Investment treaty provisions on investor-State dispute settlement continue to be frequently used, resulting in a further increase in arbitration cases in 2005, reports UNCTAD´s latest publication in its International Investment Policies for Development series, released this week.
The paper, titled Investor-State Disputes Arising from Investment Treaties: A Review, notes that these cases have involved a wide range of investment activities and all kinds of investments, including privatization contracts and State concessions.
While such dispute-resolution activity is "healthy" -- in that it shows the rule of law being applied and demonstrates that international investment agreements work towards creating a favourable investment climate in host countries -- the report indicates that such arbitration also poses a challenge for developing countries: they often have limited technical capacity to handle the increasing number and complexity of investment disputes, the potentially high costs of conducting such procedures, and the potential impact of awards on budgets and national reputations as locations for investment.
Investor-State arbitration procedures under international investment agreements (IIAs) have continued to grow, with at least 48 cases launched in 2005.(1) This brings the cumulative number of known treaty-based cases to at least 229 through the end of the 2005 (the number stood at 219 at the time of printing of the report) (figure 1). One hundred thirty-five of these have been brought before the World Bank´s International Centre for Settlement of Investment Disputes (ICSID) (including ICSID´s Additional Facility) and 94 before other arbitration fora (figure 2). Over two-thirds (69%) of the 229 known claims were filed after 2001.
Against this background, the paper considers the effects of arbitration tribunal decisions on the evolution of substantive treaty provisions and dispute settlement procedures under IIAs. Particular attention is given to the definition of "investor" and/or "investment" and the related issue of the "multiplicity of fora", i.e. the right of pursuing the same claim on the same grounds in different fora, with the resultant possibility of obtaining different juridical outcomes on the same issues. Other procedural issues of concern addressed in the paper relate to the conflict of jurisdictions between domestic and international pursuits of a claim; the possibility of "treaty shopping", i.e. a situation wherein an investor/an investment seeks the most suitable treaty available for the claim; and the overall transparency of investor-State proceedings, which so far have mostly been conducted away from the public eye.
Basic measures that have been challenged include emergency laws put in place during a financial crisis; value added taxes; the re-zoning of land from agricultural use to commercial use; actions related to hazardous waste facilities; issues related to the intent to divest shareholdings of public enterprises to a foreign investor; and treatment at the hands of media regulators.
Disputes have involved treaty provisions such as those on fair and equitable treatment, non-discrimination, expropriation, and the scope and definition of agreements. Some disputes have resulted in awards that interpreted the legal obligations of the agreements, which in turn has caused some parties to re-examine and reconsider the scope and extent of such obligations.
The paper considers the impact of arbitration awards on the further refinement of the substantive standards of protection of IIAs, paying particular attention to rights of establishment; treatment of most-favoured-nation (MFN) principles; the standard of fair and equitable treatment and full protection and security; the scope of protection against expropriation; and other possible areas for future interpretation.
The paper concludes with a number of recommendations on the substantive aspects of the IIAs that have given rise to arbitration and on some procedural issues of existing investor-State dispute settlement mechanisms. It also considers what role the international community can play in enhancing the capacities of developing countries for dealing with investment disputes, including through expanding relevant technical assistance programmes.
ANNEX
Figures
Figure 1. Known investment treaty arbitrations - (cumulative and newly instituted cases, by year, end 2005)
Source: UNCTAD
Figure 2. Disputes by forum of arbitration, end 2005
Source: UNCTAD
Note:
- SCC = Stockholm Chamber of Commerce
- ICC = International Chamber of Commerce
- UNCITRAL = United Nations Commission on International Trade Law
