Second Circuit Upends Enforcement of ICSID Awards in New York, Eliminates Circuit Split

In a ruling handed down on July 11, 2017, the United States Court of Appeals for the Second Circuit resolved a circuit split that had sown legal uncertainty on the correct procedure for the enforcement in the United States of awards rendered under the auspices of the International Centre for Settlement of Investment Disputes (ICSID).

In Mobil Cerro Negro Ltd et al v. Bolivarian Republic of Venezuela (2d Cir. 2017), a unanimous three-judge panel held that an ExxonMobil Corporation subsidiary could only enforce its USD 188 million ICSID award against Venezuela through the procedures set forth in the Foreign Sovereign Immunities Act (FSIA), and not—as the court below had held—through summary ex parte proceedings.  The decision will likely have an impact on the reputation of the Southern District of New York's (SDNY) as a convenient enforcement forum for ICSID award creditors.

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ICSID announces sixteen topics for consideration in its review of the ICSID Arbitration Rules

Following invitations to ICSID member States and the public to submit topics for potential review, ICSID has published a paper on the Rules Amendment Process. The paper lists sixteen topics which are to be canvassed in the next stage of the review. The topics include areas of arbitral practice which have been subject to much broader discussion – such as the disclosure of third party funding (a point picked up in the SIAC Investment Arbitration Rules which took effect earlier this year), and the possible introduction of a code of conduct for arbitrators. Also included for review are aspects of the procedure, such as consolidation, the annulment mechanism, the preliminary objections process and the possible publication of decisions and orders. Further, ICSID will consider security for costs and allocation of costs.

Each of the sixteen topics will be addressed by ICSID in background papers to be published in early 2018.  The goal of the amendments is to (i) incorporate lessons learnt from case law; (ii) to make the process increasingly time and cost effective whilst maintaining due process and a balance between investors and States, and (iii) make the procedure less paper-intensive.

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Herbert Smith Freehills’ Response to EU Consultation: the Future of Investor-State Dispute Settlement

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.

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Recent Supreme Court Nominee Quiet Defender of Arbitration in the United States

On 31 January 2017, U.S. President Donald Trump formally nominated Judge Neil Gorsuch – who currently sits on the U.S. Court of Appeals for the Tenth Circuit – to fill the U.S. Supreme Court seat left vacant after the death of Justice Antonin Scalia.  Speaking shortly after his nomination was announced, Judge Gorsuch promised to fulfill his potential role with "impartiality and independence, collegiality and courage."

While his limited record on arbitration makes it difficult to gauge his potential impact on the Supreme Court, Judge Gorsuch's tenure on the Tenth Circuit offers some hints on how he would contribute to the Supreme Court's evolving arbitration case law. 

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SIAC Investment Arbitration Rules

The Singapore International Arbitration Centre (SIAC) has announced the release of its Investment Arbitration Rules (the Rules), which came into force on 1 January 2017.  This release follows the earlier public consultation in February 2016, when practitioners were invited by SIAC to review and comment on the draft of the Rules.

The Rules are the first of a kind. While private arbitral institutions often administer both commercial and investment arbitration, such as the ICC or the Stockholm Chamber of Commerce, SIAC is the first private institution to introduce a specific set of arbitration rules for investment arbitrations.  In creating a dedicated set of rules, SIAC has adopted innovative approaches to address some of the key procedural issues commonly encountered in investment arbitration.  

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EU launches consultation on multilateral reform of the investor-state dispute resolution system

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. 

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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.

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