications only one day a week.

These two recent developments highlight the issue of how a national court system should handle proceedings relating to international arbitration, and specifically, the debate whether there should be specialized courts to determine issues arising in international arbitration that go to the courts.

While international arbitration may be an international system of justice not tied to any state’s legal system, there can be no question about the importance that national court decisions have on arbitration proceedings and the development of a jurisdiction’s international arbitration law. Court decisions are critical to whether a jurisdiction develops and maintains an independent and effective arbitration regime.

It is worth remembering the number of pivotal issues that ultimately are in the hands of national courts ─ from what is arbitrable as a matter of policy, to what words must be used to define the scope of issues submitted to arbitration, to the availability of interim relief and orders in support of an arbitration, to the treatment of non-signatories, to challenges to awards, and to the recognition and enforcement of awards.

In the words of McGill University Professor Frédéric Bachand in 2008, international arbitration “is very much a hybrid process, an international system of justice in which private adjudicators and the courts are partners rather than competitors” [in his paper presented to the ADR Institute of Canada’s 2008 annual conference and published in Canadian Arbitration and Mediation Journal].

Indeed, a major problem can arise for international arbitration in a given jurisdiction if the judicial partner in that jurisdiction is not up to the task.

A lack of arbitration knowledge and expertise among generalist judges or judges specialized in other areas can produce decisions that are wholly inconsistent with global arbitration jurisprudence. Even in jurisdictions in which appellate courts are supportive of arbitration, aberrant lower court decisions can create international uncertainty and may disproportionately damage the jurisdiction’s reputation in the field of international arbitration.

Some countries have thus created specialized courts, or specialized procedures, to deal with international arbitration issues in a centralized manner, enabling a limited number of judges to maintain expertise and creating consistency.

Specialization is not new. Well-known jurisdictions for international arbitration have implemented some specialization in their courts in one way or another, particularly concerning attacks on and enforcement of awards:

France: All applications in France to set aside arbitral awards go directly to the court of appeal at the seat of the arbitration. Given that most international arbitrations in France are seated in Paris, the Cour d’appel de Paris hears most of these applications. Other arbitration-related matters, however, go to courts of first instance.

England: Court applications concerning arbitration-related matters may only be brought within a limited range of courts in England (as provided in the Practice Direction to Part 62 of the Civil Procedure Rules (CPR)). These are, generally speaking: the Commercial Court (general), the Technology and Construction Court (TCC – only for construction/engineering-related disputes), and the Business List of regional mercantile courts (such as in Manchester, Leeds, Bristol and Birmingham) including the Central London County Court business list (which is the only county court that can accept arbitration applications). In practice, the focus is even narrower, as the two main funnels for arbitration-related matters in England are the Commercial Court in London and the TCC in London, which between them probably handle the vast majority of applications.

Switzerland: All applications to set aside arbitral awards made in Switzerland must be brought before the Swiss Federal Tribunal, the country’s highest court. No further appeal or recourse is available. The Swiss legislature established this legal framework to minimize the time and cost for the resolution of these applications and so that a coherent jurisprudence would develop. As a matter of practice, all setting aside applications are assigned to the First Civil Court of the Swiss Federal Tribunal. While this is a generalist civil court, this group of judges has developed considerable experience and expertise in deciding arbitration-related cases.

Other court applications relating arbitration, however, are generally heard by the Cantonal court of first instance at the place of arbitration in Switzerland. The practice on the assignment of arbitration matters within the Cantonal courts of first instance varies considerably from one canton to another.

Sweden: The Svea Court of Appeal has exclusive first instance jurisdiction to hear summary procedures relating to the enforcement of foreign arbitral awards. The parties can appeal to the Supreme Court.

China: China has brought increased uniformity to applications to enforce foreign arbitral awards by instituting a specialized procedure. A lower court decision not to enforce is automatically submitted to a higher court for review, and in turn its decision not to enforce must be reviewed by the Supreme People’s Court.

Whether by placing arbitration issues solely in the hands of higher level courts, or placing them initially in the hands of specific judges in lower courts, these jurisdictions have centralized arbitration-related matters in the hands of specialized judges who it is expected can deal with arbitration issues consistently, competently and in a manner supportive of international arbitration.

In advocating for Canadian jurisdictions, particularly Québec, to implement in their courts greater centralization of international arbitration cases in the hands of a relatively small number of judges who would acquire experience and develop expertise, Prof. Bachand recalled that the drafters of the Model Law contemplated such centralization.

