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Introduction to the Resolution of

International Investment
Claims
National Law School,Jodhpur
July 25, 2016
2016-- Kabir Duggal. This material may be freely copied and distributed with the prior written permission from the author.

I.
Introduction to
International Investment Arbitration

Introduction

Notion of cross border investment.

Distinction between capital-importing and capital exporting


countries: does it still exist?

Need for security for foreign investors.

Provisions in contracts;
Political risk insurance;
Guarantees from the Government;
Treaties (bilateral or multilateral);
(Domestic) foreign investment law.

Differing Perspectives on International Investment Law

PIL Perspective:
Agreement between states
therefore international
law applies (greater
deference for states).

Human Rights Perspective:


Empowering individuals
with a direct right of action
against states.

Commercial Perspective:
Greater deference for the
investor who takes the risk
to invest in a developing
country.
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Commonly used Arbitration Rules

ICSID (World Bank)

UNCITRAL Rules of Arbitration

Stockholm Chambers of Commerce

International Chambers of Commerce

Moscow Chamber of Commerce and


Industry

The Unified Agreement for the


Investment of Arab Capital in the Arab
States

Deconstructing a BIT
Typically provides the parameters for protection:
Defines investor and investment

Provides substantive protections:

Expropriation
Fair and Equitable Treatment
Full Protection and Security
Arbitrary and Discriminatory Measures
National Treatment
Most Favored Nation
Umbrella Clause

Provides for compensation (but not necessarily damages) in the event of the
breach of the obligations.

First Principles

Notion of Arbitration without Privity (Jan Paulsson):

the claimant need not have a contractual relationship with the


defendant.

it grants innumerable present and future investors the right to arbitrate


a wide range of grievances arising from the actions of a large number of
public authorities, whether or not any specific agreement has been
concluded with the particular complainant.

Article 25(1) of the ICSID Convention: The jurisdiction of the


Centre shall extend to any legal dispute . . . which the parties
to the dispute consent in writing to submit to the Centre.

Cannot assume jurisdiction: It is not the function of arbitrators


who are charged with interpreting and applying a treaty to go
beyond the limits of what that treaty allows them to do,
whether to do justice or for any other reasons.
Bureau Veritas v. Paraguay.

II.
A Few Theoretical Issues

Hybrid Foundations of Investment Arbitration: Zachary Douglas

Investment arbitration is hybrid:

Cannot be classified as a pure form of public international


dispute resolution or private transnational dispute
resolution. It embodies elements of both.

E.g.,standard of protection is fixed under a treaty while


the liability for breach gives rise to a civil or commercial
award.
The investors cause of action is not derivative (i.e.,
investor steps into the shoes of the host state) but is a
direct right (i.e., investor vindicates its own rights).

Three sources of legal rules applicable: (i) municipal law of


the host state; (ii) the investment treaty itself; and (iii)
general principles of international law.
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Clash of Paradigm: Anthea Roberts

PARADIGM: Treaties are short and vaguely worded;


while system is new and under theorized.

So participants draw on comparisons to fill gaps, resolve


ambiguities and or understand the systems nature.

CONSEQUENCE:
Participants
unconsciously
default to, or consciously advocate, particular
paradigms in light of their diverse backgrounds and
interests.

CLASH: The clash applies in two ways:


Public: Relationship between state and investor is
vertical.
Private: Relationship between state and investor is
horizontal.

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III.
The Institutions

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Two Options
Institutional Arbitration
(Specialized institution intervenes
and administers the process).
Established format for the
process.
Ensures timeliness of process.
Administrative assistance.
BUT. . .
Administrative fees and
expenses.
Unrealistic deadlines.
Bureaucracy.

Ad hoc Arbitration
(No supervising institution: parties
decide questions).
Potential to be faster, cheaper
and more flexible.
Might have greater
confidentiality.
BUT. . .
Problems if you cannot agree.
Often involves some
institutional support (e.g., PCA).

ICSID (Institutional Arbitration)


Part of the World Bank Group.
Headquartered in DC.
Established in 1966 to resolve
disputes between foreign investors and
states.
159 signatories151 have ratified.

(Not: Brazil, India, South Africa, Mexico).


(Denounced: Bolivia, Ecuador, Venezuela).

ICSID Additional Facility for nonmember states.


Envisioned as a self-contained
system.

