Content

Margie-Lys Jaime, A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) in:

Loic Cadiet, Burkhard Hess, Marta Requejo Isidro (Ed.)

Privatizing Dispute Resolution, page 483 - 532

Trends and Limits

1. Edition 2019, ISBN print: 978-3-8487-5908-8, ISBN online: 978-3-7489-0035-1, https://doi.org/10.5771/9783748900351-483

Series: Studies of the Max Planck Institute Luxembourg for International, European and Regulatory Procedural Law, vol. 18

Bibliographic information
International Arbitration A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) Dr Margie-Lys Jaime* Introduction The adoption of an impartial mechanism for the settlement of disputes in International Investment Agreements (IIAs)1 is part of the favourable structure that a state is expected to implement to improve conditions for foreign investment – in addition to suitable national regulation and other measures taken to encourage investments, such as modernization of the public sector, liberalization of national markets and privatization of public companies. Yet, it was not until the unprecedented proliferation of IIAs took place that a change in the status quo was made by the multiplication of cases based on such treaties, without the need of any contractual relationship between the foreign investor and the host state of the investment.2 The proliferation of IIAs is closely tied to the history of international trade and the advance of bilateralism over multilateralism. The 1948 Havana Charter was the first multilateral instrument intended to regulate the treatment of foreign investors and their investments within the framework of a multilateral agency under the United Nations umbrella: the 1. * The author is an international arbitration lawyer, independent arbitrator and Professor of law in Panama City, Republic of Panama. She holds a Ph.D. in Law from the University of Paris II (Panthėon-Assas). Email: margiejaime.dc@gmail.com. 1 The term International Investment Agreement (IIA) encompasses any bilateral, regional or multilateral treaty that provides for standards of treatment for foreign investors and the protection of their investments. Examples of these treaties are typically Bilateral Investment Treaties (BITs), investment provisions included in bilateral or regional Free Trade Agreements (FTAs), in Promotion Trade Agreements (PTAs), or in other types of economic partnerships agreements. 2 It was not until AAPL v Sri Lanka that an arbitral tribunal had to decide a dispute based exclusively on a BIT and its interpretation, and not based on a contract. Asian Agricultural Products Ltd (AAPL) v Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final Award (27 June 1990) (1991) 6 ICSID Rev ̶ FILJ 526. See also Gaillard E, ‘L’Arbitrage sur le Fondement des Traités de Protection des Investissements’ (2003) Rev Arb, 853; Paulsson J, ‘Arbitration Without Privity’ (1995) ICSID Rev ̶ FILJ, 232. 485 International Trade Organization (ITO).3 The ITO was perhaps too ambitious for its time (including a wide variety of disciplines such as employment, restrictive business practices, international investment and services) and never entered into force.4 The parallel negotiations of the General Agreement on Tariffs and Trade (GATT), on the other hand, were limited to the reduction of tariffs and other trade barriers, and GATT entered into force in 1947.5 The abandonment of the Havana Charter had two practical consequences. First, it forced the multilateral trading system to focus on custom tariffs and trade liberalization. Between the 1947 GATT and the establishment of the WTO in 1995, the international community had to consider other options outside multilateralism. Second, it motivated the negotiation and establishment of the International Centre for the Settlement of Investment Disputes (ICSID) within the framework of the World Bank.6 ICSID became the unique body specialized in investor-state dispute settlement (ISDS). The years that followed the establishment of ICSID were influenced by the promulgation of a ‘New International Economic Order’ in 3 The text of the Havana Charter for an International Trade Organization was agreed in March 1948. United Nations Conference on Trade and Employment, Final Act and Related Documents, n°1948 II, D.4.1, reproduced in UNCTAD, ‘International Investment Instruments: A Compendium’ (1996) UNCTAD/DTCI/30, vol 1, 4 (‘Havana Charter’). On the one hand, the rights and interests of foreign investors recognized by the Havana Charter are at the basis of international investment law’s main principles (ie, fair and equitable treatment, full protection and security, and non-discrimination). On the other hand, the Charter recognizes important safeguards to the host state, including the right to regulate present and future investments. Another feature to be highlighted is that the Havana Charter encourages the adoption of bilateral and multilateral agreements, not only in the field of promotion and protection of international investments but also to avoid international double taxation, and more generally, to promote progressive industrial and general economic development. Cf. art 11 and art 12 Havana Charter. 4 Odell J and Eichengreen B, ‘The United States, the ITO, and the WTO: Exit Options, Agent Slack, and Presidential Leadership’ in: Krueger A (ed) The WTO as an International Organization (The University of Chicago Press 1998), 181. 5 Originally the 1947 GATT was going to be part of the Havana Charter. As of January 1948, the GATT was applied through a protocol of provisional application. See WTO, The GATT years: from Havana to Marrakesh, accessed 1 May 2018. 6 Convention on the Settlement of investment disputes between States and Nationals of other States (ICSID Convention or Washington Convention). Margie-Lys Jaime 486 1974.7 According to the United Nations General Assembly declaration, this new order shall eliminate the ‘widening gap between the developed and the developing countries’.8 Likewise, the Charter for Economic Rights and Duties of States recognizes the right of states to freely exercise full permanent sovereignty, including possession, use and disposal, over natural resources.9 According to this, each state has the right to nationalize, expropriate or transfer ownership of foreign property, subject to appropriate compensation (in principle, in accordance with the domestic law of the nationalizing state and settled by its own tribunals).10 To a certain degree, this was a reaction against a global economic system that was dominated by western developed countries. To the extent that more countries were accepting ICSID jurisdiction and becoming part of the Washington Convention, more treaties started to include ICSID as an alternative for ISDS. As a result, many ISDS cases have brought to light unanticipated and undesired side effects of IIAs. Issues like the lack of consistency and predictability in arbitral awards, absence of a review mechanism, independence and impartiality of party-appointed arbitrators, among others, have challenged ISDS legitimacy.11 Furthermore, ISDS has been a ‘privatized’ dispute resolution method since its 7 United Nations, Resolution adopted by the General Assembly 3201 (S-VI). Declaration on the Establishment of a New International Economic Order (1 May 1974) A/RES/ S-6/3201 accessed 1 May 2018. 8 Ibid. 9 United Nations, Resolution adopted by the General Assembly 3281 (XXIX). Charter of Economic Rights and Duties of States (12 December 1974) A/RES/29/3281 accessed 11 November 2018. 10 Pursuant to article 2.2(c) of the Charter, where the question of compensation in a naturalization of expropriation case gives rise to a controversy, it shall be settled under the domestic law of the nationalizing state and by its tribunals ‘unless it is freely and mutually agreed by all States concerned that other peaceful means be sought on the basis of the sovereign equality of States and in accordance with the principle of free choice of means.’ Ibid, art 2. 11 See Franck S, ‘The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through Inconsistent Decisions’ (2005) 73 Fordham L Rev, 1521, 1558 ̶ 82; Laird I and Askew R, ‘Finality versus Consistency: Does Investor-State Arbitration need an Appellate System?’ (2005) 7 JAPP, 285; Rubino- Sammartano M, ‘The Fall of a Taboo: Review of the Merits of an Award by an Appellate Arbitration Panel and a Proposal for an International Appellate Court’ (2003) 20 JIA, 387. See also Jaime M ‘An Appellate Body in Treaty-based Investment Arbitration: Redefining the Investor-state Dispute Settlement Mechanism’ (2014) 21 Spanish Arb Rev, 93. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 487 inception, particularly under the ICSID self-contained regime.12 Non- ICSID cases are the only ones that might reach state courts for the annulment of arbitral awards. Yet, treaty-based investment arbitration involves by its nature public interests which explains the need for a greater level of transparency. All the shifts experienced in the investment arbitration world show the need for a new and multilateral framework for ISDS. The question is no longer whether the ISDS regime should be improved but rather how and to what extent the structure of investment arbitration needs to be reformed. This need has been acknowledged by organizations like the United Nations Commission on International Trade Law (UNCITRAL)13 and ICSID,14 which have engaged in public consultations on possible reforms of the ISDS system and the modernisation of its procedural arbitration rules, respectively. As an analysis engaged by the Geneva Centre for International Dispute Settlement (CIDS) has shown, the adoption of a permanent investment 12 Pursuant to article 48 ICSID Convention, the Centre shall not publish the awards without the consent of the parties. This provision constrains the extent to which an arbitration rule could allow publication of awards. Proposed r 44(3) of the rules amendments establishes a procedure to prepare and publish excerpts of the legal reasoning in the award if the parties do not consent to publication, with clear time frames attached. The procedure proposed allows the parties to agree on redactions from the excerpts, to ensure that confidentiality is respected while increasing transparency in the system. ICSID Secretariat, Proposals for Amendments of the ICSID Rules – Working Paper vol 3 (2 August 2018) 205-208. 13 UNCITRAL was established by the General Assembly in 1966. In establishing the Commission, the General Assembly recognized that disparities in national laws governing international trade created obstacles to the flow of trade, and it regarded the Commission as the vehicle by which the United Nations could play a more active role in reducing or removing these obstacles. UN Resolution 2205 (XXI) Establishing United Nations Commission on International Trade Law, UN Doc A/6396 and Add.1 and 2 (17 December 1966) accessed 1 May 2018. Having considered different possible future work in the field of dispute settlement, the UN Commission on International Trade Law entrusted UNCITRAL Working Group III with a broad mandate to work on the possible reform of investor-state dispute settlement (ISDS). UNCITRAL, ‘Report of Working Group III’, Fifty-first session, 19 December 2017. A/CN/9/930 para 6. 14 ICSID launched the amendment process of its rules and regulations in October 2016. ICSID, The ICSID Rules of Amendment Process (2016) accessed 26 April 2018. Margie-Lys Jaime 488 court presents several and complex challenges.15 Likewise, the decision of UNCITRAL to work on a multilateral reform of investment dispute settlement has raised new expectations regarding the future of foreign investment regulation and the possible establishment of a multilateral investment court.16 The Paper will highlight certain common patterns in the treaty-making arena that could serve as a basis for the establishment of a multilateral framework, particularly regarding the creation of a multilateral appellate body for treaty-based ISDS through an opt-in Convention. The ISDS Backlash: Is the ISDS System in Crisis? In the past 15 years, the world has witnessed what seems to be an unavoidable legitimacy crisis of investment arbitration. The tip of the iceberg was Bolivia, which was the first country to withdraw from ICSID in May 2007.17 Soon thereafter, Venezuela and Ecuador followed suit;18 moreover, a number of states have decided to terminate several of their bilateral investment treaties (BITs): Ecuador (denouncing nine BITs in 2008), Venezuela (denouncing its BIT with the Netherlands in 2008), Bolivia 2. 15 Kaufmann-Kohler G and Potestà M, Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and Roadmap (3 June 2016) [‘CIDS Report’] accessed 26 April 2018. 16 See UNCITRAL, ‘Report of Working Group III, Fifty-first session’, 19 December 2017. A/CN/9/930. 17 The Republic of Bolivia withdrew from ICSID membership by notice of denunciation dated May 3, 2007, effective 3 November 2007. ICSID, Annual Report (2008) 5. 18 See UNCTAD, ‘Denunciation of the ICSID Convention and BITS: Impact on Investor-State Claims’ (December 2010). IIA Issues Note No. 2, UNCTAD/WEB/ DIAE/IA/2010/6. See also Escobar A, ‘Bolivia Exposes “Critical Date” Ambiguity. The ICSID Convention is Ambiguous on when Obligations Survive Exit from the Treaty’ (2007) 2 [3] Global Arb Rev, 17; Gaillard E, ‘The Denunciation of the ICSID Convention’ (26 June 2007) NYLJ, 3, 6; Leathley Ch, ‘Morales About to Take on the Constitutional Tribunal? Bolivia’s Withdrawal from ICSID is to Have Lasting Consequences, some Further Steps are Probably Required’ (2007) 2 [3] Global Arb Rev, 13, 16; Manciaux S, ‘La Bolivie se Retire du CIRDI’ (2007) Rev Arb, 351; Samuels D, ‘Bolivia’s Withdrawal from ICSID Happened so Fast, Few Had Time to React. Fortunately, for Investors that Won’t Make a Difference’ (2007) 2 [3] Global Arb Rev, 11, 12. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 489 (denouncing its BIT with the U.S. in 2011) and South Africa (denouncing one BIT in 2012).19 Termination of IIAs has been seen by organizations like the Columbia Centre on Sustainable Investment (CCSI) as one of the possible solutions that states may adopt to address their concerns about the current ISDS system.20 The 2018 CCSI Policy paper also proposes that governments may adopt a joint instrument on withdrawal of consent to ISDS.21 As reported by UNCTAD in 2013, at least 350 bilateral treaties will reach the end of their initial duration between 2014 and 2018, providing an opportunity for unilateral termination of old treaties.22 In fact, in 2017, for the first time in the history of IIAs, the number of effectively terminated treaties (22) exceeded the number of newly concluded treaties (18) and the number of new treaties entering into force (15).23 Indeed, most of the three thousand old generation treaties in force today were concluded before 2010 and virtually all known ISDS cases were based on those 19 UNCTAD, ‘International Investment Policymaking in Transition: Challenges and Opportunities of Treaty Renewal’ (21 June 2013). IIA Issues Note No. 4, UNCTAD/WEB/DIAE/PCB/2013/9. Another initiative resulting from the dissatisfaction of the system is the project promoted by the Union of South American Nations (UNASUR) countries to create a regional arbitration centre that will compete with the ICSID Arbitration system. Fiezzoni S, ‘The Challenge of UNA- SUR Members Countries to Replace ICSID Arbitration’ (2011) 2 Beijing L Rev, 134 accessed 1 May 2018. 20 Johnson L, Sachs L, Gūven B and Coleman J, Clearing the Path: Withdrawal of Consent and Termination as Next Steps for Reforming International Investment Law (April 2018) CCSI Policy Paper accessed 31 May 2018. 21 According to the CCSI Report, the withdrawal of consent to ISDS is not anti-foreign investment or anti-international law but rather a way to enable countries to focus on developing new approaches to ISDS. Ibid 8-9. 22 UNCTAD, ‘International Investment Policymaking in Transition: Challenges and Opportunities of Treaty Renewal’ (21 June 2013). IIA Issues Note No. 4, UNCTAD/WEB/DIAE/PCB/2013/9. 23 For example, in 2017, India terminated 17 BITs and Ecuador sent 16 notices of termination. Additionally, since 2012, at least 27 outdated IIAs have been replaced by newer, more modern, treaties. UNCTAD, ‘Recent Developments in the International Investment Regime’. IIA Issues Note Issue (1 May 2018) 2, 8 accessed 30 May 2018. Margie-Lys Jaime 490 treaties.24 This call for a comprehensive reform includes not only terminating old treaties, but also concluding new ones and/or renegotiating old ones with the aim of ‘amending’ substantive and procedural treaty provisions. Other less radical reactions from state-parties include letters of intention, joint commissions’ interpretations, amendments of BIT models, and renegotiation of investment treaties.25 More recently, the eventual establishment of a permanent Investment Court System (ICS), as proposed by the European Union,26 breaks away from established rules of investment arbitration and moves towards a new paradigm for ISDS.27 As stated by Professor Schreuer, the system has come ‘under attack’ from several angles, including extensive discussions about the precedential value of decisions.28 This Section will explore the major concerns regarding the ISDS system. Inconsistency in Arbitral Decisions and the Lack of Predictability As reported by the United Nations Conference on Trade and Development (UNCTAD), the universe of IIAs continues to expand, bringing the total of IIAs to 3,322 agreements (2,946 BITs and 376 other treaties with investment provisions), of which 2,638 were in force at the end of 2017.29 Likewise, the number of treaty-based investor-state arbitrations has significantly increased in recent years. According to UNCTAD, eighty per cent of investment arbitrations in 2017 were brought under a BIT.30 An analysis of 2.1. 