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World Trade Review
2016 Is compliance the name of the effectiveness game? Goal-shifting and the dynamics of judicial effectiveness at the WTO
Sivan Shlomo Agon Subject: International trade . Other related subjects: Dispute resolution. Keywords: Dispute resolution; World Trade Organisation; *World T.R. 671 Abstract: In line with current research on the effectiveness of international law and institutions, much of the literature on the effectiveness of the WTO dispute settlement system (DSS) has settled on compliance as its primary effectiveness benchmark. This article challenges this trend. It argues that common models gauging the DSS effectiveness through the narrow lens of compliance disregard many other institutional goals pursued by the system, and the conflicts latent among them. Furthermore, existing models are also static in nature--predicated on problematic assumptions regarding the constant supremacy of the DSS compliance objective--what leads them to overlook important shifts amidst the multiple and conflicting goals of the DSS that take place over time and across disputes. Building on the goal-based approach developed in the social sciences, the article introduces a multidimensional framework for analyzing the DSS effectiveness, using the multiple, conflicting and shifting goals set for the system by WTO Members as key effectiveness benchmarks. The article then turns to closely examine the novel concept of "goal-shifting' - essential for effectiveness assessment - and through interview-based analysis of different categories of WTO disputes shows how the DSS goals change with time and context, as a consequence of the changing modalities in which the system operates.
1. Introduction
International law and the institutions constituted to reap the benefits of international cooperation affect almost all aspects of our lives: the products we consume, the sustainability of our environment, and our ability to enjoy basic human rights. The increased role played by international law and its institutions has generated, in turn, a growing academic interest in questions about the effectiveness of these social constructs and the assessment of their actual performance. Prominent in this evolving body of research, primarily among jurists, has been the tendency to approach the effectiveness of international law, and international courts in particular, through the prism of compliance with international norms *World T.R. 672 and decisions (see Martin, 2013; Howse and Teitel, 2010; Shany, 2014: 4-5; Shany, 2012b: 227; Hafner-Burton et al., 2012: 93). This focus has been especially conspicuous in the literature on the effectiveness of the World Trade Organization (WTO) dispute settlement system (DSS), as it edged away from its diplomatic orientation under GATT toward a more legalized one with the formation of the WTO. Thus, the effectiveness of the WTO DSS has often been assessed against the benchmark of WTO Member compliance with DSS rulings (see, e.g., Wilson, 2007; McRae, 2008; Davey, 2005; Horlick and Coleman, 2008; Lee, 2011; Davey, 2009; Epstein et al., 2009; Varella, 2009; Posner and Yoo, 2005: 46-50), understood as "a causal relationship between judicial decisions and state practice, leading to a convergence of the two' (Shany, 2012a: 261). This focus on compliance surely makes sense when dealing with international adjudicating institutions like the WTO DSS. Compliance constitutes a central goal of international courts, and embodies the aspiration of lawyers operating in the anarchic international legal system "to bolster the international rule of law' (Cogan, 2006: 191) and foster the "international culture of compliance' (Henkin, 1995: 45). Furthermore, focusing on unchanging, one-dimensional benchmarks such as judgment compliance, simplifies effectiveness studies of complex institutions like the WTO DSS, rendering them more manageable and measureable (Martin, 2013: 591). Despite their intellectual and practical appeal, however, effectiveness models focusing on the fixed benchmark of compliance are not satisfying.1 This is not because of what they reveal about the DSS, which enjoys relatively high judgment compliance rates,2 but because of the many things they leave out. First, common approaches gauging the DSS effectiveness through the limited lens of compliance Page2 rule out consideration of the broader fabric of multiple organizational goals that WTO Members expect the DSS to achieve, of which compliance is not the most prominent. Second, existing approaches disregard the complex interrelations and conflicts between the DSS multiple goals, and the trade-offs such conflicts impose on the outcomes produced by the system. Finally, current effectiveness models are static in nature, predicated on the supposedly unchanging character of DSS goals and the constant supremacy of the compliance objective. Such models thus *World T.R. 673 overlook important shifts in emphasis amidst the multiple goals of the DSS, which take place over time or across different types of WTO disputes, and the consequent effect of such shifts on the analysis of the DSS effectiveness. The need arises, therefore, for a more comprehensive, dynamic, and nuanced analytical framework for studying the effectiveness of the WTO DSS. Building on the goal-based approach developed in the social sciences, this article plants the seeds for such a framework, conceptualizing the DSS effectiveness as the extent to which it achieves the goals set for it by the WTO and its Members. Such a goal-based approach not only brings to the fore the manifold organizational goals of the WTO DSS, beyond compliance; it also enables us to probe the real-life intricacies underlying the system's operation, and consequently its effectiveness, as they derive from the multiple and conflicting nature of its objectives. Furthermore, the goal-based approach provides a fertile framework for generating new hypotheses about the DSS goals and their operationalization in the real world, with important descriptive and normative implications for the study of the work and effectiveness of the system. One such novel hypothesis is goal-shifting, according to which the goals of the DSS change with time and context. Thus, contrary to existing studies, which perceive DSS goals as static elements, we conceive these goals as dynamic in at least two senses. First, DSS goals, or their relative weight, shift vertically, along the various stages of the dispute settlement process or along the system's life. Second, the DSS goals also shift horizontally, across disputes, due to the distinct challenges facing the system in different types of cases reaching its docket. This goal-shifting phenomenon fundamentally challenges the convention that regards compliance as the key objective to be achieved by the DSS over time and across disputes, and consequently as the primary measure of its effectiveness. By framing, instead, the DSS goals as complex, non-binary constructs that change with shifts in the modalities in which the system operates, the goal-shifting concept significantly expands the existing discourse on the DSS and its effectiveness, showing how perceiving its goals and operation in static terms can lead to an imprecise understanding of its performance and outcomes. In developing this goal-shifting concept and the broader DSS goal-based effectiveness framework of which it is part, the article proceeds as follows. Section 2 draws on the social science literature on organization theory to sketch the conceptual contours of the DSS goal-based effectiveness framework, and addresses the notions of goal-multiplicity, goal-conflict, and goal-shifting, which constitute its theoretical underpinnings. Section 3 then lays the substantive foundations of the DSS effectiveness scheme in the form of the multiple, complementing, and conflicting goals entrusted to the DSS by WTO Members. Thereafter, Section 4 explores the shifting nature of DSS goals and probes their inner conflicts on the ground. It does so by focusing on "horizontal goal-shifting', and by means of an interview-based analysis of two categories of WTO disputes shows how the unique challenges facing the DSS in each dispute category generate shifts in the *World T.R. 674 emphases placed on its various goals, as well as conflicts and trade-offs between them. Section 5 concludes. Note that the article does not examine de facto the effectiveness of the WTO DSS. Rather, it lays down a broad conceptual framework and benchmarks that can guide future, more methodical and robust research on the effectiveness of the DSS or specific aspects thereof.
2.1 Re-conceptualizing the DSS effectiveness: the goal-based approach
While a broad methodical framework for analyzing the effectiveness of the WTO DSS is missing from current debates, foundations for such a framework may be traced in the social sciences, where questions on organizational effectiveness have long been the subject of academic inquiry. Under the dominant model in the field, known as the goal-based approach,3 effectiveness is defined as the extent to which an organization attains its goals (Scott, 2003: 351-352; Etzioni, 1964: 8); namely, the desired outcomes it is expected to generate in the eyes of relevant constituencies (Scott, 2003: 22; Page3
Etzioni, 1964: 6; Rainey, 2014: 150). Following this definition, the effectiveness of the WTO DSS is conceptualized herein as the degree to which it attains the goals set for it by one dominant group of constituencies, the mandate providers, i.e., the international organization and Member states that fund, monitor, and use the DSS.4 This goal-based definition seems most suitable for evaluating the effectiveness of international courts such as the WTO DSS (Shany, 2014: 6-8, 13-16). First, like other international institutions, the DSS is a social structure created by states "to support the collaborative pursuit of specified goals' (Scott and Davis, 2007: 11), such as solving coordination problems or generating certain collective goods. Second, the organizational goals underlying the DSS represent central concepts for its institutional analysis (Zald, 1963: 207). They demarcate the legitimate domain in which it may operate, affect its distribution of resources, and serve as guidelines for behavior, providing criteria for selecting from alternative actions and policy choices (Scott and Davis, 2007: 36). By focusing on the concept of organizational goals, the goal-based model thus goes beyond formal rules when addressing the effectiveness of the DSS, looking more critically at how the system actually operates. Third, the goal-based approach offers a comprehensive, institution-specific, normative benchmark for performance evaluation in the form *World T.R. 675 of goal-attainment.5 Finally, by broadly conceptualizing effectiveness, the goal-based approach urges us not only to examine the DSS effectiveness against its goals as a whole, but also to uncover the real-life intricacies underlying the DSS operation and effectiveness, as these arise from the reality of goal-multiplicity, goal-conflict, and goal-shifting characterizing this system.
2.2 Goal-multiplicity, goal-conflict, and goal-shifting
The goal-based model offers a comprehensive and straightforward conceptualization of organizational effectiveness. Yet it also brings to the fore several complexities inherent in the goals of most organizations, with important implications for institutional performance and the analysis of effectiveness.
Goal-multiplicity and goal-conflict
Organizations are complex and heterogeneous social constructs, serving numerous constituencies, who often set multiple and competing demands on them (Tolbert and Hall, 2009: 186-187; Connolly et al., 1980: 216). As a result, "organizations have many goals, which vary along many dimensions and often conflicting with one another' (Rainey, 2014: 155; Tolbert and Hall, 2009: 187). The multiple and conflicting nature of organizational goals underscores the many dimensions against which organizational effectiveness may (and ought to) be measured. It also exposes the constraints placed on the effectiveness of organizations, as in a world of multiple and competing institutional goals organizations are often required to trade off one goal against another. Like other institutions, the DSS - a quasi-judicial system nested within the complex WTO edifice and subject to the expectations of many constituencies - is a system of multiple complementing and conflicting goals. These goals, as Section 3 shows, consist of certain "ultimate ends' - overarching general goals the DSS ought to achieve in the long run - alongside several more specific, "intermediate goals', instrumental to achieving its long-term objectives.6 Some of these goals are explicitly stipulated in the DSS constitutive instrument, the Dispute Settlement Understanding (DSU),7 while others are implicit in the DSU or unstated.8 Unstated goals, as seen below, are no less vital for the functioning and effectiveness analysis of the DSS, as they often reflect constituencies' beliefs in inherent goals that are pivotal to the system operation (such as conferring *World T.R. 676 legitimacy on the regime in which the DSS is embedded or legitimizing the authority of the DSS itself) (Shany, 2014: 19).
Goal-shifting
Related to the concepts of goal-multiplicity and goal-conflict, yet separate, is goal-shifting. As noted by Thompson and McEwen, in many analyses of organizational goals and performance, "the goals of the organization are often viewed as a constant' (Thompson and McEwen, 1958: 23). Yet goals define the desired relationship between an organization and its environment. Changes that occur in the organization, its environment, or both may also generate shifts in the goals the organization pursues, their scope, and application (ibid.; Tolbert and Hall, 2009: 189-190). Hence, Thompson and McEwen suggested, organizational goals should not be viewed as static elements, but rather as dynamic Page4 constructs (Thompson and McEwen, 1958: 23). Following this line of thought and unlike effectiveness studies, including on the DSS, which employ a static approach to organizational performance and regard goals as constant variables, this article views the DSS goals as dynamic concepts that change along two axes: vertical and horizontal. First, the goals pursued by the DSS or their relative weight shift vertically, along the various stages of the dispute settlement process (i.e., the consultation stage, the panel proceedings, the Appellate Body (AB) process, and the implementation stage),9 because of the distinct attributes pertaining to each stage of the process.10 The DSS goals or their relative weight may also shift vertically throughout the system's life, as societal changes within the system and its surroundings may affect its goals and functions. Such changes may occur gradually and informally, depending on changing needs, circumstances, and goal-priorities of stakeholders, and may therefore not always be reflected in modifications to the formal DSS mandate. Alongside these vertical goal-shifting instances, the goals of the DSS, or the relative weight ascribed to them, also shift horizontally, across different types of WTO disputes. Such horizontal goal-shifting may result from various factors, including the subject matter of the dispute, WTO obligations involved, social values at stake, or the systemic challenges facing the WTO and its DSS. Hence, while in all WTO disputes the DSS is expected to achieve a broad set of goals, the diverse features and challenges associated with different categories of disputes reaching its docket shift the emphasis placed on these goals in the move from one dispute *World T.R. 677 category to the other. This horizontal goal-shifting phenomenon is illustrated in Section 4 in a comparative analysis of two categories of WTO disputes. Taken together, vertical and horizontal goal-shifting have important ramifications for the study of the goals, operation, and effectiveness of the DSS. First, they challenge the common view of the DSS goals as static elements, suggesting instead that these goals, including the compliance objective, are embedded in dynamic and discursive practices of changing audiences, interests, and pressures, which regularly cause the relative prominence of the DSS objectives to shift. Second, these goal-shifting notions further imply that prevalent static effectiveness studies, based on the premise of compliance being the fixed primary goal sought by the DSS, may fall short of capturing its actual goal-attainment patterns, and consequently the diverse outcomes it produces. Taken as a whole, the goal-shifting concept and the goal-based effectiveness model of which it is part provide the groundwork for a more rigorous and dynamic conceptual framework for analyzing the operation and effectiveness of the WTO DSS. Below we lay down the substantive criteria against which the DSS effectiveness is to be measured, in the form of the goals set for the system by its mandate providers. To operationalize this goal-based effectiveness framework, these institutional goals should be translated into suitable effectiveness indicators that measure the actual performance of the DSS in attaining these objectives.11
3. The substantive foundations of the DSS goal-based effectiveness framework: the multiple, complementing, and conflicting DSS goals
With the transition from GATT to WTO, in 1995, and the introduction of a reformed DSS to the multilateral trade system (entrusted with compulsory jurisdiction, standing appellate instance, and extended implementation procedures), a clearer statement of the WTO DSS goals was incorporated in Article 3 of the DSU. Examination of this provision and other sources such as the DSU negotiating history, DSS rulings, and interviews with WTO practitioners, reveals the DSS complex matrix of ultimate ends and intermediate goals, which complement and at times contradict one another.12 Such goal-conflicts stem largely from the hybrid nature of the DSS, which, alongside new elements of legal adjudication, preserves "traditional' GATT elements of trade diplomacy (e.g., mandatory consultations and an explicit preference for mutually agreed solutions) (Weiler, 2002).
Providing security and predictability to the multilateral trading system
The first ultimate end of the DSS, explicitly enshrined in DSU Article 3.2, is to provide security and predictability to the multilateral trading system. Such conditions are vital to the efficient conduct of governments that make up the multilateral trade system. Yet, since this system consists not only of states but also, indeed, mostly of individual economic operators (producers, importers, and exporters), it was important for the WTO founders to foster, through the DSS, secure and predictable Page5 market conditions that are conducive also to individual economic activity in national and global marketplaces.13 The DSS was intended to advance these vital conditions by achieving several concrete intermediate goals, including the clear and coherent interpretation of WTO law, the inducement of compliance with WTO rules, and the prevention of unilateral actions that could be harmful to the security of the system, as suggested by the history of GATT.
Maintaining/reestablishing the balance of benefits between WTO members
The principal goal of the GATT DSS was "to provide for an orderly process for maintaining or restoring the balance of concessions between GATT contracting parties' (Stewart, 1993: 2669). This goal fits well the diplomatic-oriented approach to dispute settlement under GATT, which sought to achieve a balanced accommodation of states reciprocal trade concessions rather than adherence to agreed rules (Weiss, 2000: 21). Although the WTO DSS mandate providers created a more ruleoriented system, "[m]embership in the WTO, as was the case with GATT, is not a matter simply of adhering to a set of legal rules' (Palmeter and Alexandrov, 2002: 654). The WTO is also reciprocity-based, founded on a delicate negotiated balance of rights and obligations specified in WTO agreements, as well as of additional trade concessions exchanged between WTO Members (Pauwelyn, 2000: 339). One of the ultimate ends of the WTO DSS is to maintain that balance of trade benefits and restore it whenever a scofflaw Member upsets it (Linarelli, 2000: 348; Ludema, 2001: 357). This rebalancing goal is explicit in DSU Article 3.3, stating that the settlement of disputes is essential for the "maintenance of a proper balance between the rights and obligations of Members', and echoed in the remedies of compensation and suspension of equivalent concessions provided in DSU Article 22. Yet, the rebalancing objective is not always compatible with other DSS goals, particularly securing compliance and legal predictability, because under the current system, the negotiated balance of benefits may not necessarily be restored by withdrawing the WTO-inconsistent measure, but rather through bilateral recalibration of the bargain between the disputing parties in a *World T.R. 679 settlement that effectively tolerates ongoing WTO violations (Tallberg and Smith, 2014: 126). In some cases, however, as Section 4 shows, it is the ability of the DSS to preserve a pre-existing equilibrium through a rebalancing act that protects the long-term economic, political, and legal security of the WTO regime by introducing a contractual flexibility mechanism in times of political pressures (Rosendorff, 2005: 389-90).
Sustaining the operation of the WTO and the realization of its goals (regime support)
Like other regime courts, the DSS was created in part to "enhance the success and effectiveness' of the WTO regime in which it is embedded (Kingsbury, 2012: 218), to sustain its operation and the realization of its goals,14 among them promoting global welfare and development through trade liberalization, and "deeper objectives … such as establishing stability and peaceful economic relations' (Weiler, 2002: 181). Upholding the WTO regime, as DSU Articles 3.3 and 3.7 imply, is to be achieved, inter alia, by facilitating the prompt settlement of disputes, where possible through mutually agreed solutions, and by containing ongoing conflicts, diffusing their political aspects, and preventing across-the-board deterioration through unilateral actions.15 Additionally, the "regime support' goal of the DSS is to be achieved through the enforcement of WTO rules, embodying the goals of the multilateral system, and through the clarification of WTO agreements in light of unforeseen circumstances, so as to ensure the adaptability of the WTO regime and its viability over time.16
Legitimizing the operation of the WTO and its underlying norms
The WTO is a global governance institution that must possess legitimacy in the eyes of multiple constituencies - e.g., WTO Members, civil society, and economic operators - in order to thrive and provide the valuable goods of international cooperation (Buchanan and Keohane, 2006). Like other courts holding a "legitimacy-conferring' capacity (Gibson and Caldeira, 1995: 466), the DSS plays a pivotal role in enhancing the legitimacy (i.e., social acceptance) of the WTO and its underlying norms among such constituencies (cf. Shany, 2014: 44-46; von Bogdandy and Venzke, 2013: 59). It does so mainly by providing a forum for third-party dispute resolution based on law and reason, and by offering procedures for clarifying WTO norms and producing coherent legal interpretations that may bolster the "compliance-pull' of the norms (Franck, 1990: 49-66, 142, 147-48). Although the ultimate end of *World T.R. 680 legitimizing the WTO is unstated in the constituting DSS instrument, it seems to represent a basic reason for introducing the DSS into the WTO setting in the first place. As Cameron and Gray note, "[i]nstalling an equitable dispute settlement resolution mechanism within the Page6 trading regime entrenches the legitimacy of the regime itself and provides a better incentive to comply with international trading obligations' (Cameron and Gray, 2001: 249).
3.2 The WTO DSS intermediate goals
Alongside the above-mentioned ultimate ends, the DSS is expected to promote various intermediate goals, conducive to attaining its open-ended objectives. First, is the explicit goal of inducing compliance with WTO rules,17 to be realized by the DSS by allocating reputational and economic costs in instances of non-compliance (Guzman, 2008: 181, 225-227), and by strengthening the compliance-pull of WTO norms through legal interpretations (Franck, 1990: 49-66). This oftencited goal is vital to promoting the predictability and legitimacy of the WTO regime. At the same time, "there is an inherent conflict between the desire to maintain rule integrity and the desire to facilitate the resolution of disputes' (Horn and Mavroidis (2007: 188), the traditional goal underlying the DSS and international adjudication more broadly. Thus, Article 3.7 of the DSU mandates that the aim of the DSS "is to secure a positive solution to a dispute'. It then adds that "[a] solution mutually acceptable to the parties … is … to be preferred', elucidating that a critical aspect of the DSS dispute settlement goal is encouraging negotiated settlements in the "shadow of the law' (before or after litigation), alongside third-party adjudication. While the peaceful settlement of disputes, as DSU Article 3.3 indicates, "is essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members', it may impinge on other DSS goals. Particularly, the desire to foster mutually acceptable solutions might lead to greater flexibility in outcomes that moves away from strict compliance with WTO rules. Similarly, as such solutions may take place even before a DSS ruling has been published, they may come at the expense of clarifying the law for the benefit of the entire WTO Membership. Like other treaties, WTO agreements are incomplete contracts, making conflicting interpretations of WTO rules inevitable. Clarifying these rules and removing ambiguities from the agreements constitute therefore another goal of the DSS. This goal, explicitly embraced in DSU Article 3.2, is conducive to the settlement of bilateral disputes between Members and to promoting the security and predictability of the multilateral trade regime. Yet, the clarification of the law through elaborate, well-reasoned rulings may not always coincide with other DSS *World T.R. 681 objectives, most notably the prompt settlement of disputes18 - a goal prescribed in DSU Article 3.3. The intermediate goals of the DSS also include the following objectives: leveling the playing field between WTO Members (unstated in the DSU but prominent in the Uruguay Round negotiating history and the views of academics and practitioners);19 discouraging unilateralism (Keisuke, 2004: 215) (implicit in DSU Article 23 and representing the "trade-off' struck in the Uruguay Round between the US demand for a strengthened DSS and the desire of other states to curtail US power to use unilateral measures); and, finally, the goal of legitimizing the DSS itself, an unstated but intrinsic objective, essential for sustaining the DSS authority and for accomplishing the many goals delineated above.20 Together, these goals constitute the entire corpus of missions entrusted with the DSS by WTO Members. This multiple-goal account highlights the many dimensions of the DSS operation, and consequently the need for a broad framework for analyzing its effectiveness, which goes beyond compliance and factors in its various complementary and conflicting objectives. Below, we complete this account by adding the last piece of the puzzle, concerning the shifting nature of the DSS goals.
