You are on page 1of 52

International

arbitration report
Issue 8 | June 2017

Inside this issue


Developments and reform of ISDS
Frequently asked questions about
ISDS
The EU’s proposed reform of ISDS
Precedent in investment treaty
arbitrations
US international trade policy under
the new Trump administration
Landmark Singapore judgment
on Chinese bilateral investment
treaties
Trends in ISDS
Requests for reconsideration
in ICSID and UNCITRAL
arbitrations
Interest in investor-state mediation
is growing
Brexit and ISDS
South Africa to overhaul its
international arbitration regime
Russia’s new guidelines on future
bilateral investment treaties
An overview of new rules of
international arbitration
International arbitration
developments in the Middle East
Key English law developments
for international arbitration
Drafting arbitration agreements:
the pitfalls of compromise
State immunity and international
arbitration
Norton Rose Fulbright

Norton Rose Fulbright is a global law firm. e provide the world s preeminent corporations
and financial institutions with a full business law service. e have more than lawyers
and other legal sta based in more than cities across urope, the nited States, anada,
Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Norton Rose Fulbright will combine with Chadbourne & Parke, a leading international law
firm, during the second quarter of . Norton Rose Fulbright s e panded practice will have
more than 1000 lawyers in the US and 4000 lawyers worldwide.

Recogni ed for our industry focus, we are strong across all the key industry sectors financial
institutions; energy; infrastructure, mining and commodities; transport; technology and
innovation; and life sciences and healthcare.

herever we are, we operate in accordance with our global business principles of quality,
unity and integrity. e aim to provide the highest possible standard of legal service in each of
our offices and to maintain that level of quality at every point of contact.

Norton Rose Fulbright Verein, a Swiss verein, helps coordinate the activities of Norton Rose Fulbright members but does not itself provide legal services to clients. Norton Rose Fulbright has offices in
more than 50 cities worldwide, including London, Houston, Toronto, Sydney and Johannesburg. For more information, see nortonrosefulbright.com/legal-notices.
The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright
entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual
contact at Norton Rose Fulbright.

International arbitration report


Published by Norton Rose Fulbright – Issue June 2017
issue 8 – May 2017

Editors-in-chief – Mark Baker, US; Pierre Bienvenu Ad. E., Canada


Editor – James Rogers, London
Assistant editor
editors––Cara
CaraDowling,
Dowling,London
London and Tim Robbins, Singapore

© Norton Rose Fulbright LLP BDD4306 EMEA 06/17 Extracts may be copied provided their source is acknowledged.
Editorial

Editorial Contents
Welcome to issue 8 of Norton Rose Fulbright’s International 02 Developments and reform of ISDS
arbitration report. Q&A with Meg Kinnear, Secretary General, ICSID
05 Frequently asked questions about ISDS
In this issue, we feature a number of articles on investor-state 08 The EU’s proposed reform of ISDS
dispute settlement IS S . awyers from across our global firm Investment court systems the future or a fiasco
review various developments in this area, including requests for 10 Precedent in investment treaty arbitrations
reconsideration in ICSID and UNCITRAL arbitration, whether
13 US international trade policy under the new Trump
the doctrine of precedent could or should apply in investment administration
arbitration and the trends in investor-state disputes that can be 15 Landmark Singapore judgment on Chinese bilateral
identified from recent I SI statistics. e also have the pleasure investment treaties
of interviewing Meg Kinnear, Secretary-General of ICSID, to get Sanum Investments Limited v Laos
her thoughts on key developments in ICSID arbitration during
18 Trends in investor-state dispute settlement
her term, challenges facing ISDS and how we might see it evolve
ICSID case statistics 2016
over the next 50 years.
20 Requests for reconsideration in ICSID and UNCITRAL
arbitrations
In addition, we look at frequently asked questions about ISDS Is your international arbitration award really final
(including common criticisms of ISDS) and discuss alternatives and binding
to ISDS such as the EU’s proposed investment court system and
22 Interest in investor-state mediation is growing
investor-state mediation. Is mediation a viable investor-state dispute settlement
mechanism
We give an update on US international trade policy under the
24 Brexit and investor-state dispute settlement
new Trump administration, review recent reforms to South
hat impact will re it have on foreign direct investment
Africa’s commercial arbitration and investment arbitration
regimes, consider whether re it might a ect the s 28 South Africa to overhaul its international arbitration regime
ill new legislation facilitate foreign direct investment
investment regime, and also look at the new Russian guidelines
for bilateral investment treaties and changes to the dispute 30 Russia’s new guidelines on future bilateral investment
settlement mechanisms. treaties
Foreign direct investment after Yukos Shareholders v Russia
e o er a round up of new arbitral rules and discuss recent 32 An overview of new rules of international arbitration
developments in both the Middle East and England. Plus New Year, New Rules
we o er a brief comparative guide to state immunity in key 35 International arbitration developments in the Middle East
common law jurisdictions. 38 Key English law developments for international arbitration
2016 in review
Our case law updates analyze a landmark Singapore Court of 41 Drafting arbitration agreements: the pitfalls of compromise
Appeal decision on investment arbitration, key recent English A Chinese case study
arbitration law developments and o er a hinese case study of
43 State immunity and international arbitration
how compromise arbitration agreements might increase risks
A comparative analysis of key common law jurisdictions
for parties.

About the cover


Our front cover for this issue features the
Martin Luther King Jr. Memorial located
in West Potomac Park in Washington,
Mark Baker and Pierre Bienvenu Ad. E. DC. Washington, DC is the home of the
Co-heads, International arbitration International Centre for Settlement of
Norton Rose Fulbright Investment Disputes.
International arbitration report 2017 – Issue 8

Developments and reform of


investor-state dispute settlement
Q&A with Meg Kinnear, Secretary General, ICSID

Written by Mark Baker and Cara Dowling

We speak with Meg Kinnear, Secretary-General of the International Centre for


Settlement of Investment Disputes (ICSID) about the evolution of her role with ICSID
as well as investor-state dispute settlement (ISDS) itself; the changes she has seen
over the last eight years and challenges during her new term. We also discuss common
misconceptions about ISDS and how the arbitration community should be responding
to criticisms of ISDS.
How has your role changed during indeed, we have doubled our sta from is now trilingual, the statistics report, a
your eight years as Secretary- people in to sta today. revamped ICSID Review, and a quarterly
General of ICSID? e accompanied this increase in sta newsletter. Another example is the
I was fortunate to be the first stand alone with internal training and development “ICSID 101” training program that we
Secretary-General of the International of best practices for every step in an have now given across the world. Today
Centre for Settlement of Investment ICSID case. We also adopted automated I often hear back from arbitrators and
Disputes (ICSID), and so I had a lot of internal case tracking, financial and counsel who see the positive impact of
scope to define how to fulfil my role. case management systems, and have all these steps and are really impressed
y first months were spent learning upgraded the technology and rooms with the quality and variety of services
how things were done within the ICSID used for cases. These continue to have an ICSID can provide and the top calibre of
Secretariat and talking to internal enormous e ect on our practice. our sta . hat has been very rewarding
and external stakeholders to get their to see that our e orts are noticed and
views on what our priorities ought The next step was to ensure stakeholders have a positive e ect on the cases.
to be. The next step was to ensure knew the changes that had been made
the Centre was properly organized, and understood what ICSID could do.
resourced and sta ed to deliver the For example, many counsel did not We are participating in
best service possible. This included realize that we administer UNCITRAL the discussion led by the
a lot of work that likely was not cases as well as ICSID Convention and
EU and Canada about the
visible from outside the Centre but ICSID Additional Facility cases, or
which has had an immense impact that we host hearings for cases under potential for a multilateral
on our operation. e did a significant non-investment rules and between standing court on
amount of staffing, adding e pert states under trade treaties such as the investment
lawyers, paralegals, administrative Canada-US Softwood Lumber Treaty. We
legal assistants, dedicated hearings also developed a number of knowledge
organi ers, and financial administrators projects, notably the new website which

02 Norton Rose Fulbright – June 2017


Developments and reform of investor-state dispute settlement

You were recently re-elected for In addition, we should be open to


a further six year term; what do There is a real need to continuously improving the ISDS system
you see as your main challenges explain what the ISDS as we get practical experience. I think
during this new term? system is and isn’t, and to that the current system is a very
The priority is always to provide the impressive and e ective one, and is
highest level of service in the most cost make accurate and unique in international dispute
and time e ective manner, so we continue balanced information settlement. One of the most notable
to focus on that. However, there are available as a basis for the features is how rapidly ISDS has evolved
several ongoing projects that contribute public dialogue on the in a short period. So, for example, we
to investment arbitration on a more have seen increasing acceptance of open
topic. This was one of the
systemic level. The most important of hearings, third party submissions,
these is the project to amend the ICSID reasons we started summary process to dismiss cases for
rules. I do not know how far-reaching publishing our statistics lack of legal merit and the like. On the
these will be, but we have sought state, – to provide an empirical substantive side, we have seen states
private sector and public comment, so I basis for the on-going drafting increasingly clear and detailed
am certain this will be a useful process. treaties to better express their purpose
discussion.
Second, we are participating in the and object. This is exactly as it should
discussion led by the EU and Canada be. ICSID has been a leader in the
about the potential for a multilateral evolution of the ISDS system, for
standing court on investment. This is a example with the transparency
decision to be taken by sovereigns, but if How should the arbitration initiatives and summary dismissal
states want such a system, it seems community be responding to these provisions in the 2006 rules. Another
obvious that ICSID could best provide it criticisms and addressing the opportunity for evolution is currently
in the most e pert and cost e ective concerns raised about ISDS? available in our amendment process and
manner, so we will see how that discussion I am excited to see this unfold.
evolves. Third, we have been named as There is a real need to explain what the
the Secretariat for the investment ISDS system is and isn’t, and to make
chapter of the Canada-EU FTA, and we accurate and balanced information
ICSID has been a leader in
are ready to o er these services when the available as a basis for the public
relevant provisions go in force. We have dialogue on the topic. This was one of the evolution of the ISDS
also advised other treaty negotiation the reasons we started publishing our system, for example with
partners that we are glad to provide a statistics – to provide an empirical basis the transparency
similar service for their agreements. for the on-going discussion. It is also one initiatives and summary
of the reasons we favor transparency,
dismissal provisions in the
We have seen some anti-investment and have made a point of getting
arbitration sentiment in the global information about ISDS into the public 2006 rules. Another
press; what are the main domain. Perhaps the best example opportunity for evolution
misconceptions about ISDS? of this e ort is web casting hearings, is currently available in
There are a number of fundamental which are available for every case. Many our amendment process.
misconceptions. For example, there is a of these webcasts are on our ICSID
prevailing belief that investors always website and I always encourage those
win their cases, when in fact the empirical who critique the system to have a look
evidence consistently shows that states at these videos before they come to a
win slightly more than half of the cases. conclusion about the system. What they
Another misconception is that ISDS is will see is a professional adjudication
only for the Fortune 500 Company. In addressing complicated factual and legal
fact, many small and medium sized matters in an impartial manner.
companies and individuals use ISDS,
and it is a very valuable remedy for them.

Norton Rose Fulbright – June 2017 03


International arbitration report 2017 – Issue 8

Last year marked the 50th hear appeals from investment tribunals For more information contact:
anniversary of the ICSID but there was insufficient support
Convention; which to your mind, for the idea at the time. Generally
have been the key developments these proposals vary from the current
in investment arbitration during annulment system in two ways. First,
that time? they allow review on broader grounds.
The key development in international These proposals generally suggest review
investment arbitration has been the on the grounds of error of law, fact and
Mark Baker
increased availability of treaty-based procedure, whereas ICSID annulment
Global co-head of international arbitration
arbitration. Interestingly, the drafters is limited to the grounds in Article 52 Houston
of the ICSID Convention anticipated of the Convention and was designed to Tel +1 713 651 7708
that contractual disputes would be the be a limited remedy for serious error, mark.baker@nortonrosefulbright.com
mainstay of its services. However, over usually of a procedural nature. The
75 per cent of ICSID cases today are second di erence is in the ad udicator.
based on consent in an investment treaty Most of these proposals suggest a
and the promises undertaken in those standing appellate tribunal composed
agreements. This has created a very of nationals from the Contracting
specialized international investment law States plus a national of a third State.
and has grown public international law The ICSID annulment committees are
Cara Dowling
at an unprecedented rate. selected by the Chairman of the ICSID Senior knowledge lawyer, London
Administrative Counsel from the Panel Tel +44 20 7444 5141
How do you see investment of Arbitrators and cannot be a national cara.dowling@nortonrosefulbright.com
dispute settlement evolving over of either disputing party or of the state
the next 50 years? of any of the tribunal members whose
My sense is that ISDS will become decision is at issue.
increasingly tailored to its context, with
specialized provisions that recognize ICSID recently announced its
the particular needs of investors and intention to update the ICSID
states involved in a case. We have Rules and Regulations; what are
already seen this with draft texts in the the drivers behind the decision to
current generation of investment treaties update the rules?
which allow for notes of interpretation, The main factor for taking a look at
encourage mediation, especially for the ICSID rules is simply to keep them
small and medium sized enterprises, or modern and e ective. he last rule
build in mechanisms for the dismissal of amendment process was in 2004-6,
cases without legal merit. and so we thought it was time to have
another look. We have asked states,
There has been discussion the private sector and the public to
about setting up some form of identify any issues they believe should
investment court or appellate body be addressed, and the Centre has some
for investment arbitration awards. housekeeping items that we will propose
How do these nascent appellate to members as well. Whatever is done,
proposals contrast with the ICSID we have stressed that the ICSID Rules
annulment procedures? will maintain their balanced approach
The discussion about a multilateral and will continue to be the most e ective
investment court has arisen at various tool for disputing parties.
times since the early 2000s. Indeed,
in 2004 ICSID proposed the creation
of an international appellate facility to

04 Norton Rose Fulbright – June 2017


Frequently asked questions about investor-state dispute settlement

Frequently asked questions about


investor-state dispute settlement
Written by Martin Valasek and Alison FitzGerald

What is ISDS? to resolve the dispute. State-to-state


ISDS, or investor-state dispute dispute resolution mechanisms would
settlement, is a mechanism that enables Historically, foreign politicize otherwise private disputes.
foreign investors to resolve disputes with investors had no choice ISDS emerged in part from a desire to
the government of the country where but to seek to resolve depoliticize disputes by removing them
their investment was made (host state) in disputes with host states from the realm of diplomacy and inter-
a neutral forum through binding state relations.
before the state’s own
international arbitration.
local courts. However, they What protections and remedies
ISDS agreements are most commonly often found themselves does ISDS offer?
found in international treaties between unable to obtain full – or Arguably, the most important procedural
states but may also be found in indeed any – recovery. protection is the right to have disputes
domestic legislation and contracts. resolved in a neutral forum, before
These instruments typically set out the impartial adjudicators and in accordance
substantive protections or obligations with transparent rules.
that foreign investors are entitled to, the
breach of which gives rise to a right to What is the purpose of ISDS and Common substantive protections
bring a claim directly against the host why is it needed? (breach of which may give rise to an
state. Without ISDS, many foreign investors ISDS claim) include: fair and equitable
would be left with no meaningful remedy treatment, full protection and security,
How many treaties include ISDS in the face of arbitrary, capricious or national treatment, most favored nation
agreements? other unfair treatment by a host state. treatment, no expropriation without full
It is not known precisely how many (and prompt) compensation and free
treaties include ISDS agreements. Historically, foreign investors had no transfer of capital.
Estimates range from over 3000 to choice but to seek to resolve disputes
3400 treaties globally. Many are found with host states before the state’s Monetary compensation is the most
in bilateral investment treaties (BITs). own local courts. However, they often common remedy. However, in certain
Some are included as chapters of free found themselves unable to obtain full cases other remedies, including
trade agreements (FTAs) such as Chapter – or indeed any – recovery. Obstacles declaratory relief and restitution,
11 of the North American Free Trade included an absence of protections may be available. Interim relief whilst
Agreement (NAFTA). Others form part of under the local law, domestic sovereign proceedings are ongoing may also
sector specific treaties such as the nergy or crown immunity rules and/or a lack be available, including interlocutory
Charter Treaty (ECT). of judicial independence. Diplomatic measures to compel or restrain a party
intervention on behalf of the foreign from certain conduct (such as might
investor, to the extent available, was aggravate the dispute or render the
inconsistent and not always appropriate dispute nugatory).