24 UNCTAD, ‘Phase 2 of IIA Reform: Modernizing the Existing Stock of Old-Generation Treaties’. IIA Issues Note (June 2017) Issue 2, accessed 2 May 2018. 25 UNCTAD, ‘International Investment Policymaking in Transition’ (n 22) 3. 26 European Union Commission, ‘Concept Paper. Investment in TTIP and Beyond – A Path for Reform’ (2015) accessed 1 May 2018. 27 See Robert W Schwieder, ‘TTIP and the Investment Court System: A new (and Improved?) Paradigm for Investor-State Adjudication’ (2016) CJTL 180. 28 Schreuer Ch, ‘Why still ICSID?’ acceded 26 April 2018. 29 UNCTAD, ‘Recent Developments in the International Investment Regime’ (n 23) 2. 30 UNCTAD, ‘Special Update on Investor-State Dispute Settlement: Facts and Figures’. IIA Issues Note (November 2017) Issue 3 accessed 2 May 2018. Under the ICSID Convention and Additional Facility Rules 53 new cases initiated in 2017 (from which 75% were based in an IIA), setting the number of cases registered to 650 by 31 A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 491 investor-state cases illustrates that arbitral tribunals have arrived at different interpretations, even when the terms of the treaty are the same, as if a provision could have different interpretations.31 This has produced apprehensiveness with respect to the role of arbitrators, undermining the legitimacy of the ISDS system. 32 One of the reasons for inconsistency in arbitral decisions is the significant differences among the earlier generation of treaties. In other words, different texts allow for different interpretations.33 However, the problem arises when the same treaty provision is interpreted in different and sometimes irreconcilable ways. An example is provided by contradictory interpretations of the meaning of ‘fair and equitable treatment’ (FET) in Article 1105 of the North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States.34 While the tribunal in Myers held that an unjust or arbitrary treatment in accordance with international law amounts to a FET violation,35 the tribunal in Metalclad focused on the overall object and purpose of NAFTA, failing to consider the plain meaning of Article 1105.36 As a result of these contradictions, the Free Trade Commission (FTC) under NAFTA inter- December 2017. ICSID, The ICSID Caseload – Statistics. (2018) Issue 1 accessed 1 May 2018. 31 Cf. eg (i) SGS v Pakistan, Decision on Jurisdiction (6 August 2003), 8 ICSID Rep 383 para 55 and SGS v Philippines, Decision on Jurisdiction (29 January 2004) 8 ICSID Rep 518 paras 131–135) (regarding the interpretation of the ‘umbrella clause’ and meaning of the terms ‘all disputes concerning investments’ or ‘any legal dispute concerning an investment’); (ii) Lauder v Czech Republic, Final Award (3 September 2001) paras 202-03; and CME Czech Republic BV v Czech Republic, Partial Award (13 September 2001) para 612 (involving the same facts, relating parties, and similar investment rights but arriving to contradictory decisions) (iii) Maffezini v Spain, Decision on Jurisdiction paras 38–64 (25 January 2000), 5 ICSID Rep 396; Siemens v Republic of Argentina, Decision on Jurisdiction paras 32–110 (3 August 2004); Salini v Jordan, Decision on Jurisdiction paras 115, 119 (29 November 2004); Plama v Bulgaria, Decision on Jurisdiction paras 216–226 (8 February 2005); and Gas Natural v Republic of Argentine, Decision on Jurisdiction paras 24–31, 41–49 (17 June 2005) (regarding the application of the MFN clause to procedural issues such as the cooling-off period). 32 Franck (n 11) 1558. 33 Crawford J, ‘Similarity of issues in Disputes Arising under the Same or Similarly Drafted Investment Treaties’, in: Banifatemi Y (ed) Precedent in International Arbitration (2008), 97. 34 Franck (n 11) 1575-82. 35 SD Myers Inc v Canada, Award (13 November 2000) paras 263-66. 36 Metalclad Corporation v Mexico, Award (30 August 2000) ICSID Case No ARB(AF)/97/1, para 76. Margie-Lys Jaime 492 preted Article 1105 as a minimum standard pursuant to customary international law, affirming that the concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights.37 However, the tribunal in Pope & Talbot refused to apply this interpretation and concluded that Canada violated its FET obligation under Article 1105. According to the tribunal, parties to the treaty were obliged to treat investors consistent with the ordinary norms applicable by the states, regardless of customary international law.38 Contrary to this decision, the FTC’s interpretation shall be followed. Indeed, the tribunal will exceed its powers under the treaty if such interpretation is not followed.39 Another interesting example are the claims brought by investors in Argentina after the sovereign debt restructuring that followed its financial crisis in the early 2000s.40 These cases show that arbitral tribunals can arrive at the exact opposite conclusion when analysing international treaties. For instance, the tribunal in LG&E v Argentina affirmed that the 37 NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions (31 July 2001) accessed 2 May 2018. This notion of FET has been included in the recent versions of BIT Models on both the US (2012) and Canada (2004). 38 Cf Pope & Talbot Inc v Government of Canada, Award on the Merits (10 April 2001); Pope & Talbot Inc v Government of Canada, Award on the Damages, para 61 and paras 68-69 (31 May 2002). 39 See The Loewen Group, Inc. and Raymond L. Loewen v United States of America, Award (25 June 2003) ICSID Case No. ARB(AF)/98/3 para 128. Likewise, the arbitral tribunal in Merrill & Ring Forestry LP v Canada expressed that the interpretation of the FTC had ‘the effect of linking fair and equitable treatment with customary law only and... the effect of de-linking it from breaches of other NAFTA articles or separate treaties’ and accepted to comply with such interpretation. Merrill & Ring Forestry LP v The Government of Canada (31 March 2010) Award, UNCITRAL Arbitration Rules, para 189. Cf Dumberry P, ‘Pope & Talbot Inc. v Government of Canada – Fair and Equitable Treatment for Investors under International Law: An Overview of the Recent NAFTA Chapter 11 Awards’ (3 September 2000) 20 ASA Bull 453. 40 See Bruke-White W, ‘The Argentine Financial Crisis: State Liability under BITs and the Legitimacy of the ICSID System’ (2009) 6[1] TDM; Castillo Argañarás L ‘The State of Necessity as International Defense Raised by a State Undergoing a Financial Crisis. A case Study’ (2007) 4[4] TDM; Escobar A, ‘Argentina’s Multiplication of Investor-State Arbitration Proceedings’ in: Leben Ch (ed) Le Contentieux Arbitral Transnational Relatif à L’Investissement: Nouveaux Développements (2006), 219; Hynes V, ‘Bilateral Investment Treaty Based Investment Arbitration Against Argentina Fallowing the Argentina Economic Crisis’ (2004) 1[3] TDM. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 493 economic conditions of Argentina during the period from 1 December 2001 to 26 April 2003 justified the measures taken by the government regarding maintaining public order and protecting essential security interests of the country,41 while the tribunal in CMS v Argentina42 arrived at the opposite conclusion in its interpretation of Article XI US-Argentina BIT.43 According to the tribunal in CMS, the Republic of Argentina did not fulfill the requirements of international law as set forth by article 25 Draft Articles on the Responsibility of States for Wrongful Acts (‘Draft Articles’), in essence because the government might have considered undertaking other actions. However, as highlighted by the ad hoc Committee in CMS, Article XI BIT and Article 25 Draft Articles, under customary international law, have different standards and shall be interpreted differently.44 More recently, the ad hoc Committee in Continental Casualty had to consider the decision taken by the tribunal according to which the 2001-2002 economic crisis entered into the scope of Article XI US-Argentina BIT.45 The ad hoc Committee approved the decision of the arbitral tribunal in the sense that the exception was limited to the extent necessary during the crisis period, regardless of whether the tribunal could have erred in the application of the law.46 The inconsistency of these decisions has affected negatively the effectiveness of the ISDS regime. In part, the lack of predictability can be attributed to the lack of guidelines on how to interpret and fill the gaps of the applicable text. 41 LG&E Energy Corp, LG&E Capital Corp. and LG&E International Inc v the Republic of Argentina, Decision on Liability (3 October 2006) para 226. See Falkof G, ‘"State of Necessity", Defense Accepted in LG&E v Argentine ICSID Tribunal’ (2006) 3[5] TDM. 42 CMS Gas Transmission Company v Argentina (12 May 2005) Award. Regarding the contradiction between both decisions: Fouret J, ‘CMS c LG&E ou l’Etat de Nécessité en Question’ (2007) 2 Rev Arb, 249; Reinisch A, ‘Necessity in International Investment Arbitration – An Unnecessary Split of Opinions in Recent ICSID Cases? Comments on CMS v Argentine and LG&E v Argentine (2007) 8[2] JWI&T, 191. 43 Pursuant to art XI BIT between the US and Argentina: ‘This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the Protection of its own essential security interests’. 44 CMS Gas Transmission Company v Republic of Argentina (25 September 2007) Decision on the Application for Annulment, ICSID Case No. ARB/01/8. 45 Continental Casualty Company v Republic of Argentina (16 September 2011) Decision on the Application for Partial Annulment, ICSID Case No. ARB/03/9. 46 Ibid paras 124, 141. Margie-Lys Jaime 494 Furthermore, a systemic problem arises from the fact that the first generations of IIAs were focused exclusively on the promotion and protection of foreign investors and their investments, without considering the expectations of host states to stimulate sustainable economic development.47 The lack of balance in favour of investors established by the old generation IIAs can be explained by the fact that IIAs are aimed at correcting asymmetries that might exist at the place where the investment is performed, and where the host state can exercise its authority over investors. The whole idea of the system was to attract foreign investors by enhancing security and creating a depoliticized environment, which includes the establishment of an impartial dispute settlement mechanism. To some extent, the new generation of IIAs under negotiation represent a good effort to address the deficiencies of the old generation of treaties. Specifically, the more modern generation IIAs do not only include clarification on the applicable standards to investor’s rights but also address the right of the host state to regulate in core areas such as public health, human rights and the environment.48 Additionally, they include procedural rules pertaining to the participation of non-disputing parties for purposes of interpreting the text of the treaty, in addition to joint interpretations by joint commissions established in the treaty.49 Still, the modern generation IIAs do not solve the problem presented by the lack of clarity of thousands of treaties 47 IIAs have evolved over the time, resulting in the development of different generations of treaties; in this sense, negotiations follow the model currently being used by a country. We can distinguish basically three generations of IIAs: (i) from 1959 (when the first BIT was signed between Germany and the Pakistan) to early 1990s, (ii) from the late 1990s to the years 2000s, and (iii) from the late 2000s to date. For a comprehensive study of BITs, see UNCTAD, ‘Bilateral Investment Treaties 1959-1999’ (2000) UNCTAD/ITE/IIA/2; and ‘Bilateral Investment Treaties 1995-2006: Trends in Investment Rulemaking’ (2007) UNCTAD/ITE/IIT/2006/5. 48 See Alvarez J, ‘Why are we “re-calibrating” our investment treaties?’ (2010) 4[2] WAMR, Boomer E, ‘Rethinking Right and Responsibilities in Investor-State Dispute Settlement: Some Model International Investment Agreement Provisions’ (January 2014) 1 TDM. See also UNCTAD, ‘Investment Policy Framework for Sustainable Development’ (2012) (pertaining to core principles for investment policymaking, guidelines for national policies and guidance for policymakers on how to engage in the international investment regime). 49 Cf art 1131(2) NAFTA (providing that an interpretation by the NAFTA Commission of a provision of the Agreement shall be binding on a tribunal established under ch 11); art 10.20(2) FTA between Panama and the US in force since 31 December 2012 (providing that the non-disputing Party ‘may make oral and written submissions to the tribunal regarding the interpretation of this Agreement’). A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 495 negotiated in more than 40 years of practice. For this reason, the parties to the treaty should assume an active role in interpreting IIAs, even in the absence of specific rules governing the participation of non-disputing parties to the ISDS.50 Lack of Transparency, Length and Cost of the Proceedings Arbitral institutions have recently amended or committed to amend their arbitration rules to include provisions on transparency and to make preliminary objections to non-meritorious claims.51 These amendments respond to criticisms that call into question the legitimacy of the system.52 2.2. See also art 28(2) (Conduct of the Arbitration) US 2012 BIT Model; art 35.1 (Participation by the Non-Disputing Party) Canada 2004 BIT Model, according to which ‘On written to the disputing parties, the non-disputing Party may make submissions to a Tribunal on a question of interpretation of this Agreement.’ In addition, art 35(2) adds the right of a non-disputing party to attend any hearing held under the Chapter whether or not it makes submissions to the Tribunal. 50 See generally Jaime M, ‘Relying upon Parties’ Interpretation in Treaty-Based Investor-State Dispute Settlement: Filling the Gaps in International Investment Agreements’ (2014) 46 GJIL, 261, 310 (arguing that the intervention of non-disputing parties in treaty-based investment arbitration is justified by the fact that the state-parties are the authors of the treaty and that pursuant art 31(a) and (b) Vienna Convention on the Law of Treaties (VCLT), any subsequent agreement or subsequent practice in the application of the treaty that establishes the agreement of the parties regarding its interpretation should be binding for the arbitral tribunal). 51 See eg suggested changes to ICSID Arbitration Rule 41. ICSID, ‘Suggested changes to the ICSID Rules ad Regulations’, Working Paper of the ICSID Secretariat (12 May 2005) accessed 18 December 2018. Likewise, UNCITRAL Arbitration Rules were revised in 2010 and 2013 to improve efficiency in the procedure, as well as the Permanent Court of Arbitration in 2012. Other arbitral institutions administering ISDS cases have also undergone reforms to improve procedural efficiency. See also information about the application of the UNCITRAL Rules on Transparency in conjunction with the SCC Arbitration Rules accessed 18 December 2018; the Report of the ICC Commission on Arbitration on States, States Entities and ICC Arbitration accessed 18 December 2018. 52 Franck (n 11) 1617 (suggesting the amendment of arbitration rules to include rules on transparency). Margie-Lys Jaime 496 As reported by ICSID, several of the 2006 ICSID Arbitration Rules amendments responded to discussions with member states and civil society.53 For instance, one of the major amendments in the rules includes a provision (Arbitration Rule 41(5)) for early dismissal of a case that is manifestly without legal merit.54 The rule applies to both substantive and jurisdictional objections and in its first ten years of existence this rule has been invoked in some 22 cases.55 Furthermore, the lack of legal merit must be manifest, obvious, and ‘clearly revealed to the eye’.56 In this sense, an objection of jurisdiction deriving from Article 25(1) ICSID Convention (eg ratione personae or ratione materiae) and which requires some degree of interpretation of the jurisdiction requirements, could not be treated as an exception based on Rule 41(5).57 In other words, objections regarding jurisdiction for lack of an investment covered by the treaty do not correspond to Rule 41(5) which by its nature implies an indisputable legal situation. Rule 41(5) must be distinguished from the ‘prima facie’ test that applies to the legal standards used for objections of jurisdiction under Rule 41(1) which is less strict.58 The jurisdiction exception of Rule 41(5) has been incorporated in several new generation investment treaties. For example, CETA is one of the agreements that includes a fast system to dismiss unfounded or unsubstantiated complaints. Specifically, CETA distinguishes between a manifest lack of jurisdiction versus a manifest lack of legal merit.59 Similarly, Article 18 EU-Vietnam Free Trade Agreement 53 ICSID, The ICSID Rules of Amendment Process (n 14). 54 See Diop A, ‘Objection under Rule 41(5) of the ICSID Arbitration Rules’ (2010) 25[2] ICISD Rev-FILJ 312. 55 Markert L, ‘Summary Dismissal of ICSID Proceedings’ (2016) 31[3] ICSID Rev 690; Yeo A and Koh S, ‘Objections of Manifest Lack of Legal Merit Claims: 10 years of ICSID Arbitration rule 41(5)’ (ch 7) in: Legum B (ed) The Investment Treaty Arbitration Review (2016), 71, 83. 