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  • 28 Apr 2021 4:27 PM | Anonymous

    Presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

    The two issues I was asked to discuss were: 

    1)    The provisions at the heart of the Singapore Convention.

    2)   The key controversies in the text of the Singapore Convention, both now and in the future. 

    In response to the first issue, I considered the provisions at the heart of the Convention to be:

    a)      Article 1 which provides that the Convention applies to international settlement agreements resulting from mediation, concluded in writing by parties to resolve a commercial dispute. 

    b)    Article 1 also lists exclusions from the scope of the Convention namely, settlement agreements completed by a consumer for personal, family or household purposes, or relating to family inheritance or employment law.

    c)    A settlement agreement that is enforceable as an arbitral award is also excluded from the scope of the Convention in order to avoid a possible overlap with the existing and future Conventions such as the New-York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), the Convention on Choice of Court Agreements and the Convention on the Recognition and Enforcement of Foreign judgment in Civil and Commercial Matters (2019). 

    d)    Article 3 addresses the key obligations of the parties to the Convention with respect to both enforcement of settlement agreements and the right of disputing parties to invoke a settlement agreement covered by the Convention. Each party to the Convention may determine the procedural mechanisms that may be followed where the Convention does not prescribe any requirement. 

    e)    Article 4 covers the formalities for relying on a settlement agreement, namely the disputing party shall supply to the competent authority the settlement agreement signed by them and evidence that the settlement agreement results from mediation. The competent authority may require any necessary document in order to verify that the requirements of the Convention are complied with. 

    f)     The grounds upon which a court might refuse to grant a request of the disputing party against which it is invoked, are defined in Article 5. The grounds are grouped in 3 main categories, those in relation to the disputing parties, the settlement agreement and the mediation procedure.

    Article 5 includes two additional grounds upon which a court may, on its own motion, refuse to grant relief. These grounds relate to public policy and the fact that the subject matter of the dispute cannot be settled by mediation. 

    g)  Article 8 is on reservations, the first one permits a party to the Convention to exclude from the Convention settlement agreements to which a party or to which any governmental agency is a party, to the extent specified in the declaration. 

    h)    A second reservation permits a party to the Convention to declare that it will apply the Convention only to the extent that the disputing parties have agreed to its application. 

    i)   The Convention is consistent with the UNCITRAL MODEL LAW on International Settlement Agreement Resulting from Mediation (2018). This approach is intended to provide States with the flexibility to adopt either the Convention, the Model Law as a standalone text or both the Convention and the Model Law as complimentary instruments of a comprehensive legal framework on mediation. 

    As for the key controversies at the heart of the Singapore Convention now and in the future, I identified the following: 

    1) The Singapore Convention does not take any stand on the source of mediation, for example, the parties may have resorted voluntarily to mediation instead of commencing litigation, or an attempt at mediation may have been mandatory by a legal rule or by a court. This issue has been debated in the European Union where some member States believe that the only way to resort to mediation is to make it mandatory. This is not captured anywhere in the Convention. It is worth noting that as at now, neither the European Union nor the United Kingdom has signed the Singapore Convention. They say that they are considering whether to sign as a regional economic entity/block, or whether member States need to join individually. I find this to be problematic now and in the future. 

    2)How to secure the mediator’s confirmation is also bound to be problematic in future. 

    For example, Article 4 of the Convention sets out the evidence to be provided to the enforcing court. This includes a copy (translated if necessary), of the settlement agreement. It also includes the requirement that the settlement agreement,” resulted from mediation.” The examples given as to what could constitute such evidence include: 

    a)    “a mediator’s signature on the settlement agreement or a document signed by the mediator indicating that the mediation was carried out.”

    If the mediation was organized through an institution, the evidence may take the form of an attestation by that institution. 

    b)   In the absence of such forms of evidence, any other evidence acceptable to the (enforcing court) may be acceptable. 

    c)    Whilst this evidentiary requirement is understandable given the scope of the Convention, the need for the mediator to make some form of attestation to be put before the court as proof stated is potentially problematic. This is so because in most jurisdictions where mediation is well trenched, the fundamental principle of mediation is underpinned by a well- accepted principle that the parties may not call a mediator to give evidence in relation to a mediation because of confidentiality. This principle is usually recorded in a mediation agreement between the mediator and the parties, and in some jurisdictions including England and Wales, it is also enshrined in the statutes or court rules. Concerns are currently being raised that this new evidentiary requirement introduced by the Convention could erode the protection currently enjoyed by mediators. It is therefore advisable for the practitioners to raise this issue with mediators during the mediation preparatory meetings. It is also important to raise it in the mediation agreement to the effect that the mediator will not be required to give evidence. It is not clear how the enforcing courts will handle this issue.

    3) I note that the definition of mediation in Article 2(3) of the Singapore Convention makes no reference to the impartiality of the mediator. Despite this, however, amongst the grounds to refuse enforcement of a settlement agreement, at least two relate to possible flaws in the mediation proceeding and its development, as well as the mediator’s behaviour. This might be problematic as time goes.

    ____________________

    *Lady Justice Joyce Aluoch, EBS, CBS, (Rtd) Judge, Certified International Mediator, Chartered Mediator, Accredited Mediator

  • 28 Apr 2021 9:05 AM | Anonymous

    Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021[1]

    Introduction

    In the recent past, African countries have found themselves more frequently before international arbitration tribunals for claims of violating their investment treaty obligations.[2] In some of these cases, African governments have been found liable and paid large awards or compensation to foreign investors; Egypt, Libya, Zimbabwe and Tanzania are among the countries recently confronted with exorbitant investor-state dispute claims.[3] Quite expectedly African countries have embarked on renegotiating and negotiating new treaty arrangements to address these amongst other challenges.  

    This paper will focus on ISDS in emerging treaties in the Eastern Africa region. Despite the controversies surrounding the legitimacy of the ISDS system and rethinking its continuity, recent BITs in the Eastern Africa Region have maintained it albeit with modifications. Some of the more recent BITs signed by Eastern Africa States, and the AfCFTA, will be examined. 

    1. The 2017 Triad - Natural Wealth and Resources Laws, 2017– Tanzania

    With the promulgation into law of the triad, the Natural Wealth Resources (Review and Renegotiation of Unconscionable Terms) Act, 2017, the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 and the Written Laws (Miscellaneous Amendments) Act, 2017 amending the Mining Act, 2010, Tanzania unequivocally expressed a legislative departure from the ISDS framework and a preference for domestic remedies.[4] The Act reserves the adjudication of disputes to the national state legal systems i.e., the courts and other statutory authorities.

    Despite these changes the 12 odd BITs that were in force before the triad laws remain enforceable unless renegotiated under those new provisions. Most of the existing BITs provide a two-tier mechanism for consultations and negotiations with a waiting period of six months before resort to either domestic courts or international arbitration. The latest China-TZ BIT[5] of 2013 follows this cafeteria approach including resort to either the domestic Courts, ICSID, UNCITRAL or other arbitral institutions.  

    The robust shift in policy may be indicative of the unease often expressed by developing countries on the unequal balance of power in the 1st generation BITs. Will this be the antidote that tilts the balance to attain an acceptable equilibrium? It will be interesting to watch how these changes will shape the future of dispute resolution as pertains to Tanzania and whether other countries in the region will adopt this approach.  

    2.Agreement between the Federative Republic of Brazil and the Federal Democratic Republic of Ethiopia on Investment Cooperation and Facilitation (2018)[6]

    The agreement makes provision for state-to-state dispute settlement and appears to have no ISDS clause providing for direct investor-state claims.

    The provisions provide that, if a Contracting Party considers that a specific measure adopted by the other Contracting Party constitutes a breach of Agreement, it shall submit a written request to the other Contracting Party, identifying the specific measure in question, and presenting the relevant allegations of fact and law and the Joint Committee shall meet within sixty (60) days from the date of the request[7] and prepare a report sixty (60) days from the date of the first meeting, extendable by mutual agreement. .[8]

    In the event that the dispute is not resolved within the time frame set forth, or there is non-participation of a Contracting Party in the meetings of the Joint Committee convened, the dispute may be submitted to arbitration by a Contracting Party.[9] If the measure in question pertains to a specific investor: the initial submission shall identify the affected investor; representatives of the affected investor may be invited to appear before the Joint Committee; and a Contracting Party may refuse to discuss in the Dispute Prevention Procedure a question concerning an investment of a national of that Contracting Party in the territory of that Contracting Party.

    Once the above procedures have been exhausted and the dispute has not been resolved, either Contracting Party may submit the dispute to an ad hoc Arbitral Tribunal or alternatively, the Contracting Parties may choose, by mutual agreement, to submit the dispute to a permanent arbitration institution for settlement of investment disputes.[10]

    An Arbitral Tribunal shall consist of three arbitrators. Each Contracting Party shall appoint, within three (3) months after receiving the "notice of arbitration", a member of the Arbitral Tribunal. Within three (3) months of the appointment of the second arbitrator, the two members shall appoint a national of a third State with which both Contracting Parties maintain diplomatic relations, who, upon approval by both Contracting Parties, shall be appointed chairperson of the Arbitral Tribunal. The appointment of the Chairperson must be approved by both Contracting Parties within one (1) month from the date of his/her nomination. The decision of the Arbitral Tribunal is final and binding to the Contracting Parties.[11] 

    3. Agreement between the Government of the Republic of Singapore and the Government of the Republic of Rwanda on the Promotion and Protection of Investments (2018)[12]

    In case of a dispute between a party and an investor of the other party, parties are to seek to resolve the dispute by consultations and negotiations[13].Where the dispute cannot be resolved within 6 months from the date of a written request for consultations and negotiations, then, unless the disputing parties agree otherwise, the disputing investor may submit the dispute to arbitration.[14]Arbitration can be conducted:

    (a) under the ICSID Convention and the ICSID Arbitration Rules, provided that both the respondent Party and the Party of the disputing investor are parties to the ICSID Convention.

    (b) under the ICSID Additional Facility Rules, provided that either the respondent Party or the Party of the disputing investor is a party to the ICSID Convention.

    (c) under the UNCITRAL Arbitration Rules; or

    (d) to any other arbitral institutions or under any other arbitration rules, if the disputing parties so agree.[15]

    Any dispute submitted to arbitration must take place within 3 years of the time at which the disputing investor became aware, or should reasonably have become aware, of the breach.[16]

    Unless agreed otherwise, the arbitral tribunal shall be composed of three arbitrators, who shall not be nationals or permanent residents of either Party, each disputing party is to appoint one arbitrator and the disputing parties shall agree upon a third arbitrator, who shall be the chairman of the arbitral tribunal.[17] If an arbitral tribunal has not been established within 90 days from the date of claim submission to arbitration, the Secretary-General of ICSID, upon request of either disputing party, shall appoint, at his own discretion, the arbitrator or arbitrators not yet appointed.[18] If the Secretary-General is a national or permanent resident of either Party, or he or she is otherwise unable to act, the Deputy Secretary-General, who is not a national or permanent resident of either Party, may be invited to make the necessary appointments.[19]

    Any arbitral award by the tribunal is final and binding upon the disputing parties.[20] A tribunal is required, before issuing a decision or award on liability to transmit its proposed decision or award to the disputing parties; the parties may then within 60 days submit written comments to the tribunal concerning any aspect of the proposed decision or award.[21] The tribunal shall consider any such comments and issue its decision or award not later than 45 days after the expiration of the 60-day comment period.[22] 

    4.    Agreement between the Government of the Republic of Turkey and the Government of the Republic of Burundi Concerning the Reciprocal Promotion and Protection of Investments (2017)[23]

    When it comes to ISDS, the agreement applies to disputes between one Contracting Party and an investor of the other Contracting Party concerning an alleged breach of an obligation of the former, which causes loss or damage to the investor or its investments.[24] In case of a dispute, a party should be notified in writing and the parties should endeavor to settle these disputes by consultations and negotiations in good faith.[25] If these disputes, cannot be settled in this way within six (6) months following the date of the written notification, the disputes can be submitted, as the investor may choose, to:

    (a)   the competent court of the Contracting Party in whose territory the investment has been made or;

    (b)   ICSID or;

    (c)   an ad hoc arbitral tribunal established under the UNCITRAL Arbitration Rules; or

    (d)   any other arbitration institution or any other arbitration rules if the disputing parties so agree.[26]

    In deciding whether an investment dispute is within the jurisdiction of ICSID and competence of the tribunal, the arbitral tribunal shall comply with the notification submitted by the Republic of Turkey on March 3, 1989 to ICSID in accordance with Article 25 (4) of ICSID Convention, concerning classes of disputes considered suitable or unsuitable for submission to the jurisdiction of ICSID, as an integral part of the Agreement.[27] The arbitral tribunal shall take its decisions in accordance with the provisions of the Agreement, the laws and regulations of the Contracting Party involved in the dispute on which territory the investment is made, and the relevant principles of international law as accepted by both Contracting Parties.[28] The arbitration awards shall be final and binding for all parties in dispute.[29]

    5.  Proposed Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland (Kenya - UK EPA) (2020)[30] (Ongoing for formal Ratification)

    The effective Kenya-UK BIT has been and continues to be in force since 1999 with an existing ISDS mechanism -typical of the 1990s BITs with an exclusive and automatic recourse to arbitration after three months of failure of local remedies or other means to resolve a dispute.

    However, it is worthy of note to comment on the Kenya-UK EPA covering trade in goods etc. Although it is not typically an investment protocol but rather a trade agreement it is significant that some of its features may illuminate recent thinking. As a post-Brexit measure the negotiations for the Kenya-UK EPA begun in August 2020 based on the EAC-EU EPA text.[31] Of relevance here is the State-to-State dispute avoidance and settlement mechanism which proposes a tiered framework for dispute resolution through alternative means of consultation, with a fork in the road option for mediation, or arbitration. The EPA was eventually approved by the respective Parliament of Kenya[32] on 9th March 2021 and UK now awaiting formal ratification and depository procedures anticipated to take place in March 2021.

    Although these provisions are typical of this kind of agreement it might be interesting to see whether some of the thinking behind adoption of an elaborate alternative dispute resolution framework and arbitration may translate to future BIT contexts with focus on investments. The dispute avoidance and settlement provide for the following mechanism:

    i)             Consultation

    In case of a dispute, parties are to enter consultations.[33] A Party seeks consultations by means of a written request to the other Party, copied to the Committee of Senior Officials, identifying the measure at issue and the provisions of the Agreement that it considers the measure not to be in conformity with.[34] 

    Ideally, consultations are to take place, in the territory of the Party complained against (unless agreed otherwise) and are to be held within twenty (20) days of the date of the receipt of the request and shall be deemed concluded within sixty (60) days of the date of the receipt of the request of the Party complained against, unless the Parties agree to continue consultations.[35] All information disclosed during the consultations shall remain confidential.[36] Consultations on matters of urgency, including those regarding perishable or seasonal goods shall be held as soon as is practically possible and in any event within fifteen (15) days of the date of the receipt of the request, and shall be deemed concluded within thirty (30) days of the date of the receipt of the request, unless the Parties agree to continue consultations.[37]

    ii)           Mediation

    If consultation fails, parties may by agreement seek recourse through mediation.[38] Where parties are unable to agree on a mediator within fifteen (15) days of the date of the agreement to request mediation, the Chairperson of the Committee of Senior Officials[39], or his or her delegate, shall select by lot a mediator from the pool of individuals who are on the list referred to in Article 125 and are not nationals of either Party[40]  within twenty-five (25) days of the date of the submission of agreement to request mediation and in the presence of a representative of each Party.[41] The mediator will convene a meeting with the Parties no later than thirty (30) days after being selected.[42] The mediator shall receive the submissions of each Party no later than fifteen (15) days before the meeting and notify a non-binding opinion no later than forty-five (45) days after having been selected.[43] The mediation proceedings are to remain confidential.[44]

    iii)          Arbitration

    However, there is a fork in the road situation presenting between consultation and the choice of either mediation or arbitration. Should parties not wish to go through mediation, they can move to arbitration after consultation.[45] Where consultation and/or mediation failed to resolve the dispute, the complaining Party may give notice to initiate the procedure for the establishment of an arbitration panel,[46]the notice for establishment of an arbitration panel is to be made in writing to the Party complained against and to the Committee of Senior Officials.[47]

    An arbitration panel is to be composed of three arbitrators.[48] Within ten (10) days of the date of the submission of the notice for the establishment of an arbitration panel to the Committee of Senior Officials, the Parties shall consult in order to reach an agreement on the composition of the arbitration panel.[49] In the event that the Parties are unable to agree on the composition of the arbitration panel within the timeframe stipulated, each Party will select an arbitrator from the list of arbitrators established under Article 125[50] within five (5) days.[51] If any of the Parties fails to appoint its arbitrator, upon request of the other Party, the arbitrator shall be selected by lot by the Chairperson of the Committee of Senior Officials, or the Chairperson's delegate from the sub-list of that Party established under Article 125.[52]

    According to Article 115(1)(a) of the Kenya – UK BIT, the arbitration panel is required to notify its ruling to the Parties and to the Committee of Senior Officials within one hundred and twenty (120) days from the date of its establishment. However, even if a delay is occasioned, under no circumstances shall the ruling be notified later than one hundred and fifty (150) days from the date of its establishment.[53]

    The arbitration panel is supposed to make every effort to ensure that any decision is by consensus, where a decision cannot be adopted by consensus, the matter at issue shall be decided by majority vote.[54] The arbitration panel ruling is final and binding on Parties.[55]

    6. The proposed Kenya - USA Free Trade Agreement Kenya-US (Negotiations Ongoing)

    On 6th February 2020, US Former President Trump announced that the United States intends to initiate trade agreement negotiations with Kenya following a meeting at the White House with Kenyan President HE Uhuru Kenyatta.[56] The bilateral negotiations commenced on 7th July 2020.[57] In an attempt to determine how the dispute resolution clauses and ISDS provisions under the agreement may look like, some of the BIT provisions on dispute settlement and ISDS that USA is party to were considered.

    Possible outlook of the Kenya-US BIT

    From an analysis of the USA-BIT with Uruguay and Rwanda and the USMCA, there are several things we are most likely to see in the Kenya-USA BIT. They include:

    (a)   ISDS and State - State dispute settlement - both Rwanda and Uruguay BIT with the USA have provisions for both ISDS and State-State dispute settlement.

    (b)   Provisions that require disputes to be submitted to consultations and negotiations before the commencement of arbitral proceedings – both Rwanda and Uruguay have provisions requiring that disputes be submitted to consultations and negotiations before arbitration. There is a possibility for the same provisions to find their way to the Kenya-USA BIT.

    (c)   Absence of mediation – in both BITs (Uruguay and Rwanda) there are no provisions for mediation. It is likely that the Kenya-USA BIT will also not have mediation provisions. However, the USMCA advocates for alternative methods of dispute resolution, such as good offices, conciliation, mediation, and arbitration, it is therefore possible that these mechanisms will find their way to the Kenya-USA BIT.

    (d)   Consent to arbitration – By signing the BIT with USA, Uruguay and Rwanda consent to arbitration meaning there is no need to seek for consent to arbitration, once negotiations and consultations fail to bear fruits, the claimant can automatically submit the dispute for arbitration. However, USMCA seems to lie more on dispute resolution via a panel. It is interesting to see which form of dispute settlement will be preferred by the Kenya-USA BIT since the USA considers the USMCA as its 21st Century, high standard agreement.[58]

    (e)   The claims are likely to be submitted:

    (i)  under the ICSID Convention and the ICSID Rules of Procedure for Arbitration Proceedings, provided that both the respondent and the non-disputing Party are parties to the ICSID Convention.

    (ii)  under the ICSID Additional Facility Rules, provided that either the respondent or the non-disputing Party is a party to the ICSID Convention.

    (iii)  under the UNCITRAL Arbitration Rules.

    (iv)  if the claimant and respondent agree, to any other arbitration institution or under any other arbitration rules.

    (v)  Joint panel committee established between Kenya and the USA.

    (f)Selection of arbitrators - it is likely that just like the two BITs a tribunal will consist of 3 arbitrators, each party will appoint one and they shall both appoint a chair to the tribunal.