The drafters noted in the Analytical Commentary regarding Article 6 that “[t]o concentrate these arbitration-related functions [appointment; challenges; termination; setting aside of awards] in a specific Court” would have two benefits: “Even more beneficial [than enabling parties to locate the correct court] would be the expected specialization of that Court.” While the drafters considered that full centralization would be best, they noted that it need not be one individual court in each State, and that particularly in larger countries, a type or category of courts might be designated such as a commercial court or chambers, and that it need not necessarily be a full court or chamber but it might well be the president or presiding judge of a chamber.

While centralizing the handling of one type of matter may not fit the legal culture and traditions of all jurisdictions, jurisdictions without specialized courts should assess whether they should be established in one form or another. In assessing the desirability of centralization and specialized courts, a jurisdiction must ask what alternatives are available to achieve consistently international arbitration decisions in its courts that meet or exceed globally accepted norms. As well, jurisdictions should consider what judicial education regarding arbitration should be provided to the judges hearing arbitration matters.

As well, there are roles for international arbitration institutions and organizations. Those roles include judicial education and the development of norms and model approaches to assist international arbitration’s judicial partners in all jurisdictions to perform their roles in this partnership consistently and effectively. This will serve well the interests of a well-functioning global international arbitration regime.

Barry Leon (bleon@perlaw.ca) and Andrew McDougall (amcdougall@perlaw.ca) are Partners in the International Arbitration Group with Perley-Robertson, Hill & McDougall LLP (www.perlaw.ca).

In an analysis published last year, the Georgian authors Mgalobishvili and Kiknavelidze concluded that “there is no doubt that Georgia needs a lot of time and efforts in order to be finally established as a country friendly towards arbitration […].” ¹ They identified measures which, in their opinion, should be taken by Georgia in order to accomplish this goal. Among these measures, they listed the adoption of legislation based on the 1985 UNCITRAL Model Law.

Less than a year later, it can be announced that Georgia has successfully taken this step: On 19 June 2009, the Parliament of the Republic of Georgia passed a new law “On Arbitration“, which came into force on 1 January 2010 (Official Journal of the Republic of Georgia, 1280-Is). So far, this law – as well as a detailed analysis by a Georgian author ² – is publicly only available in the Georgian language. It is expected that there will be an official translation of the Law on Arbitration into English on the official internet site of the Parliament soon. ³ Recently, UNCITRAL included Georgia in its list of countries which enacted legislation based on the Model Law. ⁴

The previous Georgian legislation, contained in the 1997 Private Arbitration Act and the 1997 Civil Procedure Code, had been critisized for having “quite serious gaps” and for not meeting contemporary requirements. In particular, it was repeatedly stated by Georgian as well as foreign authors that the old legislation seemed to apply only to domestic arbitration, there was no express right of the tribunals to rule on their own jurisdiction, and the provisions on the recognition and enforcement of foreign arbitral awards were uncommon, at best.

The new Law on Arbitration consists of 48 articles, divided into ten chapters, which in their general structure and content follow the Model Law. It covers both domestic and international arbitration. The rules about the composition of the arbitral tribunal at large correspond to the Model Law; the appointing authority is the Rayon Court (Court of First Instance). The parties may be represented by lawyers. The arbitral tribunal may rule on its own jurisdiction. Unless otherwise agreed by the parties, the languages of the proceedings as well as the seat of the tribunal will be determined by the tribunal. Hearings may be held at a place different from the seat. The arbitral tribunal may request evidence from the parties at any stage of the proceedings; it can call witnesses, nominate experts, and request the parties to produce documents.

Probably the most important change from the view of the international arbitration community is that there are now clear provisions on setting aside domestic arbitral awards and on recognition and enforcement of foreign arbitral awards. The reasons why an arbitral award can be set aside and why recognition and enforcement can be refused have been brought into accordance with the Model Law and the New York Convention. Under the old law, the Supreme Court of Georgia examined the issues of recognition and enforcement of foreign arbitral awards, without a provision in any of the laws of Georgia establishing its jurisdiction. ⁵ The 2010 Law on Arbitration now establishes, in its Art. 2 Sec. 1 a) in conjunction with Artt. 42, 43, Artt. 44, 45 respectively, that the jurisdiction for the setting aside of domestic awards lies with the Courts of Appeal, and for the recognition and enforcement of foreign arbitral awards with the Supreme Court of Georgia.

The new Law on Arbitration is a contemporary legislation which reflects international standards, and a significant step for the further development and promotion of international commercial arbitration within the Republic of Georgia and the entire Caucasus region. ⁶

The clearest indication of a shift in the approach of the Russian arbitrazh (commercial) courts* came in April 2010, when the Presidium of Russia’s Supreme Arbitrazh (Commercial) Court issued a precedential decision, holding that interim relief measures may be ordered by Russian arbitrazh courts in aid of foreign arbitration. The ruling has resolved an ongoing debate over the issue in the lower courts, and has suggested a positive shift in the attitude of the Russian judiciary towards supporting foreign dispute resolution proceedings.