Norton Rose Fulbright – June 2017 05


International arbitration report 2017 – Issue 8

How does ISDS work? Once the tribunal is constituted, it will


Depending on the host he specifics of IS S agreements will set the procedure and timetable. Usually
state’s legal regime, ISDS vary, however most tend to follow a there is a written phase (legal briefs with
pattern. There will be a notice provision supporting evidence) and an oral phase
protections and remedies
requiring a claimant to notify the host (hearing for cross-examination of witnesses
can be more favorable state in writing of a dispute. Some and legal argument). The arbitration
than local law protections. impose a cooling o period in which may take a number of years, from
the claimant and host state must attempt commencement through to final award.
to resolve the dispute amicably. A
claimant may also be required during How are ISDS awards enforced?
this period to exhaust local remedies. Anecdotal evidence suggests that
Do ISDS protections/remedies Once this period has expired, and voluntary compliance with awards is not
differ from those available to assuming no other pre-conditions apply unusual. However, where an award is
domestic investors under national (e.g. mediation), the claimant may not voluntarily complied with, there are
laws? commence arbitration. two main regimes for enforcement.
Depending on the host state’s legal
regime, ISDS protections and remedies The ISDS agreement will typically If the award is an ICSID award, it may be
can be more favorable than local law stipulate the rules that will apply to the enforced under the Convention on the
protections available to domestic proceedings or permit the claimant to Settlement of Investment Disputes between
investors. For example, the local law of elect between certain rules which the States and Nationals of Other States (ICSID
the host state may permit the state to host state has consented to in advance. Convention). That convention provides
expropriate property without providing Common rules include the ICSID that ICSID awards are to be treated as
any compensation or for less than full Arbitration Rules, ICSID Additional final court udgments of ontracting
compensation. A domestic investor Facility Rules, UNCITRAL Arbitration States. There are 153 Contracting States
would therefore have no recourse against Rules and ICC Rules of Arbitration. to the ICSID Convention.
state expropriation. A foreign investor,
however, may have additional rights The seat of the arbitration may be In the case of non-ICSID arbitrations,
where an applicable treaty provides for defined in the IS S agreement. If it the award may be enforced under the
full (and prompt) compensation, and is not, it may be determined by the New York Convention on the Recognition
may therefore pursue compensation tribunal, once constituted, in accordance and Enforcement of Foreign Arbitral
under the treaty regime through with the applicable rules. The seat is Awards 1958 (New York Convention).
international arbitration. important because it establishes the There are 157 Contracting States to the
supporting legal framework for the New York Convention. The New York
Who can bring an ISDS claim? arbitration, including how and when Convention facilitates award compliance
The ISDS agreement will set out who the courts of the seat may intervene and by constraining the grounds on which a
has standing to bring a claim. Most the grounds for challenging any award. court may refuse to recognize or enforce
define who is an investor and what is Arbitrations under ICSID Arbitration a foreign award.
a qualifying “investment”. Generally, a Rules do not require a seat as they are
claimant may be either an individual or considered “de-localized” and domestic Sovereign immunity may be an obstacle
an organization. courts have no supervisory role. to execution against a state’s assets.
Some ISDS agreements contain waivers
Claimants typically must satisfy Generally the tribunal will be constituted of sovereign immunity, including from
nationality criteria by demonstrating of three arbitrators, as opposed to a sole execution against assets.
that they: (a) are a national of a state arbitrator. Typically, each party may
that is a party to the treaty containing nominate an arbitrator to the panel and
the ISDS agreement; and (b) have an a president is chosen by the two party-
investment in the territory of another nominated arbitrators, in consultation
state that is a party to the treaty. with the parties.

06 Norton Rose Fulbright – June 2017


Frequently asked questions about investor-state dispute settlement

How much does ISDS cost and For more information contact:
who bears the cost? Although ISDS is not
The cost varies from case to case. There perfect, many of the
are a number of factors in uencing cost,
criticisms levelled at it are
including the complexity of the claim,
whether preliminary defences are raised not supported by the
(such as a jurisdictional objection), the empirical evidence.
extent of documentary production, and
Martin Valasek
whether the proceedings are conducted
Head of international arbitration, Canada,
in one or multiple languages, to name Partner
but a few factors. Tel +1 514 847 4818
Although ISDS is not perfect, many of martin.valasek@nortonrosefulbright.com
There is no universal principle as to the criticisms levelled at it are not
who bears the cost of ISDS. The ISDS supported by the empirical evidence. In
agreement may stipulate how costs will 2015, the IBA issued a statement
be allocated. If it is silent, the applicable correcting misconceptions and
rules may stipulate a principle of costs inaccurate information around the
allocation, such as “loser pays”. More debate on ISDS. For example, data shows
often than not, the allocation of costs that states have won a higher percentage
Alison FitzGerald
is left to the discretion of the arbitral of cases than investors. Of counsel, Ottawa
tribunal, which may take into account Tel +1 514 847 4818
factors such as the relative success of What happens when a country alison.fit gerald nortonrosefulbright.com
the parties and their conduct during withdraws from a treaty with an
the proceedings. Arbitration costs, ISDS agreement?
such as the cost of the tribunal’s fees, Most treaties containing ISDS
any institutional fees, hearing centre agreements provide that the treaty
rental costs etc. are often treated protections (including ISDS) will
separately from the costs of prosecuting continue to apply for a certain period
or defending a claim, which typically (typically 10-15 years) after a country
include legal fees, expert fees, travel withdraws from the treaty. Such a
costs etc. “sunset clause” will protect only those
investors and investments that qualify
What are the major criticisms of for protection at the time the withdrawal
ISDS? becomes e ective. N F hapter is a
The most common criticisms levelled notable exception, as it does not contain
at ISDS in recent years include: the a sunset clause. A notice of withdrawal
risk of foreign investors challenging under N F becomes e ective within
legitimate domestic regulation; a lack six months, and any investor claim would
of transparency in ISDS proceedings; a need to be brought within that period.
lack of consistency in arbitral decision-
making; a lack of appellate authority to
correct substantive errors and ensure
consistency of outcomes; perceptions
of arbitrator bias and/or lack of
independence resulting in decisions that
allegedly tend to favor investors; and the
cost and time associated with ISDS.

Norton Rose Fulbright – June 2017 07


International arbitration report 2017 – Issue 8

The EU’s proposed reform of ISDS


Investment court systems: the future or a fiasco?

Written by Paul Stothard, Katie McDougall and Cloudesley Long

The European Commission (EC) has proposed the establishment of “a new and
transparent system for resolving disputes between investors and states”, citing the need
to reform existing investor-state dispute settlement mechanisms (ISDS). The EC claimed
ISDS “suffers from a fundamental lack of trust”. We discuss the detail of the EU’s
proposal, as well as highlighting potential barriers to its development.
The EU’s proposal establishment of a multilateral investment to legislate and regulate in the interests of
The European Commission (EC) is, in fact, tribunal and appellate mechanism for their citizens. These perceptions persist,
running two parallel proposals in its the resolution of investment disputes” despite not being supported by the
mission to reform investor-state dispute and provides for this new system, once empirical evidence. For example, the
settlement. First, it aims to establish implemented, to have jurisdiction over majority of cases referred to ISDS have
investment courts – in place of international disputes arising from CETA. This has been successfully defended by states.
arbitration tribunals – which would preside been described by the EC as the “ultimate
over bilateral EU investment agreements aim” and this investor-state court system The key elements of the proposed ICS include
currently being negotiated or negotiated in (ICS) would be open to all countries. In removing party autonomy as regards who
the future. Such provisions are written into December 2016, the EC and the Canadian will decide upon the dispute in favor of the
the EU-Canada Comprehensive Economic overnment co hosted the first talks with permanent appointment of publicly
and Trade Agreement (CETA), as well as the government representatives from around appointed judges (who will be unable to act
EU-Vietnam Free Trade Agreement (EVFTA). the world on the establishment of this as counsel on other investor-state disputes)
Under these agreements, disputes will be multilateral forum. A series of meetings with comparable qualification requirements
referred to permanent tribunals with fi ed are planned throughout 2017 to further to those of other permanent international
numbers of members appointed from the develop the idea. courts such as the International Court of
EU and Canada/Vietnam, together with Justice and the WTO Appellate Body.
members from neutral countries. Members The ICS proposals can be seen as a response
of the tribunal will be paid monthly to criticisms (founded or otherwise) of the Proceedings would be transparent, with
retainers to ensure availability and will be current ISDS system. Concerns around open hearings and a right of intervention for
required to conform to specific standards of ISDS include alleged lack of transparency, third parties with an interest in the case.
independence. Both agreements also oversight and due process and a perception The system would preclude the ability to
contain an appellate mechanism, with an that ISDS is weighted in favor of Western forum shop and will tightly define and
appellate tribunal formed in a similar companies and states. Critics also cite the limit the ability of investors to bring cases
manner to the lower tribunal. potential for con icts of interest and to instances such as “discrimination on the
corruption as tribunals are often formed of basis of gender, race or religion, or nationality,
ore significantly, both and VF individuals whose professional background, expropriation without compensation, or
envisage the formation of a permanent critics allege, make their opinions predictable denial of justice”. Crucially, the proposed
multilateral forum for investor-state and may make them sympathetic to certain system would enshrine and guarantee
dispute resolution. CETA, for example, arguments. This plays into the concern that states’ right to regulate. It could be argued
provides that Canada and the EU “shall the current system favors foreign investors that these proposals, if enacted, would
pursue with other trading partners the over states and impedes sovereigns’ rights shift the balance of ISDS in favor of states.

08 Norton Rose Fulbright – June 2017


The EU’s proposed reform of ISDS

Barriers to development of the ICS obtaining approval from all EU Member with regard to CETA and to ongoing and
The proposal for a permanent-multilateral States. The Belgian region of Wallonia held future trade negotiations. The inability of
forum for investor-state dispute settlement up the process by delaying approval; one the EU to reach agreement should serve
is in its infancy, but there will certainly be of its key concerns was the inclusion of as an indicator of the difficulties ahead
some key barriers that the EC and its partners ICS provisions. The Walloon parliament for the EC in reaching its “ultimate aim”
will have to clear before it becomes reality. was successful in forcing concessions, of a permanent multilateral court system
Foremost among these, and perhaps the including that the Belgian federal to rule on investor-state disputes. Despite
most obvious, is that in order to have government would refer the ICS provisions criticisms of the current ISDS system, its
authority to act as the overarching forum in CETA to the CJEU for a ruling on whether demise is not imminent.
for disputes, the proposal will need to be they are compatible with the EU treaties
agreed to by a majority of countries around which grant exclusive jurisdiction to the
the world. The current system of ISDS is a courts of EU member states and, ultimately, For more information contact:
product of almost 3000 separate bilateral the CJEU to preside over challenges relating
investment treaties together with international to EU law. For the moment, CETA is only
trade treaties and international investment provisionally applied and the provisions
agreements. Accordingly, establishing a relating to ICS do not form a part of this
common international view on the terms provisional application. That referral is
of the new ICS proposal is likely to be a expected shortly.
difficult and drawn out process.
Given the possibility that the EC’s Paul Stothard
In the context of the ongoing TTIP proposals could shift the balance of Partner, Dubai
negotiations, for example, the American investor-state dispute settlement towards Tel +971 4 369 6300
Bar Association (ABA) produced a report states, governments worldwide will no paul.stothard@nortonrosefulbright.com
on the ICS proposal in October 2016 which doubt be lobbied by business interests on
raised a number of fundamental concerns. these reforms.
The ABA’s concerns go to the very nature
of the proposed system by asking whether There is also a risk that the ICS will simply
the ICS will be recognized as an arbitral trade one perceived bias for another.
body or as a court; a question that will Appointments to a permanent court will no
have significant implications in relation doubt become, or at least be seen to be,
to enforcement of its awards. Whilst the political choices, perhaps further shifting Katie McDougall
stops short of reaching a definitive the balance of power towards states over Senior associate, London
conclusion, it highlights that the hybrid investors. This is certainly a dramatic move Tel +44 20 7444 3344
katie.mcdougall@nortonrosefulbright.com
nature of the ICS proposal could lead away from the current system of ISDS, in
to uncertainty, citing the hypothetical which the parties (both states and investors)
scenario of a successful claimant being have the ability to choose their arbitrators.
faced with the suggestion that the ICS The examples set by other similar
is not an arbitral body and its awards international institutions demonstrate the
therefore unenforceable under the New difficulty of maintaining the perception of
York Convention. impartiality and competence.
Cloudesley Long
his is likely to be even more difficult given Where to next?
Associate, London
the recent ruling of the Court of Justice The creation of an international
Tel +44 20 7444 2460
of the European Union (CJEU) on the EU- multilateral dispute-resolution forum is a cloudesley.long@nortonrosefulbright.com
Singapore free trade agreement (EUSFTA). long way o . more pressing concern for
The CJEU held that ISDS provisions are the , given the difficulties e perienced
not within the EU’s exclusive competence with CETA, is the immediate future of ICS
and that the EU cannot negotiate and provisions in bilateral treaties between
conclude international investment treaties the EU and individual countries. The CJEU
containing such provisions alone. The may take as long as two years to reach its
recent and well publici ed difficulties in decision on the compatibility of ICS with
concluding CETA provide an instructive EU treaties, meaning that uncertainty
example of the potential pitfalls of will prevail in the immediate future, both

Norton Rose Fulbright – June 2017 09


International arbitration report 2017 – Issue 8

Precedent in investment
treaty arbitrations
Written by Neil Q Miller, Holly Stebbing and Ayaz Ibrahimov

With the recent proliferation of published arbitral awards in investment treaty


arbitrations a body of arbitral decisions is emerging in the sphere of investor-state
disputes. This article considers what relevance, if any, the doctrine of precedent (stare
decisis) has in the context of investor-state arbitrations and whether it can be said that a
body of case law is emerging and whether those decisions could, or should, amount to
binding precedent in the sphere of investment arbitration.
Precedent in arbitration v court parties ...”. This has been taken to “Until 50 years ago, the House of
proceedings exclude the applicability of precedent in Lords used to be bound by its previous
Any analysis of the development of subsequent ICSID cases, i.e. the award decisions – see e.g. London Tramways
precedent in investment arbitration binding future users of the system. Co Ltd v London County Council [1898]
would be incomplete without first AC 375. However, that changed in
examining the legal parameters within The position under the ICSID Convention 1966 following the Practice Statement
which arbitral tribunals are required to can be contrasted with the position (Judicial Precedent) [1966] 1 WLR
operate. This contextualizes the debate under the common law where precedent 1234, which emphasized that, while
and helps to clarify the fundamentally developed by senior appellate courts the Law Lords would regard their earlier
di erent starting points between those is generally binding on lower courts decisions as “normally binding”, they
tasked with rendering judgments in the (whereas decisions of lower courts are would depart from them “when it
English (and many other national) courts persuasive but generally not binding). appears right to do so”.
and thereby developing the common
law and their arbitral counterparts at the Historically, it was also the case that In this small but significant way, the
International Centre on the Settlement of the highest court in England and Wales common law doctrine of precedent is
Investment Disputes (ICSID). (then the House of Lords, now the therefore tempered by the caveat that
Supreme Court) was bound by its earlier “when it appears right to do so” the
Article 53 of the ICSID Convention has decisions. However, that is no longer the Supreme Court may depart from its
been cited by tribunals and commentators case. Lord Neuberger set out the limits of earlier decisions. Thus even in England
alike in support of the notion that there the common law doctrine of precedent in and Wales the doctrine of precedent is
is no rule of precedent in general the Supreme Court’s decision in Willers not absolute.
international law nor within the specific v Joyce [2016] UKSC 44 which examined
ICSID system. Article 53 provides that the status of decisions of the Judicial
“[t]he award shall be binding on the Committee of the Privy Council:

10 Norton Rose Fulbright – June 2017


Precedent in investment treaty arbitrations

had to strive towards both consistency to the greater transparency evident in


ICSID tribunals however, and predictability when making laws ICSID arbitration cases compared to
have no hierarchy or as without these essential virtues law commercial arbitration. The general
would develop in a wholly irregular and availability of awards and greater
ranking of seniority. It is haphazard manner. reporting of cases has contributed to
difficult therefore to what e rey ommission has called a
criticise ICSID tribunals It might be argued that there is no better “burgeoning corpus of precedents”.
for failing to follow way of securing both consistency and Nothing shows the contrast between the
decisions of their predictability within a legal system than confidentiality of commercial arbitration
through the observance of past case law. and the openness of investment treaty
predecessors. With regard to investment law, there is arbitration better than Article 48(4) of
undoubtedly a need for a consistency the ICSID Arbitration Rules. Article 48(4)
in rule creation. This would not only provides that the ICSID Centre “shall
serve to improve the certainty that can … promptly include in its publications
ICSID tribunals however, have no be a orded by counsel to clients but also excerpts of the legal reasoning of the
hierarchy or ranking of seniority. It is help to shape the legitimate expectations Tribunal.”
difficult therefore to criticise I SI of investors. Arguably this has already
tribunals for failing to follow decisions of started to some extent as counsel
their predecessors. This is particularly consider previous awards when advising It is precisely through the
the case in investment treaty arbitration clients on prospects and clients no publication of such
which combines complex issues of public doubt consider that advice when making
international and private law and requires investment decisions.
excerpts and awards that
a careful balancing of investor and state tribunals are able to follow
interests – which may vary considerably Critics of the doctrine such as Irene in the footsteps of their
from case to case and depend on the M. Ten Cate, however, argue that predecessors.
specific substantive treaty protections consistency can only be achieved by
being invoked by the claimant. This sacrificing accuracy, sincerity and
makes identifying precedent difficult. transparency”. They suggest that
Indeed tribunals who choose to follow a fi ation with precedent is only
previous decisions might be vulnerable concerned with equality of outcomes, It is precisely through the publication of
to challenge, thus undermining the not with their merits” and argue that this such excerpts and awards that tribunals
finality of arbitral awards. is unsatisfactory in the public-private are able to follow in the footsteps of their
arena of investment treaty arbitration. predecessors and foster greater
Desirability of precedent in consistency in investment treaty cases.
investor-state arbitration Notwithstanding the critics, with the The tribunal in El Paso v Argentina
Notwithstanding the difficulties of growth of ICSID as a forum for the articulated the position as follows:
establishing a system of precedent resolution of investor-state disputes a
in the sphere of investment treaty growing body of at least “softly” binding “It is nonetheless a reasonable
arbitration, there are reasons why it may case law seems to be developing. The assumption that international arbitral
be desirable. One of the most persuasive reasons for this trend are examined tribunals, notably those established
champions of the doctrine is L. Ron brie y below. within the ICSID system, will generally
Fuller. In his writings on the “inner take account of the precedents
morality of the law”, Fuller listed eight Reasons for emergence established by other arbitration
key principles of legality. According of soft precedent organs, especially those set by other
to Fuller, adherence to these essential Greater transparency in investment international tribunals.” (ICSID Case
principles was of paramount importance treaty cases ARB/03/15, Decision on Jurisdiction,
to the creation of substantively fair The emergence of a de facto body of April 27, 2006, para. 39).
law. Fuller advocated that law makers precedent is in no small part attributable

Norton Rose Fulbright – June 2017 11


International arbitration report 2017 – Issue 8

Homogeneity of subject matter and The views expressed in this article are the
uniformity in the drafting of BITs It may be more palatable views of the authors and not necessarily
and MITs the views of Norton Rose Fulbright.
to both sides of the
It may also be attributable to
harmonization of substantive protections argument to speak of the
within bilateral and multilateral development of a For more information contact:
investment treaties (respectively, BITs jurisprudence constante in
and MITs). Such protections, whilst not which successive awards
identically drafted, typically comprise:
create well-established
• General Standards of Treatment of and persuasive – but not
Foreign Investments binding – principles
which tribunals repeatedly Neil Q Miller
• Protection Against Expropriation and have regard to. Partner, London
Dispossession Tel +44 20 7444 2625
neil.q.miller@nortonrosefulbright.com
• Compensation for Losses.

