Investor-State Dispute Settlement

(ISDS)

(1) Overview – Institutions and Regimes

Prof. Dr. Peter Malanczuk
13 September 2018

© Peter Malanczuk, 2018 1

 Outline

• Introduction: some factual background

• Types of disputes, arbitral institutions and regimes
• Jurisdiction and admissibility
• Conditions for instituting proceedings
• Procedure
• Applicable law
• Remedies, interests and costs
• Challenge, review and enforcement of decisions

2
The investment regime complex and the
investment treaty regime
BITs & TIPs as of 31 March 2018

http://investmentpolicyhub.unctad.org/IIA

4
 BIT State B
State A
(host state)

nationality

investment contract

Investor foreign
investment

© Peter Malanczuk, 2018

5
UNCTAD Investment Policy Monitor, March
Table 5: Number of Investment
Treaties in Force (As of July 31,2017)
Frequency of investment treaty provisions
Breaches of investment treaty provisions
ISDS cases as of 31 March 2018

http://investmentpolicyhub.unctad.org/ISDS
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International Arbitration Statistics 2012- 2016
https://globalarbitrationnews.com/international-arbitration-statistics-2016-busy-times-for-arbitral-institutions/

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Figure 1 – Number of dispute resolution cases in Hong Kong
HKGov Legislative Council Commission Statistical Highlights No. ISSH17/17-18

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UNCTAD World Investment Report 2018
UNCTAD World Investment Report 2018
UNCTAD World Investment Report 2018
UNCTAD World Investment Report 2018
UNCTAD World Investment Report 2018
http://investmentpolicyhub.unctad.org/ISDS

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 Outline
• Types of disputes, arbitral institutions and regimes
• State-state disputes (diplomatic protection)
• Investor-state disputes
• Limited usefulness of national courts
• Arbitration and conciliation
• ICSID
• ICC
• LCIA
• UNCITRAL Rules
• Iran-United States Claims Tribunal
• PCA
• Asian Centres
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State-state disputes
 Diplomatic protection

Mavrommatis Palestine Concessions case

“It is an elementary principle of international law that a State is
entitled to protect its subjects, when injured by acts contrary to
international law committed by another State, from whom they
have been unable to obtain satisfaction through the ordinary
channels. By taking up the case of one of its subjects and by
resorting to diplomatic action or international judicial proceedings
on his behalf, a State is in reality asserting its own rights—its right
to ensure, in the person of its subjects, respect for the rules of
international law.”
Mavrommatis Palestine Concessions Case, PCIJ, Series A, No 2, 12

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Barcelona Traction case
“The State must be viewed as the sole judge to decide
whether its protection will be granted, to what extent it is
granted, and when it will cease. It retains in this respect a
discretionary power the exercise of which may be
determined by considerations of a political or other nature,
unrelated to the particular case. Since the claim of the
State is not identical with that of the individual or corporate
person whose cause is espoused, the State enjoys
complete freedom of action.’
Barcelona Traction, Light and Power Co, Ltd (Belgium v Spain), Judgment,
5 February 1970, ICJ Reports (1970) 44

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ELSI case

Case Concerning the Elettronica Sicula SpA (ELSI) (US v

Italy), Judgment, 20 July 1989, ICJ Reports (1989) 15.

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ICSID Convention Art. 27
(1) No Contracting State shall give diplomatic protection, or bring
an international claim, in respect of a dispute which one of its
nationals and another Contracting State shall have consented to
submit or shall have submitted to arbitration under this Convention,
unless such other Contracting State shall have failed to abide by
and comply with the award rendered in such dispute.
(2) Diplomatic protection, for the purposes of paragraph (1), shall
not include informal diplomatic exchanges for the sole purpose of
facilitating a settlement of the dispute.

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ICSID Convention Art. 64

Any dispute arising between Contracting States concerning

the interpretation or application of this Convention which is
not settled by negotiation shall be referred to the
International Court of Justice by the application of any party
to such dispute, unless the States concerned agree to
another method of settlement.

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Direct disputes between states

 Lucchetti v Peru, Award on Jurisdiction, 7 February

2005, paras 7, 9.

