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Investor – State Arbitration

Investor – State Arbitration

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Investor – State Arbitration

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  1. Investor – State Arbitration Armand de Mestral

  2. What is ISA? • Special form of international arbitration provided by bilateral investment treaties (BITs) to protect the interests of foreign investors and foreign investments • 2700 total today • Most BITs between developed and LDCs • Several hundreds between developed states (Canada – USA; EU Member States; • Promoted by regional trade associations ASEAN, MERCOSUR etc • Major LDCs also – China, India major negotiators

  3. Why is ISA significant? • Legally • Profesionally • Politically

  4. Legal Basis of ISA • BITs • FTAs • NAFTA Ch 11 • ICSID

  5. Where is ISA conducted? • ICSID • ICC Paris • LCIA London • Stockholm Chamber of Commerce • Dubai, HK, SPORE

  6. Rights usually granted to “foreign investors” and “foreign investments” under BITs • MFN • NT • Fair and equitable treatment • No performance requirements • No expropriation (direct or indirect) without compensation

  7. How does ISA operate? • Treaty promise to the foreign investor to arbitrate claims • No need to negotiate the establishment of an arbitration

  8. ISA Arbitrators • Who is chosen? • How are they chosen? • To whom are they responsible?

  9. Claims • Notice of arbitration • Statement of claim • Must be from a foreign investor in respect of a foreign investment • Must allege economic loss due to failure to respect standards required by the treaty • Claim seeks monetary compensation only

  10. Kinds of claims made • Asian Agricultural Products v Sri Lanka 1987 • Wena Hotels v Egypt 1998 • Argentine claims since 2002 (40) • Loewen v USA 2002 • Methanex v USA • UPS v Canada • Canadian Cattlemen V USA • Waste Management v Mexico 1998 • HFCS Cases v Mexico • Dow Chemical v Canada

  11. Procedure • Notice – Statement – Procedural orders • Challenge to Jurisdiction • Merits- presentation of evidence – written pleadings – oral pleading – deliberation – Award • Damages • Costs • Review - ICSID only • Time needed – 2 – 5 years

  12. Complex litigation • Teams of lawyers and other experts • Governments • Private practice • Canadian expertise

  13. How do arbitrators decide? • Duty to conduct a fair hearing • Equality of the parties • Independence of the arbitrators • Decision must be motivated and grounded in law

  14. Applicable law • Domestic law • BIT • International law • General principles of law • Delicacy of the process • Novel use of international law – determining the rights of private persons and companies

  15. The state as a party – consequences? • Compare with WTO or NAFTA ch 20 • Can the state still control the proceedings? • Does the state enjoy all the privileges of sovereignty? • Are parties really to be treated as equals? • Yes

  16. ISA public or private? • Is this just another form of international commercial arbitration? • No • Is it purely public? • No • Issues are mixed and arbitrators have to be aware of the public and private dimensions of issues before them

  17. Necessary balance • Sri Lanka – defence that there was a military operation which could not be second guessed • Argentine cases – plea of necessity by Argentina – need to protect public interest in a crisis • Waste Management – need to give the state room to regulate but sanction unfair and disproportionate means chosen

  18. Criticisms of ISA • Secret • Private disposition of public issues • Avoiding normal national courts • Promotion of an international corporate agenda • Blindness to the public interest • Special privilege given to foreigners • Quis custodiet ipsos custodes? • Unfair to LDCs • Inappropriate in a democracy

  19. How have governments responded to criticisms • Agree – try to get out – Venezuela, Bolivia, Ecuador • Accept - as the price of attracting investment – Mexico • Legislate to make enforcement harder - Grave political crisis – Argentina today • Canada and USA – decision to make all documents, pleadings and decisions and hearings public • ICSID attempt to follow

  20. Situation of ISA Today? • 2700 BITs • Many trade agrements have investment chapters • China has 110 BITs • Over 200 cases decided • Another 150 cases pending • Challenge to ISA or ICSID by Venezuela, Bolivia and Ecuador • Considerable concern in developed democracies – Canada, USA, Japan, EU Member states • Canada and USA changing model BITs to incorporate provisions on public interest and exceptions

  21. Why did Canada buy into this process? • NAFTA 1994 Ch 11 (Canada – USA FTA 1988) • Ethyl, S.D. Myers • Canadian BITs (FIPAs) – 30 in force • 15 more under negotiation • Possible inclusion in future Canada – EU trade agreement