As discussed in our blog post here, on 21 December 2016 the EU Commission launched a public consultation on the multilateral reform of the investment dispute settlement system. The consultation closed on 15 March 2017 with a full report of the responses anticipated later this year. Herbert Smith Freehills has submitted a position paper to the Commission in response to the consultation.
Herbert Smith Freehills’ Response to EU Consultation: the Future of Investor-State Dispute Settlement
In an award dated 9 March 2017, the Tribunal in an ICSID arbitration between Korean investor Ansung Housing Co., Ltd and China dismissed all claims as time-barred. The Claimant's attempt to circumvent the limitation period by relying on the most favoured nation (MFN) clause did not succeed. The Tribunal came to this conclusion at an early stage of the proceeding, "with relative ease and despatch".
This is the first ICSID arbitration to involve China as the respondent state that has proceeded to a substantive hearing and resulted in an award.
See our previous blog on the case here
Click here for a copy of the Award.
Mixed messages to investors as India quietly terminates bilateral investment treaties with 58 countries
The Government of India says it has sent notices to terminate bilateral investment treaties (BITs) with 58 countries, including 22 EU countries. It has been reported that many of these BITs will cease to apply to new investments from as early as April 2017. The BIT between India and The Netherlands (which had been a common route for investment into India) has already been terminated from December 2016. Termination of the BITs would also remove protection for new investments by Indian investors into the counterparty countries. For the remaining 25 of its BITs that have not completed their initial term, and so are not ripe for termination, India has circulated a proposed joint interpretative statement to the counterparties to these BITs seeking to align the ongoing treaties with its 2015 Model BIT. While investments made before the termination of the 58 treaties may be protected for some years under the 'sunset' clauses in those BITs, India's actions send mixed messages at a time when the Indian government is making renewed efforts to attract inbound investment with its 'Make in India' campaign, and when outbound investment by Indian companies continues to increase into both developed and developing economies.
Urbaser v. Argentina and Burlington v. Ecuador: Investment arbitration is not over the counterclaims yet
Two recent decisions by tribunals have advanced the body of tribunal practice considering the issue of counterclaims by respondent states in investment treaty arbitration: Burlington Resources Inc. v. Ecuador, in which the tribunal awarded damages against the investor for breach of Ecuadorian environmental law in the performance of its investment, and Urbaser SA and Consorcio de Aguas Bilbao Bizkaia v. Argentina, in which the tribunal accepted jurisdiction to hear Argentina's counterclaim asserting that the investor had violated international human rights obligations. These decisions arise in the context of conceptual challenges to the pursuit of counterclaims in investment arbitration.
The Brexit White Paper
The much-anticipated Brexit White Paper, ‘The United Kingdom’s exit from and new partnership with the European Union’, was published on 2 February 2017. This post focuses on a subject that has to date received relatively little attention—what it has to say about the future of dispute resolution. In its Chapter 2 (‘Taking control of our own laws’), and Annex A, the White Paper contains perhaps a surprising amount on dispute resolution, in comparison to the text devoted to the other eleven of the UK government’s 12 stated principles.
In this blog post we review the White Paper with the aim of discerning so far as possible the potential future of dispute resolution for the UK. In particular, we consider how the UK government envisages, at this relatively early stage, that disputes will be resolved under new post-Brexit UK-EU agreements, and if and how UK businesses will be able to enforce their provisions. We also consider certain implications of the end to the Court of Justice of the European Union (CJEU)’s jurisdiction in the UK and the adoption of the acquis under the Great Repeal Bill.
South Africa’s draft regulations for investor-state mediation require refinement to work effectively with international arbitration.
Interested parties have until 28 February 2017 to comment on draft Regulations on Mediation Rules (Regulations) published by South Africa’s Department of Trade and Industry (DTI) on 30 December 2016, under the Protection of Investment Act, 2015 (Act).
The EU Commission (the Commission) has launched a public consultation on the multilateral reform of the investment dispute settlement system. The survey is found here and responses are due by 15 March 2017. The consultation is the next step in furtherance of the Commission's objective to develop a multilateral system for the resolution of international investment disputes and, amongst other things, seeks to explore views on its proposal to develop a permanent multilateral investment court system.
The development of the Commission's position over the last couple of years and the Commission's introduction to the consultation both suggest a determination to pursue wholesale change to the system of resolution of investor-state disputes, rather than a more nuanced approach in evaluating the perceived flaws in the current system under which investor-state disputes are largely resolved by ad hoc arbitration (often under the auspices of ICSID, part of the World Bank). However, notwithstanding its clearly stated objective, the Commission's survey also countenances in the alternative the establishment of a Multilateral Appeal Tribunal which would consider appeals from the decisions of ad hoc investment arbitration tribunals established under the current system.