 Italy v Cuba, Award, 15 January 2008

27
Investor-state disputes

Limited usefulness of national courts

- Host state courts: impartiality & independence

- Home state courts & third country courts
- State immunity
- Act of state doctrine

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Arbitration and conciliation

Advantages of arbitration

Conciliation

 ICSID Convention Articles 28-35

SPP v Egypt, Decision on Jurisdiction II, 14 April

1988

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Arbitration and conciliation

SPP v Egypt
“Nowhere … does the [ICSID] Convention say that consent
to the Centre’s jurisdiction must specify whether the consent
is for purposes of arbitration or conciliation. Once consent
has been given ‘to the jurisdiction of the Centre’, the
Convention and its implementing regulations afford the
means for making the choice between the two methods of
dispute settlement. The Convention leaves that choice to the
party instituting the proceedings.”
SPP v Egypt, Decision on Jurisdiction II, 14 April 1988, para 102

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2. Cases Registered by ICSID
Arbitration institutions and regimes

Ad hoc arbitration

ICSID (Washington Convention)

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https://icsid.worldbank.org/en/Pages/about/default.aspx

33
 Aaron Broches (1914-1997)

Main drafter of

1965 ICSID Convention

and

founding Secretary-
General of ICSID

http://oxia.ouplaw.com/page/icsid-aron-broches

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 ICSID
 International Centre for the Settlement of
Investment Disputes (ICSID) 1965

 “de-politicizing” investment disputes?

 ICSID case-load

 Holiday Inns v Marocco 1972

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2. Cases Registered by ICSID
Map of the ICSID Contracting States and Other Signatories to the
ICSID Convention as of June 30, 2018
Membership: 162 countries (signatory and contracting states)
154 countries (contracting states only)
ICSID Non-contracting signatories

 signed the ICSID convention (date), but have not ratified

• Russia (1992)
• Belize (1986)
• Dominican Republic (2000)
• Ethiopia (1965)
• Guinea-Bissau (1991)
• Kyrgyzstan (1995)
• Namibia (1998)
• Thailand (1985)

38
ICSID non members with large economies

Brazil
India
Mexico (joined only in 2018)
South Africa

39
 ICSID Signatory (only) States (8)
(Convention not yet ratified)

https://icsid.worldbank.org/en/Pages/about/Database-of-Member-States.aspx as of May 2017

 Non-ICSID Signatory States (30)
as of 12 April 2016

Andorra India Monaco

Angola Iran Myanmar
Antigua and Barbuda Kiribati Palau
Bhutan Korea Democratic (North Korea) Poland
Brazil Lao South Africa
Cape Verde Libya Suriname
Cuba Liechtenstein Tajikistan
Djibouti Maldives Tuvalu
Equatorial Guinea Marshall Island Vanuatu
Eritrea Mexico [signed and ratified in 2018] Vietnam
 ICSID Convention Preamble

The Contracting States

Considering the need for international cooperation for economic

development, and the role of private international investment therein;

Bearing in mind the possibility that from time to time disputes may
arise in connection with such investment between Contracting States
and nationals of other Contracting States;

Recognizing that while such disputes would usually be subject to

national legal processes, international methods of settlement may be
appropriate in certain cases;

Attaching particular importance to the availability of facilities for

international conciliation or arbitration to which Contracting States and
nationals of other Contracting States may submit such disputes if they
so desire;

42
Desiring to establish such facilities under the auspices of the
International Bank for Reconstruction and Development;

Recognizing that mutual consent by the parties to submit such

disputes to conciliation or to arbitration through such facilities
constitutes a binding agreement which requires in particular that due
consideration be given to any recommendation of conciliators, and
that any arbitral award be complied with; and

Declaring that no Contracting State shall by the mere fact of its

ratification, acceptance or approval of this Convention and without its
consent be deemed to be under any obligation to submit any
particular dispute to conciliation or arbitration,

Have agreed as follows: …..

