James D. Fry & Odysseas G. Repousis S TRIPPING THE J URISDICTION FROM E STABLISHED I NVESTMENT A RBITRAL T RIBUNALS The University of Hong Kong ILA Regional

James D. Fry & Odysseas G. Repousis

STRIPPING THE JURISDICTION FROM ESTABLISHED INVESTMENT

ARBITRAL TRIBUNALS

The University of Hong Kong

ILA Regional Conference - Cape Sounion, Greece© Fry & Repousis 2013

I. Investment Arbitration:Current State and Backlash

Backlash against International Investment Law?o Against what?o Amplitude?

© Fry & Repousis 20132


Backlash against International Investment Law?

Specific Concerns:o i) Withdrawal from the ICSID Convention

Bolivia Ecuador Venezuela




Specific Concerns:o i) Withdrawal from the ICSID Conventiono ii) European Policy towards BITs

European Parliament resolution of Apr. 6, 2011 Interpretation of EU law




Specific Concerns:o i) Withdrawal from the ICSID Conventiono ii) European Policy towards BITso iii) Australia’s opposition towards investor-

State clauses



iii) Australia’s opposition towards investor-State clauses

Need to renegotiate old BITs to remove access to investment arbitration:

o Kyla Tienhaara (ANU)o Luke Nottage (UOS)

Goal – stop future arbitrations and existing arbitrations

o Context of Argument?


Philip Morris Asia Arbitration

Brought under the 1993 Hong Kong-Australia BIT

Over the alleged expropriation of intellectual property by Australia through its laws on the plain packaging of tobacco

PendingNotice of Arbitration - December 21, 2011Procedural Order on Seat of Arbitration

(Singapore) - October 26, 2012 (6 more procedural orders)


General Questions

What will happen to investors who invested under those treaties and have not started an arbitration process yet? (II)

What will happen if investors already have started an arbitration process? (III)


Inter-temporal PrincipleMax Huber in the 1949 Island of Palmas

arbitration:o Contemporary interpretation – viewing facts “in

light of the law contemporary with it [the fact], not the law in force at the time when a dispute arises or falls to be settled”

o Evolutionary interpretation – “The same principle which subjects the act creative of a right to the law in force at the time the right arises demands that the existence of the right, in other words its continued manifestation, shall follow the conditions required by the evolution of law.”

2-element approach confirmed by scholars and case law (Higgins, Elias, Fitzgerald)


II. What will happen to investors who have not started an arbitration.

A. Powers of the states

B. Temporal Effects



A. Powers of the states:1. Amendment

o VCLT Art 39 - “A treaty may be amended by agreement between the parties.”



A. Powers of the states:1. Amendment2. Interpretation



A. Powers of the states:1. Amendment2. Interpretation3. Termination

o VCLT Art. 42(2) – “The termination of a treaty, its denunciation or the withdrawal of a party, may take place only as a result of the application of the provisions of the treaty or of the present Convention.”




B. Temporal Effects:VCLT art. 28 applies: Temporal Effect of Entry

into Force – flexible Flexible Temporal Effects for Amendment, Interpretation or Termination




B. Temporal Effects:1. Prospective effect2. From the moment of amendment 3. Retroactive effect




B. Temporal Effects: VCLT Art. 70(1) – “Unless the treaty otherwise provides

or the parties otherwise agree, the termination of a treaty under its provisions or in accordance with the present Convention: (a) releases the parties from any obligation further to

perform the treaty; (b) does not affect any right, obligation or legal

situation of the parties created through the execution of the treaty prior to its termination.



Can states terminate the rights given to third parties by the treaty?

YES, either through termination, amendment, or interpretation, inasmuch as each simply requires the agreement of the parties.

BUT it is not that easy where an arbitration has already started. WHY?


III. What will happen to investors who have started an arbitration.

Host of different ways to interpret:VCLT Art 31(1) - A treaty shall be

interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

VCLT Art 31(2) – Context – other agreements relating to that treaty

VCLT Art 31(3) – Subsequent Agreements and Subsequent Practice



VCLT Art 31(3) – Subsequent Agreements and Subsequent Practice:

There shall be taken into account, together with the context:

(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation.



Observations on VCLT Art 31o No Hierarchyo Reflects the inter-temporal principle in

interpreting lawo Later agreements and practice are not binding on

the way the tribunal interprets the law (including determinations over its jurisdiction, especially once it has determined it has jurisdiction).

o Tribunals can give weight to common positions, but investment tribunals have a stricter approach



Example 1 – Aguas del Tunari v. Bolivia arbitrationDutch ministers said in parliament that the

Netherlands-Bolivia BIT was not applicable to the dispute.

Bolivia said it agreed Tribunal said “it is the Tribunal, and not the

contracting parties, that is the arbiter of its jurisdiction”, and continued with the arbitration.



Example 2 – NAFTA Free Trade Commission Interpretation of NAFTA Article 1105(1) on the meaning of

the “fair and equitable treatment” standard to mean the customary international law standard for the minimum standard of treatment – high standard that required bad faith (Neer arbitration of the 1920s)

Later NAFTA tribunals interpreted this interpretation from an evolutionary perspective (2nd element of the inter-temporal principle)Mondev –“reasonable evolutionary interpretation of Article

1105(1)”ADF – customary international law is not “frozen in time” and

that it had evolved since Neer. Law is not a “static photograph”.


IV. Consent to Arbitrate and Perfected Consent

Dual Role of Dispute Settlement Clauseregulates the procedure to settle disputesActs as consent of the states to arbitrate

disputes involving the investors of the other state



Dual Role of Dispute Settlement ClauseConsent to Arbitration Not in a Single

InstrumentInvestor consent given through written

acceptance of the offer to arbitrate (Schreuer)Amending or terminating a BIT retroactively not

the same as withdrawing consent to arbitrationNeed the investor’s agreement to end

arbitration once consent has been perfected



Parties to the arbitration are the investor and the respondent state, not the two states.o Example - once the investor’s consent to

arbitration has been given, the state of the investor’s nationality cannot provide diplomatic protection or bring an international claim (ICSID Conv art. 27)



Parties to the arbitration are the investor and the respondent state, not the two states.

Irrevocability comes into effect once the consent has been perfected, or in other words, when it has been given by both parties



Parties to the arbitration are the investor and the respondent state, not the two states.

Irrevocability comes into effect once the consent has been perfected, or in other words, when it has been given by both parties

Only the parties to the arbitration can withdraw their consent to arbitration


ConclusionsStates may amend or terminate a treaty;Amendment or termination does not have retroactive

effects, unless the parties agree otherwise;The inclusion of investor-state arbitration clauses in

international investment agreements acts as an offer made by those states to arbitrate disputes with investors;

When investors accept that offer to arbitrate, the consent to arbitration is perfected;

The parties to the arbitration are the investor and the state; and

Once the parties to the arbitration have consented to arbitration, their consent is irrevocable.



Thank you

[email protected]@hku.hk

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Documents

James D. Fry & Odysseas G. Repousis S TRIPPING THE J URISDICTION FROM E STABLISHED I NVESTMENT A RBITRAL T RIBUNALS The University of Hong Kong ILA Regional