HIGH COURT CLARIFIES RULES SURROUNDING REGISTRATION OF ICSID AWARDS IN ENGLAND AND WALES

In a helpful clarification of the rules surrounding the registration of International Centre for Settlement of Investment Disputes (“ICSID”) awards in England and Wales, the English High Court has ruled in Union Fenosa Gas SA v Egypt [2020] EWHC 1723 (Comm) here, that service of a claim form on a state is not required under CPR 62.21. The court also confirmed that an application to register an ICSID award can be made through a without notice application.

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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.

Background

UNCITRAL has been considering the possible reform of investor-state dispute settlement (“ISDS“) through the work of WGIII, which has been given a broad mandate to identify concerns regarding ISDS procedure, and develop relevant solutions to be recommended to the main UNCITRAL body. While WGIII enjoys broad discretion in discharging its mandate, any solutions devised will take into account the ongoing work of relevant international organisations, and each State may decide the extent to which it chooses to adopt the proposed solutions. For further information about WGIII’s previous work on ISDS reform, please see our previous PIL Notes blog posts here, here and here.

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ICSID releases updated rules proposal and compendium of State and public comments

On 15 March 2019, following public consultations with states and stakeholders, ICSID released its second draft working paper of its proposed amendments to its body of rules.  In the “most comprehensive” exercise at amending its rules in ICSID’s history (the last one being over 13 years ago) the proposed amendments cover – amongst others – provisions on transparency, third-party funding, arbitrator challenges, expedited proceedings and provisional measures, with the overall aim of reducing time and costs, and to address certain criticisms of the system of investor state dispute settlement (“ISDS”). On 28 June 2019, ICSID released a second compendium of comments from States and the public on proposed amendments to its procedural rules.  The compendium consolidates feedback received from 21 States, organisations and individuals on the second working paper.

We previously covered the topics which ICSID would consider in its review of its rules.  In this post, we will consider some of the main proposed changes to ICSID’s body of rules, with our focus mainly on its arbitration rules and also consider the comments made by States in response to those proposals.

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North American trade and investment developments: No new NAFTA (for now), and Mexico signs the ICSID Convention

One month into 2018, the future of NAFTA continues to hang in the balance. The negotiating parties will reportedly convene in Ottawa for the sixth of seven planned negotiating sessions from January 23 – 29th.[1] The parties initially hoped to conclude the negotiations before the end of 2017, but US President Donald Trump indicated on January 11, 2018 that there was “no rush” in the negotiations.[2] In the same interview, Mr. Trump said that it may be difficult to reach an agreement before the July 1, 2018 federal election in Mexico, suggesting that the negotiations may continue for months. The parties’ agreement to keep the negotiations confidential[3] means that few concrete details about the negotiating texts and parties’ proposals have been made public.

For more analysis of the NAFTA renegotiations, see our previous updates:

August 7, 2017 – NAFTA renegotiation: ISDS reform objectives

August 16, 2017 – What to watch for as NAFTA (re)negotiators get to work

August 24, 2017 – A warning shot for Investor-State Dispute Settlement under NAFTA 2.0?

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ICSID tribunal rules that it is neither necessary nor urgent to grant security for costs from a claimant with the benefit of third-party funding

An ICSID tribunal has rejected a State's application for security for costs in circumstances in which the other party had third-party funding in the form of ATE insurance which specifically provided for cover of the State's costs.

Italy's request for security for costs

The application formed part of arbitral proceedings brought by Eskosol S.p.A. in liquidazione ("Eskosol") under the Energy Charter Treaty and the ICSID Convention against the Italian Republic ("Italy"). Italy sought security for costs in support of its ICSID Arbitration Rule 41(5) application for summary dismissal of Eskosol's claims on the basis that they are manifestly without legal merit. 

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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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Live webcast of hearing on jurisdiction and the merits: United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic of Estonia (ICSID Case No. ARB/14/24)

A hearing on jurisdiction and the merits in ICSID Case No. ARB/14/24, United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v Republic of Estonia, will be transmitted live via internet feed from Monday, November 7, 2016 to Tuesday, November 15, 2016 (from 9:00 a.m. to approximately 5:00 p.m. CET (Central European Time) on November 10, 2016 and from 10:00 a.m. to approximately 6:00 p.m. CET on all other days).

This webcast is being made available pursuant to the parties’ agreement. To access the webcast, please click here.

Herbert Smith Freehills is co-counsel for the Claimants. 

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The ICSID Convention enters into force in Iraq

The ICSID Convention entered into force in Iraq on 17 December 2015.  This comes after Iraq signed the ICSID Convention and deposited its instrument of ratification on 17 November 2015 to become the Convention's 160th signatory State.

In a climate of on-going challenges facing investments into Iraq, this is a significant step forward in the legal context by the Iraqi Federal Government which has been seeking to attract foreign investment to help stabilise, rebuild and diversify the country's economy. Despite the country's significant security challenges in addition to the financial impact of declining world oil prices, Iraq remains an important market for international investment given that it has the world’s fifth largest proven oil reserves and needs reconstruction and infrastructure development on a massive scale.