Uniformity of form and content allows Conclusion


tribunals to apply a varying fact pattern The possible emergence of a doctrine of
to a relatively static body of legal issues. precedent in investment treaty arbitration
Thus awards might contribute to a is welcomed by those who see a need for
growing investment treaty jurisprudence greater transparency in the legal reasoning
Holly Stebbing
in respect of the substantive protections of tribunals and a predictability of
Partner, London
available through investor state arbitration. outcome more generally. There are those, Tel +44 20 7444 5143
however, who maintain that it is wrong holly.stebbing@nortonrosefulbright.com
Consistency of tribunal members to speak of precedent in the sphere of
Two notable factors in the composition investment treaty arbitration and argue
of tribunals presiding over investor-state that the creation of a doctrine of
disputes might also play a part: members precedent was never in contemplation
are often prominent law professors, during the drafting of the Convention.
private practitioners or judges and many
are repeatedly appointed. This has led It may be more palatable to both sides of
some commentators to argue that there the argument to speak of the development Ayaz Ibrahimov
Associate, London
is an ‘emerging judiciary’ within the of a jurisprudence constante in which
Tel +44 207 444 3721
investment arbitration arena, paving the successive awards create well-established ayaz.ibrahimov@nortonrosefulbright.com
way for greater consistency of legal and persuasive – but not binding –
reasoning in cases where similar legal principles which tribunals repeatedly
and factual issues repeatedly come before have regard to. Like it or not, the
tribunals. (Though at the same time, the emerging body of published investment
investment arbitration regime has faced arbitration awards seems to play some
criticism for this very lack of diversity.) role already, at least informally, in
investment treaty arbitration.

12 Norton Rose Fulbright – June 2017


US international trade policy under the new Trump administration

US international trade policy under


the new Trump administration
Written by Kevin O’Gorman and Mark Stadnyk

We offer a concise update on the new Trump administration’s approach to international


trade policy, including international trade and investment treaties as well as the key
influencers of trade policy in the new administration.
Treaties respect to US-Mexico trade under the • The Trump administration has
• President Trump withdrew the US NAFTA, it appears his administration taken no official position on the
from the rans acific artnership will take a more forceful stance with Transatlantic Trade and Investment
(TPP), a cornerstone of President respect to the trade liberalization Partnership (TTIP) between the US
Obama’s international trade policy. measures in the NAFTA insofar as and the EU. Between the recent US
The TPP included the following they govern US-Mexico trade. The presidential election and various
countries: the US, Australia, Brunei, NAFTA, which entered into force in national elections in the EU in 2017,
Canada, Chile, Japan, Malaysia, 1994, was primarily negotiated under the future of the TTIP – the text of
Mexico, New Zealand, Peru, President George H.W. Bush and which is not final and which has not
Singapore and Vietnam. The TPP ratified under resident ill linton. yet entered into force is in u .
had not entered into force yet and Its withdrawal provisions require a
would in any event have required party, like the US, to give the other Trade representatives/leadership
Congressional approval for the US states party to the treaty at least six • Trump selected Peter Navarro as
to accede to it. In the run up to the months’ notice of such withdrawal. Assistant to the President and
November election, both presidential No such notice has been given yet by Director of Trade and Industrial
candidates announced their the Trump administration. Policy. In this position, Navarro
opposition to the TPP. heads the National Trade Council,
• The future of a bilateral investment a group created in 2017 under the
• President Trump has also focused treaty (BIT) between the US and China auspices of the executive branch
criticism on the North American Free is now in doubt. As recently as 2015, that is tasked with “advis[ing] the
Trade Agreement between the US, the treaty was in the early stages President on innovative strategies
Canada, and Mexico (NAFTA) and of negotiations, with both parties in trade negotiations, coordinat[ing]
indicated during his campaign that he reaffirm ing it as a top economic with other agencies to assess US
may seek to renegotiate or withdraw priority.”1. In light of the positions manufacturing capabilities and the
from it. Recently, he appears to of Trump’s trade representatives defense industrial base, and help[ing]
have softened his position with on trade with China (see below), match unemployed American workers
respect to Canada, instead seeking to passage of that BIT—at least in the with new opportunities in the skilled
“tweak” the agreement as it applied form envisaged under the Obama manufacturing sector.”2 Navarro,
to bilateral US-Canada relations. administration—may be unlikely. an academic and economist, has
While President Trump has not yet
announced specific policy with 1 https://obamawhitehouse.archives.gov/the-press- 2 https://greatagain.gov/navarro-national-trade-council-
office fact sheet us china economic relations. c2d90c10eacb#.rqwgdkc90.

Norton Rose Fulbright – June 2017 13


International arbitration report 2017 – Issue 8

published extensively on China-US For more information contact:


economic relations.

• President Trump has nominated


Robert ighthi er to lead the ffice of
the US Trade Representative (USTR).
The USTR, which was created in
1962, “negotiate[s] directly with
Kevin O’Gorman
foreign governments to create trade
Partner, Houston
agreements, to resolve disputes, Tel +1 713 651 3771
and to participate in global trade kevin.ogorman@nortonrosefulbright.com
policy organizations.”. Lighthizer,
who previously served as deputy
trade representative under President
Ronald Reagan, has criticized China’s
economic policies towards the US and
prior US administrations’ approach
to US-China economic relations.
Mark Stadnyk
Lighthizer is awaiting legislative
Associate, New York
hearings and approval before formally Tel +1 212 318 3004
joining the Trump administration. mark.stadnyk@nortonrosefulbright.com

• Other US government agencies,


including the US Department of
ommerce, may also in uence
international trade policy under
the Trump administration. Wilbur
Ross, Trump’s nominee to head the
Department of Commerce, recently
stated that amending NAFTA would
be his top priority if confirmed to
that position.

14 Norton Rose Fulbright – June 2017


Landmark Singapore judgment on Chinese bilateral investment treaties

Landmark Singapore judgment on


Chinese bilateral investment treaties
Sanum Investments Limited v Laos

Written by KC Lye and Katie Chung

In a closely-watched landmark judgment, the Singapore Court of Appeal has allowed


a Macanese investor to proceed with expropriation claims against the Lao Government
under a 1993 People’s Republic of China-Laos bilateral investment treaty (PRC-
Laos BIT). In Sanum Investments Ltd v Government of the Lao People’s Democratic
Republic [2016] 5 SLR 536, the Court of Appeal unanimously upheld the arbitral
tribunal’s decision on jurisdiction, finding that the PRC-Laos BIT applies to Macau
notwithstanding that Macau was not under PRC sovereignty when the treaty was
entered into.

From 2007, Sanum (a Macanese investor) Among other claims, Sanum alleged that Before the tribunal, the Lao Government
began investing in the gaming and the Lao Government had deprived it of raised two jurisdictional objections
hospitality industry in Laos through a the benefits to be derived from Sanum s
joint venture with a Laotian entity. investments through the imposition of • The PRC-Laos BIT did not extend
Disputes later arose between the Lao unfair and discriminatory taxes. Sanum’s to Macau.
Government and Sanum which expropriation claim was brought
culminated in Sanum starting arbitration under Article 8(3) of the PRC-Laos • Because Sanum sought both a
against the Lao Government in 2012 BIT, which provides that “if a dispute determination as to (i) whether an
pursuant to the People’s Republic of involving the amount of compensation expropriation had occurred; and (ii)
China-Laos Bilateral Investment Treaty for expropriation cannot be settled the amount of compensation therefore
which entered into force from June 1, 1993 through negotiation within six months falling due, Sanum’s claim was not
(PRC-Laos BIT). The PRC-Laos BIT is as specified in paragraph of rticle arbitrable as it was beyond the
silent on its applicability to Macau which, 8]”, the dispute “may be submitted at permitted subject matter prescribed
as of 1993, was under the administrative the request of either party to an ad hoc under Article 8(3) of the PRC-Laos BIT.
control and sovereignty of Portugal. arbitral tribunal. The provisions of this
Following the handover in 1999, the PRC paragraph shall not apply if the investor The tribunal, which designated
resumed sovereignty over Macau and concerned has resorted to the procedure Singapore as the seat of arbitration in
established it as a Special Administrative specified in paragraph of this rticle consultation with the parties, found
Region. Although not an issue in this [i.e. Laotian courts]”. that it had jurisdiction to hear the claim
case, the PRC-Laos BIT is also silent on because (i) the PRC-Laos BIT applies
its applicability to Hong Kong. to Macau, and (ii) the subject matter of

Norton Rose Fulbright – June 2017 15


International arbitration report 2017 – Issue 8

Sanum’s claim fell within Article 8(3) of Sanum appealed against the High The High Court had glossed over the
the PRC-Laos BIT. Court’s decision on jurisdiction and critical date doctrine and incorrectly
Laos sought to admit two further Notes relied on rticle a V to find
Applying the Moving Treaty Frontiers Verbales to confirm the authenticity of that, on the basis of the 2014 Notes
Rule (explained below), the tribunal the prior 2014 Notes Verbales (which Verbales, there was a subsequent
found that there was nothing in the text was disputed in the lower court). agreement between PRC and Laos that
of the PRC-Laos BIT and on the facts the PRC-Laos BIT did not apply to Macau.
that otherwise established and thus Court of Appeal – substantive
displaced the presumption that the judgment In the Court of Appeal’s view, the
PRC-Laos BIT applies to Macau. Reading In a carefully finessed udgment, critical date crystallized on August 14,
Article 8(3) in context, the tribunal also which examined many investment 2012 (Critical Date), the date on which
concluded that Sanum’s expropriation treaty cases and academic writings Sanum commenced the arbitration. The
claims (i.e. (i) whether an expropriation and demonstrated an understanding Court of Appeal noted that states may
had occurred; and (ii) the amount of of diplomacy, the five member ourt by agreement elect to derogate inter se
compensation therefore falling due) of Appeal held that the PRC-Laos BIT from customary international law when
fell within Article 8(3) as a narrow applied to Macau and that Sanum’s entering into a treaty, but held on the
interpretation (i.e. that only disputes claim fell within Article 8(3) of the facts that there was insufficient pre
involving the amount of compensation PRC-Laos BIT. In addition to the parties’ ritical ate evidence to find that it had
for expropriation would be arbitrable) respective expert witness reports, the been otherwise established that the MTF
would leave rticle without e ect. Court of Appeal was assisted by two Rule would not apply to the BIT.
court-appointed amici curiae well-versed
The Lao Government challenged the in public international law.
tribunal’s jurisdiction in an application
under s 10(3) of the International Two international law principles formed The Singapore Court
Arbitration Act (Cap. 143A, 2002 Rev the lynchpins of the Court of Appeal of Appeal confined its
Ed) (IAA) before the Singapore High judgment with respect to why the PRC-
Court. Where Singapore is the seat of Laos BIT applied to Macau
decision to the facts and
arbitration, Singapore courts are obliged elegantly left open the
under s 10(3) of the IAA to conduct a de • The Moving Treaty Frontiers Rule possibility that the PRC
novo review of a tribunal’s jurisdiction (MTF Rule) under Article 15 of the and Laos may enter into
in deciding any jurisdictional challenge Vienna Convention on Succession an express agreement to
in this respect, there is no di erence in of States in respect of Treaties (VCST)
the treatment of jurisdictional awards in read with Article 29 of the Vienna
modify the PRC-Laos BIT
commercial arbitration and investment Convention of the Law of Treaties
treaty arbitration. (VCLT) establish a customary
international law rule that presumptively
The High Court admitted two diplomatic provides for the automatic extension The Court of Appeal held that the 2014
communications (Notes Verbales), both of a treaty to a territory as and when it Notes Verbales are post-Critical Date
post-dating the Award, which the Lao becomes part of that state. evidence adduced to contradict the
Government introduced as new evidence pre-Critical Date position that the
to show that both the PRC and Laos • The “critical date” doctrine, an PRC-Laos BIT applies to Macau. The
considered that the PRC-Laos BIT did not evidentiary rule under public 2014 Notes Verbales rely on the PRC’s
apply to Macau (2014 Notes Verbales) and international law that excludes internal legislation concerning Macau
held that the tribunal had no jurisdiction. evidence that is generated after a which, under Article 27 VCLT, cannot be
certain “critical date” beyond which invoked to justify non-performance of a
the parties’ actions cannot impact on treaty. In relying on the MTF Rule and
the dispute. critical date doctrine to exclude the 2014
Notes Verbales, the Court of Appeal

16 Norton Rose Fulbright – June 2017


Landmark Singapore judgment on Chinese bilateral investment treaties

confined its decision to the facts and For more information contact:
elegantly left open the possibility that
the PRC and Laos may enter into an
express agreement to modify the
PRC-Laos BIT whilst ensuring that Sanum
could pursue its claims against Laos.

The Court of Appeal then applied a


KC Lye
purposive interpretation to the fork-in-
Partner, Singapore
the-road provision in Article 8(3) of the Tel +65 6309 5304
PRC-Laos BIT by considering the context kc.lye@nortonrosefulbright.com
of the BIT and held that the tribunal had
subject-matter jurisdiction over Sanum’s
claims.

Key takeaways
he significance of the ourt of ppeal s
judgment can be seen in the swift
Katie Chung
response of the PRC Ministry of Foreign
Senior associate, Hong Kong
airs, about a month after the ourt Tel +65 6309 5434
of Appeal rendered its judgment, katie.chung@nortonrosefulbright.com
criticizing the decision and reiterating
that PRC treaties do not apply to Macau
or Hong Kong. The judgment could
have significant ramifications given that
the PRC is a party to some 120 BITs.
It remains to be seen if the Court of
Appeal judgment will be relied upon in
future investor-state disputes involving
Macanese or Hong Kong foreign direct
investment under other PRC BITs. It
may be that the PRC will seek to pre-
empt the issue by entering into express
agreements with the respective states
irrefutably confirming that R treaties
do not apply to Hong Kong and Macau.

Norton Rose Fulbright – June 2017 17


International arbitration report 2017 – Issue 8

Trends in investor-state dispute


settlement
ICSID case statistics 2016

Written by Sherina Petit and Daniel Jacobs

We analyze the 2016 ICSID case statistics to identify recent trends in investor-state dispute
settlement, including the state parties and economic sectors involved, success rates of
states versus investors and changes to the composition and diversity of ICSID tribunals.
The International Centre for Settlement State parties and economic sectors
of Investment Disputes (ICSID) is ICSID has administered The trend of cases being brought against
an intergovernmental organization approximately 70% of all developed countries continued in 2016,
established by the Convention on the with the greatest number of newly
known investor-state
Settlement of Investment Disputes registered cases brought against Western
between States and Nationals of Other cases. European states.
States. I SI o ers a specialised
arbitration forum for international Spain was involved in the largest number
investor-state dispute settlement (ISDS). of disputes (with ten new cases registered),
2016 marked ICSID’s 50th anniversary. Cases in 2016 followed by Italy (with four new cases
45 new ICSID cases were registered registered). Egypt (with three new cases
According to ICSID’s 2016 annual report, in 2016. Whilst this is slightly less registered) was the only other country
it has administered approximately 70 than the record high of 52 in 2015, involved in more than two new cases.
per cent of all known investor-state cases it is a return to the historical average.
and in the past 50 years 570 cases have ICSID administered 247 cases in
been registered at ICSID, 265 awards 2016, the largest number of cases 2016 saw a very slight
have been rendered by ICSID tribunals ever administered by ICSID in a single shift away from the trend
and 52 decisions on annulments have year. This is clear evidence that foreign
that states have proved
been issued by ad hoc committees. As investors continue to pursue the
can be seen from the statistics below, resolution of disputes with host states successful in the majority
in 2016, ICSID remains an important through international arbitration. of cases brought against
institution for settlement of investor- them.
state disputes. A review of ICSID’s case Interestingly, 2016 saw a very slight
statistics is therefore a useful indicator of shift away from the trend that states
recent trends in ISDS. have proved successful in the majority
of cases brought against them. In 2016,
tribunals upheld investors’ claims (in
part or in full) in 56 per cent of cases.