56 Trans-Global Petroleum Inc v Jordan, Decision on the Respondent’s Objection under Rule 41(5) of the ICSID Arbitration Rules (12 May 2008) ICSID Case No. ARB/07/25, para 83. 57 See in this sense PNG Sustainable Development Program Ltd v Papua New Guinea, Decision on the Respondent’s Objections under Rule 41(5) of the ICSID Arbitration Rules (28 October 2015) ICSID Case No. ARB/13/33, paras 95-98 (considering that Respondent’s objection did not involve undisputed legal rules, but rather issues of interpretation and analysis). 58 Markert (n 55) 703. 59 Art 8.32 (Claims manifestly without legal merit) Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, accessed 4 May 2018. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 497 includes the possibility to file an objection stating that a claim is manifestly without legal merit (manifestly unfounded).60 This is different from unfounded claims as a matter of law,61 in which the claim is not one where an award can be issued in favour of the plaintiff even when the facts are taken as true. A procedural tool that could be adopted by arbitral institutions are consolidation rules tailored for investment arbitration. Developing legal standards for the proactive use of consolidation or coordination of claims can improve efficiency and avoid inconsistent or contradictory awards.62 Currently, the ICSID Convention and Arbitration Rules, do not expressly provide for consolidation of related claims; however, the lack of an express provision addressing this issue does not preclude the measure with the consent of the parties.63 Future amendments of the ICSID Arbitration Rules may potentially introduce specific rules for consolidation of proceedings in order to reduce costs and increase the likelihood of consistent awards.64 Specifically, the proposed amendments will provide more flexibility to consolidate claims or to coordinate parallel procedures.65 Another innovation to reduce costs is the possibility to consent to expedite the arbitration in accordance with specific rules.66 The proposal allows the parties to expressly opt into an expedited process for the entire arbitra- 60 Art 18 (Preliminary Objections) of ch 8 (Trade in Services, Investment and E- Commerce) EU-Vietnam Free trade Agreement (January 2016) accessed 4 May 2018. 61 Ibid art 19 (Claims unfounded as a matter of law). 62 Yannaca-Small K, ‘Consolidation of Claims: A Promising Avenue for Investment Arbitration?’ (2006) in: OECD, ‘International Investment Perspectives’ (ch 8), 225, 234-235 accessed 4 May 2018. 63 Dungan Ch, Wallace Jr D, Rubins N and Sabahi B, Investor-State Arbitration (2008) 185. 64 ICSID, The ICSID Rules of Amendment Process (n 14). 65 ICSID Secretariat, Proposals for the Amendments of the ICSID Rules – Synopsis vol 1 (2 August 2018) 8. The proposal includes a draft mandatory consolidation provision with an expedited schedule and a single consolidating arbitrator for discussion of ICSID members (r 38BIS ‘Consolidation by Order’). ICSID Secretariat, Proposals for Amendments of the ICSID Rules – Working Paper vol 3 (2 August 2018) 835-854. 66 ICSID Secretariat, Proposals for Amendments of the ICSID Rules – Consolidated Draft Rules (2 August 2018) vol 2, ch XII (Expedited Arbitration) 61 ff. Margie-Lys Jaime 498 tion.67 As is well known, several arbitral institutions have adopted expedited procedures for a streamlined arbitration, generally for disputes of a simpler nature and small value.68 By contrast, the complex nature of investment disputes –in addition to political considerations, particularly for the state party to the dispute- has been a reason not to adopt expedited procedures for ISDS, and to favour a three-member tribunal instead of a sole arbitrator.69 Yet, the growing concern about the length and cost of ISDS is at the origin of the proposed amendment, allowing the parties to choose between a sole arbitrator and a three-member tribunal.70 Furthermore, a sole arbitrator tribunal might be particularly appropriate for small claims or in cases where the investor is a small or medium-sized enterprise contracting with the host state.71 Consolidation has been included in the US Model BIT (2012) and the Canada Model BIT (2004) and has been adopted in some IIAs such as 67 According to the proposal, the parties must select the expedited procedure within 20 days of the notice of registration and must select a Tribunal within 30 days of registration. ICSID Secretariat, Proposals for Amendments (n 65). 68 See eg r 30 2017 ICC Arbitration Rules and Appendix VI (‘Expedited Procedure Provisions’) for disputes not exceeding US$2,000,000; r 5 2016 Arbitration Rules of the Singapore International Arbitration Centre SIAC Rules for disputes not exceeding S$6,000,000; International Expedited Arbitration Procedures of the International Centre for Dispute Resolution for disputes not exceeding US $250,000; 2017 Expedited Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) applicable by agreement of the parties. 69 Pursuant to the ICC Report the ICC Commission on Arbitration and ADR states that it is the Court’s practice to submit disputes involving states and state entities to a three-member arbitral tribunal, save in exceptional cases where the state or state entity specifically requests that the dispute be submitted to a sole arbitrator. ICC Commission, Report on States, State Entities and ICC Arbitration (2012) 7, accessed 23 August 2018. 70 ICSID Secretariat – vol 3, ch 9 (n 65) 972. See also Commission J, ‘How Much Does an ICSID Arbitration Cost? Snapshot of the Last Five Years’ Kluwer Arbitration Blog (29 February 2016) accessed 23 August 2018. 71 For instance, art 8.23(5) CETA contemplates the possibility to agree on a sole member tribunal in cases where the investor is a small or medium-sized enterprise, or the compensation or damages claimed are relatively low. CETA (n 59). A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 499 NAFTA (Article 1126),72 the CAFTA-DR (Article 10.25),73 and the FTA between Mexico and Japan (Article 83).74 Unlike in commercial arbitration where consolidation is essentially based on the agreement of the parties where common questions of law or fact arise (eg same fact pattern but different contracts; cross-claims subject to different dispute resolution agreement), 75 consolidation in ISDS may involve the same treaty provision or the same type of measure adopted by the host country, but affecting different claimants (eg the claims against Argentina following the economic crisis of 2001-2002).76 Transparency is perceived as a key element of good governance. The lack of transparency in ISDS (regarding the parties’ submissions, hearings, participation of amicus curiae, and publication of awards) has been identified as one of the challenges in the ISDS system.77 Furthermore, disputes under IIAs imply important state interests and policies. This nature explains the greater importance of transparency in treaty-based ISDS, as well as recent developments in arbitrators’ obligations under IIAs. As stated by UNCITRAL, the implementation of transparency in the settlement of treaty-based investor-state disputes would take account of the public interest involved in such arbitrations.78 72 NAFTA (n 37). See also Article 12 investment chapter (Chapter 14) United States- Mexico-Canada (USMCA) Agreement accessed 15 November 2018. 73 The Dominican Republic- Central America – United States Free Trade Agreement (5 August 2004) accessed 4 May 2018. 74 Agreement between Japan and the United Mexican States for the Strengthening of the Economic Partnership (2007) accessed 4 May 2018. 75 Gaillard E, ‘Consolidation of Arbitral Proceedings and Court Proceedings’ in Complex Arbitrations: Perspectives on their Procedural Implications, Special Supplement – ICC International Court of Arbitration Bulletin (December 2003), 35. 76 Yannaca-Small K, ‘Improving the System of Investor-State Dispute Settlement’ (2006) in OECD, ‘Working Papers on International Investment’ (2006), 23-24 accessed 18 August 2018. 77 See eg Communication from the European Union Commission to the Council: Towards a Comprehensive European International Investment Policy, COM(2010) 343 (7 July 2010), accessed 18 August 2018. 78 UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration and Arbitration Rules (as revised in 2010, with new art 1, para 4, as adopted in 2013). Margie-Lys Jaime 500 The UNCITRAL Rules on Transparency in treaty-based investor-state arbitration are by far the most important initiative to improve transparency in the ISDS system.79 The UNCITRAL Rules on Transparency are focused on procedural aspects, such as the publication of information and documents, submissions by third parties and by non-disputing parties to the treaty, and the publicity of hearings.80 The Rules intend to be flexible and to guarantee the due process of law. Several of these rules have been adopted by new generation IIAs, such as those that follow the 2012 US Model Bilateral Investment Treaty.81 Furthermore, the UN Convention on Transparency (the ‘Mauritius Convention’) was adopted by UNCITRAL to fill the gap in thousands of existing IIAs for which the Rules on Transparency do not apply.82 The Mauritius Convention establishes that any arbitration will be governed by the Rules on Transparency if both the respondent state and the home country of the claimant are parties to the Convention on Transparency, even if the applicable investment treaty entered into force before 1 April 2014 (date of the entry into force of the Transparency Rules). Furthermore, the Convention provides that a respondent state is free to give its advance consent to apply the Rules on Transparency, even if the home country of the investor is not a party to the Convention.83 The Convention demonstrates the need to establish a harmonized legal framework for ISDS. 79 UNCITRAL, ‘Resolution adopted by the General Assembly on December 16, 2013’, Report of the Sixth Committee (A/68/462) Official Records of the General Assembly, Thirty-first Session, Supplement No. 17 (A/31/17), ch V, s C, Sixty-fifth Session, Supplement No. 17 (A/65/17), ch III and annex I. 80 UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (1 April 2014), arts 2-6. 81 US 2012 Model BIT, art 10 (Publication of laws and decisions respecting investments), 11 (Transparency) and 29 (Transparency of Arbitral Proceeding) accessed 18 August 2018. 82 United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (the ‘Mauritius Convention’) 69/119, Resolution adopted by the General Assembly on 10 December 2014, Report of the Sixth Committee (A/69/496) accessed 25 May 2018. To date, the Mauritius Convention has been signed by more than twenty countries but only ratified by five (Switzerland, Mauritius, Canada, Cameroun and Gambia). 83 Article 2 Mauritius Convention. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 501 More precisely, the Convention might be a model for implementing broader reforms in existing and future treaties.84 For instance, CETA, recently negotiated between the EU and Canada, introduces mandatory transparency of the arbitration process and incorporates, by reference, the UNCITRAL Rules on Transparency.85 Likewise, Article 18 (Transparency) Draft TTIP between the EU and the United States, incorporates the UNCI- TAL Rules on Transparency, as supplemented by additional obligations in the provision.86 Lack of Appropriate Control of Review in Treaty-Based Arbitrations Article 52 ICSID Convention states five limitative grounds for annulment of an arbitral award.87 To some extent, these grounds were based on the 1958 Model Rules on Arbitral Procedure of the International Law Commission (ILC).88 The intention of the drafters was clearly to establish a restrictive remedy, even more restrictive that the one applied in international commercial arbitration (where the setting aside of the award by the courts of the seat of arbitration is possible, or its non-recognition and 2.3. 84 Johnson L, ‘The Transparency Rules and Transparency Convention: A Good Start and Model for Broader Reform in Investor-State Arbitration’ 2014) Columbia FDI Persp No. 126. 85 See art 8.36 (Transparency of Proceedings) Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, accessed 18 August 2018. 86 See the Transatlantic Trade and Investment Partnership (TTIP) proposed text: accessed 18 August 2018. 87 Pursuant to art 52(1) ICSID Convention, either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds: (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based. 88 Cf art 35 International Law Commission, Model Rules on Arbitral Procedure with a General Commentary (1958). ILC, General Assembly, Tenth Session, 2 YB ILC (1958) accessed 4 May 2018. See also ICSID, Updated Background Paper on Annulment for the Administrative Council of ICSID (5 May 2016) accessed 8 May 2018. Margie-Lys Jaime 502 enforcement pursuant the New York Convention). Indeed, the New York Convention does not exclude the non-recognition of an award that has been set aside or suspended in the seat of the arbitration. Likewise, a state may decline to recognise an award whose subject matter is non-arbitrable in the place of enforcement, or whose recognition or enforcement would be contrary to the public policy of that state.89 By contrast, the self-contained annulment process of ICSID arbitration was intended to exclude any review from domestic courts.90 Article 52 ICSID Convention constitutes the exclusive and limited means to annul an ICSID award and the only exception to the principle of finality.91 Since its inception, the intention of the drafters of the ICSID Convention was to exclude any possibility of appeal.92 It is worth keeping in mind, however, that by the time the Convention was adopted, only a few BITs were enacted and the presumption was that at least ninety-five per cent of disputes would arise out of investment agreements (ie contracts with governments).93 Indeed, at that time, there was no way to know that IIAs would become the primary basis for ICSID jurisdiction. One of the main consequences of the proliferation of IIAs as the basis for ISDS has been a de facto ‘connectivity’ among ISDS cases which entails a de facto stare decisis where tribunals look to prior decisions for guidance and persuasiveness.94 Moreover, arbitral tribunals are called on to interpret a wide range of standards included in IIAs, as well as a larger spectrum of principles and norms under public international law. Thus, the system, as conceived by the drafters of the Convention was not a system tailored for treaty-based ISDS, but for contractual arbitrations where a sovereign state has agreed to 89 United Nations, Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) accessed 4 May 2018. 90 Thomas J Ch and Dhillon H, ‘The Foundations of Investment Treaty Arbitration: The ICSID Convention, Investment Treaties and the Review of Arbitration Awards’ (2017) 32[3] ICSID Rev- FILJ, 459, 476. 91 Laird and Askew (n 11) 290 (analysing the possible conflicts between finality, on one side, and consistency and correctness, on the other side). 92 See comment to ss 13-15 of the Preliminary Draft Convention: Working Paper for the Consultative Meetings of Legal Experts in ICSID, History of the ICSID Convention, vol II-1, 218-219. 93 ICSID, History of the ICSID Convention, vol II-1, 500. ICSID, Report of the Executive Directors para 24. 94 See Thomas and Dhillon (n 90) 474. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 503 be bound by the decision of a neutral forum regarding disputes that could arise from a contract with a foreign investor.95 While an appeal focuses on the substantive correctness of the decision, the annulment is only concerned with the legitimacy of the process.96 Specifically, the annulment voids the award, in total or in part, without substituting the decision. Furthermore, under both, the New York and the ICSID Conventions, investment awards are shielded from errors of fact or law, no matter how flagrant the error.97 For instance, in CMS v Argentina, the ad hoc Committee considered that the tribunal had committed a ‘manifest error of law’ when interpreting Article XI Argentina-US BIT and erred when assimilating the exception under the treaty to the concept of ‘necessity’ under customary international law.98 However, the Committee recalled the limited scope of Article 52, stating that it cannot ‘substitute its own view of the law and its own appreciation of the facts’ for those of the tribunal.99 In other words, an error in the application of the proper law does not constitute in itself a manifest excess of power under Article 52 of the ICSID Convention.100 Likewise, an error in a tribunal’s findings of facts would not give rise to the annulment of the award.101 By contrast, the ad hoc Committee in Sempra considered that the failure of the tribunal to conduct its review on the basis that the applicable legal norm is to be found in the treaty, constituted an excess of powers within 95 Reisman W, ‘Reflections on the Control Mechanism of the ICSID System’ in Emmanuel Gaillard (ed) The Review of International Arbitral Awards (2008), 197, 250-251. 96 Schreuer Ch, Malintoppi L, Reinisch A and Sinclair A, The ICSID Convention. A commentary (2nd ed 2009), 901 (distinguishing between annulment and appeal). 97 Feldman M, ‘The Annulment Proceedings and the Finality of ICSID Arbitral Awards’ (1987) 2[1] ICSID Rev – FILJ, 85, 103. 98 CMS Gas Transmission Company v Republic of Argentina (25 September 2007) Decision on the Application for Annulment, ICSID Case No. ARB/01/8 paras 128-130. 99 Ibid para 136. 