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�Chapter 5 �Dispute Resolution

Introduction to International Investment Law

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Badrinath Srinivasan, LLM, FIII, MCIArb

lawbadri@gmail.com

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Resolution of Investor Disputes

  • Dispute resolution previously through diplomatic channels, or worse, wars
  • ICSID
    • 1965
    • 155 countries ratified
    • India did not
  • Investor could directly bring about disputes against a host State.
  • BITs also incorporated the same structure

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Investor-State Disputes against India (October 2021)

Particulars

No. of disputes against India

Arbitrations won

4

Arbitrations lost

2

Adverse awards under challenge

3

Arbitrations withdrawn

1

Arbitrations resolved amicably

3

Active disputes

8

Arbitrations not pursued beyond initial request

14

Notices received

2

Total

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Dispute Resolution provisions in BITs

  • India UAE BIT, 2013 as model
  • Article 10: Dispute between Investor and host State
  • Article 11: Disputes between Contracting states
  • Article 10
    • titled “Settlement of Disputes between Contracting Party and the Investor”
    • 10.1 explains purpose: “Disputes arising between a Contracting Party and an Investor of the other Contracting Party in respect of an Investment under this Agreement shall be governed by this Article.”
    • 10.2 & 10.3: nature of Governments- both India and UAE

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Dispute Resolution provisions in BITs (2)

    • 10.3:

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    • Measure (1.8)

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    • 10.4:
      • Tiered system
      • Notice of dispute & contents

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Dispute Resolution provisions in BITs (3)

    • 10.5: six months for settling dispute
    • If not, 3 alternatives:
      • International Center for Settlement of Investment Disputes, if both parties are parties to the ICSID;
      • Arbitral Tribunal under the UNCITRAL Arbitration Rules, in force at the time of commencement of dispute; or
      • competent court of Contracting Party in the territory of the Investment.
    • Choice is final and binding
    • 10.6: Notice of Intent to submit dispute
    • 10.7: Special procedure for UNCITRAL Arbitration Rules
      • (a) & (b): Constitution of the arbitral tribunal
      • (c), (d) & (e): manner in which tribunal is to decide the dispute
      • (f): sharing of costs

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Dispute Resolution between Contracting Parties

  • 11.1: Dispute settlement through consular or diplomatic channels.
  • 11.2 to 11.4: Constitution of arbitral tribunal
  • 11.5: Allocation of Costs & Power of tribunal to determine own procedure

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References

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Recent Trends in Dispute Resolution: Brazil India BIT, 2013

  • Part IV: “Institutional Governance, Dispute Prevention and Settlement”
  • Focus:
    • set up institutional governance mechanisms to address investor grievances (Articles 13 to 17),
    • prevent disputes (Article 18), and
    • settle disputes if they nevertheless arise (Article 19).

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Joint Committee (Article 13)

  • Title: “Joint Committee for the Administration of the Treaty”
  • Objectives

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National Focal Point/ Ombudsman

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Information (Articles 15 to 17)

  • Article 15: exchange of information
  • Article 16: Each party to respect protected information.
  • Article 17 Each party to disseminate general information relating to investments, regulatory frameworks to its investors.

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Dispute Prevention Procedure (Art. 18)

  • Article 18.1: “If a Party considers that a specific measure adopted by the other Party constitutes a breach of this Treaty, it may invoke this Article to initiate a dispute prevention procedure within the Joint Committee.”
  • Written notice
    • Identifying the specific measure in question;
    • Informing findings of fact and law underlying the submission;
    • If the measure pertains to a specific investor, initial submission is to identify the specific investor.
  • 90 days for first sitting and 120 days for report from first sitting
  • Appearance before the Committee: Investor & other Stakeholders
  • Report
    • Identify the submitted party;
    • Describe the measure in question and the alleged breach of the treaty and
    • The findings of the Joint Committee.
  • Non-completion/ Non-cooperation: Arbitration

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Arbitration (Art. 19)