4. Goal-shifting: a tale of two categories of WTO disputes
More than 500 complaints have been filed with the DSS since its establishment in 1995. These disputes share many commonalities: all involve competing trade-related interests, all are political in some sense (fought between states), and all have been addressed under the DSU, with reference to the WTO agreements. But in contrast to the tendency in writings about the DSS and its effectiveness to treat all WTO disputes as a monolithic unit, in which the key objective sought is compliance, these disputes should not be viewed as a monolithic phenomenon. WTO disputes differ and may be classified in different ways. Thus, within the DSS caseload we find a growing number of disputes, referred to as "trade-and' disputes, which involve national policies in areas such as health and environment, and invoke the persisting friction between trade liberalization and "non-trade' societal values. Other disputes reflect Page7 the tension between the WTO and proliferating regional trade arrangements. The DSS caseload also includes several perennial conflicts between major economic powers, particularly *World T.R. 682 transatlantic disputes with systemic implications for the stability of the cooperative WTO regime. Finally, the north-south divide is also felt in the DSS arena, asking it "to apply law and technicalities to a tremendously charged social-political relationship, as it has in the other fields of tension' (Broude, 2004: 27-28). Despite their commonalities, then, these and other types of WTO disputes have different characteristics, confronting the DSS with distinct legal, political, and institutional challenges. These challenges, as the horizontal goal-shifting concept suggests, shift the relative weight ascribed to the multiple goals pursued by the DSS, including its compliance objective, and trigger the conflicts latent among them. Such goal-shifting tendencies, overlooked in existing literature, are therefore crucial for understanding the DSS operation and for critically analyzing its effectiveness and outcomes. Taking a case study approach, below we explore this horizontal goal-shifting phenomenon while looking at two of the dispute categories mentioned above, "trade-and' and "perennial' disputes. As these dispute categories present the WTO and its DSS with different sets of problems and pressures, their investigation provides the variation needed by the study to examine whether the relative weight ascribed to the various DSS goals indeed changes across WTO disputes, depending on their type and features.21 The choice of the two categories of disputes was also guided by their relevance to our research objective.22 As seen below, each category challenges in certain ways the convention that perceives compliance with WTO rules and decisions as the primary desired end of the DSS, and thus as the key outcome variable by which its effectiveness should be measured. Finally, each category touches upon central institutional, political, and legal issues concerning the DSS and the WTO operation nowadays, thereby offering a useful perspective of the ties between the DSS and its institutional environment, and of the manner in which the latter shapes the DSS goal-attainment efforts and instigates conflicts between its multiple goals. We analyze two WTO cases in each category of disputes. In trade-and disputes, we analyze the US-Shrimp 23 and US-Clove Cigarettes 24 cases, and in the perennial disputes category, the EC-Hormones 25 and EC-Bananas 26 conflicts. *World T.R. 683 The research design implemented herein - consisting of both within-case analyses and cross-case comparisons (across each pair of disputes, and across the two dispute categories considered) - may enhance our ability to draw inferences from the research.27 First, within-case analyses of two trade-and disputes, for example, allow making cross-case comparisons and examining whether similar goal-attainment patterns are manifested in both disputes. Common patterns, if observed in both cases, may produce more compelling evidence and improve our ability to make broader claims on the DSS goal-attainment patterns in the dispute category to which the case studies belong.28 Second, juxtaposing the two categories of trade-and and perennial disputes, in turn, makes possible comparisons between different types of WTO cases and helps identify variations in the DSS goal-attainment efforts. Comparisons across distinct dispute categories that reveal diverse goal-attainment patterns may enable us to draw wider inferences, beyond the categories investigated here, about the DSS operation and the way in which its goals shift in the move from one dispute category to another. In each class of disputes examined below, the discussion first addresses the distinctive features and challenges pertaining to this category. Thereafter, the unique goal-attainment patterns to which these challenges give rise and the conflicts they spark within the DSS goals are described, as they have emerged from a broad qualitative empirical research conducted by the author elsewhere (Shlomo-Agon, 2013). The research consists of about 40 semi-structured interviews with WTO practitioners with first-hand knowledge of the four case studies examined,29 including Appellate Body (AB) members, panelists, WTO Secretariat staff members, WTO ambassadors, legal counsel in trade delegations, and private attorneys.30 The interviews were conducted between March and September 2012 and lasted an average of one hour. Among other things, the interviews served to illuminate the challenges facing the DSS in the dispute categories investigated, and provided a revealing insider's perspective on how such challenges are experienced from within and subsequently shape the DSS goal-attainment patterns and judicial choices. Likewise, the interviews helped explore the diverse outcomes generated by the DSS and the manner in which these outcomes are interpreted by participants and immediate onlookers. Unlike most legal writing about the DSS, the interviews have thus enabled this research to supplement the analysis of relevant legal *World T.R. 684 instruments, rulings, and secondary materials with important knowledge about WTO dispute settlement as it is experienced and practiced in the real world. Page8
Main features and underlying challenges
The extended reach of the multilateral trade regime in the post-Uruguay Round era, and its influence on non-trade policy domains provoked strong public criticism against the WTO soon after its establishment in 1995, portraying it "as a ruthless vehicle of economic globalization, oblivious … of other values … of the international community' (Abi-Saab, 2010: 14). Such criticism was a primary source of what by the turn of the millennium came to be known as the WTO legitimacy crisis (Esty, 2002). The WTO judicial arm could not have escaped this source of tension. Indeed, it found itself at the forefront of the thorny trade-and debate, as cases involving non-trade values repeatedly reached its docket (Kulovesi, 2011: 5, 59; Broude, 2004: 27), from the early days of US-Gasoline, 31 US-Shrimp, and EC-Asbestos, 32 to the present era of US-Clove Cigarettes, EC-Seal Products, 33 and Australia-Plain Packaging. 34 Such trade-and disputes raise unique challenges before the DSS, a mandatory adjudication system nested within the multilateral trade regime and granted a limited mandate to decide disputes based on WTO agreements. Among other challenges, trade-and disputes invite international scrutiny of acts of sovereign states in policy areas traditionally left for national regulation, and where countries often differ substantially. Also, these cases require the DSS to engage in delicate balancing of competing values, while facing the expectations of diverse audiences in and outside the multilateral trade arena. Finally, trade-and disputes raise sensitive questions of allocation of authority at the global level, as the linkage problems they address are often located at the seam line between the WTO and other international legal regimes.35 For these and other reasons, trade-and disputes have been continuously challenging both the internal legitimacy of the WTO and its DSS among Member states, and their external legitimacy among stakeholders such as NGOs, domestic interest groups, the general public, and other international institutions. With the intensification of certain trade-and problems (e.g., climate change) and the low prospects that legislative solutions will materialize through the WTO political arm, the *World T.R. 685 flow of trade-and disputes is expected to persist, fueling further challenges to the legitimacy of the WTO and its DSS. As a WTO practitioner put it: [W]e are moving into a phase … where the Appellate Body has to face non-trade concerns that impact on trade, and it's more and more the case … [Those disputes] move to the forefront of WTO litigation, and maybe for a while the WTO was hoping that this would go away, but I don't think it will … [And] if as a court you start moving into this field and making decisions on issues that people feel about in terms of values, and they might differ from one country to the next, then that's dangerous territory because … once a judgment is made, you will get the reaction: "Who are they to decide? … How come they know? And shouldn't that be in a democracy? Shouldn't that be decided by a majority, not by a bunch of judges … in a faraway country?'36 In this spirit, a current AB member noted, "the issue of legitimacy … gets raised in a much more general level and … much broader throughout society with regard to these disputes' that involve non-trade values and interests.37 Due to the significant part trade-and disputes have come to play in WTO adjudication, and the intensified legitimacy challenges confronting the DSS in such cases, this category is ideal for examining the manner in which external and internal pressures shape the DSS goal-attainment patterns, motivate shifts in the emphasis placed on its goals, and impose trade-offs between them. Such examination is conducted below through a comparative analysis of the early case of US-Shrimp concerning the WTO-consistency of an import ban on shrimp harvested by methods harmful to sea turtles, and the recent US-Clove Cigarettes dispute, where an anti-tobacco regulation prohibiting flavored cigarettes, aimed at reducing youth smoking, was challenged.
Case selection
US-Shrimp and US-Clove Cigarettes were selected as case studies under the category of trade-and disputes for several reasons. First, they involve different WTO Agreements: US-Shrimp addresses claims under the GATT Agreement, whereas US-Clove Cigarettes concerns the Technical Barriers to Trade Agreement (TBT). Second, the cases represent different periods in the life of the DSS and the WTO. US-Shrimp was launched in 1996, soon after the WTO establishment. It was one of the first trade-and disputes filed with the DSS, when the WTO legitimacy crisis was emerging, and has Page9 become a landmark trade-and dispute. US-Clove Cigarettes arrived in 2010 to a well-oiled adjudication machine, nested within an organization trapped in a prolonged political stalemate. It thus represents another stage in the life of the WTO and its DSS, characterized by old and new challenges to their legitimacy. Finally, the two cases deal with distinct *World T.R. 686 non-trade values: US-Shrimp addresses environmental protection and US-Clove Cigarettes concerns public health. Hence, while the cases share important characteristics, particularly the friction between trade and non-trade interests, the differences between them allow examining the judicial choices and goal-attainment efforts of the DSS in trade-and disputes over time and across agreements and subject matters.
The DSS goal-attainment patterns in trade-and disputes
Asked what distinguishes US-Clove Cigarettes from other disputes filed with the DSS, a staff member of the AB Secretariat answered: "Number of things and nothing at the same time'.38 This answer aptly captures the story of trade-and disputes and the DSS goal-attainment patterns in such cases. On the one hand, in this type of cases, as in all WTO disputes, the DSS appears to be engaged in the routine legal exercise of law application and interpretation, while pursuing its multiple goals, including rule compliance and dispute resolution. On the other hand, as noted by a WTO practitioner when alluding to the legal interpretative exercise carried out by the DSS in trade-and disputes: [U]ltimately … you're interpreting words … and you face choices, even within the structure of the Vienna Convention analysis you have choices of which words you choose to put meat on the words in the treaty. And [in trade-and disputes] … that's when the adjudicators are most aware of their need … to maintain legitimacy, to build up [the] legitimacy and credibility of the system.39 A qualitative empirical account of US-Shrimp and US-Clove Cigarettes shows indeed how the intensified legitimacy concerns invoked in trade-and disputes were translated into a heightened quest by the DSS after its legitimization goals. A quest that took place along two parallel and at times conflicting trajectories: the first revolved around the DSS ultimate end as a "regime court' to confer legitimacy on the WTO among internal and external constituencies; the second concerned the DSS intermediate goal of legitimizing its own exercise of public authority as an international tribunal amidst relevant audiences outside the WTO, while sustaining the internal support of WTO Members. The shift in emphasis toward these two legitimization goals manifested itself in both the ratio decidendi and obiter dicta of trade-and rulings, taking the form of a unique collection of substantive, procedural, and rhetorical legitimacy-enhancing strategies uncommon in general WTO jurisprudence. 40 These strategies include the following distinctive elements. *World T.R. 687 The first is a notable move toward teleological and contextual construction methods in trade-and disputes, in contrast to the strict textual interpretation generally associated with the DSS, in order to grant the latter greater interpretative leeway and ability to embed the interest of free trade in a broader context of societal values. Thus, in US-Shrimp, recourse to contextual-teleological interpretations allowed the AB to read the exception in GATT Article XX(g) in a manner that leaves more room for trade-restrictive environmental policies,41 which may reinforce the legitimacy of the WTO and its DSS among regulating WTO Members, and increase the social acceptance of these institutions outside the WTO.42 In the recent US-Clove Cigarettes case, a similar effort to build a legitimation mechanism into the TBT Agreement is noticeable. On this occasion, the AB resorted to contextual-teleological interpretations in order to introduce "GATT Article XX flexibilities' into the national treatment rule of the TBT Agreement, which lacks a general exception clause.43 As several commentators have noted, such moves away from strictly textual interpretations toward contextual-teleological ones, which allow for less intrusive interpretations of WTO rules, help reduce public pressure on the DSS and secure a basic level of legitimacy for the WTO (DiMascio and Pauwelyn, 2008: 65; Zhou, 2012: 1082-83). Another strategy employed by the AB in its quest for legitimacy in trade-and disputes has been to incorporate a discernible balancing discourse into the reading of particular WTO provisions, juxtaposing the objective of trade liberalization and states' right to regulate for non-trade values. This balancing discourse, first introduced in the AB analysis of GATT Article XX chapeau in US-Shrimp, 44 was lately extended to the TBT Agreement in US-Clove Cigarettes. 45 Yet, neither GATT nor the TBT Agreement has a specific language authorizing a balancing test (WTO, 2005: 135-41). Furthermore, as a WTO official indicated, although a balance between competing interests essentially underlies all WTO agreements, the balancing discourse has been prevalent mostly in trade-and disputes.46 This Page10 propensity appears to rest in part on the legitimating quality ingrained in the balancing concept,47 and the import of a balancing act, when competing trade and non-commercial values are involved, for the WTO and the DSS to win public *World T.R. 688 acceptance (Esty, 2002: 18-19). In this spirit, Lang noted, the introduction of the balancing analysis to trade-and rulings formed "a response' to "the WTO's internal and external legitimacy crisis' described above (Lang, 2011: 321, 323). The intensified pursuit by the DSS for its legitimization goals in trade-and cases such as US-Shrimp and US-Clove Cigarettes took the form of other distinctive legitimating techniques. These included the expression of vertical institutional sensitivity toward national governments, the manifestation of horizontal institutional sensitivity toward adjacent international regimes,48 and the engagement of WTO adjudicators in a rare justificatory discourse, at times through special "explanatory paragraphs' at the end of the AB report,49 clarifying to audiences inside and outside the WTO the limited political implications arising from its ruling for the respondent, and signaling that the trade-and dispute at hand may be solved without the elimination of the trade-restrictive policy found to be WTO-inconsistent.50 This infrequent AB technique of going out of its way to elucidate the "limits of the political implications' of its rulings51 and to signal that compliance may take place without sacrificing important state interests,52 appears as another strategy harnessed to the DSS legitimacy pursuit in trade-and disputes; a strategy aimed not only at manifesting a sympathetic stance toward the non-trade value at stake, but also at conciliating the respondent and appeasing compliance-related concerns among its constituencies (Garret and Smith, 2002: 20-26).53 Indeed, it has been noted, the AB conciliating attitude in disputes involving non-trade values, often to ease somewhat the burden of compliance on losing defendants, "represents a tacit acknowledgment by the Appellate Body' of the political constraints placed on its "authority and perceived legitimacy' in such cases (Garret and Smith, 2002: 33); that is, a tacit acknowledgment by the AB of the need, at times, for some "give' on compliance with WTO trade commitments in order to promote other organizational goals, among them, sustaining the overall legitimacy of the DSS and the WTO. Notably, the various jurisprudential and rhetorical legitimating strategies enumerated above, generally absent from other WTO disputes, form part of a larger arsenal of judicial means and choices available to the DSS, recourse to which may have better promoted other institutional objectives. Yet, particular choices were made that accorded greater weight to some DSS goals: those related to the legitimation of the WTO and the DSS itself. Thus, alluding to the prominence of the legitimacy-oriented DSS goals in cases such as US-Shrimp and US-Clove *World T.R. 689 Cigarettes, and the attempt of the adjudicators in both cases to craft "a decision that is designed to gain some degree of public acceptance', a WTO practitioner stressed: All of these decisions could have been decided the other way … In … Shrimp they could easily have reverted to the old [GATT] jurisprudence … but they did not. And I think they tried to develop a line of reasoning that is going to be appreciated from the environmental perspective … And in … Clove Cigarettes … they wanted to develop a line that is going to be appreciated from the public health perspective, and they did so … [A]ll these cases could have been decided the other way, and, well, that the decisions that have been written.54 Yet, while in rendering these decisions the DSS has often tried to pursue two parallel legitimation objectives - conferring legitimacy on the WTO regime and sustaining the DSS own legitimacy, particularly within the inner circle of WTO Members - occasionally, the two objectives have come into conflict. This was the case in US-Shrimp, where the precedential decision regarding amicus curiae briefs, aimed at bolstering the external legitimacy of the WTO and the DSS within the civil society, caused challenges to the DSS internal legitimacy among WTO Members.55 The amicus curiae episode resulted in a complex legitimacy quandary, with conflicting internal and external pressures pulling in opposite directions (Steger, 2004), illustrating the limits placed on the DSS ability to concurrently attain its multiple goals, and the inevitable trade-offs imposed between them. A goal-based reading of the category of perennial disputes exposes a somewhat different set of systemic pressures and challenges, and consequently different goal-conflict instances and goal-attainment patterns by the DSS.
Main features and underlying challenges
The DSS caseload includes, among others, several complex, lengthy, contentious, and recurring disputes, some of which go back to the old GATT. These "perennial' disputes often implicate large trade volumes and/or national policies of great economic, political, and symbolic importance, asking Page11 the respondent not only for a complex legislative change, but also for "a large shift in ideology or resources'.56 Also, these disputes usually involve major trade partners (Taylor, 2007: 334-335), whereas many of them are transatlantic in nature, involving the world's largest economies and main users of the DSS: the US and the EU. Furthermore, perennial disputes often reach the DSS with charged pre-history and former failures to settle the conflict in other forums (ibid.: 337-338). Consequently, such conflicts usually result in prolonged non-compliance. In fact, frequently they appear *World T.R. 690 already at the outset to be more susceptible to non-implementation of an adverse DSS ruling. Perennial disputes, in turn, place serious pressures on the DSS and its credibility (ibid.: 341-343). These pressures may be long-lasting, since the conflicts are likely to remain unsettled for years and return to the DSS in different forms. Because of the key players involved in these cases and the importance of the disputed measure, the disputes also hold systemic implications for the trading relationship of the parties and more broadly, for the stability of the WTO regime. For these reasons, perennial disputes, which "begin, proceed, and/or end by being overly contentious, difficult, or complex', and carry heightened risks of non-compliance, have been labeled "impossible' (ibid.: 316-317) or "wrong' cases (Hudec, 1980: 159-166) that should have never been brought before the DSS (Tayor, 2007: 316). While under the GATT DSS such "wrong' cases could indeed be blocked (Alter, 2003: 788), the "reverse consensus' rule under the WTO DSS has made such blocking practically unfeasible. Consequently, perennial disputes have been with the WTO DSS since its inception, from the early disputes of EC-Bananas and EC-Hormones, to US-FSC, 57 US-Softwood Lumber, 58 and US-Zeroing, 59 and continue with the ongoing transatlantic conflicts of EC-Airbus 60 and US-Boeing. 61 Given their complex features and systemic challenges, perennial disputes form another instructive site for examining whether and how these features and challenges shape the expectations from the DSS, shift the emphasis placed on its goals, and stimulate conflicts and trade-offs between them. Furthermore, because of the susceptibility of perennial disputes to result in prolonged non-compliance, they provide a valuable opportunity for challenging the tendency to consider compliance as the fixed, primary goal to be achieved by the DSS, and as the main yardstick for gauging its effectiveness. Below we examine the two illustrative perennial conflicts of EC-Bananas and EC-Hormones. [T]here's some category of [WTO] disputes that is different from the others … [And] I … think [in this regard] Bananas and Hormones are the ones that are most frequently cited.62 *World T.R. 691 The Bananas and Hormones disputes, often depicted as "wrong cases' that enmeshed the DSS in long and abashing non-compliance (see, e.g., Taylor, 2007; Pollack, 2003: 596; Brimeyer, 2001: 133-134), constitute probably the most paradigmatic perennial disputes to arrive at the WTO. They are therefore informative for tracing the DSS goal-attainment patterns and the diverse roles, beyond inducing compliance, the system plays in this class of cases.63 Furthermore, whereas these conflicts date back to the GATT, they both only recently ended with mutually agreed - not yet fully WTO-compliant - settlements,64 after recurrent legal proceedings and countermeasures. The two cases thus illustrate the trade-offs imposed between the multiple goals and outcomes of the DSS. Finally, EC-Hormones and EC-Bananas also represent suitable case studies for the current research because of the differences between them, including the distinct WTO agreements invoked and trade measures challenged, and the diverse parties involved in these cases (the US and the EU in both disputes, Canada in EC-Hormones, and the competing groups of Latin American and ACP countries in EC-Bananas). These differences allow examination and comparison of the judicial attitudes and goal-attainment patterns manifested by the DSS in perennial disputes across different WTO agreements, subject matters, and rival political contexts.
The DSS goal-attainment patterns in perennial disputes
EC-Bananas and EC-Hormones- the subject of repeated WTO litigation and enduring EU non-compliance (not fully alleviated by the settlements concluding the disputes) - have been regularly invoked as failures and instances of ineffectiveness of the DSS (see, e.g., Horlick and Coleman, 2008; Brimeyer, 2001; Keisuke, 2004; Alter, 2003; Davey, 2005; Busch and Reinhardt, 2003: 475-479). This often-told version of these conflicts exemplifies the propensity to conceptualize the DSS effectiveness through the narrow, static lens of compliance, and to perceive this concept as the key desired end to be attained by the DSS across disputes, regardless of their type and nature. Page12
An in-depth, interview-based analysis of these two perennial disputes, however, discloses a more complex picture of the DSS goal-attainment efforts. It recounts a story of an adjudicating system that in certain disputes is not geared primarily to mechanically enforce WTO rules, but rather plays an enhanced role in the cleft *World T.R. 692 between law and politics, where the prominent function of the DSS revolves around two main paths.65 First, through its successive rulings, the DSS serves to facilitate the mutual settlement of the dispute and the re-establishment of the bilateral balance of concessions between the parties, by continually framing renegotiating environments and constructing focal points around which the parties can coordinate.66 Second, as long as the perennial dispute endures, the DSS further plays a pivotal function in sustaining the operation of the cooperative WTO regime by containing the dispute within defined legal parameters, preventing unilateral actions, and forestalling the escalation of the conflict into uncontrolled trade war. This shift in emphasis towards the goals of settlement facilitation, rebalancing, and regime maintenance is learned from the views and experience of practitioners with first-hand knowledge of EC-Bananas and EC-Hormones. Thus, a former WTO official involved in EC-Hormones observed that "in the usual case, the goal [of the DSS] is to clarify the rules … and in most cases, the goal is … through that clarification to seek compliance with the rules'.67 In certain cases, however, other goals come to play a greater role in the DSS operation. Thus, this practitioner added: [E]specially in very … hard cases, such as Hormones … everyone almost knows that at best the WTO ruling would play a role in pushing the defendant in one or the other direction, that it would be quite hard [for the system] to … force the[] countries to change those fundamental rules. But at the same time … [the DSS] plays a role to defuse the whole political dispute, to avoid unilateral retaliation, and then to clarify the situation as to is there a breach? To what extent? [And] how much compensation should follow.68 A state official involved in EC-Bananas similarly stated that in this type of complex case the DSS does not discharge the "classical straightforward' function of "finding the truth, declaring the truth and then having everybody complying with the truth'; rather, it serves "as a tool to find the solution elsewhere', outside the formal judicial process.69 Elaborating further on this point, a WTO official involved in EC-Bananas noted that in such cases the DSS plays two main roles. On the one hand, "it provides a non-negotiated solution to the dispute', i.e., legal answers to the disputed issues. On the other hand, it continues to play a role in the post-litigation bargaining between the parties, as the latter renegotiate on the basis of the findings and clarifications provided in the DSS rulings. Those were the roles *World T.R. 693 played by the DSS in EC-Bananas, this official stressed, and those are the roles currently being played in the ongoing transatlantic Aircraft disputes.70 Indeed, alluding more generally to a series of perennial disputes, including US-FSC, 71 US-Softwood Lumber, US-Zeroing, and the ongoing Aircraft sagas, a WTO legal officer observed that "in these cases in particular you have to think of the dispute settlement process as part of a broader [political] process'. With the "breakdown of that political process', the parties resort to the DSS as a means to move negotiations forward and facilitate a politically feasible solution. In such instances, the official explained, the DSS, through its successive judgments, "help[s] the parties settle their dispute because … when they negotiate … they … have a better understanding of what are the legal rights and obligations … a better understanding of what … the status of their [claims] is in the WTO, and that [is] … an important element in the negotiation'.72 Explaining more concretely how these settlement facilitation and renegotiation roles of the DSS played out in perennial cases such as EC-Bananas, a WTO official involved in the case noted: [B]y making successive findings of inconsistencies … [the DSS] helped [the] parties to negotiate an agreement … [T]his [dispute] was so political that it had to be done through negotiation. But [following] … each of the [WTO] cases … the successive negotiations brought [the] parties closer to a better solution, one which guaranteed [the Latin American countries] better conditions of access to the European market, less discrimination, and more development assistance for the [ACP] countries which were affected. … [E]ach successive decision helped narrow and narrow … the problem and led to successive modifications of the EU measures.73 Accordingly, a US official concluded as follows when discussing the recent (noncompliant) agreements reached in EC-Bananas and EC-Hormones in the shadow of the DSS, granting the Page13 complainants improved market access to the EU in exchange for settling the cases: "the EU … never would have done anything to provide additional access on bananas, and they never would have done anything to open their beef market if it wasn't for the dispute settlement system … [T]hat was the entire mechanism that prompted the change, even though the change wasn't … done' by the respondent revoking its WTO-inconsistent measure, "which is the standard way for most disputes'. "But still', the official stressed, "without the disputes … there would've been no way' for the EU to have *World T.R. 694 "accommodated the concerns of any of the other parties' in the Bananas and Hormones disputes.74 These testimonies of WTO practitioners illustrate well the shift in emphasis taken in perennial disputes towards the DSS goals of settlement facilitation, rebalancing through renegotiation, and regime maintenance. Yet, this goal-shifting is also apparent in WTO jurisprudence and the distinctive judicial choices, interpretations, and techniques used by WTO adjudicators in the perennial conflicts of EC-Bananas and EC-Hormones. One such technique is reflected in the willingness of WTO adjudicators in these conflicts to provide concrete pragmatic suggestions on how to move forward toward the settlement of the dispute. This willingness stands in sharp contrast to the general practice of WTO adjudicators of avoiding any such suggestions, which they are authorized to make under DSU Article 19.1. A recent example of this uncommon judicial choice can be found in US-Continued Suspension (the second round of EC-Hormones), where in an attempt to promote the positive resolution of the case, the AB concluded its report with an explicit recommendation to both the complainants and respondent "to initiate DSU Article 21.5 proceedings without delay in order to resolve their disagreement'.75 Atypical suggestions of this type were also observed early on in EC-Bananas. Mindful of the fact that panels have rarely "made suggestions pursuant to Article 19.1', and "with a view toward promptly bringing the dispute to an end', the panelists in the first compliance panel in EC-Bananas found it appropriate to make concrete suggestions about possible steps that may be taken to settle the case.76 Likewise, when sitting as arbitrators in the DSU Article 22.6 proceedings between the EU and the US, the same three panelists chose to open their arbitral award by encouraging "the parties to continue in their efforts to reach a mutually acceptable solution to this matter promptly', noting that "the suspension of concessions is not in the economic interest of either of them'.77 These pronouncements attest to the adjudicators' conception in this perennial dispute of their enhanced role as facilitators of renegotiations and settlement between the parties. These statements, and the goal-attainment efforts they reveal, become even more significant when we consider how rare such pronouncements are in WTO dispute settlement *World T.R. 695 practice. Thus, Porges noted, although "[i]n theory, WTO panels may actively encourage settlement … in practice none do' (Porges, 2004: 167). The adjudicators in EC-Bananas and EC-Hormones, however, did not only take an uncommon active role in facilitating the resolution of the disputes, but also went out of their way to develop interpretations that would grant the DSS jurisdiction to address the perennial conflicts repeatedly, contain them within the WTO rule-based system, and thus prevent unilateral actions and destabilizing effects on the WTO regime. An example of such an interpretation may be found in the last round of EC-Bananas, where the AB rejected the EU claim that the 2001 Understanding on Bananas concluded between the EU, the US, and Ecuador precluded the latter two from initiating additional Article 21.5 proceedings under the DSU. According to the ruling, unless the parties to a mutually agreed solution explicitly renounced their right to have recourse to the DSU, they may not be precluded from initiating additional proceedings before the DSS.78 In so ruling, a senior WTO official observed, the AB enunciated a fundamental principle whereby the DSS remains the forum to address disputes between WTO Members until their satisfactory resolution, and that matters can be brought to the DSS time and again, unless such right has been explicitly waived in an agreement between the parties.79 A somewhat similar interpretation is found in EC-Hormones. In contrast to the long-standing understanding among WTO Members that only complainants may initiate compliance proceedings under DSU Article 21.5, in US-Continued Suspension the AB determined that both complainants and respondents may launch such proceedings, thereby expanding the DSS jurisdictional power to address recidivist WTO conflicts.80 As in the case of trade-and disputes, the interpretations and choices of WTO adjudicators in the perennial Bananas and Hormones conflicts account for only some of the alternatives available to the DSS in its strategic judicial space. The particular choices made and the outcomes they sought reveal in turn the DSS goal-attainment efforts in these disputes, and the shifts in the relative weight Page14 accorded to some of its goals given the unique challenges and complexities of these cases. Finally, alongside this goal-shifting, the perennial disputes of EC-Bananas and EC-Hormones also demonstrate one of the most conspicuous tensions underlying the DSS goals. This is the tension between the will to secure rule compliance and legal predictability, and the desire to preserve the reciprocal balance of trade concessions through amicable settlements and flexible rebalancing acts, which may sustain the long-term viability of the WTO. In theory, of course, these goals need *World T.R. 696 not necessarily conflict, as the settlement of disputes by eliminating WTO-inconsistent measures may allow the simultaneous achievement of all. But in reality, in some cases political constraints may make such goal-conflicts inevitable. A WTO official involved in EC-Bananas stated: [O]ne [goal of the DSS] … is … to achieve pragmatic solutions for disputes. Another goal would be to have … security and predictability in the system or to achieve compliance … Generally speaking, there shouldn't be any tension [between these goals]. But in specific cases, you may find a tension because you may find that parties are able to find a solution, but that solution is not necessarily, strictly in accordance with the agreements, and … what should you privilege - the fact that you find a solution to a longstanding dispute, or the fact that there isn't full compliance with the agreement?81 The complex Bananas and Hormones disputes illustrate the materialization of this exact tension between the goals, and consequently outcomes of the DSS: while satisfactory negotiated settlements, informed by the successive DSS rulings, were found to the acrimonious disputes and restored the bilateral balance of concessions between the parties, the settlements still fall short of full compliance with WTO law. From a perspective that perceives effectiveness through the lens of compliance, these non-compliant outcomes may be portrayed as the final - disappointing yet unsurprising - chapters of chronicles of enduring non-compliance, and, consequently, as instances of under-effectiveness of the DSS. As noted earlier, this is indeed the often-told story of EC-Bananas and EC-Hormones. From a broad goal-based effectiveness perspective, however, which considers the multiple, conflicting, and dynamic nature of DSS goals, the story of EC-Banana s, EC-Hormones, and the like becomes more complex. Following a goal-based approach, the story is no longer a binary one of failure or success, but rather a more intricate one of shifts and trade-offs between multiple competing institutional goals.