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Other Rules
UNCITRAL Rules of Arbitration (ad hoc)
Originally adopted in 1976, amended in 2010
to enhance the efficiency of the Rules.
Enforced under the New York Convention
(1958).
ICC Rules of Arbitration (institutional)
Originally in 1998, amended in 2012.
The ICC Court of Arbitration helps scrutinize
the awards and assist the arbitration process.
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IV.
The Problem of Parallel Proceedings

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The Problem of Parallel Proceedings


Parallel Proceedings: Unfair and Abusive to host
states. Risk of inconsistent decisions.
Some solutions to avoid this problem:
Fork-in-the-road (FITR) provisions.
ii. Waiver provisions.
iii. Exhaustion of local remedies: Article 26 of the ICSID
Convention.
iv. Res Judicata/Lis Pendens.
i.

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V.
FORK-IN-THE-ROAD & WAIVER

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What is a FITR provision?


Explanation
Investor irrevocably elects to either resolve the dispute
domestically or internationally.
Thus, if an investor commences action before the
domestic court, it cannot then raise the matter before an
international arbitral tribunal.
Example
Article 8(2) of Argentina-France BIT: Once an investor has
submitted the dispute EITHER to the jurisdictions of the
Contracting Party involved OR to international arbitration,
the choice of one or the other of these procedures shall be
FINAL.
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What is a Waiver provision?


Explanation
An investor must waive the right to initiate/continue local
litigation before it can undertake international arbitration.
Prevents recourse to local remedies once international
arbitration has been selected.
Example
Article 1121 of NAFTA: an investor . . . waive[s its] right to
initiate or continue before any administrative tribunal or
court under the law of any Party, or other dispute
settlement procedures . . .

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Difference between FITR and Waiver


Both are intended to prevent duplicative dispute resolution.

FITR

Waiver

FITR discourages recourse


to local courts when the
investor is interested in
undertaking
international
arbitration (thereby prevent
multiple claims).

Waiver
encourages
investors to first investigate
local remedies under the
domestic
law
before
undertaking
international
arbitration.

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Sounds good: where is the catch?


Triple identity test: Narrow reading:
Same parties
Same object
Same cause of action.
Professor Schreuer:
The fork in the road provision and consequent loss of
access to international arbitration applies only if the
same dispute between the same parties has been
submitted to domestic courts or administrative tribunals
of the host state before the resort to international
arbitration.
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VI.
PRACTICE OF ICSID TRIBUNALS

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CMS v. Argentina

CMS (U.S. Company) purchased a 29% in TGN (Argentinean


company) that dealt with the transportation of gas.
In 2001, after a financial crisis, Argentina adopted measures
that impacted the investment and therefore initiated arbitration
under the U.S.-Argentina BIT.
Argentina invoked the FITR provision in the BIT arguing that
TGN had litigated the matter before domestic courts.
Tribunal rejected the argument: Since no submission has
been made by CMS to local courts . . . Both the parties and
the causes of action under separate instruments are
different.

(Similar view: Azurix v. Argentina).


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Occidental v. Ecuador (LCIA)

From 2001, Ecuador refused to reimburse


Occidental for VAT payment and adopted a series of
resolutions prohibiting any such reimbursement.
Occidental initiated 4 lawsuits in Ecuador and
initiated a claim under the U.S.-Ecuador BIT.
Ecuador invoked the FITR provision.
Tribunal rejected the argument: To the extent that
the nature of the dispute submitted to arbitration is
principally, albeit not exclusively, treaty-based, the
jurisdiction of the arbitral tribunal is correctly
invoked.
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Pantechniki v. Albania
Claimant sought to recover losses during a civil strife in Albania
under the Albania-Greece BIT.
The Ministry of Public Works had agreed to provide compensation
but the Finance Ministry recommended bringing a case to get
compensation. Following unfavorable court decisions, Claimant
initiated ICSID arbitration under Greek-Albania BIT.
BIT states: the investor or Contracting Party concerned may
submit the dispute either to the competent court of the Contracting
Party or to an international arbitration tribunal No clear
reference that investors election would be final!
Not permitted: The Claimant chose to take this matter to the
Albanian courts. It cannot now adopt the same fundamental basis
as the foundation of a Treaty claim. Having made the election to
seise the national jurisdiction the Claimant is no longer permitted to
raise the same contention before ICSID.
(The Denial of Justice claim proceeded but was dismissed).

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VII. THINK ABOUT IT:


The 2G Case

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Mediation Training - 2011 Baker &


McKenzie LLP

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The 2G Case: Think About it


February 2, 2012, Supreme Court of India cancelled 122
spectrum licenses on a PIL (ruling essentially that the first-comefirst-serve policy for spectrum (deemed natural resource) was
illegal:

Can foreign investors bring a case against India?


Can an Indian company with a Mauritius mailbox company
bring a case against India?
Can a decision by the SC in public interest amount to
expropriation?
Is there a breach of the FET clause?
If the investor had not acted in bad faith, does India owe it
money?

Thank You

duggalkabir@gmail.com
duggalkabir@gmail.com
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