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					ANZSIL Annual Conference



  How Foreign Investment Arbitration is Reshaping
    Public International Law and its Participants

                                                    Canberra, Australia
                                                    28 June 2007
What is International Investment Arbitration?

    Claim by a foreign investor against a host state settled via arbitration

    Consent to refer dispute to arbitration contained in:
            ▪ Bilateral Investment Treaty (“BIT”)
            ▪ Multilateral Investment Treaty (e.g. NAFTA, ASEAN, Energy Charter)
            ▪ National investment law
            ▪ Investment contract

    Purpose of investment treaties:
            ▪ Promotion and protection of investments to mutual economic benefit
                See, e.g., Australia-Argentina BIT, preamble

    Available arbitration fora:
             ▪ Usually International Centre for Settlement of Investment Disputes
                (ICSID) or ad hoc using UNCITRAL Rules, other institutions possible



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               ANZSIL Annual Conference - Judith Levine
The boom in BITs




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           ANZSIL Annual Conference - Judith Levine
The increase in investment treaty arbitrations




    Source: UNCTAD, as of November 2005


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              ANZSIL Annual Conference - Judith Levine
Increase in ICSID Case Load 1990-2005

 120


 100


  80


  60


  40


  20


   0
       1990      1992             1994               1996     1998   2000   2002           2004


       Current load as at June 2007 of pending cases is 111
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                   ANZSIL Annual Conference - Judith Levine
Diplomatic protection becoming a rarity


    “The Court is bound to note that, in contemporary international law, the protection of the rights of
    companies and the rights of their shareholders, and the settlement of the associated disputes,
    are essentially governed by bilateral or multilateral agreements for the protection of foreign
    investments, such as the treaties for the promotion and protection of foreign investments, and
    the Washington Convention of 18 March 1965 on the Settlement of Investment Disputes
    between States and Nationals of Other States, which created an International Centre for
    Settlement of Investment Disputes (ICSID), and also by contracts between States and foreign
    investors. In that context, the role of diplomatic protection somewhat faded, as in practice
    recourse is only made to it in rare cases where treaty régimes do not exist or have proved
    inoperative…”

                                                                                  ICJ, Decision of 24 May 2007, ¶ 88
                                                 Case concerning Ahmadou Diallo, (Guinea v. Dem. Rep. of the Congo)




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                ANZSIL Annual Conference - Judith Levine
Countries known to be defending claims




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           ANZSIL Annual Conference - Judith Levine
Australian BITs




                                                       www.unctad.org/sections/dite_pcbb/docs/australia.pdf




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            ANZSIL Annual Conference - Judith Levine
Why pay attention to this field of law?



  1.   Commercial lawyers (transactional and disputes)
  2.   Government and its advisers
  3.   Commercial arbitration lawyers
  4.   Public interest groups
  5.   Public international lawyers…




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                ANZSIL Annual Conference - Judith Levine
Arbitral Awards as “Precedent”?

  In theory
       No
       Perhaps as non-binding ‘subsidiary means of determination of rules of law’
        Art. 38(1)(d) Statute of ICJ (‘judicial decisions and the teachings of the most highly qualified publicists’)
        ICSID Convention, Art. 48, decisions binding on the parties only
        See also J. Paulsson, “International Arbitration and the Generation of Legal Norms:
        Treaty Arbitration and International Law”, ICCA Congress, Montreal 2006




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                ANZSIL Annual Conference - Judith Levine
Arbitral Awards as “Precedent”?


