ISDSInvestor-State Dispute Settlement

Factsheet

ISDS and the Rule of LawISDS is governed by international rules which safeguard the functio-ning of the system, and ensure the rule of law. The laws protect the impartiality and independence of the arbitrators, and safeguard due process.

The laws and rules governing international arbitration have been established by a broad consensus of States.

A majority of ISDS cases are governed by the Convention on Settlement of International Investment Disputes (the ICSID Conven-tion). The ICSID Convention has been signed by 159 states. The second largest group of ISDS cases are governed by the Arbitration Rules developed by the United Nations Commissions on International Trade Law (UNCITRAL), and adopted by the UN General Assembly for the first time in December 1976. States have also agreed to a wide number of other international arbitration rules, including the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC Rules).

The enforcement of arbitral awards under non-ICISD proceedings is safeguarded by the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). The Convention has been ratified by 154 states.

In 1955, when the New York Convention was negotiated in the United Nations, the delegation from the International Chamber of Commer-ce (ICC) noted that that the Convention “would be a constructive step towards facilitating international trade, and ultimately towards higher standards of living and so towards general peace and prosperity.”1

Who are the investors? OECD has concluded that 22% of all ISDS claims are brought by individuals or “very small corporations.” Extremely large multinatio-nals - defined as those organizations appearing in UNCTAD’s list of top 100 multinational enterprises - account for a minor portion (8%) of total claimant in the samples.2

What types of business activities are concerned in ISDS claims? In reviewed cases from 1987 to 2015, 66% of the disputes aro-se in the services sector, 20% in primary industries and 14% in manufacturing.3 The service sector category (66%) includes supply of electricity, hotel management, and water and sewage services.

Pending cases include media operations (Aljazeera v. Egypt), cookies and ice cream manufacturer, eco-tourism and parking site operations.

What types of measures have been challenged in ISDS? The vast majority of ISDS claims derive from executive branch decisions, as opposed to legislative decisions. In cases filed with ICSID of the World Bank, 47% of the cases have been associated with ministries or agencies, where such agencies have for example rejected or revoked licences, and to terminated investment contracts. A minority (9%) have resulted from legislative acts.4

An analysis of cases under the North American Free Trade Agreement (NAFTA) illustrates that most ISDS claims do not chal-lenge the executive’s ability to adopt the new measure, but rather concern specific guarantees deemed owed to the investor. All NAFTA claims directly challenging legislative and regulatory acts have failed.5

How many cases dealt with environmental questions? Of the 400+ published ISDS awards - available at www.italaw.com - a small group of 24 awards relate to claims deriving from measures of environmental protection. A majority of these awards address the specific treatment of a particular investor, such as revocation of permit, as opposed to a challenge of legislative acts.6

There is also the example of an investor bringing an ISDS claim due to alleged failure by the government to fulfil its national and international environmental obligations (Allard v. Barbados).

A large number (40+) of pending cases have been filed by investors in the renewable energy sector, both in Europe and North America.

At the end of 2015, a total of 444 ISDS proceedings are known to have been concluded. According to UNCTAD, this was the outcome:7

a. 36% decided in favour of the Stateb. 26% decided in favour of the investorc. 26% settled d. 10% discontinuede. 2% tribunal concluded breach by the State, but no compensation was awarded.

Other research demonstrates that in cases where investors have been successful, investors have on average obtained 30% of the amount claimed.8

What is the outcome of cases?

One of the most discussed ISDS cases in recent years is Philip Morris v. Australia. The case was dismissed in December 2015. The Arbitral Tribunal rejected the investor’s claim for abuse of process. Below a brief summary.

In 2011, Australia enacted the so-called plain packaging regulation for tobacco products sold in Australia for public health reasons, which impacted Philip Morris Limited’s (PML) business in the country. Shortly before this regulation was enacted, Philip Morris Asia (PMA), a Hong-Kong registered company, acquired Philip Morris Limited.

