Successful ICC conference 'Investment Treaty Arbitration: a ‘BIT’ of a problem?'

Last month at its Exchange House offices in London, Herbert Smith LLP hosted the ICC UK Conference on "Investment Treaty Arbitration: a ‘BIT’ of a problem?". The event was attended by clients, lawyers and the legal press and was chaired by Herbert Smith partner Matthew Weiniger.

The expert speakers gave a selection of broad ranging and interesting talks, speaking from a wide range of expertise, on both practical and legal issues in the investment treaty field.  The topics touched upon by the speakers included: the restructuring of investments to benefit from investment protection; the practical and tactical issues concerning choice of an arbitral institution; the importance of the dynamics of the tribunal; and the enforcement of awards.

The speakers were Professor Zachary Douglas (Graduate Institute of International and Development Studies, Geneva and Matrix Chambers, London), Gavan Griffith QC (Barrister, Essex Court Chambers), Professor Vaughan Lowe QC (Chichele Professor of Public International Law All Souls College, Oxford; Barrister, Essex Court Chambers), Colin Brown (Lawyer, European Commission, Directorate General for Trade, Dispute Settlement and Legal Aspects of Trade Policy), Isabelle Michou (Partner, Herbert Smith LLP), Gaëtan Verhoosel (Partner, Covington & Burling LLP) and Matthew Weiniger.

Below are some highlights from the conference.

Professor Zachary Douglas: ""Investment" and "Investor" – definitions in need of revision?"

• Professor Douglas considered how existing and restructured investments might benefit from investment treaty protection.  He suggested that an investment which is restructured in order to fall under an investment treaty and therefore qualify for protection might legitimately qualify for protection. However, restructuring after a dispute arises is less likely to qualify, on the basis that the restructuring attempts to create better rights than existed at the time of injury.
• Professor Douglas also addressed the lack of definitions of "Investment" and "Investor" in the ICSID Convention and in BIT. He suggested that the proper definition of Investment should contain characteristics arising from the common economic conception of foreign direct investment (i.e. the investment of capital with the expectation of some long term return), in addition to the strict legal characteristics arising from the words of a treaty definition.
• Professor Douglas finished by urging lawyers and tribunals to properly consider the arguments in favour of, and against, a particular investment qualifying for protection rather than caricaturing such arguments in order to try to get the right answer in concrete instances.

Professor Vaughan Lowe QC: "Procedural aspects of Investment Treaty Arbitration"

• Professor Lowe summarised what he considers to be the eight increasingly complex and important points of procedure which are shaping investment treaty arbitration:

(1) The independence and impartiality of tribunals, which have been assisted by the IBA Guidelines, but have also been confronted with the increasing conflicts between arbitrators' roles and interests.

(2) The applicable law, both in terms of the selection of a legal system as well as the characterisation of the question itself.

(3) The procedures for and standards of obtaining evidence.

(4) The tension between wanting different tribunals to act consistently with one another whilst at the same time there being no doctrine of precedent.

(5) The increasing costs associated with investment treaty arbitration, and the procedures being introduced which seek to reduce and minimise such costs.

(6) The transparency of proceedings, in particular with respect to the substance and procedure itself as well as non-disputing parties and their right to know about and participate in the proceedings.

(7) The increased involvement of insurers and questions surrounding any rights and obligations that they may have in terms of participation and disclosure.

(8) The relations of one set of proceedings with other proceedings, and the increasing use of "Chinese walls" and "English tea parties".

• Professor Lowe went on to say that given the increasing complexity and importance of these issues, parties should no longer view procedure as a zero-sum game.  Rather, all parties stand to benefit from smart procedural strategy.

Isabelle Michou: "Choice of Institution"

• Isabelle Michou gave an overview of how practical and tactical issues can affect the choice of institution for an investment treaty dispute.  Ms Michou explained that although investment treaty arbitrations may be administered by the ICSID, the ICC, the SCC or ad hoc under the UNCITRAL Rules, ICSID arbitration remains the most popular choice, followed by ad hoc UNCITRAL arbitrations and ICC arbitrations.
• Ms Michou noted that investment treaty arbitration proceedings tend to be slower and more expensive than commercial international arbitrations – both the jurisdictional and substantive issues tend to be more complex and States often require more time to prepare their cases. The average case length for an ICSID arbitration is over three years, while investment treaty arbitrations administered by the SCC and ICC tend to last around two years.
• Ms Michou also noted that whilst ICSID arbitrations offer a higher level of transparency compared to other forums, there is little difference between the rules in relation to the standards of independence and impartiality required of arbitrators.

Gavan Griffith QC: "The authority of the tribunal"

• Gavan Griffith QC gave an enlightening off-the-record talk about the dynamics of an arbitral tribunal. He touched upon the different ways in which arbitral tribunals reach decisions and in particular the different roles which a chair can take in facilitating the agreement of the panel.  The discussion underlined the importance of making an informed choice of arbitrator.

Gaëtan Verhoosel: "Compliance and enforcement of awards – recent trends"

• Mr Verhoosel spoke about the differences in recognition and enforcement regimes under ICSID and non-ICSID arbitrations. In particular, whereas ICSID awards relating to pecuniary obligations are enforced under the ICSID Convention (under which there are no grounds for refusing recognition), non-ICSID awards (and possibly ICSID awards relating to non-pecuniary obligations), are enforced under the New York Convention.
• In relation to securing recovery under a favourable award, Mr Verhoosel highlighted some further differences between ICSID treaty awards and non-ICSID treaty awards. Both the New York and ICSID Conventions permit a stay of enforcement pending annulment/ setting aside review (which stay may be made conditional upon security being rendered). However, whilst for non-ICSID treaty awards, there is a theoretical possibility of obtaining a domestic freezing order prior to an award being rendered, Article 26 of the ICSID Convention excludes recourse to domestic courts.

Matthew Weiniger: "Appeals and annulments of awards"

• Matthew Weiniger concluded the conference by addressing the various ways of avoiding an unfavourable ICSID award: by annulment, through interpretation or by revision, and commenting on the lack of an appeal mechanism at ICSID.
• Matthew considered the five grounds for annulment under Article 52(1) of the ICSID Convention in some detail, namely (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based.
• Matthew looked at the grounds that have been used in previous annulment proceedings and whether such grounds have been successful, noting that the first had never been relied upon in an annulment, and that the second had rarely been used and, when used, had been unsuccessful.
• Matthew continued by highlighting the dangers in relying on the remaining grounds and arguments, using previous ICSID cases as examples.