 In practice
      Effectively, kind of, yes
      Empirical review of 207 publicly available investment arbitration awards shows
      exponential increase in frequency of citation to arbitral “case law”
          J.P. Commission, “Precedent in Investment Treaty Arbitration: The Empirical Backing”, TDM, March 2007

      In the words of one prominent tribunal:
          “The Tribunal considers that it is not bound by previous decisions. At the same time, it is of the opinion
          that it must pay due consideration to earlier decisions of international tribunals. It believes that, subject to
          compelling contrary grounds, it has a duty to adopt solutions established in a series of consistent cases. It
          also believes that, subject to the specifics of a given treaty and of the circumstances of the actual case, it
          has a duty to seek to contribute to the harmonious development of investment law and thereby to meet the
          legitimate expectations of the community of States and investors towards certainty of the rule of law.”
        Saipem v. Bangladesh, Decision on Jurisdiction, 21 March 2007




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How Investment Arbitration is Reshaping Public International Law


 Obviously, in substantive principles of foreign investment protection…
      What constitutes an ‘investment’? Who is an ‘investor’ of a State?
      What constitutes an old school ‘direct’ expropriation?
      What about ‘indirect’, ‘creeping’, ‘regulatory’ expropriation, and ‘measures
      tantamount’ thereto?
      Limits of national and ‘most favored nation’ treatment?
      Fair and equitable treatment?
      Full protection and security?
                                                        See, e.g., Siemens v. Argentina, Award of 6 February 2007




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How Investment Arbitration is Reshaping Public International Law

 Procedural aspects of international disputes involving states:
      Deliberative process privilege / executive privilege
           See, e.g., UPS v. Canada, Decision of 8 October 2004;
           Glamis Gold v. USA, Decision of 17 November 2005

      Provisional measures
           See, e.g., Plama v. Bulgaria, Decision of 6 September 2005
           Maffezini v. Spain, Decision of 28 October 1999

      Time bars
           See, e.g., NAFTA, Art. 1116, UPS v. Canada, Award of 11 June 2007;
           Grand River v. USA, Decision on Jurisdiction of 20 July 2006

      Independence and disqualification for appearance of conflict of interest
           See, e.g., J. Levine, “Dealing with Arbitrator Issue Conflicts in International Arbitration” Dispute Resolution
           Journal 60, Feb-Apr 2006; also published in T-D-M, Vol 3:5, Dec 2006




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How Investment Arbitration is Reshaping Public International Law

  Substantive aspects of international disputes involving states:
       State responsibility
            Saipem v. Bangladesh, Decision of 21 March 2007 (ILC Draft Articles are customary
            international law, courts are organs of the state, possibly state oil company, to be seen on merits)
            UPS v. Canada, Award of 11 June 2007 (ILC Draft Articles are c-i-l but NAFTA is lex specialis)
            “Necessity” a defense to violation of obligation? see CMS v. Argentina, LG&E v. Argentina
            Retroactivity of treaties and continuing breach (ILC Draft Articles 13 and 14), see Lucchetti v. Peru,
            Award of 7 February 2005; Mondev v. USA, Award of 11 October 2002; UPS v. Canada, Decision of
            11 June 2007; Impregilo v. Pakistan, Decision of 22 January 2005

       International “public policy” or “ordre public”
            World Duty Free v. Kenya, Award of 4 October 2006 (investment procured by corruption not protected)

       Interpretation and application of treaties
            Vienna Convention, Article 31 analysis applied; classic tools of treaty interpretation (e.g. effective
            interpretation, expressio unium, AAPL v. Sri Lanka, Decision of 27 June 1990)



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How Investment Arbitration is Reshaping Public International Law

  Widening the playing field in public international law:
        The parties
            Private entities (individuals and companies, and stake-holders in companies)
            States (sometimes organs of States alleged to be responsible)

        The decision makers
            Appointed by parties, or by default by arbitral institutions or courts
            Include ICJ judges (retired and sitting); professors; professor/practitioners; retired
            judges, diplomats, politicians; barristers; full-time arbitrators

        The decision shapers
            Mostly large private law firms based in US or UK, sometimes professor as ‘expert’
            Sometimes government lawyers go it alone (Argentina) or with local counsel (Poland)



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How Investment Arbitration is Reshaping Public International Law

                                                            Widening the playing field
                                                           in public international law:
                                                                    The decision makers




