INTERNATIONAL INVESTMENT AGREEMENTS AND INVESTOR-STATE ARBITRATION

LECTURE 2. Investor-State Arbitration

Sergey Ripinsky

International Investment Agreements Section

Division on Investment and Enterprise

Geneva, 4 May 2012

Historical context

Previously, two options available to a foreign investor:1) Seek relief in the local courts or administrative

tribunals of the host state.2) Request diplomatic protection by home

government.

Need for a neutral forum that would: – Allow direct claims by investors– Be impartial and independent– Consist of highly-qualified specialists– Fast– Cheap

1965 ICSID Convention

• “A-national” forum to administer investment disputes

• Part of the World Bank group

• Can be engaged if both disputing parties consent to arbitration

• Each disputing party appoints one arbitrator

• Awards are enforceable in all ICSID Contracting States (147)

ICSID and UNCITRAL – key differences

• Institutional v. ad hoc• Nationality of arbitrators• Arbitrator fees• Confidentiality• Review of awards • Enforcement of awards

Statistics of IIA-based disputes 2011

• 46 new known cases filed (34 of them in ICSID)• In 38 cases, respondents are developing or

transition economies: e.g., Venezuela (10), Ecuador (4), Egypt (4), Peru (3) and Poland, Philippines and Turkmenistan (2 each)

• 35 of the 46 new cases filed by investors from developed countries.

Known investor-State disputes 1987-2011

0

5

10

15

20

25

30

35

40

45

50

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

An

nu

al n

um

ber

of

case

s

0

50

100

150

200

250

300

350

400

450

500

Cu

mu

lati

ve n

um

ber

of

case

s

ICSID Non-ICSID All cases cumulative

Distribution of claims by economic sector (ICSID statistics)

Largest pending IIA claims

• Yukos shareholders v. Russia– $114 billion in damages claimed

• Conoco Philips v. Venezuela– Around $30 billion in damages claimed

Public interest disputes: examples

• Philip Morris v. Uruguay, Philip Morris v. Australia, (challenges the countries’ anti-smoking policies)

• Vattenfall v. Germany (nuclear phase-out)• Abaclat et al v. Argentina (sovereign debt)• Chemtoura v. Canada (pesticide ban)

10

Criticisms of IIA arbitration

• High costs• Slow• Severance of relationship between investor and host State• Issuance by tribunals of inconsistent decisions: (1)

divergent interpretations of identical treaty provisions, and (2) differences in the assessment of identical facts

• Secrecy: especially important when public-interest measures at stake. Damages paid from the public pocket.

• A club: same people serve as arbitrators in some cases and as counsel in others.

• Party appointments: emergence of “pro-State” or “pro-investor” arbitrators.