Investor-State Disputes as a Specific Category in the Modern International Arbitration Since the end of 1990s, a remarkable rise of investor-State disputes (“ISDs”) has been observed after decades of a relatively peaceful period in this area of arbitration. Ukraine, as a respondent party, has already taken part, so far quite successfully, in seven ISDs based on international investment treaties (“IITs”). Some thoughts on the ISDs are presented by Dr. Sergey Voitovich, a partner of the Ukrainian law firm Grischenko & Partners, who has been counsel for the State of Ukraine in six such disputes over the last ten years.
Sergey VOYTOVICH:
«From our point of view, the mere mention of «debt» or «pledge» in the treaty definition of an “investment” indicates that these are potentially possible forms of investment. However, this should not necessarily mean that a “debt” or a “pledge” are investments for purposes of the ICSID Convention» As for today, investor-State disputes (“ISDs”), i.e. the disputes between an investor and a host State, have become a specific category of international arbitration, which is distinct from the typical international commercial disputes under a number of characteristics. Over the last decade, one could observe a dramatic proliferation of ISDs, which now encounter dozens of disputes in various arbitration institutions and ad hoc arbitrations, and which embrace not only developing countries or the countries of the Eastern Europe, but also a number of Western States. Among other reasons, such a rise has resulted from an ongoing global increase in the number of IITs, as well as from the fact that the concept of “investment”, as applied in modern IITs, is rather broad. A major distinction of ISDs compared to the traditional international commercial disputes is the presence of a State in such investment disputes. For this reason, ISDs are called “diagonal” disputes, i.e. between parties of various levels, unlike “horizontal” disputes between parties on the same level, i.e. between States or between private persons. Accordingly, international law, including treaties and customary law, as well as international case law play an important role, in some instances, even likely more important than domestic law, in the resolution of ISDs by arbitral tribunals. The decisions of the International Court of Justice, other interstate judicial and arbitral institutions, as well as investment arbitration awards, while not having the effect of direct legal precedent, are widely used as an authoritative source of legal findings and arguments. At the same time, the technique and experience of commercial arbitration lawyers and international lawyers are interconnected in modern ISDs. Many of the distinguished international arbitrators dealing with ISDs began their practice as commercial arbitration lawyers, but now can be also fairly referred to as public international lawyers. Broadening of the Subject Matter Jurisdiction in ISDs The broadening of the notion of “investment” in modern IITs has made it possible for ordinary commercial transactions, such as loans, sale-purchase, etc., to be qualified as investments which are subject to protection under such IITs. The treaty definitions of an “investment” in most IITs are much broader than the definition of this concept, for example, in the domestic law of Ukraine. Many IITs define “investments”, among other things, as “claims to money” or “rights conferred by law or contract”. Such an approach in the treaty definitions blurs the line between investments under the protection of IITs and ordinary commercial transactions, and also may cause a further rise in the number of ISDs. In the meantime, ICSID commentators and some ICSID tribunals take the reasonable view that the notion of an “investment” in an IIT may not be “infinitely flexible” and should be in line with the purposes of the ICSID Convention (see for example, the view of one of the founders of the ICSID Convention Aron Broches – 6 ICSID Reports, p. 440; and also R. Dolzer, M. Stevens. Bilateral Investment Treaties, 1995, p. 145; Guide to ICSID Arbitration. Lucy Reed, Jan Paulsson, Nigel Blackaby, 2004, p. 15). From our point of view, the mere mention of “debt” or “pledge” in a treaty definition of an “investment” indicates that these are potentially possible forms of investment. However, this should not necessarily mean that a “debt” or a “pledge” are investments for purposes of the ICSID Convention. It is also conceptually important to note that ordinary commercial transactions should not be confused with investments, although it would be not easy to prove such a distinction between them in the context of the existing treaty definitions of an “investment”. However, attempts to demonstrate such a distinction with respect to specific transactions are possible. For example, in the ICSID case Western NIS Enterprise Fund v. Ukraine, the respondent presented a number of arguments to support the assertion that a loan provided by a U.S. investment fund to a Ukrainian enterprise was a mere ordinary commercial transaction and did not qualify as an investment for the purposes of the ICSID Convention. Scope and Terms of Review of Investment Arbitration Cases A considerable scope of arbitration materials seems to be rather a specific feature of ISDs. As a rule, ISDs pertain to a protracted period of time, during which a dispute evolves (being usually several years), to a great number of examined factual episodes, documents (tens and hundreds thereof), and, accordingly, to rather large filings of parties in writing (each up to a hundred pages and more). The awards of the tribunals themselves tend to be quite detailed. For instance, the written filings of the parties (not including correspondence) comprised about 50 volumes in the Generation Ukraine v. Ukraine case, and still more in the Tokios Tokeles v. Ukraine case. The terms of rewiew of ISDs by arbitral tribunals are, as a rule, rather protracted as well. Thus, at the ICSID, there is no limitation on the general term of examination of a case, and consequently, they linger for several years. Obviously, this should be attributed to ICSID shortcomings. Although, there is still a term of 120 days (with the option to extend the same for 60 days more) after closure of the proceeding for an award to be drawn up. However, the ICSID tribunals may intentionally drag out the closure of the proceeding in order to extend the actual period for making an award. There is no limitation on the general term of review of a case under the UNCITRAL Arbitration Rules. Unlike ICSID and UNCITRAL, at the Arbitration Institute of the Stockholm Chamber of Commerce, one general rule applies in relation to the terms – an award shall be rendered not later than six months as of the date when the case was referred to the arbitral tribunal. However, the SCC Institute may extend the period of time for rendering an award. For instance, the term of proceedings in the AMTO v. Ukraine case was extended by the SCC Institute several times, and that case has lasted for over two years already. The drafters of this six-month rule were evidently geared mainly toward commercial disputes, but this general term appears to be insufficient for investment disputes. Investors as “Subjects” of International Investment Law It is interesting to note that the old issue of whether legal entities and natural persons are subjects of international law has also become topical in connection with ISDs. Thus, in Plama v. Bulgaria, an ICSID tribunal observed that the Energy Charter Treaty containing specific provisions on settlement of investment disputes is “a very significant treaty for investors, making another step in their transition from objects to subjects of international law” (paragraph 141 of the Decision on Jurisdiction). In our opinion, investors, who are not full-fledged subjects of international investment law due to the fact that they do not participate in the creation of its rules, possess of substantial rights in relation to the host States and have at their disposal quite efficient remedies of such rights protection by virtue of IITs. Criticism of the Awards of the Investment Arbitral Tribunals Unlike the awards in commercial disputes, which are typically confidential, the awards of the tribunals in the ISDs with participation of States are more open to public and attract more criticism. Some commentators from developing countries (e.g. Professor M. Sornarajah) note that a handful of Western arbitrators have misapplied their powers to modify international investment law (which normally is a prerogative of sovereign States) for the benefit of transnational corporations. Distinguished international arbitrators, such as Bernado M. Cremades, are seriously concerned about inconsistent arbitral awards in parallel arbitration proceedings on the same subject matter (e.g. the Lauder and the CME cases against the Czech Republic). Finally, the most disturbing is that disappointed States may denounce the ICSID Convention (as for example, Bolivia did in 2007) or other respective international treaty instruments. The next decade will provide an answer as to whether the recent unprecedented proliferation of ISDs has reached its peak and whether the reasonable criticism of the present-day investment arbitration will be overcome by future international tribunals.
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