                                  Source: “Arbitration Scorecard” Focus Europe (American Lawyer Monthly), Summer 2007


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How Investment Arbitration is Reshaping Public International Law

                                                               Widening the playing field
                                                              in public international law:
                                                                      The decision shapers




                                          Source: “Arbitration Scorecard” Focus Europe (American Lawyer Monthly), Summer 2007


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How Investment Arbitration is Reshaping Public International Law

Widening the playing field in public international law:
     Civil Society
         NGOs have been allowed to submit “amicus” briefs in at least five cases:
                         NAFTA:                 Methanex (environmental)
                                                UPS (labour and commerce groups)
                                                Glamis Gold (indigenous tribe)
                         ICSID:                 Biwater v. Tanzania (environmental and human rights)
                                                Suez et al v. Argentina (environmental and human rights)
         Subject to some procedural limitations
         No reference to amici arguments in the two cases that have gone through to award



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How Investment Arbitration is Reshaping Public International Law

Widening the playing field in public international law:
      Civil Society
           Rationale for NGO participation (from Suez et al (quoted in Biwater)
             “This case will consider the legality under international law, not domestic private law, of various actions and measures taken by
             Governments. The international responsibility of a State, the Argentine Republic, is also at stake, as opposed to the liability of a
             corporation arising out of private law. While these factors are certainly matters of public interest, they are present in virtually all
             cases of investment treaty arbitration under ICSID jurisdiction. The factor that gives this case particular public interest is that the
             investment dispute centres around the water distribution and sewage systems of a larger metropolitan area, the City of Buenos
             Aires and surrounding municipalities. Those systems provide basic public services to millions of people and as a result may raise a
             variety of complex public and international law questions, including human rights considerations. Any decision rendered in this
             case, whether in favour of the Claimants or the Respondent, has the potential to affect the operation of those systems and thereby
             the public they serve. These factors lead the tribunal to conclude that this case does involve matters of public interest of such a
             nature that have traditionally led courts and other tribunals to receive amicus submissions from suitable non parties… Given the
             public interest in the subject matter of this case it is possible that appropriate non parties may be able to afford the tribunal
             perspectives, arguments and expertise that will help it arrive at a correct decision.”


           and further, from Methanex (also quoted in Biwater)
            “the acceptance of amicus submissions would have the additional desirable consequence of increasing the transparency of
             investor state arbitrations”




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                     ANZSIL Annual Conference - Judith Levine
How Investment Arbitration is Reshaping Public International Law

Widening the playing field in public international law:
    Trend of transparency in institutional developments

       NAFTA note of interpretation July 2001
       ICJ Practice Direction XII, February 2002
       OECD Investment Committee Statement June 2005
       Amendments to ICSID Rules, April 2006
       Revision of UNCITRAL Rules currently under consideration 2006-08
       Some states including transparency provisions directly into their BITs and FTAs




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             ANZSIL Annual Conference - Judith Levine
                                                                                                                                  Worldwide. For Our Clients.




                                                                                                                                   www.whitecase.com
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White & Case, a New York State registered limited liability partnership, is engaged in the practice of law directly and through
                                                                ANZSIL Annual Conference - in which we have
entities compliant with regulations regarding the practice of law in the countries and jurisdictionsJudith Levine offices.
            How Foreign Investment Arbitration is Reshaping
              Public International Law and its Participants
             Judith Levine, White & Case LLP, New York, 28 June 2007


A. OUTLINE OF PRESENTATION

  1.   Introduction

       a.   What is international investment arbitration?
       b.   Brief history behind the “boom”
       c.   Context: affected industries and countries
       d.   Activity in Asia-Pacific

  2.   Who should pay attention to this field of international law and why?

       a.   Legal advisers to companies that engage in international business
       b.   Governments and those who advise public entities
       c.   International commercial arbitration practitioners
       d.   Public interest groups
       e.   Public international lawyers …