18 Norton Rose Fulbright – June 2017


Trends in investor-state dispute settlement

The number of cases registered against In terms of gender diversity of arbitral


South American states more than appointments, per cent of first time
doubled in , perhaps re ecting appointees were woman, which at first
increasing instability in the region. blush suggests that gender diversity may
be improving. However, only 13 per cent
The cases involved a broad spread of of those appointments involved first time
economic sectors. The highest number appointees. trapolating these figures,
of cases involved the electric power the total number of female appointees is
and other energy sector, representing only about three per cent which shows
per cent of cases. his re ects the that ICSID has a long way to go before
continued reliance by foreign investors gender parity is achieved.
on protections under the Energy Charter
Treaty. The next most common sector
involved in investment disputes was the For more information contact:
oil, gas and mining sector, which was
involved in 20 per cent of cases. Other
sectors included construction, which
was involved in nine per cent of cases,
and information and communication,
finance and transportation, which were
each involved in seven per cent of cases.
Sherina Petit
Partner, London
Basis of consent Tel +44 20 7444 5573
Bilateral investment treaties (BITs) sherina.petit@nortonrosefulbright.com
remained the most common basis
of consent used to establish ICSID
jurisdiction, representing 51 per cent of
cases. This was followed by the Energy
Charter Treaty, which represented 31 per
cent of cases.
Daniel Jacobs
Constitution of tribunals
Associate, London
There was a marked increase in the Tel +44 20 7444 2490
diversity of appointees in terms of daniel.jacobs@nortonrosefulbright.com
nationality. 119 individuals from
di erent countries of origin were
appointed to tribunals which, according
to ICSID, represented the most diverse
spread of nationalities in its history.
However, despite progress, the fact
remains that 61 per cent of appointees
were from a Western European or North
American origin.

Norton Rose Fulbright – June 2017 19


International arbitration report 2017 – Issue 8

Requests for reconsideration


in ICSID and UNCITRAL arbitrations
Is your international arbitration award really final and binding?

Written by Paul Stothard and Jenna Anne de Jong

Generally, parties to international arbitrations assume that decisions are final and
binding and that tribunals will not (or indeed, cannot) revisit decisions once made.
However, circumstances may arise, such as where new evidence is discovered, that
prompt parties to call for a tribunal to reconsider its prior determinations, having regard
to the appropriate balance between finality and flexibility. We consider the validity
of requests for reconsideration under the ICSID Rules and the UNCITRAL Rules and
analyze examples of the approaches taken by tribunals formed under those rules.

ICSID the course of an arbitration. Absent a decisions” and directed Ecuador “to
The ICSID Rules of Procedure for specific provision, a tribunal s power to focus its Motion on the existence of those
Arbitration Proceedings (ICSID Rules) reconsider a decision would seemingly exceptional circumstances which would
and the ICSID Convention, provide for be founded in its inherent jurisdiction justify the reconsideration of the
several remedies – albeit limited in scope to control its own process. This question Tribunal’s Decision.”. The tribunal’s
and application – where a party considers is controversial. Whether a tribunal directions were notable because they
a final award to be unsatisfactory in some constituted pursuant to the ICSID Rules appeared to accept that a tribunal would
respect. A party can apply for interpretation may reconsider otherwise final decisions have jurisdiction to reconsider its own
of an award where it considers it to be has been the sub ect of two significant decisions, in at least some circumstances.
unclear. If a party later discovers some new decisions in the past two years. This point of jurisdiction had been
fact that was not known to the applicant something commentators and other
party or the tribunal at the time the award Perenco v Ecuador, ICSID Case No. tribunals had previously cast doubt over.
was rendered, despite due diligence, and ARB/08/6, Decision on Ecuador’s
the fact would have decisively a ected Reconsideration Motion, April 10, Ecuador argued that the tribunal had
the award, the party can apply to have 2015 (Perenco) repeatedly omitted to determine issues
an award changed through a process In Perenco, Ecuador gave notice it put to it, violating fundamental rules
known as revision. A party also has the intended to submit a motion for of procedure, manifestly exceeding its
right to apply for annulment of an award reconsideration of a Decision on powers and failing to state the reasons
on procedural grounds. Remaining Issues of Jurisdiction and on on which the decision at issue was
Liability by the tribunal. The tribunal based. Ecuador argued that these errors
However, neither the ICSID Rules nor the permitted the motion to proceed, but would be grounds for annulment, but
I SI onvention specifically address emphasized “that only in exceptional that in any event, a lower standard of
whether a tribunal has the power to circumstances would it be open for the review applied pre-award.
reconsider its own decisions made in Tribunal to reconsider its prior reasoned

20 Norton Rose Fulbright – June 2017


Requests for reconsideration in ICSID and UNCITRAL arbitrations

The tribunal found that in the UNCITRAL of fraud,” but concluded that no such
circumstances of the case, it was not Like the ICSID Rules, the UNCITRAL evidence had been produced.
open to it to reconsider its prior decision. Arbitration Rules (UNCITRAL Rules)
It held that a decision that contains no provide a number of safeguards against More recently in 2005, the NAFTA
errors making it subject to annulment awards that are ambiguous, contain tribunal in Methanex Corporation
should stand. Furthermore, it would typographical or other unintentional v United States of America refused to
generally be undesirable (and not in errors, or are incomplete. However, consider a request for reconsideration of
accordance with the scheme of the none of these mechanisms o er a an earlier partial award. It found there
ICSID Convention) for an arbitral panel means for reviewing or challenging a was nothing in the UNCITRAL Rules to
to simultaneously act as a tribunal and tribunal’s reasoning, the substance of an suggest that a tribunal has jurisdiction
an annulment committee. Accordingly, award or the adequacy of the evidence to reconsider a final and binding award
a basis for a tribunal power to reopen, upon which the award was based. The that it has already made, though it
amend or reverse its decisions could UNCITRAL Rules do not provide for an acknowledged a “possible exception for
not be inferred from the existence of annulment procedure. If a party believes fraud by a party”, though this was not
an annulment procedure. The tribunal that an award ought to be set aside for relevant on the facts of this case.
also emphasized that the power to a lack of jurisdiction on the part of the
revise an award only existed in one very tribunal or procedural unfairness, then In view of the Standard Chartered panel’s
specific instance where new evidence that party must apply for relief from a recent affirmative ruling on this point,
is discovered. As a result, the tribunal court where the arbitration was seated. it is not unreasonable to hypothesise
concluded that once a tribunal decides that a tribunal constituted pursuant to
with finality any of the factual or legal Possibly for these reasons, requests for the UNCITRAL Rules might follow the
questions put to it by the parties, such a reconsideration under UNCITRAL Rules Standard Chartered line of reasoning if
decision becomes res judicata. arise in the conte t of final awards, as presented with new evidence that had
well as orders and decisions. been deliberately concealed by a party.
Standard Chartered Bank (Hong However, it is to be hoped (and expected)
Kong) Limited v Tanzania The UNCITRAL Rules provide that an award that such occurrences will be rare.
Electric Supply Company Limited is final and binding , and grant no
(Tanesco), ICSID Case No. explicit authority to a panel to reconsider
ARB/10/20, Award, September its award, or for that matter, any final For more information contact:
12, 2016 (Standard Chartered) decision (tribunals do have express
In Standard Chartered, the claimant authority under Article 26 to modify,
presented a request for reconsideration suspend or terminate interim measures).
to the tribunal following the receipt of
new information. The tribunal found The general consensus at present is
that it did have jurisdiction to reconsider that tribunals composed under the
a prior decision concerning jurisdiction. UNCITRAL Rules lack a general power
Paul Stothard
The tribunal opined that it is incorrect to to reconsider final awards. owever,
Partner, Dubai
characterize decisions of ICSID tribunals like tribunals formed under ICSID Tel +971 4 369 6300
– as opposed to their awards – as res Rules, it is possible that they may have paul.stothard@nortonrosefulbright.com
judicata. The circumstances of that case, a limited power to reconsider awards
however, were unique. The tribunal and decisions which are the product of
concluded that not only had new evidence false testimony or fraud, on the basis of a
come to light but that information provided tribunal’s inherent powers.
to the tribunal by the respondent had
been misleading. It remains to be seen This possibility was recognized in
whether other panels will extend the Biloune v Ghana, a 1989 arbitration
Jenna Anne de Jong
Standard Chartered panel’s reasoning to where the tribunal stated that it “would
Associate, Ottawa
cases where new evidence is discovered not hesitate to reconsider and modify its Tel +1 613 780 1535
but no misleading testimony or evidence earlier award were it shown by credible jennaanne.dejong@nortonrosefulbright.com
has been given to the panel. evidence that it had been the victim

Norton Rose Fulbright – June 2017 21


International arbitration report 2017 – Issue 8

Interest in investor-state mediation


is growing
Is mediation a viable investor-state dispute settlement mechanism?

Written by Mark Baker and Cara Dowling

Recent trends indicate a growing interest in investor-state mediation. In the past, the
intermittent dialogue around investor-state mediation has been speculative but more
often sceptical. Successful mediation hinges on voluntary, good faith participation and
the perception was that compulsory mechanisms would be necessary for any dispute
resolution process involving states to be effective. However, governments, investors
and institutions now seem to be considering meditation (usually as an adjunct to
arbitration) as a viable tool for resolving investor-state disputes.

Mediation is being more frequently The Energy Charter Conference has has recently established a Dispute
incorporated into investment treaties, endorsed a Guide on Investment Resolution and Negotiation Centre.
often as a preliminary step to arbitration. Mediation (Guide) as “a helpful, The Centre focusses on negotiating and
The EU-Canada Comprehensive Economic voluntary instrument to facilitate the mediating investor-state energy disputes.
and Trade Agreement contains a mediation amicable resolution of investment The Secretariat stated that institutional
clause as does the rans acific disputes”. The Conference actively mediation has an important role to play
Partnership. The EU negotiating text encourages parties to consider mediation in the resolution of investment disputes
of the Transatlantic Trade Investment on a voluntary basis at any stage of at an early stage.
Partnership contained a mediation the dispute. The Guide was prepared
mechanism “to help solve disputes with the support of the International
amicably”. Reportedly, mediation was Mediation Institute (IMI), ICSID, the SCC, Unsurprisingly, there is
discussed in the South East Asia/ the ICC, UNCITRAL and the PCA. The
Australasia Regional Comprehensive Guide explains the mediation process,
also an increased focus on
Economic Partnership negotiations. o ers tips on its use and e plains the the skills and qualifications
role of the Energy Charter Secretariat, of investment mediators. A
A number of institutions have adopted other institutions and the various unique set of skills is
bespoke rules for investor-state mediation. available rules. necessary to mediate
he first released was the I Investor
State Mediation Rules in 2012. These The Secretariat of the Energy Community
investor-state disputes.
were followed, in 2014, by both the ICC (an international organization dealing
Mediation Rules and SCC Mediation with energy policy, established by treaty,
Rules. hese mediation specific rules which brings together the European
are in addition to pre-existing rules for Union and countries from the South
conciliation proceedings.) East Europe and Black Sea regions)

22 Norton Rose Fulbright – June 2017


Interest in investor-state mediation is growing

Unsurprisingly, there is also an increased Mediation is frequently scheduled For more information contact:
focus on the skills and qualifications to precede arbitration, often in the
of investment mediators. A unique cooling o process, where even if
set of skills is necessary to mediate settlement is not achieved, it may narrow
investor-state disputes. The Investor- issues or open lines of communication
State Mediation Task Force of the IMI for later negotiation. Timing will,
Independent Standards Commission however, impact the e ectiveness of
has introduced competency criteria for mediation – and early intervention is
Mark Baker
investor-state mediators, following a two not always successful. Parties could
Global co-head of international arbitration
year consultation involving practitioners, therefore benefit from considering Partner, Houston
academics, government officials and voluntary mediation at other stages. Tel +1 713 651 7708
advisers. The competency criteria will mark.baker@nortonrosefulbright.com
be piloted in 2017 and reviewed by
organizations and practitioners involved The elephant in the room
in investor-state dispute resolution. The
is enforceability.
aim is to create a pool from which parties
can choose mediators with confidence. Contractual settlement
agreements are often not
Similarly, the Energy Community is as readily enforceable as Cara Dowling
forming a panel of mediators “of high moral arbitral awards. Senior knowledge lawyer, London
character and recognized competence in Tel +44 20 7444 5141
the fields of energy negotiations . hey cara.dowling@nortonrosefulbright.com
will assist the Energy Community Dispute
Resolution and Negotiation Centre to
facilitate negotiations in third-party energy The elephant in the room is enforceability.
disputes where the sta of the entre Contractual settlement agreements are
lack capacity and will conduct mediations often not as readily enforceable as
as part of the Energy Community Treaty arbitral awards which benefit from the
dispute settlement procedure. enforcement regimes under the ICSID
Convention or New York Convention.
The growing interest in investor-state This has not been an obstacle to mediation
mediation may have been sparked by a in the commercial arbitration context so
number of factors, including: a rise in the mediation in the investment context
the number of investor-state disputes; may prove similar – particularly where
high costs of investment arbitration; parties have ongoing, long term
public criticism of ISDS (warranted or relationships. Alternatively, parties may
otherwise); or it might simply follow the consider hybrid mechanisms (as are
trend in the commercial sector where being explored in the commercial
mediation is often a preliminary step context) such as Arb-Med-Arb, which
prior to binding adjudication (whether result in an award by consent.
arbitration or litigation). Mediation is,
however, unlikely to wholly replace
arbitration or other compulsory procedures.
They are better seen as complementary
tools, than either-or choices.

Norton Rose Fulbright – June 2017 23


International arbitration report 2017 – Issue 8

Brexit and investor-state


dispute settlement
What impact will Brexit have on foreign direct investment?

Written by James Rogers, Simon Goodall and Cara Dowling

One of the many questions raised by the UK’s pending withdrawal from the European
Union is what impact Brexit may have on protections afforded to foreign direct
investments in the UK and overseas through bilateral investment treaties (BITs) and,
importantly, the availability of investor-state arbitration. We consider Brexit’s impact
on BITs between the UK and (i) non-EU countries (extra-EU BITs); and (ii) EU countries
(intra-EU BITs). Each give rise to different considerations, however, we suggest that
ultimately Brexit may improve the UK’s ability to attract companies to structure their
investments in the UK so as to take advantage of the UK’s BIT regime.

The UK’s BITs The EU’s powers in respect Until recently, the legal position as to the
The UK is a signatory to more than 100 of investment treaties scope of the EU’s powers in respect of
BITs with other countries around the Following the entry into force of the trade and investment was not clear cut.
world plus some 55 treaties containing Lisbon Treaty in 2009, the EU assumed The question of the EU’s powers in these
investment provisions. These contain exclusive competence over certain areas, respects came before the Court of Justice
reciprocal undertakings that promote and including foreign direct investment as of the EU (CJEU), having been referred
protect private foreign direct investments part of the EU’s “Common Commercial in the context of the EU’s competence to
made by UK investors overseas and by Policy”. Where power is exclusively conclude the EU-Singapore Free Trade
overseas investors within the UK. They conferred upon the EU, EU Member Agreement (EUSFTA). EUSFTA is a “new
impose obligations on the host state (i.e. States (including the UK) are no longer generation” free trade agreement in that
the state in which the investment is entitled to negotiate and conclude BITs it extends beyond matters of customs
made) to ensure that foreign investors in respect such matters without the EU’s duties and of non tari barriers in the
have certain guarantees as to the approval. Moreover, acting alone, the area of trade in goods and services, to
treatment of their investment such as: EU may enter into agreements without address other matters of trade including
fair and equitable treatment; treatment requiring individual EU Member State direct and indirect foreign investment
no less favorable than that provided to ratification. y contrast, where powers (amongst others). The European Council
investors under other treaties; free remain exclusively with EU Member and most EU Member States asserted
transfer of funds without restrictions; States or are shared with the EU rather that some provisions in EUSFTA concern
and compensation in the event of than exclusively conferred upon either, matters outside the EU’s exclusive
un ustified e propriation. ypically, they the EU cannot act alone in respect of competence. The EUSFTA is viewed as
also provide a mechanism for resolving those powers. a test case for other new generation free
disputes through international arbitration. trade agreements.