In the underlying case, proceedings in Russia arose in connection with an arbitration commenced in 2009 in the London Court of International Arbitration (“LCIA”) by a Cypriot company “Edimax” against the Russian businessman Shalva Chigirinsky. Edimax is claiming approximately $32 million from Chigirinksy for debts allegedly owed by companies under his control, on the basis that he had issued a personal guarantee in the companies’ favour. In an effort to ensure any future enforcement of a potential LCIA award, Edimax applied to the Moscow Arbitrazh Court for interim relief in the form of an attachment over Chigirinsky’s Moscow apartment.

The issue of whether such relief may be ordered by Russian arbitrazh courts to support foreign arbitration has remained unclear for some time. Article 90(3) of the Russian Arbitrazh Procedure Code states that a party to arbitral proceedings may apply to an arbitrazh court to seek relief at either the place of arbitration, the debtor’s place of residence, or the place where the debtor or the debtor’s assets are located. Although the statutory provision does not on its face limit the availability of interim relief to a particular kind of arbitration, it was previously uncertain whether it extends to an international arbitration with a seat outside Russia.

Indeed, the lack of clarity on the availability of interim relief in such a scenario was illustrated by the progression of the Edimax v. Chigirinsky case through the Russian court hierarchy. The first instance arbitrazh court refused to grant Edimax interim relief on the basis that the request was not justified under the requirements of Article 90 of the Russian Arbitrazh Procedure Code. The Ninth Court of Appeal disagreed and reversed the decision, issuing the order of attachment. Chigirinsky then appealed to the Moscow Circuit Cassation Court, which annulled the decision below on the basis that the case did not involve a “commercial” element. The Cassation ruling stated that such a “commercial” element is necessary since Article 27(1) of the Procedure Code of the Russian Federation limits the jurisdiction of the arbitrazh (commercial) courts to matters involving entrepreneurial or other economic/commercial activities. In the opinion of the Cassation Court, Chigirinsky provided the personal guarantee in his private capacity, and not as an entrepreneur engaged in a business activity, and this placed his assets outside the jurisdiction of the arbitrazh (commercial) courts.

The issues in the proceedings were finally resolved by the Supreme Commercial Court, Russia’s highest court of commercial jurisdiction. The Presidium of the court decided that an individual in Chigirinsky’s position could be considered as an entrepreneur acting in his economic interests when issuing a guarantee against the debts of companies under his control. As such, Russia’s arbitrazh courts are competent to order provisional relief against him as a personal guarantor of corporate debts. Perhaps most significantly, the Supreme Commercial Court set a precedent in concluding that Russian arbitrazh courts can rely on Article 90(3) of the Arbitrazh Procedure Code to provide interim relief, such as an order of attachment over assets located in Russia, in aid of foreign arbitration.

The decision is a clear demonstration of a recent trend within the Russian judiciary towards greater support of arbitration and litigation taking place abroad. In the past, Russian authorities have exhibited some reluctance to enforce arbitration awards or court decisions rendered outside Russia against Russian entities. Although Russia is a party to the 1958 New York Convention and is therefore bound to enforce valid arbitration awards, domestic courts have previously refused enforcement on the basis of very broad interpretations of public policy. In the realm of litigation, Russia is not bound by any international obligation to recognize and enforce foreign judgments, and Russian courts have in the past commonly refused enforcement of judgments rendered abroad. However, the Russian Supreme Commercial Court appears to be changing its stance. In a 2009 decision, Rentpool BV v. Podyemnye Tekhnologii LLC, the court enforced a Dutch judgment in the absence of a treaty obligation to do so, citing international law principles of “comity” and “reciprocity.” On the arbitration side, following the ruling of the Supreme Commercial Court in Edimax v. Chigirinsky, Russia’s Ministry of Economic Development has reportedly requested information from Russian Embassies in Europe on other nations’ practices on granting provisional measures. Russian authorities are also said to be considering the adoption of the UN Model Law on International Commercial Arbitration that, with amendments as adopted in 2006, includes extended provisions on interim relief.

In addition to the positive court decisions coming out of the arbitrazh courts, as discussed above, there are other factors that support the view of the positive developments in the Russian courts, at least as far as the arbitrazh (commercial) courts are concerned. In particular, the Chairman of the Supreme Arbitrazh Court has issued clear instructions to the lower courts to treat decisions of the more senior courts as precedents. This combined with the recent practice of placing decisions of the Supreme Arbitrazh Court on-line is likely to be another major step in developing transparency and consistency in the arbitrazh court system in Russia.