  3.   Preliminary note – arbitral awards as ‘precedent’?

  4.   How investment arbitration is reshaping public international law

       a. Specific: developments in international investment protection law, e.g.:
                     What is an “investment”? Who is a “national”?
                     Direct and indirect expropriation
                     Fair and equitable treatment
       b. General: procedural aspects of international dispute resolution with States, e.g.:
                     Deliberative process/executive privilege
                     Time bars
                     Provisional measures
                     Independence and disqualification for perceived conflict of interest
       c. General: substantive aspects of international dispute resolution with States, e.g.:
                     Treaty interpretation (Vienna Convention Art. 31)
                     Retroactivity of treaties (Vienna Convention, Art. 28)
                     International “public policy” or “ordre public” (corruption)
                     State responsibility (application of ILC Draft Articles, defence of
                     necessity, continuing breach, attribution to State for acts of organs)
       d. General: expanding the playing field of public international law, e.g.:
                     The parties (private investors, sub-organs of States)
                     The decision-makers (who are the arbitrators?)
                     The decision-shapers (who are the advocates?)
                     Civil society (recent developments in allowing NGO participation)
B. ATTACHMENTS

         PowerPoint presentation, ANZSIL Conference 2007

         List of Australia and New Zealand’s investment agreements

         List of useful websites and suggested reading materials

         Investment Treaty News (ITN), December 1, 2006 Published by the
         International Institute for Sustainable Development
         (http://www.iisd.org/investment/itn) (extract) “Pakistan Attorney General
         advises states to scrutinize investment treaties carefully”
                   AUSTRALIAN AND NEW ZEALAND BITs




Source:   www.unctad.org/sections/dite_pcbb/docs/australia.pdf
Other:    Singapore, Free Trade Agreement, 28 July 2003 (expropriation only)
          Thailand, Free Trade Agreement, 1 January 2005
          USA, Free Trade Agreement, 1 January 2005 (no arbitration)
          Energy Charter Treaty, (signed but not ratified)




Source:   http://www.unctad.org/sections/dite_pcbb/docs/new_zealand.pdf
                         USEFUL WEBSITES AND SUGGESTED READING

Where to find investment treaties online:

             Database of BITs on UNCTAD: www.unctadxi.org/templates/DocSearch____779.aspx

             Energy Charter Treaty: www.encharter.org

             ASEAN Investment Agreement: http://www.aseansec.org/6464.htm

Where to find published arbitral awards online:

             ICSID Website: www.worldbank.org/icsid/cases/cases.htm

             Investment Treaty Arbitration, University of Victoria (Canada): http://ita.law.uvic.ca/

             Investment Claims: www.investmentclaims.com [note, all the decisions cited in the PowerPoint
             presentation are available at this website].

             NAFTA Claims (including all pleadings and procedural orders): www.naftaclaims.com

Useful reading:

             UNCTAD (United Nations Conference on Trade & Development), Investor-State Disputes Arising
             from Investment Treaties: A Review (2005), available at:
             www.unctad.org/en/docs/iteiit20054_en.pdf

             D. Krishan and Ania Farren, Digest of Investment Treaty Decisions and Awards, Yearbook of
             Commercial Arbitration XXXI (2006) (snapshot summary of all published arbitral decisions ever
             rendered under investment treaties up until August 2006)

             Paul Friedland, Arbitration Clauses for International Contracts (2000) (2nd ed forthcoming) (guide
             to drafting arbitration clauses for all types of international contracts, including investment
             contracts)

             Todd Weiler (ed), International Law and Arbitration: Leading Cases from the ICSID, NAFTA,
             Bilateral Treaties and Customary International Law (2004) (Essays)

             C.H. Schreuer, The ICSID Convention: A Commentary (2001).

             Transnational Dispute Management: www.transational-dispute-management.com (collection of
             online articles, subscription only)

             Investment Treaty News: http://www.iisd.org/investment/itn/ (newsletter on recent developments
             in international investment arbitration, administered by NGO, quick easy read for updates –
             subscribe, it’s free.)