    (g)   Place of arbitration - it is likely that the disputing parties will be allowed to agree on the legal place of any arbitration If they fail to reach an agreement, the tribunal may be empowered to determine the place of arbitration.

    (h)   Applicable law - the tribunal is likely to decide on issues in dispute in accordance with the BIT and applicable rules of international law. In USMCA, the panel is required to interpret the Agreement in accordance with customary rules of interpretation of public international law, as reflected in Articles 31 and 32 of the Vienna Convention on the Law of Treaties, 1969.[59]

    (i)Decisions of the arbitral tribunal - the decisions of the arbitral tribunal are likely to be final and binding to all parties.

    7.     African Continental Free Trade Area (AfCFTA)

    AfCFTA is a flagship project of Agenda 2063 of the African Union (AU). By December 3, 2020, thirty-six countries, including three East African Community (EAC) countries (Kenya, Rwanda, and Uganda) had ratified the AfCFTA and its trade operations were set to commence in January 2021.[60]

    On 1st January 2021, African countries opened their markets under the AfCFTA based on the  Assembly decision made on 5 December 2020.[61]

          i.        AfCFTA and Dispute Settlement

    According to Article 4(f) AfCFTA one of the objectives of the Agreement is to establish a mechanism for the settlement of disputes concerning the rights and obligations of State Parties. The AfCFTA Dispute Resolution Protocol stipulates a State-to-State dispute mechanism to resolve differences arising out of the AfCFTA.[62] The Agreement creates a continental dispute settlement body(DSB) which establishes the Protocol on Rules and Procedures on the Settlement of Disputes.[63]

    The DSB is empowered to interpret and apply all AfCFTA legal instruments (Protocols, Annexes and Appendices) and determine state parties’ rights and obligations under those legal instruments. Pursuant to article 20 of the AfCFTA  and Article 3(1) of the Protocol on the Settlement of Disputes, the protocol will only: apply to disputes arising between State Parties concerning their rights and obligations under the provisions of the Agreement[64].

         ii.        AfCFTA and ISDS

    The future of ISDS in the architecture of the AfCFTA is presently unclear. There is, however, a strong possibility that ISDS will be present in AfCFTA. First, most African countries appear to be in favor of ISDS. There is currently in existence at least 30[65] in-force intra-African BITs utilizing, an additional 120 intra-African BITs have been signed but not ratified not mention the existence of numerous ‘in force’ BITs between African States and third states that also provide for ISDS. Furthermore, more than half the Continent have also ratified the New York Convention.

    Secondly, the presence of weak legal and regulatory frameworks existing in many member states is another compelling reason that may lead to the integration of the ISDS within the context of the AfCFTA. According to the World Justice Project (WJP) Rule of law Index 2019, where good governance, transparent, effective, and accountable institutions were concerned, African Nations ranked last. This could translate into a lack of investor confidence generally as member states need to be assured of a robust legal structure to facilitate the process of trading across borders. In fact, it was reported that more than half of the countries in Africa are found in the bottom quartile of the World Bank Group’s Doing Business 2019 rankings[66]. Given the weak regulatory environment, countries may see a need to use ISDS as it is a mechanism praised for its - predictability.

    Thirdly, is the need for predictability. Predictability is one of the bedrock principles of the AfCFTA[67] Also, one of the specific objectives of the AfCFTA is to “establish a mechanism for the settlement of disputes concerning their rights and obligations”.[68] For this reason, ISDS is most likely going to find its way in AfCFTA.

    However, there is still a possibility that ISDS may never find its way to AfCFTA. First, is the cost of ISDS claims. The amounts at stake in investment treaty arbitration are usually astronomical. The average claim in investor–state arbitrations based on BITs and other international investment agreements (IIAs) is about US$492 million[69] and multibillion-dollar claims are increasingly common. In ISDS claims, countries have real financial implications in terms of monetary awards, legal costs, and accrued interests to consider. For example, in Unión Fenosa Gas, S.A. v. Arab Republic of Egypt,[70] an award of over 2 billion US Dollars was made. In Process and Industrial Developments Ltd. v. The Ministry of Petroleum Resources of the Federal Republic of Nigeria,[71] Nigeria had to appeal a 9-billion award to Irish backed company over a failed gas deal.

    Secondly, is the lack of consistency in the tribunal decisions of ISDS cases. Countries like Nigeria[72] and Egypt[73] have both suffered numerous inconsistent awards and these concerns are related to unjustifiably inconsistent interpretations of investment treaty provisions especially where it provides for principles afforded to foreign investors from the Most Favored Nation and National Treatment clauses. Limited devices available to address inconsistency and incorrectness of decisions has been exemplified by, for example,  the inadequacies of the ICSID annulment mechanism and domestic court procedures.

    Thirdly, ISDS has been criticized for the lack of appropriate diversity amongst decision makers specifically where it pertains to gender and geographical diversity. Throughout the history of investment arbitration, African arbitrators have been underrepresented even in cases involving an African state. According to The ICSID Caseload – Statistics (Issue 2019 – 2),[74] although Sub-Saharan Africa contributes 15 percent of all ICSID cases by State Party involved, the region only accounts for 2 percent of arbitrators, conciliators and ad hoc Committee members appointed in ICSID cases.[75] By contrast, Western Europe contributes 8 percent of all ICSID cases by State Party involved but account for a staggering 48 percent of arbitrators, conciliators and ad hoc committee members appointed in ICSID cases. North America (Canada, Mexico, and U.S.) contributes 4 percent of all ICSID cases by State Party involved but account for 20 percent of arbitrators, conciliators and ad hoc committee members appointed in ICSID cases.[76]

    Conclusion

    Until recently, BITs have formed the key framework for ISDS, but gradually, East African countries are reviewing these treaties to make them fit for their modern purposes and address the challenges facing the nations. From the examples of the treaties discussed above, most provide for both ISDS and State-State dispute resolution. This allows investors to seek speedy resolution of their disputes and allows states to also have a say in how these treaties are being interpreted by arbitral tribunals and other forums to create consistency in interpretations of treaties. However, there is a need for more clarity as pertains to the application of the same. For example, can an investor seek the interpretation of a section of a treaty or must the same be done only by the State via State-State dispute settlement.

    More scholarly research should be conducted to inform models that can be applied uniformly and shape state practice in negotiations for intra-regional and multilateral agreements involving States within the region. Some of the BITs examined above include exhaustion of local remedies, at least one has incorporated domestic courts and tribunals and a majority have resorted to arbitration after failure of other means. From the sample above of the more recent BITs in the region the generic trend is a preference for tiered ISDS framework with fork in the road clauses and the cafeteria style approach with on choice of arbitration institution/forum.

    _______________________

    *Registrar/CEO Nairobi Centre for International Arbitration

    [1] This Paper has been prepared with research assistance of Ms. Victoria Kigen (Case Counsel-NCIA). LLB CUEA Univ. LLM Univ. of Miami.

    [2] tralacBlog, “Investor-state dispute settlement in Africa and the AfCFTA Investment Protocol” <https://www.tralac.org/blog/article/13787-investor-state-dispute-settlement-in-africa-and-the-afcfta-investment-protocol.html>  accessed on February 16, 2021.

    [3] Ibid.

    [4] https://www.madini.go.tz/wp-content/uploads/2017/12/Natural-Wealth-and-Resources-Permanent-Sovereignty-Act-2017.pdf Accessed 18th March 2021.

    [5] https://investmentpolicy.unctad.org/international-investment-agreements/treaties/bilateral-investment-treaties/990/china---united-republic-of-tanzania-bit-2013- accessed on 17 Mar 2021. The Treaty was signed on 24th March 2013 and entered into force on 17th April 2014. 

    [6] The agreement was signed on 11/04/2018 but has not yet been ratified.

    [7] Article 23(2(a) of the Agreement between the Federative Republic of Brazil and the Federal Democratic Republic of Ethiopia on Investment Cooperation and Facilitation. Available at <https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5717/download> accessed on March 2, 2021.

    [8] Article 23(2) (b)&(c) of the Agreement between the Federative Republic of Brazil and the Federal Democratic Republic of Ethiopia on Investment Cooperation and Facilitation.

    [9] Article 23(2) (d) Id.

    [10] Article 24(1) Id.

    [11] Article 24(9) Id.

    [12] The agreement was signed on 14/06/2018 but has not yet been ratified.

    [13] Article 11(1Id.

    [14] Article 11(2) Id.

    [15] Id.

    [16] Article 11(3)(a) of the Agreement between the Government of the Republic of Singapore and the Government of the Republic of Rwanda on the Promotion and Protection of Investments. 

    [17] Article 12(1) Id.

    [18] Id.

    [19] Id.

    [20] Article 16(2) Id.

    [21] Article 16(4) Id.

    [22] Id.

    [23] The agreement was signed on 14/06/2017 but has not yet been ratified.

    [24] Article 10(1) of the Agreement Available at <https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5838/download>  accessed on March 3, 2021.

    [25] Article 10(2) of the Agreement.

    [26] Article 10(3) Id.

    [27] Article 10(5) Id.

    [28] Article 10(6) Id.

    [29] Article 10(7) Id.

    [30] The agreement is in the process of ratification. It has been presented to the Parliament by the Secretary of State for Foreign, Commonwealth and Development Affairs by Command of Her Majesty December 2020. The UK Parliament voted in favour of the agreement in March 2021 while the Kenyan Parliament approved it on 9th March 2021.

    [31] Ministry of Industrialization, Trade and Enterprise Development, “Memorandum to Parliament on Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland” < http://www.parliament.go.ke/sites/default/files/2021-01/ECONOMIC%20PARTNERSHIP%20AGREEMENT%20BTN%20UK%20%26%20KENYA%281%29.pdf> accessed on March 2, 2021.

    [32] http://www.parliament.go.ke/sites/default/files/2021-03/Hansard%20Report%20-%20Tuesday%2C%209th%20March%202021%20%28E%29.pdf accessed 18th March 2021.

    [33] Article 110(1) of the Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland. Available at <https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/6047/download> accessed on March 2, 2021.

    [34] Article 110(2) of the Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland.

    [35] Article 110(3) Id.

    [36] Id.

    [37] Article 110(4) Id.

    [38] Article 111(1) Id.

    [39] The Committee of Senior Officials is established under Article 106(1) and shall be composed of Permanent Secretaries or Principal Secretaries, as the case may be, from the EAC Partner State(s) and representatives from the UK at Senior Official level.

    [40] Article 111(3) Id.

    [41] See note 13.

    [42] Id.

    [43] Id.

    [44] Id.

    [45] Article 111(2) Id.

    [46] Article 112(1) Id.

    [47] Article 112(2) Id.

    [48] Article 113(1) Id.

    [49] Article 113(2) Id.

    [50] Article 125 is on the list of arbitrators. The list shall contain at least 15 people who are willing to serve as arbitrators. The list shall be composed of three sub-lists: one sub-list for each Party to serve as arbitrators; and one sub-list of individuals that are not nationals of either Party and who shall act as Chairperson to the arbitration panel. Each sub-list shall include at least five (5) individuals.

    [51] Article 113(3) Id.

    [52] Article 113(3) Id.

    [53] Id.

    [54] Article 124(1) Id.

    [55] Article 124(3) of the Economic Partnership Agreement between the Republic of Kenya and the United Kingdom of Great Britain and Northern Ireland.

    [56] African Growth and Opportunity Act (AGOA), “The proposed Kenya - USA Free Trade Agreement” <https://agoa.info/bilaterals/kenyausa.html> accessed on March 3, 2021.

    [57] Id.

    [58] See, USMCA (trade.gov), accessed on March 3, 2021.

    [59] Article 31.13.4 Id.

    [60] Id.

    [61] African Union, “African Business Council Applauds the Start of Trading on the Basis of the AfCFTA” <https://au.int/en/pressreleases/20210104/african-business-council-applauds-start-trading-basis-afcfta> accessed on March 2, 2021.

    [62] African Union, “Training on the Settlement of Disputes: The African Continental Free Trade Area.” <https://au.int/en/newsevents/20190513/training-settlement-disputes-african-continental-free-trade-area#:~:text=The%20AfCFTA%20Dispute%20Resolution%20Protocol,to%20that%20of%20the%20WTO.> accessed on February 15, 2021.

    [63] Part VI, Article 20 of the AfCFTA.

    [64] Article 3 (1) of the AfCFTA.

    [65]Maximizing investment protection in Africa: the role of investment treaties and investment arbitration, China Law insight blog, (July 2 2015) See: <https://www.lexology.com/library/detail.aspx?g=1e540917-3888-460f-9b0c-298c52ad864e> accessed on February 15, 2021.

    [66] World Bank Group, Doing Business 2019, See: <https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf> Pg. 5 accessed February 15, 2021.

    [67] Preamble of the AfCFTA Agreement.

    [68] Article 4(f) of the AfCFTA Agreement.

    [69] D Rosert, ‘The Stakes Are High: A review of the financial costs of investment treaty arbitration’ (July 2014) See: <https://www.iisd.org/sites/default/files/publications/stakes-are-high-review-financial-costs-investment-treaty-arbitration.pdf> accessed on February 15, 2021.

    [70] Unión Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4.

    [71] Process and Industrial Developments Limited (P&ID) v. Federal Republic of Nigeria [Ad Hoc Arbitration] See: <https://www.irishtimes.com/business/energy-and-resources/nigeria-to-appeal-9-billion-award-to-irish-backed-company-over-failed-gas-deal-1.3991155> accessed on February 15, 2021.

    [72] Process and Industrial Developments Limited (P&ID) v. Federal Republic of Nigeria [Ad Hoc Arbitration].

    [73] Unión Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4.

    [74] ICSID, Caseload Statistics. (Issue 2019-2), <https://icsid.worldbank.org/sites/default/files/publications/Caseload%20Statistics/en/The%20ICSID%20Caseload%20Statistics%20%282019-2%20Edition%29%20ENG.pdf> accessed on February 15, 2021.

    [75] Id.

    [76] Id.


  • 27 Apr 2021 1:12 PM | Anonymous

    Paper presented at the AfAA 2nd Annual International Arbitration Conference[1], 15th - 16th April 2021 

    Introduction

    The International Centre for Settlement of Investment Disputes (“ICSID” or the “Centre”) started its operations with the entry into force of the ICSID Convention. Since then, its Rules have effectively served to advance the Centre’s purpose of “provid[ing] facilities for conciliation and arbitration of investment disputes”[3] in the “cause of economic development.”[4] At the same time, ICSID has historically taken the pragmatic approach of always improving and updating its Rules. In keeping with this approach, ICSID launched its latest rule amendment project in 2016 and is collaborating with the UNCITRAL Secretariat on a draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement.[5]

    This paper provides 1) a description of the Rule amendment process at ICSID from a historical perspective, 2) a status update on the current amendments, and 3) a discussion of some of the main recommendations made in the current amendments. 

    Background on Amendments at ICSID

    ICSID’s current rule amendment process is its most ambitious and far reaching.  Questions like how the amendment process works at ICSID and what amendments the Centre has made in the past rightly spark interest.

    The ICSID Convention came into force on October 14, 1966.  According to its Article 66, amending the ICSID Convention is a two-step process which requires, first, that two-thirds of the members of the Administrative Council decide to circulate a proposed amendment to all Contracting States, and second, that the Contracting States unanimously adopt the proposed amendment.[6] The stringent nature of these requirements explains why the ICSID Convention has not been amended yet. The task is not impossible, but it is difficult because it requires the totality of the Contracting States—currently 155—to agree.[7] 

    The ICSID Arbitration Rules came into force on September 25, 1967.  Article 6(1) of the ICSID Convention tasks the Administrative Council with the adoption of rules of procedure for conciliation and arbitration proceedings and provides that such decisions are to be made by a majority of two-thirds of the members of the Administrative Council. According to Article 4 of the ICSID Convention, the Administrative Council consist of one representative of each Contracting State. Thus, amending the Arbitration Rules is a much simpler process than amending the ICSID Convention and, as the Convention’s drafting history suggests, this was intentional.[8]

    The ICSID Additional Facility Rules came into force on September 27, 1978. They were designed to allow the Centre to administer conciliation, arbitration and fact-finding proceedings for certain disputes that did not fulfill the jurisdictional requirements of the ICSID Convention.  Based on Regulation 7(1) of ICSID’s Administrative and Financial Regulations (“AFR”), amending the Additional Facility Rules only requires approval by a majority of the votes cast.[9]

    In its 55-year history, ICSID has amended its Rules and Regulations three times: on September 26, 1984; January 1, 2003; and April 1, 2006.[10]  Cumulatively, these amendments have touched the Arbitration Rules and the Administrative and Financial Regulations under the ICSID Convention and Additional Facility and the Institution Rules under the ICSID Convention. While the 1984 and 2003 amendments only addressed a limited number of issues, the 2006 amendments were rather forward-looking.

    -        With respect to the Centre’s Administrative and Financial Regulations, the 1984 amendments saw the alignment of the fees paid for lodging different proceedings, made applicants responsible for the payment of advances in annulment proceedings, and removed the requirement that the secretary of the commission, tribunal or ad hoc committee attend all meetings of that body.[11] Regarding the Arbitration Rules, the 1984 amendments touched Rule 21 on holding pre-hearing conferences; introduced Rule 39(5) on seeking provisional measures from local courts; and revised Rule 48(4) on publishing excerpts of the legal reasoning of tribunals.[12] 

    -        The 2003 amendments eliminated differences between the Additional Facility Rules and ICSID Rules that “were unnecessary and needlessly complicated the task of the ICSID Secretariat.”[13] Also, the Additional Facility AFRs were dropped and the relevant provisions of the ICSID AFRs were made applicable to Additional Facility proceedings.[14] Other changes concerned Institution Rule 7 reminding parties that the registration of requests is without prejudice to the powers and functions of conciliation commissions and arbitral tribunal with respect to jurisdiction, competence, and the merits; Rule 1(3) and (AF) Rule 7 on the nationality of arbitrators; Institution Rule 2 and (AF) Rule 3 about evidence of the steps taken by juridical entities to authorize the initiation of proceedings; Rules 4 and 9 on adding flexibility to the deadlines on the appointment and disqualification of arbitrators; and Rule 46 on the time limit for the preparation of awards.[15]  

    -       The 2006 amendments concerned Rule 6 and (AF) Rule 13(2) on expanding the scope of arbitrator disclosures; Rule 32(2) and (AF) Rule 39(2) on opening hearings to the public; Rule 37(2) and (AF) Rule 41(3) introducing submissions by non-disputing parties; Rule 39 providing for the expedited filing of requests for provisional measures; Rule 41(5) and (AF) Rule 45(6) introducing the manifest lack of legal merit objection; and Rule 48(4) and (AF) Rule 53(3) making mandatory the prompt release of excerpts of the legal reasoning of tribunals. The amendments also concerned AFR 14 clarifying that requests for increases in the rates applicable to commission, tribunal and ad hoc committee members could only be made in exceptional circumstances and submitted through the Centre.[16]

    The Current ICSID Rule Amendment: Process and Scope

    On October 7, 2016, at the 50th Annual Meeting of its Administrative Council, ICSID advised its Member States that it would commence a consultation process to consider potential amendments to its Rules.[17]  ICSID also invited its Member States to suggest amendment topics.[18]  On January 25, 2017, ICSID invited members of the public to file suggestions for Rule amendment.[19] Accompanying these invitations, ICSID published a list of topics for potential amendment.[20]  Subsequently, ICSID produced a first working paper (“Working Paper # 1” or “WP#1”) in August 2018, integrating numerous comments received from States and the public. The purpose of WP#1 was “explain the basis for a proposed change, note relevant considerations, and suggest the potential wording or structure of amendments.”[21]  ICSID held a Consultation Meeting with States in September 2018 and, subsequently, received further comments from States and the public on WP#1.  ICSID compiled these and published them on the website in March 2019.

    Since March 2019, ICSID has produced three additional working papers,[22] held two more Consultation Meetings with States, and published three further compendia of State and public comments. A detailed timeline of the amendments is provided in the table below. With the publication of WP#4 in February 2020, ICSID invited comments on the latest proposals and planned an in-person Consultation Meeting with States.  The Consultation Meeting was cancelled, however, due to the COVID-19 pandemic. The number of outstanding issues to be addressed has narrowed considerably, and the ICSID Secretariat is currently preparing WP#5 that addresses these issues, to be published in the late Spring of 2021. 

