The Kingdom of Tonga becomes 164th state to accede to the New York Convention

On 12 June 2020, Tonga acceded to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention“). With this, Tonga becomes the 164th state party to the Convention, following the recent accession of Palau in March this year. Under Article XII (2), the Convention will come into force for Tonga on 10 September 2020 and will be applicable to arbitral awards issued on or after that date.

Under Article I.3 of the New York Convention, contracting states are able to ratify or accede subject to certain reservations. The UNCITRAL website indicates that Tonga has acceded to the Convention subject to one common reservation, namely that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered commercial under the laws of the Kingdom of Tonga.

For more information please contact Andrew Cannon, Partner, Gitta Satryani, Partner, Brenda Horigan, Partner, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852
Gitta Satryani
Gitta Satryani
Partner
+65 68688067
Brenda Horrigan
Brenda Horrigan
Partner
+61 2 9225 5536
Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 20 7466 2112

ENGLISH COURT CONSIDERS CHALLENGES TO A FURTHER AWARD MADE AFTER REMISSION TO THE TRIBUNAL FOLLOWING AN EARLIER SUCCESSFUL CHALLENGE

In Reliance Industries Ltd and another company v The Union of India [2020] EWHC 263 (Comm), the English Commercial Court (the “Court”) considered a series of challenges under sections 67 and 68 of the Arbitration Act 1996 (the “Act”) to a further award (the “Further Award”) made on issues remitted to the Tribunal after earlier challenges to parts of an arbitration award (the “Final Partial Award” or “FPA”) brought under sections 67, 68 and 69 of the Act.

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COVID-19: PRESSURE POINTS: PODCAST: A BALANCE OF OBLIGATIONS: THE RESPONSE TO THE PANDEMIC AND INVESTMENT TREATY PROTECTIONS (GLOBAL)

We are pleased to share with you this podcast which looks at the international investment law protections that are relevant to investors and states in the context of the COVID-19 pandemic. We also touch on the key considerations for both states and foreign investors when assessing whether state action taken in response to the pandemic could infringe those protections.

This podcast is chaired by Senior Associate, Hannah Ambrose, who is joined by the co-heads of our Public International Law Practice, Christian Leathley and Andrew Cannon. This podcast can be listened to here.

For more information, please contact Andrew Cannon, Partner, Christian Leathley, Partner, Hannah Ambrose, Senior Associate, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852

Christian Leathley
Christian Leathley
Partner
+1 917 542 7812

Hannah Ambrose
Hannah Ambrose
Senior Associate
+44 20 7466 7585

A BALANCE OF OBLIGATIONS: THE RESPONSE TO THE COVID-19 PANDEMIC AND INVESTMENT TREATY PROTECTIONS

The COVID-19 pandemic has brought about an unprecedented level of state action as governments around the world make difficult decisions in response to the spread of the virus. Over the past few months this has resulted in a variety of measures in different countries, including the suspension of contractual rights, social distancing regulations, the requisitioning or nationalisation of private property, the closure of borders, export and travel restrictions, and bail-outs of state carriers.

In such extraordinary times, a degree of interference with private rights is almost inevitable. Many states are balancing multiple concerns, looking to protect public health and absorbing expert evidence in a fast-moving environment, whilst trying to mitigate both economic and societal damage in the short and longer term. However, even in times of crisis, states nonetheless have domestic and international law obligations (including under investment treaties), which impose standards against which their conduct may be held to account. Depending on the circumstances, state action in response to the COVID-19 pandemic which fails to meet these standards could give rise to claims.

This article describes the potential international investment law protections which may be relevant in response to COVID-19. It also discusses the key considerations for states and foreign investors alike when assessing whether state action may infringe a state’s international law obligations.

Protections for foreign investors under investment treaties

A foreign investor may enjoy protections under an international investment agreement (an IIA), which if breached by state action can give rise to the right to make a claim. An IIA is an agreement between two or more states containing reciprocal undertakings for the promotion and protection of private investments made by nationals of the state signatories in each other’s territories. Such agreements have historically been entered into to provide confidence to foreign investors that their investment will not be negatively affected by certain types of irregular action by the state hosting the investment (the host state) and that if it is, to enable the investor to claim damages. Most commonly, these IIAs are bilateral arrangements (called bilateral investment treaties, or BITs), multilateral treaties or free trade agreements containing investment protections.

