KEY ISSUES IN INVESTOR-STATE ARBITRATIONLessons for a Young Practitioner

Presented by Isaiah Bozimo, FCIArb

United Nations Conference on Trade and Development (UNCTAD)

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The United Nations Conference on Trade and Development (UNCTAD) recently published in annual snapshot of known arbitration claims under international investment treaties - the World Investment Report 2015.

Chapter III of the Report gives some new and insightful data on investor-state dispute settlement (ISDS) cases - who wins more, Investors or States?

Who Wins More, Investors or States?ISDS

World Investment Report 2015 (WIR)

FDI

$1.23 trillion

IIAs

3,268 International Investment Agreements

ISDS

608 Known Cases (1987-2014)

36%

27%

26%

9%2%

Settled105 cases were settled.

405

In 8 cases, a treaty breach was found but no monetary compensation was awarded to the investor

CONCLUDED CASES

In favour of Investor111 cases ended in favour of the Investor.

In favour of StateOut of the overall concluded cases in 2014, 144 were decided in favour of the State.

Breach but no damages

26%

27%

2%

36%

ISDS OUTCOMES IN 2014UNCTAD 3

Discontinued37 cases were discontinued for reasons other than settlement (or for unknown reasons)

9%

Most observers acknowledge that States never actually “win”; they only do not lose.

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•One key caveat is that UNCTAD is only able to report statistics for “known” cases. This creates a methodological problem for the statistical analysis of non-ICSID cases. Unlike ICSID cases, non-ICSID cases are, for the time being, not subject to any specific reporting or transparency framework.

•UNCTAD’s methodology amalgamates decisions on jurisdiction with decisions on the merit. The 144 cases decided in favour of States include all claims, either dismissed on jurisdictional grounds or dismissed on the merits.

•From the statistics, tribunals rendered final awards in 255 cases (144 in favour of States + 111 in favour of Investors).

•Out of the 255 cases in which final awards were given, 71 were dismissed by tribunals for lack of jurisdiction.

•Taking out the 71 jurisdictional decisions that terminated the arbitrations, 184 cases were decided on the merits.

Do States really “win” more than Investors?ISDS

Looking into the Substance behind the Statistics

Sales0%

Assuming all arbitrations faced a jurisdictional challenge, States “won” 28% (71 cases).

In favour of States

Assuming all arbitrations faced a jurisdictional challenge, Investors won 72% (184 cases).

In favour of Investors

72% of jurisdictional decisions in favour of Investors

DECISIONS ON JURISDICTIONUNCTAD 5

255 Cases

Sales0%

States “won” 73 or 40% of cases decided on the merit.

In favour of States

Investors won 111 (or 60% of cases decided on the merit.

In favour of Investors

60% of decisions on the merit in favour of Investors

DECISIONS ON THE MERITUNCTAD 6

184 Cases

Low Barriers to Entry High Win Rates

Why the distinction between jurisdiction & merits matters7

60%Probability of winning decision

on the merits

72%Probability of winning decision

on jurisdiction.

•If it is relatively easy to reach the merits phase, it will be worth filing an investment claim even if jurisdiction is unclear.

•If the win rate on the merits is high, investors may be more willing to take a chance at jurisdiction, even if the case is weak on that issue.

•The combination of law barriers to entry and high win rates may motivate investors and third party funders to initiate more cases.

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• In the proper context, the UNCTAD data suggests that investors won 72% in of the decisions on jurisdiction, and 60% of the cases decided on the merits in the year 2014.

• Statistical analysis of investment treaty claims provides a very useful tool for policy makers, investors and States respondent to arbitral proceedings.

• However, the data must be read with caution. The UNCTAD report only gives the statistics for known cases. It may be years before details of cases filed and/or concluded in 2014 begin to surface, if indeed they ever do.

• There is no conclusive evidence that the investment arbitration system is biased against either investors or States. The balance in the ISDS system cannot be measured by wins and losses alone. Other significant factors are often involved. But with these new numbers, at least it can no longer be said, simplistically, that the system is balanced because States win more than investors—they clearly do not when comparing the proper numbers.

ConclusionsWHO WINS MORE, INVESTORS OR STATES?

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Thank you for listening Isaiah BozimoDeputy Head of ChambersIkwueto - A Registered Law Firm

ikb@ikwueto.net