    Timeline of the amendments[23]

    DateStep in the process

    Oct. 2016 | Contracting States invited to suggest topics for rule amendment

    Jan. 2017    | Public invited to suggest topics for rule amendment
    Aug. 3, 2018    | Working Paper #1

    Sept. 27–28, 2018     | First Consultation Meeting with States
    Oct. 2018          | Further online and in-person consultations
    Mar. 15, 2019      | Compendium of State and public comments on WP#1
    Mar. 15, 2019      | Working Paper #2
    Apr. 7-10, 2019  | Second Consultation Meeting with States 
    June 28, 2019    | Compendium of State and public comments on WP#2
    Aug. 16, 2019    | Working Paper #3
    Nov. 2019            | Third Consultation Meeting with States
    Feb. 27, 2020    | Compendium of State and public comments on WP#3
    Feb. 28, 2020    | Working Paper #4
    Sept. 17, 2020  | Compendium of State and public comments on WP#4
    Mar. 23, 2021    | Compendium of State comments on proposed amendments to ICSID Rules

    As depicted in the table below, the current amendments cover the AFRs, Conciliation Rules and Arbitration Rules both under the ICSID Convention and the Additional Facility. Moreover, they cover the Institution Rules under the ICSID Convention and Fact-Finding Rules under the Additional Facility. Finally, they introduce new Mediation Rules under the Additional Facility.[24]

    Scope of ICSID’s proposed amendments

    ICSID Convention Proceedings           

    Additional Facility Proceedings

    AFR

    (Additional Facility) Rules

    Institution Rules

    (Additional Facility) AFR

    Conciliation Rules

    (Additional Facility) Conciliation Rules

    Arbitration Rules

    (Additional Facility) Arbitration Rules

    Fact-Finding Rules

    (Fact-Finding) AFR

    Fact-Finding) AFR

    Mediation Rules

    (Mediation) AFR

    Main Recommendations

    According to the ICSID Secretariat:

    The overarching goals of the rule amendments are to modernize, simplify, and streamline the rules, while also leveraging information technology to reduce the environmental footprint of ICSID proceedings. The process draws on the lessons learned from hundreds of ICSID cases.[25]

    The core objectives of the current amendments have been described as to: 1) reduce the time and cost of proceedings at ICSID, 2) expand the range of dispute settlement options offered by ICSID, and 3) continue to balance the interests of States and investors at ICSID.[26] What follows is a discussion of a selection of proposed rules exemplifying each of the core objectives. 

    Reduce the time and cost of proceedings

    Expedited arbitration

    Expedited arbitration (“EA”) is one of the proposals made in response to comments received from various stakeholders that “investment arbitrations are too long and too costly.”[27] The proposal focuses on reducing the length of time taken by the three phases of the proceeding that last the longest: the constitution of tribunals, exchange of written pleadings, and preparation of the award.[28] ICSID’s EA is an opt-in model that will be available for arbitration and post-award remedy proceedings both under the ICSID Convention and Additional Facility. EA may be especially practical in facilitating the access of small and medium enterprises (“SMEs”) to international arbitration, especially in cases involving smaller scale claims. It may also be an attractive option in cases involving fewer factual or legal disputed issues.[29] 

    As stated by ICSID, EA “provides less flexibility to change time frames, but more certainty as to the timing of the process.”[30] Thus, in terms of time frames, the process is designed to take 18 months or less from the registration of the request for arbitration until the issuance of the award. Proposed Rule 77 provides for a sole arbitrator to be appointed by default if the parties fail to notify the ICSID Secretary-General in writing of their election for a three-member tribunal within 30 days of consenting to the expedited process. Whether the tribunal is to consist of one or three arbitrators, there is a 60-day time frame from the date of consent to EA for concluding the tribunal constitution process. Proposed Rule 80 cuts in half (from 60 days in the normal process to 30 days) the time frame within which a first session is to be held from the constitution of the tribunal and makes holding it by telephone or other electronic means of communication the default, with an in-person meeting being an option if both parties and the tribunal agree. Proposed Rule 81 provides deadlines for the filing of all written submissions (60 days for the memorial and counter-memorial each and 40 days for the reply and rejoinder each) and page limits for these submissions (200 pages for the first round and 100 for the second round). The hearing is to be held within 60 days of the last written pleading and statements of costs submitted 10 days thereafter. The tribunal must render its award no later than 120 days from the date of the hearing.            

    In terms of process, the expedited nature of the proceeding requires a few “compromises”[31] in order “to strike a balance between an expedited procedure under commercial arbitration rules and a realistic schedule for investment disputes.”[32] For example, jurisdictional objections can be raised but for consideration with the merits and not examined in a separate, bifurcated phase. It is possible to file various applications, such as provisional measures, but their consideration runs in parallel with the procedural calendar without suspension. The parties’ consent to EA extends to the post-award remedy phase, such that for an award rendered under the EA process, any post-award remedy proceedings will fall under that process. Parties can opt out of EA by agreement or a decision of the tribunal at the request of either party. The schema below illustrates the steps and time frames of EA.    

    Click to view EA procedural steps and timelines[33]

    Time Limits

    With the amendments, ICSID has made concrete proposals to reduce the time frames taken to accomplish various steps in a proceeding, starting with a new general duties provision. This provision makes it a shared burden for tribunal and parties to ensure that the process is timely and cost-effective,[34] as shown in the box below. ICSID proposes a similar provision in conciliation proceedings under the ICSID Convention (Conciliation Rule 25) and in arbitration, conciliation, and fact-finding proceedings under the Additional Facility (Arbitration (AF) Rule 11, Conciliation (AF) Rule 33, and Fact-Finding Rule 13, respectively).

    Rule 3 General Duties

    (1) The Tribunal and the parties shall conduct the proceeding in good faith and in an expeditious and cost-effective manner.[35]

    In addition, numerous rules now specify exact and/or reduced times for procedural steps. Generally, time limits may be extended, but both parties must agree, or the tribunal must find that the extension is justified by special circumstances. In particular, time limits prescribed by the Convention or the Rules may be extended, but only by agreement of the parties or decision of the tribunal that special circumstances exist that justify the failure to meet a time limit. Otherwise, procedural steps taken after the expiry of a time limit shall be disregarded (proposed Rule 11(2)).  Time limits fixed by the tribunal or the ICSID Secretary-General may be extended, but only by agreement of the parties or by a decision of the tribunal or Secretary-General based upon a reasoned application submitted by either party before the expiry of the time limit. Otherwise, a procedural step taken after the expiry of the time limit shall be disregarded, unless the parties agree otherwise or the tribunal (or Secretary-General) finds that special circumstances exist that justify the failure to meet a time limit (proposed Rule 11(3)). 

    The call for heightened efforts to reduce the time and costs of proceedings is also made to tribunals. Under proposed Rule 12(1), the tribunal must make best efforts to meet time limits. If the tribunal cannot meet a time limit due to special circumstances, it must so advise the parties before the expiry of the time limit and provide the reason for it and anticipated length of the delay (proposed Rule 12(2)). ICSID also proposes Rule 31 (corresponding to proposed Arbitration (AF) Rule 40) to allow tribunals to convene case management conferences “[w]ith a view to conducting an expeditious and cost-effective proceeding” to identify uncontested fact, narrow issues in dispute, or address other issues relating to the resolution of the dispute.[36]  

    Arbitration Rule 38 on the closure of proceedings is eliminated along with the 120-day time limit for issuing awards. This is because tribunals have developed a practice of not closing the proceeding until the award is ready, which means that Rule 38 does not perform the function it was meant to of reducing the time it takes to issue awards.[37] Instead, ICSID proposes Rule 58 which, in a more impactful way, provides actual time limits that are pegged to specific procedural steps for the issuance of the award:

    • 60 days after the latest of the constitution of the tribunal, last written or oral submission for award rendered based on a manifest lack of legal merit;  
    • 180 days after the filing of the last written or oral submission for award rendered on a preliminary objection in a bifurcated proceeding; and
    • 240 days after the last written or oral submission in other matters.

    Expand ICSID’s range of dispute settlement options

    The dispute settlement options offered by ICSID consist of arbitration, conciliation and fact-finding.  The amendments propose to expand the current options and add new ones.

    Additional Facility

    Currently, Article 2 of the Additional Facility Rules authorizes ICSID to administer conciliation and arbitration proceedings where either the dispute arises out of an investment but the State party to the dispute or the State whose national is a party to the dispute is not an ICSID Contracting State, or the dispute does not arise out of an investment but the State party to the dispute or the State whose national is a party to the dispute is an ICSID Contracting State.  Article 2 also authorizes ICSID to administer fact-finding proceedings.  

    Proposed Article 2, whose text is provided in the box below, now only focuses on arbitration and conciliation. ICSID proposes to continue to administer fact-finding proceedings under the Additional Facility but under a new set of stand-alone Rules.

    Article 2 Additional Facility Proceedings

    (1) The Secretariat is authorized to administer arbitration and conciliation proceedings for the settlement of legal disputes arising out of an investment between a State or an REIO on the one hand, and a national of another State on the other hand, which the parties consent in writing to submit to the Centre if:

    (a) none of the parties to the dispute is a Contracting State or a national of a Contracting State;

    (b) either the State party to the dispute, or the State whose national is a party to the dispute, but not both, is a Contracting State; or

    (c) an REIO is a party to the dispute.[38]

    Proposed Article 2 expands the scope of current Article 2 with respect to arbitration and conciliation in two ways. First, Proposed Article 2 makes it possible for any State and the national of any other State to be parties to conciliation and arbitration proceedings under the Additional Facility, regardless of whether either State is an ICSID Contracting State. This inclusion accommodates some trends already observed in certain BITs[39] that allow disputes to be brought under the Additional Facility if both parties agree, where neither party is/comes from an ICSID Contracting State.[40] The requirement that the dispute arise out of an investment is kept because in the Centre’s experience, no disputes have been filed that did not arise out of an investment.[41]

    Second, the disputants in conciliation and arbitration proceedings under the Additional Facility are no longer restricted to being a State and a national of another State. A Regional Economic Integration Organization (“REIO”) can be a party as a claimant or a respondent, and the proceeding can be between a State or REIO on the one hand and a national of another State on the other. The inclusion of REIOs in Additional Facility proceedings as parties is driven by the fact more and more REIOs, such as the European Union, are concluding in their own names international investment agreements (“IIAs”) that contain with dispute settlement provisions.[42] In addition, this sets the stage for an amendment of the ICSID Convention to include REIOs as ICSID Contracting Parties.[43] The fact that an REIOs can be parties to Additional Facility proceedings extends to the fact-finding and mediation rules. Rule 2(1) of the Fact-Finding Proceedings provides “[t]he Secretariat is authorized to administer fact-finding proceedings that relate to an investment, involve a State or an REIO, and which the parties consent in writing to submit to the Centre.” There is a similar provision at Rule 2(1) of the proposed Mediation Rules.

    Mediation

    As indicated above, ICSID is proposing a new set of stand-alone Mediation Rules under the Additional Facility as part of the amendment process. According to the ICSID Secretariat, the impetus for the Mediation Rules is that “[t]hey respond to the requests of stakeholders to provide greater mediation capacity. They complement new bilateral and multilateral treaties providing for mediation and more generally, the objective of the Centre to provide parties with a greater breadth of dispute resolution tools.”[44] Mediation, as a dispute settlement mechanism, is party-driven, informal, flexible, confidential, and cost-effective.

    Under the ICSID Mediation Rules, the dispute would need to pertain to an investment but, as indicated above, the proceeding would be open to any State or REIO on the one hand and the national of any other State on the other hand, regardless of whether the relevant States are ICSID Contracting States.[45] Parties can undertake mediation on the basis of a pre-existing agreement or on an ad-hoc basis, and they can end the process anytime, by agreement of the parties or withdrawal of a party.[46] The process starts upon the filing of a request for mediation. Upon registration of the request by the ICSID Secretary-General, the parties can agree on the appointment of a mediator or co-mediators. Failing an agreement, the ICSID Secretary-General can make the appointment.[47] The parties have 15 days from the appointment of the mediator(s) to file their respective initial statements, and the mediator has 15 days thereafter to hold the first session for the determination of the mediation protocol.[48]  During the mediation, the mediator can meet with each party alone or with both parties together. The process can accommodate a hearing or exchange of documents akin to document production in arbitration. Information or documents exchanged cannot be used outside of the mediation process.[49] The process can end upon the withdrawal of a party, if the mediator(s) determine that it is unlikely to succeed, or if a settlement agreement is reached. If a settlement is reached, it can call for enforcement under the Singapore Convention on the enforcement of settlement agreements.[50]  The steps in the mediation process are depicted in the schema below.          

    Click to view steps in an ICSID mediation proceeding[51]

    Continue to balance the interests of States and investors

    Third-party funding

    Proposed Rule 14 on third-party funding (“TPF”) is new in arbitration proceedings under the ICSID Convention.  It is also proposed in arbitration under the Additional Facility (Arbitration (AF) Rule 23), conciliation under the ICSID Convention (Conciliation Rule 12), and conciliation under the Additional Facility (Conciliation (AF) Rule 21.  The Rule states, in part:

    Rule 14 Notice of Third-Party Finding

    (1) A party shall file a written notice disclosing the name and address of any non-party from which the party, directly or indirectly, has received funds for the pursuit or defense of the proceeding through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding (“third-party funding”). [52]

    First, the Rule provides a definition of TPF as ‘the direct or indirect receipt of funds to pursue or defend a proceeding, where such funds are provided by donation, grant or in return for remuneration that hinges on the outcome of the proceeding.’ The main obligation that arises under the Rule is one of disclosure which is satisfied by a party filing a written notice indicating whether it receives TPF and, if so, the name and address of the funder. The notice must be filed with the ICSID Secretary-General upon the registration of the request or, if the arrangement is made at a later date, immediately upon its conclusion. The party receiving TPF has a continuing obligation to notify the Secretary-General of any subsequent changes to the information contained in the notice.  This information is then provided to prospective or appointed arbitrators.  Finally, Rule 14 allows the tribunal to order the disclosure of information beyond what is contained in the notice of TPF at any stage of the proceeding if it deems necessary.

    TPF is more and more commonly used in international dispute settlement not only by claimants to prosecute claims but also by respondents to defend them. The main reason for regulating TFP in ICSID proceedings is to avoid conflicts of interest between funders and arbitrators which, in turn, reinforces the legitimacy of the process. Correspondingly, the arbitrator and conciliator declarations of independence and impartiality contain an express requirement to disclose any relationship with a third-party funder.[53] 

    Security for costs

    Proposed Rule 53 is also new in arbitration proceedings under the ICSID Convention, and it is also proposed in arbitration under the Additional Facility (Arbitration (AF) Rule 63).  Rule 53 states, in part:   

    Rule 53 Security for Costs

    (1) Upon request of a party, the Tribunal may order any party asserting a claim or counterclaim to provide security for costs.

    […]

    (6) If a party fails to comply with an order to provide security for costs, the Tribunal may suspend the proceeding. If the proceeding is suspended for more than 90 days, the Tribunal may, after consulting with the parties, order the discontinuance of the proceeding. [54]

    As explained by ICSID, a security for costs “is intended to cover the costs that one party incurs in defending a claim asserted by the other party.”[55]  Under proposed Rule 53, any party asserting a claim or a counterclaim has the possibility to request, and the tribunal has the authority to order, security for costs.[56] The Rule lays out the applicable procedure, including a calendar for making submissions on a request for security for costs. The Rule also specifies relevant circumstances that a tribunal must consider when deciding the request. These include a party’s ability and willingness to comply with an adverse decision on costs, the effect that providing security for costs may have on the party’s access to justice, and the parties’ conduct (e.g., any abuse of procedure, the assertion of frivolous claims, or the non-payment of advances on costs).[57] The list is non-exhaustive, but the factors in it represent common practice.[58] The fact that a party may be impecunious or has TPF alone is not enough for the tribunal to order that that party provide a security for costs, although this consideration may be taken into account by the tribunal. The tribunal’s decision is rendered in the form of an order and not a recommendation. Compliance is mandatory, and non-compliance can result in the suspension of the proceeding until security is provided or a discontinuance if security is not provided within 90 days. The tribunal has the power to modify or revoke its order on its own initiative or at the request of a party.

    Conclusion

    This paper has provided a cross section of the ICSID amendment process and proposals, based on the wealth of materials, in particular the working papers, prepared by the Staff of the ICSID Secretariat from the launch of the amendments in 2016 until today.

    As discussed above, ICSID amends its Rules in order to improve and update them and, ultimately, to continue to effectively serve its purpose. The extensiveness of the current amendments is, in a way, a testimony to the Centre’s success in this regard.  The explosion of its caseload has allowed ICSID to test its rules and, drawing from its rich experience and working with its Member States and members of the public, make the proposals currently under consideration. Given the experience with the on-going amendments, it is entirely foreseeable that future amendments might finally take on the ICSID Convention.

    ___________________________

    * Aïssatou Diop is Legal Counsel at the International Centre for Settlement of Investment Disputes. While Ms. Diop alone is responsible for the contents of this paper and is not representing an ICSID position, the paper is based, for the most part, on research performed and materials produced by the Staff of the Secretariat pertaining to the Centre’s current proposals for rule amendment.

    Endnotes

  • 27 Apr 2021 12:46 PM | Anonymous

    Paper presented at the AfAA 2nd Annual International Arbitration Conference. 15th - 16th April 2021 

    1. INTRODUCTION

    The conclusion, signing and ratification of a Bilateral Investment Treaty (BIT) is usually celebrated with measured pomp and pageantry as it is usually seen as a step that heralds an expectation of enhanced business and investment relations among investors of the Treaty Parties. With the BIT comes the expectation of the comfort and protection required to meet the profit expectations of investors on the one hand and an expectation of fulfillment of the investment expectations and possibly, economic development of the Host States, on the other hand.

    In reality, whether or not the BITs meet the expectations of all involved is arguable, especially in relation to developing countries. The general notion is that the old generation BITs were designed essentially to give investment protection and comfort to investors to attract investments from capital-exporting countries, thereby meeting their profit expectations. In recent times, it is becoming apparent that in developing States, the profit expectations of the investors may have been met at the expense of the developmental objectives of the Host State, with sometimes harmful environmental and labour practices, ironically creating great poverty in areas of the greatest wealth.

    The texts of the first-generation treaties, which centered primarily around investment promotion and protection appeared to have been designed to woo investors at any cost, no matter how much. They were a means through which capital importing countries do and sign whatever it took to attract investors and investments into their countries. Conversely, capital exporting countries sought to gain as much protection as the treaty could give to meet their profit expectations. It appears that the capital importing countries did not give much thought to the consequences of the loosely drafted provisions of such treaties beyond the optics of having signed a document that appeared to encourage inflow of investments.

    Broadly drafted and unclear provisions such as definitions, fair and equitable treatment, full protection and security, pre-establishment, prohibition of performance requirements, expropriation and failure to circumscribe Most Favoured Nation (MFN) and National Treatment (NT) articles, devoid of ambiguities that enable broad interpretation of the text, are a few of the triggers of Investor- State Dispute Settlement (ISDS) cases.

    The first generation treaty texts show a clear asymmetry between the rights and obligations of the investor, with the former far outweighing the latter. The treaties also included unbridled access to ISDS, which is at the core of investment protection policies implemented by host States to attract investors and is arguably the most important provision of International Investment Agreements (IIAs) to the investors, giving them the most comfort. Many still consider it scandalous that individual investors can commence commercial or investment arbitral proceedings against sovereign States, especially when the claims concern measures taken by the host State to achieve public policy objectives.

    Overtime, there appears to have been a paradigm shift in that mindset as a result of a number of factors including the fact that the line between capital importing and capital exporting countries is fast fading or blurred. It also has not helped to see that a definite correlation between the signing of Bilateral Investment Treaties (BITs) and increase in FDI inflows is still a subject of debate.[1] Furthermore, some capital-importing countries have realized that even where the proliferation of treaties have attracted FDI, the investments attracted fall short of the right quality required to meet the economic growth expectations and developmental objectives of such host States.