The responses to the consultation will be significant in terms of the future of the Commission's objective to establish a Multilateral Investment Court. In particular, it will be crucial that a constructive and positive response is received from the third party states who are asked to partner with the Commission in developing the Multilateral Investment Court system. However, it remains to be seen whether the survey will elucidate clear responses which will assist the Commission in considering further its proposals for the future of investor-state dispute settlement: the majority of the survey questions treat as interchangeable the two different approaches (the establishment of a Multilateral Investment Court system and the establishment of a Multilateral Appeal Tribunal) and the survey does not seek responses on the development of a Multilateral Appeal Tribunal alongside reform of the current system of ad hoc arbitration. It is not clear whether this option continues to be considered by the Commission.
The issues and controversies surrounding the resolution of investor-state disputes are complex and any changes to the system pursued by the Commission would ideally be based on clearly expressed views from a range of stakeholders. It is to be hoped therefore that respondents to the survey take the opportunity offered by the Commission to clarify their responses by way of uploading a position paper.
With unprecedented growth in foreign direct investment, issues concerning substantive investment protection and the way in which investor-state disputes are resolved both now and in the future are significant for both states and investors. If you would like to discuss these issues or the Commission's consultation, please contact: Larry Shore, Partner, Dominic Roughton, Partner, Christian Leathley, Partner, Andrew Cannon, Partner, Iain Maxwell, Of Counsel, Vanessa Naish, Professional Support Consultant, Hannah Ambrose, Professional Support Consultant or your usual Herbert Smith Freehills contact.
Advocate General issues opinion that the EU does not have exclusive competence to conclude the EU-Singapore Free Trade Agreement
In an opinion issued on 21 December 2016, EU Advocate General Eleanor Sharpston QC has concluded that the EU-Singapore Free Trade Agreement (EUSFTA) will need to be finalised by the European Union and the Member States acting jointly, i.e. entered into by the EU and all of its Member States (as a so-called "mixed agreement"), not just by the EU alone. Although the opinion does not bind the CJEU, the court tends to follow the approach adopted by the Advocate General. The CJEU is expected to issue its own judgment in 2017.
CETA UPDATE: CETA is signed; Provisional application of CETA and Brexit; First government-to-government meeting to discuss establishing the multi-lateral investment court system
On 30 October 2016, the EU and Canada signed the Comprehensive Economic and Trade Agreement (the CETA). As explained in our blog post here, the text of the CETA, which was originally agreed in 2014, was subjected to "legal scrubbing" in February 2016 which led to the inclusion, at the instigation of the EU, of an Investment Court System (an ICS) in place of the ad hoc investor-State arbitration provisions which had originally been included in CETA, and are included in roughly 3200 international investment agreements and other treaties.
On 13 and 14 December 2016, the European Commission (the Commission) and the Canadian Government met in Geneva to engage in "exploratory discussions" with government representatives from around the world on the establishment of the multilateral ICS. It will have been the first meeting at government-to-government level on this initiative since the ICS was first proposed by the Commission in its Concept Paper of May 2015. For the multilateral ICS to succeed in the way envisioned by the Commission, broad global support will be required.
The CETA will be provisionally applied in advance of its ratification. However, as discussed below, provisional application will not extend to certain of the substantive investor protections, nor to the ICS. The exclusion of certain provisions from provisional application raises a number of questions as to how the agreement will operate in practice.
Interestingly, whilst the UK has indicated that it intends to provisionally apply the CETA, the exclusion of the ICS from the provisional application has been described by the UK Government as its "main ask" of the EU in this context. The UK Government has also concluded that, even though CETA is being put forward as a "mixed agreement" and ratified by all the Member States, the UK will not automatically benefit from CETA's provisions after the UK leaves the EU.
Live webcast of hearing on jurisdiction and the merits: David Aven et al. v. Republic of Costa Rica (UNCITRAL Case No. UNCT/ 15/3) – Public Hearing
A hearing on jurisdiction and the merits in UNCITRAL Case No. UNCT.15/3, will be transmitted live in English and Spanish via internet feed from Monday, December 5, 2016 to Monday, December 12, 2016, excluding Saturday and Sunday, from 9:00 a.m. to approximately 6:00 p.m. EST. The live streaming is being made available pursuant to Article 10.21.2 and of the Dominican Republic-Central America FTA (CAFTA-DR), and section 25.2 of the Tribunal’s Procedural Order No. 1 dated September 10, 2015.