  • Default step: Ad hoc arbitration (mutual agreement to institutional arbitration).
  • Purpose of arbitration (Art. 19.2): “The purpose of the arbitration is to decide on interpretation of this Treaty or the observance by a Party of the terms of this Treaty. For greater certainty, the Arbitral Tribunal shall not award compensation.”
  • Included Matters:
    • Part I: Scope and Definitions
    • Part II: General Obligations of the Parties (which includes, national treatment, protection against abusive treatment, direct expropriation, etc.)
    • Article 16: Treatment of Protected Information
    • Article 21: Prudential Measures
    • Part VII: Final Provisions (which includes relationship with other treaties, amendments, etc.)
  • Excluded Matters:
    • Article 8: Transparency
    • Article 10.1: Measures to prevent and fight corruption, money laundering and terrorism financing as per the host State’s laws and regulations.

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Duties of the Tribunal

  • Article 19.6 requires the arbitral tribunal to:
  • “a) have the experience or expertise in Public International Law/ international investment rules or international trade, or the resolution of disputes arising in relation to international investment agreements;
  • b) be independent of and not be affiliated, directly or indirectly, with any of the Parties or with the other arbitrators or potential witnesses nor take instructions from the Parties; and
  • c) comply with the code of conduct detailed in Annex II, or any other standard of conduct established by the Joint Committee.”
  • Annex II: Code of Conduct for Arbitrators

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Other Provisions on Dispute Settlement

  • Majority
  • Allocation of costs
  • Tribunal is empowered empowered to determine
    • all questions relating to its competence and
    • its own procedure, taking into account the PCA Optional Rules:

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References

Brazil India BIT, 2020 https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5912/download

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Exhaustion of Local Remedies (ELR)

  • India UAE BIT, 2013- three modes
    • ICSID Arbitration
    • Ad hoc arbitration under UNCITRAL Arbitration Rules
    • Local remedies
  • Once choice is made, it is final and binding
  • Fork-in-the-road clause
  • Investor to adopt the third mode first.: local exhaustion
  • foreigner injured by a state should seek redress with the legal remedies available in that state
  • After exhausting such remedies, should it go for resolution through diplomatic channels or invoke jurisdiction of international tribunals.

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ELR as Customary Intl. Law

  • Part of customary international law
  • Article 14(1) of the International Law Commission Draft Articles on Diplomatic Protection, 2006: “A State may not present an international claim in respect of an injury to a national or other person referred to in draft article 8 before the injured person has, subject to draft article 15, exhausted all local remedies.”
  • Interhandel case (Switzerland v USA) the ICJ held: “The rule that local remedies must be exhausted before international proceedings may be instituted is a well-established rule of customary international law; the rule has been generally observed in cases in which a State has adopted the cause of its national whose rights are claimed to have been disregarded in another State in violation of international law. Before resort may be had to an international court in such a situation, it has been considered necessary that the State where the violation occurred should have an opportunity to redress it by its own means, within the framework of its own domestic legal system.”

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ELR in Intl. Investment Law

  • Not a default principle
  • Exception
  • Slowly regaining traction
  • India, Argentina, Romania, Turkey, the United Arab Emirates and Uruguay, many African countries adopting in their model BITs
  • Vast majority BITs do not contain it.
  • Article 26 ICSID Convention: “Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.”

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ELR in Old BITs

  • Article 4(2) of the Germany Israel BIT, 1976: “The legality of any such expropriation or nationalization and the amount of compensation shall be subject to review by local judicial remedies.”
  • Article 7(2) of the Romania Sri Lanka BIT, 1981 provided as a pre-condition for ICSID Arbitration, states: “However, each Contracting Party hereby requires the exhaustion of local administrative or judicial remedies as a condition of its consent to conciliation or arbitration by the Centre.”
  • Article 8(2) of the Albania Lithuania BIT, 2007 provided: “If such a dispute cannot be settled amicably within six months from the date of the written notification provided in paragraph 1, and an domestic judicial and administrative remedies have been exhausted, the Contracting Party or the investor shall be entitled to submit the dispute…”