Right after the acquisition of PML, PMA brought an ISDS claim against Australia, relying on the Australia – Hong Kong bilateral investment treaty (BIT), and argued that the regulation made the company unable to use its trademark on the tobacco products. The investor alleged that this amounted to indirect expropriation of its property rights, which in turn represented a breach by Australia of the investment protection offered by in Australia’s agreement with Hong Kong.

The Arbitral Tribunal concluded that the acquisition by Philip Morris Asia of Philip Morris Limited was done only to be able to bring an ISDS claim under the BIT, which in the opinion of the Arbitral Tribunal constituted an abuse of rights. The claim by Philip Morris Asia was therefore rejected.9

Philip Morris brought another claim against Uruguay on the basis that a requirement imposed on tobacco company to increase the size of health warning in cigarette packages violated investment protection under Switzerland – Uruguay BIT. The tribunal found that Uruguay had a genuine interest in protecting public health – and therefore the measure cannot be considered violation of the BIT.

Philip Morris in brief: Claim rejected for abuse of process

Sweden has signed 133 international investment agreements; this includes 69 bilateral investment treaties (BITs), and 64 treaties with investment provisions (for instance, free trade agreements).11

Sweden, Stockholm and/or the Stockholm Chamber of Commer-ce have been included in the ISDS provision of at least 120 of the BITs. In addition, SCC is one of three options for investor-state dispute resolution under the Energy Charter Treaty, together with ICSID Arbitration and UNCITRAL Arbitration Rules.

The SCC Arbitration Rules is the third most commonly used set of arbitration rules in investment disputes, making the SCC the second largest arbitration institute in the world, after the ICSID, for the administration of investment disputes under its own rules. As of 31 December 2015, the SCC has administered 85 ISDS cases, where 62 cases were administered under SCC Rules, and 16 cases were administered under UNCITRAL Arbitration Rules.

Investors represent 23 different nationalities in the SCC ISDS caseload. States from Eastern and Central Europe dominate, but SCC has also been included in BITs by states in Africa, South Ame-rica and Asia.

The Role of Sweden in ISDS

ICSID

UNCITRAL

SCC

LCIA

ICC

Ad Hoc

Cairo

Unknown

For more information, please visit

www.sccinstitute.com

and the blog

www.isdsblog.com

ContactAnnette Magnusson, Secretary General

Arbitration Institute of the Stockholm Chamber of Commerceannette.magnusson@chamber.se

1 UN F/AC.42/SR.1, p. 3 (23 March 1955) at 6.2 OECD, Investor-State Dispute Settlement, Public Consultation, 2012.3 UNCTAD IIA Issue Note, Investor-State Dispute Settlement: Review of Developments in 2015. 4 J. Caddel and N. Jensen, Which Host Country Government Actors are Most Involved in Disputes with Foreign Investors?, Columbia FDI Perspectives: Perspectives on topical foreign direct investment issues by the Vale Columbia Center on Sustainable International Investment (No. 120,28 April 2014) http://academiccommons.columbia.edu/catalog/ac:1735295 Tietje, et.al, The Impact of ISDS in TTIP: A Study prepared of the Ministry of Foreign Affairs of the Netherlands, 2014. 6 Italaw.com 7 UNCTAD IIA Issue Note, Investor-State Dispute Settlement: Review of Developments in 20158 Susan Franck, Conflating Politics and Development? Examining Investment Treaty Arbitration Outcomes, Virginia Journal of International Law, 2015.9 Philip Morris Asia Limited v the Commonwealth of Australia, available at https://pcacases.com/web/sendAttach/1711 10 UNCTAD Investment Policy Database, http://investmentpolicyhub.unctad.org/IIA/CountryOtherIias/202#iiaInnerMenu11 Gaukrodger, D. and K. Gordon (2012), “Investor-State Dispute Settlement: A Scoping Paper for the Investment Policy Community”, OECD Working Papers on International Investment, 2012/03, OECD Publishing. http://dx.doi.org/10.1787/5k46b1r85j6f-en

SourcesNumbers up to date June 2016