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 ICSID model clauses
http://icsidfiles.worldbank.org/icsid/icsid/staticfiles/model-clauses-
en/main-eng.htm

Example:

A. Consent in Respect of Future Disputes

Under the Convention, consent may be given in

advance, with respect to a defined class of future
disputes. Clauses relating to future disputes are a
common feature of investment agreements between
Contracting States and investors who are nationals of
other Contracting States.

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 Clause 1
 The [Government]/[name of constituent subdivision or
agency] of name of Contracting State (hereinafter the "Host
State") and name of investor (hereinafter the "Investor")
hereby consent to submit to the International Centre for
Settlement of Investment Disputes (hereinafter the
"Centre") any6 dispute arising out of or relating to this
agreement for settlement by [conciliation] / [arbitration] /
[conciliation followed, if the dispute remains unresolved
within time limit of the communication of the report of the
Conciliation Commission to the parties, by arbitration]
pursuant to the Convention on the Settlement of
Investment Disputes between States and Nationals of
Other States (hereinafter the "Convention").

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 BIT State B
State A
(host state)

nationality

investment contract

Investor foreign
investment

© Peter Malanczuk, 2018

46
ICSID jurisdiction

 Article 25
 (1) The jurisdiction of the Centre shall extend to
any legal dispute arising directly out of an
investment, between a Contracting State (or any
constituent subdivision or agency of a Contracting
State designated to the Centre by that State) and
a national of another Contracting State, which the
parties to the dispute consent in writing to submit
to the Centre. When the parties have given their
consent, no party may withdraw its consent
unilaterally.
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Self-contained proceedings

No control powers of national courts

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Provisions to deal with non-cooperating
parties

 Article 38
If the Tribunal shall not have been constituted within 90
days after notice of registration of the request has been
dispatched by the Secretary-General in accordance with
paragraph (3) of Article 36, or such other period as the
parties may agree, the Chairman shall, at the request of
either party and after consulting both parties as far as
possible, appoint the arbitrator or arbitrators not yet
appointed. Arbitrators appointed by the Chairman
pursuant to this Article shall not be nationals of the
Contracting State party to the dispute or of the
Contracting State whose national is a party to the dispute
49
Tribunal decides on its own jurisdiction
(Kompetenz-Kompetenz)

 Article 41
 (1) The Tribunal shall be the judge of its own
competence.
 (2) Any objection by a party to the dispute that that
dispute is not within the jurisdiction of the Centre,
or for other reasons is not within the competence
of the Tribunal, shall be considered by the Tribunal
which shall determine whether to deal with it as a
preliminary question or to join it to the merits of the
dispute. 50
Non-cooperation of party does not
prevent award and enforcement

 Article 45
 (1) Failure of a party to appear or to present his case shall
not be deemed an admission of the other party's
assertions.
 (2) If a party fails to appear or to present his case at any
stage of the proceedings the other party may request the
Tribunal to deal with the questions submitted to it and to
render an award. Before rendering an award, the Tribunal
shall notify, and grant a period of grace to, the party failing
to appear or to present its case, unless it is satisfied that
that party does not intend to do so.
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 Narrow grounds for review of award (annulment)

 Article 52
(1) Either party may request annulment of the award by an
application in writing addressed to the Secretary-General on
one or more of the following grounds:
(a) that the Tribunal was not properly constituted;
(b) that the Tribunal has manifestly exceeded its powers;
(c) that there was corruption on the part of a member of
the Tribunal;
(d) that there has been a serious departure from a
fundamental rule of procedure; or
(e) that the award has failed to state the reasons on which it
is based.
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ICSID Conv. Article 53

 (1) The award shall be binding on the parties and

shall not be subject to any appeal or to any other
remedy except those provided for in this
Convention. Each party shall abide by and comply
with the terms of the award except to the extent that
enforcement shall have been stayed pursuant to the
relevant provisions of this Convention.