The definitions of investor and investment vary between different IIAs but the definition of investment often includes a broad and non-exhaustive list of categories of assets. Whilst IIAs are state-to-state agreements, they usually contain provisions allowing an investor from one state to enforce the guarantees as to the treatment of their investment in the host state through international arbitration before an independent tribunal.

Each treaty must be considered on its terms but IIAs commonly include the following investment protections:

  1. a protection against the unlawful expropriation of an investment without adequate compensation, whether directly or indirectly through a series of governmental acts which encroach on an investment and result in it being deprived of value;
  2. the guarantee of fair and equitable treatment (or FET). Claims under FET provisions typically fall into two broad categories: prohibitions against a denial of justice and claims based on administrative decision-making. Not all regulatory changes will constitute a violation of the FET standard, and the existence of such protections does not deprive a state of its ability to exercise its regulatory powers. However, where the state’s exercise of its regulatory power is arbitrary or based on procedural unfairness or lack of due process, bad faith, discrimination or a failure to protect an investor’s legitimate expectations as to how they will be treated, a FET claim may be warranted;
  3. a guarantee of full protection and security for the investment and for the investor. Whilst this is generally understood to concern physical protection, it may also encompass legal protection;
  4. guarantees of treatment no less favourable than that given either to nationals of the Host State of the investment or to nationals of third states, which prevent the host state discriminating against the foreign investor; and
  5. the right to repatriate profit and capital.

Some treaties specifically guarantee non-discriminatory treatment with respect to restitution, compensation or other valuable consideration for losses due to civil strife or state of emergency.

Treaty obligations in the context of COVID-19

On the one hand, states are undoubtedly facing significant challenges in balancing the need to protect public health with the prospect of short and long term economic damage.  On the other hand, many foreign investors are facing wide-ranging governmental interference in multiple aspects of their business (including, in many jurisdictions, restrictions on the use and movement of their employees, the use of their property and the enforcement of their contractual rights). Some investors have questioned whether the extent of the measures imposed is justified, or whether the measures are proportionate to the serious economic damage which they can inflict.

Based on the standard protections found in IIAs outlined above, key considerations as to whether a state’s response to COVID-19 is consistent with its international law obligations may include:

  • the evidential basis for state measures introduced to address the pandemic in different ways;
  • the length of time for which measures are imposed and the regularity with which they are reviewed;
  • whether measures restricting private rights and freedoms are proportionate based on the anticipated benefit in terms of fighting the virus and the possible negative impact of those actions on the affected investors;
  • whether steps have been taken to mitigate the damage caused by the measures;
  • whether the measures impact unequally or disproportionately on one sector, group or type of company or individual impacting the foreign investor;
  • whether the enforcement mechanisms used by states to implement COVID-19 regulations are consistent with domestic legislation;
  • whether, particularly in the context of any requisitioning or nationalisation, any provision has been made for compensation and, if so,
    • how such compensation is calculated; and
    • the availability (or otherwise) of compensation for all who are similarly affected (including whether nationals of the host State are placed in a better position than foreign investors);
  • whether the measures imposed are capable of, and are being used for, purposes beyond tackling COVID-19;
  • whether any assurances have been given to sectors, companies or individuals as to their treatment in the context of COVID-19 and whether those assurances were fulfilled; and
  • whether existing laws are being used to address COVID-19 in a manner which is inconsistent with their legislative intent.  

States may find it important, for a multitude of reasons, to retain comprehensive contemporaneous records of the reasons for decisions, as well as ensuring that communications with individual investors, as well as industry and sector groups, are clearly documented.

For investors, it will also be important to keep contemporaneous records of the impact on the investment(s) affected by state action. Any communications with states, particularly those seeking or receiving assurances as to treatment, should be carefully recorded and those records preserved.

Other relevant considerations

The fact that state action has negatively affected a foreign investment does not automatically lead to an actionable breach of an IIA. This will depend on the nature of the state action and the circumstances in which it has been taken, the wording and interpretation of the IIA, and whether the IIA contains exemptions or prudential carve outs which apply in certain circumstances (such as national security, public health or public order). In such extraordinary circumstances there may be defences available to a state, either based on the wording of the relevant treaty or on customary international law (including defences based on necessity, distress or force majeure).

In summary, notwithstanding the fact that COVID-19 presents an unprecedented and fast-developing challenge, the guarantees given to foreign investors under IIAs remain relevant to an assessment of state action in response to the pandemic. Whilst the question of whether an investor may be entitled to damages under an IIA is fact and treaty-specific, the prospect of such claims is therefore relevant to states and investors alike.

