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International Investment Law and Arbitration

Professor Loukas Mistelis School of International Arbitration Queen Mary University of London

Any questions from last session?

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Remaining questions … l  Is doing business in developing countries riskier

than doing it in developed countries? What factors might make it so?

l  What are the factors investors should consider when considering whether or not to invest in a developing country?

l  Is there a link between economic development and development of the rule of law?

l  How can host countries ensure that they are attracting sustainable development?

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Some more questions l  Do you think the ICSID Convention mechanism

is an effective means of “de-localizing” and de-politicizing disputes?

l  Why has the number of investment agreements risen so sharply in the latter part of the 20th Century and the beginning of the 21st Century?

l  Should states be able to give authority to exploit natural resources to private companies, whether domestic or foreign? Should they retain the right to get the resources back?

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Basic Principles of

Investment Law and Arbitration

Arbitration Agreements without Privity

and Sovereign Immunity

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Issues covered

l  Subjective Arbitrability and Investment Law / Arbitration

l  Arbitration Agreements – Existence and Validity

l  Applicable Law Issues l  Sovereign Immunity from Jurisdiction or from

Execution l  Key immunity cases

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Arbitrability and Privity

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Subjective arbitrability l  Notion l  What is its impact on investment arbitration?

l  Article 2060 French CC – this provision has been revised in 2001, but “survives” in several legal systems

l  Article 177(2) Swiss Private International Law Act l  Requirement for approval in Saudi Arabia, Iran, Syria etc l  Article II(2) European Convention

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Arbitration Agreement(s)

l  Consensual – contractual l  Statutory (arbitration without privity) l  Issues

l  Power of the acting person to bind the state l  Binding effect of an agreement signed by a state

entity on the state / state entity

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Relevant cases

l  SPP v Egypt (ICC and ICSID proceedings) l  National City Bank v Banco para el comercio

exterior de Cuba, 462 US 611 (1983) l  Westland Helicopters Ltd v AOI, 23 ILM 1071

(1984) and XVI YBCA 174 (1991) l  The first is the main one and we will discuss it

now

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SPP v Egypt

l  ICC l  Based on agreement between SPP and EGOTH,

“approved” by government l  SPP prevailed l  Award set aside in France

l  ICSID l  Based on BIT and ICSID l  SPP prevailed l  Award annulled and proceedings started afresh

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Arbitrations without privity

l  Bilateral Investment Treaties l  Energy Charter Treaty l  NAFTA l  Foreign Investment Laws l  We have seen such texts in our first set of

slides

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Applicable Law Issues

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Issues covered

l  Importance of the topic l  Determination of applicable law l  Applicable procedural law l  Applicable substantive law l  Sanctions for application of wrong law and

wrong application of law

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Importance of topic l  Distinction between procedural and substantive law

issues l  Different laws applicable for substantive and procedural

matters l  Applicable law may be an incentive for the choice of an

institution l  Sanctions of wrong application of law or for

application of wrong law l  Different situation in “commercial” and “investment”

arbitrations

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Determination of applicable law(s)

l  With reference to a conflict of laws system (voie indirecte) l  Either national provisions or more often l  Specific provision in arbitration rules l  Party autonomy

l  Without reference to a conflict of laws system (voie directe) l  Whatever the tribunal considers appropriate

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Applicable procedural law l  Often referred to as lex arbitri (law governing

arbitration proceedings) l  Scope and ways of determining

l  Scope: procedural matters l  Ways of determining – voie directe or voie indirecte? l  Importance of party autonomy

l  Importance attributes l  Neutrality and predictability

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Scope of lex arbitri

l Relevance of national law and national courts?

l Internal lex arbitri §  Procedure before and within the arbitration

l External lex arbitri §  Regulatory framework for the supervisory

and supporting role of national courts

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External / Internal lex arbitri

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Sources of internal lex arbitri

l  Agreement of parties l  Arbitration rules specifically incorporated l  National and international procedural rules

adopted by the parties and the arbitrators l  International arbitration practice

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Delocalisation

l  Notion, merits and demerits l  Relevance of seat of arbitration l  Example of ICSID l  Example of ICSID Additional Facility,

NAFTA, BITs, ECT

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Law applicable to merits

l  Journey into the wilderness l  Two sources of determination

l  Agreement of parties l  Decision of tribunal

l  Two main systems with variations l  Voie directe l  Voie indirecte

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What type of law?

l  National (domestic) law l  International law l  Customary law l  What about treaty interpretation

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“Systemic flaws”

l  Choice of law by parties often incomplete l  Conflict of laws systems are pre-destined for

choice of private laws l  Relevance of public laws l  Relevance of public international law l  Stabilisation clauses