4.3 Trade-and and perennial disputes: a comparative view and lessons for the WTO DSS effectiveness analysis
When confronting trade-and, perennial, or other categories of WTO disputes, the DSS faces a range of choices concerning its various organizational goals and the efforts invested in their realization. At each junction of the disputes addressed above, therefore, the DSS could have made other judicial choices in pursuit of its goals. Yet, specific choices were made that ascribed greater weight to some goals than to others, in the face of the challenges and expectations presented to the system. *World T.R. 697 A comparative look at the diverse goal-attainment patterns revealed by trade-and and perennial disputes, in turn, demonstrates the goal-shifting concept advanced in the article. It shows how the emphasis placed on the DSS goals and the prominent roles it plays vary across different types of cases given the changing modalities in which the system operates. In trade-and disputes, internal and external pressures on the WTO push the DSS pendulum in the direction of its legitimation goals; in perennial disputes, however, the pendulum swings toward the DSS regime maintenance, rebalancing, and settlement facilitation objectives. If indeed the relative weight of the DSS goals changes from one dispute category to the other, it follows that a nuanced effectiveness assessment of the DSS must also account for these shifts and the diverse outcomes generated by the system. Whereas in trade-and disputes such outcomes may affect the legitimacy of both the WTO and its DSS, in perennial disputes these outcomes may include prevention of uncontrolled trade wars, conclusion of mutually satisfactory (albeit not fully WTO-compliant) settlements, and assurance of long-term international economic cooperation. Static, one-dimensional effectiveness models, which treat all WTO disputes as monolithic and consider the desired end of compliance as their key effectiveness benchmark, fall short of capturing this variety of outcomes. Moreover, they fall short of capturing the trade-offs such outcomes represent between the compliance objective and other goals of the DSS (among them, its traditional dispute settlement goal or more systemic objectives such as sustaining the legitimacy and viability of the WTO regime as a whole). Page15
5. Conclusion: the promise and limits of a goal-based approach to the study of the WTO DSS effectiveness
Extensive discussions in the growing body of research on the effectiveness of international law, and international courts in particular, have revolved around the notion of compliance. This focus has been especially prominent in writing on the WTO DSS, triggered by the juridified nature of the system, compared to its predecessor under GATT. Yet despite its juridification, the WTO DSS, as shown here, is not solely a mechanism for inducing compliance with WTO rules. It is a forum of litigation, negotiation, and struggle, where conflicts are fought not only about adherence to formerly agreed rules - though this is certainly a significant element of the system - but over broader political, economic, and social interests. It is a mechanism devised by WTO Members to pursue numerous goals, in a dynamic environment of changing practices, actors, and constraints, which often require the DSS to adapt its goal-attainment efforts and shift the relative emphasis placed on its various goals. Against this backdrop has emerged the need for a broader, more nuanced and dynamic framework for analyzing the effectiveness of the WTO DSS. Building on the goal-based approach developed in the social sciences, the article has laid down the foundations for such a framework, under which the multiple, conflicting, *World T.R. 698 and shifting goals of the system serve as key effectiveness benchmarks. The goal-based approach, together with the notions of goal-multiplicity, goal-conflict, and goal-shifting, the article has suggested, promises a more complete understanding of the DSS operation and outcomes. A richer and more nuanced understanding based on the goal-based effectiveness model, however, also requires a more complex analytical process, which raises in turn methodological challenges of its own. Most notably, a comprehensive goal-based effectiveness analysis requires assessing the DSS performance against multiple benchmarks. Also, whereas some DSS goals, such as promoting compliance or prompt settlement of disputes, may be more amenable to quantitative measurement, others, especially open-ended ultimate ends, such as legitimizing the WTO, may be more difficult to assess. Finally, the tensions latent in DSS goals and goal-shifting trends over time and across disputes may impose substantial constraints on the ability to engage in an overall assessment of the system's effectiveness. Yet, even if such an assessment is too ambitious, the rich goal-based approach provides a fertile ground for a range of more defined and nuanced research projects on the effectiveness of the DSS. For example, future research may examine the DSS functioning with respect to particular organizational goals, while exploring how their achievement promotes or hinders the realization of other interrelated or conflicting objectives. 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Zald, M. N. (1963), "Comparative Analysis and Measurement of Organizational Goals: The Case of Correctional Institutions for Delinquents', Sociological Quarterly, 4 (3): 206-230. Zhou, W. (2012), "US-Clove Cigarettes and US-Tuna II (Mexico): Implications for the Role of Regulatory Purpose under Article III:4 of the GATT', Journal of International Economic Law, 15 (4): 1075-1122. Email: [email protected]. World T.R. 2016, 15(4), 671-701
1. On the problems of compliance-based effectiveness models, see Shany (2012a: 227-229), Shany (2012b).
2. Although studies disclose relatively high judgment compliance rates, the rates identified by researchers vary. Focusing on the DSS first decade, Davey (2005: 46-48, 2009: 119) found a compliance rate of 83%, including instances of full and partial implementation. Disaggregating the data on judgment compliance further, Horlick and Coleman (2008) found rates of 67.1% for full compliance, 24.1% for partial compliance, and 8.9% for non-compliance between January 1995 and May 2006. Epstein et al. (2009:124) reported about 66% full compliance, 13% some compliance, and 21% no compliance with WTO rulings. These varying rates, resulting among others from the different conceptualizations and coding methods followed in each study, attest to the elusiveness of the concept of compliance and the methodological difficulties associated sometimes with determining whether respondents have indeed complied with WTO rules.
3. Two other important conceptions of organizations and organizational effectiveness in the social sciences are the natural-system and the open-system approaches. Scott (2003), Scott and Davis (2007).
4. On the choice to focus on the goals set for the DSS by its mandate providers to assess its effectiveness, see Shlomo-Agon (2013: 63-68); Shany (2014: 31-35).
5. On the normative aspects of the goal-based approach, see Shany (2012a: 230-231); Shany (2014: 14-16).
6. On the distinction between ultimate ends and intermediate goals, see Shany (2014: 18-19).
7. Understanding on Rules and Procedures Governing the Settlement of Disputes, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 UNTS 401.
8. On the distinction between explicit, implicit, and unstated goals, see Shany (2014: 19), Jackson (2006: 146).
9. For a thorough presentation of the DSS procedure, see Palmeter and Mavroidis (2004).
10. Former official of Guatemala (24 July 2012) (the "nature' of each stage of the DSS process is different, and so are the "expectations' and "objectives' pertaining thereto); WTO legal officer (16 March 2012) (the aims to be achieved by the DSS "are different depending on the stage' of the process).
11. After the goals of the organization are identified, to evaluate its effectiveness, these goals must be translated into performance indicators. Three types of indicators have been identified in the social science literature: structures, processes, and outcomes (Scott, 2003: 363-368). Structure indicators examine whether the tangible and intangible assets available to the organization enable it to meet its objectives. Process indicators examine whether organizational processes facilitate the aim of the organization. Outcome indicators - the quintessential effectiveness indicators - examine whether the organization's outputs and their social effects are consistent with the organization's goals. Shany (2012a: 238).
12. For an elaborate account of these goals, see Shlomo-Agon (2013: 97-147).
13. Panel Report, US-Section 301-310 of the Trade Act of 1974, WT/DS152/R, adopted 27 January 2000, paras. 7.71-7.92.
14. Shany (2012a: 246); Private attorney (16 July 2012) (one goal of the DSS, as part of the WTO system, is "to assure that the system remains workable').
15. WTO legal officer (4 April 2012) (the DSS sustains the WTO regime by "removing the threat of unilateralism' and by containing "protectionist clashes'); Ecuadorian official (17 July 2012).
16. Appellate Body Report, Japan-Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, at 31; Former AB member (19 April 2012).
17. DSU Articles 3.2, 3.7, 19.1, and 22.8.
18. Jackson (2006: 146, 148); WTO legal officer (19 March 2012) ("while as a complainant you are interested in the prompt settlement of the dispute … from a systemic point of view there is an interest in the promulgation of well-reasoned decisions that clarify the law.'). Page20
19. See, e.g., Record of Discussions of 4-5 February, GATT Doc. PREP.COM(86)SR/2, 18 March 1986, paras. 47, 50; Keisuke (2004: 211, 216); Canadian official (10 August 2009) ("the whole creation of the DSU … was meant to level the playing field between developing and developed countries, to take out some of … the power politics that gets played' in the settlement of disputes).
20. Shany (2014: 46); Private attorney (16 July 2012) ("All courts need to maintain legitimacy. They need to maintain some degree of public acceptance and approval.').
21. George and Bennett (2005: 83) (noting that "[c]ases should… be selected to provide the kind of… variation required by the research problem').
22. Ibid. ("the primary criterion for case selection should be the relevance to the research objective of the study').
23. Appellate Body Report, United States-Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998 (hereafter US-Shrimp).
24. Appellate Body Report, United States-Measures Affecting the Production and Sale of Clove Cigarettes, WT/DS406/AB/R, adopted 24 April 2012 (hereafter US-Clove Cigarettes).
25. Appellate Body Report, European Communities-Measures Concerning Meat and Meat Products, WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998.
26. Appellate Body Report, European Communities-Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997.
27. See George and Bennett (2005: 18) (noting that "there is a growing consensus that the strongest means of drawing inferences from case studies is the use of a combination of within-case analysis and cross-case comparisons within a single study or research program'); Gerring (2007: 12-13, 22, 31).
28. Cf. Yin (2009: 38-39, 61) (discussing generalization of case studies).
29. In each case study, we attempted to interview informants with different/opposing interests in the dispute in order to integrate multiple perspectives and develop a holistic account of the case and the DSS operation.
30. For reasons of anonymity, the interviewees are cited with generic references such as "WTO official' or "EU official'.
31. Appellate Body Report, United States - Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 May 1996.
32. Appellate Body Report, European Communities - Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001.
33. See, e.g., Appellate Body Report, European Communities - Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R, WT/DS401/AB/R, adopted 18 June 2014.
34. Australia - Certain Measures Concerning Trademarks and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, WT/DS434.
35. On the various intricacies of trade-and disputes, see Shlomo-Agon (2015).
36. WTO practitioner (9 July 2012). Other interviewees expressed similar views. WTO panelist (23 July 2012); Senior WTO official (23 March 2012).
37. AB member (27 April 2012).
38. AB Secretariat staff member (4 July 2012).
39. Private attorney (23 April 2012). Other interviewees shared a similar view. WTO panelist (24 July 2012); AB Secretariat staff member (4 July 2012).
40. Shlomo-Agon (2015), showing also that the distinctive legitimating strategies identified in US-Shrimp and US-Clove Cigarettes have recurred in other trade-and disputes, such as EC-Asbestos, Brazil-Tyres, and Korea-Beef.
41. US-Shrimp, paras. 127-34.
42. An interviewee involved in US-Shrimp noted that through the process of broadening the scope of GATT Article XX launched in US-Shrimp, the AB aimed "to make the system more acceptable' and "to send a message to the countries that were in favour of environmental protection that "Yes, Article XX is operational"'). WTO official (22 March 2012).
43. US-Clove Cigarettes, paras. 89-96, 166-82; Marceau (2013: 8-12).
44. US-Shrimp, paras. 156, 159. In later trade-and cases, the balancing concept was further developed in the context of the "necessity test' under GATT Article XX. See Lang (2011: 320-323). Page21
45. US-Clove Cigarettes, paras. 89-96, 174.
46. AB Secretariat staff member (4 July 2012); EU official (19 July 2012).
47. On balancing as a legitimacy-enhancing tool of international courts, see Kleinlein (2011: 1143, 1162-70).
48. On vertical and horizontal institutional sensitivity tactics employed in trade-and disputes, see Shlomo-Agon (2015). On institutional sensitivity as a technique for alleviating WTO legitimacy concerns in trade-and disputes, see Kleinlein (2011: 1170-1173); Howse and Nicolaidis (2003: 75).
49. On the "explanatory paragraphs' and their legitimating role in trade-and disputes, see, Shlomo-Agon (2015: 581-587); Shlomo-Agon (2013: 187-192, 226-231).
50. US-Shrimp, paras. 185-186; US-Clove Cigarettes, paras. 235-236.
51. AB member (27 April 2012); AB Secretariat staff member (4 July 2012).
52. US official (17 July 2012).
53. US official (17 July 2012).
54. Private attorney (16 July 2012).
55. Minutes of DSB Meeting, WT/DSB/M/50, 6 November 1998.
56. See Taylor (2007) (addressing the category of "impossible' disputes and analyzing their complicating features, including the complex regulatory shift required by the losing party in such cases). Ibid.: 327.
57. Appellate Body Report, United States - Tax Treatment for "Foreign Sales Corporations', WT/DS108/AB/R, adopted 20 March 2000.
58. See, e.g., Appellate Body Report, United States - Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004.
59. See, e.g., Appellate Body Report, United States - Measures Relating to Zeroing and Sunset Reviews, WT/DS322/AB/R, adopted 23 January 2007; Appellate Body Report, United States - Continued Existence and Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009.
60. Appellate Body Report, United States - Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012.
61. United States - Measures Affecting Trade in Large Civil Aircraft - Second Complaint, WT/DS353.
62. Private attorney (23 April 2012).
63. Among the complicating factors making EC-Hormones a "perennial' dispute (its charged pre-history, the opposing philosophical beliefs of the parties, and the complex politics of the agricultural sector) was also the tension between trade and health. Thus, EC-Hormones fits not only the category of perennial but also that of trade-and disputes, and indeed exhibits many of the legitimacy-enhancing techniques apparent in US-Shrimp and US-Clove Cigarettes (Shlomo-Agon, 2015)). This duality is not surprising, as a given dispute may have various characteristics that may bring it under different categories of WTO cases. Below, EC-Hormones is analysed from the perspective of the case as a perennial dispute - one complicating element of which is the tension between trade and health encapsulated therein.
64. On the remaining WTO-inconsistencies in the Hormones and Bananas settlements, see Shlomo-Agon (2013: 291-292, 340-342).
65. On the prominent goals pursued by the DSS in perennial disputes such as EC-Bananas and EC-Hormones, see Shlomo-Agon (2013).
66. About the role of international courts like the DSS in facilitating the settlement of disputes in the shadow of the law through information-dissemination, construction of focal points, and stimulation of renegotiations, see Guzman (2008); Ginsburg and McAdams (2004); Linarelli (2000: 335).
67. Former WTO official (30 March 2012).
68. Ibid.
69. Former EU official (9 July 2012); US official (17 July 2012).
70. AB Secretariat staff member (4 July 2012).
71. United States - Tax Treatment for "Foreign Sales Corporations'. WT/DS108. Page22
72. WTO legal officer (4 April 2012).
73. WTO legal officer (16 March 2012).
74. US official (17 July 2012).
75. Appellate Body Report, United States - Continued Suspension of Obligations in the EC-Hormones Dispute, WT/DS320/AB/R, adopted 14 November 2008, para. 737 (hereafter US-Continued Suspension). On the significance of this recommendation, see Shlomo-Agon (2013: 336-337).
76. Panel Report, European Communities-Regime for the Importation, Sale and Distribution of Bananas, Recourse to Article 21.5 of the DSU by Ecuador, WT/DS27/RW/ECU, adopted 6 May 1999, paras. 6.154-6.159. On these distinctive panel suggestions, see Shlomo-Agon (2013: 283-85).
77. Decision by the Arbitrators, European Communities-Regime for the Importation, Sale and Distribution of Bananas, Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS27/ARB, 9 April 1999, para. 2.13.
78. Appellate Body Report, European Communities-Regime for the Importation, Sale and Distribution of Bananas, Second Recourse to Article 21.5 of the DSU by Ecuador and the United States, WT/DS27/RW2/ECU, WT/DS27/AB/RW/USA, adopted 11 and 22 December 2008, paras. 199-228.
79. WTO official (5 July 2012).
80. US-Continued Suspension, para. 368.
81. WTO legal officer (16 March 2012).
© 2016 Cambridge University Press Ahmad Ali Ghouri, Interaction and Conflict of Treaties in Investment Arbitration (Wolters Kluwer Law & Business, 2015), 192 pp.