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ELR when Treaty is Silent

  • Consent to arbitrate is waiver of ELR
  • Lanco International Inc. v. Argentine Republic, ICSID Case No. ARB/97/6, Preliminary Decision on Jurisdiction, para. 37 (08.12.1998)
  • Mytilineos v. Serbia and Montenegro, UNCITRAL, Partial Award on Jurisdiction (08.09.2006): “222. The result that BITs granting private investors direct access to international arbitration do not require local remedies to be exhausted is also confirmed by underlying policy reasons. A requirement for the exhaustion of local remedies as a general precondition to mixed investment arbitration would seriously undermine the effectiveness of this form of dispute settlement.”
  • If ELR read as part of treaty when silent, would render fork-in-the-road clause redundant. Mytilineos Tribunal stated: “221. To assume that the BIT had not tacitly dispensed with the requirement to exhaust local remedies would imply that an investor, before making his or her choice between domestic courts and international arbitration, would have to exhaust domestic remedies. This would in effect render the “domestic courts” alternative of the fork-in-the-road clause meaningless and thus such an assumption cannot be made. On the contrary, a fork-in-the-road clause obliges an investor to choose whether to pursue remedies before domestic or international fora. Once the choice is made in favor of domestic remedies, international arbitration is no longer available. Thus, one cannot require the exhaustion of local remedies as a precondition for access to international arbitration. Instead, the initiation of local proceedings forfeits access to international arbitration.”

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References

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Exhaustion of Local Remedies (ELR)

  • Variants of ELR Clauses in Investment Treaties
    • Treaty is silent on ELR;
    • Treaty provides for ELR without any time limit;
    • Treaty provides for exhaustion or pursuit of local remedies for a fixed period
    • Treaty affirms right of state to require ELR
    • Treaty expressly waives ELR
    • Other cases
  • Examples where treaty is silent or provides for ELR without time limit were discussed in Lecture 47.

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Exhaustion or Pursuit of Local Remedies for Specific Period

  • Argentina–United Kingdom BIT, 1990 states:
  • “(1) Disputes with regard to an investment which arise within the terms of this Agreement between an investor of one Contracting Party and the other Contracting Party, which have not been amicably settled shall be submitted, at the request of one of the Parties to the dispute, to the decision of the competent tribunal of the Contracting Party in whose territory the investment was made.
  • (2) The aforementioned disputes shall be submitted to international arbitration in the following cases:
  • (a) if one of the Parties so requests, in any of the following circumstances:
  • (i) where, after a period of eighteen months has elapsed from the moment when the dispute was submitted to the competent tribunal of the Contracting Party in whose territory the investment was made, the said tribunal has not given its final decision;
  • (ii) where the final decision of the aforementioned tribunal has been made but the Parties are still in dispute;”

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Exhaustion or Pursuit of Local Remedies for Specific Period (contd.)

  • Indonesia Korea BIT, 1991: “(2) In the event that such a dispute cannot be settled within twelve months between the parties to the dispute through pursuit of local remedies, then the investor affected may submit the dispute to the "International Center for the Settlement of Investment Disputes", for the application of the arbitration procedures provided by the Washington Convention of l8th March l965 on the "Settlement of Investment Disputes between States and Nationals of other States".”
  • Note: No. time limit: Article 7(2) Romania Sri Lanka BIT, 1981:

“If a dispute regarding the amount of compensation in case of expropriation cannot be settled within six months of it being raised by either Party to the dispute in the way provided for in paragraph 1, any of the Parties to the dispute shall, unless such Parties have otherwise agreed, be entitled to submit the dispute to conciliation or arbitration by the International Centre for Settlement of Investment Disputes (called "the Centre" in this Agreement) established by the Convention on the Settlement of Investment Disputes between States and Nationals of other States, Washington, 18th March 1965 1 (called the "Convention" in this Agreement), according to the procedure provided for in the Convention. However, each Contracting Party hereby requires the exhaustion of local administrative or judicial remedies as a condition of its consent to conciliation or arbitration by the Centre.”

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Affirmation of Right of Host State to Require ELR

  • some treaties affirm the right of the host State to require ELR
  • But say no more about whether a defence can be set out after invocation of arbitration by the investor
  • Article 9(4) of the Jamaica Switzerland BIT, 1990: “If pursuant to paragraph (2) the Contracting Party and the national or company of the other Contracting Party agree to submit the dispute to arbitration under Article 36 of the Convention, the Contracting Party may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration.”