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ICSID Conv. Article 54

 (1) Each Contracting State shall recognize an award

rendered pursuant to this Convention as binding and
enforce the pecuniary obligations imposed by that
award within its territories as if it were a final
judgment of a court in that State. …

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2. Cases Registered by ICSID
Total ISDS cases as of 31/03/2018
incl. non-ICSID cases, Source: UNCTAD

ICSID Case Load

Statistics (Issue 2018-1):

“As of December 31, 2017,

ICSID had registered 650 cases
under the ICSID Convention
and Additional Facility Rules.”

http://investmentpolicyhub.unctad.org/ISDS
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2. Cases Registered by ICSID
2. Cases Registered by ICSID
3. Non-ICSID Cases Administered by the ICSID
Secretariat
4. Basis of Consent Invoked to Establish ICSID Jurisdiction in Registered ICSID Cases
5. Geographic Distribution of All ICSID Cases, by State Party Involved
6. Distribution of All ICSID Cases by Economic Sector
7. ICSID Arbitration and Conciliation Proceedings – Outcomes
7. ICSID Arbitration and Conciliation Proceedings – Outcomes
7. ICSID Arbitration and Conciliation Proceedings – Outcomes
7. ICSID Arbitration and Conciliation Proceedings – Outcomes
7. ICSID Arbitration and Conciliation Proceedings –
Outcomes
7. ICSID Arbitration and Conciliation Proceedings –
Outcomes
 1978 ICSID Additional Facility

 Only one side

either a party to ICSID convention
or a national of a party to the ICSID Convention

 Additional categories:
Cases that do not directly arise from an investment
Fact-finding

 NAFTA cases

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• The Additional Facility Rules, Art 2 provides:

• ‘The Secretariat of the Centre is hereby authorized to administer,

subject to and in accordance with these Rules, proceedings between a
State (or a constituent subdivision or agency of a State) and a national
of another State, falling within the following categories:
• (a) conciliation and arbitration proceedings for the settlement of
legal disputes arising directly out of an investment which are not
within the jurisdiction of the Centre because either the State party
to the dispute or the State whose national is a party to the dispute
is not a Contracting State;
• (b) conciliation and arbitration proceedings for the settlement of
legal disputes which are not within the jurisdiction of the Centre
because they do not arise directly out of an investment, provided
that either the State party to the dispute or the State whose national
is a party to the dispute is a Contracting State; and
• (c) fact-finding proceedings.’

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 1978 ICSID Additional Facility

 Arbitration not under ICSID Convention, but ICSID

Additional Facility Rules

 ICSID Convention rules on recognition and

enforcement of awards not applicable

 1958 New York Convention applies

 Additional Facility awards also subject to setting

aside by national courts
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2. Cases Registered by ICSID
Special Features of ICSID
 Non-ICSID investment arbitration

 ICSID main forum, but not all states are party

 Investor usually given choice between ICSID an
other venues
eg ICC, LCIA, SCC, FfM, Vienna, Cairo, KL, HK, SIAC,
CIETAC

Most common:
1976 UNCITRAL Rules (rev. 2010; rev. again in 2013
to incorporate the UNCITRAL Rules on Transparency
in Treaty-based Investor-State Arbitration)
2012 ICC Arbitration Rules (rev. 2017)
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 Procedural law of non-ICSID investment
arbitration

 Tendency to replace role of domestic arbitration

law with rules for international proceedings, and

 Design of special procedures for international

investment arbitration, sometimes using
UNCITRAL Rules (eg SCIA)

See also HKIAC and SIAC investment arbitration rules

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ICC – Int. Chamber of Commerce
 Most important int. arbitral institution established in
1923 in Paris
Current rules date from 1 March 2017
 “International Court of Arbitration”
= administrative body, not really a court.
representatives from different countries
No judgments, only technical assistance
Appoints arbitrators, unless parties agree otherwise
Checks formalities of the award
 “Terms of Reference”
Drawn up by arbitrators: short characterization of case,
claims, and issues
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 ICC: case statistics for 2017 (1)
 A total of 810 new cases were filed in 2017
 Compared to 966 cases filed in 2016, which included 135
cases related to a set of very small claims in a collective
dispute.
 2,316 parties from a record 142 countries,
 compared with 137 countries in 2016.

