Remarks on developments in Investor-State Disputes: Sue Robertson, Assistant Secretary, Office of In
The following remarks were delivered at UNCCA’s Third Annual Canberra Seminar in May 2017
Thanks to the Chair of UNCCA, Tim Castle, for inviting me here today. I thought I would step back a little to reflect from a State perspective about developments in ISDS.
ISDS: 3 Reflections
1. During attendance at International Law Week at the United Nations in New York last November and in April this year at the American Society of International Law meeting in Washington, I have been struck at the volume of Investor State Dispute panels, seminars and reform conversations taking place. No longer considered boutique, ISDS has well and truly entered the mainstream of public international legal discussion. Students and Government lawyers need to understand international investment law in a way that perhaps they have not had to in the past. I encourage public international law students to study ISDS for four reasons: (i) the growing prevalence of arbitrations (as of December 31 2016, ICSID had registered 597 cases) (ii) how ISDS interacts with other public international law principles (treaty interpretation and questions of transparency and accountability); (iii) its impact on the scope of legitimate state regulatory power and sovereignty; and (iv) its importance in broader public debates about economic nationalism and the role of foreign investment. I also firmly believe that ISDS needs more public international law expertise within its ranks to strengthen the quality of tribunal decisions.
2. My second reflection concerns the essentially pragmatic nature of State attitudes in this area. It will be no surprise that a States’ ISDS policy will be informed by their experience including with ISDS litigation. In Australia’s case, successfully defending the Philip Morris Asia claim has underlined to us the importance of protecting a State’s right to legitimately regulate issues in the public interest, and the need to ensure a more efficient and cost effective ISDS regime. In negotiating international investment chapters in Free Trade Agreements, we determine the existence of an ISDS mechanism on a case by case basis. Our preference now is for strong procedural and substantive protections. For example, in our most recent FTAs (such as the TPP), we have sought:
processes for jurisdictional issues to be heard separately and first
processes for early dismissal of baseless cases
carve-outs for disputes relating to public welfare and health measures
improved transparency provisions
Australia, despite having ISDS provision in its agreements for over 20 years, has only recently been involved in litigation. The decision in the first of these cases, the Philip Morris Asia tobacco case, was published by the Tribunal in May 2016. As most of you would know the PM Asia case was brought under the 1996 Australia-Hong Kong Bilateral Investment Treaty and the UNCITRAL Arbitration Rules 2010. Despite the most recent UNCITRAL arbitration rules available applying, Australia had limited access to ISDS reform elements because these were not available under the applicable treaty.
Had such protections as those noted above been available to Australia in the PM Asia case under, it may have allowed for a swifter conclusion. There may have been a stronger basis for the case to be bifurcated so that the jurisdictional issues could be heard on a preliminary basis, and the case may have benefited from stronger explicit public welfare exceptions. The PM Asia case was also governed by a strict confidentiality regime. There has been a lot of discussion in ISDS circles about the secret operation of ISDS and the confidentiality of the ad-hoc tribunals which hear cases. In Australia’s case, we are very happy that the Tribunal ruled in our favour, and that the Award has been published – with very limited redactions – on the website of the Permanent Court of Arbitration.
However, it is sobering to consider the implications should Australia have lost its defence on both the preliminary objections and the merits claims – this would have involved a law, which had been enacted by a democratic parliament and with a very high level of community support, being overruled by an ad-hoc, 3 person tribunal whose award would be subject to virtually no avenues of appeal, with no guarantee of publication of the full un-redacted reasons for the decision.
It is therefore promising to see the number of initiatives to bring greater transparency to ISDS, including the UNCITRAL rules on Transparency in TreatyBased Investor-State Arbitration, and the Mauritius Convention on Transparency.
3. My third reflection concerns the various proposals for reform to ISDS currently under discussion, one of which is the EU proposal for a multilateral investment tribunal or court. I think it behoves lawyers to be aware of our own biases toward courts as a ‘fix all’. For States we need to be clear on what areas needs improvement and whether new structures are actually needed. I certainly have a preference for ‘quick wins’ that might build on what already exists to improve ISDS shortcomings. The Secretary-General of International Centre for Settlement of Investment Disputes (ICSID), Meg Kinnear, for example has flagged the establishment of a permanent list of arbitrators as something that could be done relatively quickly to address some concerns about the impartiality of arbitrators. ICSID has also currently undergoing a process to amend its Rules and Regulations with States providing comments this year – and Australia did so in February.
Australia is open to considering the possibility of a multilateral investment dispute settlement mechanism, together with other possible investor-State dispute settlement (ISDS) reforms. The paper discussed by UNCITRAL in 2016, and the discussions to be taken forward through UNCITRAL this year on the idea of an investment court or appeal mechanism will be significant.
Even if the need for an investment court is demonstrated, it may not be feasible. The current state of international law development and the sclerotic nature of multilateral treaty negotiations do not augur well for an entirely new dispute resolution mechanism. An opt-in Convention (along the Mauritius Convention model) could be attractive in terms of not starting from scratch and extending permanent mechanisms to States’ existing agreements.
It is by no means certain that court model is likely to be favoured by States. For example,
Opposition from a number of states (including US) to court proposal
Countries continuing to promote TPP-style procedural safeguards and substantive clarifications on investment obligations as an alternative to reform through a court
Other countries such as Brazil and India have pursued their own model investment agreements, which at this stage do not include a multilateral investment court model
New Latin American Investment Agreement excludes ISDS
Japan continues to promote TPP style procedural safeguards and substantive clarifications on, for example, FET and expropriation
The reform proposals require States to undergo some further deep thinking. Australia is not a major player in the ISDS space but nonetheless we take the view that it is important to be at the table and contributing to the shaping of any new mechanism in a manner consistent with our commitment to transparency and the rule of law – but also from an efficient litigation perspective.
Other key reforms necessary to address in the investment space are the absence of women arbitrators appointed to panels and the legal breadth of expertise of arbitrators. It is my hope that over time more public international lawyers will arbitrate ISDS disputes, and particularly female ones. Given the enduring relevance of the Vienna Convention on the Law of Treaties and other public international law principles this can only be a good thing for legally integrated and holistic panel reasoning.
Sue Robertson is the Acting First Assistant Secretary of the Office of International Law at the Commonwealth Attorney-General’s Department