100 According to Aron Broches, a mistake in the application of the law would not be a valid ground for annulment. However, if the tribunal fails to apply the proper law as instructed by the parties, then the failure to apply this law would constitute an excess of power. ICSID, History of the ICSID Convention, vol II-1, 851. See also Broches A, ‘Observations on the Finality of ICSID Awards’ (1991) 6[2] ICSID Rev – FILJ, 321, 331. 101 Schreuer and others (n 96) 961. Margie-Lys Jaime 504 the meaning of the ICSID Convention.102 Arriving at a similar conclusion, but under a completely different analysis, the ad hoc Committee in Enron was of the view that the tribunal, by not applying customary international law (as reflected in the ILC Articles) and relying instead on an expert opinion on an economic crisis, failed to apply the applicable law in violation of Article 52(1) ICSID Convention.103 While the Committee’s decision in Sempra and in Enron could seem to be justified, they are exceeding the mandate of the Committee.104 Because of this inconsistency and the lack of predictability in the system, the possibility of creating an appellate mechanism has been incorporated in several FTAs, including those negotiated by the United States.105 This possibility constitutes one of the changes introduced by modern generation IIAs over the past two decades. The idea of this initiative is to provide a mechanism to review the tribunal’s decisions for errors of law and fact, in addition to the limitative grounds as set in Article 52 ICSID Convention. Lack of Sufficient Guarantee of Impartiality and Independence Arbitrators’ ethical obligations have been regulated mainly by soft law which entails a ‘self-regulation’ system.106 Specifically, Arbitrators’ conduct 2.4. 102 Sempra Energy International v Argentina (29 June 2010) Decision on the Argentine Republic’s Application for Annulment of the Award, ICSID Case No. ARB/02/16 para 209. 103 Enron Creditors Recovery Corp. Ponderosa Assets, LP v Argentina (30 July 2010) Decision on the Application for Annulment of the Argentine Republic, ICSID Case No. ARB/01/3 104 See Guillaume G, ‘Le Recours en Annulation dans le Système CIRDI: De l’Insuffisance de Motifs dans les Sentences du CIRDI’, in Gaillard E (ed) The Review of International Arbitral Awards (2010), 349, 355 (stating that an obiter dictum by which the Committee denounces the error without departing from previous case law was preferred to orient future case law). Gaillard E, La Jurisprudence du CIRDI, vol II (2010), 427 (arguing against the use of obiter dictum). 105 See eg Uruguay-US BIT, Chile-US FTA, DR-CAFTA, Panama-US PTA. This was part of the Trade Act of 2002, as codified by the 19 USC §§ 3801 et seq. See 3802(b)(3)(G)(iv). The 2012 US BIT Model contains a provision regarding the possible establishment of such a mechanism (art 29.10). The possibility of establishing an appeal mechanism is not however in the recently negotiated USMCA Agreement (n 72). Other examples are the BIT between China and Guyana (2003), and the BIT between Austria and Bosnia and Herzegovina (2000). 106 Rogers C, Ethics in International Arbitration (2014), 239 (considering arbitrator’s regulation as a model of professional self-regulation). A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 505 has been the object of international associations and institutions’ regulations over the past thirty years. For instance, the IBA Rules of Ethics for International Arbitrators are acceptable guidelines for impartiality and independence of arbitrators;107 and principles like the duty to disclose are a recurrent practice adopted by many arbitral institutions.108 Furthermore, the IBA Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) have gained wide acceptance within the international arbitration community and are commonly used in assessing the impartiality and independence of arbitrators.109 Although the IBA Guidelines are not specifically for ISDS, its latest version attempts to cover new issues that have been raised in the past decade such as ‘issue conflicts’, which are linked to the nature of ISDS.110 The importance of regulating ‘issue conflicts’ among arbitrators in disputes involving IIAs was also the object of a discussion paper published in 2004 by the ICSID Secretariat.111 As a result, the 2006 ICSID Arbitration Rules require arbitrators to disclose not only any past or present relationship with the parties, but also any circumstances likely to give rise to justifiable doubts as to the arbitrator’s independence of judgment.112 Therefore, each prospective arbitrator willing to sit on an ICSID arbitral tribunal must include in the disclosure declaration any other circumstance that may cause his or her ‘reliability for independent judgment to be questioned by a party’.113 More recently, ICSID has committed to collaborate 107 IBA, Rules of Ethics for International Arbitrators (1987). 108 See for example r 6 ICSID Arbitration Rules including a template of arbitrator’s declaration prior accepting appointment. 109 IBA, Guidelines on Conflicts of Interest in International Arbitration (2014). 110 According to art 3.5.2 IBA Guidelines, conduct like publicly advocating a position on the case, whether in a published paper, or speech, or otherwise, or holding a position with the appointing authority with respect to the dispute, would be considered as situations where the arbitrator has a duty to disclose to the parties but that are waivable by the parties (orange list). However, previously expressed legal opinions, such as in a law review article or public lecture concerning an issue that also arises in the arbitration, but that it is not focused on the case, would be considered a situation where there is no need to disclose (green list). IBA, Guidelines on Conflicts of Interest in International Arbitration (2014). 111 ICSID Secretariat, Possible Improvements of the Framework for ICSID Arbitration. Discussion Paper (22 October 2004) para 17 accessed 18 December 2018. 112 Parra A, ‘Advancing Reform at ICSID’ (2014) 11[1] TDM, 6. 113 ICSID Arbitration Rules (2006) r 6. Margie-Lys Jaime 506 with the UNCITRAL Secretariat on a working paper regarding ethical standards for decision makers that could serve as a basis for developing a multilateral code of ethics within the mandate of the Working Group III discussions.114 At its thirty-sixth session, Working Group III stated that a multilateral code of ethics should be comprehensive, encompassing all issues related to decision makers including: ‘independence and impartiality and other ethical requirements; conflict of interest and issue conflicts; double-hatting; disclosure requirements including relationships between decision makers and counsel; the protection of decision makers from undue pressure; challenge procedures; and possible sanctions in case of non-compliance’.115 The purpose of establishing a code of ethics at a multilateral level is to achieve a consistent set of ethical rules in the ISDS context. In the meantime, the ICSID Secretariat has proposed to amend its rules to increase arbitrators’ disclosure requirements and with respect to third-party funding to avoid conflict of interests in the selection process.116 Despite the efforts aimed at improving the transparency in the appointment process and at ensuring that all stakeholders understand the applicable standards required to guarantee a necessary level of independence and impartiality, concerns regarding issue conflicts in ISDS have persisted for two main reasons. First, the limited number of individuals repeatedly appointed as arbitrators in ISDS cases (in particular by the parties to the dispute rather than by institutions); and second, the fact that some individuals act, concurrently or subsequently, as counsel and as arbitrators in different ISDS proceedings.117 According to a 2015 International Arbitration Survey, the lack of insight provided into institutions’ efficiency and arbitrator performance, and the lack of transparency in institutional decisionmaking in relation to the appointment of, and challenges to, arbitrators, are recurrent concerns.118 Specifically, the practice of ‘double-hatting’ might cause actual conflict of interests which could have a negative impact 114 ICSID Secretariat, ‘Proposals for the Amendments of the ICSID Rules’ (n 65) 6. 115 UNCITRAL, ‘Draft report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-sixth session I’. Introduction, A/CN.9/964 (6 November 2018) accessed 16 November 2018. 116 ICSID Secretariat, ‘Proposals for the Amendments of the ICSID Rules’ (n 65). 117 CIDS Report para 21 (n 15). See also Jaime M, ‘Shifting Sands: New Trends on Ethics Regulation of Arbitrators in Investor-State Dispute Settlement’ (2016) 10[3] WAMR, 383, 394 (commenting on case law involving the double-hatting phenomenon). 118 Queen Mary, International Arbitration Survey: Improvements and Innovations in International Arbitration (2015) 22-23 accessed 8 May 2018. 119 See Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirsty-fifth session (14 May 2018) A/CN.9/935 accessed 15 May 2018. 120 As observed in OPIC Karimum Corporation v Venezuela: ‘In an environment where parties have the capacity to choose arbitrators, damage to the confidence that investors and States have in the institution of investor-State dispute resolution may be adversely affected by a perception that multiple appointments of the same arbitrator by a party or its counsel arise from a relationship of familiarity and confidence inimical to the requirement of independence established by the [ICSID] Convention.’ ICSID Case No. ARB/10/14, Decision on the Proposal to Disqualify Professor Philippe Sands, Arbitrator (May 5, 2011) at [47]. See Peterson L, ‘Challenge to Popular Arbitrator is Rejected; Colleagues See No Grounds for Disqualification Due to Multiple Appointments by Venezuela and Non-disclosure’, IAR (4 January 2011) accessed 16 July 2018. 121 CETA, art 8.30 (n 59). 122 Ibid. 123 The main advantage of having a code in the treaty is that unlike the IBA Guidelines or other soft law, it is a binding instrument. See Horodyski D, ‘Code of Conduct for Arbitrators in CETA – A Step Forward in Investment Arbitration?’ (2015) (advocating for a code of conduct for arbitrators not only in CETA but in Margie-Lys Jaime 508 Singapore FTA include the obligation for former members to not act as representatives of one of the disputing parties in investment disputes before the tribunal or the appeal tribunal for three years after the end of their term.124 These initiatives are part of the EU's new approach to ISDS, moving away from the traditional arbitration regime towards a Multilateral Investment Court (MIC) system. Is a Multilateral Investment Court Needed and Viable? According to the EU Commission in a press release dated July 6, 2017, there can be no return to the ‘old-style’ ISDS. In this sense, some of the recent negotiated treaties by the EU include the establishment of a permanent investment court (first instance tribunal and appeal tribunal) where members are not selected by the parties to the dispute on an ad hoc basis.125 This initiative is in line with the new EU Commission’s mandate to negotiate, on behalf of the EU, a convention establishing a MIC for the settlement of investment disputes.126 But if it is time to rethink party autonomy to shape the arbitration process, can this court be established without the existence of a multilateral investment agreement? If so, how would this court co-exist with the ICSID and the New York Convention regimes? This section will explore these questions through the lens of the parties. After all, the basic tenet of party autonomy appears to have come under attack by the proposed ICS. In this sense, this section will analyse the development of the ISDS’s structure and the impact of the pre-selection of the decision-makers appointed by the states parties to the treaty alone. 3. ISDS system in general) accessed 8 May 2018. 124 Annex 7 (Code of Conduct for Members of the Tribunal, The Appeal Tribunal and Mediators) of the EU-Singapore Trade and Investment Agreement (as of April 2018) accessed 8 May 2018. 125 Some examples: CETA, the TTIP, the EU-Vietnam and EU-Singapore Free Trade Agreements, and the EU-Japan Economic Partnership Agreement. Texts available at European Commission website accessed 9 May 2018. 126 Council of the European Union, ‘Multilateral Investment Court: Council Gives Mandate to the Commission to Open Negotiations’ (20 March 2018) EU News 55/2018 accessed 9 May 2018. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 509 The European Union Proposal CETA is the first IIA to enter into force (at least partially),127 that includes a permanent first instance tribunal and an appellate tribunal. Pursuant to Article 8.27 CETA, the Joint Committee shall appoint fifteen members, from which five shall be nationals of a member state of the European Union and five of Canada, for a five-year once renewable term.128 However, the tribunal shall hear cases in divisions consisting of three members of the tribunal, one from each nationality of the parties and the third one from the group of a third nationality.129 Additionally, the members of the tribunal would be paid a monthly retainer fee by both parties to the treaty.130 By contrast, the division of the appellate tribunal constituted to hear the appeal shall consist of three randomly appointed members of the appellate tribunal (number to be determined by the Joint Committee).131 Other examples are the Singapore-EU and the Vietnam-EU FTAs, which are agreements negotiated under the 2007 ASEAN negotiating directives.132 Specifically, the FTA with Singapore includes an Investment Protection Agreement, whose Chapter 3 relates to the resolution of disputes between investors and parties.133 Pursuant to this treaty, the tribunal of 3.1. 127 On 21 September 2017, the agreement provisionally entered into force. It will enter into force fully when all EU member state parliaments have ratified the agreement. European Commission, Overview of FTA and Other Trade Negotiations (updated March 2018) accessed 11 May 2018. 128 CETA art 8.27 (Constitution of the Tribunal) (n 59). 129 Ibid para 6. 130 Ibid art 8.27, paras12-13. See also art 3.9 (tribunal of first instance) Singapore-EU Investment Protection Agreement, paras12-13; art 9.12 TTIP. Per the proposal, fifteen judges would be appointed by the Services and Investment Committee (art 9.2). Transatlantic Trade and Investment Partnership; Trade in Services, Investment and E-Commerce. Document made public by the European Union on November 12, 2015, accessed 11 May 2018. 131 Ibid art 8.28 (Appellate tribunal). 132 For its entry into force, the FTA with Singapore requires the approval of the European Commission, the agreement by the Council of Ministers and the ratification by the European Parliament. The FTA with Vietnam is expected to enter into force by the end of 2018 subject to the Council’s signature and the European Parliament’s consent. European Commission, Overview of FTA and Other Trade Negotiations (n 127). 133 Singapore-European Union, Investment Protection Agreement, ch 3 (Dispute Settlement), accessed 11 May 2018. Margie-Lys Jaime 510 first instance is composed of six members appointed for an initial eightyear term, two appointed by the EU, two by Singapore, and the other two, who shall not be nationals of any EU member state or of Singapore, jointly nominated by both parties. The same composition is contemplated for the appeal tribunal.134 Likewise, the Vietnam-EU FTA creates an investment tribunal system by the establishment of a nine member tribunal composed of three nationals of an EU member state, three nationals of Vietnam and three nationals of third countries, who are appointed for a four-year renewable term; however, as is the general rule, the tribunal shall hear cases in divisions consisting of three members, of whom one shall be a national of each of the parties and the third a national of a third country.135 Regarding the appeal tribunal, the Vietnam-EU FTA reduced the number to six members appointed for a four-year once renewable term.136 Furthermore, the appeal tribunal shall hear appeals in divisions consisting of three members chaired by the member who is a national of a third country. Whether it is a first instance tribunal, or an appellate tribunal created through an IIA, investors would not be involved in the selection of the decision makers. Contrary to what has been argued by the EU in a 2015 concept paper,137 such a structure may create an appearance of bias in favour of the respondent states.138 In other words, while the current system is criticized by the fact that parties to appoint arbitrators that are likely to favour their case (despite the presence of a president deemed to be neutral), the proposed system has been seen as favouring states. The relationship between arbitrators and the parties to the dispute is contractual in nature, different from the arbitration agreement itself.139 In the view of some commentators, the right to appoint an arbitrator is an 134 Ibid art 3.10, para 2. 135 European Union-Vietnam FTA, ch 8 (Trade in Services, Investment and E-Commerce, ch II (Investment) s 3 (Resolution of investment disputes), Subsection 4 (Investment Tribunal System) art 12 (Tribunal) accessed 11 May 2018. 136 Ibid art 13, paras 2, 5. 137 European Union Commission, Concept Paper. Investment in TTIP and Beyond – A Path for Reform (2015) accessed 25 May 2018. 138 EFILA, Task Force Paper regarding the proposed International Court System (ICS), Draft dated 1-2-2016, 15. 139 Mourre A, ‘Ch 1: Sed Quis Custodiet Ipsos Custodes? On Jurisdiction upon Arbitrators’ in: Derains Y and Lėvy L (eds) Is Arbitration Only as Good as the Arbitrator? Status, Powers and Role of the Arbitrators (2011), Dossiers of the ICC Institute of World Business vol 8, 13. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 511 essential characteristic of the arbitration system and thus a fundamental right of the parties to the dispute.140 While it is true that the right to appoint an arbitrator is acknowledged by UNCITRAL Model Law as a default rule,141 as well as institutional arbitration rules,142 one can argue that this right is not fundamental.143 Indeed, parties to ICSID disputes do not choose members of the ad hoc annulment committee.144 It should be noted however, that, according to the EU’s proposal, parties to the dispute are free to choose from among a variety of arbitration rules including: (i) the ICSID Convention and the Rules of Procedure for Arbitration Proceedings; (ii) the ICSID Additional Facility Rules where the ICSID Convention does not apply; (iii) the UNCITRAL Arbitration Rules; or (iv) any other arbitration rules agreed upon by the disputing parties.145 By this provision, the IIA allows investors to initiate a claim under the arbitration rules of their choice, but more importantly, to continue using the ICSID system, where applicable, and to benefit from its self-contained structure. In this sense, party autonomy continues to be an essential feature of international arbitration, including ISDS. Furthermore, at least CETA allows the investor to choose between setting aside the award in the seat of the arbitration or an annulment proceeding depending on the provisions of the dispute settlement mechanism to which the claim was submitted (ie according to the applicable rules).146 140 Elsing S and Shchavelev A, ‘Ch 8: The Role of Party-Appointed Arbitrators’, in Shaughnessy P and Tung S (eds), The Powers and Duties of an Arbitrator: Liber Amicorum Pierre A. Kerrer (2017) 65, 66. 141 See art 11 (Appointment of Arbitrators) UNCITRAL Model Law on International Commercial Arbitration (1985 as amended in 2006). 142 Pursuant to the ICSID Convention, parties may agree on the method of appointment, but arbitrators may be appointed by the Chairman of the Administrative Council if the tribunal have not been constituted within 90 days after notice of registration. See art 38 ICSID Convention; r 3 and r 4 ICSID Arbitration Rules (2006). Furthermore, in the case of the appointment of the ad hoc Committee, the Chairman has no obligation to consult the parties. See art 14(1) and art 57 ICSID Convention. 143 Paulsson J, ‘Moral Hazard in International Dispute Resolution’ (29 April 2010), in Inaugural Lecture as Holder of the Michael R. Klein Distinguished Scholar Chair, University of Miami 8 accessed 8 May 2018. 144 See art 52 ICSID Convention. 145 Cf CETA art 8.23 (Submission of a Claim to the Tribunal) para 2 (n 59); Singapore-EU FTA art 3.6 (Submission of Claim to Tribunal) para 1 (n 133); Vietnam- EU FTA art 7 (Submission of a Claim) para 2 (n 60). 146 CETA art 8.28 (Appellate Tribunal); art 8.41 (Enforcement of Awards), (n 59). Margie-Lys Jaime 512 However, the losing party may opt to appeal the arbitral award in accordance with its text, which will exclude the possibility to set aside or annul the award.147 By contrast, the Vietnam-EU and the Singapore-EU FTAs allow for an appeal mechanism only (ie excluding any other similar procedure seeking to review, set aside, or annul the award).148 This does not prevent a disputing party from requesting the tribunal to revise, correct or interpret the award pursuant to Articles 50 and 51 ICSID Convention, Article 38 UNCITRAL Arbitration Rules, or equivalent provisions of other rules.149 More fundamentally, a permanent investment court could only avoid inconsistencies if it has jurisdiction not only with respect to a specific IIA, as is the case of the EU proposal in the context of its recent negotiated IIAs, but also to the existing myriad of IIAs. Certainly, inconsistencies among permanent investment courts under different IIAs may persist. This is perhaps one of the reasons why the European Commission has decided to pursue the negotiation of a MIC in the framework of UNCITRAL.150 Furthermore, CETA and the Vietnam-EU FTA, for example, include a provision regarding the establishment of a future multilateral investment tribunal and appellate mechanism.151 Recently, in the context of UNCITRAL Working Group III, the EU and its member states submitted a document on possible reform of ISDS for discussion.152 In the document, the EU explains why, according to its point of view, a two-tier permanent structure could be the only effective mean to respond to all main concerns in which reform is desirable: (i) concerns pertaining to the lack of consistency, coherence, predictability and correctness of arbitral decisions by ISDS tri- 147 CETA art 8.28 (Appellate Tribunal) (n 59). 148 Pursuant to the Vietnam-EU FTA art 27, an arbitral award only becomes ‘final’ if 90 days have elapsed after it has been issued and neither disputing party has appealed the award. It is only when the award becomes ‘final’ that it can no longer be subject to further appeal, review, set aside, annulment or any other remedy. In case of appeal, the award does not become final until a new award is issued by the appeal tribunal (n 60). Cf art 31 (Enforcement of Awards). Cf. art 3.19 (Appeal Procedure) and art 3.22 (Enforcement of Awards) of the Singapore- EU FTA (n 133). 149 Art 3.22, footnote 9 Singapore-EU FTA (n 133). 150 Council of the European Union (n 126). 151 CETA, art 8.29 (n 59); and Vietnam-EU FTA, art 15 (n 60). 152 UNCITRAL, Submission by the European Union and its Member States, ‘Possible Reform of Investor State Dispute Settlement’, A/CN.9/WG.III/WP.159/Add.1 (24 January 2019) accessed 17 February 2019. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 513 bunals; (ii) concerns pertaining to arbitrators and decision makers; and (iii) concerns pertaining to cost and duration of ISDS cases.153 More precisely, in the view of the EU, mere improvements to the current system, or even an establishment of an appeal mechanism, are not sufficient to ensure consistency, coherence, predictability and correctness of arbitral decisions. Yet, the document acknowledges that this vision might not be shared by other countries and leaves the door open for the establishment of an ‘open structure’.154 It is important to note that the EU’s proposal for an ICS is not the first initiative establishing a standing tribunal to resolve ISDS in the international arena. For instance, the Iran-United States Claims Tribunal (the ‘Tribunal’) involved a permanent tribunal established by an international convention in the early 1980s.155 Indeed, pursuant to the Claims Settlement Declaration (the ‘Agreement’), American investors were able to submit their expropriation claims for actions taken by Iran during the 1978-1979 revolution.156 The applicable rules were the UNCITRAL Arbitration Rules (including the rules for appointing the three-member tribunals), except as modified by the Agreement.157 In this sense, the Tribunal consisted of nine members (one third appointed by each government and the remaining third appointed by mutual agreement of the members), and claims could be decided by the full Tribunal or by a panel of three members of the Tribunal, as determined by the President.158 Because of the hybrid nature of the Tribunal, where two states and not the disputing parties had designated the arbitrators and were bearing the 153 Ibid, 9-12. 154 For example, some countries might want to use the standing mechanism for state-to-state dispute settlement, while some others countries may like to retain the flexibility to utilise only an appeal mechanism. Ibid, 8. 155 The Iran-United States Claims Tribunal was established by the Islamic Republic of Iran and the United States following the Declaration of the Government of the Democratic and Popular Republic of Algeria concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran (‘Claims Settlement Declaration’) of 19 January 1981 accessed 15 May 2018. 156 See Audit B, ‘Les Accords d’Alger du 19 janvier 1981 Tendant au Règlement des Différends entre les États-Unis et l’Iran’ (1981) JDI, 713; ‘Le Tribunal des Différends Irano-Américains (1981-1984)’ (1985) JDI, 791; Brower Ch, ‘The Iran- United States Claims Tribunal’ (1990) RADI vol 224, 127; Dailler P, ‘Tribunal Irano-Américain de Réclamations’ (2000) AFDI, 326. 157 Art III(2) Claims Settlement Declaration (n 155). 158 Ibid art III(1). Margie-Lys Jaime 514 expense of the Tribunal, it has been argued that the purpose of the Tribunal was to end the disputes between the two states rather than the resolution of private parties’ claims.159 Could the same analogy be made with respect to the EU’s proposal? Implementation issues such as who pays arbitrators’ fees and expenses will be discussed in more detail in section 5. Substantive versus Procedural Reform As is well known, the UNCITRAL Working Group III on ISDS reform has the mandate to focus on the procedural aspects of ISDS rather than on the underlying investment protection standards.160 Specifically, Working Group III has the mission to: ‘(i) identify and consider concerns regarding ISDS; (ii) consider whether reform was desirable in the light of any identified concerns; and (iii) if so, develop, any relevant solutions to be recommended to the Commission.’161 Possible solutions, as proposed by some state members, include: (a) the development of soft law instruments, (b) appeal mechanisms, and (c) the creation of a multilateral investment court. It is too soon, however, to determine what would be the concrete solutions or instruments that Working Group III would agree to recommend to the Commission for approval.162 The path undertaken by UNCITRAL seems to be less ambitious but at the same time more realistic and viable than the creation of a Multilateral Agreement on Investment (MAI), such as the one proposed by the OECD in the 1990s.163 The main rational for adopting a comprehensive MAI was to provide high standards for the liberalization of investments and the establishment of a strong dispute settlement mechanism within a stable, predictable and 3.2. 159 Only part of the costs of the Tribunal were borne by the private claimant, as a ‘user fee’ on the amounts awarded to such claimant. Caron D, ‘The Nature of the Iran-United States Tribunal and the Evolving Structure of International Dispute Resolution’ (1990) 84 AJIL, 104, 132. 160 This was remarked at the UNCITRAL thirty-fifth session (New York, 23-27 April 2018) UNCITRAL, ‘Report of Working Group III’, para18 (n 119). 161 UNCITRAL, ‘Official Records of the General Assembly, Seventy-second Session’, Suppl No. 17, paras 263-264. A/72/17 accessed 15 May 2017. 162 UNCITRAL, ‘Report of Working Group III’ A/CN.9/935 (n 119). 163 OECD, ‘The Multilateral Agreement on Investment. Draft Consolidated Text’ (22 April 1998) (‘Draft MAI’). DAFFE/MAI(98)7/REV1 accessed 15 May 2018. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 515 transparent framework.164 The MAI would have created a freestanding international treaty open to all OECD members, and open to accession by non-OECD member countries.165 According to a report presented to the OECD Council meeting at the ministerial level in May 1995, the MAI would have provided not only a strong and comprehensive framework for international investment, but would also have reinforced the multilateral trading regime.166 An OECD technical analysis shows that the scope of investment protection under the MAI was inspired by NAFTA, the Energy Treaty Charter, and other BITs negotiated in the 1990s.167 Regarding the appointment of members of arbitral tribunals, the MAI included the traditional structure by which the tribunal is comprised of three arbitrators, one appointed by each of the disputing parties and the third, who is the presiding arbitrator, appointed by agreement of the disputing parties.168 Despite the apparent claim for putting in place an ambitious treaty for the liberalization of investments, the adoption of the MAI failed. Several hypotheses have been developed around the failure of the MAI.169 First, the different views among negotiating countries appeared to be irreconcil- 164 See UNCTAD, ‘World Investment Report’ (1996) 166 accessed 15 May 2018. 165 OECD, ‘OECD Begins negotiations on a Multilateral Agreement on Investment’ (27 September 1995) SG/PRESS(95)65 accessed 1 May 2018. 166 OECD, ‘Report by the Committee on International Investment and Multinational Enterprises (CIME)/and the Committee on Capital Movements and Invisible Transactions (CMIT)’. [DAFFE/CMIT/CIME(95)13/FINAL, 5 May 1995] accessed 1 May 2018. 167 Ibid. 168 OECD, ‘Draft MAI’ (n 163) 71 (Investor-Sate Procedures, D. Disputes between an investor and a contracting party, 7(a)). 169 Bŏhmer A, ‘The struggle for a Multilateral Agreement on Investment – An assessment of the negotiations process in the OCDE’ (1998) 41 GYIL, 267; Ganesan A V, Strategic Options Available to Developing Countries with regard to a multilateral agreement on investment. UNCTAD, Discussion Paper n 134 (April 1998); Johnston D, ‘L’Accord Multilatéral sur l’Investissement: Ami ou Ennemi?’ 2 (1998) Pol Etrangère, 359; Juillard P, ‘A Propos du Décès de L’AMI’ (1998) AFDI, 595; Juillard P, ‘L’Accord Multilatéral sur L’Investissement: un Accord de Troisième Type”, in : Un Accord Multilatéral sur L’Investissement : D’un Forum de Négociation à L’Autre? (SFDI, Pedone 1999) 47; Karl J, ‘On the Way to Multilateral Investment Rules – Some Recent Policy Issues’ 17 (2002) ICSID Rev – FILJ, 293; Kodama Y, ‘Dispute Settlement Under the Draft Multilateral Agreement on Investment, the Quest for an Effective Investment Dispute Settlement Mechanism and its Failure’ (1999) 3 JIA, 45; Lalumière Ch, ‘Un Accord Multilatéral sur L’Investissement: D’un forum de Négociation à L’Autre?’ in : Un Accord Multi- Margie-Lys Jaime 516 able. Second, the strong opposition of NGOs and non-OECD members excluded from the negotiations.170 As articulated by UNCTAD in 1996 there were ‘significant differences in national characteristics and conditions,’ despite the growing convergence of foreign direct investment policies.171 Other organisations like the International Institute for Sustainable Development (IISD) have attempted to develop a model of IIA to be used as a handbook for negotiators.172 According to IISD, the failure of negotiating binding multilateral rules for investment should not be a reason for abandoning the search for multilateral rules, but rather, ‘it is an indication of their importance and of the fact that governments have not yet identified an appropriate negotiating agenda.’173 Over a decade has passed since the IISD working paper, and even if one can argue that a multilateral approach could offer significant advantages over further proliferation of bilateral agreements and regional agreements, it seems that the international community is not at this stage of development yet. This explains why the UNCITRAL Working Group III has chosen a procedural path of reform instead of engaging in a substantial and comprehensive reform. latéral sur L’Investissement : D’un Forum de Négociation à L’Autre? (SFDI, Pedone 1999) 97; Vadcar C, ‘Le projet d’Accord multilatéral sur l’investissement: problématique de l’adhésion des pays du Sud’ (1998) JDI 9; Wallace-Bruce N L, ‘The Multilateral Agreement on Investment, an Incident Proposal and Not Learning the Lessons of History’ (2001) JWI, 53. 170 Institute for International Economics, ‘The MAI and the Politics of Failure. Who Killed the Dog? 15 accessed 1 May 2018. 171 Ganesan (n 169) 163. But see Drabek Z, ‘A Multilateral Agreement on Investment: Convincing the Sceptics’, WTO Staff Working Paper ERAD-98-05 (June 1998) (arguing that the benefits the countries can gain from the adoption of a comprehensive multilateral agreement on investments would be greater than the possible costs) accessed 15 May 2018. 172 Cosbey A, Mann H, Von Moltke K, and Peterson L E, IISD Model International Agreement on Investment for Sustainable Development (2006 2nd ed) accessed 17 May 2018. 173 Ibid, Introduction, x. See also Cosbey A, Mann H, von Moltke K, and Peterson L E, Investment and Sustainable Development. A Guide to the Use and Potential of International Investment Agreements (2014) accessed 17 May 2018. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 517 In practice, the failure of the MAI has enabled the proliferation of IIAs and, has led countries to negotiate regional trade agreements,174 such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (‘CPTPP’) recently negotiated by 11 countries in the Asia-Pacific region.175 Like the MAI, the CPTPP maintains the traditional partyappointment of arbitrators by which ‘the tribunal shall comprise three arbitrators, one arbitrator appointed by each of the disputing parties and the third, who shall be the presiding arbitrator, appointed by agreement of the disputing parties.’176 It is interesting to note that the CPTTP pays particular attention to arbitrators’ ethical conduct by: (i) prescribing the adaptation of the code of conduct for dispute settlement proceedings under Chapter 28 (Dispute Settlement) to arbitrators selected in accordance to the Investment Chapter; (ii) stating that parties shall provide guidance on the application of other relevant rules or guidelines on conflicts of interest in international arbitration; and (iii) instructing arbitrators to comply with parties’ guidance in addition to the applicable arbitral rules regarding independence and impartiality of arbitrators.177 Furthermore, while the CPTTP does not establish an appeal mechanism, it leaves the door open for its establishment in the future.178 This example reaffirms the lack of 174 See Woolcock S, ‘Making Multi-Level Rules Work: Trade and Investment Rules in Regional and Bilateral Agreements’ in: Lombaerde P (ed) Multilateralism, Regionalism and Bilateralism in Trade and Investment: 2006 World Report on Regional Integration (2007), 37. Regarding the trends after the establishment of the WTO, see Page S ‘5 The Integration of Regional Groups into Multi-Country Organizations’ in: van Dijk M P and Sideri S (eds) Multilateralism Versus Regionalism: Trade issues after the Uruguay Round (1996) 79. 