Panayotis M. Protopsaltis Author Panayotis M. Protopsaltis Ahmad Ali Ghouri, Interaction and Conflict of Treaties in Investment Arbitration (Wolters Kluwer Law & Business, 2015), 192 pp. Jurisdiction This review provides a critical analysis of Dr Ghouri’s argument on the applicability of environmental, human rights, and other similar Topics treaties in investment arbitration through the resolution of possible Investment Arbitration conflicts between such treaties and the applicable Bilateral Investment Treaties (BITs) on the basis of a balance of the different Source interests and values involved in those treaties and in the BITs. Panayotis M. International investment law has been criticized for favouring the Protopsaltis, Ahmad Ali interests of the investors over those of the host states. International society responded by seeking to introduce duties of investors via Ghouri, Interaction and codes of conduct. When this failed, academics and arbitral tribunals Conflict of Treaties in begun to explore other options that could potentially lead to a more Investment Arbitration balanced approach to investors’ rights and obligations. This has led (Wolters Kluwer Law & to a number of rulings acknowledging investors’ obligations to Business, 2015), 192 contribute to the development of the host country, found in the pp., Journal of Preamble to the Washington Convention,(2) and to comply with the International Arbitration, laws of the host country, found in numerous BITs.(3) The new public (© Kluwer Law law approach to international investment law, in contrast, does not International; Kluwer aim at the establishment of investors’ obligations but rather at the Law International 2016, restriction of their rights.(4) Unlike the private law approach which Volume 33 Issue 2) pp. posits the equality of parties, the public law approach relies on the 234 - 244 superiority of the sovereign state in order to claim that the state party should benefit from special privileges and deference in investor- state arbitration.(5) In this context, Kingsbury & Schill have invited ‘arbitral tribunals to draw on public law concepts used in various other international and national courts and tribunals, notably by having recourse to proportionality analysis in order to balance rights and rights-limiting policy choices’,(6) in other words, investors’ rights and the public interest. This proportionality analysis, as the two authors explain, has already been applied to page "234" some extent by ‘tribunals in determining whether departures from investment treaty obligations to protect specified vital interests of the host State are permissible’.(7) Drawing upon this public law approach, Dr Ghouri’s doctoral thesis, Interaction and Conflict of Treaties in Investment Arbitration, published earlier this year discusses the applicability of non- commercial agreements, as the author terms human rights, environmental protection, and other similar conventions, in the context of investment arbitration. The author claims that treaties on the environment, human rights, and the like may apply in the context of investor-state arbitration through the resolution of possible conflicts between these agreements and the applicable BITs, not on the basis of the rules established by the Vienna Convention on the Law of Treaties (VCLT) but on the basis of a balance of the different interests and values involved in those agreements and the BITs. This review will present the content of the book before discussing some limits and objections to the arguments advanced therein. 1. THE APPLICABILITY OF NON-COMMERCIAL AGREEMENTS IN INVESTMENT ARBITRATION
In his introductory chapter, Dr Ghouri argues that the investor-state arbitral system does not operate in isolation from other systems of international law. He refers to the need to balance and determine priority between the potentially conflicting obligations that states owe to foreign investors and to their citizens, arising both from commercial agreements, including investment treaties, and from non-commercial agreements that may apply in investment treaty cases. The author claims that investor-state arbitral tribunals, as the central institutions testing the legitimacy of state measures, can strike the balance between these competing obligations by applying international law rules for the interpretation of treaties. He asserts that the VCLT ‘equips such arbitral tribunals with the required jurisdiction to take a self-initiated cognisance of rights and obligations arising from non-investment treaties that have direct bearing on an investment dispute’. Tribunals may then consider and apply such non-investment treaties, resolving normative overlaps and conflicts that would arise so as to ‘effectively address issues pertaining to the system’s legitimacy and develop concrete substantive rules of international investment law that are coherent with other parallel systems existing within international law’.(8) page "235" Dr Ghouri begins his analysis in Chapter 2 with a brief history of the evolution of investment treaties and a description of the mechanics of investment arbitration. Exploring the origins of BITs, he rightly observes that the continuous controversy between developed and developing countries and the resulting uncertainty regarding the content of customary international law on investment protection standards led to the adoption of BITs ‘as an attractive alternative to prescribe mutually acceptable substantive rules governing cross- border investments’.(9) He then goes on to state that BITs and free trade agreements containing investment clauses ‘have now effectively transformed’ investor-state ‘difference of interests into public international law disputes’.(10) The author describes the main traits of inter-state arbitration with mutual consent after the accrual of the dispute, as well as of investor-state arbitration under investor- state agreements and under BITs, and then explains the reasons for ‘the creation of a broadly institutionalised system of investor-state arbitration’.(11) The remainder of the chapter is dedicated to the analysis of the mechanism of investor-state arbitration and the specific characteristics thereof, namely, the absence of a defined set of substantive rules and fundamental principles governing the investor-state relationship. This ‘procedure without substance’ has, according to the author, ‘entrusted greater responsibility on tribunals for the development of investor-state arbitration as a system that protects the rights of foreign investors but also balances their rights with those of the citizens of host States when required’.(12) In Chapter 3, the author turns his attention on the substantive and jurisdictional issues of treaty conflicts. Treaty conflicts are defined as conflicting obligations that states have acquired under two treaties which give rise to problems regarding the validity or enforceability of conflicting obligations owed by a state.(13) According to Dr Ghouri, the rules of the VCLT, namely, the lex posterior/lex prior rules, the lex specialis rule, and the rule on treaties dealing with the same subject matter involving different parties that authorizes political decision, fail to provide an appropriate solution to normative conflicts. In addition, those rules treat different treaties alike thus obscuring their many differences. Because of their differences, the characterization of treaties on the basis of their subject matter, the number of parties involved, and their intended object and purposes cannot serve to determine the hierarchy between them. In contrast, understanding treaty conflicts as interests- and value-conflicts may provide an objective criterion to determine the hierarchy of norms in conflict. Dr Ghouri explains that ‘a norm page "236" represents a value and a value represents interests in terms of benefits or advantages that an individual or a community derives from a norm’.(14) Values are ‘internalised in the form of norms’, and ‘[o]n the international level, this internalisation is reflected through the development of jus cogens, international customs, or by way of incorporating norms in treaties, each representing a different stage of internalisation process’.(15) Dr Ghouri also observes that tribunals may have extensive jurisdiction to entertain all matters relating to or affecting the subject matter of the treaty. In particular, the jurisdiction of the International Centre for Settlement of Investment Disputes (ICSID) extends to any legal dispute arising directly out of an investment. Consequently, ‘[o]nce a State’s consent is established, any State measure in respect of human rights or the environment that offsets the legitimate expectations of an investor will bring the dispute within the ICSID’s jurisdiction’.(16) However, despite some examples of value-oriented balancing of conflicting treaty norms in the European Court of Human Rights and the World Trade Organization’s Panels, international courts and tribunals have developed techniques aiming to avoid rather than resolve treaty conflicts. An analysis of treaty conflicts in investor-state arbitration is the focus of Chapter 4. The author concludes from the repeated emphasis of the VCLT and the UN Charter on the principles of justice and international law when resolving disputes concerning treaties that ‘tribunals must interpret and apply treaties in conformity with the overall framework of international law’.(17) He finds the legal basis for the interaction of investment and non-investment treaties in the principle of systemic integration set out through the references to applicable rules of international law in Article 31(3)(c) of the VCLT, in Article 42(1) of the ICSID Convention and in Article 102(2) of the North American Free Trade Agreement. Examining the consequences of this interaction he concludes that ‘[t]he principle of systemic integration and the requirements of justice obligate investor-State arbitral tribunals to adopt a process of balancing or readjustment of all rights and obligations arising from the relevant investment and non-investment treaties applicable in the dispute’.(18) Examining the forms of interaction or ‘cross fertilisation of investment and non-investment treaties’,(19) the author draws a distinction between explanatory and supervisory cross-fertilization of treaties. The first includes cases where both norms of investment treaties and human rights treaties complement one another and the non-investment treaty regime may page "237" operate as an interpretative tool and play explanatory and ancillary roles in investment arbitration. The second includes cases where norms of investment treaties and human rights treaties create incompatible obligations for states, meaning that states may be compelled to violate investment treaty obligations in order to protect their citizens’ rights to health, safety, and the environment. In those latter cases, human rights and environmental rights treaties can effectively play a supervisory or corrective role in the interpretation of investment treaties and in the normative development of international law. Yet the author acknowledges that apart from a few exceptions, tribunals ‘occasionally applied non-investment treaties when they deemed appropriate for determining investors rights’ whereas ‘the direct application of non-investment treaties on investor-State disputes is still to come’.(20) Finally, the author investigates the problem of resolution of normative conflicts within the international investment treaty system, namely, of conflicts between two provisions of the same investment treaty dealing with different subject matters and conflicts on the concept of investment arising between BITs and the ICSID Convention. In that respect, he observes the tendency of tribunals to designate ‘the development-oriented ICSID Convention as ‘basic’ treaty on investment protections as compared to investor- oriented BITs’.(21) The final chapter of the book is dedicated to a particular (and peripheral) problem, namely, investment treaty conflicts in the context of the European Union (EU). The conflicts in question arose since the Treaty on the Functioning of the EU (TFEU) established by the Treaty of Lisbon (2007) included foreign direct investment in the exclusive common commercial policy of the EU.(22) The author explores the views of the European Court of Justice (ECJ) on conflicts between the TFEU and the intra- and extra-EU BITs concluded by the EU Member States, as well as between the TFEU and the Energy Charter Treaty (ECT). He also examines the investor-state arbitral tribunals’ views on the TFEU–BITs and TFEU– ECT conflicts. The author observes that arbitral tribunals have treated both intra- and extra-EU BITs as autonomous instruments securing ‘investor’s procedural right to international arbitration granted in the investment treaties’,(23) before concluding that termination of intra-EU treaties will not necessarily deprive investor- state tribunals of their jurisdiction to hear intra-EU investment cases, since ‘other legal bases, such as BITs’ survival clauses, remain available to arbitral tribunals’.(24) page "238" 2. LIMITS TO THE APPLICABILITY OF NON-COMMERCIAL AGREEMENTS IN INVESTMENT ARBITRATION
The idea of application of environmental, human rights, and other similar treaties in the context of investor-state arbitration is, of course, not new. Dr Ghouri himself refers to the SPP case where an ICSID Tribunal, already in 1992, had observed that after the inclusion of the pyramid fields in the inventory of property to be protected by the UNESCO Convention ‘the Claimants’ activities on the Pyramids Plateau would have become internationally unlawful’.(25) Ben Hamida also had claimed in the past in relation to ICSID arbitration that references to the principles of international law in the provisions on applicable law of various national and international investment protection instruments authorize arbitrators to apply international treaties on environmental protection, human rights, corruption, and working conditions.(26) Dr Ghouri, however, is the first to have explored in depth this territory and has managed to analyse most of the problems related to the application of the rules of the VCLT in modern complex international treaties, the main aspects of the interaction between the treaties in question and the BITs, as well as the TFEU–BITs and TFEU–ECT conflicts. For this alone, the book deserves our full attention. This is not to say that this pioneering work is free from drawbacks. A number of the points raised by the author are highly controversial. He claims, for example, that BITs ‘have played a pivotal role in this enormous flow of foreign investment’,(27) although numerous scholars have contested the effects of BITs on the canalization of foreign direct investment.(28) In addition, he fails to fully integrate his interesting analysis of the TFEU-BITs and the TFEU-ECT conflicts into his central argument on cross-fertilization of investment and non-investment treaties and on the obligation of arbitral tribunals to balance the relevant rights and interests involved. The primary difficulty with Dr Ghouri’s study, however, lies in the inherent limits of the topic itself, i.e., the limited scope of application of environmental, human rights, and other similar treaties in the context of investor-state arbitration. page "239" Dr Ghouri mentions a number of cases in which arbitral tribunals have applied other treaties in order to clarify the content of a particular principle or rule (explanatory cross-fertilization of treaties), as well as in order to determine whether measures depriving the investor of his rights to his investment were taken by the state in order to abide by its other international obligations (supervisory cross-fertilization of treaties). In contrast, to the best of our knowledge, arbitral tribunals have never applied such other treaties in order to establish obligations of foreign investors. The reason for that is, of course, rather obvious: most of these treaties do not impose direct obligations on individuals. Even in the World Duty Free case in which the tribunal found ‘[i]n light of domestic laws and international conventions relating to corruption...that bribery is contrary to the international public policy of most, if not all, States or, to use another formula, to transnational public policy’,(29) it relied on the general principles of English and Kenyan law to rule on the illegality of the claimant’s conduct.(30) In view of the limitations above, the question to ask here is whether states can use the defence of conflicting international obligations to avoid payment of compensation due for takings of property. In other words, the question is who should bear the cost of measures taken by the state in fulfilment of its other international obligations. BITs answer this question unequivocally in favour of the investor. Indeed, most treaties condition the legality of an expropriatory measure, amongst others, upon serving a public purpose and being accompanied by appropriate, namely, prompt, adequate, and effective, compensation.(31) To that Dr Ghouri replies with his balance of interests’ test, evaluating interests arising from the applicable investment and non-investment treaties and, in particular, investor’s interests and public interests. But what could be the effect of a prevailing public interest on the state’s obligation to compensate the investor expropriated? Ranjan observes the strange situation where public purpose is used in order to determine whether the foreign investment has been expropriated: ‘on the one hand the treaty requires that foreign investment should not be expropriated unless there is public purpose and accompanied by compensation, and, on the other hand, the argument that regulatory measures tantamount to expropriation would not give rise to a claim for compensation if adopted for public purpose.’ Public purpose can therefore be used only as a criterion to determine the legality of the expropriation and not the page "240" existence of expropriation per se.(32) As a result, assuming that a public purpose is one that serves a public interest, a prevailing public interest will have no incidence on the existence of expropriation per se and will only be of relevance for the determination of its legality. In his introduction, Dr Ghouri answers instead that the use of value- oriented reasoning ‘would lead to achieving a balance in determining the amount of compensations payable to foreign investors for violations by the host States of investment treaty rights when such violations are directly attributable to conflicting non-investment obligations’.(33) Similarly, elsewhere he claims that: the determination of the amount of compensation remains a legal question requiring a principled approach...the choice of method should depend upon the motives behind a State’s act and its intended aims and objective...the investor-State tribunals can use their choice of valuation method wisely in order to balance the investor’s interests against the conflicting public interests. After a brief analysis of the distinctions between different forms of compensation, he concludes that ‘[i]nvestor-State tribunals can use these distinctions as a balancing technique and for the just settlement of investment disputes minimising the burden on public purse resulting from legitimate State act aimed at the protection of public interest’.(34) Finally, he claims that ‘[i]n investor-State arbitration, primary remedy is compensation’ and the integration of the process of ordering conflicting norms or balancing conflicting interests ‘provides tribunals with an effective mechanism for balancing conflicting rights and obligations through adjustments in the amount of compensation payable to foreign investors’.(35) In other words, Dr Ghouri proposes the payment of a reduced compensation in the case of expropriation on account of a conflicting international obligation of the state. But, as Dr Ghouri himself implicitly admits,(36) appropriate compensation is the minimum of compensation that the investor is entitled to receive for any lawful expropriation of his property. And even if this were not so, one can wonder how this reduced compensation is to be calculated. Dr Ghouri rightly (albeit implicitly) admits the difficulty of this exercise. Having observed that ‘there are no mandatory criterion to determine the amount of page "241" compensation and calculations depend on the facts of each case’,(37) he explicitly avoids ‘the detailed discussion on the rules for calculation of compensation’.(38) Apart from this difficulty, this exercise is also likely to encounter a serious objection that Dr Ghouri does not ignore; namely, that: the foreign investor is not responsible for the conflicting treaty obligations that his home and host States have acquired. States might have concluded a treaty, containing obligations that conflict with a foreign investor’s rights under an investment treaty, after the investor had proceeded with the investment activity and had made all or some investments. In such cases, the author concludes: a foreign investor may become an innocent ‘victim’ of the acts of State that might otherwise be legal under international law. Where the investor’s investment followed all legal requirements and procedures of domestic laws of the host State or is based on an investor-State agreement...duly made with the host State, such investor cannot be responsible if by allowing the investment or by making the agreement, the host State has violated its other treaty obligations that were not known to foreign investor at the time of making investment. In such situations, a host State may be liable to defraud foreign investor, and denial of payment of compensation would result in unjust enrichment of the host State and unjust settlement of dispute.(39) What is then left is investor’s knowledge or even involvement in the illegality, cases usually already covered by other provisions of BITs and international investment agreements.(40) In view of those limitations, one may wonder whether this balance of interests, which relies upon the theoretical construct of interest- and value-conflicts, may not be achieved instead through the proportionality analysis which has essentially the same goal, namely, to balance investors’ rights and the public interest, by merely claiming that abiding by a conflicting international obligation of a state is a legitimate government purpose, thus satisfying the requirements of the first step of the analysis.(41) The proportionality analysis claims to leave the VCLT intact(42) and has already been applied by some tribunals.(43) Yet, its use in BITs’ interpretation has been rightly criticized, amongst others, for conferring power on ‘party-appointed arbitrators who are not embedded in the political and social system of the communities whose disputes they decide and have inadequate knowledge of the overall legal, political and social context related to the dispute’(44) page "242" ‘to take policy-driven decisions’ or for ‘legitimizing juridical law-making’,(45) as well as for violating the clear textual language of the BITs and thus not being ‘in consonance with the customary rules on treaty interpretation’ codified in the VCLT.(46) Those criticisms, of course, apply also to Dr Ghouri’s balance of interests’ test. In addition to the above, Ranjan rightly explains in relation to the limits on the right of the host state to regulate for bona fide public purpose affecting the rights of foreign investors, that the disproportionate effect test invoked by the proponents of the proportionality principle ‘would defeat the very purpose of having expropriation provisions in BITs’ by allowing host states to shift ‘the burden of realising public purpose onto foreign investors alone’.(47) In that respect, Dr Ghouri’s reference to the avoidance of the foreign investor becoming ‘an innocent ‘victim’ of the acts of State that might otherwise be legal under international law’(48) subscribes to the criticism of the proportionality analysis and the public law approach to investor-state arbitration in general, rather than to its support. Panayotis M. Protopsaltis (*) page "243" page "244"
2 See, e.g., Fedax N.V. v. Republic of Venezuela (ICSID Case No. ARB/96/3), Award of 11 Jul. 1997, 37 I.L.M. 1384 (1998); Salini Costruttori S.P.A. & Italstrade S.P.A. v. Kingdom of Morocco (ICSID Case No. ARB/00/04), Award of 23 Jul. 2001, 42 I.L.M. 62 (2003); Consortium R.F.C.C. v. Kingdom of Morocco (ICSID Case No. ARB/00/6), Award of 16 Jul. 2001, paras 58–66; Joy Mining Machinery Ltd. v. Arab Republic of Egypt (ICSID Case No. ARB/03/11), Award of 6 Aug. 2004, para. 53. 3 See, e.g., P.M. Protopsaltis, ‘Compliance with the Laws of the Host Country in Bilateral Investment Treaties’, in Αίνοσ μνήμησ Καθηγητού Ηλία Κρίσπη: Συμβολέσ στην πιστήμη του δικαίου και των δι θνών σχέσ ων 583-602 (Sakkoulas, 2015). 4 A. Kulick, Book Review: Stephan W. Schill (ed.), International Investment Law and Comparative Public Law (Oxford: Oxford University Press, 2010), 22 EJIL 920 (2011). 5 Th. Wälde, in A. Roberts, Clash of Paradigms: Actors and Analogies Shaping the Investment Treaty System, 106 AJIL 55 (2013). 6 B. Kingsbury & S. Schill, Public Law Concepts to Balance Investor’s Rights with State Regulatory Actions in the Public Interest – The Concept of Proportionality, in International Investment Law and Comparative Public Law 77 (S. Schill ed., Oxford University Press, 2010). 7 Ibid., at 102; cf. X. Han, The Application of the Principle of Proportionality in Tecmed v. Mexico, 6 Chinese JIL 644 (2007). 8 A.A. Ghouri, Interaction and Conflict of Treaties in Investment Arbitration 9 (Wolters Kluwer Law & Business 2015). 9 Ibid., at 16. 10 Ibid., at 9. 11 Ibid., at 47. 12 Ibid. 13 Ibid., at 64. 14 Ibid., at 52. 15 Ibid., at 56. 16 Ibid., at 98–99. 17 Ibid., at 106. 18 Ibid., at 112. 19 Ibid., at 115. 20 Ibid., at 137. 21 Ibid., at 148. 22 According to the TFEU, ‘[t]he common commercial policy shall be based on uniform principles, particularly with regard to...foreign direct investment’ (TFEU (2007), Art. 207(1)). 23 Ghouri, supran. 8, at 175. 24 Ibid., at 176. 25 Southern Pacific Properties (Middle East) Ltd. v. Arab Republic of Egypt (ICSID Case No. ARB/84/3), Award on the Merits of 20 May 1992, paras 156–57. 26 W. Ben Hamida, L’arbitrage Etat-investisseur cherche son équilibre perdu: Dans quelle mesure l’Etat peut introduire des demandes reconventionnelles contre l’investisseur privé?, 7 Int’l L. Forum 262 (2005). 27 Ghouri, supran. 8, at 47. 28 M. Sornarajah, The International Law on Foreign Investment 177–178 (Grotius Publications, Cambridge University Press, 2010); The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows 109–457 (K.P. Sauvant & L.E. Sachs eds, Oxford University Press, 2009); T.W. Wälde, International Investment under the 1994 Energy Charter Treaty, Legal, Negotiating and Policy Implications for International Investors within Western and Commonwealth of Independent States/Eastern European Countries, 29 JWT 15 (1995); J.W. Salacuse, BIT by BIT: The Growth of Bilateral Investment Treaties and Their Impact on Foreign Investment in Developing Countries, 24 Int’l Law. 673–674 (1990). 29 World Duty Free Co. Ltd. v. Republic of Kenya (ICSID Case No. ARB/00/7), Award of 4 Oct. 2006, para. 157. 30 Ibid., para. 179; cf. B. Poulain, ‘La conformité de l’investissement au droit local dans le contentieux investisseur – État’, 2007/4 Les Cahiers de l’arbitrage, Gaz. Pal. of 15–15 Dec. 2007 at 42. 31 R. Dolzer & Chr. Schreuer, Principles of International Investment Law 100-101 (Oxford University Press, 2012). 32 P. Ranjan, Using the Public Law Concept of Proportionality to Balance Investment Protection with Regulation in International Investment Law: A Critical Appraisal, 3 Cambridge J. Int’l & Comp. Law 869 (2014). 33 Ghouri, supran. 8, at 9. 34 Ibid., at 45–46. 35 Ibid., at 112–13. 36 ‘[M]ost investment treaties require States to pay compensation for expropriation of foreign investor’s investment even if expropriation resulted from a regulation to protect public interest’ (ibid., at 113). 37 Ibid., at 113. 38 Ibid., at 114. 39 Ibid., at 113–14 (footnotes omitted). 40 See supran. 3. 41 Kingsbury & Schill, supran. 6, at 86. 42 Ibid., at 78. 43 See supran. 7. 44 Ranjan, supran. 32, at 862. 45 Kingsbury & Schill, supran. 6, at 102–3, passim. 46 Ranjan, supran. 32, at 867. 47 Ibid., at 870. 48 Ghouri, supran. 8, at 113–14. * Research Fellow, Centre for American Legal Studies, Birmingham City University, U.K.
© 2016 Kluwer Law International BV (All rights reserved). Kluwer Arbitration is made available for personal use only. All content is protected by copyright and other intellectual property laws. No part of this service or the information contained herein may be reproduced or transmitted in any form or by any means, or used for advertising or promotional purposes, general distribution, creating new collective works, or for resale, without prior written permission of the publisher. If you would like to know more about this service, visit www.kluwerarbitration.com or contact our Sales staff at [email protected] or call +31 (0)172 64 1562. Arbitration International, 2016, 32, 243–259 doi: 10.1093/arbint/aiv006 Advance Access Publication Date: 18 December 2015 Article To what extent should arbitrators respect domestic case law? The German experience regarding the Law on Standard Terms Klaus Peter Berger* Downloaded from
ABSTRACT International arbitrators are often confronted with the question of whether they should follow the case law of domestic courts of the jurisdiction whose law applies to the con- tract before them. The answer to that question will certainly depend on the nature of that legal system, eg whether it belongs to the civil law or the common law. This article http://arbitration.oxfordjournals.org/ explains that arbitrators dealing with contracts governed by German law must not nec- essarily follow the case law of the German courts because this case law has only a de facto, not a de jure precedential effect. Like German courts, arbitrators may deviate even from long-standing case law of the highest German court if they are convinced that the decision was wrong, or that the result reached by the higher court does not conform to the needs of international business.
1. INTRODUCTION The extent to which international arbitrators should respect the domestic case law of the jurisdiction whose law is applicable to the contract has become a matter of great by guest on December 8, 2016 concern in arbitrations involving contracts governed by German law. In fact, it is fair to assume that this issue arises in a large number of these arbitrations since many, if not most, contracts concluded in international business are based in whole or in part on standard terms (Allgemeine Gescha¨ftsbedingungen or AGBs).1 Very often, such AGBs constitute the heart of the warranties and liabilities system to which the parties have agreed in their contract and which constitute the subject matter of their
* Klaus Peter Berger, professor of law and director of the Centre for Transnational Law (CENTRAL) at the University of Cologne, Germany and President of the German Institution of Arbitration (DIS); E-mail: [email protected]. The article is an adapted version of a presentation delivered at the 33rd Annual Meeting of the ICC Institute of World Business Law in Paris on 5 December 2013 and published in: F. Bortolotti/P. Mayer (eds), The Application of Substantive Law by International Arbitrators (2014) 80 et seq. 1 See H. Collins, ‘Regulatory Competition in International Trade: Transnational Regulation through Standard Form Contracts’ in H. Eidenmu¨ller (ed), Regulatory Competition in Contract Law and Dispute Resolution (de Gruyter, Berlin et al. 2013) 121, 122ff.
VC The Author 2015. Published by Oxford University Press on behalf of the London Court of International Arbitration. All rights reserved. For Permissions, please email: [email protected]
243 244 To what extent should arbitrators respect domestic case law? dispute before the arbitral tribunal. In these cases, the German Law on Standard Terms (AGB-Law), contained in sections 305–310 of the German Civil Code (Bu¨rgerliches Gesetzbuch, BGB), invalidates a great number of those AGBs, provided the law is interpreted in line with the long-standing and restrictive case law (sta¨ndige Rechtsprechung) of the Federal Court of Justice (Bundesgerichtshof, BGH).2 Whether an arbitral tribunal should follow or deviate from that case law in deciding the valid- ity of AGBs becomes a highly contentious issue in those arbitrations.
2. EXAMPLES FROM ARBITRAL PRACTICE 2.1 ICC arbitration No. 10279
The interim award of January 2001 by the arbitral tribunal in International Chamber Downloaded from of Commerce (ICC) arbitration No. 10279 illustrates the problem and the signifi- cance of this issue in arbitrations arising out of contracts governed by German law.3
2.1.1 The case and the legal issues at stake
A German supplier and a foreign buyer concluded a contract for the delivery of a http://arbitration.oxfordjournals.org/ complex industrial machine which was later the subject of their arbitration. The man- agers who concluded the contract on behalf of their companies were experienced businesspeople. The contract was governed by German law. The ‘United Nations Economic Commission for Europe (ECE) General Conditions for the Supply of Plant and Machinery for Export (LW 188)’4 had been attached to the seller’s confir- mation of order. The ECE Conditions qualified as AGBs and had been validly incor- porated into the contract. However, the seller had supplemented the ECE General Conditions with an additional, typewritten provision that was inserted into the text of the AGBs and provided: by guest on December 8, 2016
‘11.3 The liability in damages [of the seller] according to article 11.1 is limited to 5% of contract value.