24 Norton Rose Fulbright – June 2017


Brexit and investor-state dispute settlement

he first indicator of the direction Extra-EU BITs and EU negotiated concluded between individual EU
the CJEU might take was the opinion agreements Member States and non-EU states, so
of Advocate-General Sharpston on The UK is a party to 84 BITs with non- long as the provisions in question fall
EUSFTA who advised that the EU does EU countries. Transitional measures within areas of EU exclusive competence.
not have exclusive competence over all allow BITs between EU Member States
matters in EUSFTA. Advocate-General and non-EU countries (extra-EU BITs) There are a number of uncertainties
opinions are not binding on the CJEU which address matters within the EU’s around the impact Brexit will have on
but are often followed. On May 16, exclusive competence to remain in force EU negotiated international trade and
2017, the CJEU published its own until such time as they are replaced investment agreements. It is unclear
opinion (opinion 2/15) concluding that by EU-wide international investment whether the UK will automatically
whilst most of EUSFTA falls within EU agreements between the EU itself and cease to be a party to all or parts of
exclusive competence (including foreign non-EU countries. such agreements, whether the UK must
direct investment), two provisions, formally give notice of termination,
namely, non-direct foreign investment The European Commission (EC) has been or whether there are other options.
(i.e. “portfolio” investments made gradually seeking to replace extra-EU It is also unclear whether or to what
without any intention to in uence BITs and has already agreed trade and extent “sunset clauses” within those
the management and control of an investment agreements with Canada, agreements, which provide for the
undertaking) and the investor-state Singapore and Vietnam (though these continuation of certain provisions for a
dispute resolution regime (ISDS), are are yet to come into force) and is in certain period of time (often decades)
within a shared competence. The CJEU the process of negotiating agreements after termination, will apply. This lack
stated that EUSFTA cannot be entered with others including the US and China of clarity is partly due to the fact that
into by the EU acting alone; full EU (though the status of these negotiations whilst many EU negotiated agreements
Member State approval is needed (i.e. is in question given the Trump address what happens when states join
approval from all 38 EU national and administration’s stated preference the EU, none address EU Member States
regional parliaments). for bilateral rather than multilateral leaving the EU. As with much of the legal
agreements and the UK’s intended fall-out from Brexit, we are in somewhat
This will no doubt hinder the EU’s ability withdrawal from the EU). unchartered territory.
to conclude free trade agreements
efficiently and e ectively. high profile Some commentators speculate that the
example is provided by the comprehensive As with much of the legal UK may no longer be bound by any EU
free trade agreement between Canada and fall-out from Brexit, we are negotiated treaties with non-EU countries.
Europe (CETA) which – after seven years in somewhat unchartered However, the Attorney-General’s opinion
of negotiations – faced opposition from the on EUSFTA noted that “If an international
Belgian regional parliament in Wallonia
territory. agreement is signed by both the [EU] and
which objected to certain provisions. its constituent Member States, both the
[EU] and the Member States are, as a
The CJEU’s opinion 2/15 did not set out matter of international law, parties to
why full approval is needed. In areas of There had been some question over that agreement. … [A Member State’s]
shared competence a political choice is whether existing BITs between non-EU participation in the agreement is, after
made as to whether the EU or EU Member countries and individual EU Member all, as a sovereign State Party, not as a
States will exercise the competence States would automatically terminate mere appendage of the [EU] (and the fact
(though in practice the default is usually and cease to be valid once EU-wide that the [EU] may have played the leading
for both to be involved). If the CJEU’s agreements come into force. This has role in negotiating the agreement is, for
position is (as it appears to be) that EU been clarified in the s opinion on these purposes, irrelevant).”. The CJEU
Member State approval is required for EUSFTA which found that the EU has the did not address this question in its
any agreement in an area of shared power to enter into agreements with opinion on EUSFTA. The position will no
competence, this decision potentially non-EU countries which replace doubt need to be considered on a case by
has very wide ramifications. commitments in BITs previously case basis and the legal impact of Brexit

Norton Rose Fulbright – June 2017 25


International arbitration report 2017 – Issue 8

will likely depend in part on whether the approval of CETA. Some believe that After Brexit, the UK will also fully regain
agreement in question was a mixed the EU’s ICS proposal is not compatible its powers to negotiate and conclude
agreement, whether it was ratified by the with EU law – a question which the CJEU new investment agreements with non-
UK and the EU, or whether it was an was not asked to address in its recent EU countries, and in this respect it may
agreement exclusively within the EU’s opinion on EUSFTA but which is likely to benefit from being able to conclude deals
competence and concluded by the EU alone. be referred to the CJEU for determination with non countries more efficiently
shortly. he s finding that IS S and e ectively than the . ccording
Regardless, the UK’s existing 84 extra- regimes are not within the EU’s exclusive to the UK government, a number of
EU BITs will remain valid, which could competence represents a further set-back countries have already expressed an
be to the UK’s advantage. Firstly, given to the EU. interest in concluding agreements with
that most EU international agreements the UK once it has exited the EU. The
are mixed agreements like EUSFTA, the Trump administration has gone as far
obligation to involve all EU Member An interesting conundrum as to suggest that an agreement with
States will necessarily hamper the results from the EU having the UK could be concluded within
progress of negotiating and implementing months of Brexit. It remains to be seen
exclusive competence over
EU-wide international agreements. if this enthusiasm continues and the
Secondly, the fact that the majority of the foreign direct investment UK is able in practice to quickly secure
UK’s extra-EU BITs include investor-state but sharing competence new investment agreements. But the
arbitration provisions could give the UK with the EU Member States opportunity is certainly there. Obviously
a strategic advantage from the over ISDS. however, in light of the CJEU’s opinion
perspective of investors. significant on EUSFTA, any mixed competence
feature of the EU’s approach to EU-wide UK-EU trade agreement will necessarily
international investment agreements is entail more difficult, time consuming
its policy of replacing investor-state negotiations given it will require full EU
arbitration with a two-tiered Investment An interesting conundrum results from Member State participation.
Court System (ICS). (The EU’s ICS the EU having exclusive competence over
proposals are discussed in detail in foreign direct investment but sharing Intra-EU BITs
another article in this issue “The EU’s competence with the EU Member States There are currently more than 150 BITs
proposed reform of investor-state dispute over ISDS. EU Member States cannot between di erent ember States
settlement”). ICS will likely feature in, enter into foreign direct investment (intra-EU BITs). The EC is opposed
or at least form a central plank of treaties (save with EU permission). The to intra-EU BITs and views them as
negotiations in relation to, all of the EU’s EU may enter into foreign direct superseded by and/or incompatible with
future BITs. However, those ICS investment agreements alone, but those EU law.
provisions have proved controversial. would be toothless without some form of
ISDS mechanism which it EU cannot In the arbitration cases of Eastern Sugar
The EU argues that the ICS would unilaterally impose on EU Member v Czech Republic and Eureko v Slovakia,
provide greater transparency and States. As a result, the EU and all the EU challenges were made to the tribunal’s
protect investment whilst preserving Member States will need to reach jurisdiction on the basis that the BITs
the rights of governments to regulate. agreement on these matters if they wish under which proceedings had been
But concerns have been raised to avoid a deadlock. At this point, how commenced, namely BITs between
(particularly by investors) about the they will reach agreement is not clear. If the Netherlands and (respectively) the
lack of party autonomy, accountability the EU insists on EU Member States Czech Republic and Slovakia, ceased to
and sustainability of the ICS. The EU’s adopting ICS provisions, it is likely to be applicable once the Czech Republic
negotiations with the US over the face serious opposition. Conversely, if and Slovakia joined the EU. In each
Transatlantic Trade and Investment the EU’s ICS proposals are not widely instance the EC intervened to object to
Partnership (TTIP) stalled partially adopted by all EU Member States, it the applicability of the intra-EU BITs.
due to di ering views over the sI S could render the EU’s ICS ambitions In both cases the tribunals decided
proposals. The ICS was also a sticking largely redundant. that they had jurisdiction to determine
point to obtaining EU Member State the disputes under those BITs, but the

26 Norton Rose Fulbright – June 2017


Brexit and investor-state dispute settlement

EC’s objections highlight the extent of The EU’s policy of seeking termination of For more information contact:
its opposition to intra-EU BITs. The EC intra-EU BITs notwithstanding that there
argued that intra-EU BITs should be is currently no adequate alternative in
terminated as most of their provisions place (particularly in respect to investor-
are superseded by EU law and applying state dispute resolution mechanisms)
them could lead to discrimination could give post-Brexit UK a competitive
between EU Member States. It stated that advantage over other EU countries and
it intended to urge all EU Member States increase its attractiveness to investors
James Rogers
to take “concrete steps” to terminate wishing to invest in Central and Eastern
Partner, London
intra-EU BITs and would not rule out Europe. The UK currently has 12 Tel +44 20 7444 3350
resorting to infringement proceedings. intra-EU BITs (with Bulgaria, the Czech james.rogers@nortonrosefulbright.com
The EC claimed that investor-state Republic, Croatia, Estonia, Hungary,
arbitration mechanisms within intra-EU Latvia, Lithuania, Malta, Poland,
BITs raised “fundamental questions” Romania, Slovakia and Slovenia). Once
about compatibility with EU law and the UK leaves the EU, there will be no
undermined the principle of mutual trust uncertainty regarding the validity of its
in the administration of justice within BITs with EU Member States. Until such
the EU. It rejected the idea of making time as the UK enters into an investment
Simon Goodall
investor-state arbitration available agreement with the EU, those BITs will
Associate, London
to investors from all EU countries, remain in force and will continue to o er Tel +44 20 7444 5743
stating that it was firmly opposed to both states and foreign investors important simon.goodall@nortonrosefulbright.com
“outsourcing” disputes involving EU law. protections including the ability submit
disputes to investor-state arbitration.
The EC has now asked all EU Member
States to terminate intra-EU BITs. So far
Italy, Ireland and the Czech Republic
have terminated all or some of their
intra-EU BITs. Romania has agreed to
submit to draft legislation approving Cara Dowling
Senior knowledge lawyer, London
the termination of its intra-EU BITs.
Tel +44 20 7444 5141
Poland and Denmark have considered cara.dowling@nortonrosefulbright.com
taking similar steps. The EC has brought
infringement proceedings against
Austria, the Netherlands, Romania,
Slovakia and Sweden alleging that
some of their intra-EU BITs violate EU
law. Those cases will likely be referred
to the CJEU. In the meantime, the CJEU
is set to determine a dispute between
Dutch insurer Achmea BV and Slovakia
concerning the validity of the BIT
between the Netherlands and Slovakia.
If the CJEU rules that it is incompatible
with EU law, it could undermine the
enforceability of any award rendered
under an intra-EU BIT.

Norton Rose Fulbright – June 2017 27


International arbitration report 2017 – Issue 8

South Africa to overhaul its


international arbitration regime
Will new legislation facilitate foreign direct investment?

Written by Jeffrey Kron and Rachel Mazower

Recent legislative and policy changes to the protection of foreign direct investment
in South Africa have been the source of some concern to the international business
community. The International Arbitration Bill and proposed amendments to the process
for recognition and enforcement of foreign international arbitration awards may ease
these concerns and help attract foreign direct investment.

Protection of Investment Act As a result of public comment, in The Protection of Investment Act
In issue 4 of this report, we discussed 2015 a revised Bill was released and however continues to elicit concern.
South Africa’s changing approach to later promulgated as the Protection of Many perceive it as less favorable to
international investment protection. We Investment Act. The commencement international investors than the BITs it is
highlighted South Africa’s termination date for this Act is yet to be announced. intended to replace because it provides
of several bilateral investment treaties foreign investors with less certainty as to
(BITs) and the development of legislation he definition of e propriation and how their rights will be safeguarded.
– the Promotion and Protection of the quantification of compensation Those concerns centre on the need for
Investment Bill – to regulate the for expropriation have been removed e ective investor state dispute
protection of investment, including entirely from the Protection of settlement mechanisms.
international investment, in South Investment Act and instead form the
Africa. That Bill raised a number of subject of a new Expropriation Bill also South Africa’s cancellation of BITs
red ags to prospective international released in 2015. means that (save for grandfather clauses)
investors. It set out to promote and the Government of South Africa is no
protect investment in a manner “which longer bound to submit to investor-state
re ected public interest and which Investors are losing a right international arbitration. The Protection
struck a balance between the rights and of Investment Act instead provides that
of direct action against
obligations of all investors”. However, the South African Government consents
foreign investors were apprehensive South Africa. Instead, to state-state international arbitration
that the protections a orded to foreign arbitration would be in respect of investments covered by
investors under the Bill would be conducted between the the Act, subject to the exhaustion of
less favorable than those under the Republic of South Africa domestic remedies. As such, investors
BITs, including what would amount are losing a right of direct action against
and the investor’s home
to expropriation and how equitable South Africa. Instead, arbitration would
compensation for any such expropriation state be conducted between the Republic
would be determined. of South Africa and the home state of

28 Norton Rose Fulbright – June 2017


South Africa to overhaul its international arbitration regime

the applicable investor. There is only The Arbitration Bill provides anew for The proposed changes to the
a provision for mediation between an the recognition and enforcement of international arbitration regime should
investor and the Government of the foreign arbitral awards by repealing the give comfort to the international
Republic of South Africa. Draft rules for current Recognition and Enforcement of investment community that South
the proposed investor-state mediation Foreign Arbitral Awards Act of 1977 and Africa is a safe place to do business and
process have recently been published for enshrining a new process which closely is a jurisdiction where international
public comment. mirrors the New York Convention on the investors can expect to have their
Recognition and Enforcement of Foreign disputes swiftly dealt with and with
International Arbitration Bill Arbitral Awards in terms of the procedure limited interference by the local courts.
Presently all arbitrations in South Africa, for enforcing foreign arbitral awards and Indeed in a keynote address at an
whether domestic or international, are the grounds for refusing recognition and international arbitration seminar in
governed by the Arbitration Act of 1965. enforcement of such awards. October 2016, Deputy Minister John
The Arbitration Act has been in force for e ery of the epartment of ustice
over 50 years and is long overdue for The Arbitration Bill also amends the and Constitutional Development
revision. It is widely considered to be Protection of Business Act of 1978 expressed the hope that the Bill would
inadequate, outdated and unsuitable for insofar as it applies to foreign arbitral establish South Africa as a regional
international commercial arbitrations. awards. That Act is also considered to be arbitration centre and encourage direct
outdated, including by requiring prior international investment in South Africa.
A new Arbitration Bill was introduced permission, in certain circumstances,
to parliament on 21 April 2017. The from the Minister of Trade and Industry The Bill has been a long time in the
Arbitration Bill removes international to enforce a foreign arbitral award in making and is a very welcome addition
commercial arbitrations from the ambit South Africa. This permission will no to the South African legislative process
of the Arbitration Act and incorporates longer be necessary. insofar as international investment
most of the main provisions of the protection is concerned.
UNCITRAL Model Law as the cornerstone The Arbitration Bill is to have retrospective
of the international arbitration regime application to international commercial
in South Africa. This brings the South arbitration agreements concluded before For more information contact:
African international arbitration regime its enactment, although it will not apply
in line with the international system and to proceedings already instituted.
should o er international investors more
certainty as to the dispute resolution
process to be followed in South Africa. The proposed changes to
the international
It is envisaged that aspects of the
UNCITRAL Model Law will be further arbitration regime should Jeffrey Kron
Partner, Johannesburg
adapted to accommodate local give comfort to the Tel +27 11 685 8873
circumstances, as provided in Part Two international investment e rey.kron nortonrosefulbright.com
of the Model Law. community that South
Africa is a safe place to do
South African courts have generally
upheld arbitration agreements, however, business
the anticipated new legislation further
circumscribes the role of the courts in
relation to setting aside arbitration
Rachel Mazower
agreements or arbitral awards, in line
Candidate attorney, Johannesburg
with the UNCITRAL Model Law (which is Tel +27 11 685 8825
more restrictive than the Arbitration Act). rachel.mazower@nortonrosefulbright.com

Norton Rose Fulbright – June 2017 29


International arbitration report 2017 – Issue 8

Russia’s new guidelines on future


bilateral investment treaties
Foreign direct investment after Yukos Shareholders v Russia

Written by Yaroslav Klimov and Andrey Panov

The Government of the Russian Federation has adopted a new Regulation on


Entering into International Treaties on the Encouragement and Mutual Protection of
Investments (Regulation). This replaces the Russian Model Bilateral Investment Treaty.
The Regulation contains non-binding guidelines for drafting and negotiating future
investment protection treaties (Guidelines). This article looks at key aspects of the
Guidelines, including investor-state dispute settlement provisions.
The Guidelines cannot be used to interpret investment treaties would likely make it
existing investment treaties but they New investment treaties difficult for investors to structure
usefully demonstrate the likely shape of would likely make it investments solely for the purposes of
future Russian bilateral investment gaining protection under a Russian BIT
treaties (BITs). It is apparent that the difficult for investors to (i.e. “treaty shopping”).
Guidelines build upon lessons learnt from structure investments
recent investment treaty disputes involving solely for the purposes of Any new investment treaty should
Russia, including the arbitration brought gaining protection under a contain a so-called “clean hands” clause
by former shareholders of Yukos against Russian BIT (i.e. “treaty that excludes protection of foreign direct
the Russian Federation. investments which are not in compliance
shopping”). with the laws of the host state.
A few key provisions of the
Guidelines are set out below The Guidelines suggest that new treaties
Any new investment treaty should apply should provide for quantification
only to investments made after the treaty of compensation for expropriation
came into force unless the contrary is Protections under any new investment or other loss based on the market
expressly agreed in the treaty itself. In treaty should not be granted to value of the investment, taking into
any event, any new treaty should not investments made by citizens of the host account any decrease of value due to
apply to claims that arose before it came state. Furthermore, any new investment the news of anticipated expropriation
into force. As a result, it is likely that treaty should not apply to investments becoming public. This provision appears
future BITs with Russia will contain made by companies which do not have aimed at preventing the acquisition
declarations or reservations to exclude significant business activity in the of investments at a discount on the
provisional application of the treaty (one country of their incorporation or eve of expropriation solely for the
of the key issues in recent Energy Charter companies which are controlled by the purpose of bringing a claim under an
Treaty disputes involving the former beneficiaries from the host state or a investment treaty for its full value once
Yukos shareholders). third country. Accordingly, new expropriation occurs.