One other development that is taking place is the introduction of electronic document systems into the arbitrazh courts, whereby it is possible to file court documents through electronic means. This system is in the process of being developed and, once the system is fully operational, it will arguably put the Russian commercial courts ahead of the latest accepted technological practices in the leading courts around the world.

While it remains to be seen whether the positive trend of Russian judicial co-operation with international dispute resolution will continue, the recent position of the Supreme Commercial Court and the other developments highlighted above certainly signal a positive message for foreign investors seeking to do business in Russia.

By David Goldberg and Eugenia Levine

* Arbitrazh courts in Russia are a system of State courts within the Russian judiciary with jurisdiction over most commercial disputes and various business entities. These arbitrazh courts are not arbitration tribunals and do not resolve arbitral disputes. They are commercial courts in the general sense of the phrase.

Is there a duty to arbitrate in good faith? Is there a need for a Code of Ethics in international arbitration? Those are certainly amongst the most important questions for the future development of the law and practice of arbitration. They have been hotly debated in occasion of certain recent and much publicized cases. And in its keynote address to the last ICCA Congress in Rio, Doak Bishop argued that existing codes of conduct for lawyers are not up to the task. There is no doubt that this debate will strongly develop in coming years.

In 2008, the Arbitration Committee of the International Bar Association has formed a Task Force on Counsel Ethics in International Arbitration for the purpose of investigating the different and often contrasting ethical and cultural norms, standards and disciplinary rules that may apply to counsel in international arbitrations. As part of the Task Force’s information-gathering mission, it has prepared a survey to solicit the input and experiences of international arbitration practitioners – including the the users of arbitration, members of arbitral institutions, counsel and arbitrators – regarding specific cases where ethical conflicts and other issues arise and whether the lack of international guidelines in counsel ethics undermines the fundamental protections of fairness and equality of treatment and the integrity of international arbitration proceedings.

The survey of the Task Force on Counsel Ethics in International Arbitration is available here . Answers to the survey should be provided by September 15, 2010.

I urge all practitioners to contribute to this important project.

Alexis Mourre

It is well known that the New York Convention is widely recognized as a foundational instrument of international arbitration. In addition to this Convention, there are also international bilateral agreements in which Paragraph 1 of Article VII of the New York Convention specifically refers to and determines the relationship between its provisions and other agreements.

One interesting and noteworthy bilateral agreement is the Trade and Payments Agreement concluded between the USSR and Sweden in Moscow on 7 September 1940 (the “Agreement”). Although this agreement was entered into during the Soviet time, it still continues to operate in Russia, particularly with regard to Article 14 of the Agreement with the Annex “Agreement on Arbitration Courts” and Article 15 dealing with arbitral awards’ enforcement. (The articles are quite lengthy; therefore, their texts were omitted from the note).

This Agreement was signed 70 years ago during the Soviet era, yet after the collapse of the USSR, Sweden and new Russia decided to retain it. On 29 September 1993, a Protocol was signed in Stockholm on the termination of application with regard to the relations between the two countries concerning certain previous agreements. However, according to Article 3 of the Protocol, that termination did not affect the legal force of Articles 14 and Article 15 of the 1940 Agreement. The Protocol was ratified in Russia by Federal Law № 18-FZ on 17 February 1995 and became effective on 1 May 1995.

I would like to note five reasons why, in my opinion, the provisions of the 1940 Agreement require particular consideration.

Firstly, Stockholm is probably the city where the majority of arbitration cases to which Russia is a party to are considered, and the awards are subsequently enforced in Russia. This situation is inherited from the Soviet period.

Secondly, the provisions concerning recognition and/or enforcement of arbitral awards contained in the 1940 Agreement differ from the New York Convention’s provisions as they are less generous to the prevailing party. Accordingly, it should make quite a difference for such a party, as well as for debtors under such awards, whether the provisions regarding arbitration and enforcement of arbitral awards in the 1940 Agreement are applicable or not. This issue is also very important for Russian courts, especially for the High Arbitrazh Court which is responsible for shaping a uniform judicial practice.

Thirdly, the Agreement concerns provisions which have prevailing force over domestic Russian regulations. Their correct application by Russian courts do not merely constitute controversial issues which are imperative and sensitive for society, economy and state but also form a sphere which has not been completely mastered in Russia so far, and which involves a multitude of issues and problems.

Fourthly, the provisions of the Agreement are unique: there are no other ones of a like nature in any other international agreement to which Russia is a party to.

Finally, the analysis of such provisions results in rather curious and even somewhat unexpected legal conclusions.