    Arbitral awards against developing countries heightened the concerns and fears of those who considered the text of the treaties and the system to be skewed against host States.  Some recent awards against developing host States have brought this previously latent concern to the fore. A case in point is the 2017 award ordering Nigeria to pay P&ID $6.6 billion plus interest amounting to a total of over $9 billion for a project that was yet to take off.[2] Another example is the 2018 International Centre for the Settlement of Investment Disputes (ICSID) award ordering Pakistan to pay $5.9bn to mining firm Reko Diq,[3] an amount that is about two times the total Foreign Direct Investment (FDI) attracted by Pakistan in 2018.  Some of these cases were brought on the basis of broadly drafted standards found in older IIAs that limit the right of host States to regulate investment in their territories, and that expose them more openly to investor–State disputes.[4]

    Of further concern is the fact that in 2018, the majority of the new ISDS cases were brought by developed country investors against developing countries and transition economies.[5]

    It is against this background that some developing countries such as Nigeria, which previously were capital importers and are now capital exporters, especially regionally, have commenced far reaching reforms to their IIA regimes. The focus of this short paper is to share Nigeria’s current approach in the negotiation of innovative content of BITs to meet not only the profit expectations of investors, but also the developmental objectives of the country.

    2.    NIGERIA’S REFORM-ORIENTED APPROACH TO NEGOTIATION OF BILATERAL INVESTMENT TREATIES (BITs)

    With the global wave of reforms, largely informed by an increase in the number of ISDS cases, and the growing dissatisfaction of host States in the old order of IIAs, which were clearly disconnected from the achievement of their developmental objectives, Nigeria commenced holistic and far-reaching national and bilateral reforms of its IIA regime. The reforms were structured to mirror UNCTAD’s three phases of IIA reform found in its Reform Package for the International Investment Regime (2018 edition)[6].

    Phase 1 was a national effort in the development of a new model BIT. Phase 2 centers around a national review of the existing stock of old generation BITs and a bilateral effort at modernizing the treaties that fall short of the quality required to attract responsible, inclusive, and sustainable investments.  Phase 3 will entail an alignment of the bilateral reforms with the national laws to achieve cohesion at both levels.  The reform process is driven by Nigeria’s Investment Promotion Agency (IPA), the Nigerian Investment Promotion Commission (NIPC) established under the provisions of the Nigerian Investment Promotion Commission Act.[7]

    2.1 New Model BIT

    The national reforms in Nigeria’s investment treaty regime commenced in 2015 with the development of a new model BIT in pursuit of sustainable development, balance of investors’ rights and obligations, preservation of Nigeria’s policy space, expansion of investment facilitation dimension of the treaties and more importantly, the insertion of safeguards to seemingly unrestricted access to Investor State Dispute Settlement (ISDS).

    The model was developed by an Inter-Ministerial IIA team comprising core economic Ministries and Agencies, including the Federal Ministry of Justice as Chair, Nigerian Investment Promotion Commission as Technical Lead, the Federal Ministry of Industry, Trade and Investment and a practicing Arbitrator in the academia.  The team was largely reflective of Nigeria’s standing Inter-Ministerial IIA team chaired by the Federal Ministry of Industry, Trade and Investment with Nigerian Investment Promotion Commission as technical lead/ Chief Negotiator.

    The model, which became effective in February 2016 captures the national policy in innovative and modern provisions that set the tone for the attraction of RIBBS investments i.e Responsible, Inclusive, Balanced, Beneficial and Sustainable investments. Careful efforts were made to include well thought out definitions of key terms such as “investment” and “investor” to ensure that the protections and benefits of BITs only cover actual investments already established in Nigeria and determine in clear terms, who can access ISDS.

    Other issues covered in the model, among others, were innovative provisions:

    • introducing circumscribed NT and MFN articles;
    • ensuring that BITs promote Nigeria’s sustainable development objectives including specifically addressing issues relating to the environment, human rights, health, labor, safety and anti-corruption;
    • preserving Nigeria’s policy space and the right of Nigeria to regulate in the public interest;
    • balancing the asymmetry in investor’s rights and obligations;
    • inserting temporary safeguard measures;
    • insertion of investment facilitation provisions to proactively assist investors with information and promote transparency of the legal and regulatory framework as well as transparency in arbitral proceedings;
    • including dispute prevention as a key component of the treaty;
    • establishing a Joint Implementation Committee to monitor the implementation of the treaty, share information on investment projects and serve as a de-escalation and mediation mechanism;
    • Inserting pre-conditions to accessing ISDS and safeguards to curb seemingly unrestricted exposure to international arbitration.

    3.  THE NIGERIA- MOROCCO BIT

    In December 2016, the new model was used to successfully conclude negotiations and sign a BIT between the Federal Government of Nigeria and the Kingdom of Morocco. The Nigeria - Morocco BIT,[8] with its reform-oriented provisions, featured prominently in United Nations Conference on Trade and Development (UNCTAD)’s 2017 World Investment Report (WIR) and was cited as an example of a balanced “new generation” investment treaty, which other developing countries and emerging economies should emulate[9].

    The Treaty captured virtually all the innovative reform-oriented provisions in Nigeria’s new model in addition to other critical investment protection provisions typically found in such treaties.

    Though a number of its innovative provisions are yet to be tested, it seems safer to embed them in the treaty text with the chance of achieving the required objectives with them if and when they are tested as against not having them at all in the treaty text.

    3.1 Dispute prevention, dispute de-escalation and mediation

    Care was taken to word innovative provisions in the treaty to address some current global concerns on ISDS and the substantive provisions leading up to those concerns.  One major issue addressed nationally in the model BIT and bilaterally in the treaty is dispute prevention, dispute de-escalation and mediation.

    The Nigeria-Morocco BIT establishes a Joint Implementation Committee, which among other things, is a dispute prevention mechanism, to “…seek to resolve any issues or disputes concerning Parties’ investment in an amicable manner”.[10] The Committee also serves as a mediation and dispute resolution mechanism, to resolve disputes submitted under specified timelines, by an investor within 6 months from the date of the written request for consultations and negotiations, failing which “…the investor may, after the exhaustion of local remedies or the domestic courts of host State, resort to international arbitration mechanisms”.[11]

    These provisions and the Joint Implementation Committee mediation provide ready solutions at a bilateral level to concerns on the improvement of time efficiency for ISDS, enhancing treaty Parties’ involvement and control over their instruments, dispute prevention and mitigation, exhaustion of local remedies and mediation, which are being considered at multilateral engagements at the ICSID Rules (Amendment) Process and UNCITRAL Working Group III.

    At the national level in Nigeria, the OSIC Lab, an administrative dispute prevention and resolution mechanism has been established in the country’s Investment Promotion Agency: Nigerian Investment Promotion Commission to support the country’s efforts at dispute prevention and de-escalation and other forms of mediation.

    Unlike the discussions at the multilateral level, the treaty text at the bilateral level has the added advantage of reflecting a mutually agreeable time efficiency template that takes cognizance of the developmental realities and constraints of the treaty partners, thereby addressing the issue very quickly.

    In similar national and/or bilateral efforts to address some ISDS concerns, Argentina and the United Arab Emirates have included a ban of Third Party Funding (TPF) in their 2018 BIT.[12] The United States has also restricted TPF of domestic claims against the federal government.[13] Similarly, Egypt’s Investment Law No.72 of 2017 provides “…multitiered mechanisms for the settlement of investment disputes, including domestic litigation, amicable settlement and alternative dispute resolution (ADR)…”[14] Essentially, it is indicative of the fact that Egypt seeks to develop an effective and flexible mechanism for the settlement of investment disputes. Such are similar bilateral efforts to treat other identified concerns raised under the ICSID Rules Amendment Process and UNCITRAL WG III. 

    4.    REFORMING THE OLD GENERATION BITS

    In 2017, Nigeria commenced Phase 2 of the reform process, which entails reforming the existing stock of old generation BITs that are still in force despite their potentially injurious provisions that expose Nigeria to the needless risk of international arbitration. Inspired by a table in UNCTAD’s 2017 World Investment Report, which analysed IIAs on the basis of 11 reform-oriented provisions,[15] Nigeria came up with 20 critical and reform-oriented parameters. On the basis of the 20 parameters, which included critical considerations for the IIA reform,[16]of the key investment protection, facilitation and promotion provisions of most of the 29 BITs signed by Nigeria prior to the adoption of the new model, were assessed.  The exercise revealed that a large percentage of the BITs fell short of the provisions needed to attract RIBBS quality investments. Validation of the work done on the assessment of Nigeria’s BITs was received from UNCTAD, the World Bank and Nigeria’s IIA team.

    In 2019, practical steps commenced on the renegotiation and modernization of older BITs and concluded treaties that do not align with the current policy direction on Nigeria’s BITs. With guidance from UNCTAD, Nigeria recently undertook a country-specific analysis of each BIT in force with country by country proposals on the next steps to be taken to proactively modernize each BIT. The analysis highlights:

    a)   scores of each Treaty based on the 20 critical and reform-oriented parameters used for the assessment;

    b)   tenures and current status of each Treaty (since a large number of them are already expired but are automatically renewed along with the potentially injurious provisions);

    c)    next dates for the possible unilateral termination of the Treaties; and

    d)   tenure of the survival clause (during which the treaty provision will still be in effect even after the Treaties are terminated).

    Similar country-specific analysis of concluded but yet-to-be-ratified BITs was undertaken with specific focus on the availability of quality safeguards to ISDS and the absence of pre-establishment provisions.

    Engagements with some treaty partners has commenced on modernization of some treaties. 

    5.    ALIGNMENT AND COHESION IN NATIONAL AND BILATERAL EFFORTS

    To ensure cohesion of the reforms at the national, regional and bilateral levels, Nigeria has commenced preliminary work on Phase 3 of the reform process that entails the review of critical investment protection, facilitation and promotion provisions of the national investment law, the Nigerian Investment Promotion Commission Act,[17] which contains a number of unqualified protections, in addition to a seemingly unrestricted unilateral offer of Investor-State Dispute Settlement by international arbitration to foreign investors.

    The objective is to ensure that the national investment law and other related legislations largely align with reforms undertaken at the bilateral level so that the gains made in the model BIT are not lost through the current provisions of the legislations.

    Similar efforts at cohesion are being replicated at regional and multilateral negotiations including discussion on the AfCFTA Investment Protocol for Africa, the ICSID Rules Amendment Process, UNCITRAL Working Group III on the reform of ISDS and the formulation of Guiding Principles on Investment policymaking for D-8 countries developed jointly with UNCTAD. [18]The non-binding Guiding Principles provide guidance for investment policymaking with a view to: promoting inclusive economic growth and sustainable development; promoting coherence in national and international investment policymaking; fostering an open, transparent and conducive global policy environment for investment; and aligning investment promotion and facilitation policies with sustainable development goals. These initiatives aligns with Nigeria’s key IIA reform pillars, including sustainable development, right to regulate and preservation of policy space, balancing the asymmetry between investors rights and obligations and encouraging international cooperation on investment-related challenges in addition to mitigating investment disputes through the use of Ombudspersons or similar institutions. 

    6.   CLOSING THOUGHTS

    As the impact, negative and sometimes costly implications of loosely worded treaty provisions grow on treaty partners, the importance of carefully wording of such provisions and inclusion of reform-oriented provisions cannot be over-emphasized. It therefore behooves such treaty partners to formulate and embrace innovative tailor-made provisions that meet their policy objectives in order to ensure that the treaty meets a balance of expectations of both the investors and the Host States.

    While the desirability of reforms in treaty negotiation is increasingly gaining ground, attention must be given to other success factors in the negotiation of such treaties, prominent among which are skilled treaty negotiators and having like-minded treaty partners, with complementary objectives around the table.

    Forums such as the AfAA Conference provide an opportunity to share experiences and interrogate issues that help build the capacity of treaty negotiators and expose countries to the need to embrace the wide range of reforms in their investment treaty regimes. This, in my view, is a critical first step in enhancing the possibility of concluding even more reform-oriented treaties, which over time can change the “face” of BIT networks across the world.

    ____________________

    * Deputy Director and Legal Adviser of Nigerian Investment Promotion Commission and Chief Negotiator of Nigeria’s International Investment Agreements team

    [1] https://investmentpolicy.unctad.org/uploaded-files/document/unctad-web-diae-pcb-2014-Sep%2024.pdf (09 March 2020)

    [2]https://jusmundi.com/en/document/decision/en-process-and-industrial-developments-ltd-v-the-ministry-of-petroleum-resources-of-the-federal-republic-of-nigeria-part-final-award-friday-17th-july-2015  (03 March 2020)

    Process and Industrial Development Ltd. v. The Ministry of Petroleum Resources of the Federal Republic of Nigeria. 

    [3]Tethyan Copper v. Pakistan https://www.thefreelibrary.com/Barrick+Gold+Corporation+(TSE%3a+ABX)+-+Barrick+Announces+Reko+Diq...-a0595353574 (03 March 2020)

    [4] Hamed EL-KADY and Mustaqeem DE GAMA, The Reform of the International Investment Regime: An African Perspective, ICSID Review, (2019), pp. 1–14.

    [5] https://investmentpolicy.unctad.org/publications/1202/fact-sheet-on-investor-state-dispute-settlement-cases-in-2018   (04 March 2020)

    [6] https://investmentpolicy.unctad.org/publications/1190/unctad-s-reform-package-for-the-international-investment-regime-2018-edition- (04 March 2020)

    [7] http://www.nigeria-law.org/Nigerian%20Investment%20Promotion%20Commission%20Act.htm

    [8]https://investmentpolicy.unctad.org/international-investment-agreements/treaties/otheriia/3711/morocco---nigeria-bit-2016- (03 March 2020) https://www.iisd.org/itn/2017/09/26/the-2016-morocco-nigeria-bit-an-important-contribution-to-the-reform-of-investment-treaties-tarcisio-gazzini/ (03 March 2020)

    [9]https://issuu.com/unpublications/docs/world_investment_report_2017/68 Pages 120-123 and 140 (03 March 2020)

    [10] Article 4(4)d

    [11] Article 26

    [12]Agreement for the Reciprocal Promotion and Protection of Investments between the Argentine Republic and the United Arab Emirates, signed April 16, 2018 (03 March 2020) https://investmentpolicy.unctad.org/international-investment-agreements/treaties/bilateral-investment-treaties/3819/argentina---united-arab-emirates-bit-2018- (02 March 2020)

    [13]  31 USC 3727 (United States Anti-Assignment of Claims Act). https://www.iisd.org/itn/2019/06/27/third-party-funding-and-the-objectives-of-investment-treaties-friends-or-foes-brooke-guven-lise-johnson/ (02 March 2020)

    [14]Moataz HUSSEIN https://www.iisd.org/itn/2018/10/17/new-egyptian-investment-law-eyes-on-sustainability-and-facilitation-moataz-hussein/ (03 March 2020)

    [15]https://issuu.com/unpublications/docs/world_investment_report_2017/68 Page 121 (04 March 2020)

    [16] The parameters include reference to sustainable development, inclusion of enterprise-based definition of investment, inclusion of temporary safeguard measures, inclusion of transparency and investment facilitation clauses, among others.

    [17]Nigerian Investment Promotion Commission Act No. 16 of 1995 (see earlier reference to this Act) http://www.nigeria-law.org/Nigerian%20Investment%20Promotion%20Commission%20Act.htm (03 March 2020)

    [18] The D-8 Organization for Economic Cooperation, also known as Developing-8, is an organization for development co-operation among the following countries: Bangladesh, Egypt, Nigeria, Indonesia, Iran, Malaysia, Pakistan, and Turkey. Text of the principles available at: https://investmentpolicy.unctad.org/publications/1221/joint-d-8-organization-for-economic-cooperation---unctad-guiding-principles-for-investment-policymaking (04 March 2020)

  • 27 Apr 2021 10:36 AM | Anonymous

    Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

    This paper, which follows my presentation, provides an overview of the Belt and Road Initiative (the "BRI"), its aims, objectives and progress to date. It also discusses the impact and implications that the BRI will have on/for Africa within the broader context of African efforts to develop, industrialise and foster trade and investment on the continent.  Moreover, this paper also looks at some of the challenges which arise, including how and when these can lead to disputes, and the role that the African dispute resolution community can play in resolving and mitigating such disputes when they arise.

    Scope of the BRI

    Launched at the end of 2013, the BRI is a globe-spanning network of sea and land trade routes originating in China, and funded by vast sums of Chinese capital.  At its heart, the BRI is an infrastructure initiative (90% of BRI projects are linked to ports, rail and road, mineral processing or energy (oil, gas and renewables)) – albeit on a vast scale. Africa is a central element of the BRI; as the second-largest recipient of BRI investment, after Asia. 

    Infrastructure and interconnectivity: planning and projects

    Africa's infrastructure challenge remains the most significant and persistent hurdle to industrialisation and intra-African trade.  Approximately US$ 68-108 billion is required to meet Africa's infrastructure financing needs. 

    China is the largest funder of infrastructure in Africa, and the BRI of course comprises a significant influx of capital for infrastructure.  China has so far invested in over 40 African countries under the BRI.  Notable projects include the following:

    • US$1.6bn – Nigeria. The railway between Lagos and Ibadan, opened in January 2021. This is part of  the larger proposed US$ 11.1bn 2,733km railway line between Lagos and Kano.
    • US$589.5m – Uganda.  The Isimba Hydroelectric Power Station, a 183.2 MW hydroelectric power station was commissioned on 21 March 2019 (funded by the Export-Import Bank of China), construction began in 2015.
    • US$3.4bn – Ethiopia/Djibouti.  The modernisation of the railway from Addis Ababa to Djibouti (and associated construction of an industrial park in south Addis Ababa), completed in January 2021.

    Despite the increase in high-profile projects, the question remains as to whether the BRI is a purely economic construct to enhance international cooperation (as China claims), or a geopolitical tool to enhance China's global strategic influence (as its strategic competitors suspect).  Regardless of the true position, the challenge for African countries is to align China's ambitions with their own needs and objectives, and therefore effectively take advantage of the synergies and opportunities that undoubtedly exist.

    What are the biggest opportunities for Africans presented by the BRI, and are there any challenges?

    Funding & Infrastructure

    There is undoubtedly a vast and unprecedented influx of funding into major infrastructure projects in Africa as a consequence of the BRI.  The influx has the potential to help address long-overdue gaps and shortcomings in national infrastructure, and also to provide for more effective and efficient links within sub-regions of the continent.  However, funding often comes with conditions.  These can serve to limit the opportunities for Africans to participate.  For instance, the Standard Gauge Railway project (the "SGR Project") in Kenya (linking Mombasa with Nairobi, and originally planned to extend to Uganda) was funded on the condition that it be constructed by Chinese entities.  Such restrictions are not uncommon on BRI projects.  The conditions surrounding the SGR project are not uncommon, given that a third of major infrastructure projects undertaken in Africa are constructed by Chinese entities. Statistics show that while the labour constructing African BRI projects is increasingly African, more senior staff on projects are usually Chinese.  This restricts the opportunity for knowledge transfer and capacity-building. Opportunities for participation by African contractors are often limited (though may yet remain significant additional opportunities further down the supply chain).

    It must therefore be kept in mind that challenges remain.  The SGR Project in Kenya, serves as an example of how BRI projects ultimately remain subject to China's aims and objectives, as the funding party.  In the project the objective to continue the line through to Uganda (therefore providing and important link, facilitating trade between two key regional economies) was abruptly dropped when China declined to fund the next phase of the line's development.  This is likely a consequence of the Chinese Government's recent steps (against the background of the global COVID-19 Pandemic and a changing global financial landscape) to scale back BRI investment, and shift away from more low-cost and less commercial funding.  As such, we have seen a drop in the levels of BRI investment over the course of 2020.

    Outside of funding, there are opportunities brought by the infrastructure assets themselves.  A clear potential benefit is the increase of connectivity across Africa, and its potential to boost intra-African trade, economic activity and development.