11.4 Any further claims of purchaser, in particular for indemnification of dam- ages of any nature and also such damages not resulting from the scope of supply are excluded without consideration on which legal ground they are presented.
When the buyer sued the seller for damages in an ICC arbitration, because the machine allegedly did not meet the capacity parameters agreed upon in the contract and warranted by the seller under the applicable German law, the seller invoked the limitation of liability (‘cap’) clause in section 11.3 of the ECE Conditions. Assuming that the cap clause was valid, it would have meant a considerable limitation of the damages claimed by the buyer from the seller.
2 See generally K.P. Berger, ‘Abschied von der Privatautonomie im unternehmerischen Gescha¨ftsverkehr?’ (2006) 27 ZIP 2149ff. 3 ICC Interim Award No 10279, SchiedsVZ 2005, 108ff with Note Hobeck ibid 112. 4 Text available at
The buyer therefore argued that the cap clause was invalid under German AGB law. If the clause were to be qualified as AGB, because it was imposed by one party on the other party rather than being the result of a detailed bargaining process be- tween them, the provision would in fact have to be considered invalid under the long-standing case law of the BGH. The BGH has held that a limitation of liability clause may not serve to free the party that has introduced it into the contract from performing an obligation. This includes the duty to pay damages to the other side. The purpose of such an obligation is to ensure the orderly execution of the contract and, in addition, counterparties usually—and rightfully—rely upon the performance of such an obligation. In other words, the party introducing the clause into the con- tract may not take from its contract partner with one hand (limitation of liability) what it has given to it with the other (an undertaking to pay damages in the event of Downloaded from breach of contract). The BGH bases this reasoning on section 309 No. 7 b) BGB. That provision invalidates limitation of liability clauses in AGBs if that limitation, as in ICC arbitration No. 10279, extends to damages caused by grossly negligent con- duct of the party using the clause.5 According to section 310(1) BGB, however, that http://arbitration.oxfordjournals.org/ provision is not applicable if the contract provision limiting liability is contained in a b2b-contract. Section 310(1) BGB specifies that, in those cases, the question of whether the clause is valid shall be decided solely under the more flexible standard of the blanket clause of section 307 BGB. Under that provision, a contract clause con- tained in AGBs is invalid if it leads to an ‘unreasonable disadvantage’ for the other side that contravenes the principle of good faith. Section 310(1) BGB specifically re- quires courts, when analysing standard form clauses contained in b2b-contracts un- der the blanket clause of section 307 BGB, to take appropriate account of the practices and usages prevailing in the trade concerned. The purpose of that legislative distinction between clauses contained in b2c- and b2b-contracts is to allow the by guest on December 8, 2016 courts to validate those AGBs in b2b-contracts that they would have to invalidate in b2c-contracts.6 The BGH, however, has consistently disregarded this legislative pol- icy and has declared AGBs invalid, regardless of whether the clause is contained in a b2c- or b2b-contract. In the BGH’s view, businesspeople and consumers alike are en- titled to rely on the belief that their contractual partner will not cause damage to them through grossly negligent acts. The BGH, therefore, sees no reason to differen- tiate between b2c- and b2b-contracts in its treatment of such AGBs.7 The seller argued that the cap clause was valid because it did not qualify as AGB. For him, protection granted under the cap clause against subsequent damage claims
5 s 309 No 7(b) BGB does not mention damages caused by wilful conduct because pursuant to s 276(3) BGB, a party may not exclude its liability for damages caused by wilful conduct, no matter whether such exclusion is contained in a freely negotiated clause or in standard forms. 6 Bundestags-Drucksache 7/9319, 43 (on s 12 AGBG); P. Schlosser, in J. V. Staudinger (ed), Bu¨rgerliches Gesetzbuch (Sellier-de Gruyter, Berlin, new edn, 2013) s 310, No 1ff. 7 See, eg BGH NJW 2007, 3774, 3775; ZIP 2013, 1674; NJW-RR 2006, 267; see also BGH NJW 1984, 1750, 1751; 2006, 46; 2008, 1148, 1149; NJW-RR 2005, 247, 248; C. Gru¨neberg, in O. Palandt (ed), Bu¨rgerliches Gesetzbuch (74th edn, Beck, Munich 2015) s 309, No 55. 246 To what extent should arbitrators respect domestic case law? from the buyer had been of vital importance at the time of conclusion of the contract for two reasons:
i. the transaction involved a new type of machine that, until that purchase transaction, had only existed in the form of a scientific study. This made it impossible for the seller to pre-estimate a risk premium for any potential damage that the machine could have caused to the buyer’s business; ii. the seller was not in a position to monitor or influence the potentially damaging manner in which the machine would be operated by the buyer after delivery, namely, after it had left the seller’s sphere of influence. Downloaded from
Consequently, the claimant’s witnesses, who had participated in the negotiations of the contract, testified before the arbitral tribunal that, even though they ‘did raise the point of clause 11.3, namely the 5% liability limitation’, they ‘were told that this http://arbitration.oxfordjournals.org/ clause cannot be changed’. They also testified that since the seller’s representatives ‘said that they had to insist on these general conditions on a take it or leave it basis’, and ‘since B [the seller] were the only ones who could deliver such a machine, we could not but accept these conditions’.8 If the cap clause were not to be qualified as AGB, it would have been valid. Under German law, contract clauses that do not qualify as AGB are only considered void only if they are against boni mores (section 138 BGB) or if they violate a legal provi- sion prohibiting the very result that the parties intend to achieve by inserting the clause into their contract (section 134 BGB). Thus, the legal threshold for invalidat- ing such clauses is very high. As a general rule, therefore, contract provisions, like the by guest on December 8, 2016 cap clause at issue in ICC arbitration No. 10279, are usually considered as valid un- der German law if they do not qualify as AGB.
2.1.2 The core problem: standard terms or a clause that was ‘bargained for in detail’? The core problem in that arbitration was whether the cap clause qualified as a freely negotiated contract clause or as a standard term. In light of its significance and the fact that it was hotly debated between the parties, the arbitral tribunal decided this is- sue in an interim award. The statutory test for the arbitral tribunal’s decision is contained in section 305(1) 3rd sentence BGB. It provides that contract terms that have been ‘bargained for in detail’ (‘im Einzelnen ausgehandelt’) are not AGBs and, thus, are not subject to the strict rules and case law related to AGB-Law. In a long line of judgements dating back to the early 1980s, the BGH has developed a very restrictive and abstract for- mula to determine when a contract clause may be regarded as ‘bargained for in detail’ and, thus, as being outside the scope of the AGB-Law and related case law of the
8 ICC Interim Award No 10279 (n 3) 112. To what extent should arbitrators respect domestic case law? 247
BGH which both tend to invalidate such clauses. Pursuant to that case law, a contract clause may only be regarded as bargained for in detail if:
‘the party introducing the clause seriously puts at the disposition of the other party the core substance of that clause, i.e. those provisions which deviate from or change the essential contents of the law [‘gesetzesfremder Kerngehalt’] and provides the other side with freedom to safeguard its own interests, i.e. with the realistic opportunity to influence the contents of such clause.’9
This formula requires the parties to discuss extensively and in detail every single contract provision with their counterparties during contract negotiations. General negotiations between the parties that do not amount to a detailed analysis of each in- Downloaded from dividual contract clause, but rather focus on selected provisions that are of interest for either side and/or involve so-called ‘package deals’ with respect to contract provi- sions that are connected with each other would not suffice to bring the clause outside the scope of the AGB-Law.10 The fact that the parties read the clause together and http://arbitration.oxfordjournals.org/ discuss its content does not suffice, even if the other party had no problem with the clause because it agreed with the policy behind it at the time the contract was negoti- ated.11 The party that has introduced the clause bears the burden of proof for the fact that the clause was bargained for in detail.12 For the party that is faced with AGBs, the BGH’s strict formula provides a strong incentive to remain silent and accept the imposition of the contract provision by the other side during contract negotiations only to argue later, once a dispute arises, that these contract clauses were not ‘bargained for in detail’ and, thus, constitute invalid AGBs.13 This scenario is sometimes called the ‘AGB trap’14 in German law. Indeed, the BGH has almost never confirmed that a clause was ‘bargained for in detail’ when it has been called by guest on December 8, 2016 upon decide this issue and has therefore invalidated most of the clauses which were put before him. While the BGH’s strict formula makes perfect sense in b2c-transactions, where consumers must be afforded optimum protection under the AGB-Law, the BGH also applies this formula to b2b-transactions, where the presumption of the profes- sional competence of businesspeople—as a basic tenet of German commercial
9 See, eg BGH NJW 2013, 856; BGHZ 143, 103, 111ff; 150, 299; 153, 311, 312; BGH NJW-RR 1987, 144, 145; 1993, 504; NJW 1992, 2283, 2285; 2000, 1110, 1111; ZIP 2004, 315; see generally E. Gottschalk, ‘Neues zur Abgrenzung zwischen AGB und Individualabrede’ (2005) 58 NJW 2493, 2494ff; J. Uusitalo, Einbeziehung von AGB im unternehmerischen Gescha¨ftsverkehr zwischen Deutschland und Finnland (Peter Lang, Frankfurt 2012) 120ff. 10 See, eg BGH NJW 2003, 1805, 1807ff, where the Court denied that the contract clauses were ‘bargained for’ even though the parties had read, discussed and made changes to the provisions during their contract negotiations; see also BGH NJW 1982, 2309; 1997, 135; K.P. Berger, ‘Aushandeln von Vertragsbedingungen im kaufma¨nnischenGescha¨ftsverkehr’ (2001) 54 NJW 2152ff. 11 BGH NJW 2000, 1110. 12 BGHZ 83, 56, 58; BGH NJW 1998, 2600, 2601. 13 See D. Rabe, ‘Die Auswirkungen des AGB-Gesetzes auf den kaufma¨nnischenVerkehr’ (1987) 40 NJW 1978, 1979. 14 K.P. Berger and L. Kleine, ‘AGB-Kontrolle im unternehmerischen Gescha¨ftsverkehr’ (2007) 62 BB 2137, 2141; K.P. Berger, ‘Fu¨r eine Reform des AGB-Rechts im Unternehmerverkehr’ (2010) 63 NJW 465, 470; S. Kaufhold, ‘“Echte” und “unechte” AGB in der Klauselkontrolle’ (2012) 67 BB 1235, 1237. 248 To what extent should arbitrators respect domestic case law? law15—would not require the same degree of legal protection that the BGH affords to consumers. Furthermore, in commercial reality, businesspeople do not conduct their negotiations in the artificial manner proscribed by the BGH’s formula.
2.1.3 The Tribunal’s decision The tribunal in the ICC arbitration No. 10279 held, by a majority decision, that the cap clause in No. 11.3 of the ECE General Conditions had to be considered as ‘bar- gained for in detail’ and, therefore, as valid under the applicable German law because it had been the subject of the negotiations between the parties. The tribunal found this even though the clause had not been changed during the contract negotiations and had been declared non-negotiable by the seller who introduced the clause. The tribunal argued that to assume, in a case where the other party was aware of the Downloaded from clause and its significance, that the clause is not ‘bargained for in detail’ would be inconsistent with commercial reality. Rather, the tribunal held the view that, in a b2b-context, a clause is ‘bargained for in detail’ if, after negotiations between two business parties, the party who is confronted with a certain contract clause decides to http://arbitration.oxfordjournals.org/ conclude the contract in full knowledge of that specific contract provision and the relevant risks connected with it. The tribunal found that this condition was met in ICC arbitration No. 10279 because the parties had discussed the cap clause during con- tract negotiations, such that the buyer must have been aware of the significance of the clause and was free to abstain from the conclusion of the contract if it was not willing to carry the risks associated with that clause.
2.2 Other examples The dispute that was the subject of the interim award in ICC arbitration No. 10279 is exemplary of the numerous international arbitrations that have occurred in the by guest on December 8, 2016 past decades where the contract was governed by German law and AGBs were used by one party. These arbitrations concerned not only supply and other delivery contracts, but also post-Mergers and Acquisitions (M&A) and similar disputes where the representation and warranty sections of the contract were at issue. In these cases, counsel sometimes argued that exclusion or limitation of liability clauses contained in the representation & warranties section of the M&A contract were not ‘bargained for in detail’ and, therefore, qualify as invalid AGBs. Counsel would make this argu- ment even though the parties, their advisors, and their attorneys had exchanged mark-up copies of the draft contract numerous times prior to the signing. This ap- proach, however, has the potential of destroying the self-contained system of liabili- ties which the parties typically establish in M&A contracts. Another ICC case concerned the question of whether a penalty clause qualified as ‘bargained for in detail’ or as an invalid AGB. Unlike the ICC arbitration no. 10279 tribunal, that tribunal took a strict approach. After hearing legal experts on this issue, that tribunal held that, even though the text of the penalty clause was discussed and changed during the contract negotiations, the clause as a whole was not ‘bargained for in detail’ and was, therefore, invalid because the amount of the penalty had remained unchanged throughout the contract negotiations. This tribunal reached
15 See Berger (n 2) 2151. To what extent should arbitrators respect domestic case law? 249 this conclusion by following the strict interpretation of the BGH’s long-standing case law, which takes the wording of section 305(1) 3rd sentence BGB literally and requires the clause to be ‘bargained for in detail’, ie with respect to every single part of the penalty clause.16 This analysis has consequences beyond penalty and limitation of liability clauses. The question of whether a clause was ‘bargained for in detail’ or qualifies as an inva- lid AGB may even be relevant for the jurisdiction of an arbitral tribunal in cases where the arbitration clause is contained in a set of contract conditions that were drafted for use in a number of transactions and for which the BGH has developed strict requirements for arbitration clauses that qualify as AGB.17
3. IS THE INTERNATIONAL ARBITRATOR BOUND TO FOLLOW Downloaded from LONG-STANDING CASE LAW OF THE BGH? To answer the question as to whether the arbitrators in ICC arbitration No. 10279 and in similar cases are bound to follow the case law of the BGH, one needs to examine the effect of precedents in civil law jurisdictions such as Germany (sub-Section 3.1) http://arbitration.oxfordjournals.org/ and the role of international arbitrators and the parties’ expectations in international disputes (sub-Section 3.2).
3.1 The effects of precedent in civil law Under Anglo-American law, a precedent is proof of the existence of a particular rule of law and has authority ‘because it is a correct statement of the law’.18 Blackstone ac- knowledged this law-making power of the common law judges in his commentaries on the Laws of England:
‘ ... it is an established rule to abide by former precedents, where the same by guest on December 8, 2016 points come again in litigation: as well to keep the scale of justice even and steady, and not liable to waver with every new judge’s opinion; as also because the law in that case being solemnly declared and determined, what before was uncertain, and perhaps indifferent, is now become a permanent rule, which it is not in the breast of any subsequent judge to alter or vary from, according to his private sentiments ... .19
16 See, eg BGH NJW 1998, 2600, 2601. 17 Cf eg BGH NJW 1999, 282. According to this judgment, a choice of jurisdiction clause declaring, at the user’s option, domestic courts or an arbitral tribunal competent disadvantages the other party to the con- tract disproportionately (s 307 [1] BGB), since the other party (claimant), which cannot bring the case before the arbitral tribunal, at the moment the case comes before the public court does not know whether the beneficiary of the choice of jurisdiction clause (respondent) will exercise its option. The claim brought before the public court would become inadmissible if the beneficiary were to raise the objection that the parties had agreed to arbitration. According to the Court, such a clause is valid only if it contains an additional part obliging the user, on demand of the other party, to exercise the option in advance of the initiation of proceedings. 18 C. Allen, Law in the Making (Clarendon, Oxford, 5th edn, 1951) 273. 19 W. Blackstone, Commentaries on the Laws of England, vol 1 (Strahan, London, 15th edn, 1809) 68. 250 To what extent should arbitrators respect domestic case law?
In German law, however, precedents are not considered as a source of law. Rather, they merely provide an authoritative example for the correct interpretation of a statute:20
‘May we now say that a judge-made legal principle is law, as if it is to be found in the code itself? Does the judicature create law? Is there a “judicial law”, a judge-made law like it is, to a certain extent, acknowledged in England? In Germany, no such judge-made law with full authority like the statute itself exists. Law is only what is “in force”: what is, because it is in force, plainly authoritative, without having to ask for the reasons why.’21
In spite of this weak concept of precedent, case law in civil law jurisdictions is Downloaded from frequently regarded as a source of law that has a binding effect on lower courts com- parable to a statutory provision of law.22 It is fair to say that a factual stare decisis ef- fect of precedents exists in civil law, the effect of which is not unlike the legal stare decisis doctrine of common law. The judge of the lower instance will simply adopt http://arbitration.oxfordjournals.org/ the ruling of the higher court and apply it to a case, not because a judge is legally bound to do so, but because the judge wants to avoid reversal by the court that may have rendered opposing precedent in the next appellate instance. Due to the author- ity of the appellate court system, the case law of a superior court develops a factual force that comes close to the legally binding nature of a statute.23 The precedent is, thus, considered to be conclusive,24 and to have a presumptively binding character.25 Because of that conclusive nature of the court decision, a court that intends to deviate from the case law of the higher courts carries an increased burden of justification.26
20 See C. Montesquieu, De l’esprit des lois, Vol. XI, Chapter 6, who characterizes the judge as the ‘bouche qui by guest on December 8, 2016 prononce les paroles de la loi’; in French legal doctrine, views are divided as to whether court decisions con- stitute a source of law, see M. Gobert, ‘La jurisprudence, source du droit triomphante mais menace´e’ (1992) RTD civ 344ff; L. Bach, Jurisprudence,Re´p dr civ (Dalloz, Paris 2009) paras 36ff. 21 K. Heinsheimer, Lebendiges Recht, Rektoratsrede mit Anmerkungen (Winter, Heidelberg 1929) 20ff (origi- nal in German, translation by the author). 22 Cf, eg O. Germann, Pra¨judizien als Rechtsquelle (Almquist & Wiksell, Stockholm 1960) 45ff; W. Fikentscher, Methoden des Rechts, vol IV (Mohr Siebeck, Berlin 1977) 352ff; ‘the binding effect of statutory and case-law can, by their very nature, not be different’ (original in German, translation by the author), ibid 354; H. Coing, ‘Zur Ermittlung von Sa¨tzen des Richterrechts’ (1975) 15 Juristische Schulung (JuS) 277: ‘Today, the understanding that case-law is a source of law, has been more or less accepted.’ (original in German, transla- tion by the author); E. Ott, Die Methode der Rechtsanwendung (Schulthess, Zu¨rich 1979) 65; J. Esser, Grundsatz und Norm in der richterlichen Fortbildung des Privatrechts (3rd edn, Mohr Siebeck, Tu¨bingen 1974) 137ff; Meier-Hayoz, Der Richter als Gesetzgeber (Juris, Zu¨rich 1951) 179ff. 23 U. Meyer-Cording, Die Rechtsnormen (Mohr Siebeck, Tu¨bingen 1971) 69; see also H.W. Kruse, Das Richterrecht als Rechtsquelle (Mohr Siebeck, To¨bingen 1971) 12: ‘The norm contained in the court deci- sion is of universal applicability. It has legal effects for and against everybody. This follows necessarily from the dual role of the judge to decide legal disputes and to create legal norms.’ (original in German, translation by the author). 24 See H.C. Gutteridge, Comparative Law (2nd edn, Univ. Press, Cambridge 1949) 113: ‘Theoretically, prec- edents are not binding either on the French or on the German judges. But in practice the decisions of the Court of Cassation in France and of the Reichsgericht in Germany, though not absolutely binding, are treated with such respect by the subordinate courts that they are, to all intents and purposes, conclusive.’ 25 M. Kriele, Theorie der Rechtsgewinnung (Duncker & Humblot, Berlin 1967) 195. 26 P. Krebs, Die Begru¨ndungslast, (1995) 195 AcP 171, 182ff; K.P. Berger, ‘Der Bankjurist und das Case Law’ Festschrift Schimansky (RWS Verlag, Cologne 1999) 3, 13. To what extent should arbitrators respect domestic case law? 251
With their judge-made case law, the higher courts assume the function of ‘quasi- legislators’.27 Karl Llewellyn also observed in his famous study on the American case law system that ‘the [German] Imperial Court (Reichsgericht)isde facto a law-making instance’.28 This applies particularly where the courts, in deciding individual cases that come before it, have developed a general rule that is close to a statutory rule of law that can easily be applied to all future cases of this kind.29 This is exactly what has happened with the ‘standard formula’30 developed by the BGH to determine when a contract clause is ‘bargained for in detail’.31 That formula is being used today by the BGH and the lower courts in an almost reflexive manner, as if it was not de- veloped by the Court, but contained in the abstract language of the BGB itself. External factors also influence the courts’ obedience to long-standing case law of higher courts. Parties and counsel, or more generally ‘the public’, expect the lower Downloaded from courts to follow the decisions of the higher courts in order to ensure predictability, certainty, and economy of conflict resolution, as well as legal uniformity of case law. Thus, judges of civil law countries like Germany, even though not legally bound by a stare decisis doctrine, are under subtle pressure or even a quasi-legal obligation http://arbitration.oxfordjournals.org/ to follow the case law of their highest courts. A similar, de facto system of precedents can be observed in the area of international investment arbitration32 and sports arbi- tration under the auspices of the Court of Arbitration for Sport (CAS).33
3.2 The role of international arbitrators as ‘private judges’ Looking at the function of international arbitrators as private judges whose decision has the same effect between the parties as the judgment of a domestic court,34 one would be tempted to agree that international arbitral tribunals must be bound to by guest on December 8, 2016
27 G. Roellecke, ‘U¨ ber richterliche Gewalt und ho¨chstrichterliche Entscheidung’ in G. Roellecke (ed), Zur Problematik der ho¨chstrichterlichen Entscheidung (Wiss. Buchsges., Darmstadt 1982) 1, 18; see also C. Louven, Problematik und Grenzen ru¨ckwirkender Rechtsprechung des Bundesarbeitsgerichts (Beck, Munich 1996) 190 (‘lawmaking on a lower level’); J. Esser, Grundsatz und Norm in der richterlichen Fortbildung des Privatrechts (4th edn, Mohr Siebeck, Tu¨bingen 1990) 119. 28 K. Llewellyn, Pra¨judizienrecht und Rechtsprechung in Amerika (Weicher, Leipzig 1933) 112; see also J.W. Hedemann, Reichsgericht und Wirtschaftsrecht (Fischer, Jena 1929) 288. 29 K. Larenz, Methodenlehre der Rechtswissenschaft (6th edn, Springer, Berlin et al. 1991) 435ff. 30 F. Graf von Westphalen, ‘AGB-Recht im Jahr 2012’, (2013) 66 NJW 2239, 2240. 31 See (n 9). 32 See, eg J. D’Agostino and others, ‘A Discussion on the Use of Precedents in International Investment Arbitration and its Consequences. Does the Evolving Practice of Relying on Previous Investment Arbitration Awards Represent the Birth of a Customary International Law on Investment?’ (2011) 34f
‘If international arbitral tribunals were to deny effect to national court decisions, parties would be returned to precisely the “legal no-man’s land” that their choice of law and arbitration agreements were designed to avoid. That would be doubly misconceived, given that the fundamental purposes of rules of stare decisis and binding precedential authority are to enable “professional men,” and women, to “regulate their actions and their contracts” by reference to decided authority, and “to ensure predictability, certainty and economy of conflict resolution”.’36
In addition to promoting the foreseeability of their decision-making, application Downloaded from of court precedents by international arbitrators ensures that parties to international contracts governed by the same law who are in comparable factual situations are treated comparably.37 In actual practice, international arbitrators often use court precedents in much the http://arbitration.oxfordjournals.org/ same manner as state court judges would, even though arbitrators—unlike judges— are appointed for the resolution of only a single dispute and issue final decisions that are not subject to appeal,38 ie a ‘re´vision au fond’ of their rulings by the competent do- mestic courts in setting aside proceedings at the seat of the arbitration is not permissi- ble. In addition, their awards are usually not published and they, therefore, need not and cannot be concerned with the consistency of their decisions with other awards.39
3.2.1 Legal certainty versus openness of statutory interpretation Predictability and legal certainty are not absolute values. While a choice of law by the parties or, absent such choice, the determination of the applicable law by the arbitral by guest on December 8, 2016 tribunal, will allow everyone concerned—arbitrators, parties, and advisors alike—to know where they stand and what sort of legal arguments must be presented or con- sidered,40 cases where the applicable law provides one definite answer to a legal issue will be rare. Usually, statutory law is open to different ways of construction:
‘Even the best lawyer in the most highly developed country is often in doubt. Moreover, predictability is only one of several social values. Rules which