There are two important points in the effective provisions of the 1940 Agreement: (1) the special procedure of constituting the arbitral tribunal according to the provisions of the Annex and; (2) the two grounds for refusal to recognize and enforce an arbitral award which differ from the grounds provided for in the New York Convention and the Russian Law “On International Commercial Arbitration”. The first ground for refusal to enforce an arbitral award under the Agreement is when an application to set aside an arbitral award is being considered at the seat of arbitration. This is sufficient ground to refuse recognition and enforcement of the award in Russia under Article 15 of the Agreement. A similar ground for refusal can be the fact that the time for challenging the arbitral award in its seat has not yet expired.

The second ground for refusal is “the award being contrary to the state legal principles of the country where arbitral award enforcement is requested”. The concept of “state-legal principles” is used in Article 15 along with the concept of “public order”, and not as a synonym to the latter. The concept of “state-legal principles” is distinct from the traditional public policy exception. The concept of “state legal principles of Russia” is similar to the “constitutional legal principles of Russia”, which is broader than the concept of “public order of Russia”, and would aggravate problems of enforcement of arbitral awards.

In 1940 nobody in the USSR thought there was a difference between the concepts of “public order” and “state legal principles”, except perhaps that the former was considered more acceptable for foreign states and the latter as more suitable for the USSR. From the viewpoint of modern Russian domestic law, the recognition of the two concepts as “separate” was confirmed in 1993. It is obvious that the possibility of using the concept as is in legal practice creates the risk that fewer awards will be enforced in Russia.

Despite highlighting the relevant provisions of the Agreement and their legal force as confirmed by the 1993 Protocol, it is high time for such provisions to be abolished. It is an outdated Agreement that most lawyers in Russia and Sweden are not aware of, and if they were aware of it, it would almost certainly lead to a movement to abolish the articles in effect.

It is rather interesting to read in the news about how some governments have chosen to “fund” their own government. One government went so far as to simply clear out the checking accounts of small businesses and not-for-profit organizations (”NGOs”). Another government, not necessarily seeking funding but presumably disagreeing with the purpose and/or presence of the affected NGO went and seized all of its property and no longer allowed it to remain in its territory.

I am sure that many possible motivators exist for governments to go after organizations not seeking profit but instead seeking to pursue some social or other mission within its borders. Then I was left wondering – would these organizations benefit from investment treaty protections? Obvious hurdles would exist based on jurisdictional reasons, such as whether their investment in the foreign country satisfies the definitions found in investment treaties. In other words, do their investments need to be for a commercial purpose versus just contributing to the economical development of the foreign country at question? Another issue of concern is whether the definition of “national” encompasses organizations which are not-for-profit. Are these also “companies”?

I found a rather interesting article on the matter co-authored by Luke Eric Peterson and Nick Gallus. I found their analysis both thorough and clear with respect to the jurisdictional hurdles in question. What I found interesting, however, was a lack of discussion on the all important practical questions – is it worth it? What would really be the damages and how much of these damages would justify the expense involved in arbitrating the claim?

I see an obvious difference with human rights claims. Then it can simply be a matter of principle and stopping governments from harming basic rights, etc of people. However, when it comes to looking more to the monetary aspect of an NGO’s presence in a foreign country – would the investment (if found as one under the relevant treaty and/or ICSID rules) be large enough to arbitrate? The article does mention NGOs acting as investors in order to receive returns that may be invested back into the NGO and help it further its cause. Should such an investment reach a substantial level (not looking, of course, at the cause and state action aspects also necessary to violate a treaty and at the specific clauses which may be involved) as to justify the rising costs of arbitration. Therefore, it is likely a possible good route for NGO’s to consider in the sense of an added protection, but practically speaking is it realistic?

Another practical consideration not mentioned is the relationships between the NGOs and the governments themselves. It is logical to assume that should a foreign government directly target an NGO, the relationship is already looking bad. Does that automatically mean, however, that the NGO won’t seek to improve its relationship? But what about those actions which qualify for possible treaty protection but do not target a specific organization? Would the NGO want to “rock the boat” with the government any further than necessary? Examples of such actions are what are referred to frequently in reports issued by The International Center for Not-For-Profit Law. It frequently refers to governments changing laws which control how, when and from whom an NGO may receive funding. This type of action may arguably lead to damages in the form of loss funding, etc. Of course, an entirely separate analysis is required to even determine whether past damages precedence would include these, but before even getting that far an NGO may simply not want to further affect its own direct relationship (and hopefully some influence) with the government.

I find the topic fascinating and the article which Luke Eric Peterson and Nick Gallus wrote excellent and thorough with respect to the jurisdictional legal areas. What I am wondering is, would NGOs truly seek this path?