Australia specific:

             A. Baykitch, M. Mangan & P. Turner, Investment Treaty Arbitration: An Australian Perspective
             (forthcoming in Arbitration International)

             W.S. Dodge, Investor State Dispute Settlement Between Developed Countries: Reflections on the
             Australia-US Free Trade Agreement, 39 Vand. J. Transnat’l L. 1 (2006)

             Bryan Mercurio, Should Australia Continue Negotiating Bilateral Free Trade Agreements? A
             Practical Analysis, 27 UNSWLJ 667 (2004).
Investment Treaty News (ITN), December 1, 2006 Published by the International
Institute for Sustainable Development (http://www.iisd.org/investment/itn) (extract)


Pakistan Attorney General advises states to scrutinize investment treaties carefully
By Luke Eric Peterson


The Attorney General of Pakistan, Mr. Makhdoom Ali Khan, speaking at a recent Washington arbitration
conference cautioned states to scrutinize closely any international investment treaties which they conclude with
other governments.

Speaking of his own country’s experience, Mr. Khan noted that Pakistan long treated such treaties as “photo-op”
agreements, which could be signed hastily, with little consideration of their concrete legal consequences.

“Because someone is going visiting someplace and wants to sign an ‘unimportant’ document; or someone is
coming over for a visit and an ‘unimportant’ document has to be signed. And a BIT … until very recently was
regarded as one such (unimportant) document”, Mr. Khan noted at a Colloquium hosted by the International
Centre for Settlement of Investment Disputes (ICSID).

The Attorney General speculated that dozens of the BITs concluded by Pakistan had been viewed as “photo-op”
agreements, and their full import became clear only after foreign investors began to invoke the treaty rights in
the course of initiating investor-state arbitrations against Pakistan.

“These are signed without any knowledge of their implications. And when you are hit by the first investor-state
arbitration you realize what these words mean,” Mr. Khan said.

In Pakistan’s case, the first arbitration to arise under one of its investment treaties was filed by a Swiss
multinational, Société Générale de Surveillance S.A. (SGS) in 2001. The Attorney General noted that when this
case was filed, the Pakistani Government was taken by surprise: “SGS having lost before the Swiss Supreme
Court, having lost in Pakistan, how could it start a third round?”

However, the Attorney General noted that Pakistan came to appreciate that investment treaties offer something
akin to a judicial review of domestic actions. “In many ways, the foreign investor is seeking an international
arbitral review of sorts of government conduct on important public policy issues - issues which, until recently,
were immune from any non-domestic scrutiny.”

Mr. Khan added that the substance of these international disputes – dealing with issues such as the alleged
denial of justice or water rights – have the potential to excite emotions, and trigger demands for much greater
transparency to be brought to bear upon the arbitration process. The Attorney General noted that investor-state
arbitrations pose challenges which rarely crop up in more traditional commercial arbitrations (which typically
do not involve states, and may see two private parties contesting over commercial matters).

Ultimately, he urged governments to give greater consideration to such tensions prior to executing further
investment treaties.

“(Investment treaties) must be carefully negotiated and executed after some consideration. Now, whether it
should be executed at all, given the open-ended concepts which are involved … which have impact on
significant policy considerations, is an issue which is too wide for this particular symposium.”

Mr. Khan added that the current system of investor-state arbitration is not a foregone conclusion, and that some
new treaties are being concluded without such an investor-state mechanism. The Philippines, for example, has
recently concluded an economic partnership agreement with Japan which does not offer foreign investors access
to investor-state arbitration.

Nevertheless, the Pakistani Attorney General suggested that governments ought live up to those commitments
which they have made: “But if the states do sign these treaties, whether thinkingly or unthinkingly, and these are
executed, then states have no right to claim any special status or an unabridged right to undermine the integrity
of the process which they have agreed to participate in.”

				
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