For more information about our investment treaty practice, and to find a key contact in a relevant jurisdiction, please click here.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852

Christian Leathley
Christian Leathley
Partner
+1 917 542 7812

Hannah Ambrose
Hannah Ambrose
Senior Associate
+44 20 7466 7585

ICSID RELEASES 2019 CASE STATISTICS

The International Centre for Settlement of Investment Disputes (“ICSID”) has released case statistics for 2019 and updated their records for cases since 1972 (available here). ICSID has historically administered the majority of investor-state claims and these statistics remain an important bellwether for trends in such disputes. The 2019 statistics show that a lower number of cases were registered this year. There was a dip in cases involving state parties from Eastern Europe and Central Asia, and the highest proportion of cases involved state parties from South America. As in previous years, cases involving the oil and gas, electric power and other energy sectors dominated.

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Update on the future of ISDS: latest Working Group III UNCITRAL discussions

The United Nations Commission on International Trade Law’s (“UNCITRAL“) Working Group III (Investor-State Dispute Settlement Reform) (“WGIII“)​ has published its report (the “Report“) on the work conducted between 14 and 18 October 2019 during its 38th session. The Report provides details about the discussions around three issues in particular: (i) the establishment of an advisory centre; (ii) a code of conduct for decision-makers; and (iii) third-party funding.

We discuss the content of that Report in our new blog piece, published on our Public International Law blog here.

For more information, please contact Christian Leathley, Partner, Andrew Cannon, Partner, Helin Laufer, Associate or your usual Herbert Smith Freehills contact.

Christian Leathley
Christian Leathley
Partner
+1 917 542 7812

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852

Helin Laufer
Helin Laufer
Associate
+44 20 7466 6425

European Commission issues procedural proposals for the Investment Court System envisaged under CETA

In October 2019, the European Commission (the “Commission“) presented four proposals (the “Proposals“) to the Council of the European Union (the “Council“) with specific rules to establish the Investment Court System (“ICS“) envisaged under the EU-Canada Comprehensive Economic and Trade Agreement (“CETA“). If the Council and the EU Member States approve the Proposals, the EU will seek to agree them with Canada. The Proposals would enter into force upon the ratification of the CETA by all EU Member States.

We discuss the content of those proposals in our new blog piece, published on our Public International Law blog here.

For more information, please contact Andrew Cannon, Partner, Iain Maxwell, Of Counsel, Helin Laufer, Associate or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852

Iain Maxwell
Iain Maxwell
Of Counsel
+44 20 7466 2646

Helin Laufer
Helin Laufer
Associate
+44 20 7466 6425

DISPUTE RESOLUTION CHOICES FOR BANKS AND FINANCIAL INSTITUTIONS IN A POST-BREXIT WORLD: OPTING FOR ARBITRATION?

Partner Andrew Cannon and Senior Associate Hannah Ambrose have authored an article for Butterworths Journal of International Banking and Financial Law, discussing the suitability of arbitration as a dispute resolution mechanism for banks and other financial institutions post-Brexit.

The article explores the current uncertainty surrounding the enforcement of English court judgments post-Brexit, whilst comparing and contrasting arbitration as a means of resolving disputes with traditional litigation from the perspective of the banking and finance industry. The article goes on to highlight important considerations that industry players ought to take into account if they are considering arbitration as an alternative means of resolving their disputes.

The full article can be accessed by clicking this link.

This article first appeared in the October issue of Butterworths Journal of International Banking and Financial Law and is reproduced with the agreement of the publishers.

If you have any questions or would like discuss any aspect of this post, please contact Andrew Cannon, Partner, or Hannah Ambrose, Senior Associate, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852
Hannah Ambrose
Hannah Ambrose
Senior Associate
+44 20 7466 7585

 

5TH EFILA ANNUAL CONFERENCE 2020: INVESTMENT PROTECTION IN THE EU: ALTERNATIVES TO INTRA-EU BITs (30 JANUARY 2020)

We are pleased to be hosting the fifth Annual Conference of the European Federation for Investment Law and Arbitration (EFILA), to take place on 30 January 2020 at Herbert Smith Freehills’ offices in London.

This year’s conference will focus on ‘Investment Protection in the EU: Alternatives to Intra-EU BITs’, and will cover the topics:

  1. Investment/investor protection under EU law;
  2. Alternative tools for effective investment/investor protection;
  3. The future of the ECT and intra-EU ECT disputes.

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