    Disputes

    African parties involved in BRI projects, be they states, contractors or suppliers, must appreciate the risk that a divergence between their interests and the interests of China, could very likely lead to a fundamental change in the project structure, a dispute or a stalled project.  By way of example, the Beijing Everyway Traffic and Lighting Co Ltd v Ghana claim (brought under the Ghana-China BIT, in February 2021) provides an example of Chinese companies becoming more assertive in relation to pursuing and protecting their perceived rights in relation to projects and investments in Africa.

    As regards advice and disputes, there are clear opportunities for African lawyers and consultants.  Infrastructure projects on a 'mega-project' scale inevitably give rise to disputes, at all levels.  Such projects will require a robust and efficient mechanism to address disputes as they arise in the course of the project itself (e.g. a DAB or DRB).  Further, more significant and project-critical disputes may need to be resolved by arbitration (and other ADR methods, such as mediation, can also play a role).  This underlines the importance of the work of bodies such as AfAA – in promoting knowledge of arbitration and dispute resolution in Africa.

    The potential for dispute work is vast, and disputes are not necessarily confined to Sino-African companies and states. Other international actors are likely to be involved as contractors, suppliers and funders.

    How can the opportunities presented by the BRI be taken advantage of?

    We have seen arbitral institutions take specific steps to improve their ability to service BRI-related disputes, and to address related issues and considerations that arise.  Examples include the ICC's "Belt and Road Commission" and the HKIAC's "Belt and Road Advisory Committee".  Further, arbitral institutions (such as the CAJAC) are now in existence which aim to cater specifically to disputes in relation to Sino-African projects.

    African arbitral institutions have an important role to play in taking steps to upskill domestic legal sectors (e.g. by developing skills and sharing their experience of complex cross-border arbitration with arbitrators, judges, lawyers, clerks etc.), thereby developing knowledge and capacity.

    Against the background of the COVID-19 Pandemic and travel restrictions which we have all had to become familiar with, investing in, developing and adapting technology to support the conduct of arbitration has become, and will continue to be, more important.

    The African Continental Free Trade Area

    This year has seen the coming into being of the African Continental Free Trade Area ("AfCFTA").  This is the largest free trade agreement since the creation of the WTO.  It serves to enhance economic integration and cooperation in an economic area worth US$ 3.4 trillion, with a population of 1.2 billion people, and offers a further vital potential force for Africa's further development.  The AfCFTA has as its objective the deepening of economic integration amongst African states by creating a unified market for goods and services and, in the process, to drive Africa's industrialisation and structural transformation.

    The aforementioned infrastructure gap, and shortcomings in key areas such as power capacity and availability and data connectivity, present obstacles to the achievement of the objectives of AfCFTA.  Indeed, as important as the removal of trade barriers, which AfCFTA provides for, is the alleviation of these physical barriers and bottlenecks which hinder the capacity for trade between, and within, African countries.

    The BRI therefore has what is potentially a highly important role to play in working towards maximising the opportunities presented by AfCFTA – specifically by making available such a considerable (and vital) volume of funding to be directed towards infrastructure projects.  Such projects can, in turn, deliver infrastructure assets through which increased trade, unlocked by the AfCFTA, can flow. 

    Concluding remarks

    With such a volume of capital being committed, to such major projects, this undoubtedly presents opportunities – and infrastructure investment is a clear and pressing African need. However, as can fully be expected, in committing such investment, China understandably has its own objectives and aims (including expanding Chinese access to new markets and facilitating Chinese strategic global expansion) foremost in mind.  Africans will need to be astute, and aware of their legal and commercial rights and how to protect them, if they are to take best advantage of this once-in-a-generation opportunity.  An approach that might be summarised as "belt and braces", for the Belt and Road. 

    ___________________

    * Partner, Mayer Brown International LLP

  • 27 Apr 2021 10:11 AM | Anonymous

    AfAA 2nd Annual International Arbitration Conference - Reform and Innovation in International Dispute Resolution: African Perspectives, 15th - 16th April 2021

    1. Salutations and Opening

    • The President of the African Arbitration Association and former Attorney-General and Minister of Justice of the Federal Republic of Nigeria, Chief Bayo Ojo;
    • The Secretary-General of the African Arbitration Association, Dr Rukia Baruti;
    • The Board of Directors and Members of the African Arbitration Association;
    • Distinguished speakers and participants;
    • Colleagues, ladies and gentlemen.

    I am delighted to join you on the occasion of the second annual conference of the African Arbitration Association to take stock of the growth of the association so far and to deliberate on the conference theme – Reform and Innovation in International Dispute Resolution: African Perspectives. 

    I am even more pleased to be delivering the keynote address of the conference as this signifies the importance of the partnership between the ALSF and the AfAA. As many of you know, the ALSF supported the establishment and preliminary launch of the AfAA in Abidjan in 2018 - not least because both our organisations acknowledge and seek to promote legal capacity and processes and their utilisation or contribution towards sustainable development in Africa. This includes addressing the asymmetry of legal capacity between African countries and investors, ensuring balance and fairness in contracts and dispute resolution, and providing innovative solutions to various legal issues. 

    2. Outline of Address

    Ladies and gentlemen, it is on that last point, which is also reflected in the theme for the conference, that I wish to focus this address. I will begin by rehashing the slew of issues in need of reform and innovative solutions; Next, I will discuss some interesting developments that are speaking to or could address these issues; And then, Mr President, you will no doubt – on account of seniority privileges at the bar – permit me to offer some snap proposals in conclusion. 

    3. Issues in need of reform and innovative solutions in Africa

    These issues are known to all of us. But for the purpose of this address, I shall categorise them as follows: 

    Issues

    Examples/Causes

      i.           

    Legal capacity and accessibility issues

    • Dearth of expertise in or exposure to cutting-edge areas of law;
    • Wide dispersion of cutting-edge legal expertise;
    • Sub-standard trainings in some cases;
    • Exclusive outsourcing of legal work to international non-African firms;
    • Limited range of local law firms;
    • Cross-jurisdictional practice limitations;
    • High costs of legal training;
    • Inadequate relevant physical infrastructure and facilities;
    • Poor organisation and promotion;
    • Non-selection of qualified persons for transactions, arbitrations;

      ii.           

    Legal rules and processes

    • Lopsided investment treaty and contract provisions, and dispute resolution frameworks;
    • Lack of or weak harmonisation across borders - within RECs and continentally;
    • Non-qualitative frameworks for law and rule-making;

    iii.           

    Gender inequality

    • I believe the matter speaks for itself!
    • Increasing female enrolments and qualifications are not commensurate with senior and leadership roles, or arbitration appointments;
    • Marginalisation from large transactions;

    iv.           

    Cultural and customary issues

    • Disregard for cultural and customary norms;
    • Inadequate documentation or recognition of cultural and customary norms – especially in large-scale land-based transactions;

    v.           

    Inter-disciplinary collaborations & Data issues

    • Inadequate understanding or connections with non-traditional disciplines and emerging areas, e.g., technology, e-commerce, blue economy, space, data sciences, etc.;
    • Poor data collection, interpretation, and analysis for effective decision and rule-making;

    vi.           

    IP protections

    • Insufficient knowledge or understanding of creators of IP issues;
    • Ease of IP registrations;
    • Inadequate attention to IP issues in complex commercial transactions;

    These issues are by no means exhaustive. Nor are they mentioned in any particular order. In highlighting and attempting to categorise them, one hopes to instigate the process of analyses and clarification necessary for the more enterprising and progressive ones among us to begin considering and innovating solutions to the issues.

    4. Some interesting developments 

    Ladies and gentlemen, it is not all doom and gloom. If the issues I just mentioned evoked despair, then the recent developments I am about to share should give us hope and inspire further efforts to overcome the challenges. In the interest of time, I will only share 3 or 4 of such developments: 

      i.          The ALSF Academy

    Allow me, Mr President, to lead with and expatiate on a flagship innovation of my own organisation – the ALSF Academy virtual capacity building platform. Long before the pandemic we recognised that it would take innovative solutions to achieve our vision of ensuring sustainable legal capacity for Africa. The ALSF Academy therefore utilises technology to address some of the issues I mentioned earlier, especially the legal capacity and accessibility issues. The platform enables us to provide training and skills in the key sectors of our operations – extractives, power, infrastructure and sovereign debt; as well as in relevant soft skills – while also ensuring that we will have access to an expanding pool of qualified experts to advice on complex commercial transactions. The training materials, which include video presentations, slides, and course handbooks, are complemented by other sector publications and online resources developed or supported by or accessible to the ALSF. The materials and resources are being developed through our partnership with various legal entities including - ABLFA (African Business Law Firms Association), CIFAF (International Training Centre in Africa for Francophone Lawyers), EALS (East Africa Law Society), ILFA, SADC-LA (SADC Lawyers Association), ERSUMA (Regional High School of Magistracy of OHADA), and Strathmore Extractives Industry Centre (SEIC). To this end, we are also working with the AfAA to expand on the arbitration resources available to enhance the skills and practice of African lawyers. 

    The merits of the ALSF Academy online portal include sustainability, knowledge transfer, and continuous improvement: 

    • Sustainability: The online portal provides all-round access to skills and information complementary to in-person trainings and that can be readily updated or upgraded.
    • Knowledge transfer: The training provided through the portal enhances the capacity of African lawyers especially in key learning areas in line with international best practices.
    • Evaluation and improvement: The ALSF can monitor and improve the effectiveness of the training through the analysis of data on who has accessed the portal and which sections have been viewed and utilised.

    Since the launch of the online portal in 2019, more than 7,000 new users have been registered and 223 users have completed various levels of training on the platform. We expect to register more users as we develop more content and introduce more interactive features. In time, the ALSF Academy should coordinate all relevant legal resources and training for African lawyers. The ALSF Academy is available at: WWW.ALSF.ACADEMY.

                  ii.          Other law and tech platforms - The Lawyers Hub / LawTrella / I-Arb Africa / Arbitration in Africa Surveys / AfAA Arbitration Law Atlas

    The next set of innovations are also technology-based and speak to a number of the issues I mentioned earlier, i.e., legal capacity and accessibility issues, legal rules and processes, interdisciplinary collaborations & data issues, IP protections, and gender inequality.

    Mr President, I recently had the pleasure of participating in the Pan African Lawyers Union (PALU) conference panel on Legal Technology and Continuing Legal Education in Africa and was introduced to some amazing work by some young African lawyers. That they are women alone I believe goes a long way in resolving the gender inequality issues! 

    One of the enterprising young women was involved in the creation of the Lawyers Hub – a legal-technology policy organisation that provides technology-driven solutions to policy making, legal practice, and access to justice. Their policy hub brings together lawyers, tech professionals, civil society, academia and public policy professionals to develop technology driven options for governance, including in emerging areas such as internet governance, digital trade, digital ID, and digital inclusion, as well as the interface with more traditional concepts such as human rights and sustainability. They are also engaged in the use of technology to improve dispute resolution processes and are exploring artificial intelligence and machine learning technology to improve access to and efficient delivery of justice. Another of the women innovators has created LawTrella, an online platform that uses technology to facilitate continuous professional development, networking, co-working and client interaction. 

    Mr President, I have more initiatives by women to speak about. The SOAS Arbitration in Africa Surveys (which the ALSF has supported), contribute to resolving the data issues mentioned earlier, for more effective decision making. The I-Arb Africa website features useful information on African countries’ accession to various arbitration centres, eligible African arbitrators, an international directory of arbitrators, arbitration schedules and events, awards involving African participation, and analyses of awards and developments in the arbitration space. Of course, the AfAA’s own online platform provides a directory of its members and their expertise and hosts and provides links to various arbitration resources including an atlas of African arbitration laws (supported by the ALSF) – which should facilitate reviews and analyses and harmonisation or convergence of arbitration rules and processes across borders.

    iii.          Reforms in the international investment regime

    According to the UN Conference on Trade and Development (UNCTAD)’s 2019 World Investment Report, out of 29 International Investment Agreements concluded in 2018, 27 contained various innovative features – including provisions espousing sustainable development objectives, gender equality, preservation of regulatory space, enhanced investment dispute settlement provisions or none at all. 

    And, regarding Investor State Dispute Settlement (ISDS) reforms, the ongoing processes for reform of ISDS frameworks – notably the ICSID and UNCITRAL regimes – are well known. The issues being considered for reform are relevant to us and wide ranging, including proposals relating to third-party funding, whether to have an ad hoc or standing advisory centre, review or appellate mechanisms, cost-effectiveness of proceedings, electronic processes, selection of arbitrators, arbitrators’ code of conduct and ethics, exhaustion of local remedies, frivolous claims, security for cost, and dispute prevention and mitigation. But perhaps more can still be done to coordinate African perspectives and articulate them more forcefully. 

    I note that two great panels will be discussing the reforms in the international investment regime in more detail this afternoon, so I will say no more than that it is refreshing that the ongoing reviews are open and inclusive. 

    5. Conclusions 

    Mr President, I will now conclude this address with a few thoughts for our consideration. 

    i.  A proposal for virtual hearing management services

    The objective will be to provide a simple and quick to deploy virtual infrastructure for participation in virtual hearings by African countries (especially fragile countries with technological and infrastructural challenges) by leveraging or utilising the resources of AfAA members or affiliates across the continent. While it is derived from a similar service by the American Arbitration Association, the design must be distinct if it is to be responsive to the needs of African clients. Some of the unique features of this platform could include local language translation services; “demystification” of the locus the subject matter of the investment dispute; access to relevant cultural information, and secure meeting rooms. 

    ii.  A feedback loop

    As advisors to African governments on transactions that could potentially end up in disputes, the ALSF is interested in utilising the lessons learned in ISDS outcomes or awards to enhance transactions by our regional member countries. The AfAA is therefore encouraged to consider developing its analyses frameworks to support this process. 

    iii.  Illicit Financial Flows (IFFs) and Climate Change

    Africa loses about US$90 billion in illicit capital flight every year – that is nearly 4% per cent of the continent’s GDP. And the solution mainly lies in improving national capacities and governance/regulatory systems, negotiating better investment and taxation agreements, cooperating home countries, and transparency of the global financial system. But the international arbitration regime has a part to play in curbing this criminality. If investors can challenge taxation in international arbitration on the grounds of expropriation or violation of national treatment, most-favoured nation treatment and fair and equitable treatment, then investors must also be accountable for their international financial crimes. Thus, the international arbitration regime can contribute to exposing unscrupulous activities such as nationality planning, money laundering, transfer misprising, and other tax evasion or corrupt practices, without violating the notion of non-arbitrability of tax. This will require arbitrators to be well-informed and vigilant in this ever-evolving field; as well as appropriate reforms in international dispute resolution. 

    Also, while climate change has worse repercussions for Africa, our continent’s legal systems are yet to develop the legal frameworks to fully confront this issue. As the laws and regulations play catch up, our arbitrators need to be vigilant and use their roles in defending against the impact of some of the investments on climate change in Africa. 

    Finally, I wish to end with news of collaboration between the ALSF and the AfAA. Further to our support of the Africa Arbitration Legislation Atlas, we are planning to collaborate on more projects aimed at creating knowledge products, capacity building, and promoting arbitration in Africa. The details of the projects are yet to be finalised, but I am hopeful that we can realise our common objectives if all of us members and partners continue to work together.

    Mr President, ladies and gentlemen, congratulations on your second annual conference. I look forward to a lively and rewarding experience.

    Thank you. 

    _______________

    * Director & CEO, African Legal Support Facility (ALSF)

  • 27 Apr 2021 9:52 AM | Anonymous

    Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021

    I.                 Executive Summary

    The United Nations Commission on International Trade Law (“UNCITRAL” or “Commission”) Working Group III is currently working on a comprehensive reform of the system for investor-State dispute settlement (“ISDS”). Delegations have begun by identifying concerns related to the lack of consistency, coherence, predictability and correctness of arbitral decisions, arbitrators and decision makers, and cost and duration of ISDS and assessed that these problems and shortfalls warrant reform. The Working Group is now in the phase of developing concrete reform solutions to address these concerns. Ideally, these reform solutions should be applicable to the more than 3,000 existing international investment agreements (“IIAs”) through a multilateral instrument and be presented in a flexible manner to ensure that States can adopt them in accordance with their priorities.[2] The African perspective plays a vital role in this reform process. For many African countries the current ISDS system raises important questions and their contributions to the UNCITRAL reform deliberations ensure that their interests and experience are taken into account in the development of a reformed ISDS system for the 21st century.[3]  

    II.               Background

    ISDS provides a forum for foreign investors to bring claims against the host State to international arbitration tribunals. It was created with the aim of enhancing confidence in the stability of the investment environment primarily in developing countries.[4] More than 3,000 IIAs are in force today.[5] In parallel to the increase in the global web of treaties, the number of ISDS cases brought by foreign investors against States under these IIAs increased and passed the 1,000 mark in 2020.[6]

    The UNCITRAL reform process was initiated in 2017 in order to address strong and growing criticism by its stakeholders but also the general public of the ISDS system as it has been set up and operating in the last 60 years. Given the increase in the number of ISDS cases, the fact that they are brought against public measures and involve compensation to foreign investors with public funds, the ISDS system has come under broader public scrutiny. Criticism has emerged in particular relating to the methods of appointing arbitrators, and the impact of such methods on arbitrators’ independence and impartiality, the lack of coherence of a system based on decisions made by tribunals constituted to hear a specific case (also referred to as “ad hoc” tribunals), and the lack of corrective mechanisms (i.e., the lack of appropriate control or appellate mechanisms), the length and costs of the proceedings and the lack of transparency.[7] A first wave of criticism against ISDS had emerged in Latin America based on the perception of bias against States and gave rise to measures by Venezuela, Bolivia and Ecuador to distance themselves from the ISDS system.[8] Criticism in Europe crystallized around the negotiation of the Transatlantic Trade and Investment Partnership Agreement (TTIP). High profile cases such as Phillip Morris v. Australia[9] and Phillip Morris v. Uruguay[10] have also put the topic on a political level in other regions. Reforming ISDS has become in the last decade a recurrent topic in international conferences and academic work,[11] further highlighting the fact that stakeholders in the system had long discarded criticism as factually incorrect but had underestimated the role of perception.

    III.             Mandate

    In July 2017, UNCITRAL entrusted its Working Group III with the possible reform of the ISDS system against the background of its global reach and its experience with the negotiation of legal instruments in the field of international arbitration. It was the prevailing view that UNCITRAL provides an appropriate multilateral forum to discuss relevant issues in an inclusive and transparent manner, where the interests of not only States but also of other stakeholders could be considered. It was recalled that UNCITRAL has successfully undertaken a first step towards reform of ISDS with the preparation of standards on transparency.[12]

    In 2014, the Rules on Transparency in Treaty-based Investor-State Arbitration (2014) (Rules on Transparency), UNCITRAL’s first instrument applicable specifically to ISDS, came into effect.[13] These rules address the need “to take account of the public interest involved in such [ISDS] arbitrations”.[14] The rules apply to ISDS proceedings initiated under the UNCITRAL Arbitration Rules pursuant to an IIA concluded on or after 1 April 2014 unless the parties to the agreement have agreed otherwise. The rules also apply if the IIA was concluded before 1 April 2014 if its parties have agreed to their application.

    UNCITRAL further prepared a convention designed to facilitate the application of the Transparency Rules to the 3,000 or more investment treaties concluded before its entry into force, the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (New York, 2014) (the "Mauritius Convention on Transparency") . In essence, the Mauritius Convention on Transparency introduces the substantive transparency standards embodied in the Transparency Rules into the fragmented treaty-by-treaty regime by way of a single multilateral instrument.

    After the adoption of these texts, the question was raised whether the Mauritius Convention on Transparency could provide a useful model for possible further reforms in the field of ISDS. It was noted that the then current circumstances posed a number of challenges to ISDS and proposals for reforms had been formulated by a number of organizations.[15] In 2016, a research paper elaborated by the Geneva Center for International Dispute Settlement (CIDS) presented to UNCITRAL formed the basis for further consultations on whether to undertake work on ISDS reform.[16] The report proposed to follow an approach similar to the one pursued in respect of the Transparency Rules and the Mauritius Convention on Transparency, that would allow reform of a complex and atomized system by way of a single multilateral instrument.