The immediate impact of this step on the investment climate in Iraq is likely to be relatively limited given the small number of bilateral and multilateral investment treaties to which Iraq is party to and that are currently in force. However, this may signal a shift of approach and appetite as to how quickly Iraq wants to improve its legal framework for investment protection. This step is expected to be followed by the further ratification of bilateral and multilateral investment treaties and international conventions.

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ICSID issues Practice Notes for Respondents in ICSID Arbitration aimed at helping states avoid investment disputes and demystifying ICSID procedure

ICSID has published Practice Notes for Respondents in ICSID Arbitration (the "Notes"), a 31 page practical guidance note on ICSID arbitration brought under the ICSID Convention or the ICSID Additional Facility Rules. The Notes aim to answer the questions most frequently asked of ICSID by respondent states and investors. In particular, they are intended to assist "novice" states who have never participated in an investment claim before, although their content will be of interest to prospective investor claimants too. The Notes are available in English, French and Spanish.

The Notes begin by considering conflict prevention mechanisms to help states avoid the prospect of an Investment Treaty claim. This section considers points such as:

  • the importance of careful drafting in investment treaties to ensure the scope of their protections are clear; and
  • preventing disputes arising by developing an awareness of investment obligations within government.

The next section of the Notes moves to consider the pre-arbitration phase of an investment dispute. It looks at how notice of a dispute is given by an investor and how states should respond to such notice. It stresses that states "should pro-actively assess the cost-benefit of settlement as soon as they receive notice of a dispute", whether informally through discussions or through formal negotiation, mediation or early neutral evaluation. The section also considers how a state can best prepare once it has become aware of a possible dispute, including developing a case and media strategy, choosing legal counsel and budgeting for legal costs.

The main portion of the Notes aims to demystify the procedural steps in an ICSID arbitration, setting out the typical sequence of the arbitration from the Request of Arbitration through to the Post Award phase. The analysis focuses on aspects of procedure which may be important to a Respondent while arbitral proceedings are ongoing, suggesting factors that may guide the state's position and providing an occasional warning of consequences (e.g. that non-participation will not prevent the formation of a Tribunal). The Notes also offer guidance on the typical split of costs between legal counsel, Tribunal and ICSID fees.

For all sections there is a list of further reading for those interested in more detail.

Comment

This is a useful publication pitched at true ICSID novices, offering both practical and tactical advice for states in how to avoid disputes and prepare effectively when disputes do arise. It also seeks to guide those states through the ICSID process. While relatively high-level, the Notes, together with the additional reading guide in each section, offer a strong foundation for those states with limited awareness of investment arbitration to educate their officials and approach future claims from a firmer foundation of knowledge. In particular, the Notes have the potential to help states to avoid taking steps that may, in the long term, harm their position. Those with practical experience of ICSID arbitration will likely be aware of the majority of what is contained in the Notes, but they may also find one or two helpful reminders or suggestions of matters to think about.

Iain Maxwell
Iain Maxwell
Of Counsel
+44 20 7466 2646
Maximilian Szymanski
Maximilian Szymanski
Associate
+44 20 7466 2596

ICSID tribunal declines jurisdiction on basis of lack of evidence of necessary “control” under BIT and requires claimant to pay 80% of costs of the state

In the ICSID decision of Guardian Fiduciary Trust Ltd f/k/a Capital Conservator Savings & Loan Ltd v Former Yugoslav Republic of Macedonia (ICSID Case No. ARB/12/31) issued on 22 September 2015, the Tribunal declined jurisdiction on the basis that the Claimant failed to establish that it qualified as a national of the Netherlands for the purposes of the Netherlands – Macedonia BIT (the BIT).

The BIT provides a wide definition of "national" which extends to "legal persons….controlled, directly or indirectly…." by a national of a contracting party. The Claimant, Guardian Fiduciary Trust Limited (Guardian), a company incorporated in New Zealand, brought the claim under the BIT, arguing that it qualified as a national of the Netherlands as it was ultimately controlled by a Dutch foundation which had a registered office in the Netherlands. Having determined that the issue of control was ultimately a matter of evidence, and not something to be determined solely on the basis of an analysis of New Zealand law, the Tribunal concluded that the Claimant had failed to provide that necessary evidence. It further concluded that the limited evidence before it suggested that the Claimant was in fact indirectly controlled by another entity of a different jurisdiction.

In issuing the decision, the Tribunal considered it appropriate, in the circumstances, to award the State Respondent, the Former Yugoslav Republic of Macedonia (Macedonia), 80% of its costs.

This decision does not so much highlight the complexities of establishing control in a complex ownership structure, as it does the importance of properly establishing and evidencing the basis for a Claimant's assertion of a Tribunal's jurisdiction over the claim. Failure to do so may, as in this instance, leave a Claimant footing the bill for the State Respondent's costs.

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