30 Norton Rose Fulbright – June 2017


Russia’s new guidelines on future bilateral investment treaties

In respect of the investor-state dispute For more information contact:


settlement (ISDS) provisions, any new
investment treaty should contain a
mandatory days cooling o period
and detailed requirements on notification
of disputes. It should also state that if
negotiations are not successful, the
investor would be able to commence
Yaroslav Klimov
arbitration as stipulated by the relevant
Partner, Moscow
treaty but only with respect to claims Tel +7 499 924 5130
made in the notice of dispute. yaroslav.klimov@nortonrosefulbright.com

The Guidelines do not specify which


international arbitration rules are to
be included in new investment treaties
however they do provide that certain
amendments to the chosen rules should
be included. In particular, any new
Andrey Panov
investment treaty should
Senior associate, Moscow
Tel +7 499 924 5101
• State the place and language of andrey.panov@nortonrosefulbright.com
arbitration (generally existing Russian
BITs do not specify this).

• Expressly exclude the UNCITRAL


Rules on Transparency and establish
a duty of confidentiality with respect
to any information about the dispute,
extending to any participant of the
arbitration.

• Require mandatory bifurcation if a


challenge to the tribunal’s jurisdiction
is made.

Finally, any new treaty should provide


for a limitation period of two years after
the events giving rise to the dispute
for the claimant to send the notice of
dispute to the host state, and arbitration
must be commenced with three years
from the date of that notice.

Norton Rose Fulbright – June 2017 31


International arbitration report 2017 – Issue 8

An overview of new rules


of international arbitration
New Year, New Rules

Written by Pierre Bienvenu

Arbitral institutions are constantly seeking to update their rules to keep in line with
current trends and to distinguish themselves amongst their peers. In early 2017,
new or amended rules come into force for three of the most prominent global arbitral
institutions: the International Chamber of Commerce (ICC), the Singapore International
Arbitration Centre (SIAC), and the Arbitration Institute of the Stockholm Chamber of
Commerce (SCC). Important changes include the introduction of expedited procedures
in ICC and SCC arbitrations, and new SIAC rules for investment arbitrations. We provide
a brief overview of key features of these updated rules.

ICC Rules 2017 arbitrations in 2015 was US$80 million,


Following a consultation process in The most significant 33 per cent of ICC cases were under
2016, the ICC published proposed US$2 million and 25 per cent of cases
amendment to the ICC
amendments to the ICC Rules of were under US$1 million. Therefore a
Arbitration in November 2016. These Rules 2017 is the significant proportion of I cases will fall
new rules (the ICC Rules 2017) came introduction of an within the new ICC expedited procedure.
into force on March 1, 2017. expedited procedure.
The ICC Rules 2017 also provide that
he most significant amendment to parties may agree to opt-in to the
the ICC Rules is the introduction of expedited procedure if the amount
an expedited procedure under Article The expedited procedure will apply for in dispute exceeds the threshold.
30 (as supplemented by Appendix cases in which the amount in dispute Conversely, parties may opt-out of the
VI: Expedited Procedure Rules). The does not exceed US$2 million. This limit expedited procedure or the ICC Court
expedited procedure was introduced appears relatively low by comparison to may determine that the expedited
in response to a growing demand from SIAC’s expedited procedure, under which procedure is inappropriate for a
users, in particular in Asia, and in order the threshold for the amount in dispute particular case. The expedited procedure
to bring the ICC Rules in line with those was raised in 2016 from SG$5,000,000 will only apply to arbitration agreements
of other major arbitral institutions. to SG$6 million (approximately US$3.5 entered into after March 1, 2017, unless
million to US$4.2 million). However, while the parties agree to opt-in.
the average amount in dispute for ICC

32 Norton Rose Fulbright – June 2017


An overview of new rules of international arbitration

The main features of the expedited SIAC Investment Arbitration Rules


procedure are as follows: notwithstanding The SIAC Investment Arbitration Rules The tribunal may order the
the arbitration agreement, the ICC Court (SIAC IA Rules) came into force on
may appoint a sole arbitrator; the January 1, 2017. Unlike the approach
disclosure of the existence
requirement for Terms of Reference has taken by the SCC, described below, the of a third party funder
been removed; the tribunal has discretion SIAC has promulgated a comprehensive (including the identity of
not to allow document requests and to set of rules specifically for investment the funder).
limit written submissions and evidence, arbitration.
as well as to decide the matter on
documents only the final award is to be The preamble of the SIAC IA Rules states
made within six months of the case that the rules may apply to disputes Also of interest is SIAC IA Rule 24(l),
management conference. All ICC awards, involving “a State, State-controlled entity which grants the tribunal the power to
including cases conducted under the or intergovernmental organization, order disclosure in relation to third party
expedited procedure, will continue to be whether arising out of a contract, treaty, funders, which is particularly relevant in
subject to scrutiny by the ICC Court. statute or other instrument.” This light of Singapore’s recent legislative
provides a relatively broad scope for amendments to allow for third party
The ICC Rules 2017 have also reduced disputes which can be referred to the funding for international arbitrations.
the time limit within which the Terms SIAC under these rules. Pursuant to this provision, the tribunal
of Reference are to be signed, from may order the disclosure of the existence
two months to 30 days following The SIAC IA Rules, however, do require of a third party funder (including the
transmission of the file to the tribunal the parties to have expressly referred identity of the funder) and, where
(Article 23(2)). The purpose of this their disputes to the SIAC under its appropriate, details of the funder’s
amendment is to reduce time in investment rules. There appears to be interests in the outcome of the proceedings
the initial phases of the arbitration no mechanism (aside from subsequent and/or whether the funder has committed
and encourage tribunals to avoid agreement) by which parties in to cover adverse costs liability.
unnecessarily delay. The ICC Court may appropriate cases can be transferred
(as is the case presently) extend the from the Arbitration Rules of the SIAC The SIAC IA Rules also permit
deadline in appropriate cases. (SIAC Rules) to the SIAC IA Rules. submissions by a non-disputing third
party (on their own initiative or by
The prohibition on communicating The SIAC IA Rules are largely based invitation of the tribunal) who is a party
reasons for the Court’s decisions to the on the SI Rules, with specific to the treaty under which the arbitration
parties has been removed (Article 11(4)). amendments to cater for investment was commenced (Rule 29.1). However,
This amendment is in line with the ICC disputes. The tribunal is granted broadly such submissions are limited to “a
Court’s current practice to provide, in the same powers and discretion under question of treaty interpretation that is
appropriate cases, reasoned decisions both sets of rules. Key provisions of the directly relevant to the dispute.” Rule
for challenges, for decisions to initiate SIAC IA Rules are set out below. 29.2 also permits any non-party to the
replacement proceedings, as well as for arbitration to make submissions, upon
decisions on prima facie jurisdictional Rule 1.3 of the SIAC IA Rules provides for application to the tribunal, provided
decisions and consolidations. The Court waiver from immunity with respect to the that such third party is found to have
has been providing reasons for some arbitration proceedings before the SIAC, sufficient interest in the arbitral
of these decisions since October 2015, while expressly stating that such waiver proceedings and/or any other related
but due to the previous language in the does not apply to any immunity from proceedings” (Rule 29.3).
ICC Rules 2012, provision of reasoned enforcement which a party may have.
decisions was subject to the agreement
of all parties.

Norton Rose Fulbright – June 2017 33


International arbitration report 2017 – Issue 8

Pursuant to SIAC IA Rule 38, the parties Following ICSID and UNCITRAL, the The SCC Expedited Rules apply only in
are deemed to consent to the publication SCC Rules are the most frequently used the event that the parties have agreed
of the nationality of parties, identity and arbitration rules for investment disputes. to their application (Article 11), which
nationality of arbitrators, the treaty/ The provisions relating to treaty based may result in a more limited use than the
statute/other instrument under which the investment disputes are found at provisions for expedited procedures of
dispute was commenced, and the date of Appendix III to the SCC Rules 2017, and other institutions which apply by default
commencement of proceedings and apply to cases under the SCC Arbitration to claims under a certain value.
whether they have terminated. The SIAC Rules “based on a treaty providing
may also publish redacted excerpts of for arbitration of disputes between While the SCC Expedited Rules contain
the reasoning of the tribunal and redacted an investor and a state.” The 2017 relatively standard provisions, Article 30
decisions of the SIAC Court on challenges. revisions have introduced procedures for provides that the Request for Arbitration
submissions from third parties, broadly and the Answer to the Request for
Other points to note include: the similar to the new provisions introduced Arbitration will constitute the parties’
increased time limit for the Response by SIAC, discussed above. primary submissions for the arbitration,
to the Notice of Arbitration and for permitting only one “supplementary
constitution of the tribunal (Rules written submission” unless the tribunal
4.1, 6.2 and 7.2); the default number The SCC Rules have also decides otherwise.
of arbitrators is three instead of one introduced a summary
(Rule 6.2); the SIAC Court, and not the
procedure pursuant to
President, shall appoint arbitrators For more information contact:
under the Rules (Rules 6.2, 7.2, 7.3 and which parties may request
9); appointments by the SIAC Court for the tribunal to determine
sole arbitrator or presiding arbitrator one or more issues of fact
shall be done in accordance with a list or law by way of summary
procedure (Rule 8); the submissions,
procedure.
unless otherwise agreed, are to be
in memorial style (Rule 17); and the
Pierre Bienvenu Ad. E.
emergency arbitrator provisions are opt-
Global co-head of arbitration
in (Schedule 1). The SCC Rules 2017 have also Partner, Montréal
introduced a summary procedure under Tel +1 514 847 4452
SCC Rules 2017 Article 39, pursuant to which parties pierre.bienvenu@nortonrosefulbright.com
The SCC Rules 2017 came into force may request the tribunal to determine
on January 1, 2017, to coincide with one or more issues of fact or law by way
the centenary celebrations of the SCC. of summary procedure. New provisions
The revised rules introduce a number have been introduced for multi-party
of relatively minor amendments to the and multi-contract disputes, including
institute’s rules. The SCC also released provisions for the joinder of parties
a separate set of Rules for Expedited (Articles 13 and 14). Following other
Arbitration (SCC Expedited Rules), arbitral institutions (such as the HKIAC,
e ective from the same date. the ICC and SIAC), the SCC has
introduced specific guidelines on the
appointment of Tribunal Secretaries
(Article 24).

34 Norton Rose Fulbright – June 2017


International arbitration developments in the Middle East

International arbitration developments


in the Middle East
Written by Deborah Ruff and Julia Belcher

In the last year, a number of important developments in international arbitration


took place in the Middle East region. New arbitral institutions were established in the
Kingdom of Saudi Arabia and the United Arab Emirates. Local arbitration institutions
revised and updated their rules of arbitration. New arbitration laws were issued in
Qatar and the United Arab Emirates. We review these key international arbitration
developments which, in the main, are positive and aimed at making the countries in the
region more attractive for users of international arbitration.

New arbitral institutions and joinder of third parties. Fees follow It remains to be seen if the SCCA will
Kingdom of Saudi Arabia an ad valorem principle. In line with the make any inroads on the position
he first international arbitration new 2012 Arbitration Law, the SCCA occupied by other existing regional
institution in the Kingdom of Saudi has underlined that parties can appoint arbitration centres (such as DIAC and
Arabia, the Saudi Centre for Commercial whomever they choose as arbitrators. DIFC/LCIA) and the local courts. It also
rbitration S , was officially The SCCA Rules are expressly stated to remains to be seen whether the Saudi
inaugurated in October 2016. The launch apply without prejudice to the rules of government will include SCCA dispute
came two years after the Kingdom’s Sharia. However, as a matter of public resolution provisions in its contracts
Council of Ministers resolved in 2014 to policy, enforcement in Saudi Arabia is in with third parties (as opposed to its
launch a centre to administer civil and any event only possible if an award does previous default position of Saudi courts).
commercial disputes, with an ambitious not violate Sharia principles.
vision of becoming the preferred ADR United Arab Emirates
choice in the region by 2030. While the opening of the SCCA is The Emirates Maritime Arbitration
certainly welcome, the eyes of the Centre (EMAC), a specialised maritime
he S Rules, e ective from ay international arbitration community arbitration centre, commenced
2016, are based on the UNCITRAL will remain on enforcement of domestic operations in September 2016. EMAC
Arbitration Rules and have been and foreign arbitration awards in Saudi is intended to address the dispute
developed in partnership with the Arabia. While, in the recent years, this resolution needs of the growing maritime
AAA-ICDR. At the same time, the SCCA process has become easier, it is hoped sector in the region.
Rules were drafted to be consistent with that the opening of the SCCA (coupled
the Saudi Arbitration Law issued in with the government’s plan to open three EMAC’s rules are based on the 2010
2012. The SCCA Rules are generally in branches of the SCCA in Saudi Arabia UNCITRAL Arbitration Rules and provide
line with most major arbitration rules by 2020) signal a desire to become a for the DIFC as the default seat of
and include provisions regarding the modern arbitration-friendly jurisdiction. arbitration, which means that the DIFC
appointment of an emergency arbitrator court will be the supervisory court. The

Norton Rose Fulbright – June 2017 35


International arbitration report 2017 – Issue 8

advantage of this arrangement is that The Emergency Arbitrator must • easures to increase efficiency the
awards recognized and enforced by the decide the claim for emergency relief new rules include provisions aimed at
DIFC Court are automatically enforced as soon as possible, but no later than reducing delay and costs of the DIFC-
by the UAE courts. Final EMAC DIFC 14 days from his/her appointment. LCIA arbitrations, such as
awards will be enforceable in other The Emergency Arbitrator’s award
convention countries under the New or order may be confirmed, varied, — Reduced time periods – certain
York Convention. discharged or revoked by order or default time periods have
award made by the tribunal once been reduced: for example, a
constituted. The Emergency Arbitrator respondent’s time to submit
These developments, in provisions do not prejudice a party’s a response to a request for
right to apply to the courts for interim arbitration has been shortened
the main, are positive and
measures before the tribunal has been to 28 days (from 30 days) (Article
aimed at making the constituted (Article 9.12). 2.1). That said, the LCIA Court’s
countries in the region time to appoint the Tribunal has
more attractive for users of The Emergency Arbitrator provisions increased from 30 days to 35 days
international arbitration. will not apply to arbitration (Article 5.6).
agreements made before October 1,
2016 unless the parties have — Tribunal’s availability (Articles 5.4
expressly agreed to it. and 10) – each arbitrator candidate
New institutional rules is now required to sign a written
New DIFC-LCIA Rules It remains to be seen how the local declaration stating, inter alia, that
New DIFC-LCIA Arbitration Rules courts will treat the awards or orders he/she is “ready, willing and able
came into force on October 1, 2016, made by an Emergency Arbitrator. to devote sufficient time, diligence
replacing the 2008 rules. The new rules and industry to ensure the
mirror the amendments to the LCIA • Consolidation of multi-party disputes e peditious and efficient conduct
Arbitration Rules 2014 and the changes (Articles 1.5, 2.5, 15 and 22) – the of the arbitration”. The aim of this
introduced are aimed at making DIFC- new rules expressly recognise that provision is to ensure at the outset
I arbitrations more efficient and there may be more than one claimant that the members of the tribunal
cost e ective. he changes are also in or respondent. The tribunal may formally commit to devoting
line with the trends adopted by other consolidate two or more arbitrations sufficient time to the arbitration
arbitration institutions such as the SIAC (subject to certain conditions) and make themselves available
and the HKIAC. and, prior to the formation of the for hearings etc. To supplement
tribunal, the LCIA Court may do so this provision, the LCIA Court can
In summary, the key changes are (Article 22). Moreover, the tribunal revoke an arbitrator’s appointment
is expressly empowered to provide if he she is unfit to act rticle
• Emergency Arbitrator (Article 9B) additional directions regarding 10.1), which includes failure
– the new rules allow parties, “in witness statements, submissions and to “conduct or participate in
the case of emergency”, to request a evidence, “particularly where there the arbitration with reasonable
temporary sole arbitrator to conduct are multiple claimants, multiple efficiency, diligence and industry
emergency proceedings pending the respondents or any cross-claim (Article 10.2).
constitution of the tribunal. The LCIA between two or more respondents
Court must appoint an Emergency or between two or more claimants”
Arbitrator within three days of receipt (Article 15.6).
of the application.