A significant majority of countries in the world have demonstrated that they see benefits in being a member of ICSID by ratifying the ICSID Convention (Convention on the Settlement of Investment Disputes Between States and Nationals of Other States). 144 states have ratified the treaty, and an additional 11 – including Canada – have signed but not yet ratified it.

Lawyers and many business people involved in the world of international trade and investment are well aware of the benefits of ICSID. Whatever operational shortcomings that ICSID has had – or may still be in the process of fixing – few would question that ICSID is the leading institution for investor-state disputes.

Many have asked why Canada has not yet ratified the ICSID Convention. It has been 45 years since the Convention came into existence and over three and a half years since Canada signed in December 2006. Canada is a G-8 and G-20 country and a country that stands to benefit more than many others from ICSID. The Secretary General of ICSID is a Canadian.

Yet, Canada remains the only G-8 state and one of only three OECD states that has not ratified the Convention.

Canada’s economy needs and benefits significantly from incoming investment, and Canadian companies are significant international investors. It seems obvious that ratification of ICSID would enhance Canada’s image abroad as an investment-friendly country and foster Canada’s economic prosperity. Conversely, it seems obvious that Canada’s failure to ratify has the opposite reputational effect.

The availability of binding ICSID arbitration would increase investor confidence in Canada, making it an even more attractive location for foreign investment by reducing the risk, and therefore the cost, to the incoming investor. This would benefit Canada’s economy.

Even more significantly, Canadian companies would have reduced risk, and therefore reduced cost, in their foreign investment activities, in which they are engaging with increasing frequency and vigor. This too would be beneficial to Canada. The majority of countries in which Canada’s companies invest most frequently and most heavily are ICSID members (notably excluding Mexico, India and Brazil).

One need not search hard for examples of Canadian companies that might have been able to utilize ICSID to their advantage. An example is the highly publicized, recent complaints made by First Quantum Minerals, a Canadian mining company, against the Democratic Republic of the Congo. When Canada’s Prime Minister raised these complaints at the recent G-20 Summit in Toronto, one might have thought that the gap in Canada’s investor protection caused by Canada’s failure to ratify the ICSID Convention would have been highlighted, leading Canadian businesses to urge ratification and governments in Canada to spring into action and take the necessary steps to ratify. However, two months after the Toronto Summit that still does not appear to be happening.

What is holding Canada back, and what will it take to achieve ratification of the ICSID Convention? We cannot justify the delay, but we can try to explain it.

In a nutshell, the reason for the delay seems to be Canada’s particular federalist structure. As in all federal states, powers are allocated by Canada’s constitution between its federal government, and its 10 provinces and three territories. Canada’s constitution, like in most if not all federal states, allocates treaty-making authority to the federal level. However, when the subject matter of a treaty is in a field in which Canada’s provinces and territories have authority, the provinces and territories may have a say.

Generally speaking, whether constitutionally or by practice, provincial and territorial concurrence is sought when the subject matter of a treaty is a subject matter wholly or partly within their jurisdiction. ICSID relates to one or more areas of provincial and territorial jurisdiction, so it has been generally assumed that provincial and territorial implementing legislation is needed or at least desirable.

Canada’s federal government signed the ICSID Convention in December 2006 and passed implementing legislation in March 2008. The implementing legislation has not yet been brought into force, our understanding being that this has been awaiting provincial and territorial implementing legislation. So far, only four of 10 provinces (British Columbia, Newfoundland and Labrador, Ontario and Saskatchewan) and two of three territories (Nunavut and Northwest Territories) have passed implementing legislation.

Of the provinces and territory remaining, Alberta and Québec are most notable. The benefits of ICSID membership to these provinces’ economies and companies would appear to be significant because of the nature of their economies and the international involvement of their companies. These provinces have vast natural resources such as in oil and gas, power and forestry. They also have companies active around the world in these sectors plus others such as aerospace and engineering.

It is suspected by some that implementing legislation is being used as a bargaining chip in federal-provincial negotiations on other issues. Another possibility is that putting forward ratification legislation on an international treaty such as ICSID in the face of crowded legislative agendas is not a priority. And a reality may be that treaty ratification is not a vote-getting issue.

Whatever the reasons for the lack of implementing legislation, it appears that concern about the merits of ICSID has never been, and is not now, the problem. When ratification legislation was being considered in Canada’s federal House of Commons, Members of Parliament generally agreed that ratification is in Canada’s interest. Indeed, in the many years since ICSID came into existence, Canada’s federal government has been trying at least intermittently to get its provincial counterparts to commit to act, and since signing the treaty, to actually act.