175 The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was signed by New Zealand, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore, and Viet Nam on 8 March 2018 accessed 15 May 2018. 176 Art 9.22(1) CPTPP, ch 9 (Investment) accessed 15 May 2018. The investor-state dispute settlement (ISDS) mechanism in the CPTPP is based in the TPP but signing parties have narrowed its scope by suspending the provisions related to investment authorisations and investment agreements (contractual breaches): art 9.1 Definitions of ‘investment agreement’ and ‘investment authorisation’; art 9.19.1– a(i) B and C; (b)(i) B and C; art 9.19.2; art 9.19.3 (b) the phrase ‘investment authorisation or investment agreement’; art 9.22.5; art 9.25.2; and Annex 9-L. 177 Ibid art 9.22(6). 178 Ibid art 9.23(11). Margie-Lys Jaime 518 consensus on the creation of an investment court, at least in the context of the treaty. While UNCITRAL is well situated to develop a multilateral convention on investment, as in the case of the Mauritius Convention,179 the adoption of a comprehensive multilateral investment agreement like the one conceived by the OECD in the 1990s presents innumerable challenges.180 First, a substantive reform will require a consensus regarding the scope of fundamental standards of protection: fair and equitable treatment, full protection and security, arbitrary or discriminatory measures, national treatment, most-favoured-nation treatment, and transfer of funds, among others, in accordance with the current state of the law. Second, a substantive reform will imply considering the evolution of states’ approaches to IIAs while assuring a balance between economic, social and environmental concerns.181 From the perspective of this Paper, the creation of a MIC could be done without the need for a comprehensive MAI (subject to achieving a critical mass of consensus), which however seems difficult to be achieved in the short term. If a MIC is created in the future, it would have to be flexible enough to apply to any existing and future IIA. Moreover, it would have to create a solid structure that could be integrated with the current systems such as the ones established by the ICSID and New York Conventions. Yet, one of the most controversial features to address would be the parties’ eventual renunciation to appoint the decision makers, at least those of first instance. It seems unlikely that the parties to the dispute, including the host state, would be willing to renounce to their right to appoint the members of the arbitral tribunal. 179 United Nations Convention on Transparency in Treaty-Based Investor-State Arbitration (10 December 2014, entry into force on 18 October 2017) GA Res 69/116; UN Doc A/69/496. 180 For instance, even if a party to the convention can formulate reservations, thereby excluding specific provisions, conflicting approaches remain in the context of investment dispute settlement procedures. 181 See Gehring M W and Kent A, ‘Sustainable Development and IIAs: from Objective to Practice’ in: de Mestral A and Lėvesque C (eds) Improving International Investment Agreements (2013) 384. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 519 The Feasibility of an Appeal Mechanism Revisited Why is the ISDS regime, as modelled on ICSID, facing so many challenges? As noted above, the ICSID self-contained annulment process was primarily designed for contractual disputes and not for disputes under a myriad of IIAs.182 It was designed as an exceptional and narrowly circumscribed remedy where the ad hoc committee cannot substitute the tribunal’s determination on the merits for its own.183 Furthermore, the applicable standard for broad grounds for annulment such as the ‘manifest excess of powers’ and ‘failure to state reasons’ are often the subject of controversy.184 For instance, in Sempra v Argentina the ad hoc committee conceded the possibility that a ‘manifest error of law’ may, in an exceptional situation, be of such an egregious nature as to amount to a manifest excess of power.185 However, addressing errors through the annulment process could be seen as beyond the scope of the ad hoc committee powers.186 The overarching purpose behind a second degree of review for treatybased arbitral awards is to enhance coherence and consistency in the ISDS system by a body able to review manifest errors in the interpretation and application of treaty law. This seems to be one of the main drivers of the EU’s proposal for the establishment of a MIC. In fact, the investment tribunal system put in place by the EU’s recently negotiated treaties shows that the three main changes in the system would be: (i) the lack of capacity of the disputing parties to appoint the members of the arbitral tribunal; (ii) the ‘permanent’ or ‘quasi-permanent’ nature of the first-instance tribunal, contrary to the ad hoc tribunal in the current system; and (iii) the standard of review as set for the appeal mechanism. The arbitration rules to be applied by the first instance tribunal to the arbitration proceedings (eg the ICSID Convention and Arbitration Rules, and the UNCITRAL Rules) remain the same. 4. 182 S II(3). 183 ICSID, ‘Updated Background Paper’ (n 88). See also Caron D, ‘Reputation and Reality in the ICSID Annulment Process: Understanding the Distinction Between Annulment and Appeal’ (1992) 7[1] ICSID Rev 21. 184 Tsalokidis N, ‘ICSID Annulment Standard: Who has finally Won the Reisman v Broches Debate of two Decades Ago?’ in: Kalicki J E and Joubin-Bret A (eds) Reshaping the Investor-State Dispute Settlement System (2015) 828, 830-35. 185 Sempra v Republic of Argentine, ICSID Case No. ARB/02/16, Decision on Annulment, 29 June 2010, para 164. 186 See Gosis D B, ‘Addressing and Redressing Errors in ICSID Arbitration’ in Kalicki J E and Joubin-Bret A (eds) Reshaping the Investor-State Dispute Settlement System (2015), 864. Margie-Lys Jaime 520 The establishment of an appeal mechanism raises questions regarding the standard of review and the enforcement of appeal decisions under the existing regimes. Even if we accept that a final award issued by an appeal tribunal should be deemed to be final under the New York and the ICSID Conventions, it is still not clear how it would be enforced in practice, which will be examined in this section. Annulment versus Appeal: Finality versus Consistency and Correctness? Commentators have discussed how an appeal body for ISDS could improve consistency, and concurrently, how this recourse may add an additional layer to the process, compromising the finality of the system.187 In reality, an appeal proceeding should not be intended to add an additional layer, but to substitute the current annulment system for treaty-based investment arbitration cases. For instance, in CETA, once the investor chooses to appeal the award, the provisions related to the annulment of awards rendered under the ICSID Convention, or to set aside awards under the ICSID Additional Facility Rules or the UNCITRAL Arbitration Rules, do not apply.188 In other words, if the award is appealed, it cannot be subject to annulment under the ICSID Convention nor can it be set aside or annulled by a court in the seat of the arbitration. An appeal mechanism is in essence a proceeding focused on the substantive correctness of the decision, but unlike in the domestic context where the remand of the issue to the lower instance is the rule,189 an appeal tribunal in the arbitration context should be able to modify or reverse the legal findings and conclusions of the first tribunal without the need to remand the issue to a new tribunal. This is, in principle, the approach in the EU-Singapore FTA190 and the EU-Vietnam FTA,191 accord- 4.1. 187 See Bishop D, ‘The Case for an Appellate Panel and the Scope of Review’, in Sheppard A and Warner H (eds) Appeals and Challenges to Investment Treaty Awards: It is Time for an International Appellate System? (2005) 2 TDM; Bottini G, ‘Reform of the Investor-State Arbitration Regime: The Appeal Proposal’ (2014) 11[1] TDM 1; Feldman (n 97); Laird and Askew (n 11). 188 Specifically, art 8.41(3) (Enforcement of awards) would not apply. 189 See eg Berch M A, ‘We've Only Just Begun: The Impact of Remand Orders from Higher to Lower Courts on American Jurisprudence’ (2004) 36 Ariz St LJ, 493; Hellman A D, ‘Granted, Vacated, and Remanded – Shedding Light on a Dark Corner of Supreme Court Practice’ (1983-1984) 67 Judicature, 389. 190 EU-Singapore, art 3.19 (Appeal Procedure) (n 133). 191 EU-Vietnam, art 28 (Appeal Procedure) (n 60). A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 521 ing to which the appeal tribunal shall apply its own legal findings and conclusions to the facts established by the tribunal and render a final decision on the matter. However, when this is not possible, the appeal tribunal may refer the matter back to the tribunal, specifying how it has modified or reversed the relevant findings and conclusions of the tribunal.192 In other words, the tribunal is bound by the findings and conclusions of the appeal tribunal. In this scenario it is true that the proceedings may take additional time for hearings, particularly if the appeal involves and alleged error in the appreciation of facts (as allowed by the EU-Singapore and the EU-Vietnam FTAs). Regarding the grounds for appeal, the analysed EU FTAs (CETA, EU- Singapore and EU-Vietnam) included the followings options: (i) the tribunal has erred in the interpretation or application of the applicable law; (ii) the tribunal has manifestly erred in the appreciation of the facts, including the appreciation of relevant domestic law; or (iii) the grounds provided for in Article 52 ICSID Convention,193 in so far as they are not covered by the other two grounds. As can be noted, the appeal tribunal may still grant or deny the appeal based on the annulment grounds of the ICSID Convention. This excludes the possibility to set aside (or any other remedy in a local court) an award that otherwise would not benefit from the ICSID Convention regime.194 It should be noted, however, that the approach taken by the EU FTAs differs from other international tribunals like the appellate review mechanism of the WTO. Indeed, the WTO appellate body can ‘uphold, modify or reverse’ the legal findings and conclusions of the panel, but it cannot address the facts upon which a panel report is based.195 Furthermore, the WTO system does not contemplate the 192 See art 3.19(3) (Appeal Procedure) EU-Singapore FTA (n 133) and art 28(3)(4) (Appeal Procedure) EU-Vietnam FTA (n 60). 193 Pursuant to art 52 ICSID Convention, the grounds for annulment are the following: (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based. 194 Jaime (n 11) 101. 195 Pursuant to art 17.6 Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), the appellate tribunal has the authority to review ‘issues of law covered in the panel report and legal interpretations developed by the panel’. Margie-Lys Jaime 522 possibility of remanding the case to the panel.196 The WTO appellate body may, however, complete the panel’s legal analysis if a legal provision that has not been examined by the panel is ‘closely related to a legal provision that a panel has examined’, provided that the parties’ due process rights are not compromised.197 The distinction between questions of law and questions of fact is essential to define the scope and powers of the appellate tribunal. When an appeal tribunal is vested with the right to review the facts by examining new factual evidence or by re-examining existing evidence, certain delays as well as an increase in the costs of the proceedings may occur. While errors of fact are an inherent risk in judicial decisions, the problem that is crucial to address in the current ISDS regime relates to errors of treaty interpretation rather than an inaccurate appreciation of the facts.198 What seems to be the main concern for vesting the appeal tribunal with the power of revising findings of fact is a possible error in the appreciation of the relevant domestic law. If this is the intention, then the scope of the grounds for appeal should be limited to errors in the interpretation of domestic law and not to any error in the appreciation of the facts, even if this error was manifest. More generally, the introduction of an appeal system should favour a balance between the finality and the correctness of arbitral awards. In other words, consistency and correctness of arbitral awards should not unnecessarily undermine the finality of arbitral awards by increasing the cost and duration of the proceedings. A Note on Enforcement and Compatibility with the Current System One of the major obstacles for establishing a MIC, even in the context of a comprehensive multilateral agreement, is its compatibility with the ICSID and the New York Conventions. In the case of the EU-Vietnam and EU-Singapore FTAs, for example, it is stated that each party shall recognise the award rendered by the investment court (first instance and appeal tribunals) as binding, and enforce the pecuniary obligations within its territory ‘as if it were a final judgement of a court in that party.’199 This language builds on the ICSID Convention regime where each contracting 4.2. 196 WTO, A Handbook on the WTO Dispute Settlement System (2nd ed) (2017) 119-121 (discussing about the mandate of the appellate body). 197 Ibid 120. 198 See Jaime (n 11) 101. 199 Art 3.22(2) EU-Singapore FTA (n 133) and art 31(2) EU-Vietnam FTA (n 60). A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 523 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.’200 By this provision, each contracting state, regardless of the parties to the dispute, are obliged to recognize and execute the award as a final judgment, meaning that the domestic authorities in charge of recognition and enforcement have no discretion to review the award once its authenticity has been established.201 Moreover, it seems that the intention of the text is that an award, once it becomes final, should be treated as a final award under the New York and the ICSID Conventions (depending on the applicable regime) for enforcement purposes.202 These examples show the potential interaction between the proposed ICS and the current systems, which could be applied mutatis mutandis either to a MIC (or, in the alternative, to a multilateral appellate body), assuming that it could be established in the future. Because the recognition and execution obligations are limited to the parties to the treaty, the efficacy of this provision can be diminished in the context of bilateral agreements such as the ones negotiated by the EU. Indeed, where a party seeks to enforce the award in a non-contracting party, it would have to do so under the New York Convention, assuming that awards rendered by the investment court are considered final awards for purposes of Article I New York Convention.203 Because the execution of the award is governed by the laws concerning the execution of awards in force where such execution is sought, each executing state may have its own perception regarding the compatibility of the award with the New 200 ICSID Convention, art 54. 201 Schreuer and others (n 96) 1139-1143. 202 It is interesting to note that in the case of the EU-Vietnam FTA, the parties agreed on a five-year grace period following the entry into force of the agreement, in which the recognition and enforcement of the final award shall be conducted pursuant to the New York Convention if Vietnam is the respondent. Correlatively, during this period, an award issued by the first instance tribunal could be the object of annulment or setting aside at the seat of the arbitration. EU-Vietnam FTA art 31 (Enforcement of Awards) (n 60). 203 Pursuant to art I(2) NY Convention, the term ‘arbitral awards’ shall include not only awards made by arbitrators appointed for each case ‘but also those made by permanent arbitral bodies to which the parties have submitted.’ Furthermore, this has been clearly stated by art 3.22(5) EU-Singapore FTA (n 133) and art 8.41(5) CETA (n 59). See also CIDS Report (n 15) 60 (concluding that as long as the overall process can be regarded as arbitration, ‘no issue related to the presence of a built-in appeal would arise under the NY Convention’). Margie-Lys Jaime 524 York Convention. In other words, if the executing country is not a party to the treaty establishing the investment court, it might consider that it has no obligation to recognize the award pursuant to the New York Convention. Even in cases where the tribunal has been rendered under the ICSID Convention and followed ICSID Arbitration rules, the obligation to qualify an award as final under Section 6 ICSID Convention would be stated in the treaty establishing the investment court and not the ICSID Convention itself.204 The same principle seems to apply to those treaties that incorporate the possibility for the parties to create a bilateral appeal body, without necessarily contemplating the establishment of a permanent investment court. According to some commentators, the establishment of a multilateral appellate body seems to be illusory due to political and practical hurdles that would need to be overcome in order to amend the ICSID Convention.205 Despite this scepticism, new approaches seem to be emerging, particularly in the current UNCITRAL discussions on ISDS.206 Furthermore, it should be kept in mind that any system in place should not affect the current system for contractual arbitrations involving hosting states or stateowned enterprises. In this sense, the impact of having procedural frameworks depending on the basis pursuant to which a claim is submitted for arbitration is not as beneficial as having a specialised procedure tailored for treaty-based arbitrations. Yet, because an appellate body for ISDS will have to deal with a series of separate IIAs, each agreement having to be interpreted in accordance with its own terms, the system is potentially more complex than other regimes like the WTO appellate body dealing with a system of interrelated agreements.207 204 See art 3.22(6) EU-Singapore FTA (n 133); art 31(8) EU-Vietnam FTA (n 60); and art 8.41(6) CETA (n 59). 205 Tsalokidis (n 184) 851; See also Calamita N J ‘The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime’ (2017) 18 JWI&T, 585–627; Tams Ch J ‘Is there a Need for an ICSID Appellate Structure?’ in: Hofmann R, Tams C J (eds) The International Convention on the Settlement of Investment Disputes (ICSID): Taking stock after 40 years (2007), 223, 250 (concluding that there are no compelling reasons to move towards and investment appellate structure); Kreindler R H, ‘Inconsistent ICSID Awards – Is there is a Need for an Appellate Structure?’ in: Hofmann R, Tams C J (eds) The International Convention on the Settlement of Investment Disputes (ICSID): Taking stock after 40 years (2007), 255 (commenting on Tams’ paper). 206 UNCITRAL, ‘Report of Working Group III’, A/CN.9/935 (n 119). 207 McRae D, ‘The WTO Appellate Body: A Model for an ICSID Appeals Facility’ (2010) 1[2] JIDS, 371, 383 (highlighting the difference among both systems). A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 525 From the point of view of this Paper, the establishment of a multilateral and permanent or quasi-permanent appeal mechanism is possible without the creation of a MIC.208 Moreover, because the establishment of an appeal body does not raise the same concerns regarding the appointment of the decision makers, it is more likely to be accepted by the international community than the creation of a MIC where the investors have little or nothing to say with respect to the appointment of the first instance tribunal. This can be inferred by the fact that the set aside of arbitral awards is decided by judges in the seat of the arbitration; and, even under the ICSID self-contained annulment regime, the members of the ad hoc committee are appointed from the panel of arbitrators by the chairman of the administration council.209 Indeed, the appointment and composition of members of the ad hoc committees differs from the party-appointment process of the arbitral tribunals. As has been remarked, a higher level of continuity in the composition of successive ad hoc committees is key to achieve consistency of decisions on applications for annulment.210 Thus, it is conceivable that an appellate body may be put in place as an alternative procedure for ISDS without overly disturbing the current system. Furthermore, it could avoid not only the intervention of domestic courts in cases where the ICSID Convention does not apply, but also avoid the re-submission of the dispute to a new tribunal in cases where the arbitral award is annulled by the ad hoc committee,211 which definitively increases the costs and the length of the proceedings. The Opt-In Approach for Reforming ISDS Provisions in Existing IIAs In 2004, the ICSID Secretariat explored the possibility of creating an ICSID appeals facility, noting that at least 20 countries may have signed 5. 208 For a distinction between the semi-standing or roster model (by which disputing parties participate in the constitution of the chamber), and a standing or permanent tribunal model (by which disputing parties play no role in such constitution), see Kaufmann-Kohler G and Potesta M, The Composition of a Multilateral Investment Court and of an Appeal Mechanism for Investment Awards, 15 November 2017 [‘CIDS Supplemental Report’] accessed 24 May 2018. 209 Art 52(3) of the ICSID Convention. 210 Schreuer and others (n 96) 1028-1029. 211 Pursuant to art 52(6) ICSID Convention, if the award is annulled the dispute, at the request of either party, shall be submitted to a new tribunal. Margie-Lys Jaime 526 treaties with provisions on an appeal mechanism for investment awards.212 The establishment of an ICSID appeals facility may require the amendment of the ICSID Convention by the unanimous ratification of the contracting states which could be hard to achieve.213 Yet, an appeals facility could be adopted through a Protocol by the Administrative Council and opened for the signature of ICSID members.214 Additionally, the ICSID Appeals Facility Rules may be incorporated in future IIAs; and, as stated by the ICSID Secretariat, these rules would be ‘flexible and subject to adjustment in the underlying consent instrument’.215 The Centre did not go forward with this initiative, considering that it was ‘premature’.216 Almost 15 years later, it seems that the ICSID Secretariat will not include the establishment of an appellate body for treaty-based arbitrations under its current reform process.217 In 2016, the CIDS report on the reform of ISDS explored the possibility of an opt-in Convention modelled on the Mauritius Convention.218 As is well known, the Mauritius Convention was conceived as an instrument by which parties express their consent to apply the UNCITRAL Rules on Transparency to investment treaties concluded before its adoption (1 April 2014).219 According to the CIDS report, an opt-in convention would be an efficient mechanism to implement reforms in the ISDS system for several 212 ICSID Secretariat, Possible Improvements of the Framework for ICSID Arbitration (22 October 2004) Discussion Paper, para 20. 213 Pursuant to art 53(1) ICSID Convention, awards are not subject to any appeal or to any other remedy except those provided for in the Convention. It can be assumed that an amendment of ICSID Additional Facility would not require the unanimous ratification of ICSID members. 214 In principle, once a state has signed the Protocol, the state would agree to the jurisdiction of the appellate body for any treaty-based arbitration. See Jaime (n 11) 100-101. 215 ICSID Secretariat (n 212) Annex ‘Possible Features of an ICSID Appeals Facility’ para 4. 216 Sardinha E, ‘The impetus for the Creation of an Appellate Mechanism’ (2017) 32[3] ICSID Rev – FILJ 503, 508. 217 ICSID, List of Topics for Potential ICSID Rule (February 2017) Amendment accessed 26 May 2018. 218 CIDS Report (n 15). 219 The UNCITRAL Rules on Transparency in Treaty-based investor-State Arbitration come into effect on 1 April 2014. Resolution adopted by the General Assembly on 16 December 2013, 68/109 Report of the Sixth Committee (A/ 68/462) accessed 25 May 2018. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 527 reasons, particularly: (i) its effect over a multiplicity of IIAs, avoiding the need to renegotiate the underlying IIAs; and (ii) its limited application to investor-state arbitration provisions (ie procedural issues and not substantive protection standards).220 Furthermore, parties may opt to incorporate the convention, directly or by reference, in their future IIAs and/or domestic legislations. Certainly, major differences exist between the implementation of the Mauritius Convention which is a treaty on procedural rules and a text that implies the creation of a permanent or quasi-permanent body. In this context, several questions arise. First, who is going to pay for the services of the decision makers? Likewise, if the member states pay a retainer fee, could this imply the existence of doubts as to the impartiality or independence of the arbitral tribunal? Second, how are the decision makers going to be appointed: by the parties to the dispute from a pre-established roster or, randomly selected by the appointing authority to ensure an equitable distribution of cases? A consensus on the selection method is key to achieve the success of the new decision system. Adequate remuneration of judges (or decision makers in general) is an important element to the independence of the judiciary.221 If the path of a standing appeal body is followed, the manner in which the decision mak- 220 CIDS Report (n 15) 75-76. Another possible path of reform might be the design of a model agreement on ISDS that could be adopted by the parties to the treaty. The model would have to reflect worldwide consensus of key aspects of investment law practice and policies, in the quest for an effective, transparent and accountable regime. Although this option cannot avoid fragmentation, it may achieve a certain level of harmonization and predictability in the system. 221 According to the UN Basic Principles on Independence of the Judiciary, states have the duty to guarantee the conditions of service and tenure in their legislation, including their independence, security and adequate remuneration. UN, Basic Principles on Independence of the Judiciary, Adopted by the Seventh United Nations Congress on the Prevention of Crime and the Treatment of Offenders held at Milan from 26 August to 6 September 1985 and endorsed by General Assembly resolutions 40/32 of 29 November 1985 and 40/146 of 13 December 1985 accessed 17 November 2018. Likewise, the European ‘Magna Carta of Judges’ indicates that the state shall ensure the ‘human, material and financial resources necessary to the proper operation of the justice system’ and that judges receive appropriate remuneration. Consultative Council of European Judges, ‘Magna Carta of Judges (Fundamental Principles)’ (Strasbourg, 17-19 November 2010) CCJE (2010(3) Final accessed 17 November 2018. See generally Zimmermann D, The Independence of International Courts: The Adherence of the International Judiciary to a Fundamental Value of the Administration of Justice (Nomos Hart, 2014), Margie-Lys Jaime 528 ers are appointed and remunerated must guarantee their structural independence.222 In practice, the number of decision makers could be strategically set to nine members, appointed in a staggered manner (eg one third of the panel elected every three years) for one renewable term of six years. To keep the system depoliticized, the appellate body should not include more than one national from the same state. Furthermore, three members of the appellate body could hear the case under a rotation system, but the decision would be subject to the scrutiny and approval of the totality of its members, allowing greater certainty in the decisions.223 An appellate body member could be conceived as a ‘part-time’ role, allowing the arbitrators serving on the appellate body to have other compatible commitments in law or academia. However, some limitations may apply such as not acting as counsel or arbitrator in current ISDS disputes. In other words, members of the appeal tribunal would not be able to participate in any pending ICSID arbitration during the whole period of their service in order to avoid direct or indirect conflicts of interest.224 As the appointment of the members of the appellate body hearing a specific case, the payment of fees and costs could be done through the institution handling the dispute (eg ICSID, the ICC, the SCC), the Secretary General of the Permanent Court of Arbitration (PCA), or the designated appointing authority in ad hoc procedures under the UNCITRAL Arbitration Rules. In this sense, the decision makers would be paid directly by the parties to the dispute, avoiding the perception of bias in favour of states. In principle, unlike the creation of a multilateral investment court, it would not be necessary to establish a permanent secretariat whose expenses would have to be covered by the states parties to the treaty or eventually by the United Nations.225 As with the Mauritius Convention, a convention creating an appeal body could be created as a flexible instrument by which parties may formulate reservations, thereby excluding from the application of the conven- 75-77 (referring to concerns related to how a court is financed as an example of an institutional aspect of independence). 222 Structural or institutional independence refers to the ‘absence of external influence on the institution or dispute settlement body’ and it is generally distinguished from individual or personal independence. CIDS Supplemental Report (n 208). 223 Jaime (n 11) 100. 224 Ibid 101. 225 For example, the expenses of the International Court of Justice (including salaries, allowances, and compensations) are fixed by the UN General Assembly. See Articles 32-33 Statute of the International Court of Justice accessed 15 November 2018. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 529 tion a specific investment treaty or a specific set of arbitration rules other than the UNCITRAL Arbitration Rules (negative-list approach), or to declare that it will not provide a unilateral offer of application.226 In any event, the convention would have to establish its relationship with current and future IIAs, particularly with respect to the existing IIAs procedural rules. Yet, while the Mauritius Convention entered into force six months after the date of deposit of the third instrument of ratification, acceptance, approval or accession,227 the threshold to enter into force should be higher. For instance, if the appellate body is composed of nine arbitrators, at least nine state members should be required for the convention to enter into force. As highlighted in the CIDS Report, the establishment of an appellate body (without necessarily establishing a MIC), would allow the ISDS regime to keep its main features while being complemented by an appeal mechanism.228 As discussed in the above section, the appeal mechanism could be introduced as a substitute to the annulment/set aside proceedings for treaty-based arbitrations under the current system. Ideally, both the disputing state and the investor’s home state would be part of the convention establishing the appeal mechanism. This may not, however, always be the case. Other scenarios may involve the host state’s unilateral consent to the convention. Where the dispute is between an investor whose home state is party to the convention, but the host state is not, it can be inferred that the investor may not be able to appeal the decision unless the host state decides to become part of the convention or accept the jurisdiction of the appellate body on a case by case basis. By contrast, if only the disputing party state is party to the convention, the investor may initiate the appeal without affecting its home state.229 Conclusion: Shifting from Ad hoc ISDS Process to Standing Bodies The EU proposal for the creation of an ICS to replace the current ISDS regime by creating a permanent investment court breaks away from the 6. 226 CIDS Report (n 15) 88-91. 227 The Mauritius Convention entered into force on 18 October 2017. See art 9 (n 82). 228 CIDS Report (n 15) 76. 229 Jaime (n 11) 101. See also CIDS Report (n 15) 85-88. Margie-Lys Jaime 530 rules of investment arbitration into a new archetype for ISDS,230 pulling apart the concept of party autonomy by excluding party-appointed arbitrators. It is evident that the EU’s proposal takes the idea of privatizing ISDS up to the last level where no state court would have control over investment arbitral awards except for the possibility of their non-recognition by non-member states. If a MIC is established, treaty and contract claims would have to coexist more than ever within their own boundaries. By contrast, an appellate body could be implemented through an opt-in convention under certain parameters. This is by far a more realistic scenario than the proposed MIC and/or a comprehensive multilateral agreement on investments. In practice, the appeal tribunal would have the authority to correct manifest errors in treaty interpretation and consequently, contribute to achieving coherence and consistency in investorstate arbitration. In this sense, coherence and consistency will be guaranteed for ICSID and non-ICSID arbitrations, as to create a ‘jurisprudence constante’ in treaty-based ISDS. The finality of awards will also be guaranteed, as appeal decisions will escape review by local courts. From the point of view of the host state, acceptance of the appellate body’s jurisdiction would send a positive message of trustworthiness in the system. Thus, ISDS might never be the same as it was at its inception because of the establishment of a multilateral appeal mechanism, but this development would be by all means a win-win situation to the benefit of the ISDS’ different stakeholders. 230 See European Commission, Fact Sheet, Key elements of the EU-Japan Economic Partnership Agreement (6 July 2017) accessed 26 April 2018; European Union Commission, Concept Paper. Investment in TTIP and Beyond – A Path for Reform, accessed 26 April 2018. The proposed ICS would be comprised of a permanent first tribunal and a second degree of review by an appellate body. EFILA, Task Force Paper regarding the proposed International Court System (1 February 2016) accessed 26 April 2018. A New Legal Framework for Improving Investor-State Dispute Settlement (ISDS) 531