36 Norton Rose Fulbright – June 2017


International arbitration developments in the Middle East

— n line filing rticle . and . limited given that government entities For more information contact:
– claimants and respondents are can only agree to arbitrate with the
now able to file their requests for Prime Minister’s consent. Notably, the
arbitration and responses on-line new law allows parties to elect that
on the DIFC-LCIA’s website. the Qatar International Court (Qatari
Financial Centre Civil and Commercial
• Conduct of counsel (Article 18) – the Court) will act as supervising court of the
new rules set out provisions aimed at arbitration.
Deborah Ruff
regulating the conduct of the parties’
Partner, London
legal representatives (e.g. proof of Arbitrator liability in the United Arab Tel +44 20 7444 5944
authority, changes or additions to Emirates deborah.ru nortonrosefulbright.com
counsel). In particular, the parties A recent change to the UAE Penal Code
are now obliged to ensure that, “as (Article 257) has created a criminal
a condition of such representation”, o ence punishable by imprisonment
their counsel have agreed to comply where arbitrators fail to act impartially
with the “General Guidelines for the (Federal Law No. 7 of 2016). This new
Parties’ Legal Representatives”, and law is controversial. The Code does
the Tribunal may sanction counsel for not define the test for lack of integrity
Julia Belcher
violation of the guidelines. or partiality. In the absence of further
Senior associate, London
guidance or amendment, Article 257 Tel +44 20 7444 5662
New arbitration laws may re ect negatively on ubai as a julia.belcher@nortonrosefulbright.com
New Qatari arbitration law seat of arbitration, and could a ect the
On February 16, 2017, a new Qatari advances made by Dubai in the recent
arbitration law was introduced; Law years to establish itself as an arbitration-
No 2 of 2017 to issue the Arbitration friendly jurisdiction. This has generated
Act in Civil and Commercial Matters. considerable discussion within the UAE
It will enter into force once published legal community and there has been
in the fficial a ette. he law is some suggestion that Article 257 may be
largely based on the UNCITRAL Model amended in due course.
Law (though with some variations,
in particular in relation to timelines)
and will apply to arbitrations, present
or future, seated in Qatar or to
international commercial arbitrations
as defined seated elsewhere if the
parties have agreed to submit to the
Qatari arbitration law. It will apply to
both public and private sector parties,
irrespective of the nature of legal
relationship on which the dispute is
based or treaties Qatar has with other
countries. The scope for government-
related arbitrations, however, may be

Norton Rose Fulbright – June 2017 37


International arbitration report 2017 – Issue 8

Key English law developments


for international arbitration
2016 in review

Written by Deborah Ruff and Charles Golsong

We look back at three decisions of the English courts which made headlines in the
international arbitration community in 2016.

English court grants a six year underlying contract and arbitration he court granted the e tension, finding
retroactive extension of time to agreement. The Shenyang Intermediate that a substantial injustice would be
correct an ambiguity in an LCIA People’s Court found that the entire done if it were refused (one of the section
award award was “without merit because of 79 grounds). Mr Justice Knowles held
The English Commercial Court has a lack of supporting legal argument or that “… continuing uncertainty over
exercised its power under section 79 of factual bases”. the Award serves no worthwhile end,
the English Arbitration Act 1996 (the and more generally undermines the
Arbitration Act) to extend the time limit The award creditors approached the arbitral process. It reinforces the point
under Article 27.1 of the LCIA Rules, tribunal and requested it to use its power that it would be unjust not to allow the
six years after the award was rendered under Article 27 of the LCIA Rules to available opportunity in the present
in a London-seated LCIA arbitration correct an ambiguity in the award. case to allow the arbitral tribunal to
(Xstrata Coal Queensland Pty Ltd & Ors However, as the 30 day time limit for consider whether the uncertainty can
v Benxi Iron & Steel (Group) International making such an application had expired, be removed”.
Economic & Trading Co Ltd [2016] EWHC the I confirmed that while
2022 (Comm)). sympathetic to the [award creditors’]
position,…absent agreement of the The court’s decision is
The unsuccessful party did not pay the parties or an order from a competent
notable in that,
US$27.8 million award, leading the court extending time for the application”
award creditors to seek recognition and the arbitral tribunal was functus officio . realistically, the 30 day
enforcement of the award under the New time limit … will almost
York Convention in China, the place of The award creditors therefore applied always expire before the
incorporation of the losing party. to the Commercial Court, asking it to outcome of a challenge to
extend the deadline under the LCIA
recognition/enforcement
Almost three years after the application Rules using its powers under section
for recognition and enforcement 79 of the Arbitration Act, by which the in another jurisdiction is
was made, the Chinese court refused court may “extend any time limit agreed known.
enforcement, accepting the award by [the parties] in relation to any matter
debtor’s assertion that one of the relating to the arbitral proceedings…”.
award creditors was not a party to the

38 Norton Rose Fulbright – June 2017


Key English law developments for international arbitration

The court’s decision is notable in that, Gerald Metals subsequently sought


realistically, the 30 day time limit under urgent relief in the courts under section This decision may also
Article 27 of the LCIA Rules (and similar 44 of the Arbitration Act, arguing a “gap
provisions in other institutional rules) in the LCIA Rules which exists in cases
have an impact on
will almost always expire before the which are not emergencies or of such arbitrations under the ICC,
outcome of a challenge to recognition/ exceptional urgency as to justify the HKIAC or SIAC Rules, as
enforcement in another jurisdiction is expedited formation of the tribunal but they each contain
known. which are nevertheless cases of urgency emergency arbitrator
within the meaning of section 44(3) of
provisions.
Emergency arbitrator provisions the Arbitration Act”.
limit the English court’s ability to
grant emergency relief Mr Justice Leggatt, dismissing Gerald
The English Commercial court has held Metals’ application, held that “a similar This decision may also have an impact
that the emergency arbitrator provisions functional interpretation of Articles 9A on arbitrations under the ICC, HKIAC or
in Article 9B of the LCIA Rules limit the and 9B [of the LCIA Rules] needs to be SIAC Rules, as they each contain
court’s power, under section 44 of the adopted as has been given to section emergency arbitrator provisions. Parties
Arbitration Act, to grant interim relief, at 44(3) of the Arbitration Act”. may seek to agree to opt out of these in
least in situations where the emergency order to maintain the possibility of
arbitrator provisions have already been Mr Justice Leggatt further held that it recourse to the courts for emergency relief.
unsuccessfully invoked (Gerald Metals SA was “only in cases where [the powers
v The Trustees of the Timis Trust and others contained at Articles 9A and 9B of the Arbitration award is enforceable
[2016] EWHC 2327(Ch)). LCIA Rules], as well as the powers of a in England even if it includes an
tribunal constituted in the ordinary way, award in respect of a penalty
Gerald Metals and Timis Mining had are inadequate, or where the practical The English High Court recently held
entered into an o take contract, whereby ability is lacking to exercise those that a foreign arbitration award should
Gerald Metals had advanced US$50 powers, that the court may act under be enforced in its entirety, despite it
million to imis ining to finance the section 44”. including a sum awarded pursuant to a
development of a mine in Sierra Leone. penalty clause (Pencil Hill Ltd v US Citta
The contract provided for LCIA arbitration. The decision in this case appears to di Palermo SpA (Case No. BA40MA109)
A dispute arose and Gerald Metals suggest that the court’s powers are (unreported)).
commenced arbitration, claiming that precluded where an application is made
Timis was in default. Gerald Metals also to a tribunal/arbitral institution and The contracts between the parties
applied to the LCIA for the appointment either deems itself to be empowered to related to the sale of financial rights
of an emergency arbitrator. act. Mr Justice Leggatt held that it would deriving from registration rights of a
be “uncommercial and unreasonable to football player. Pencil Hill had acquired
The LCIA rejected Gerald Metals’ interpret the LCIA Rules as creating … a these from a Spanish football club and
application for the appointment of gap in cases which are not of sufficient sold them on to an Italian football club
an emergency arbitrator on the basis urgency as to justify the appointment of (Palermo) for a total price of €10 million.
that Timis Mining had given certain an emergency arbitrator but which are
undertakings i) not to dispose of any nonetheless deemed “of urgency” under Palermo had agreed, in an April 2012
assets other than for full market value section 44(3) of the Arbitration Act. contract, to pay Pencil Hill a total of
and at arm’s length and ii) to give seven €6,720,000 in two equal installments,
days’ notice to Gerald Metals before with a further €1 million pursuant to an
disposing of any asset considered to be August 2012 agreement.
worth more than £250,000.

Norton Rose Fulbright – June 2017 39


International arbitration report 2017 – Issue 8

Clause 4 of the April 2012 contract For more information contact:


specified that In the case alermo fails This case cannot be taken
to pay any of the installment agreed,
then, all the remaining amounts shall
as a blanket approval by
become due and as penalty [Palermo] the English courts of
will have to pay an amount equal to the arbitral awards awarding
amount pending IE [Palermo] will pay sums pursuant to penalty
the double of the pending amount at clause Deborah Ruff
the moment of the fail on the payment”.
Partner, London
Palermo duly missed an installment. Tel +44 20 7444 5944
deborah.ru nortonrosefulbright.com
In uly , encil ill filed a request Many will be heartened to note the
for arbitration with the Court of pro-arbitration stance taken by the
Arbitration for Sport (CAS), claiming English High Court. However, it is
€6,720,000 under the April 2012 important to note that the contract in
contract, with a penalty of a further this instance was governed by foreign
€6,720,000 and the €1 million due law (Swiss law), under which penalty
under the August 2012 agreement. clauses are not prohibited. Moreover, on
Charles Golsong
appeal the curial court had upheld a
Associate, London
In its award of August 2014, CAS reduction of the payment obligation, Tel +44 20 7444 5708
awarded Pencil Hill €9.4 million, made in accordance with Swiss law – as charles.golsong@nortonrosefulbright.com
comprising the €1 million due under the the English court noted, that variation
August 2012 agreement, the €6,720,000 arguably changed the payment obligation
due under the April 2012 contract, and from a penalty to a non-penalty.
€1,680,000 representing 25 per cent of Accordingly, this case cannot be taken as
the penalty claimed by Pencil Hill. a blanket approval by the English courts
of arbitral awards awarding sums
Palermo appealed to the Swiss Supreme pursuant to penalty clauses. Such
Court, which upheld the penalty clauses must still be carefully drafted,
awarded by CAS, after which Pencil particularly if enforcement is to be
Hill applied to the English High Court sought in England or other jurisdictions
to enforce the award, where the judge where penalty clauses are contrary to
held that it would not be contrary to domestic public policy.
public policy to enforce the award,
indicating that “there is a strong leaning
towards the enforcement of foreign
arbitral awards and the circumstances
in which the English Court may refuse
enforcement are narrow”. In the judge’s
view, the “public policy of upholding
international arbitral awards […]
outweighs the public policy of refusing
to enforce penalty clauses. The scales are
tipped heavily in favor of enforcement”.

40 Norton Rose Fulbright – June 2017


Drafting arbitration agreements: the pitfalls of compromise

Drafting arbitration agreements:


the pitfalls of compromise
A Chinese case study

Written by James Rogers and Kevin Hong

The Chinese courts have reminded parties of the need for clear and unambiguous
drafting of arbitration agreements. This is particularly important as arbitration
agreements are too often still the product of eleventh hour negotiations, reflecting a
hasty compromise between the parties’ respective arbitration preferences.
In recent years, the Chinese courts agreement, particularly one which article 16 of the PRC Arbitration Law, no
have adopted a more liberal approach re ects an apparently hasty compromise administering arbitration institution had
towards the interpretation of arbitration between the parties’ respective been specified in the arbitration agreement.
clauses and have enforced arbitration arbitration preferences.
agreements which are ambiguous but Although the parties had stipulated
nonetheless re ect a clear intention Court challenge to the arbitration the arbitral rules applicable to the
to arbitrate. Important decisions agreement arbitration (ICC Rules), they had failed
demonstrating this trend include In 1997, a Swiss company, Wicor to include any express reference to an
Zhejiang Yisheng Petrochemical v Holding AG (Wicor), entered into a administering institution. Nor could one
INVISTA Technologies (as featured joint venture contract with a Chinese be inferred simply by reference to the ICC
in issue 3 of this report), and Anhui company, Taizhou Haopu Investment Rules: the rules in force at that time (ICC
Longlide Packing and Printing v BP (Haopu). The contract contained an Rules 1998) did not contain provisions
Agnati S.R.L. (as featured in issue arbitration clause providing that: equivalent to those found in the later
4 of this report). In these cases, the ICC Rules 2012 and 2017 which provide
Supreme People’s Court of China (SPC) the dispute shall be finally settled under that “The [ICC] Court is the only body
upheld the validity of arbitration the Rules of Mediation and Arbitration of authorised to administer arbitrations
agreements providing, respectively, the International Chamber of Commerce. under the Rules…”; and “By agreeing to
for a China-seated ICC arbitration and If arbitration claim is brought by one arbitration under the Rules, the parties
a China-seated UNCITRAL arbitration party, the place of arbitration should be have accepted that the arbitration shall
administered by CIETAC. chosen by the other party.” be administered by the [ICC] Court”
(Articles 1.2 and 6.2).
But there are limits to the Chinese courts’ Haopu brought court proceedings in July
willingness to enforce poorly drafted 2011 against Wicor in the Taizhou IPC Had the ICC Rules 2012 or 2017 been the
clauses. The decision in Wicor Holding alleging that Wicor had breached the applicable rules, pursuant to Article 4 of
AG v Taizhou Haopu Investment Co Ltd joint venture contract. The Taizhou IPC the Interpretations on Certain Issues
handed down by the Taizhou Intermediate considered the validity of the arbitration Relating to the Application of the PRC
People’s Court of China (IPC), highlights clause in the joint venture contract and Arbitration Law 2006, the arbitration clause
the risks of a poorly drafted arbitration found that it was invalid as, in breach of would have been considered enforceable.

Norton Rose Fulbright – June 2017 41


International arbitration report 2017 – Issue 8

The Taizhou IPC’s decision was (Hong Kong) in accordance with the ICC compromise is necessary to resolve a
subsequently confirmed by both the Rules. The validity of the arbitration negotiating impasse. However, the
Jiangsu High People’s Court (HPC) and the clause was subsequently confirmed by lesson to be learned from these cases is
SPC in March 2012. The SPC, in endorsing the tribunal in an award issued in that the compromise reached must not
the Taizhou IPC’s decision, considered November . he final award on the undermine the validity of the clause –
which law applied to questions over the merits was issued in favor of Wicor in clear and unambiguous drafting is
validity of the arbitration agreement. The July 2014, with a supplementary award necessary to ensure the validity of an
parties had not specified in the being issued in November 2014 (Awards). arbitration agreement.
arbitration agreement the governing law
of the arbitration agreement. Moreover, Wicor applied to the Taizhou IPC for This is particularly so in China, where
the arbitration agreement had deferred recognition and enforcement of the there are a number of idiosyncrasies to
the choice of arbitral seat until after an Awards. Haopu relied on the public Chinese arbitration law which are not
arbitration claim had been commenced policy exception to resist enforcement. familiar to foreign parties. If the arbitration
– when Haopu issued court proceedings clause does not clearly spell out the seat,
no arbitration claim had been raised nor The Taizhou IPC held that recognition the rules and the administering arbitration
had the place of arbitration been and enforcement of the Awards would institution, parties doing business in China
nominated or agreed. be contrary to Chinese public policy. The run the risk of lengthy legal battles over
Awards were issued on the assumption the validity of an arbitration clause before
To ascertain the applicable law, the SPC that the arbitration clause was valid, but they can even start arbitrating their
relied on the following principles the clause had already been found to be substantive dispute. A dispute resolution
invalid by the Chinese court judgments clause is after all meant to be incorporated
• In the absence of the parties’ in 2011 and 2012, before the Awards into a contract to assist in resolving disputes,
agreement on the applicable law of were issued. Therefore, the Awards were not to create additional satellite litigation.
the validity of an arbitration agreement, in direct con ict with the decisions of
the law of the place of arbitration the courts, and it would be contrary to
shall apply if such a place is chosen. Chinese public policy to enforce them. For more information contact:

• If the place of arbitration is not chosen Earlier decisions of the Chinese courts
or not clear, the law of the place have taken a di erent approach but it
where the court is located shall apply. is likely that they can be distinguished.
In one earlier case, even though the
The SPC therefore held that the law at PRC courts had found the arbitration
the locality of the court, i.e., PRC law, clause to be invalid, the SPC held that
James Rogers
applied to the arbitration clause. And enforcement of the award was not in
Partner, London
applying PRC law, the arbitration clause violation of Chinese public policy. In Tel +44 20 7444 3350
was invalid given it breached article 16 that case, however, the PRC’s decision james.rogers@nortonrosefulbright.com
of PRC Arbitration law. on validity of the clause had been
handed down after the arbitral award
Challenge to enforcement was rendered. The timing of the court’s
of the award decisions on validity of the arbitration
In the meantime, Wicor had commenced agreement therefore seems key.
arbitration proceedings in November
2011 against Haopu in respect of a Comment
Kevin Hong
di erent dispute arising out of the oint All of the cases referenced in this article
Senior associate, Hong Kong
venture contract. In accordance with the concern the interpretation of a compromise Tel +852 3405 2535
parties’ arbitration agreement, Haopu arbitration agreement, i.e. one which kevin.hong@nortonrosefulbright.com
was expected to, but did not, nominate a seeks to reach a compromise between the
seat of arbitration. The ICC Court parties’ competing preferences for
therefore chose the seat of arbitration resolving disputes. Often such a

42 Norton Rose Fulbright – June 2017


State immunity and international arbitration

State immunity and


international arbitration
A comparative analysis of key common law jurisdictions

Written by Azim Hussain, Matthew Kirtland, Alfred Wu, Wilson Ang, Ernie Van Buuren, Philip Nunn, Matthew Buckle,
Jenna Anne de Jong, Katherine Connolly, Charles Street, Mathias Goh and Cara Dowling

Foreign state immunity is an important consideration for commercial parties dealing


with foreign states or state owned entities. Failure to properly address the issue can
have serious consequences. State immunity is in itself a complex issue, but this is
compounded by the fact that the approach to immunity is not common across all
jurisdictions. In an increasingly global market, commercial parties must be alive to
jurisdictional nuances. We compare the approaches to state immunity in England, Hong
Kong, Singapore, Australia, the US and Canada.