    The Commission entrusted Working Group III with a broad mandate to work on the possible reform of ISDS. It was emphasized that the Working Group would, in line with the UNCITRAL process, ensure that the deliberations would be Government-led, include the widest possible breadth of available expertise from all stakeholders, with high-level input from all Governments, be consensus-based and fully transparent.[17]

    IV.            Process

    1.      A government-led process

    The Commission had noted that ISDS involves a number of policy issues and highlighted that Governments should have a leading role in the reform process. They should be represented by officials with adequate expertise and experience in negotiating investment treaties or investment chapters in free trade agreements and with exposure to claims related to ISDS.[18] The reform deliberations in Working Group III have benefitted from high level input from government representatives in the working group sessions as well as in the form of over 50 written submissions contributing to the Working Group’s deliberations.[19]

    2.      And inclusive process

    The Working Group sessions have benefitted from significant and increasing participation by States, including developing and least developed countries. The Working Group session in January 2020 in Vienna, for example, was attended by more than 400 delegates representing 106 States, and 66 international organizations and non-governmental organizations.[20]

    Considerable efforts are being made by the UNCITRAL Secretariat to reach out to all regions and countries to raise awareness and build capacity within delegations to effectively participate in the ISDS reform process. Three inter-sessional regional meetings were organized with the support of the Secretariat and hosted by the Governments of the Republic of Korea, the Dominican Republic and Guinea.[21]  Moreover, Hong Kong SAR, China hosted a virtual pre-intersessional meeting.[22]

    Prior to Working Group sessions, the Columbia Centre for Sustainable Investment (CCSI) and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), with the assistance of the UNCITRAL Secretariat, regularly conduct training and briefing sessions on ISDS topics being discussed in the Working Group sessions in order to allow delegations to participate fully and effectively in the deliberations. The European Union, Switzerland, Germany and France have provided financial support to facilitate participation by delegations from developing and least developed countries.

    3.      Broad inputs from all stakeholders

    The deliberations of the Working Group are based on a broad range of available expertise from different stakeholders. More than 66 international inter-governmental organizations and non-governmental organizations with a variety of industry and policy expertise have participated in the Working Group sessions as observers and have organized numerous side events during as well as in-between the Working Group sessions.[23] An Academic Forum on ISDS and a Practitioners Group have been set up early in the process as informal groups aimed at making constructive contributions to the ongoing discussions by providing information from their research and experience.[24]

    The UNCITRAL Secretariat has prepared working papers on identified issues and reform options in preparation of the Working Group sessions with reference to a broad range of published information on the topics.[25] Further, the Secretariat has organized a series of informal webinars, in which state representatives and leading experts shed light on reform topics with the aim to brainstorm on the reform options on the agenda and to advance the discussions.[26]

    4.      Consensus-based process

    Legislative work by UNCITRAL and its working groups is generally based on consensus.[27] In accordance with UNCITRAL practice, consensus does not require unanimity, but is instead based on a widely prevailing majority and the absence of a formal objection that would trigger a request for a vote. While the adoption of an instrument or a text by consensus does not give it any binding nature and States remain free to decide whether they want to adopt or apply it, it was stated that efforts should be made to consider all possible options so as to achieve the broadest consensus.[28]

    5.      Transparency

    The reform process is being conducted in a fully transparent manner. Each step of the deliberations is documented in the Working Group and Commission reports. The reports as well as the notes by the Secretariat and submissions by States are publicly available on the UNCITRAL web page in all six UN languages.[29] Moreover, audio recordings of the sessions are available on the UNCITRAL web page.[30]

    6.      Coordination with parallel ISDS reform developments

    Besides the UNCITRAL ISDS reform process, reform developments are also taking place in other fora. ICSID is updating its rules through the Rules and Regulations Amendment process particularly addressing concerns relating to cost and duration of ISDS processes.[31] As the reform topics partially overlap, as does their respective membership, the Secretariats of UNCITRAL and ICSID are cooperating closely in order to work towards harmonized solutions and avoid a further fragmentation of the legal framework for ISDS. Reform items such as third-party funding and the establishment of an appeal mechanism will require close cooperation with the ICSID Secretariat in order to develop an effective and coherent reform package. The UNCITRAL reform process generally takes into account the implications of the ISDS reform for the application of existing arbitration rules and administering institutions.

    The OECD is hosting a forum that also touches upon certain ISDS related topics – the Freedom of Investment process. The UNCITRAL Secretariat particularly took into consideration the OECD’s work on the topics of shareholder claims and reflective loss in its preparatory work.[32]

    Other reform developments are taking place on the level of IIAs. Most of the IIAs signed in recent years contain reform elements including the approaches of no ISDS, a standing ISDS tribunal, limited ISDS and improved ISDS procedure.[33] These developments are monitored and supported by the  United Nations Conference on Trade and Development (UNCTAD), which assists policymakers, government officials and other IIA stakeholders to reform IIAs with a view to making them more conducive to sustainable development and inclusive growth.[34]

    The Secretariat also monitors developments such as the negotiation of the investment protocol of the African Continental Free Trade Area (AfCFTA) and the related provisions on dispute settlement. Participation by the African Union Secretariat in Working Group III and outreach efforts are underway to avoid a further fragmentation of the system and a coherent delivery on ISDS reform.

    Lastly, while it is the objective to develop reform options in a coherent and consistent manner, an additional layer of consistency needs also be addressed. It was noted that a reform of ISDS needs to ensure that ISDS does not undermine the obligations of States to take action under the Sustainable Development Goals and against climate change under the Paris Agreement.[35]

    7.      Progress during COVID-19 pandemic

    In order to maintain the momentum of the reform discussion and to ensure that the process remains inclusive and transparent during COVID-19 pandemic which brought about all sorts of restrictions and challenges, the Secretariat has put together a programme of virtual events and other inter-sessional activities open to all delegations and stakeholders. This programme included informal briefings for delegations, a series of webinars on the reform options on the agenda and the Virtual Panel Series “UNCITRAL Texts and COVID-19 Response and Recovery”.

    In October 2020 and February 2021 Working Group III held hybrid sessions on a video-conferencing platform, with interpretation into all six UN languages and the possibility of physical participation in Vienna. While this format is not necessarily conducive to substantive negotiations and to consensus, it provides a useful tool for exchanges of views among delegations and give instructions to the Secretariat.

    V.              Reform Solutions

    The Working Group completed the first two phases of the reform agenda based on a broad consensus on identified concerns with regard to the current ISDS system and the desirability of reform and has started with the preliminary consideration of a number of reform solutions as part of phase three of its mandate.[36]

    1.      Development of reform solutions

    In its session in October 2019, the Working Group has started with the preliminary consideration of the identified reform options.[37] These discussions were based on the States’ submissions and the working papers prepared by the UNCITRAL Secretariat; they also take into consideration input from relevant observers. The Working Group has given concrete feedback and directions, based on the working papers and usually requested that the Secretariat proceeds with the development of draft provisions.

    At this stage, and without prejudice to the decisions of the Working Group, it is possible to categorize the reform options into two broad categories or streams. A first category, that we could call, procedural reform options would include those reform options that typically feature in the investment chapters of the more modern free trade agreements and address the ISDS procedure with a view to correct lack of clarity, shortcomings in the procedure that have over the years shown to need addressing by the States. Most of these reform options have already been addressed in one way or the other in existing treaties but would benefit from being consistently generalized for all ISDS disputes.

    Under this category or stream, the Working Group has identified the following reform options:

    ·        Strengthening ADR mechanisms, including recourse to investor-State mediation

    ·        Developing structures and policies to strengthen and operationalize dispute prevention

    ·        Develop new methods for selection and appointment of ISDS arbitrators

    ·        Develop a code of conduct for adjudicators in ISDS

    ·        ISDS procedural rules reforms (including procedure to address frivolous claims; multiple proceedings; reflective loss; counterclaims; security for costs; third party funding; treaty interpretation, calculation of damages)

    A second category regroups reform options of more structural or institutional nature. There reform options consist on setting-up new mechanisms and new institutions such as:

    ·        The establishment of a multilateral advisory centre patterned on the WTO-ACWL to assist States in ISDS procedures

    ·        Establishment of an appellate mechanism or a second instance appellate court to hear appeals against arbitral awards or first instance court judgements.

    ·        The establishment of a permanent investment court comprising a first and a second instance standing body.

    The Working Group has also started discussing the delivery mechanism for the entire reform of ISDS, through a Multilateral instrument to host and implement the reforms.[38]

    2.      Implementation of the reform: a multilateral framework based on the Mauritius Convention on Transparency model?

    Implementation is a key question and has been addressed in numerous submissions by States.[39] As discussed early in the process, a potential model is the Mauritius Convention on Transparency. Such mechanism for ISDS reform implementation could consist of a convention designed to facilitate the application of a reform to the roughly 3,000 investment treaties concluded before the entry into force of such reform. It could introduce changes into the fragmented treaty-by-treaty regime by way of a single multilateral instrument and would constitute the vehicle by which the various reform options are proposed to States for implementation.[40]

    Submissions by States further suggest the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) as a model.[41] It is suggested that “blocks” of options could be considered as minimum standard and other blocks that States could opt-in or opt-out of.[42] A submission foresees the development of an instrument establishing a standing multilateral first instance and appellate court and an open approach to implement the reform option, allowing States to either use the standing mechanism as such, or limit its use, for instance, by applying it to State-to-State dispute settlement only, or by utilizing only the appellate mechanism.[43] Yet another submission proposes the elaboration of a “suite” approach, aimed at developing a menu of relevant solutions, of which States would incorporate one or more into their investment treaties, taking into account their own political and policy concerns and interests.[44]

    It was also noted in the Working Group that a set of core provisions to which all States would sign on and a number of additional optional elements that could be opted in or out by any participating State would be a possible way forward but it still needs to find a way to balance flexibility for States with further fragmentation and inconsistency in the ISDS system.[45]

     

    VI.            Spotlight on Role of and contributions by African States and experts

    In accordance with its geographic representation, the 60 member States of UNCITRAL include 14 African States. Membership is currently held by Algeria, Burundi, Cameroon, Côte d’Ivoire, Ghana, Kenya, Lesotho, Libya, Mali, Mauritius, Nigeria, South Africa, Uganda and Zimbabwe. However, many more African States and observer organizations have actively participated in the Working Group III deliberations.

    The Secretariat has received numerous written submissions from African States and experts on the reform solutions discussed in the Working Group.[46] Also, an inter-sessional regional meeting was hosted by the government of Guinea in Conakry in September 2019 to discuss issues related to ISDS reform and African experiences and priorities. This meeting was attended by government officials from 33 States.[47]

    The Secretariat is in close contact with the Organization for the Harmonization of Business Law in Africa (OHADA) to coordinate work related to arbitration and mediation. Moreover, the Secretariat is making efforts to coordinate its work with the AfCFTA Secretariat, building on the close working relationship and collaboration, in particular with regard to transparency in ISDS, the operation of the UNCITRAL transparency registry as well as the work of Working Group III on ISDS reform. The Secretariat has organized webinars in French on the reform topics of a code of conduct, the selection and appointment of judges and the costs and financing of an advisory centre facilitating the participation by francophone African States. Moreover, the Organisation internationale de la Francophonie hosts pre-session consultations in French to discuss the work and progress of Working Group III, which were also attended by many francophone African States.

    VII.          Conclusion

    The Working Group has completed a first round of preliminary considerations of reform options, tasked the Secretariat with further extensive preparatory work and engaged actively in discussion on the structure and resources for future work. For several of the reform options on the agenda, draft provisions have been developed by the Secretariat to provide the Working Group with a solid basis for further deliberations. A work plan has been prepared aiming for a delivery of a complete reform of the ISDS system by 2024 and a final adoption by the Commission in 2025.

    The Working Group continues to simultaneously discuss, elaborate and develop multiple reform solutions. It finds itself now at the juncture where it needs to allocate working group time to the development of streams of reform options, grouping them for more coherence into a first set of provisions to reform the dispute settlement provisions of existing and future IIAs or relevant rules and a second batch or stream on a reformed dispute system design with the establishment of standing bodies such as a first instance court, an appellate court or mechanism and an advisory centre on ISDS for developing countries. It will also start deliberating on the delivery mechanism for the overall reform process, through a multilateral convention that will host the entire reform.

    Now that the development of reform options is well underway, it is even more important for States and stakeholders from the African region to be fully involved and to make their voices and priorities heard. While negotiating an investment chapter to the AfCFTA, it is also essential that the reform options being developed in UNCITRAL are reflected or further taken on-board, that coordination mechanisms are established to ensure that the first investment chapter to be developed after the reform of ISDS has begun completely reflects the current state of play and builds on it.

    ___________

    * Anna Joubin-Bret is the Secretary of the United Nations Commission of International Trade Law (UNCITRAL) and Director of the International Trade Law Division of the Office of Legal Affairs of the United Nations; Ms Joubin-Bret was assisted by David Probst, an Associate Expert in International Trade law at the UNCITRAL Secretariat; The views expressed in this article are those of the authors and do not necessarily represent those of the Organization.

    [2] This contribution reports on an ongoing reform process, which continues to make progress. For the latest updates on UNCITRAL’s activities and the current status of the reform discussion, please visit the UNCITRAL Working Group III web page (https://uncitral.un.org/en/working_groups/3/investor-state) and follow our posts on twitter (@annajoubinbret) and LinkedIn (https://www.linkedin.com/company/uncitral/).

    [3] The UNCTAD World Investment Report 2020 states that in 2019 “[a]s in previous years, the majority of new cases (80 per cent) were brought against developing countries and transition economies.”, available at https://unctad.org/system/files/official-document/wir2020_en.pdf (last accessed 9 April 2021).

    [4] See also “Possible reform of investor-State dispute settlement (ISDS), Note by the Secretariat”, UNCITRAL, Working Group III, 34th Sess. (Vienna, 27 November-1 December 2017), UN Doc. A/CN.9/WG.III/WP.142 (18 September 2017) para. 6.

    [5] “International Investment Agreements Navigator”, (United Nations Conference on Trade and Development, Investment Policy Hub), <https://investmentpolicy.unctad.org/international-investment-agreements> (last accessed 2 December 2020).

    [6] “Investor-State Dispute Settlement Cases pass the 1,000 Mark: Cases and Outcomes in 2019”, UNCTAD IIA issues note, issue 2 (July 2020), <https://unctad.org/en/PublicationsLibrary/diaepcbinf2020d6.pdf> (last accessed 2 December 2020); Many more cases are brought under contracts and investment laws.

    [7] See Gabrielle Kaufmann-Kohler and Michele Potestà (CIDS – Geneva Centre for International Dispute Settlement), “Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap” (3 June 2016), available from <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/cids_research_paper_mauritius.pdf>, para. 18-23; See also Anna Joubin-Bret and Jean E. Kalicki, “Introduction”, in Anna Joubin-Bret and Jean E. Kalicki, eds., Reshaping the Investor-State Dispute Settlement System, (Brill | Nijhoff 2015), pp. 1-17.

    [8] Bolivia denounced the ICSID Convention in 2007 (See news release, Denunciation of ICSID Convention (16 May 2007), available from <https://icsid.worldbank.org/news-and-events/news-releases/denunciation-icsid-convention> (last accessed 2 December 2020)); Ecuador denounced the ICSID Convention in 2010 (See news release, Denunciation of the ICSID Convention by Ecuador (9 July 2009), available from <https://icsid.worldbank.org/news-and-events/news-releases/denunciation-icsid-convention-ecuador> (last accessed 2 December 2020)); Venezuela denounced the ICSID Convention in 2012 (See news release, Venezuela Submits a Notice under Article 71 of the ICSID Convention (26 January 2012), available from <https://icsid.worldbank.org/news-and-events/news-releases/venezuela-submits-notice-under-article-71-icsid-convention> (last accessed 2 December 2020)).

    [9] Philip Morris Asia Limited v. The Commonwealth of Australia (PCA Case No. 2012-12), see UNCTAD Investment Dispute Settlement Navigator, <https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/421/philip-morris-v-australia> (last accessed 2 December 2020).

    [10] Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay (ICSID Case No. ARB/10/7), see UNCTAD Investment Dispute Settlement Navigator, <https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/368/philip-morris-v-uruguay> (last accessed 2 December 2020).

    [11] See for example Evolution and Adaption, The Future of International Arbitration, ICCA Congress Series no. 20 (2018); Anna Joubin-Bret and Jean E. Kalicki, eds., Reshaping the Investor-State Dispute Settlement System, (Brill | Nijhoff 2015); See also George A. Bermann, Reshaping the Investor-State Dispute Resolution System, ICSID Review - Foreign Investment Law Journal, Volume 31, Issue 1, Winter 2016, Pages 232–235, https://doi.org/10.1093/icsidreview/siv041 (last accessed 29 January 2021).

    [12] “Report of the United Nations Commission on International Trade Law, Fiftieth session (3-21 July 2017)” General Assembly, 72nd Sess., UN Doc. A/72/17, para. 258.

    [13] UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (effective date: 1 April 2014), text and additional resources available on the UNCITRAL web page at <https://uncitral.un.org/en/texts/arbitration/contractualtexts/transparency> (last accessed 4 December 2020).

    [14] “Report of the United Nations Commission on International Trade Law”, 46th Sess. (8-26 July 2013) General Assembly, 68th Sess., UN Doc. A/68/17, Annex I, at C.

    [15] “Report of the United Nations Commission on International Trade Law”, 48th Sess. (29 June-16 July 2015) General Assembly, 70th Sess., UN Doc. A/70/17, para. 268; See also “Settlement of commercial disputes: presentation of a research paper on the Mauritius Convention on Transparency in Treaty-based Investor-State Arbitration as a possible model for further reforms of investor-State dispute settlement, Note by the Secretariat” UNCITRAL, 49th Sess. (New York, 27 June-15 July 2016) UN Doc. A/CVN/9/890 (24 May 2016).

    [16] Gabrielle Kaufmann-Kohler and Michele Potestà (CIDS – Geneva Centre for International Dispute Settlement), “Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap” (3 June 2016), available from <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/cids_research_paper_mauritius.pdf>, p. 93, 94.

    [17] See also wording of the mandate in “Report of the United Nations Commission on International Trade Law”, 50th Sess. (3-21 July 2017) General Assembly, 72nd Sess. Supplement No. 17, UN Doc. A/72/17, para. 264.

    [18] “Report of the United Nations Commission on International Trade Law”, 50th Sess. (3-21 July 2017) General Assembly, 72nd Sess. Supplement No. 17, UN Doc. A/72/17 (henceforth Commission Report 72), para. 250.

    [19] Submissions by States and observer organizations are published on the UNCITRAL Working Group III web page at <https://uncitral.un.org/en/working_groups/3/investor-state> (last accessed 2 December 2020).  

    [20] See “Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its resumed thirty-eighth session” (Vienna, 20–24 January 2020) UNCITRAL, 54th Sess., UN Doc. A/CN.9/1004/Add.1 (28 January 2020) (henceforth WGIII Report 1004/Add.1) p. 3; See also “UNCITRAL Working Group on investor-State dispute settlement (ISDS) continues work on reforms”, Press Release, UNIS Vienna, United Nations Information Service, (24 January 2020), available at <https://unis.unvienna.org/unis/en/pressrels/2020/unisl289.html> (last accessed 2 December 2020).

    [21] First Inter-sessional Regional Meeting 10-12 September 2018, Incheon, Republic of Korea; Second Inter-sessional Regional Meeting, 13-14 February 2019, Santo Domingo, Dominican Republic; Third Inter-sessional Regional Meeting, 26 September 2019, Conakry, Guinea. 

    [22] Virtual Pre-Intersessional Meeting on the Use of Mediation in ISDS, 9 November 2020.

    [23] See WGIII Report 1004/Add.1, p. 3; See also “UNCITRAL Working Group on investor-State dispute settlement (ISDS) continues work on reforms”, Press Release, UNIS Vienna, United Nations Information Service, (24 January 2020), available at <https://unis.unvienna.org/unis/en/pressrels/2020/unisl289.html> (last accessed 2 December 2020).