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Schlagworte

Privatization, DSB, International Investment Arbitration, Zivilgerichte, Privatisierung des Rechts, International Private Law, Internationale Streitschlichtung, Dispute Settlement, Litigation, dispute resolution, Schiedsgerichte, ADR, Investitionsschutz, Streitbeilegung, Internationales Privatrecht

References

Abstract

This book collects the proceedings of the 3rd IAPL-MPI Post-Doctoral Summer School which was held in Luxembourg from July 1st to 4th, 2018. The Summer School aims at bringing together outstanding young post-doc researchers of any nationality dealing with European, international and comparative procedural law, as well as with other relevant mechanisms for dispute resolution. It gives them an opportunity to openly share and discuss their current research project with other young colleagues, but also with experienced law professors who guide them, comment on their projects and advise them on the way forward. The fruitful mix of generations is at the heart of the project which dealt with domestic law, comparative law, European law and international law, not only procedural but also substantial.

Zusammenfassung

Der Band dokumentiert die Ergebnisse der dritten IAPL-MPI Post-Doctoral Summer School, die vom 1. bis 4. Juli 2018 in Luxemburg stattfand. Die Summer School bringt herausragende junge Post-Doc-Forscher zusammen, die sich mit dem europäischen, internationalen und vergleichenden Verfahrensrecht sowie anderen relevanten Mechanismen der Streitbeilegung befassen. Ihnen wird die Möglichkeit geboten, aktuelle Forschungsprojekte offen mit jungen Kollegen und erfahrenen Wissenschaftlern zu diskutieren. Der fruchtbare Generationenmix steht im Mittelpunkt des Projekts, das sich auf prozessualer und materieller Ebene v.a. mit nationalem Recht, der Rechtsvergleichung, dem Europa- und Völkerrecht befasst.

Schlagworte

Privatization, DSB, International Investment Arbitration, Zivilgerichte, Privatisierung des Rechts, International Private Law, Internationale Streitschlichtung, Dispute Settlement, Litigation, dispute resolution, Schiedsgerichte, ADR, Investitionsschutz, Streitbeilegung, Internationales Privatrecht