NAFTA tribunal considers issues of res judicata and the customary international law minimum standard of treatment

In Apotex Holdings Inc. and Apotex Inc. v United States of America, (ICSID Case No. ARB(AF)/12/1), a NAFTA chapter eleven tribunal considered issues of res judicata and the customary international law minimum standard of treatment.

In a case notable for its discussion of res judicata and the customary international law minimum standard of treatment, a NAFTA Chapter Eleven tribunal has allowed jurisdictional objections over a significant part of the alleged claims. With respect to the claimants’ remaining claims, the tribunal concluded, on the merits, that the US had not breached any of its commitments under international law.

The tribunal analysed international jurisprudence on res judicata in detail, applying a flexible approach to the question of when claims will be precluded by a prior decision. Following previous NAFTA awards, the award explored the complex relationship between the customary international law minimum standard and the guarantee of fair and equitable treatment and full protection and security contained in NAFTA Article 1105(1).

It did so in the context of the claimants’ novel claims about the status of due process among the protections required by the customary international law minimum standard of treatment. However, the tribunal left for a future tribunal to decide whether NAFTA’s guarantee of most-favoured-nation (MFN) treatment can be used to expand the substantive protections under Article 1105 – a critical topic, in the light of all NAFTA states’ unanimous opposition to that interpretation. (Apotex Holdings Inc. and Apotex Inc. v United States of America, (ICSID Case No. ARB(AF)/12/1).)

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Europe consults on investment protection and ISDS in the TTIP

The European Commission has launched a public consultation on its proposed approach to investment protection and investor-state dispute settlement (ISDS) provisions in the Transatlantic Trade and Investment Partnership (the TTIP).  The TTIP is a free trade agreement currently in negotiation between the United States and the European Union. Negotiations for the TTIP began in July 2013.

The Commission has described its approach as containing “a series of innovative elements that the EU proposes using as the basis for the TTIP negotiations” and stated that the key issue on which it is consulting is “whether the EU’s proposed approach for TTIP achieves the right balance between protecting investors and safeguarding the EU’s right and ability to regulate in the public interest”.

Whilst the EU is not consulting on a draft text of the TTIP, it has included as a reference text the investment protection and ISDS provisions in the Comprehensive Economic and Trade Agreement (the CETA), between the EU and Canada.

Whilst we are currently a long way from a signed agreement including investment protection and ISDS provisions, stakeholders may nonetheless want to take this opportunity to consider the ways in which the EU’s approach and the negotiations could impact upon them.  The European Commission’s Consultation can be found here and closes on 6 July 2014.

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Consistently inconsistent: another contrasting decision on ‘Most Favoured Nation’ provisions, another split decision

In Daimler Financial Services AG v Argentine Republic, an ICSID tribunal considered whether Daimler, a German investor, could rely on the ‘most favoured nation’ (MFN) clause in the Argentina-Germany bilateral investment treaty (BIT) to import a more favourable dispute resolution provision from the Argentina-Chile BIT.

It held that it did not have jurisdiction to hear Daimler’s claim, on the basis that it had failed to first submit the dispute to the Argentine courts for 18 months, as required by the Argentina-Germany BIT.  That provision acts as a limit on Argentina’s consent to arbitration and must be strictly complied with before the investor’s right to proceed to international arbitration arises.

The tribunal also held that the MFN clause did not extend to dispute resolution provisions.  Therefore it did not enable investors to take advantage of arbitration clauses from Argentina’s other BITs.  However, in a strongly worded dissenting opinion, Judge Charles Brower described the majority stance as “unconvincing” and “profoundly wrong“.   In addition, one of the members of the majority, Professor Domingo Bello Janeiro, took a contrasting position on the issue of MFN application in this award compared to the position he took in an award in 2004 and he therefore provided a separate opinion in order to explain his “change of heart”.

This decision adds further jurisprudence – and even more contrasting dicta – to an area of international law that remains unsettled.  Investors should bear this issue in mind and carefully consider the requirements of the dispute resolution provisions in any BIT upon which they may seek to rely, rather than assuming that an MFN provision will assist them to circumvent such provisions.

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Bilateral Investment Agreement signed between Iraq and Japan on 7th June 2012

A bilateral investment agreement or treaty (BIT) between Japan and Iraq was signed on 7th June 2012. This is the first BIT between Iraq and a major economy and is a significant and credible commitment by Iraq to the rights of foreign investors falling within the BIT’s protections.  The BIT will enter into force 30 days after diplomatic notes are exchanged between the two governments confirming necessary national legal steps have taken place.

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Third time lucky for Argentina as tribunal rules MFN clause does not extend to dispute resolution

In ICS Inspection and Control Services Limited (United Kingdom) v The Argentine Republic (PCA Case No. 2010-9), a tribunal at the Permanent Court of Arbitration in The Hague has held that a requirement in the Argentina-UK BIT to first submit disputes to the Argentine courts for 18 months acts as a strict limit on Argentina’s consent to arbitration and must be complied with before the investor’s right to proceed to international arbitration arises.  Accordingly, the tribunal concluded that it did not have jurisdiction to hear a claim brought by a UK investor on the basis that the UK investor had failed to first submit the dispute to the Argentine courts.

Moreover, the tribunal held that the “most favoured nation” clause in the UK-Argentina BIT did not extend to dispute resolution, so as to enable investors to “import” arbitration clauses from Argentina’s other BITs.  Interestingly, the rejection of the MFN argument in this case runs contrary to two recent awards against Argentina considering the same issue.

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India liable under BIT for extensive judicial delays

An UNCITRAL tribunal in Singapore has held that the Republic of India breached its obligation under the India-Kuwait bilateral investment treaty (BIT) to provide investors with an “effective means of asserting claims and enforcing rights” through undue delay in the Indian court system.  White Industries Australia Limited (White) had spent nine years attempting to enforce an ICC Award in India, but was subjected to prolonged delays.  It therefore brought a claim under the Australian–Indian BIT but successfully relied on the BIT’s “most-favoured nation” clause to take advantage of the more favourable investor protections in the India-Kuwait BIT.

The UNCITRAL award adds to the developing jurisprudence suggesting that an arbitral award may be treated as a continuation of an investment and, as such, may be subject to such protections afforded to investments by a BIT.  The jurisdictional aspect of this case is also particularly topical given the consolidated appeal in Bhatia International v. Bulk Trading that began in the Supreme Court of India on 10 January 2012, which is considered likely to limit the ability of Indian courts to intervene in arbitrations seated outside India.

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