 Aggregate value in dispute for new cases =

over US$ 30.85 billion
 Average amount in dispute in new cases stood at US$45M
with over 60% of all cases filed having an amount in
dispute exceeding US$2 million

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 ICC: case statistics for 2017 (2)
Number of States and State entities as parties new
cases in 2017: 15%
Compared to 11% in 2016

Four cases were filed on the basis of a Bilateral

Investment Treaty (BIT)

So far the ICC Court has administered 39 cases

based on BITs

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 ICC 2012
Top 10 cities selected for arbitration

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LCIA – London Court of Int. Arbitration

 Established 1986, succeeded 1892 London

Chamber of Arbitration
 Commercial disputes, including investor-state
disputes regardless of nationality of parties
 “Arbitration Court”: professionals from all major
trading nations

 LCIA Rules revised in 2014

 LCIA can also apply UNCITRAL Rules
and act as appointing authority
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1976 UNCITRAL Rules (rev. 2010 & 2013)

 Modern, globally accepted set of international

arbitration rules

 Only rules, no administration

 Parties need to provide administrative framework

 Ad hoc tribunal can be established anywhere

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1976 UNCITRAL Rules (rev. 2010 & 2013)
 Alternatively, UNCITRAL Rules can be used by
existing arbitral institutions (ICSID or LCIA)

 Tested in modified form in many cases by Iran-

United States Claims Tribunal from 1981 onwards

 1985 UNCITRAL Model Law on International

Commercial Arbitration (rev. 2006)

 UNCITRAL Notes on Organizing Arbitral

Proceedings (1996, updated in 2016)
83
1976 UNCITRAL Rules (rev. 2010 & 2013)

 2013 UNCITRAL Rules on Transparency in

Treaty-based Investor-State Arbitration (effective 1
April 2014)

 UN Convention on Transparency in Treaty-based

Investor-State Arbitration (New York, 2014) (the
"Mauritius Convention on Transparency")

 UNCITRAL Secretariat Guide on the Convention

on the Recognition and Enforcement of Foreign
Arbitral Awards (2016) 84
Iran-United States Claims Tribunal

 Set up in The Hague 1981 as part of the resolution

of the Tehran Hostages Crisis after the Islamic
Revolution in Iran 1979

 Algiers Declaration: Settlement of claims of both

US and Iranian nationals and companies, as well
as government-government claims arsing from the
Islamic Revolution

 ca 3,800 claims
85
Iran-United States Claims Tribunal

 Applicable law clause:

“such choice of law rules and principles of commercial
and international law as the Tribunal determines to be
applicable, taking into account relevant usages of trade,
contract provisions and changed circumstances.”
 Tribunal of 9 arbitrators operates through 3
chambers
 Frequently cited jurisprudence on general issues
of international law relating to foreign investment:
expropriation, state responsibility, nationality,
arbitral procedure
86
Permanent Court of Arbitration (PCA)

 1899 Hague Peace Conference

 Not really a court, only administers arbitrations,
conciliation and fact-finding
 Parties can be states, int. organizations and
private parties
 PCA International Bureau:
Offers secretarial services
Keeps list of arbitrators for selection by parties
 Wide range of dispute settlement areas includes
investment arbitration
87
Permanent Court of Arbitration (PCA)

 Current PCA Arbitration Rules are from 2012

 Optional Rules for Arbitrating Disputes
between Two States
between Two Parties of Which Only One Is a State
Involving International Organizations and States
between International Organizations and Private Parties
Relating to Natural Resources and the Environment
Relating to Outer Space Activities

88
Permanent Court of Arbitration (PCA)
 Role of PCA Secretary-General as appointing
authority in UNCITRAL arbitrations
 PCA hosted, eg
Eritrea-Ethiopia Claims Commission (established after
the war 1998-2000)
Saluka v Czech Republic (2006)
Frontier Petroleum v Czech Republic (2010)

 “The PCA is currently acting as registry in 4 inter-state

proceedings, 84 investor-state arbitrations, and 46 cases
under contracts involving a state or other public entity.”
https://pca-cpa.org/en/cases/ (visited 09/04/2018)