    [24] See “Report of the United Nations Commission on International Trade Law, 51st Sess. (25 June–13 July 2018) General Assembly 73rd Sess., UN Doc. A/73/17 (31 July 2018), para. 144; See also “Report of Working Group III (Investor-State Dispute Settlement Reform) on the work of its thirty-sixth session (Vienna, 29 October–2 November 2018)” UNCITRAL, 52nd Sess., UN Doc. A/CN.9/964 (6 November 2018) (henceforth WGIII Report 964) para. 15; Concept papers of the Academic Forum on ISDS can be accessed on the following dedicated web page: <https://www.jus.uio.no/pluricourts/english/projects/leginvest/academic-forum/>.

    [25] Working Papers and additional resources can be accessed on the UNCITRAL Working Group III web page at <https://uncitral.un.org/en/working_groups/3/investor-state>.

    [26] See the dedicated web page, Virtual Panel Series: UNCITRAL Texts and COVID-19 Response and Recovery - 8 to 9 and 13 to 16 July 2020 at <https://uncitral.un.org/en/COVID-19-panels>.

    [27] Commission Report 72 , para. 259.

    [28] Ibid.

    [29] See UNCITRAL Working Group III web page at (<https://uncitral.un.org/en/working_groups/3/investor-state>) (last accessed 4 December 2020).

    [30] Audio recordings of the Working Group III sessions can be accessed at <https://uncitral.un.org/en/audio>.

    [31] For further information on the ICSID Rules and Regulations Amendment project see the ICSID web page at <https://icsid.worldbank.org/resources/rules-and-regulations/icsid-rules-and-regulations-amendment-working-papers> (last accessed 3 December 2020).

    [32] See Secretariat Note 170.

    [33] See ”Reforming Investment Dispute Settlement: A Stocktaking” UNCTAD (March 2019, Issue 1), available at <https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d3_en.pdf> (last accessed 3 December 2020); In the (signed but not yet ratified) U.S.-Mexico-Canada Agreement (USMCA), Canada withdraws from the ISDS mechanism as it existed under NAFTA; Recently, 23 Member States of the European Union signed an agreement for the termination of intra-EU bilateral investment treaties as such.

    [34] ”Reforming Investment Dispute Settlement: A Stocktaking” UNCTAD (March 2019, Issue 1), available at <https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d3_en.pdf> (last accessed 3 December 2020).

    [35] WGIII Report 1004, para. 99.

    [36] The Working Group had identified a number of concerns related to the following three broad categories: the lack of consistency, coherence, predictability and correctness of arbitral decisions, arbitrators and decision makers, and cost and duration of ISDS. The Working Group had further agreed to discuss, elaborate and develop multiple potential reform solutions simultaneously.

    [37] WGIII Report 1004, para. 25.

    [38] See WGIII Report 1004, para. 17; WGIII Report 970, para. 39 and 40; This list of reform options was considered non-exhaustive and other concerns were not precluded from being identified and dealt with at a later stage of the deliberations.

    [39] The Submissions that refer to the implementation of multiple reform options include the following: Submission by the European Union 159/Add.1; “Possible reform of investor-State dispute settlement (ISDS)

    Submission from the Government of Colombia, Note by the Secretariat”, UNCITRAL Working Group III, 38th Sess. (Vienna, 14–18 October 2019) UN Doc. A/CN.9/WG.III/WP.173 (14 June 2019) (henceforth Submission by Colombia 173); and Submission by Ecuador 175; see also “Possible reform of investor-State dispute settlement (ISDS), Submission from the Governments of Chile, Israel, Japan, Mexico and Peru, Note by the Secretariat”, UNCITRAL Working Group III, 38th Sess. (Vienna, 14–18 October 2019) UN Doc. A/CN.9/WG.III/WP.182 (2 October 2019) (henceforth Submission by Chile, Israel, Japan, Mexico and Peru 182), suggesting implementation of reform options through a “suite” approach; See also Secretariat Note 194; WGIII Report 1004, paras. 101 and 104.

    [40] Gabrielle Kaufmann-Kohler and Michele Potestà (CIDS – Geneva Centre for International Dispute Settlement), “Can the Mauritius Convention serve as a model for the reform of investor-State arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap” (3 June 2016), available from <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/cids_research_paper_mauritius.pdf>, p. 93, 94.

    [41] Submission by Colombia 173.

    [42] Submission by Colombia 173, para. 29.

    [43] Submission by the European Union 159/Add.1, paras. 35–37, 39.

    [44] Submission by Chile, Israel, Japan, Mexico and Peru 182, p. 2 and Annex.

    [45] Ibid., para. 108.

    [46] See UNCITRAL Working Group III webpage, <https://uncitral.un.org/en/working_groups/3/investor-state> (last accessed 8 April 2021).  

    [47] See Summary of the intersessional regional meeting on investor-State dispute settlement (ISDS) reform submitted by the Government of the Republic of Guinea, A/CN.9/WG.III/WP.183, available at <https://undocs.org/en/A/CN.9/WG.III/WP.183> (last accessed 7 April 2021).  

  • 27 Apr 2021 8:08 AM | Anonymous

    Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021 

    The Approach of Member States of the Southern African Development Community to Investor-State Dispute Resolution

    Investor-state dispute settlement ("ISDS") has long been contentious within Southern Africa largely because of the South African government's policy position towards international investment arbitration. This policy position was primarily informed by the challenge to South Africa's black economic empowerment requirements in the mining and minerals sector of South Africa by foreign investors from Italy. This policy position also filtered into the multilateral relationship of South Africa with other Southern African Development Community ("SADC") member states, as can been seen with the adoption of the Amendments to Annex 1 (Cooperation in Investment) of the SADC Protocol on Finance and Investment ("Amended Investment Protocol") by SADC member states at the 36th SADC Summit in August 2016 which specifically omitted recourse by SADC investors to international investment arbitration against SADC member states. This decision effectively expunged ISDS as an option for SADC investors against member states for any alleged violations of the guarantees or commitments under the Amended Investment Protocol and restricted dispute resolution to inter-State dispute resolution.   

    The prelude to the expungement of ISDS in SADC could perhaps be said to be the unanimous decision of the SADC Summit on 18 August 2014 to adopt a new Protocol on the SADC Tribunal which intended to restrict the SADC Tribunal’s jurisdiction to inter-State disputes and abolish its jurisdiction over cases brought by non-State parties. However, despite being signed by SADC member states the new Protocol on the SADC Tribunal has not yet entered into force. And as things currently stand it may never come into force due South Africa withdrawing its signature thereto pursuant to the judgement of its highest court (the Constitutional Court) in the case of Law Society of South Africa and Others v President of the Republic of South Africa and Others[1] which ordered the South African President to withdraw his signature from the new Protocol on the basis that South Africa's participation in the new Protocol constituted a violates the South African constitutional values. The consequence of the new Protocol not yet being enforced implies that the Tribunal Protocol remains valid, save for the fact that it remains inoperable. Although the SADC Tribunal was not specifically established for the resolution of investment disputes, history reflects that it was approached by SADC nationals for that purpose and also accepted that it had jurisdiction to entertain such cases.

    With the SADC Tribunal being inoperable and the expungement of ISDS through the Amended Investment Protocol, it can be argued that ISDS in SADC is non-existent on a multilateral level in SADC. As there is clear intent by SADC member states that ISDS on a multilateral level be eliminated and that dispute resolution by investors with a member state be through such state's domestic courts or such other specific dispute resolution mechanism contemplated by such state's domestic laws (i.e., Investment Laws).  The other option for SADC investors is possibly diplomatic protection under customary international law. However, as history has also shown governments in the region are not always inclined to initiate an espousal claim against other member states pursuant to a request for diplomatic protection by its national. In the case of Van Zyl and Others v Government of Republic of South Africa and Others[2] South Africa declined to exercise diplomatic protection against Lesotho relating to a claim by a South African national that Lesotho expropriated its mining leases for diamonds in Lesotho.  The courts agreed with the South Africa government's refusal to exercise diplomatic protection amongst others on the basis that such a decision is discretionary and constitutes executive action under the South African Constitution.

    The position with ISDS by SADC member states on a multilateral does not align to what has been done or is being done on a bilateral level by SADC member states. The bilateral position each member state may adopt is also reflected in the SADC Model Bilateral Investment Treaty ("SADC Model BIT") which provides for an election by each member state to either include ISDS or omit ISDS in its bilateral investment treaties ("BITs"). It must however be understood that the SADC Model BIT was developed as a consequence of the goal under the Annex 1 (Cooperation in Investment) of the SADC Protocol on Finance and Investment (prior to its amended by the Amended Investment Protocol) to promote harmonization of member states investment policies and laws in the region. The SADC Model BIT contains several innovative features which could be included in any new BIT with the option of ISDS such as counterclaims by the state, the participation of amicus curiae, consolidation of arbitrations and potential appeal mechanism etc. It also provides for more onerous substantive obligations on investors.

    As far as I am aware there are no new BITs that any of SADC member states have negotiated or concluded with third party states that reflects any of the provisions proposed in the SADC Model BIT. Most of the BITs of SADC member states that are still enforce are old generation BITs which expressly incorporate ISDS. South Africa despite its policy position on ISDS is also still party to several BITs (some with fellow SADC members[3] and other African[4] states) that contain express ISDS provisions. From this it is also apparent that there was no outright abandonment of ISDS by South Africa on a bilateral level, but that the strategic nature of the relationship with a third party state would dictate whether ISDS is in or out. The South African policy position remains primarily geared towards resolving investment disputes with investors domestically, with a preference for mediation and alternatively court litigation or arbitration (commercial arbitration, whether international or domestic) to the extent that an underlying agreement provides therefor.   

    With these developments on ISDS in the SADC region, the question then is whether this is not a clear sign of stagnation of ISDS on a multilateral level? And I must say that it appears to be so, even if one compares the developments with ISDS in SADC with other Regional Economic Communities (RECs) in Africa. In West Africa under the Economic Community of West African States (ECOWAS), the ECOWAS Court of Justice provides access to investors to resolve investment disputes. Under the Common Investment Agreement for Common Market for Eastern and Southern Africa (COMESA), which is not yet enforced, provision is made for investment disputes to be referred to the COMESA Court of Justice or a tribunal constituted under such Court. Several RECs in Africa have provisions for Intra-regional investors to access ISDS, even though through a regional Court.

    The total expungement of ISDS on a multilateral level in SADC needs to be corrected. The perception by investors of domestic court systems is that the judiciary is not entirely independent and impartial. This perception is exacerbated when government or a government functionary is counterparty to a dispute with an investor. Whether there is any credence to this perception is difficult to ascertain, but it does raise legitimate concerns by investors and further highlights the need for an effective multilateral dispute resolution system in SADC for investment disputes. In addition to the comparison of the approach adopted in other African RECs with investment dispute resolution it is also important to consider how the European Union ("EU") has approached ISDS in recent years. The decision in Acheama[5] by the Court of Justice of the European Union ("CJEU") put the spotlight on intra-European investor-dispute resolution. The decision resulted in the resolution by the EU to “terminate all bilateral investment treaties concluded between them by means of a plurilateral treaty, or, where that is mutually recognised as more expedient, bilaterally" and consequently to remove the option of investor-state arbitration. The EU's policy is now to establish a permanent Multilateral Investment Court moving away from investor-state arbitration. By doing so the EU appears to recognize the fundamental rationale for the continued existence of an effective investment dispute resolution system on a multilateral level for investors in Europe[6]. It may not be investment arbitration, but a judicial system that is not perceived to be biased towards a particular state. The rationale behind a multilateral court system is premised on the same fundamentals as investor state arbitration, namely: the fear that national courts will be biased providing a so-called "home advantage" to the state to the disadvantage of non-nationals. The fear is predicated not purely on concerns about the independence and impartiality of the judiciary, but the judiciaries' expertise and skills to adjudicate specialised and complex investment disputes.

    As can be seen with the Acheama matter the CJEU has begun to assert a role as the so-called protector of foreign investors within the EU. In SADC or on an African continental level there is no multilateral court system providing similar forms of recourse as the CJEU. It must be recognized by SADC and African states more broadly when we talk about investment protection, that establishing a multilateral court system for the resolution of investment disputes in the absence of investor state arbitration does not imply that the principles of "mutual trust" and "sincere cooperation" is being challenged.[7] But it recognizes that national justice system in Africa has not always provided satisfactory protection to investors.  It is not clear whether there are any real efforts by SADC member states to ensure the SADC Tribunal becomes operational again, in particular pursuant to judgement of both the South African Constitutional Court ordering the South African President to withdraw the signature of South Africa to the new Protocol for the Tribunal and the more recent judgement of the Tanzanian High Court added its voice of displeasure to the disbandment of the SADC Tribunal. In a judgement handed down in 2019 by the Tanzania High Court in the case of Tanganyika Law Society and Others v Ministry of Foreign Affairs and International Cooperation of the United Republic of Tanzania, the Tanzanian High Court[8] the court also held that:

    "The suspension of the operations of the SADC Tribunal; and failure or refusal to appoint Judges contrary to the clear Treaty provisions, was inimical to the Rule of law as a foundational principle inherent to the legitimacy of the Community; and as expressly entrenched in the Treaty" 

    Whatever the efforts are by SADC member states in either progressing the ratification of the new Protocol of the SADC Tribunal or considering how to deal with the decisions of both the South African and Tanzanian courts, there is a clear question mark over the SADC Tribunal's jurisdiction to adjudicate investment disputes independent from any other multilateral SADC investment instrument. Even if the SADC Tribunal becomes fully operational again it is imperative that the jurisdiction of the SADC Tribunal be clearly defined. One would probably argue (and correctly so) that by virtue of the Amended Investment Protocol ISDS has clearly be removed on a multilateral level and that any recourse to the SADC Tribunal (if operational again) by SADC investors must expressly be provided for in the Amended Investment Protocol and consequently the SADC Treaty and SADC Tribunal Protocol will need to reflect this.

    The question whether the SADC Tribunal had jurisdiction to entertain human rights disputes and by implication also investment disputes has been raised by several academics. The decision by the SADC Tribunal in Mike Campbell (Pvt) Ltd and others v The Republic of Zimbabwe[9] case (“Campbell dispute”) which although premised on human rights abuses (i.e., unlawful expropriation of Zimbabwean white farmers on racial discriminatory grounds) were akin to investment disputes. The Campbell dispute was specifically referenced and discussed by the Singapore Court of Appeal in the matter of Swissbourgh Diamond Mines (Pty) Ltd v Kingdom of Lesotho[10] ("Swissbourgh") when it had to express a view on the nature and extent of the SADC Tribunal's jurisdiction to entertain investment dispute, in light of the Swissbourgh claim that Lesotho participated in the shuttering/disbandment of the SADC Tribunal leave Swissbourgh and others without effective legal recourse against Lesotho. In analysing the SADC Tribunal Protocol, the court expressed the view that articles 14 and 15 of the SADC Tribunal Protocol did not provide investors with a right to refer investment disputes to the SADC Tribunal. The court held that "This does not sit well with our finding that Arts 14 and 15 of the Tribunal Protocol do not, without more, give investors the right to refer a dispute to the SADC Tribunal. With respect, we doubt the correctness of those aspects of Campbell v Zimbabwe. Significantly, we note that this appears to be what led the SADC Summit to suspend the operation of the SADC Tribunal and to introduce changes to the Tribunal Protocol confining the SADC Tribunal’s jurisdiction to inter-State disputes: see [26] above.[11]" 

    The finding of the Singapore Court of Appeal leads me to consider the rationale that underpin the conclusion that "that Arts 14 and 15 of the Tribunal Protocol do not, without more, give investors the right to refer a dispute to the SADC Tribunal". The constitutive instrument of SADC, the SADC Treaty which was signed on 17 August 1992 and entered into force on 30 September 1993. SADC was established with the objective of advancing economic development and integration, strengthening the social and cultural ties, and eradicating poverty and communicable diseases in the Southern African region. In pursuit of these objectives, article 9 of the SADC Treaty establishes several institutions including the SADC Tribunal. Article 16(1) of the SADC Treaty provides for the establishment of the SADC Tribunal “to ensure adherence to and the proper interpretation of the provision of the SADC Treaty and subsidiary instruments and to adjudicate upon such disputes as may be referred to it”, with article 32 containing a dispute settlement provision. Despite the SADC Treaty providing for the establishment of the SADC Tribunal it took several years for the member states to give effect thereto. On 7 August 2000, the SADC Member States entered into the Tribunal Protocol, which came into force on 14 August 2001. As envisaged under Art 16(2) of the SADC Treaty, the Tribunal Protocol governs matters relating to the SADC Tribunal such as its composition, powers, functions and procedures. Articles 14 and 15 of the Tribunal Protocol set out the basis and scope of the SADC Tribunal’s jurisdiction.

    Lesotho in the Swissbourgh case contended that when one has regard to the provision of the SADC Treaty and the Tribunal Protocol, these instruments do not appear to confer upon investors any independent and enforceable right to refer an investment dispute to the SADC Tribunal. The court[12] found that the provision of the SADC Treaty and Tribunal Protocol is primarily concerned with the establishment of the SADC and its key organs and institutions, and that while article 32 of the SADC Treaty is a dispute resolution provision, it is only intended to provide for a mechanism for the resolution of inter-State disputes amongst the SADC member states. Thus, the court agreed with Lesotho's interpretation and also held that the SADC Treaty is not intended to accord any specific or enforceable rights to investors and reliance thereon to bring an investment protection claim is misconstrued. The court further aligned it with the interpretation of the government "that articles 14 and 15 of the Tribunal Protocol do not constitute an independent basis of jurisdiction for the SADC Tribunal to assume jurisdiction over a dispute given that they are functionally equivalent to articles 36(1) and 34(1) of the Statute of the International Court of Justice (26 June 1945) respectively, neither of which establishes an independent basis of consent for the submission of any independent dispute to the International Court of Justice (''the ICJ”)". The court stated "that the Tribunal Protocol are not jurisdiction-conferring provisions that establish any basis of consent by the SADC member states to the submission of particular investment disputes by private investors to the SADC Tribunal; indeed, a contrary conclusion would constitute a radical expansion of the jurisdiction of the SADC Tribunal which is unsupported by the text and surrounding context of the Tribunal Protocol".[13] The interpretation by the Singapore Court of Appeal in the Swissbourgh case that the SADC Treaty was not intended to accord any specific or enforceable rights to investor to bring investment protection claims to the SADC Tribunal appears to be correct. SADC member states can probably be comforted by this interpretation of the SADC Treaty by the Singapore Court of Appeal, as it also aligns to the SADC member states position that the SADC Tribunal was never meant to entertain, amongst others, investment disputes or human rights disputes directly from SADC nationals.

    What we thus see is that ISDS broadly on a multilateral level appears to have stagnated in SADC as the Amended Investment Protocol specifically excludes access by investors to any form of ISDS and the SADC Tribunal (if it becomes functional without the ratification of the 2014 Protocol) will not without amendments to the SADC Treaty and the SADC Tribunal Protocol be able to assert a role as protector of intra-SADC investors within the SADC region similar to the CJEU. The hopes of SADC investors will now have to be placed on what will potentially be in the Investment Protocol to the Agreement establishing the African Continental Free Trade Area ("AfCFTA"). It is hoped that the Investment Protocol to the AfCFTA will provide Intra-Africa investors with effective recourse against states in the event of violations of substantive guarantees and commitments, independent from intra-State dispute resolution for trade in goods or service under the Protocol on the Rules and Procedures on the Settlement of Disputes of the AfCFTA.  However, if article 42 of the Draft Pan African Investment Code is considered as the base document to inform the content of the ISDS article of the Investment Protocol under the AfCFTA, we can probably expect a dispute resolution system that will not be uniform. This will potentially make the Investment Protocol under the AfCFTA an ineffective instrument for the promotion of investment intra-Africa and it will force African investors to rely on appropriate treaty structuring through BITs or investment agreement with host governments to derive investment protection and simultaneously benefit from the preferential terms under the AfCFTA.   

    __________________________

    * Partner at Cliffe Dekker Hofmeyr Inc

    [1] Law Society of South Africa and Others v President of the Republic of South Africa and Others (CCT67/18) [2018] ZACC 51; 2019 (3) BCLR 329 (CC); 2019 (3) SA 30 (CC).