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Examples - Cases l  National Law l  National Law with international guarantees

l  AGIP v Congo, ICSID ARB/77/1 l  Benvenuti and Bonfanti v Congo, ICSID ARB/77/2 l  SPP v Egypt, ICSID ARB/84/3 l  Amco v Indonesia, ICSID ARB/81/1 l  Compania del Desarrollo de Santa Elena SA v Republic of

Costa Rica, ICSID no ARB/96/1 l  Wena Hotels Ltd v Arab Republic of Egypt, ICSID ARB/

98/4 l  Internationalisation

l  Abu Dhabi; Sapphire; Aminoil etc

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Examples – cases

l  International Law l  Sources l  Treaties l  Other Sources

l  Non-National Law l  Lex mercatoria and the like

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ICSID Article 42 l  (1) The Tribunal shall decide a dispute in accordance

with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.

l  (2) The Tribunal may not bring in a finding of non liquet on the ground of silence or obscurity of the law.

l  (3) The provisions of paragraphs (1) and (2) shall not prejudice the power of the Tribunal to decide a dispute ex aequo et bono if the parties so agree.

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Question time? l  Some have observed that tribunals have seemed

determined to find a pathway for international law (rather than municipal law) to play a role in the tribunal’s determination of the appropriate outcome of any disputes. Do you think that is true? What are some of the pathways they have used to have international law apply to a dispute? Why might they wish to do so?

l  How would you re-write the choice-of-law clause in the contract between the parties in Duke Energy v. Ecuador to make it clearer? Or is it clear enough as is?

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Duke Energy v Ecuador l  “The Court will rule on the Differences regarding

Investment in accordance with the laws of the Republic of Ecuador and the applicable principles of International Law. All matters related to the validity, efficacy, application or interpretation of this Agreement will be resolved by the Court in accordance with International Law. The Court is not authorised to, nor may it, rule on the Differences, either ex aequo et bono or as amiable compositor, or based on any other doctrine or principle other than this Agreement or Applicable Law.

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Sovereign Immunity

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Sovereign Immunity

l  Dictum by Lord Mustill in Kuwait Airways v Iraqi Airways [1995] 1 WLR 1147, 1171 (HL)

l  Acta jure gestionis and acta jure imperii l  Immunity from jurisdiction l  Immunity from execution

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Immunity from Jurisdiction l  English State Immunity Act section 9 l  US Foreign Sovereign Immunities Act 1978

section 1605(a)(6) l  LIAMCO v Libya 482 F Supp 1175 (DDC 1980) l  SOABI v Senegal, 29 ILM 1341 (1990) l  ICSID Convention Articles 54 and 55

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Immunity from Execution l  Waiver of immunity

l  ICSID Arts. 54 and 55 l  English State Immunity Act section 13 l  Creighton v Qatar, 15(9) Mealey’s IAR A-1 (2000) l  US FSIA sections 1609, 1610

l  Commercial activity l  Eurodif v Iran, 23 ILM 1062 (1984) l  Alcom v Republic of Colombia, [1994] AC 580 l  Creighton v Qatar, 15(9) Mealey’s IAR A-1 (2000)

Other Cases

l  P.T. Garuda Indonesia Ltd v Australian Competition & Consumer Commission [2012] HCA 33 (7 September 2012)

l  Democratic Republic of the Congo v. FG Hemisphere Associates FACV Nos. 5, 6 & 7 of 2010, the Hong Kong Court of Final Appeal (CFA)

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Sedelmeyer v Russian Federation

l  Stockholm arbitration – Art 10 of the 1989 Germany/Russia BIT – award for US$2.35 m

l  Swedish Supreme Court l  (also several German courts) l  Courts directed enforcement of property

belonging to the Russian Federation in Sweden and Germany and ordered compensation for the costs incurred by Sedelmeyer

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Creighton v Qatar

l  ICC Award – award of US$ 8 million in favour of Creighton

l  French Supreme Court decision (2000) l  Award enforceable because of ICC Rules (and

despite immunity rules) l  US CA D.C (1999)

l  Lack of personal jurisdiction over Qatar

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DR Congo v FG Hemisphere

l  Two ICC awards against Congo transferred to the US distressed debt fund, FG Hemisphere Associates

l  HK Court of Final Appeal, by majority 3:2 l  Immunity is absolute l  Restrictive immunity in Australia, US, UK; China

accepts absolute immunity

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Question / Discussion time

l  How can states be prevented from abusing their ability to make and change law at the same time as they are meant to be subject to it?

l  Where do you stand on the issue of sovereign immunity?

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