89
White & Case / School of International Arbitration, Queen Mary University of London,
2018 International Arbitration Survey: The Evolution of International Arbitration 90
91
Lindsay, E. & B. Andemariam (2016). Int. Invest. Arb. in Asia: 2015, Bryan Cave.
 Table - China ISDS cases (as of June 2017)
Case Home state Type Venue Filed Status

Tza Yap Shum v Peru China (HK) Seizure of bank account ICSID 2007 Award for investor in 2011.
Annulment request
dismissed in 2015)
China Heilongjiang v. Mongolia China Railway project / PCA 2010 Pending
expropriation

Ekran v. China Malaysia Leased land in Hainan / ICSID 2011 Settled in 2013
expropriation

Ping An v. Belgium China Expropriation ICSID 2012 Claim dismissed in 2015

(Euro 1 bn)

Ansung Housing Co v. China South Korea Golf and country club in ICSID 2014 Claim dismissed in March
Jiangsu / expropriation 2017 (3y limitation period)

Beijing Urban Construction China Construction airport ICSID 2014 Pending

Group Co. Ltd. v Yemen terminal / deprivation of
assets/contract
Helga Schwarz v China Germany unknown ICSID 2017 Pending
Not listed: Cases brought under HK and Macao BITs, e.g. against Australia and Laos
 Table – China BITs with OBOR countries (Quantity)

BITs signed,
BITs signed with No BITs with but not in force BITs terminated

55 of 64 OBOR 9 OBOR partners: 3 OBOR partners: 1 OBOR partner:

partners

Timor-Leste Brunei (2000 BIT) Indonesia (1994 BIT)

Bhutan Jordan (2001 BIT)
Maldives Turkey (2015 BIT)
Nepal
Afghanistan
Iraq
Palestine
Croatia
Montenegro
 Table – China BITs with OBOR countries (Quality)
Type of BIT
Older models of BITs signed
before end of 1990s:
Limited substantive scope of
investor protection and
limited access to international
arbitration
Modern BIT generation after
2000:
Move towards int. standards
of investor protection
Significance Examples of China BITs
Most of the existing BITs Malaysia BIT (in force since 1990):
with OBOR partners access of investor to ICSID unclear
Exceptions among existing India (2006)
BITs Pakistan (now FTA with ISDS)
Uzbekistan (2011)
Jordan (not yet in force)
Czech Republic (2006)
Latvia (2004)
Russia (2009)
 Investor-state disputes under SCIA Rules (2016)

 SCIA may now hear investor-state disputes and administer

arbitrations under UNCITRAL rules in mainland China

 SCIA first arbitration institution in China to introduce this (in force 1

Dec. 2016)

 Investor-state disputes are administered by SCIA under UNCITRAL

Arbitration Rules and the SCIA Guidelines (Art. 3)

 Important for increasing Chinese outward investment under China’s

“Go-Global Policy” and “One Belt, One Road” initiative

 Also accepts UNCITRAL rules for int. commercial disputes

96
 Seat of arbitration under SCIA Rules (2016)

 Generally, seat of arbitration determines

 Procedural law governing the arbitration and
 Nationality of the award for enforcement

 SCIA Arbitration Rules (2016):

 Commercial arbitration:
 If no agreement by parties, seat of arbitration is domicile of SCIA
(Qianhai) [except UNCITRAL Rules = default is HK]
 But SCIA may also decide on another place, depending on
circumstances
 Investor-state arbitration:
 If no agreement on seat, and tribunal does not decide otherwise,
default seat of arbitration is Hong Kong

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 Other Asian centres competing for BRI Cases

 SIAC new investment arbitration rules 2017

 HKIAC

 CIETAC first set of investment arbitration rules in force 1

October 2017

 AIAC (former KLRCA)

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 International Commercial Court in China (CICC)
established for BRI disputes in July 2018

 2 Courts as part of Supreme People’s Court in Shenzhen

and Xian

 International Commercial Experts Committee

 ISDS cases excluded from jurisdiction

 See http://cicc.court.gov.cn/html/1/219/193/195/index.html

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