35 R. Schu¨tze, Schiedsgericht und Schiedsverfahren (5th edn, Beck, Munich 2012) para 391. 36 G. Born, International Commercial Arbitration, vol. II (2nd edn, Kluwer Law Intl, Alphen aan den Rijn, 2014) 3820f (footnotes omitted); see for legal certainty as a major advantage of the English case law sys- tem G. Radbruch, Der Geist des Englischen Rechts (Rausch, Heidelberg 1946) 49; see also Schu¨tze ibid para 391: ‘The arbitral tribunal must apply German law as a domestic [German] court would do’ (original in German, translation by the author). 37 G. Guillaume, ‘The Use of Precedent by International Judges and Arbitrators’ (2011) 2 JIDS 5. 38 This means that a ‘re´vision au fond’ of their rulings by the competent domestic courts in setting aside proceedings at the seat of the arbitration is not permissible. See Berger, Private Dispute Resolution in International Business, vol II (3rd edn, Kluwer Law Intl, Alphen aan den Rijn, 2015) No. 28–55ff. 39 See M. Weidemaier, ‘Judging Lite: How Arbitrators Use and Create Precedent’ (2012) 90 N C L Rev 1091, 1122, with respect to the handling of precedents by arbitrators in US labour, employment, class ac- tion and securities arbitration. 40 Redfern/Hunter on International Arbitration (5th edn, OUP, Oxford, 2009) No 3-109. To what extent should arbitrators respect domestic case law? 253
create certainty and predictability also bring about rigidity. The legal process is not and can never be a mere syllogism. It is above all an effort to reach the most fair and appropriate solution. In this process, which is partly inventive, the arbitrator will have to take the special circumstances of the case into account.’41
This applies with even more force to precedents established by the courts that construe this law. Even though they are sometimes considered as such in day-to-day court practice,42 they do not constitute abstract statutory rules. Rather, they have evolved out of the specific factual patterns underlying each individual case. The arbi- trator’s deviation from the long-standing case law of the BGH must, therefore, not be confused with rendering a decision according to what the arbitrator deems fair Downloaded from and reasonable in the particular case (‘ex aequo et bono’): a decision that a tribunal may render only if expressly authorized by the parties.43 Uncertainty as to the out- come of statutory interpretation and openness as to the broad array of possible solu- tions offered by the law is an inherent element of every application of substantive http://arbitration.oxfordjournals.org/ law, regardless of whether the case is pending before a state court judge or an inter- national arbitrator:
‘It would be deceptive to expect that the application of the law is a process in which the norm is applied to the facts as a mere measuring stick. This would presuppose first that the norm to be applied is definite from the outset such that its contents are beyond doubt. If this would be so, there would be no need for construction. Second, this would also presuppose that the facts to be considered in applying the norm would be fixed in all their details prior to any application of the law, such that they would fit easily into the pattern provided by the norm. by guest on December 8, 2016 This is not so. Most factual matrices are highly complex. The norm, which has to simplify because it has to cover many factual situations, covers only some ele- ments or parts of each individual case. It neglects all others. In many cases this necessarily leads to the question whether some of the elements that have been neglected in the norm are so determinative in the given case that their being taken into consideration is inescapable in order to avoid that dissimilar factual patterns are treated alike, which would lead to an ‘unjust’ decision.’44
3.2.2 The limited effect of precedent in German law Finally, and most importantly, the authority for the international arbitrator operating under German law to deviate from long-standing case law of the BGH is grounded in the very nature of the de facto doctrine of precedents in civil law.45 That doctrine
41 O. Lando, ‘The Law Applicable to the Merits of the Dispute’ in P. Sarcevic (ed), Essays on International Commercial Arbitration (Graham and Trotman, London/Boston 1989) 129, 141; see also K.P. Berger, ‘The International Arbitrator’s Application of Precedents’ (1992) 4 J Intl Arb 5, 12ff. 42 See (n 22). 43 See, eg Art 28 (3) UNCITRAL Model Law on International Commercial Arbitration; s 1051 (3) ZPO. 44 Larenz (n 29) 211ff (original in German, translation by the author). 45 See supra 3.1. 254 To what extent should arbitrators respect domestic case law? is more flexible than the stare decisis doctrine of common law. Rather than blindly fol- lowing the precedents of their higher courts, German judges shall form their own opinions about the legal issues relevant in the cases before them.46 Rather than im- posing a legal duty to follow the rules established by the higher courts on the judge, the case law—even long-standing case law that remains below the threshold of cus- tomary law—presents itself not as a source of law (Rechtsquelle) but as a mere ‘source for the cognition of the law’ (Rechtserkenntnisquelle),47 which the judge or arbitrator is not bound to apply in the same way as a statute:
‘The legal considerations of a court, the legal principles promulgated by the court, do not assume a binding nature that goes beyond the case before it. Other courts, and also the same court in other cases, are not bound by it, but Downloaded from are only ‘subject to the statute.’ They must verify - over and over again - whether the reasons for that decision were correct, and they may not only, but must decide differently, if, in doing so, they come to a different conclusion. No court is bound by the case law of the higher courts, not even by the case law of http://arbitration.oxfordjournals.org/ the highest court of the Empire.’48
Accordingly, it is not the precedent in and of itself that binds another court, but rather thenormwhichhasbeenrightlyconstruedinit. Whether the construction of the law contained in the precedent is correct and is grounded in the law as it stands is, in principle, a decision that a judge or arbitrator, who has to decide the same legal ques- tion, must decide independently and according to his or her conscientious conviction.49 Courts of lower instances may, therefore, deviate from the long-standing case law of the highest German courts, so long as such case law has not developed into customary law: by guest on December 8, 2016
‘As so-called judge-made law, case law may develop into customary law, but it does not, in and of itself, constitute customary law. As long as this is not the case, the practice of the courts does not enjoy the quality of a source of law. Even a long-standing case law may be ‘right’ or ‘wrong’ in the sense that it is subject to criticism de lege lata or through [judicial] correction due to a better understanding of the law. The courts of the lower instances may, therefore, devi- ate from the case law of the highest courts, if and insofar as a better understand- ing of the law makes that case law appear as irreconcilable with existing law.50
46 Heinsheimer (n 21) 24. 47 See ibid 21 fn 15, stating that precedents may only have persuasive authority for the legal principle ac- knowledged in them, but may never be qualified as the raison d’eˆtre of such principle. 48 Heinsheimer (n 21) p 21 (original in German, translation by the author). 49 See Larenz (n 29) 430; cf also E. Tyan, Droit commercial, vol. I (Antoine, Beirut, 1968) 22: ‘As judicial de- cisions repeat themselves and are confirmed by the higher instances, the rules which they apply acquire an authority which is no longer disputed. Certainly, the courts in principle always reserve the right not to follow their preceding decisions and to create new solutions through a revirement of their case-law. But these changes do not affect the mandatory character of the judicial rules: the texts of the statutory law, are they not also changed from time to time?’ (original in French, translation by the author). 50 K Schmidt, in Mu¨nchener Kommentar zum HGB (3rd edn, Beck/Vahlen, Munich 2010) Vorbemerkung s 1, No 33 (original in German, translation by the author). To what extent should arbitrators respect domestic case law? 255
The German Federal Constitutional Court (Bundesverfassungsgericht) has con- firmed this authority of the German courts from a constitutional perspective. The Court made it clear that, because the long-standing case law of the highest German courts does not assume the force of statutory law, a judge who deviates from that case law does not violate the constitutional rule-of-law principle (Rechtsstaatsprinzip) manifested in Article 20(3) of the German Constitution (Grundgesetz, GG).51 A German court is independent in its judgment and, therefore, not bound to follow the case law of other, even higher, courts:
‘Different interpretations of the same statutory provision by different courts do not violate the duty of equal treatment. Judges are independent and only sub- ject to the law (Art. 97 (1) GG). A court, therefore, in interpreting and apply- Downloaded from ing a statutory provision must not follow a prevailing opinion. It is not prevented from having its own legal opinion and from basing its decision on that opinion, even if all other courts - including those from higher instances - hold a contrary position.’52 http://arbitration.oxfordjournals.org/
These principles apply equally to arbitrators deciding a dispute under German law. Arbitrators, as private judges, enjoy the same degree of independence of deci- sion-making as do German judges. They may, therefore, deviate even from the long- standing case law of the BGH if they come to the conclusion that such deviation is justified in a given case.
3.2.3 The international character of arbitration Another important factor that influences the arbitrator’s consideration of long-stand- ing case law of the highest courts is the international character of the transaction out by guest on December 8, 2016 of which the dispute arises. The case law of the UK Supreme Court, which—due to the global significance of English law as the law governing international transactions and the choice of English forum clauses contained in these contracts—is traditionally concerned with domestic cases as well as with disputes of an international character. The case law of the BGH, however, is mostly domestic in nature and influenced by domestic particularities. Reference to the facts underlying BGH precedents may have little justification in disputes with an international or truly transnational character, thereby allowing an arbitral tribunal to ‘distinguish’ the precedent from the factual setting of the case before it:
‘Of course, an arbitral tribunal may properly conclude that a particular national judicial precedent was not intended to, or would not be applied to, interna- tional transactions, or a particular type of international transactions. There are frequently instances where domestic rules are not applied, or meant to apply,
51 BVerfGE 38, 386, 396; 84, 212, 227; A. Burghart, in G. Leibholz/H.-J. Rinck, Grundgesetz, art 20, No 607 (O. Schmidt, Cologne 2013); W. Durner, ‘Verfassungsrechtliche Grundlagen und Grenzen des Richterrechts’ [2008] 40 Juristische Arbeitsbla¨tter7, 8. 52 BVerfGE 87, 273, 278 (original in German, translation by the author); see also BVerfGE 98, 17, 48; 122, 248,267;H.Schulze-Fielitz,inH.Dreier(ed),Grundgesetz (2nd edn, Mohr Siebeck, Tu¨bingen 2008) art 97, No 41; B. Pieroth, in H. Jarass and B. Pieroth, Grundgesetz (12th edn, Beck, Munich 2014) art 97, No 7. 256 To what extent should arbitrators respect domestic case law?
in transnational contexts, and arbitral tribunals would be free – and indeed ob- ligated – not to give effect to domestic precedent in such circumstances.’53
Most, if not all, of the judgments rendered by the BGH concerning when a con- tract clause may be regarded as ‘bargained for in detail’ were rendered in purely do- mestic cases. Most of these cases involved routine transactions between small or medium size companies and consisted of everyday contracts such as car wash con- tracts, commercial lease agreements, and delivery contracts with building supply stores.54 Complex, multi-million Euro commercial transactions for the delivery of in- dustrial machines of the type that was the subject of ICC arbitration No. 10279 or post-M&A disputes, however, are typically the subject of arbitration agreements. Such disputes rarely reach the BGH as the final instance in the German court system.55 Downloaded from This factual deficit of the BGH’s case law provides an additional and legitimate argument against international arbitral tribunals following the long-standing case law of the BGH. In following BGH precedent, international arbitrators would be con- fronted with judgments that were not made in the context of such international busi- http://arbitration.oxfordjournals.org/ ness disputes and that, therefore, do not qualify as proper precedents for the resolution of such disputes.56
3.2.4 The parties’ expectations One may also ask whether, in disputes arising out of contracts where parties have chosen German law as a neutral lex contractus without any knowledge of the contents or subtleties of that law, the arbitral tribunal should apply the long-standing case law of the BGH to determine whether a contract clause was ‘bargained for in detail’ strictu sensu. The answer depends largely on the parties’ expectations with respect to the arbitral tribunal’s decision-making. It is fair to assume that, for the very reasons by guest on December 8, 2016 that they prefer dispute resolution by arbitration instead of domestic courts, these parties expect arbitrators to refrain from a ‘mechanical’ application of the law. They may expect that arbitrators have due regard of the economic circumstances of the case, including the international context in which the parties operated when they concluded their contract and the legitimate expectations of the foreign parties. Under most arbitration laws and rules,57 the arbitrator’s mandate includes the con- sideration of trade usages. This underscores the objective of arbitration to provide resolutions of international disputes in a manner that accord with the commercial
53 Born (n 36) 2964ff. 54 See Berger, ‘Fu¨r eine Reform des AGB-Rechts im Unternehmerverkehr’ (2010) 63 NJW 465, 466 with reference to case law of the BGH; see also H. Ko¨tz, ‘Deutsches Recht und Common Law im Wettbewerb’ (2009) Mitteilungsblatt DAV Internationaler Rechtsverkehr, 12, 15, arguing that German private law, contrary to English law, is rather a law for consumers than for commercial men. 55 See for the problems caused by this increasing ‘privatization’ of judicial decision-making C. Duve and M. Keller, Privatisierung der Justiz - bleibt die Rechtsfortbildung auf der Strecke?’ (2005) 3 SchiedsVZ, 169, 171ff. 56 Berger, (n 54) 466. 57 See, eg Art 28(4) UNCITRAL Model Law on International Commercial Arbitration; s 1051(4) ZPO; Art 21(2) ICC Arbitration Rules 2012; s 23.4 DIS Arbitration Rules. To what extent should arbitrators respect domestic case law? 257 expectations of the parties and practices in the trade concerned.58 Business parties from other countries who are unfamiliar with the AGB-Law59 and who do not even consider themselves as deserving the high degree of protection granted under the AGB-Law, may regard a strict application of that case law as being inconsistent with commercial reality in which they operate in their daily business. German legal doc- trine acknowledges that these party expectations must be taken into account when applying the AGB-Law in an international setting. Commentators of the AGB-Law rightly emphasize that in dealing with issues related to the AGB-Law in cases that in- volve international business contracts, it must be recognized that parties to such transactions deserve even less protection than parties to domestic business contracts. Accordingly, particular restraint should be exercised when the question of whether clauses in international business contracts should be invalidated under sections Downloaded from 305–310 BGB arises.60 This applies in particular in arbitrations where all parties come from outside Germany or even outside Europe.
3.2.5 Consequences for arbitral decision-making http://arbitration.oxfordjournals.org/ International arbitral tribunals operating as ‘private courts’ under German substantive law may, therefore, deviate from the BGH’s long-standing case law, so long as the solu- tion that they find for the problem before them still reflects the specific character of this legal system.61 They may disregard even long-standing case law of the BGH, be it be- cause they are convinced that the decision was ‘wrong’, be it that they arrive at the con- clusion that the result reached by the higher court does not conform to the needs of international trade and commerce, provided that there is sufficient support in German doctrine for the result they endeavour to achieve in the case before them. The safest way for a tribunal to ensure that their decision is compatible with the basic tenets of the German legal system is to find support for their decision—not merely in their own by guest on December 8, 2016 ideas of how the law should be construed—but by making reference to the judgments oflowercourtsortodoctrinalwritings.Todootherwisewouldlikelyleadtoadistor- tion of the law not contemplated by the parties when they chose the applicable law. The arbitral tribunal in ICC arbitration No. 10279 referred to doctrinal writings and to a decision of the Court of Appeals of Cologne (Oberlandesgericht Ko¨ln) to support its
58 Born (n 36) 2146; but see E. Gaillard and J. Savage (eds), Fouchard/Gaillard/Goldman on International Commercial Arbitration (Kluwer Law Intl, The Hague et al. 1999) No 1514, arguing that international ar- bitrators are usually not entitled to exclude or amend provisions of the law chosen by the parties on the pretext that they are applying trade usages. In the context of this article, however, the issue is not whether arbitrators are allowed to change the law but whether and to what extent they must follow the de facto precedential effect of the case law of the highest courts. 59 The situation will be different in cases in which the foreign parties, following the advice of their lawyers, have selected German law for the very reason that it provides a strict law on general contract terms. 60 W. Hau, in M. Wolf, W. Lindacher and T. Pfeiffer, AGB-Recht (6th edn, Beck, Munich 2013) Internationaler Gescha¨ftsverkehr, No 57; see also H Schmidt, in P. Ulmer, H.E. Brandner and H.-D. Hensen, AGB-Recht (11th edn, O. Schmidt, Cologne 2011) Anhang s 305, No 34; see already M. Wolf, ‘Auslegung und Inhaltskontrolle von AGB im internationalen kaufma¨nnischenVerkehr’ (1989) 153 ZHR, 300, 310 who has favoured the application of ‘international legal standards’ in the examination of standard forms in international business contracts. 61 Berger (n 41) 15. 258 To what extent should arbitrators respect domestic case law? approach to deviate from the long-standing case law of the BGH in construing the stat- utory terminology ‘bargained for in detail’ in section 305 (1) 3rd sentence BGB.62
4. CONCLUSION The above considerations reveal that even long-standing case law of the highest courts, such as the BGH’s case law concerning AGBs, is not carved in stone. International arbitral tribunals dealing with disputes arising out of contracts governed by civil law have a variety of legitimate reasons why they may deviate from that case law. If domestic courts have the right to deviate from such case law, then interna- tional arbitral tribunals, that consider contracts governed by German law, have the same authority. Deviation from that case law may also be in line with the interna- tional character of the transaction out of which the dispute has developed and with Downloaded from the legitimate expectations of the parties to such transactions. Since the interim award in ICC arbitration No. 10279 was rendered in 2001, the number of arguments justifying international arbitral tribunals operating under German law to deviate from the long-standing BGH case law related to the AGB- http://arbitration.oxfordjournals.org/ Law in b2b-transactions has increased dramatically. First, the past years have witnessed an intense debate over whether the AGB-Law, in the situation of b2b-transactions, should be modified in order to bring it more in line with commer- cial reality. Such modification could also improve the competitiveness of German law as the law of choice in international contracts.63 An increasing number of authors argue that even de lege lata, in a b2b-context, mere negotiations between the parties with respect to a certain contract provision should suffice to bring a contract clause outside the scope of the AGB-Law, which would be in line with the approach taken in section 2.1.19 (2) UNIDROIT Principles of International Commercial Contracts.64 That section provides that AGBs are provisions ‘which are actually used by guest on December 8, 2016 without negotiation with the other party’.65 A lower court even characterized the case law of the BGH with respect to the question as to whether a clause was bargained for detail pursuant to section 305(1) 3rd sentence BGB as ‘out of touch with reality’.66 Second, one of the leading commentaries on the BGB, obviously influ- enced by that on-going reform debate, now favours a more liberal approach towards the interpretation of the requirement of ‘bargained for in detail’ in disputes that re- late to b2b-transactions. According to that commentary, it shall suffice to meet that
62 ICC Interim Award No 10279 (n 3) 110ff. 63 See for views in favour of reform Berger (n 53) 465ff; W. Mu¨ller, ‘Die AGB-Kontrolle im unternehmeri- schen Gescha¨ftsverkehr– Standortnachteil fu¨r das deutsche Recht’ (2013) 68 BB 1355ff; see for views contra F. Graf von Westphalen, ‘Wider einen Reformbedarf beim AGB-Recht im Unternehmerverkehr’ (2009) 62 NJW 2977ff; F. Graf von Westphalen, ‘Der angebliche ‘Standortnachteil’ des deutschen Rechts aufgrund des AGB-Rechts – Analyse der Fallbeispiele der Reformer’ (2013) 68 BB 67ff; the competitor of legal systems was triggered by the publication of the brochure ‘England and Wales: The Jurisdiction of choice’ by The Law Society of England and Wales in 2007; see also for a general overview on the discus- sion Uusitalo (n 9) 123ff. 64 R. Koch, ‘Das AGB-Recht im unternehmerischen Verkehr: Zu viel des Guten oder Bewegung in die rich- tige Richtung?’ (2010) 65 BB 1810, 1812. 65 Art 2.1.19 (2) in UNIDROIT (ed), ‘UNIDROIT Principles of International Commercial Contracts 2010’ (2010) 66 (emphasis added). 66 LG Frankfurt NZBau 2004, 44. To what extent should arbitrators respect domestic case law? 259 requirement in a b2b-context if the party using the AGBs has given the other side ad- equate opportunity to negotiate and that other party could make use of its rights in the given negotiation scenario with reasonable effort. A clause may even be considered as ‘bargained for in detail’ and, thus, as outside the scope of the restrictive AGB-Law if, as in ICC arbitration No. 10279,67 it was declared as conditio sine qua non for the conclusion of the contract by the party that has introduced the AGB in the contract negotiations.68 This view is clearly not in line with the BGH’s strict and long-standing case law, which the BGH applies to both b2c- and b2b- transactions.69 Another leading German commentary, in making specific reference to the interim award in ICC arbitration No. 10279, pleads for a departure from the long-standing case law of the BGH by German courts and legal doctrine and a move towards a more realistic and practice-oriented approach in the construction of Downloaded from section 305(1) 3rd sentence BGB, even in purely domestic cases that involve a dis- pute arising out of a b2b-contract.70 This is a highly interesting development. For this commentator, the perspective is reversed: the question is no longer whether arbitral tribunals are bound to follow the case law of domestic courts, but whether http://arbitration.oxfordjournals.org/ domestic courts and doctrine shall follow the case law of arbitral tribunals as private courts in order to reach a better or more profound understanding of their own law.71 by guest on December 8, 2016
67 See above note 9. 68 Gru¨neberg, in Palandt (ed), (n 7) s 305, No 22. 69 See above note 9. 70 Schlosser, in Staudinger (n 6) s 305, No 36a (under the heading ‘The practical necessity for a flexible handling of the statutory text [of § 305 (1) 3rd sentence BGB]’; original in German, translation by the author). 71 But see D. Rivkin, ‘The Impact of International Arbitration on the Rule of Law – The 2012 Clayton Utz/ University of Sydney International Arbitration Lecture’ (2013) 29 Arbitration International, 327, 340: ‘ ... parties do not need arbitration awards to understand what New York or English or New South Wales law requires of them. Similarly, arbitrators do not need other arbitral awards to inform them of these laws, because there are so many other sources’. 27 Am. Rev. Int’l Arb. 1
American Review of International Arbitration 2016
Article
THE YUKOS ANNULMENT: ANSWERED AND UNANSWERED QUESTIONS
George A. Bermanna1
Copyright © 2016 by George A. Bermann, Robert H. Smit and JurisNet, LLC; George A. Bermann
On April 20, 2016, a Dutch court issued a major judgment annulling awards rendered in a dispute between the Russian Federation and three majority shareholders1 of the former giant Russian oil producer, OAO Yukos Oil Company (“Yukos”).2 The annulment by a national court of any investor-State award is always of great moment, but it was particularly so in the case of an award in excess of $50 billion. Discussion of the judgment has understandably occupied much of the international arbitration blogosphere.
After setting out the basic facts of the case, this piece briefly describes the position that the Tribunal had taken and that the Dutch court found sufficiently flawed to justify the award’s annulment. It then examines the court’s own reasoning in some detail. Lastly, it shows that, however momentous the annulment may have been, the Dutch court avoided answering several very difficult and important questions that it might otherwise have had to address and that warrent serious consideration.
I. THE BASIC FACTS
Starting in 2003, the Russian tax authorities charged Yukos with systemic and large-scale tax evasion. It imposed on Yukos very substantial tax assessments and fines, and ultimately seized Yukos’ assets, as a result of which Yukos went into bankruptcy in August 2006. The Yukos shareholders claimed that the Russian Federation had thereby unlawfully expropriated most of Yukos’ assets, and thus their protected investment.
The Yukos shareholders (“the Claimants”) initiated three separate arbitral proceedings at the Permanent Court of Arbitration (“PCA”) in the Hague against the Russian Federation under Article 26(4)(b) of the Energy Charter Treaty (“ECT”)3 and the UNCITRAL Arbitration Rules. After the parties had appointed their arbitrators, the Secretary-General of the PCA appointed a third arbitrator, Yves Fortier. Following the replacement in 2007 of one of the arbitrators *2 appointed in 2005, the Tribunal consisted of the aforementioned Mr. Fortier (Chairman), Charles Poncet and Stephen M. Schwebel. The Tribunal was assisted by Mr. Martin Valasek, described as an “assistant” to the Tribunal. The three arbitrations were heard in parallel with the full participation of all the Parties at the relevant stages of the proceedings.