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Express Waiver of ELR

  • Some treaties expressly waive exhaustion of local remedies
  • Article 15 of Austria Tajikistan BIT, 2012: “(1) Each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration in accordance with this Part. However, a dispute may not be submitted to international arbitration if a court in the first instance in either Contracting Party has rendered its final decision on the merits. (2) The consent referred to in paragraph (1) implies the renunciation of the requirement that the internal administrative or juridical remedies should be exhausted.”
  • Qualified waiver:
  • Austria India BIT, 1999: Qualified waiver is available to the extent local proceedings have not been initiated. Article 9(4) states: “In case of arbitration provided for under paragraph (3), the Contracting Party shall not require the exhaustion of domestic administrative or judicial remedies unless proceedings have been initiated thereunder.”

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Other Variants

  • Hybrid ELR clauses
  • Australia Hungary BIT, 1991, which states in Article 12:
  • “(2) If the dispute in question cannot be resolved through consultations and negotiations either party to the dispute may, in accordance with the law of the Contracting Party which has admitted the investment, initiate proceedings before its competent judicial or administrative bodies.
  • (3) Where the dispute arises under Article 7 of this Agreement, either party to the dispute may take the following action irrespective of whether any local remedies available pursuant to action under paragraph (2) of this Article have already been pursued or exhausted…”
  • Limited ELR waiver and requirement of ELR for remaining

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References

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ELR Case Law

  • ELR waived in absence of express provision in investment treaty
  • Article 26 of the ICSID Convention: “Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.”
  • Extended to non-ICSID arbitrations
  • ELR: Not a part of customary international law in investment treaty context

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ELR: Admissibility or Jurisdictional Question

ELR is a jurisdictional issue

ELR is an admissibility issue

Emilio Agustin Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Objections to Jurisdiction, para. 22 (Jan. 25, 2000);

Impregilo S.p.A v. Argentine Republic, ICSID Case No. 07/17, Award, paras. 90, 94 (June 21, 2011);

Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, para. 104 (Aug. 3, 2004);

Wintershall Aktiengesellschaft v. The Argentine Republic, ICSID Case No. ARB/04/14, Award, para. 124 (Dec. 8, 2008)

Ömer Dede and Serdar ElhüSeyni v. Romania, ICSID Case No. ARB/10/22, Award, paras. 186, 262 (Sept. 5, 2013)

Daimler Financial Services AG v Argentine Republic, ICSID Case No ARB/05/1, Award, para. 193 (Aug. 22, 2012)

Kiliç Ĭnşaat Ĭthalat Ĭhracat Sanayi Ve Ticaret Anonim Şirketi v. Turkmenistan, ICSID Case No. ARB/10/1, Award, para. 6.2.9 (July 2, 2013)

Abaclat and Others (Case formerly known as Giovanna a Beccara and Others) v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, para. 247 (Aug. 4, 2011);

Hochtief AG v. The Argentine Republic, ICSID Case No. ARB/07/31, Decision on Jurisdiction, para. 48 (Oct. 24, 2011);

Teinver S.A. v. the Argentine Republic, ICSID Case No ARB/09/1, Decision on Jurisdiction, paras. 135–136 (Dec. 21, 2012).

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India’s Model BIT on ELR

  • Article 15: “Conditions Precedent to Submission of a Claim to Arbitration”.
  • Chapter II of Model BIT: host State Obligations
  • ELR clause: violation of Chapter II obligations to be brought before courts or administrative bodies
  • Claim is to be submitted within one year. ELR is for five years
  • No defences
    • ELR obligation does not apply;
    • ELR obligation has been met on the basis that the claim under the BIT is by a different party or for a different cause of action.
  • Exceptions:
    • claims under Articles 9 (Entry and Sojourn of Personnel) and 10 (Transparency)
    • No available legal or judicial remedies
  • Lecture 43: “Tenth Report of the Committee on External Affairs (2020-21) on the subject ‘India and Bilateral Investment Treaties’.”.

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References

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