There is some indication that Canada’s federal government may move ahead with ratification of ICSID without waiting for the remaining provinces and territory. This is consistent with comments made during parliamentary debates and hearings when the federal implementing legislation was being considered. Citing provisions of ICSID as authority, parliamentarians and officials stated that Canada could designate provinces and territories that so wish to be a part of ICSID as “constituent subdivisions” under the Convention. Provinces and territories that have not passed implementing legislation could be designated if and when they do so. Article 70 of the ICSID Convention would allow Canada to identify by written notice the provinces and territories to which the treaty would not apply.

For example, then Senior General Counsel and Director General of Canada’s Trade Law Bureau, Meg Kinnear, now Secretary General of ICSID, testified before the Parliamentary Committee considering the federal implementing legislation:

What the federal government has said to all the provinces is that if you want to be what’s called “designated” as a constituent subdivision, just tell us and we will do that. … So we have said that this is up to you, and if at any time later you decide that you would like to be designated, just tell the federal government. There is no problem with that, but it’s totally up to the province to decide when they would like to do that. (November 22, 2007, Hansard, 39th Parliament, 2nd Session)

This approach is not without dissent. Some opposition members in the federal Parliament countered that the “constituent subdivision” approach would violate Canada’s constitutional division of powers and would constitute “wrongful arrogation” of the federal government’s control over international relations.

Another point raised was whether Canada, by ratifying without implementing legislation in all provinces and territories, would be violating its treaty obligations under the Vienna Convention on the Law of Treaties. Article 26 of that treaty states that “[e]very treaty in force is binding upon the parties to it and must be performed by them in good faith”, while Article 27 states that “a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty”. The counter-argument to this point appears to be that the ICSID Convention itself has created the “constituent subdivision” approach so that ratification relying on it is not a violation of any treaty obligation.

Lastly, moving forward with ratification without full provincial and territorial concurrency could be seen as deviating from Canadian treaty implementation practice and might have political implications. Few would disagree that unanimous provincial and territorial ratification is preferable in Canada’s federal state environment. Also, partial applicability of ICSID in Canada could complicate investment transactions and distort economic relations among different provinces and territories.

In any case, in the absence of unanimity after an unduly prolonged time and considerable effort, the alternative of utilizing the “constituent subdivisions” approach appears to many to be the best achievable option in the interests of the Canadian economy and Canadian businesses that invest internationally.

For those who have scratched their heads in disbelief wondering why Canada has not ratified the ICSID Convention, we hope that this provides an explanation.

Barry Leon (bleon@perlaw.ca) and Andrew McDougall (amcdougall@perlaw.ca) are Partners in the International Arbitration Group with Perley-Robertson, Hill & McDougall LLP ( www.perlaw.ca ).

Often viewed as one of the leading locations for international arbitrationss, why doesn’t the state of New York have a separate arbitration act for international arbitrations? Is it simply unnecessary? It is interesting to note in my 2 previous articles, that other states have found it absolutely necessary. Recently, as previously discussed, the state of Florida enacted the UN Model Law on International Commercial Arbitrations (“Model Law”), following the lead of 5 other U.S. states and several leading world jurisdictions. I already discussed some of the points made with respect to replacing the Federal Arbitration Act with the Model Law in my previous articles, but what about New York?

I recently sat in a meeting in which local arbitration professionals were discussing this very topic, briefly. It made me think, why not? As a newly relocated international arbitration practitioner to NYC after spending some years practicing with the Europeans, I thought it was an interesting idea. Certainly, as I heard frequently from my civil law counterparts in Europe, using New York (and even the U.S. altogether) makes many clients and their attorneys apprehensive, to put it lightly. I think most, if not all, of the readers will already know why: discovery. The fear of the fishing games breaking into mainstream international commercial arbitrations located in the US or even using US arbitrators is very real. While practicing abroad, even US attorneys who had spent years practicing abroad would express those same concerns. Sometimes the concerns were expressed to them by clients, others were directly concerned themselves.

Is this a reality? Not in truly international arbitrations with experienced international arbitrators and practitioners, but the fear remains. However, that is not the purpose of this article – yet it is connected. Why not enact the Model Law? Whether it is truly necessary due to the FAA, institutional arbitration rules and other mechanisms that prevent much of New York law playing a large role in the international arbitration itself….still, would it send a good message? Likely yes. So, what am I advocating here? Not just creating a separate international arbitration act to re-enforce the message that the state of New York is a serious player in the international arbitration arena, but to enact specifically the Model Law.

As my previous articles mentioned, the Model Law attempts to reflect a sort of marriage between the civil law and common law perspectives. It is a “known entity”, a familiar environment if you will for those unfamiliar with the realities of choosing the US, and specifically, the state of New York as the situs for the international arbitration.