II. THE ARBITRATION AND AWARD
The Russian Federation initially contested the Tribunal’s jurisdiction on the ground that Russia had not in fact acceded to the ECT and thereby become subject to the jurisdiction of the Tribunal. In December 1994, the Vice Prime Minister of the Russian Federation had signed the ECT on behalf of the Federation. Although the Russian government then presented to the Parliament a bill of ratification of the ECT, the Parliament never in fact took that action.4 Eventually, in August 2009, the Russian Federation notified the Portuguese Republic (the depository State under ECT Article 49) that it would not ratify the ECT.
Complicating matters for Russia, however, is the fact that the ECT expressly contemplated its “provisional application.” According to ECT Article 45(1): Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that the provisional application of this Treaty is not inconsistent with its constitution, laws or regulations. By its own terms, Article 45(1) was thus subject to an important proviso: the ECT could receive provisional application5 against a State only “to the extent that [such] provisional application of this Treaty is not inconsistent with [the State’s] constitution, laws or regulations.” This proviso was referred to both by the Tribunal and the Dutch court as Article 45(1)’s “Limitation Clause.”
Article 45(2)(a) then goes on to permit a State to make a declaration upon signature altogether rejecting provisional application of the ECT: Notwithstanding paragraph (1), any signatory may, when signing, [declare] that it is not able to accept provisional application [in which case], [t]he obligation contained in paragraph (1) shall not apply to a signatory making such declaration. *3 All parties appear to have understood Article 45(2) to mean that, upon signing the ECT, a State may declare that it is unable to accept the Treaty’s provisional application.
In the arbitration, the Russian Federation contended broadly that, since it had done nothing more than sign the ECT (i.e. had not ratified it), it could not be bound by any provisions of the Treaty, including Article 45(1). The Tribunal rejected that argument: There is no room for ambiguity. The Tribunal therefore concludes that the Russian Federation has consented to be bound--albeit provisionally--by Article 26 of the ECT by its signature of the ECT. Article 45(1) of the ECT establishes beyond the shadow of a doubt, and notwithstanding Article 39 of the ECT, that the Russian Federation and other signatories agreed that their signature of the Treaty would have the effect of expressing the consent of the Russian Federation (and each other signatory) to be provisionally bound by its terms.6
A more difficult question concerned the interplay between ECT Articles 45(1) and 45(2), and more specifically whether a State could invoke Article 45(1) in a proceeding brought against it even if it had never made a declaration under Article 45(2). Based on the ordinary meaning of Article 45(1), the Tribunal found the two provisions to be separate, so that a State’s entitlement to invoke Article 45(1) did not depend in any way on its having previously invoked Article 45(2).7 The Tribunal also found more generally that no prior declaration by Russia was necessary in order for it to invoke Article 45(1).8
Having found that Russia was entitled to invoke Article 45(1), the Tribunal turned to the meaning of that provision. The Federation argued that, even if Article 45(1) were applicable, Russia could avoid provisional application of Article 26 of the ECT Treaty on dispute resolution9 because arbitration of the kind *5 of dispute at issue in the Yukos case was inconsistent with Russian law, within the meaning of Article 45(1). As a consequence, Russia was not subject to the ECT’s provisional application.
The Federation plainly read the limitation clause in Article 45(1) to mean that a State can avoid provisional application of any particular provision of the ECT if it is contrary to Russian law, as the Federation claimed Article 26 was. (The Tribunal referred to the Federation’s position as the “piecemeal” approach to Article 45(1).)10 The Claimants took a different view, maintaining that provisional application could be avoided only if such application were, as a whole, inconsistent with a State’s constitution, laws or regulations; it would not be enough that one or more specific provisions of the Treaty were inconsistent with domestic law. (The Tribunal referred to this as the “all-or-nothing” approach.)11
On this point, the Tribunal agreed with the Claimants, holding that the Limitation Clause was available only if provisional application of the ECT was, as such, and in itself, contrary to Russian law. It found that use of the term “this Treaty,” without further qualification, should, according to its ordinary meaning, be understood as referring to the Treaty as a whole, and not to merely a part of it.12 “Either the entire Treaty is applied provisionally, or it is not applied provisionally at all.”13 The Tribunal thought that allowing a piecemeal invocation of the Clause would run contrary to Article 27 of the Vienna Convention on the *6 Law of Treaties (“VCLT”), described by the Tribunal as a “cardinal principle of international law,” which bars a State from invoking its internal legislation as a justification for failure to perform a treaty obligation.14
The Tribunal then readily concluded that provisional application of the ECT was not, as a whole, inconsistent with Russia’s “constitution, laws or regulations.”15 Even the Russian Federation had not maintained otherwise. The net result was that the Federation was provisionally bound by the ECT up until August 2009, when it gave notice of its intention not to become a Contracting Party.
Having so ruled, the Tribunal had no need to inquire into the consistency with Russian law of the ECT’s Article 26 in particular. However, in light of the attention the Parties had given to that question, the Tribunal nevertheless proceeded to address it and to find no inconsistency between the two. It based that result on a finding that two provisions of the 1991 Russian Law on Foreign Investments - Article 9, paragraph 2, as well as Article 10 of the 1991 act in its 1999 version - contemplated the arbitration of investor-State disputes, such as Yukos. Basically, it found that nothing in Russian law excluded the settlement of disputes between investors and the State through arbitration.16
The Tribunal addressed several further jurisdictional arguments advanced by the Federation.
Russia had argued that Article 23(2) of the Russian Federal Law on International Treaties (“FLIT”) requires that a treaty subject to provisional application be submitted to and ratified by the State Duma within six months from its signature and the start of its provisional application, and that that had not been done, with the result that continued provisional application of the ECT would have been inconsistent with Russian law. The Tribunal dismissed the six-month limitation period as a mere “internal requirement” incapable of bringing the ECT’s provisional application to an end in Russia.17
The Federation also invoked Article 17(1), the ECT’s “denial-of-benefits” clause. That article reserves to each Contracting Party the right to deny the substantive protections of the ECT to “a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the area of the Contracting Party in which it is organized.” The Tribunal found that the challenge went, not to jurisdiction, but to the merits, yet went ahead and decided the issue in its interim award. Ultimately, it read the clause literally to merely “reserve” a State’s right to deny benefits to such an entity, and found that Russia had failed to exercise that right.18
*7 Another threshold objection raised by Russia was the ECT’s so-called “taxation measures carve-out.” ECT Article 21 provides that, “[e]xcept as otherwise provided in [that] Article, nothing in this Treaty shall create rights or impose obligations with respect to Taxation Measures of the Contracting Parties.” Finding it unwise to address the applicability of Article 21 “in a vacuum,” the Tribunal deferred the matter to the merits phase of the proceeding.19
Finally, Russia invoked the ECT’s “fork-in-the road” provision,20 Article 26(3)(b)(i), pursuant to which it was entitled to withhold consent to arbitration if the investor had previously submitted the dispute to other fora. In fact, the Claimants had instituted certain Russian court proceedings and also pursued Russia in the European Court of Human Rights. The Tribunal rejected the argument on the ground that these proceedings lacked the “triple identity” with the ECT proceeding - identity of parties, cause of action and object of the dispute - required for application of the “fork-in-the road” principle.21
Following extensive hearings and numerous procedural orders, the Tribunal issued an Interim Award upholding its jurisdiction. The Federation did not seek to annul the Award, and the Tribunal resumed hearings on the merits. Then on July 18, 2014, the Tribunal rendered its Final Award in all three cases. On the merits, the Tribunal awarded Claimants a total of over $50 billion in damages against the Federation.22
III. THE ANNULMENT ACTION AND THE COURT’S STANDARD OF REVIEW
The Russian Federation thereafter filed an action in the Dutch courts for the annulment of the Interim and Final Awards, as well as costs of the proceedings, plus interest. Invoking several provisions of the Dutch Code of Civil Procedure, the Federation advanced five grounds for annulment of the Awards, as follows: • absence of a valid arbitration agreement (sec. 1065(1)(a)) • irregularities in the Tribunal’s composition (sec. 1065(1)(b)) excess of arbitral authority (sec. 1065(1) (c)) • failure of substantiation (sec. 1065(1)(d)) • violation of Dutch public policy due to Tribunal’s partiality and bias (sec. 1065(1)(e)) *8 Thus, the jurisdictional challenge addressed by the court was only one of several challenges to the award advanced by the Federation.
Before confronting Russia’s jurisdictional arguments, the court determined, squarely, as an initial matter, that its review of arbitral jurisdiction was to be conducted on a de novo basis. The court held that, in light of the fundamental character of the right to access to the courts, it was required, notwithstanding the doctrine of Kompetenz-Kompetenz, to conduct the jurisdictional inquiry independently.23 This is a proposition with which the Yukos annulment will always be closely associated.
A. The ECT Limitation Clause
Like the Tribunal, the court focused its attention on ECT Treaty Article 45, and in particular on the Limitation Clause. As noted, the Claimants had advanced the argument that Russia was foreclosed from invoking Article 45(1) in the arbitration because it had failed, upon signing the ECT, to make a declaration under Article 45(2) that it did not consent to the Treaty’s provisional application. Like the Tribunal before it, the court rejected that argument, finding that Article 45(2) did not prescribe the sole manner in which the Limitation Clause could be invoked. “Nothing in the texts of these paragraphs indicates that paragraph 2 is intended as a procedure rule for the specification of the arrangement in paragraph l.”24
However, the court then turned to the thorny matter of the proviso’s meaning, ultimately rejecting the Tribunal’s view that, in order to invoke Article 45(1), a State must establish that provisional application of the ECT would in itself be inconsistent with Russian law. The court determined that it was required to give the term “to the extent” in paragraph 1 of the ECT its meaning in common parlance, deducing that inconsistency with State law, within the meaning of Article 45, was a matter of degree and was to be gauged on the basis of individual treaty provisions.25
Having interpreted Article 45(2) the way it did, the court proceeded to examine whether the arbitration provision in ECT Article 26, from which the Tribunal of course derived its competence, was consistent or inconsistent with Russian law. The Claimants took the position that a provision of the ECT, such as Article 26, could only be considered as incompatible with Russian law if it prescribed something that national law prohibited. However, the court took a different view of “inconsistency”: enforcement of ECT Article 26 would also be considered as contrary to Russian law if there was no positive legal basis in that law for dispute settlement through that means, i.e. if the Treaty provision “does not harmonize with the legal system or is irreconcilable with the starting points and principles that have been laid down in or can be derived from [a State’s] *9 legislation.”26 A direct contradiction between the Treaty and Russian law need not be shown.
It still remained, of course, to determine whether ECT Article 26 was actually inconsistent with Russian law under this standard. On this matter, too, the court found the Tribunal to have erred. Relying heavily on expert opinions furnished by the Russian Federation,27 the court concluded that there was no basis in Russian law for the arbitration of disputes to which the Russian State is a party if the dispute is of a public law nature unless Russia had consented to such arbitration, which was of course the very issue in the case.
The Tribunal had found support for the general arbitrability of public law disputes involving the Russian State in Article 9 of Russia’s 1991 Law on Foreign Investment. Article 9 states: (1) Investment disputes, including disputes over the amount, conditions and procedure of the payment of compensation, shall be resolved by the Supreme Court of the RSFSR or the Supreme Arbitrazh Court of the RSFSR, unless another procedure is established by an international treaty in force in the territory of the RSFSR. (2) Disputes of foreign investors and enterprises with foreign investments against RSFSR State bodies, disputes between investors and enterprises with foreign investments involving matters relating to their operations, as well as disputes between participants of an enterprise with foreign investments and the enterprise itself shall be resolved by the RSFSR courts, or, upon agreement of the parties, by an arbitral tribunal, or, in cases specified by the laws, by authorities authorized to consider economic disputes. The court saw matters differently. It concluded that these two paragraphs designate two distinct classes of disputes. As the court saw it, paragraph 1 encompasses disputes of a public law character (which may be brought only before State courts, unless a treaty provides otherwise), while paragraph 2 encompasses disputes of a civil, or private, law matter (which may be brought *10 only before State courts, unless an agreement between the parties provides otherwise). Pursuant to this understanding, the dispute between the Claimants and the Russian Federation would fall within paragraph 1 and therefore be reserved for decision by the courts.
The court determined that Article 9 had to be understood in light of a special Russian enactment known as “The Fundamentals of Legislation,” Article 1 of which provides that “[t]he laws of the republics shall regulate in accordance with these Fundamentals the relations arising in connection with foreign investments in the republics’ territories, subject to specific features of their economic operations and investment policy.”28 The relevant provision of the Fundamentals of Legislation is Article 43 which, like Article 9 itself, distinguishes between two categories of disputes between foreign investors and the Russian State. According to that distinction, (1) Disputes between foreign investors and the State are subject to consideration in the USSR in courts, unless otherwise provided by international treaties of the USSR, [while] (2) Disputes of foreign investors and enterprises with foreign investments with Soviet State bodies acting as a party to relationships regulated by civil legislation, enterprises, social organizations and other Soviet legal entities, disputes between participants of the enterprise with foreign investments and the enterprise itself are subject to consideration in the USSR in courts or, upon agreement of the parties, in arbitration proceedings, inter alia, abroad, and in cases provided by legislative acts of the Union of SSR and the republics - in arbitrazh courts, economic courts and others. This provision - Article 43 of the Fundamentals of Legislation - does clearly provide that when the State acts in the capacity of a private party (“acting as a party to relationships regulated by civil legislation”), its disputes with foreign investors may be decided by arbitral tribunals to whose jurisdiction the parties agreed. But in other circumstances - notably a public law dispute - the Russian courts have exclusive jurisdiction, absent a treaty to the contrary. The court thus essentially carried over the distinction between public law and civil law disputes of the State from Article 43 of the Fundamentals to Article 9 of the Law on Foreign Investment.
The Tribunal had also found support for the arbitrability of disputes involving the Russian State in Article 10 of Russia’s 1991 Law on Foreign Investment, in its 1999 version. According to this article, which does not distinguish between categories of disputes: A dispute of a foreign investor arising in connection with its investments and business activity conducted in the territory of the Russian Federation shall be resolved in accordance with international treaties of the Russian *11 Federation and federal laws in courts, arbitrazh courts or through international arbitration. Again, the court disagreed. Although Article 10 makes reference to international arbitration as a forum for investment disputes, the court did not read it as actually furnishing a legal basis for the arbitration of such disputes. The court read it, rather, as permitting the arbitration of investment disputes only in the presence of a provision to that effect in an international treaty of Russia or Russian legislation. “Article 10 ... makes the option of arbitration conditional on the existence of a provision in treaties and federal laws to that effect.”29
The court thus concluded overall that neither Article 9 nor Article 10 of the Law on Foreign Investment sufficed to render ECT Article 26 compatible with Russian law. ECT Article 26 thus “does not have a legal basis in Russian law and is incompatible with the starting points laid down in that law.”30
B. Estoppel
The court next considered the Claimants’ argument that the Russian Federation was, in effect, estopped from denying the consistency of ECT Article 26 with Russian law. The basis for the argument was the fact that, in its 1996 explanatory memorandum to the Russian Parliament urging ratification of the ECT, the Russian government had made remarks suggesting the absence of any inconsistency. Those remarks were as follows: “The provisions of the ECT are consistent with Russian legislation.” “The legal regime of foreign investments envisaged under the ECT is consistent with the provisions of the existing Law [ ... ] on Foreign Investment in [Russia], as well as with the amended version of the Law currently being discussed in the State Duma.” “[The ECT regime] does not require the acknowledgement of any concessions or the adoption of any amendments to the abovementioned Law.” The court disposed of this argument through reasoning based on the Russian Constitution and, in particular, its principle of separation of powers set out in Article 10 of the Constitution:31
[I]n assessing the meaning of the explanatory memorandum the Tribunal insufficiently recognized that this memorandum originated from the *12 executive and was primarily aimed at prompting the Duma, as part of the legislature, to ratify the ECT. Since the ECT was never ratified, the opinion of the executive (the government) cannot be ascribed to the legislature and the government’s standpoint therefore does not have independent meaning.32
***
The Constitution and the principle of the separation of powers enshrined therein preclude a representative of the executive from being able to bind the Russian Federation to Article 26 ECT.33
***
[T]reaties that deviate from or supplement national Russian laws, cannot be applied based only on their signature, but require prior ratification. In accordance with this, these limitations also apply if treaties, like the ECT, are applied provisionally.34
In sum, in signing the ECT - even with its provisional application feature - the Russian Federation could not and did not extend to foreign investors an offer to arbitrate. The Claimants therefore could not, by filing a notice of arbitration, form an arbitration agreement with Russia, thereby binding Russia to arbitrate their dispute. The court accordingly concluded that the Tribunal lacked competence to entertain the underlying claims or issue the resulting award.35 It ruled in favor of Russia and ordered the Claimants to pay the Russian Federation’s costs.36
There can be no denying that the court took an extremely close look at every aspect of the reasoning by which the Tribunal had rejected the Federation’s jurisdictional challenges, and disagreed with virtually every one of them. The Yukos judgment is therefore remarkable, not only for the amount of the award annulled, but also for the very serious scrutiny to which the award was subjected. The court’s review may well evidence an abiding conviction that questions going to the authority of an arbitral Tribunal to adjudicate a dispute are those most worthy of serious judicial attention.
*13 IV. THE “UNDISCUSSED” QUESTIONS
As noted, the Dutch court had before it several other grounds for annulment of the Yukos award, some jurisdictional and others non-jurisdictional in nature. Understandably, it chose to decide the case on one of the jurisdictional grounds, namely that the Russian Federation never agreed to apply provisionally Article 26 of the ECT because Article 45(1) of the Treaty excludes provisional application of treaty provisions inconsistent with Russian law, and thus never submitted to arbitration. Having found reason to annul the award on the ground it did, the court had no reason to address any of the other challenges mounted by the Federation in support of annulment, even though the Tribunal had considered and rejected them all. It left those challenges, to use the court’s own words, “undiscussed.”37 But though undiscussed, they are of very considerable interest.
A. The Nationality Question
Among the “other” grounds that Russia had advanced was another - quite common - jurisdictional ground, namely that the claimants were not “investors of another Contracting Party,” i.e., not nationals of another ECT member state, defined as “(i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law; [or] (ii) a company or other organization organized in accordance with the law applicable in that Contracting Party.”38 Russia argued that the purported investment was in a shell company owned by the host State’s own nationals and, for that reason, could not be regarded as an “an investor from another Contracting State,” within the meaning of ECT Article 26. This constituted a jurisdictional objection because if the Russian Federation’s standing offer to arbitrate in Article 26 was never extended to the Claimants, because they were of the “wrong” nationality, they were not in a position to accept that offer and produce a binding arbitration agreement merely by initiating arbitration.
The Tribunal expressed appreciation for this argument, acknowledging that “[i]f the States that took part in the drafting of the ECT had been asked in the course of that process whether the ECT was designed to protect - and should be interpreted and applied to protect - investments in a Contracting State by nationals of that same Contracting State whose capital derived from the energy resources of that State, it may well be that the answer would have been in the negative, not only from the representatives of the Russian Federation but from the generality of the delegates.”39 Nevertheless, the Tribunal came to the conclusion that, given the language of the ECT, in order to qualify as a protected “investor,” a company *14 need only show that it is organized under the laws of a Contracting State, and nothing more.40 This remains a controversial proposition.
B. The Right To Be Heard
The Federation also raised several non-jurisdictional challenges, among them a claim that its right to be heard was violated by the Tribunal’s decision to deviate from both parties’ submissions on damages, develop and employ a damages methodology of its own, and at the same time fail to give the parties an opportunity to comment on that methodology.
This claim too is a serious one. Procedural fairness is essential to the legitimacy of the arbitral process and the resulting award. International tribunals have themselves long acknowledged and underscored the importance of the right to be heard, whether as a matter of sound adjudicatory policy or as a means of ensuring the validity and enforceability of the eventual award. Disrespect of that right is accordingly widely available as a basis for annulment of a local award, as well as for defeating recognition or enforcement of a foreign award.41 An ICSID annulment committee ruled that it is “fundamental, as a matter of procedure, that each party is given the right to be heard before an independent and impartial tribunal.”42
*15 It has indeed become a special preoccupation in international practice that arbitral tribunals refrain from rendering decisions that come as a “surprise” to the parties because based upon considerations that were extraneous to their submissions and debate or upon reasoning that they could not reasonably have anticipated. As stated by another ICSID annulment committee, “It is no answer to a failure to accord such a right that both parties were equally disadvantaged.”43 Moreover, “once it is shown that there was significant surprise it will usually be reasonable to assume procedural prejudice in the absence of indications to the contrary.”44
In arguing that the award should be annulled on the ground that it never knew, and therefore could never address, the Tribunal’s damages methodology, Russia advanced a highly plausible basis for annulment of the award.45 Surprise decisions on remedial issues, such as damages and their calculation, should be considered as offensive to the right to be heard as surprise decisions on issues of liability.
C. The Use of Tribunal Secretaries
Among the most interesting and controversial issues that the Dutch court was spared from deciding in the Yukos case is the proper use by tribunals of tribunal secretaries. The question arises because a cardinal feature of international arbitration proceedings is the right of the parties, in an exercise of party autonomy, to select their arbitrators and define their mandate. In practice, parties select arbitrators on account of such factors as their personal knowledge, experience, judgment, reputation, and character, as well as their availability to serve. The importance of party autonomy in the selection of the arbitrators is reflected in Article V(1)(d) of the New York Convention which authorizes courts to deny recognition or enforcement of a foreign award if “[t]he composition of the arbitral authority ... was not in accordance with the agreement of the parties.”46 *16 Irregular composition of the tribunal is also a ground for annulment under the UNCITRAL Model Law.47 It follows that the mandate of an arbitrator is a personal one. Thus, the AAA/ABA Code of Ethics, Canon V(C), expressly provides that “[an] arbitrator should not delegate the duty to decide to any other person.” Legal scholars unanimously and uniformly subscribe to the view that, as one authority has expressed it, “In accepting appointment, an arbitrator necessarily accepts a duty not to delegate that mandate.”48 As Gary Born has put the matter, “a central premise of the role of the secretary is that he or she may not assume the tribunal’s or (an arbitrator’s) functions and may not influence the tribunal’s decision.”49 The institutional rules and guidance notes are virtually all to the same effect.50
*17 It is of course common arbitral practice around the world, especially in investor-State arbitration, for tribunals to employ secretaries to assist them in administering arbitral proceedings. As the term “secretary” suggests, such an individual is generally meant to perform tasks of an essentially administrative character, and it is so understood. In fact, the title applied to Mr. Valasek in this case was not “secretary,” but “assistant,” a term of no particular meaning in the arbitration context. It is difficult to tell from this term alone the functions that a person can be expected to perform. Whatever the nomenclature, however, the personal nature of the arbitrator’s mandate, as described above, necessarily imposes limits on a tribunal’s use of arbitral secretaries or, to the extent they are employed, arbitral assistants.