The doctrine of state immunity can State immunity provides foreign states critically, the approach to state immunity
sometimes resemble the playground with protection against legal proceedings in all jurisdictions where any award or
game of tag: the private investor chases brought before the courts of other judgment would be enforced against
after the state this way and that until, jurisdictions. It is to be distinguished state assets.
immediately before being caught, the from “crown immunity” which protects
state touches the wall, declaring that it is states from legal proceedings brought Most jurisdictions adopt either an
immune when “on base”. before their own courts. There are “absolute” or a “restrictive” approach
important reasons why national laws to state immunity. Under the absolute
protect foreign sovereign interests, even approach a foreign state enjoys total
Diligent commercial if at the expense of private investors. immunity from being sued or having
parties must approach all However, this means that diligent its assets seized by a foreign court,
commercial parties must approach all even in commercial matters. Under the
dealings with foreign dealings with foreign states or state restrictive approach, a foreign state is
states or state owned owned entities carefully; considering only immune in relation to activities
entities carefully; who to contract with and how to involving an exercise of sovereign power.
considering who to incorporate comprehensive waivers The state may therefore be sued and
contract with and how to of state immunity – both in respect have its assets seized in a foreign court
of immunity from suit and immunity in commercial or private matters, and
incorporate comprehensive from execution – in all relevant important distinctions must be drawn
waivers of state immunity jurisdictions. Parties need to be aware between commercial versus sovereign
of the limitations of any waiver, and, activities and assets.

Norton Rose Fulbright – June 2017 43


International arbitration report 2017 – Issue 8

In the context of arbitration, the Hong Kong closely on the UKSIA, with some minor
agreement by the state entity to arbitrate Prior to the handover of Hong Kong di erences. hese include removing
is often but not always sufficient to to the PRC in June 1997, Hong Kong references to international conventions
waive immunity from suit and establish followed the English approach of on state immunity to which Singapore
the tribunal’s jurisdiction over the state. restrictive immunity. After 1997, Hong is not a party (such as the European
Critically though, it generally does not Kong was required by the Hong Kong Convention on State Immunity and
follow that this amounts to an e ective Basic Law to adopt the PRC position on the International Convention for the
waiver of immunity from execution of foreign a airs and the R s position nification of ertain Rules oncerning
the award against state assets. is one of absolute immunity. the Immunity of State-owned Ships).

The purpose of this article is to compare Under the SSIA, foreign states are
the approaches to state immunity taken by This represented a generally immune from jurisdiction, save
key common law arbitration jurisdictions for where: the state has submitted to the
fundamental change to
and to highlight recent developments. jurisdiction of the Singaporean courts
Hong Kong’s approach to (s. 4(1)); a state has agreed to arbitrate
England state immunity. Foreign (s. 11(1)); and proceedings relate to
England takes a restrictive approach states are now absolutely commercial transactions entered into
to state immunity. The English State immune from suits by the state or a contractual obligation
Immunity Act 1978 (UKSIA) provides of the state (whether commercial
brought against them in
immunity from jurisdiction subject to transaction or not) that falls to be
exceptions, including where the state the Hong Kong courts. performed wholly or partly in Singapore
has agreed to arbitrate. The UKSIA also s. . In defining a commercial
provides immunity from execution transaction”, Singapore has followed
subject to two exceptions where: (1) the UK approach by setting out a list of
there is written consent to execution Accordingly, the Hong Kong Court of categories of such transactions (s. 5(3)).
(submission to jurisdiction only will not Final Appeal (CFA) decided in the case of
be sufficient or where state property FG Hemisphere v The Democratic As for immunity from execution
is used for commercial purposes. Republic of Congo FACV 5-7/2010 that against a state’s property, the general
after 1997 the absolute doctrine of immunity is set out in section 15(2) of
In LR Avionics Technologies Limited immunity applies in Hong Kong. The the SSIA. However, there is a commercial
v The Federal Republic of Nigeria [2016] CFA’s decision was referred to the exception to this immunity: a state’s
EWHC 1761 (Comm), the Commercial Standing Committee of the National immunity from execution against its
Court considered the question of eople s ongress for confirmation the property does not apply to property
what constitutes “use for commercial SCNPC has the ultimate responsibility for “which is for the time being in use
purposes”. Premises owned by Nigeria matters of foreign a airs in ong ong or intended for use for commercial
had been leased on commercial terms and confirmation was duly provided. purposes” (s. 15(4)). “Commercial
to a private company for the purpose of purposes is defined as purposes of
outsourcing consular activities (issuance This represented a fundamental such transactions or activities as are
of visas and passports). The court held change to Hong Kong’s approach to mentioned in section 5(3)”, and section
that the premises were not in use for state immunity. Foreign states are now 5(3) in turn and as explained above,
commercial purposes so remained absolutely immune from suits brought relates to the “commercial transactions”
immune from execution. The issuance against them in the Hong Kong courts. exception to state immunity.
of visas and passports was a sovereign
activity. That it was performed through Singapore In WestLB AG v Philippine National
a commercial agent under contract was Singapore takes a restrictive approach Bank and others [2007] 1 SLR(R) 967,
“merely incidental”. to state immunity. The Singapore State the Singapore High Court considered
Immunity Act (Chapter 313, Revised the commercial transaction exception
Edition 2014) (SSIA) is modelled (s. 5(1)(a) SSIA), albeit obiter. This

44 Norton Rose Fulbright – June 2017


State immunity and international arbitration

case concerned funds accumulated by A foreign state’s agreement to arbitrate The United States
the late President of the Republic of will waive immunity from a tribunal’s Like England, the US takes a restrictive
Philippines (Philippines), Ferdinand jurisdiction. In addition, section 17 approach to state immunity. The Foreign
E Marcos, which were, as a result of of the AUFSIA provides that where a Sovereign Immunities Act (USFSIA)
steps taken by the Philippines and foreign state has agreed to arbitrate, grants foreign states immunity from suit
the Swiss authorities, moved from subject to any inconsistent provision in US courts (federal or state). There are
bank accounts in Switzerland to the in the agreement, the state is not a number of exceptions to immunity
Philippines National Bank (PNB), and immune in court proceedings related to under the USFSIA, including where a
then by PNB to WestLB AG, Singapore the arbitration (e.g. court proceedings state waives immunity, agrees to submit
(WestLB). In 2003, the Supreme Court determining the validity or operation of a dispute to arbitration or engages in
of the Philippines ordered the funds to the arbitration agreement or procedure, commercial activity.
be forfeited to the Philippines and PNB or to set aside an award), unless it is an
instructed WestLB to release the funds. inter-governmental agreement. In recent years, the immunity a orded
WestLB refused as it faced competing by the USFIA has been narrowed, however
claims to the funds. WestLB commenced Foreign states also enjoy immunity the commercial exception to state
interpleader proceedings in Singapore from execution unless and to the extent immunity has potentially broadened.
to determine ownership, adding the that the state has waived immunity in
Philippines as a defendant to those relation to its property or the property Justice Against Sponsors of
proceedings. The Philippines applied for is being used for commercial purposes. Terrorism Act
a stay on the basis that it was, inter alia, Submission to the jurisdiction (by In September 2016, the US Congress
entitled to state immunity. agreement or conduct) will not be passed the Justice Against Sponsors of
sufficient on its own to waive immunity Terrorism Act (JASTA). JASTA made a
The court held that the Philippines had from execution. number of changes to state immunity
submitted to the court’s jurisdiction (a under the USFSIA.
finding upheld on appeal . lthough it In Firebird Global Master Fund II Ltd
was unnecessary to determine whether v Republic of Nauru [2015] HCA 43, JASTA narrowed states’ rights to
the commercial transaction exception the High Court considered both the jurisdictional immunity by eliminating
was made out, the court went on to commercial transaction exception to the requirement that a foreign state first
consider this for completeness. The court jurisdiction (s. 11(1)) and the property be designated by the US government as
took the view that the act of placing in use for commercial purposes a “state sponsor of terrorism” before it
the funds into WestLB’s bank account exception to immunity from execution could be sued in US courts.
must be looked at in its whole context (s. 32). The court held, in the context
and that, in context, it was “an integral of proceedings for the registration of JASTA further narrowed immunity by
part of the exercise of its sovereign a foreign judgment, that Nauru was eliminating the “entire tort” rule. Prior to
powers to recover the funds and … not not immune from the jurisdiction JASTA, certain US courts had construed
commercial transactions undertaken of Australian courts. There was an USFSIA to allow claims against foreign
by [the Philippines]”. Accordingly, the exception to immunity from suit because states for an act of international terrorism
commercial transaction exception would the proceedings concerned a commercial only when both the alleged injury and
not have applied (and this point was not transaction; namely, the guarantee upon terrorist act occurred within the United
pursued on appeal). which the foreign judgment was based. States. JASTA eliminated this rule, allowing
However, the court upheld Nauru’s claim claims against foreign states for injuries
Australia to immunity from execution against its to persons or property in the United
Australia’s Foreign States Immunity Act property represented by bank accounts States “regardless where the tortious act
1985 (Cth) (AUFSIA) takes a restrictive held in Australia because the purposes or acts of the foreign state occurred.”.
approach to state immunity. Foreign for which those accounts were in use, or JASTA counterbalanced its narrowing of
states are granted immunity from for which the monies in them were set immunity by providing the US government
jurisdiction unless certain statutory aside, were not commercial purposes. with authority to intervene in any
exceptions apply (ss. 10-21 AUFSIA). lawsuit and e ectively stay the case

Norton Rose Fulbright – June 2017 45


International arbitration report 2017 – Issue 8

indefinitely upon a certification that Recent cases have followed a similar


good-faith state-state negotiations path. Canadian Planning and Design
concerning the resolution of the claims Unlike the UKSIA and the Consultants Inc. v Libya, 2015 ONCA
against the foreign state were ongoing. USFSIA, the CSIA does not 661 is an ongoing case in the context
have an exception from of enforcement of an ICC award against
Commercial activity carried immunity for arbitration Libya. In 2014, the Ontario Superior
on in the US Court of Justice issued an order
In , the S Supreme ourt clarified
agreements. recognizing the ICC award, stating that
the standard for applying USFSIA’s Libya had by implication waived its
exception to jurisdictional immunity for immunity from execution. However this
actions “based upon a commercial case raised a further novel issue, namely
activity carried on in the United States” However, unlike the UKSIA and the whether by agreeing to ICC arbitration,
by a foreign state (OBB Personenverkehr USFSIA, the CSIA does not have an Libya had waived either execution or
AG v Sachs, 136 S. Ct. 390 (2015)). In exception from immunity for arbitration diplomatic immunity (or both) in respect
this case, the claimant was injured in agreements. Obiter reasoning in TMR of certain bank accounts in Ontario
ustria when stepping o a urorail train. Energy Ltd. v State Property Fund of (over which the claimant had obtained
She sued Eurorail in the US on the basis Ukraine, 2003 FC 1517 suggests that an garnishment orders). Libya argued
of having purchased her ticket in the US agreement to arbitrate may be that the bank accounts specified were
electronically. The lower appellate court considered an express waiver of accounts of the Embassy of Libya and
found this sufficient to trigger the in the jurisdiction immunity but this has not that they were used by that Embassy for
United States” condition of USFSIA’s yet been definitively decided. Instead, diplomatic purposes. This issue is yet to
“commercial activity” exception. The both the commercial activity exception be adjudicated.
Supreme Court reversed and, under a and the waiver of execution immunity by
“gravamen of the complaint” standard, implication have been relied upon by Conclusion
found that the “foundation” of the suit Canadian courts to enforce arbitral As the brief discussions above highlight,
was the injury in Austria. awards against states. issues of sovereign immunity are not
only comple but they di er from
Canada These issues were considered in jurisdiction to jurisdiction. Failure
Like the UK and the US, Canada also Collavino Inc. v Tihama Development to adequately consider and address
takes a restrictive approach to state Authority, 2007 ABQB 212. The Alberta questions of sovereign immunity could
immunity. But its approach is unique Court of Queen’s Bench reasoned that have serious consequences, including
in certain important aspects. Under the the respondent, a state organ of Yemen, losing the ability to enforce contractual
Canadian State Immunity Act R.S.C 1985 must be deemed to have waived execution rights, recover damages or enforce
(CSIA), a state may waive immunity. immunity by agreeing to international judgments or awards. Parties contracting
A waiver of jurisdictional immunity commercial arbitration; otherwise, the with foreign states or state-owned
requires proof that the foreign state e ect of an award could be thwarted. entities must ensure that they have
“explicitly submits to the jurisdiction of The court also accepted that the “plain, obtained comprehensive advice covering
the court by written agreement” (s. 4). A obvious and ordinary meaning” of all relevant jurisdictions, including
waiver of execution immunity requires “commercial activity” as used in the jurisdictions where proceedings might
proof that the state has, either explicitly CSIA captured the underlying transaction be brought as well as those where
or by implication, waived its immunity at issue and thus the commercial enforcement against state assets might
from attachment, execution, etc. (s. 12). exception to immunity applied. be sought. Contractual terms must be
A foreign state is also not immune from carefully drafted if parties are to benefit
jurisdiction in any proceedings relating from the best possible protection.
to commercial activity (s. 5).

46 Norton Rose Fulbright – June 2017


Contacts

Contacts

International arbitration, Co-heads

Mark Baker Pierre Bienvenu, Ad. E.


Houston Montréal

Canada Europe Africa


Calgary Amsterdam South Africa
Mary Comeau Yke Lennartz Donald Dinnie
Clarke Hunter, QC Athens
Montréal Marie Kelly
Martin Valasek London Asia
Sherina Petit
China/Hong Kong
United States James Rogers
Alfred Wu
eborah Ru
Houston Singapore
Kevin O’Gorman Paris
KC Lye
Christian Dargham
Washington DC
Matthew Kirtland Moscow
Yaroslav Klimov
Australia
Brisbane
Latin America Ernie van Buuren
Middle East
Caracas Perth
Ramón Alvins UAE
Dylan McKimmie
Patrick Bourke
Paul Stothard Sydney
Rob Buchanan

Norton Rose Fulbright – June 2017 47


International arbitration report 2017 – Issue 8

Global resources
Norton Rose Fulbright is a global law firm. e provide the world s preeminent corporations and financial institutions with
a full business law service. e employ lawyers and other legal sta based in more than cities across urope, the
United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Our office locations

People worldwide Europe Latin America Africa

7000+
Amsterdam Milan Bogotá Bujumbura3
Athens Monaco Caracas Cape Town
Brussels Moscow Mexico City4 Casablanca
Frankfurt Munich Rio de Janeiro Dar es Salaam
Legal staff worldwide

3500+
Hamburg Paris São Paulo4 Durban
Istanbul4 Piraeus Harare3
London Warsaw Asia Pacific Johannesburg
Luxembourg Bangkok Kampala3
Offices Beijing Nairobi3

50+ United States


Austin
Dallas
New York
St Louis
Brisbane
Hong Kong
Jakarta1
Middle East
Abu Dhabi
Key industry strengths Denver San Antonio Melbourne Bahrain
Financial institutions Houston San Francisco Port Moresby Dubai
(Papua New Guinea)
Energy Los Angeles Washington DC Riyadh2
Perth
Infrastructure, mining Minneapolis
and commodities Shanghai
Central Asia
Transport Singapore
Canada Almaty
Technology and innovation Sydney
Calgary Québec
Life sciences and healthcare Tokyo
Montréal Toronto
1 TNB & Partners in association with Norton Rose Fulbright Australia
Ottawa Vancouver 2 Mohammed Al-Ghamdi Law Firm in association with Norton Rose
Fulbright US LLP
3 Alliances
48 Norton Rose Fulbright – June 2017 4 From second quarter 2017
Norton Rose Fulbright

International arbitration
At Norton Rose Fulbright, we combine decades of international arbitration experience with
a commercial approach to o er our clients the very best chance of determining their disputes
promptly, efficiently and cost e ectively. ur international arbitration group operates as a
global team, regardless of the geographic location of the individual.

e deliver e perience across all aspects of international arbitration, from commercial


arbitrations to investment treaty arbitrations; skilled advocates experienced in arguing
cases before arbitral tribunals, who will oversee the dispute from start to final award and a
commercial approach from a dedicated team experienced in mediation and negotiation and
skilled in promoting appropriate settlement opportunities.

Dispute resolution
e have one of the largest dispute resolution and litigation practices in the world, with
e perience of managing multi urisdictional disputes across all industry sectors. e advise
many of the world s largest companies and financial institutions on comple , high value
disputes. ur lawyers both prevent and resolve disputes by giving practical, creative advice
which focuses on our clients’ strategic and commercial objectives.

ur global practice covers alternative dispute resolution, international arbitration, class


actions, fraud and asset recovery, insolvency, litigation, public international law, regulatory
investigations, risk management and white collar crime.
Law around the world
nortonrosefulbright.com