Could it happen? I heard comments from those arbitration practitioners that were concerned with the reality of getting it through the legislator, but what I did not hear were substantive expressions of concern that it was a bad idea. I cannot say they do not exist anymore than I could read these practitioners’ minds. I can say, no solid argument was presented, but it wasn’t the main purpose of the meeting either. So – what are the reasons? In this economy, are we not all trying to “send the right message”? For that purpose alone – marketing – is it not a viable idea? Please, share your comments to this experienced practitioner, freshly minted in NYC.

Following the controversial land reform programme first introduced by President Robert Mugabe in July 2000, Zimbabwe has found itself in hot water of late, with a number of international disputes being brought by dispossessed farmers against the State.

The first of these disputes was mounted at ICSID in 2005 by a group of 13 Dutch farmers who alleged that Zimbabwe, by depriving them of their agricultural landholdings and other property, had breached various provisions of the Netherlands-Zimbabwe bilateral investment treaty (BIT). In April 2009 an ICSID tribunal issued an award in Funnekotter et al. v Zimbabwe, finding that Zimbabwe had breached its obligations under Article 6 of the Netherlands-Zimbabwe BIT (which sets out the conditions for a lawful expropriation), and ordered Zimbabwe to pay the Claimants €8,220,000 plus interest as compensation for the lands expropriated by the Zimbabwean Government. (*)

A second dispute was brought before the Southern African Development Community (SADC) Tribunal in October 2007 by Mike Campbell and 77 other farmers who had received compulsory acquisition notices from the Zimbabwean Government. The farmers had initially applied to the Supreme Court of Zimbabwe for a protection order to prevent any forced eviction, but this was denied, with the Supreme Court finding that (i) despite the farmers’ submission that they were targeted exclusively because of their race, race was not an issue given that the relevant provisions of the Constitution did not make any reference to race; (ii) the Government had an inherent right to compulsorily acquire property; and (iii) the legislature had full power to change the Constitution to allow agricultural land to be confiscated without compensation ‘for resettlement and other purposes’.

However, the Campbell claim before the SADC Tribunal was more successful. In November 2008 the Tribunal held that (i) the Tribunal had jurisdiction to hear the case because the amendments that had been made to the Zimbabwean Constitution had eliminated the farmers’ access to the domestic courts; (ii) the farmers had been deprived of their right to a fair hearing before being deprived of their rights to their land; (iii) the actions of the Zimbabwean Government constituted indirect discrimination because it affected white farmers only; and (iv) the farmers were entitled to compensation for the expropriation of their lands.

Most recently, a Swiss-German family has brought a claim before ICSID, seeking damages for the expropriation of three large estates, including forestry and agricultural businesses. In a claim registered at ICSID on 8 July 2010, the von Pezold family alleges that Zimbabwe has breached its treaty obligations with Switzerland and Germany by failing to provide fair and equitable treatment and full protection and security.

While it is evident that there is some groundswell of resistance to Zimbabwe’s land reform programme, what will be telling is whether any awards rendered are actually enforced against the State. In Funnekotter, Zimbabwe was ordered to pay the ordered compensation to the farmers within three months. This did not occur, so in January 2010 the Southern District Court of New York, which had jurisdiction under Section 1650a of the United States Code to enforce an ICSID award, confirmed the award for the full amount of US$25 million. Likewise, the Campbell award was confirmed in the South African High Court in February 2010, and in March 2010 the title deeds to four Cape Town houses belonging to the Zimbabwean Government were handed over to the farmers. Although the houses were due to be auctioned at the end of July 2010, this was postponed following the Zimbabwean Government’s challenge to the legality of the sale. Sources close to the case have explained that the Zimbabwean Government is arguing that the properties are protected by diplomatic immunity. Zimbabwe’s application will be heard in September 2010.

Perhaps as a result of this resistance, in August 2009, Zimbabwe formally withdrew its SADC membership, stating that it would not be bound by any of the Tribunal’s past or future orders. Neither the SADC Treaty nor the Protocol on the Tribunal contain a safeguard mechanism. In a further development, the South African Justice Minister has recently requested a legal opinion on the scope of the SADC Treaty and the enforceability of the SADC Tribunal’s rulings in both Zimbabwe and South Africa. As the South African courts are the only courts to have enforced a SADC ruling, South Africa’s compliance with SADC is vital to ensuring the enforceability, and thereby legitimacy, of the SADC Tribunal.

(*) The SADC is an economic community in Southern Africa with fifteen member states (Angola, Botswana, DRC, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe). Originally founded in 1980, it gained full legal status with the signing of the SADC Treaty in 1992. It aims to promote economic cooperation and free trade between the member states.