    [2] 2005 (11) BCLR 1106 T: case relates to a request to the South African government to exercise diplomatic protection on behalf of its citizen (Van Zyl) in relation to an alleged expropriation of mining leases by Lesotho.

    [3] South Africa/Mauritius BIT (enforce); South Africa/Zimbabwe BIT (enforce); South Africa/Mozambique (signed, but not enforce); South Africa//Madagascar (signed, but not enforce); South Africa/DRC (signed, but not enforce)

    [4] South Africa/Nigeria (enforce); South Africa/Senegal (enforce); South Africa/Egypt (signed, but not enforce); South Africa/Ethiopia (signed, but not enforce)

    [5] Slovak Republic v. Achmea B.V. (Case C-284/16)

    [6] Investor-State Dispute Settlement using the ECOWAS Court of Justice – an Analysis and Proposals, Matthew Happold – ICSID Review, Vol.2 (2019), pp 496 - 518

    [7] Ibid

    [8] 2019 Case No. 23 of 2014 (Judgment delivered on 6 June 2019): https://www.tralac.org/documents/blogs/2907-tls-v-ministry-of-foreign-affairs-and-international-cooperation-ag-misc-civil-cause-no-23-of-2014-2019-judgment-4-june-2019/file.html

    [9] Mike Campbell (Pvt) Ltd and others v The Republic of Zimbabwe [2008] SADCT 2; also William Michael Campbell and another v The Republic of Zimbabwe [2009] SADCT 1.

    [10] Swissbourgh Diamond Mines (Pty) Ltd v Kingdom of Lesotho [2018] SGCA 81

    [11] Ibid

    [12] Ibid

    [13] Ibid

  • 27 Apr 2021 7:46 AM | Anonymous

    Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th – 16th April 2021

    Executive Summary

    Through the course of arbitral proceedings, practitioners can use an array of different technological tools to assist and facilitate their work. These range from tools to more efficiently sort documents through predictive coding, to artificial intelligence services which can predict costs and even outcomes of cases. New types of contracts such as smart contracts also utilize new types of arbitration proceedings such as Blockchain arbitration. 

    Introduction

    Modern technology has played and will continue to play a key role in the reform and innovation of the international arbitration practice. We have long grown accustomed to the ubiquitous use of e-mails, online legal research platforms and digital file storage. However, while modern technology has much more to offer, the arbitration community has historically been hesitant to explore and incorporate new technological developments into its daily practice.

    This article follows up on the panel discussion during the African Arbitration Associations’ second Annual International Arbitration Conference (14 – 16 April 2021). It aims to provide a brief introduction on how technology is used in arbitration and give an outlook on technologies which may reform the international arbitration practice in the future.

    Predictive Coding to Process Documents

    At the outset of arbitral proceedings or prior to their initiation, parties may wish to use predictive coding to review large sets of documents and to determine the evidentiary base for their case.

    The process of predictive coding starts by setting parameters and identifying documents which will form the sample set of documents to be reviewed. Each sample is coded as “relevant” or “not relevant” by a lawyer with good knowledge of the case, which in turn trains a predictive formula (algorithm). The algorithm is then applied to review the entire set of documents and can be further improved by human review of additional sample documents. The use of predictive coding aims to increase efficiency and achieve a higher level of consistency of relevant documents.[1]

    Predictive coding is also used to identify documents during the document production phase to automate the process of identifying documents falling under the document production request. However, it may be disputed whether the use of predictive coding in this context is accurate enough to be appropriate. Therefore, the use of predictive coding should be disclosed to enable both the tribunal and the other party to ask questions to satisfy themselves that predictive coding was used in an appropriate manner. This can help avoid procedural irregularities which may give grounds for a challenge.[2]

    The extent to which predictive coding is currently used in arbitration is unclear. As of 2018, only 5% of the respondents to the Queen Mary Survey on the Evolution of International Arbitration indicated that they frequently use artificial intelligence, including data analytics and technology-assisted document review.[3]

    Artificial Intelligence to Predict the Outcome of a Case

    Once parties have established the evidentiary base of their case (e.g. with the help of predictive coding), they may again turn to Artificial Intelligence (AI) tools to gauge their chances of success prior to filing the case.

    At its core, AI is a branch of computer science focused on replicating or simulating human intelligence in machines in order for them to think like humans and mimic their actions.[4] Predictive analytics as an AI tool are increasingly used to predict the outcome of disputes. These tools are particularly attractive to litigation funders, which aim to achieve a competitive advantage in their risk assessment. One example for an AI tool used by litigation funders is Legalist, which claims to use data from millions of court records to support the case assessment.[5]

    In the arbitration context, Arbilex, founded in 2018, uses AI and predictive analytics to assess the likelihood of success of arbitration cases, as well as the likely costs.[6] However, the data set of available court cases is generally significantly larger than for awards, which impacts the accuracy of these AI tools. It remains to be seen whether arbitral institutions will allow AI platforms access to their awards.[7]

    While the prediction of the outcome of a case generated by AI can be appealing to funders and practitioners alike, one must carefully assess the risk of bias embedded in AI. Since AI software is trained on large-scale data, if such data includes racial biases, these are incorporated into the training data. For example, the US program COMPAS assesses the likelihood of recidivism in defendants who are up for parole. While the algorithm makes no reference to ethnicity or race, a study has shown that the COMPAS assessment is biased against African Americans.[8] Thus, if predictive analytics and AI are to be used more widespread in arbitration it is paramount that the arbitral community institutes safeguarding mechanisms and checks to minimize the impact of bias of AI technologies.[9]

    Online Case Management Platforms

    Once a party decides to proceed to arbitration, be it because AI tools predicted a high chance of success or at its own accord, the party will face different levels of digitalisation depending on the arbitral rules applicable to its case.

    First, a party will need to determine whether an arbitration can be commenced by filing the claim electronically rather than in hardcopy. Many institutions have now switched written submissions and communications to be predominantly electronic. Arbitral institutions also differ in whether they (for internal purposes) use fully electronic case management systems such as the Vienna International Arbitral Centre (VIAC) and the Stockholm Chamber of Commerce (SCC). However, a more recent development and a step towards fully digitalizing the administrative aspects of arbitration is the adoption of online case management platforms to which also the arbitrators and parties have access. The SCC and VIAC now also provide such online case management platforms.[10]   

    Chinese arbitral institutions such as Shenzhen Court of International Arbitration (SCIA) and Guangzhou Arbitration Commission (GZAC) have also invested in digital platforms, which not only allow for online filing and processing payments but also offers a remote hearing platform. As a special feature of these platforms, the voice-to-text technology automatically generates and displays a transcript of the hearing synchronously during the hearing.[11]

    Remote Hearings

    The travel restrictions and social distancing rules imposed in many countries in reaction to the COVID-19 pandemic triggered a re-evaluation in the arbitration community of remote arbitral hearings. Several other procedural aspects were already regularly conducted remotely, such as organisational conferences and submissions via e-mail, but most hearings were still held as physical in-person hearings.

    In general, national arbitration laws rarely address the question whether hearings can be held remotely, even if one party objects. Many modern and flexible institutional rules either expressly or implicitly allow hearings to be conducted remotely, such as Vienna International Arbitral Centre (VIAC) and London Court of International Arbitration (LCIA). It is then within the discretion of the arbitrators to evaluate whether a remote hearing can safeguard the parties’ right to be heard and the right to fair and equal treatment.[12]

    It is increasingly accepted among arbitration practitioners that an oral and synchronous exchange of arguments or evidence in a remote hearing can, in principle, satisfy a party’s right to a hearing.[13] Conversely, not holding the hearing remotely when one or more parties cannot attend in-person for an extended period of time may violate the parties’ right to a hearing and the arbitrators’ obligation to conduct the proceedings efficiently and expeditiously.[14]

    Experience gained, especially over the last year, has shown that well-organised remote hearings which properly adhere to recommended protocols and guidelines can be an efficient and comparatively low-cost method of conducting arbitrations.[15]

    The increased use of semi- and fully remote hearings, where appropriate, could remedy the growing criticism of arbitration as being too expensive and too long. Furthermore, the use of remote hearings can address concerns of the environmental impact of international arbitral proceedings and foster an increase in diversity of arbitrators.[16]

    Blockchain Arbitration

    A comparatively new technology used for online dispute resolution is so called blockchain or “on chain” arbitration which has been developed primarily for disputes arising out of smart contracts.

    Blockchain is a specific type of database, which differs from a typical database in the way data is stored. It is an incorruptible digital ledger of transactions which can be programmed to record not only financial transactions but almost anything which is of value to be recorded. The data is not stored in a single location but spread across a network of millions of computers simultaneously.[17] Blockchain is mostly used in connection with cryptocurrencies such as Bitcoin, but have numerous other applications.[18]

    Smart contracts have arisen from blockchain technology and, unlike regular contracts, are not written in a specific language such as English but completely in code. Based on blockchain technology, smart contracts are self-executing, and transactions are trackable and irreversible.[19]

    To serve disputes arising from smart contracts, blockchain arbitration was developed. Blockchain arbitration is structured as an automatic dispute resolution system, which is combined into a digital asset system. Arbitrators are provided with the ability to implement decisions directly on the blockchain or within the system, without the need for a paper award. The UK Jurisdiction Taskforce recently published draft rules for such dispute resolution mechanisms, expressly aimed at resolving disputes arising from new technologies such as cryptoassets, - currencies, smart contracts etc.[20]

    One example for a blockchain arbitration system is the online dispute resolution platform Kleros, which was founded in 2017.[21] Kleros is a decentralized arbitration process relying on crowdsourced adjudicators, or “jurors”, who are randomly assigned to a case. After assessing the evidence, jurors commit their vote to one of the contractually specified options. The option with the most votes is the winning one. Each juror who is coherent with the final decision will then be paid a specified fee while the arbitrable smart contract defines which party has to pay the arbitration fee.[22] Jurors are financially incentivised to decide coherently. However, since deciding “coherently” is defined as deciding in line with the majority, it can be debated whether this incentivises correct decisions or rather a bet on how the majority would rule even if this is contrary to the individual juror’s evaluation, which may be based on special expertise.

    Conclusion

    The COVID-19 pandemic has forced the arbitral world to reconsider its scepticism towards technology and adapt quickly in order to continue serving its clients and secure the continuation of pending and new arbitral proceedings. Most notably, many practitioners and arbitral institutions were forced to predominantly work remotely – often for the first time.

    It remains to be seen whether the momentum gained from the pandemic with regard to some technologies – such as online hearing platforms – will increase the acceptance of other technologies as well.

    ___________________________ 

    *Attorney at Law, Binder Grösswang

    [1] Claire Morel de Westgaver & Olivia Turner, Artificial Intelligence, A Drive for Efficiency In International Arbitration – How Predictive Coding Can Change Document Production, Kluwer Arbitration Blog (Feb 23, 2020), http://arbitrationblog.kluwerarbitration.com/2020/02/23/artificial-intelligence-a-driver-for-efficiency-in-international-arbitration-how-predictive-coding-can-change-document-production/.

    [2] Claire Morel de Westgaver & Olivia Turner, supra.

    [3] 2018 International Arbitration Survey: The Evolution of International Arbitration, Queen Mary University of London, http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey---The-Evolution-of-International-Arbitration-(2).PDF.

    [4] Jake Frankenfield, Artificial Intelligence (AI), Investopedia (Mar 8, 2021), https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp.

    [5] https://www.legalist.com/philosophy.

    [6] http://www.arbilex.co/welcome.

    [7] Eric Chang, A Roundup of Tech and Dispute Resolution News, Kluwer Arbitration Blog (Apr 14, 2021), http://arbitrationblog.kluwerarbitration.com/2021/03/09/a-roundup-of-tech-and-dispute-resolution-news/..

    [8] Id.

    [9] Brand Rosen, Global Experts Keep it Real in Webinar Exploring Artificial Intelligence and its Role in Arbitrations and Legal Practice, Kluwer Arbitration Blog (Dec 12, 2020), http://arbitrationblog.kluwerarbitration.com/2020/12/12/global-experts-keep-it-real-in-webinar-exploring-artificial-intelligence-and-its-role-in-arbitrations-and-legal-practice/.

    [10] Allison Goh, Digital Readiness Index for Arbitration Institutions: Challenges and Implications for Dispute Resolution under the Belt and Road Initiative, 38 J. Intl. Arb. 253, at 256-259 (2021).

    [11] Id.

    [12] Alice Fremuth-Wolf, Ingeborg Edel & Anna Förstel, How the COVID-19 pandemic may shape the future of international arbitral proceedings, IBA, Arbitration Committee Publications (Nov. 25, 2020), https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=A7F75D89-2CFD-4386-96B9-53341D0A55DA.

    [13] Compare Maxi Scherer, Remote Hearings in International Arbitration: An Analytical Framework, 37 J. Intl. Arb. 407 (2020).

    [14] Compare Kun Fan, The Impact of COVID-19 on the Administration of Justice, Kluwer Arbitration Blog (Jul 10, 2020),http://arbitrationblog.kluwerarbitration.com/2020/07/10/the-impact-of-covid-19-on-the-administration-of-justice.

    [15] Id.

    [16] Compare Lucy Greenwood & Kabir Duggal, The Green Pledge: No Talk, More Action, Kluwer Arbitration Blog (Mar 20, 2020), http://arbitrationblog.kluwerarbitration.com/2020/03/20/the-green-pledge-no-talk-more-action; Alice Fremuth-Wolf, Ingeborg Edel &Anna Förstel, supra.

    [17] Derric Yeoh, Is Online Dispute Resolution The Future of Alternative Dispute Resolution?, Kluwer Arbitration Blog (Mar 29, 2018), http://arbitrationblog.kluwerarbitration.com/2018/03/29/online-dispute-resolution-future-alternative-dispute-resolution/.

    [18] Luke Conway, Blockchain Explained, Investopedia (Nov 17, 2020), https://www.investopedia.com/terms/b/blockchain.asp.

    [19] Jake Frankenfield, Smart Contracts, Investopedia (Mar 25, 2021), https://www.investopedia.com/terms/s/smart-contracts.asp.

    [20] Eric Chang, supra.

    [21] https.//kleros.io/.

    [22] Clement Lesaege, Federico Ast & William George, Kleros, Short Paper v1.0.7, Sep. 2019, at 1 ff.



  • 1 Dec 2020 7:35 AM | Anonymous

    For a cross-border system of dispute resolution that frequently involves participants from different countries, the challenge posed by COVID-19 to international arbitration is grave. However, given that arbitration is a flexible and consensual process, it is well positioned to respond swiftly to these challenges. Indeed, in a short space of time there has been a significant and collaborative response from the international arbitration community, led by the major arbitral institutions, to find ways to maintain access to justice in a timely and efficient manner.

    The primary reason for introducing arbitrations into the dispute resolution system was to lessen the burden on courts. International Arbitral Institutions have been established all over the world to aid and assist the parties in resolving their disputes. Especially in the current scenario, arbitration being a private process has an unarguable edge over the traditional litigation in courts. In order to function efficiently, the Arbitral Institutions have brought about certain changes in their operation amidst these trying times. Majority of these interim changes are buttressed by technology and the internet. Institutions have placed a never before reliance on Video Conferencing, e-filings, virtual hearings etc. But the question that arises is, would these changes suffice the need of the hour and most importantly the needs of the parties to the dispute?

    Arbitral institutions are at the forefront of the international arbitration community’s response to COVID-19. Commendably, many institutions have largely remained fully operational while implementing remote working practices and virtual hearings. In April 2020, 13 arbitral institutions issued a joint statement “Collaboration is particularly important as each of our institutions looks to ensure that we make the best use of digital technologies for working remotely.” The statement calls for solidarity, cooperation and collaboration in response to COVID-19. The statement emphasized the joint ambition of the institutions to “support international arbitration’s ability to contribute to stability and foreseeability in a highly unstable environment, including by ensuring that pending cases may continue and that parties may have their cases heard without undue delay.”

    The ambition to see cases continue has led to a focus on the use of digital technologies, including virtual hearings. Online dispute resolution is not a new phenomenon. However, the global measures taken in response to COVID-19 have meant that the use of digital technologies to facilitate case preparation, management and hearings is no longer optional – particularly where parties are unwilling or unable to wait until the current crisis passes. This reality has prompted a number of institutions to issue specific guidance to parties and tribunals grappling with how to convert physical in-person hearings into a virtual environment.

    When to use virtual hearings

    A threshold question confronting parties and tribunals is whether a particular case is appropriate for virtual hearing. Clearly, the ability of all participants to access the necessary technology, software and equipment and a reliable high-quality internet connection is a prerequisite to a virtual hearing. Additionally, time zone differences may make it more difficult to convene a full day virtual hearing, so adjustments will need to be made to the hearing timetable.

    Where time zone differences cannot be easily accommodated, parties and tribunals may consider an asynchronous virtual hearing as suggested by Michael Hwang S.C. during a recent SIAC webinar. This can be useful for oral openings / closings, or jurisdiction challenges, though unsuitable for cross-examination. For an asynchronous virtual hearing to take place, one party appears before the arbitral tribunal and makes its oral submissions, the recording and transcript of which will be uploaded to a secure online platform for the other party to review. The second party then appears before the tribunal and makes its oral submissions and the recording and transcript of which will be uploaded to the same platform. The parties will then convene with the tribunal for a final virtual hearing during which any outstanding issues are dealt with. This is a possible method of convening a virtual hearing while ensuring that parties have a reasonable opportunity to be heard.

    NCIA Virtual Rules

    The Nairobi Centre for International Arbitration (NCIA) has published a Guidance Note on Facilities Booking Conditions and Use during the COVID-19 Period. These notes provide guidance to parties, counsel, tribunals and users on possible measures to be considered in mitigating the adverse effects of the COVID-19 pandemic on arbitrations, mediations and meetings held at the NCIA facilities. The guidance note applies in addition to the extra steps the Centre has taken to streamline its internal processes in the wake of the COVID-19 pandemic. NCIA has also adopted the Nairobi Centre for International Arbitration (Virtual Hearings) Rules, 2020. Parties and the Arbitral Tribunal are required to agree in advance on the procedures, schedules and deadlines to be followed during the virtual hearings and also the virtual platform to be used during the hearings. Further, NCIA has adopted a Model Nairobi Centre for International Arbitration, Arbitration Clause (including Virtual Hearing Option) and Model Nairobi Centre or International Arbitration Virtual Hearing Agreement to be signed by parties in order to facilitate virtual hearings.

    Conclusion

    Prior to COVID-19, certain pre-hearing steps in the arbitral process—such as initial case management conferences and pre-hearing conferences with the tribunal—were often held by teleconference or videoconference, particularly when the parties and their counsel were in different jurisdictions. In addition, it was not unusual, pre-COVID-19, for certain witnesses to appear at hearings via video in instances where physical attendance was not possible due to health or visa issues, or other circumstances

    What is new in the post-COVID-19 world is that parties, counsel and arbitrators are now accustomed to, and generally skilled at, using Zoom, Webex and other video platforms to conduct meetings, conferences and even hearings in a virtual format. By necessity, the “barriers to entry” for these technologies in the international arbitration world appear largely to have been overcome. Whereas, before COVID-19, there was often a resistance by some counsel and arbitrators to the use of videoconference technology—due to concerns about whether it would function properly and a general reluctance to spend the time necessary to learn how to use it—counsel and arbitrators have now been forced to adopt and become familiar with these technologies

    The pandemic has changed the way in which international arbitrations are conducted in fundamental ways. By necessity, international arbitrations in the age of COVID-19 are being conducted entirely (or almost entirely) virtually. There is obviously no way to know with certainty what the future will bring, but a reflection on the ways in which international arbitration, and the arbitration community, already have changed in the age of COVID-19 permits some predictions.

    Arbitrators and practitioners are already used to remote processes, and the Rules of various arbitral institutions give a wide discretion to tribunals as to the conduct of arbitrations. Additionally, most of the major international arbitration institutions have issued Guidelines on the conduct of remote proceedings. As to the future, it seems reasonably certain that more use will be made of virtual hearings, both purely virtual and hybrid.

    ________________________

    *Sarah Mutheu, Senior Communication & Marketing Officer-NCIA





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