Of particular concern in this connection is the role, if any, of arbitral secretaries in producing early drafts of an award. The prevailing view is that, if a secretary engages in any drafting, it should be limited to non-substantive portions of an award (such as portions of an award that identify the parties and counsel, identify the applicable law or language of the arbitration, or recite the basic *18 procedural history of the case). Michael Hwang, for example, considers it proper for secretaries to perform the following tasks, and only those tasks: (1) handle all secretarial and administrative matters in the absence of an institution. (2) communicate with the parties under the supervision of the Tribunal (through its Chairman). (3) proof-read procedural orders and award(s) that may be rendered by the Tribunal. (4) check on legal authorities cited by Counsel to ensure that they are up to date and most relevant to the subject matter of Counsel’s submissions (any new cases unearthed by the Legal Assistant will be referred to the Parties for their comments). (5) assemble or locate relevant factual materials from the record as instructed by the Tribunal. (6) prepare a first draft of the formal or uncontroversial parts of any decision or award that may be rendered by the Tribunal (e.g., procedural history and chronology of events).51 Other leading scholars and practitioners echo that same view.52 According to Professor Klaus Peter Berger, it is not sufficient that the Tribunal subsequently reviews the award and edits it:
As a general rule, the drafting of the substantive parts of the final award, which include its operative part, must be reserved for the arbitral tribunal. It is particularly in this substantive section where writing one’s own text instead of reading the text prepared by someone else remains the ultimate means of intellectual control of the tribunal’s decision of the dispute as the essential tool for safeguarding the proper performance of the arbitrators’ personal decision-making duty owed to the parties that have appointed them, thereby preserving the integrity of the arbitral process as such.53
*19 ***
Even a careful review by an arbitrator of a secretary’s first draft does not entirely remove the scope given to the secretary to make judgements as to what to emphasize and what to omit, judgements that the arbitrator reviewing the draft may not even by able to identify never mind control. The act of writing is the ultimate safeguard of intellectual control. An arbitrator should be reluctant to relinquish it.54 According to a 2015 survey of international arbitrators and practitioners conducted by Queen Mary University of London (in conjunction with White & Case LLP), and based on 763 questionnaire responses and 105 in-person interviews, over 87% of survey respondents opposed having arbitral secretaries prepare drafts of substantive parts of the awards or even discuss the merits of the dispute with the arbitrators.55 Similar surveys of international arbitrators decidedly reflect that same consensus. 56
This is not, of course, to say that parties cannot agree to more extensive participation by arbitral secretaries than the prevailing view allows. The principle of party autonomy clearly so suggests. But this presupposes that the parties are made aware in advance that the Tribunal will follow such practices, and give their assent.
The question raised before the Dutch court was whether the Tribunal in Yukos had observed these widely agreed upon disciplines. There is reason to believe, at least based on information on hours57 and fees58 made available by the PCA, that *20 Mr. Valasek’s role in the arbitration extended considerably further,59 so much so that, had the Dutch court addressed the matter, it is likely to have found the situation deeply problematic.
V. CONCLUSION
The Yukos annulment is in itself a matter of moment, and for reasons other than the magnitude of the award and the fact that the rendering court is especially sophisticated in international arbitration, and increasingly so in investor-State arbitration, given the PCA’s presence in the Hague. The ruling is emblematic of the view that, while national courts rightly defer to arbitral tribunals on the merits of a dispute, they should be less solicitous on the question of whether parties ever agreed to arbitrate. Arguably, this concern arises with particular emphasis in investor-State arbitration. The judgment is, in this regard, especially remarkable, for the court engaged in truly searching de novo review on all aspects of jurisdiction.
Momentous though it may be, the judgment left unaddressed numerous issues that are certainly no less important and, in some cases, a great deal more central to, or controversial in, the world of international arbitration. They will likely resurface in the Dutch appellate proceedings that will ensue and in award enforcement proceedings that the Claimants have brought. In any event, these are matters to which national courts, at some undetermined time in the future, will return. Even in the meantime, they warrant serious reflection
Footnotes
a1 Jean Monnet Professor of European Law and Walter Gellhorn Professor of Law; Director, Center for International Commercial and Investment Arbitration, Columbia Law School. The author has filed an expert opinion on behalf of the Russian Federation in the award enforcement proceeding pending in the federal district court for the District of Columbia.
1 Veteran Petroleum, Ltd., Yukos Universal Ltd. and Hulley Enterprises, Ltd.
2 Cases C/09/477160 / HA ZA 15-1, 15-2 and 15-112 [hereinafter the Judgment].
3 Entry into force April 16, 1998.
4 According to Article 94 of the Russian Constitution “ratification and denunciation of international treaties and agreements of the Russian Federation” may only be performed by the Federal Parliament.
5 Article 25 of the Vienna Convention on the Law of Treaties specifically contemplates provisional application of a treaty or certain of its provisions: “A treaty or a part of a treaty is applied provisionally pending its entry into force if (a) the treaty itself so provides.”
6 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, http:// www.italaw.com/cases/documents/1176#sthash.c0JvBi98.dpuf (Nov. 30, 2009), (“Interim award”), para. 382.
7 Interim award, paras. 262-64.
8 Id. para. 284.
9 According to Article 26 ECT: Settlement of disputes between an Investor and a Contracting Party 1. Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. 2. If such disputes cannot be settled according to the provisions of paragraph 1 within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: a) to the courts or administrative tribunals of the Contracting Party party to the dispute; b) in accordance with any applicable, previously agreed dispute settlement procedure; or c) in accordance with the following paragraphs of this Article. 3. a) Subject only to subparagraphs b) and c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph 2a) or b). (ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41. c) A Contracting Party listed in Annex IA does not give such unconditional consent with respect to a dispute arising under the last sentence of Article 10(1). 4. In the event that an Investor chooses to submit the dispute for resolution under subparagraph 2 c), the Investor shall further provide its consent in writing for the dispute to be submitted to: a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the “Additional Facility Rules”), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention; b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as “UNCITRAL”); or c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce. 5. a) The consent given in paragraph 3 together with the written consent of the Investor given pursuant to paragraph 4 shall be considered to satisfy the requirement for: (i) written consent of the parties to a dispute for purposes of Chapter II of the ICSID Convention and for purposes of the Additional Facility Rules; (ii) an “agreement in writing” for purposes of article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, 10 June 1958 (hereinafter referred to as the “New York Convention”); and (iii) “the parties to a contract [to] have agreed in writing” for the purposes of article 1 of the UNCITRAL Arbitration Rules. b) Any arbitration under this Article shall at the request of any party to the dispute be held in a state that is a party to the New York Convention. Claims submitted to arbitration hereunder shall be considered to arise out of a commercial relationship or transaction for the purposes of article I of that Convention. 6. A tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law. 7. An Investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing referred to in paragraph 4 and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)b) of the ICSID Convention be treated as a “national of another Contracting State” and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a “national of another State.” 8. The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.
10 Interim award, para. 292.
11 Id. para. 292.
12 Id. paras. 308, 329.
13 Id. para. 311.
14 Id. paras. 313-14. Article 27 VCLT states: “A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.”
15 Interim award, paras. 330, 338.
16 Id. para. 370.
17 Id. para. 387.
18 Id. para. 456. Though it was unnecessary to do so, the Tribunal went on to inquire into whether the requirement for application of Article 17(1) - namely, that the Claimant be owned or controlled by nationals or citizens of third States - was satisfied. The Tribunal found that it was not. Id. paras. 537, 546.
19 Id. para. 585.
20 ECT, Art. 26(3)(b)(i).
21 Interim award, para. 598.
22 Final Award, Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case no. AA 227 (July 18, 2014) (“Final award”).
23 Judgment, para. 5.4.
24 Id. para. 1.27. See also id. para. 5.31.
25 Id. paras. 5.11,5.18.
26 Id. para. 5.33.
27 Expert reports by Professor A.A. Kostin, who was head of the Private International and Civil Law Department of the Moscow State Institute of International Relations (January 2006) and by Professor A.V. Asoskov, who was Professor of the International Private Law Department of the Russian School of Private Law and Assistant Professor of the Civil Law Department at M.V. Lomonosov Moscow State University (October 2014). Both experts had demonstrated that Russian legislation made arbitration conditional on the nature of the dispute and, more particularly that only disputes involving the Russian State of a civil law character may be arbitrated. They cited, among other pieces of legislation, Article 21 of the 1992 Arbitrazh Procedure Code (arbitration of “economic” disputes); Article 1 of the 1992 Provisional Regulation on Arbitral Tribunal for Resolving Economic Disputes (arbitration of disputes “arising out of civil law relations”); Article 23 of the 1995 Arbitrazh Procedure Code (arbitration of disputes “that arise out of civil law relations”). Judgment, para. 5.37.
28 Judgment, para. 5.44.
29 Id. para. 5.56.
30 Id. para. 5.60.
31 Id. para. 5.77. Article 10 reads: “State power in the Russian Federation shall be exercised on the basis of its division into legislative, executive and judicial. The legislative, executive and judicial authorities shall be independent.”
32 Judgment, para. 5.62. Article 15, paragraph 4, of the Constitution states: The universally-recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation establishes other rules than those envisaged by law, the rules of the international agreement shall be applied.
33 Judgment, para. 5.95.
34 Id.
35 Id. paras. 5.98-99.
36 Id. para. 6.8.
37 M para. 5.100.
38 ECT, Art. 1(7).
39 Interim Award, para. 434.
40 Id. paras. 411, 417. Similarly, the shares in Yukos qualified as a covered “investment.” Id. para. 434.
41 According to Article V(1)(b) of the New York Convention, a court may decline to recognize or enforce a foreign award when “[t]he party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” See, e.g., Judgment of 8 December 2003, XXIX Y.B. COM. ARB. 834, 839-40 (Swiss Federal Tribunal 2004): “A foreign decision can be incompatible with the Swiss legal system not only because of its substantive content, but also because of the procedures that lead to it. In this respect, Swiss public policy requires compliance with the fundamental principles of procedure, as deduced from the Constitution, such as the right to a fair process and the right to be heard.” See also UNCITRAL MODEL LAW 1985, as revised in 2006, Art. 18 (Equal treatment of parties): “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case”; UNCITRAL ARBITRATION RULES 2010, Art. 17: “Subject to these Rules, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case”; ICC ARBITRATION RULES 2012, Art. 22(4): “In all cases, the arbitral tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.”
42 Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Annulment Proceedings, Decision, ¶ 57 (Feb. 5, 2002). See also a series of other ICSID cases: Maritime International Nominees Establishment (MINE) v. Guinea, ICSID Case No. ARB/84/4, Decision, ¶ 5.06 (Jan. 6, 1988); CDC Group Plc v. Republic of the Seychelles, ICSID Case No. ARB/ 02/14, Annulment Proceedings, Decision, ¶ 49 (June 29, 2005) (quoting Wena Hotels); MTD Equity Sdn. Bhd. And MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/02/14, Annulment Proceedings, Decision, ¶ 49 (Mar. 21, 2007) (quoting Wena Hotels).
43 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25, Annulment Proceedings, Decision, ¶ 202 (Dec. 23, 2010). See also GEORGIOS PETROCHILOS, PROCEDURAL LAW IN INTERNATIONAL ARBITRATION 145 (2004) (requirement that parties have an opportunity to comment on all the crucial points of the reasoning that the tribunal intends to adopt).
44 Rotoaira Forest Trust v. Attorney-General, [1999] 2 NZLR 452, 463 (Comm) (Auckland High Ct.).
45 See, e.g., Paklito Investment Limited v. Klockner East Asia, Ltd, XIX Y.B. COM. ARB. 664 (HK Sup. Ct. 1993).
46 Encyclopaedia Universalis SA v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 91 (2d Cir. 2005) (stating that “Article V(1)(d) of the New York Convention itself suggests the importance of arbitral composition” and refusing to enforce an award because the tribunal did not “comport with [the] agreement’s requirements for how arbitrators are selected”).
47 UNCITRAL MODEL LAW, Art. 34.
48 Constantine Partasides, The Fourth Arbitrator? The Role of Secretaries to Tribunals in International Arbitration, 18 ARB. INT’L 147,147 (2002).
49 GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2000 (2d ed. 2014).
50 Among such rules and guidance notes are the following: (a) UNCITRAL, Notes on Organizing Arbitral Proceedings 1996, ¶ 27: “To the extent the tasks of the secretary are purely organizational (e.g. obtaining meeting rooms and providing or coordinating secretarial services), this is usually not controversial. Differences in views, however, may arise if the tasks include legal research and other professional assistance to the arbitral tribunal (e.g. collecting case law or published commentaries on legal issues defined by the arbitral tribunal, preparing summaries from case law and publications, and sometimes also preparing drafts of procedural decisions or drafts of certain parts of the award, in particular those concerning the facts of the case). Views or expectations may differ especially where a task of the secretary is similar to professional functions of the arbitrators. Such a role of the secretary is in the view of some commentators inappropriate or is appropriate only under certain conditions, such as that the parties agree thereto. However, it is typically recognized that it is important to ensure that the secretary does not perform any decision- making function of the arbitral tribunal.” (b) ICC, Note on the Appointment, Duties and Remuneration of Administrative Secretaries, ¶ 2: “An Administrative Secretary may perform organizational and administrative tasks such as: transmitting documents and communications on behalf of the Arbitral Tribunal; organizing and maintaining the Arbitral Tribunal’s file and locating documents; organizing hearings and meetings; attending hearings, meetings and deliberations; taking notes or minutes or keeping time; conducting legal or similar research; and proofreading and checking citations, dates and cross-references in procedural orders and awards as well as correcting typographical, grammatical or calculation errors. Under no circumstances may the Arbitral Tribunal delegate decision-making functions to an Administrative Secretary. Nor should the Arbitral Tribunal rely on the Administrative Secretary to perform any essential duties of an arbitrator. A request by an Arbitral Tribunal to an Administrative Secretary to prepare written notes or memoranda shall in no circumstances release the Arbitral Tribunal from its duty personally to review the file and/or to draft any decision of the Arbitral Tribunal.” (c) LCIA, Frequently Asked Questions, What is the LCIA’s position on the appointment of Secretaries to Tribunals: “The duties of the administrative secretary should neither conflict with those for which the parties are paying the LCIA Secretariat, nor constitute any delegation of the Tribunal’s authority .... Administrative secretaries should, therefore, confine their activities to such matters as organizing papers for the Tribunal, highlighting relevant authorities, maintaining factual chronologies, keeping the Tribunal’s time sheets and so on.” (d) HKIAC, Guidelines on the Use of a Secretary to the Arbitral Tribunal (June 1, 2014), Arts. 3.4, 3.6: “Unless the parties agree or the arbitral tribunal directs otherwise, a tribunal secretary may provide the following assistance to the arbitral tribunal, provided that the arbitral tribunal ensures that the secretary does not perform any decision-making function or otherwise influence the arbitral tribunal’s decisions in any manner: (a) conducting legal or similar research; collecting case law or published commentaries on legal issues defined by the arbitral tribunal; checking on legal authorities cited by the parties to ensure that they are the latest authorities on the subject matter of the parties’ submissions; (b) researching discrete questions relating to factual evidence and witness testimony; (c) preparing summaries from case law and publications as well as producing memoranda summarizing the parties’ respective submissions and evidence; (d) locating and assembling relevant factual materials from the records as instructed by the arbitral tribunal; (e) attending the arbitral tribunal’s deliberations and taking notes; and (f) preparing drafts of non-substantive letters for the arbitral tribunal and non-substantive parts of the tribunal’s orders, decisions and awards (such as procedural histories and chronologies of events). A request by the arbitral tribunal to a tribunal secretary to prepare notes, memoranda or drafts shall in no circumstances release the arbitral tribunal from its duty personally to review the relevant files and materials, and to draft any substantive parts of its orders, decisions and awards.”
51 Michael Hwang, Introduction: Musings on International Arbitration, in SELECTED ESSAYS ON INTERNATIONAL ARBITRATION 16 (SIAC 2013) (emphasis added).
52 See Thomas Clay, Le secretaire arbitral, REV. ARB. 953-55 (2005): [I]t does not seem to me acceptable that the arbitral secretary participates in the deliberations or is entrusted with the task of drafting a procedural order or award, even a partial award (my translation from the French original).
53 KLAUS PETER BERGER, Part III, 27th Scenario: Deliberation of the Tribunal and Rendering of the Award, in PRIVATE DISPUTE RESOLUTION IN INTERNATIONAL BUSINESS NEGOTIATION, MEDIATION AND ARBITRATION 613-42, at 625, para. 27-19 (3d rev. ed. 2015) (emphasis in original).
54 Partasides, supra note 48, at 158.
55 2015 Queen Mary/White & Case International Arbitration Survey, pp. 42-44.
56 See Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association which found in a survey of a small number of highly prominent international arbitrators that: (a) 14 respondents considered it proper to use secretaries only for “organization of the documents in the file, the drafting of letters regarding scheduling and procedural matters, and the preparation and minutes of hearings,” (b) 11 respondents considered it proper to use secretaries for drafting purposes only in connection with “non-substantive” portions of the award, such as “the procedural history of the arbitration, the description of the parties, and sometimes also the summary of the parties’ contentions,” and (c) two respondents would “refuse to assign any drafting responsibilities to the secretary,” while (d) only three Respondents would permit secretaries to prepare a first draft of the award. Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association, Secretaries to International Arbitration Tribunals, 17 AM. REV. INT’L ARB. 575, 585 (2006).
57 According to the PCA’s Statement of Account, over the life of the proceedings, Mr. Valasek performed 3006.2 hours of work, a figure greatly in excess of the number of hours any members of the Tribunal had spent. The difference was particularly pronounced for the specific period between close of the hearings and rendition of the award.
58 The Final Award shows that Mr. Valasek billed in excess of US 1 million (EUR 970,562.50) in connection with his role as assistant to the Tribunal. Final Award, para. 1863.
59 Evidently the Russian Federation produced a report by a forensic expert affirming, based on the expert’s research, that it was “extremely likely” that Mr. Valasek wrote the majority of at least three major sections of the Final Awards, namely, 78.57% of the Preliminary Objections section, 65.38% of the Liability section and 71.43% of the Quantification of Claimant’s Damages. See Carole Chaski, Expert Report Regarding Authorship of the Final Award dated September 11, 2015, para. 7. Footnotes a1 Jean Monnet Professor of European Law and Walter Gellhorn Professor of Law; Director, Center for International Commercial and Investment Arbitration, Columbia Law School. The author has filed an expert opinion on behalf of the Russian Federation in the award enforcement proceeding pending in the federal district court for the District of Columbia.
1 Veteran Petroleum, Ltd., Yukos Universal Ltd. and Hulley Enterprises, Ltd.
2 Cases C/09/477160 / HA ZA 15-1, 15-2 and 15-112 [hereinafter the Judgment].
3 Entry into force April 16, 1998.
4 According to Article 94 of the Russian Constitution “ratification and denunciation of international treaties and agreements of the Russian Federation” may only be performed by the Federal Parliament.
5 Article 25 of the Vienna Convention on the Law of Treaties specifically contemplates provisional application of a treaty or certain of its provisions: “A treaty or a part of a treaty is applied provisionally pending its entry into force if (a) the treaty itself so provides.”
6 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, http:// www.italaw.com/cases/documents/1176#sthash.c0JvBi98.dpuf (Nov. 30, 2009), (“Interim award”), para. 382.
7 Interim award, paras. 262-64.
8 Id. para. 284.
9 According to Article 26 ECT: Settlement of disputes between an Investor and a Contracting Party 1. Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. 2. If such disputes cannot be settled according to the provisions of paragraph 1 within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: a) to the courts or administrative tribunals of the Contracting Party party to the dispute; b) in accordance with any applicable, previously agreed dispute settlement procedure; or c) in accordance with the following paragraphs of this Article. 3. a) Subject only to subparagraphs b) and c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph 2a) or b). (ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41. c) A Contracting Party listed in Annex IA does not give such unconditional consent with respect to a dispute arising under the last sentence of Article 10(1). 4. In the event that an Investor chooses to submit the dispute for resolution under subparagraph 2 c), the Investor shall further provide its consent in writing for the dispute to be submitted to: a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the “Additional Facility Rules”), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention; b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as “UNCITRAL”); or c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce. 5. a) The consent given in paragraph 3 together with the written consent of the Investor given pursuant to paragraph 4 shall be considered to satisfy the requirement for: (i) written consent of the parties to a dispute for purposes of Chapter II of the ICSID Convention and for purposes of the Additional Facility Rules; (ii) an “agreement in writing” for purposes of article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, 10 June 1958 (hereinafter referred to as the “New York Convention”); and (iii) “the parties to a contract [to] have agreed in writing” for the purposes of article 1 of the UNCITRAL Arbitration Rules. b) Any arbitration under this Article shall at the request of any party to the dispute be held in a state that is a party to the New York Convention. Claims submitted to arbitration hereunder shall be considered to arise out of a commercial relationship or transaction for the purposes of article I of that Convention. 6. A tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law. 7. An Investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing referred to in paragraph 4 and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)b) of the ICSID Convention be treated as a “national of another Contracting State” and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a “national of another State.” 8. The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.
10 Interim award, para. 292.
11 Id. para. 292.
12 Id. paras. 308, 329.
13 Id. para. 311.
14 Id. paras. 313-14. Article 27 VCLT states: “A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.”
15 Interim award, paras. 330, 338.
16 Id. para. 370.
17 Id. para. 387.
18 Id. para. 456. Though it was unnecessary to do so, the Tribunal went on to inquire into whether the requirement for application of Article 17(1) - namely, that the Claimant be owned or controlled by nationals or citizens of third States - was satisfied. The Tribunal found that it was not. Id. paras. 537, 546.
19 Id. para. 585.
20 ECT, Art. 26(3)(b)(i).
21 Interim award, para. 598.
22 Final Award, Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case no. AA 227 (July 18, 2014) (“Final award”).
23 Judgment, para. 5.4.
24 Id. para. 1.27. See also id. para. 5.31.
25 Id. paras. 5.11,5.18.
26 Id. para. 5.33.
27 Expert reports by Professor A.A. Kostin, who was head of the Private International and Civil Law Department of the Moscow State Institute of International Relations (January 2006) and by Professor A.V. Asoskov, who was Professor of the International Private Law Department of the Russian School of Private Law and Assistant Professor of the Civil Law Department at M.V. Lomonosov Moscow State University (October 2014). Both experts had demonstrated that Russian legislation made arbitration conditional on the nature of the dispute and, more particularly that only disputes involving the Russian State of a civil law character may be arbitrated. They cited, among other pieces of legislation, Article 21 of the 1992 Arbitrazh Procedure Code (arbitration of “economic” disputes); Article 1 of the 1992 Provisional Regulation on Arbitral Tribunal for Resolving Economic Disputes (arbitration of disputes “arising out of civil law relations”); Article 23 of the 1995 Arbitrazh Procedure Code (arbitration of disputes “that arise out of civil law relations”). Judgment, para. 5.37.
28 Judgment, para. 5.44.
29 Id. para. 5.56.
30 Id. para. 5.60.
31 Id. para. 5.77. Article 10 reads: “State power in the Russian Federation shall be exercised on the basis of its division into legislative, executive and judicial. The legislative, executive and judicial authorities shall be independent.”
32 Judgment, para. 5.62. Article 15, paragraph 4, of the Constitution states: The universally-recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation establishes other rules than those envisaged by law, the rules of the international agreement shall be applied.
33 Judgment, para. 5.95.
34 Id.
35 Id. paras. 5.98-99.
36 Id. para. 6.8.
37 M para. 5.100.
38 ECT, Art. 1(7).
39 Interim Award, para. 434.
40 Id. paras. 411, 417. Similarly, the shares in Yukos qualified as a covered “investment.” Id. para. 434.
41 According to Article V(1)(b) of the New York Convention, a court may decline to recognize or enforce a foreign award when “[t]he party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” See, e.g., Judgment of 8 December 2003, XXIX Y.B. COM. ARB. 834, 839-40 (Swiss Federal Tribunal 2004): “A foreign decision can be incompatible with the Swiss legal system not only because of its substantive content, but also because of the procedures that lead to it. In this respect, Swiss public policy requires compliance with the fundamental principles of procedure, as deduced from the Constitution, such as the right to a fair process and the right to be heard.” See also UNCITRAL MODEL LAW 1985, as revised in 2006, Art. 18 (Equal treatment of parties): “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case”; UNCITRAL ARBITRATION RULES 2010, Art. 17: “Subject to these Rules, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case”; ICC ARBITRATION RULES 2012, Art. 22(4): “In all cases, the arbitral tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.”
42 Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Annulment Proceedings, Decision, ¶ 57 (Feb. 5, 2002). See also a series of other ICSID cases: Maritime International Nominees Establishment (MINE) v. Guinea, ICSID Case No. ARB/84/4, Decision, ¶ 5.06 (Jan. 6, 1988); CDC Group Plc v. Republic of the Seychelles, ICSID Case No. ARB/ 02/14, Annulment Proceedings, Decision, ¶ 49 (June 29, 2005) (quoting Wena Hotels); MTD Equity Sdn. Bhd. And MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/02/14, Annulment Proceedings, Decision, ¶ 49 (Mar. 21, 2007) (quoting Wena Hotels).
43 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25, Annulment Proceedings, Decision, ¶ 202 (Dec. 23, 2010). See also GEORGIOS PETROCHILOS, PROCEDURAL LAW IN INTERNATIONAL ARBITRATION 145 (2004) (requirement that parties have an opportunity to comment on all the crucial points of the reasoning that the tribunal intends to adopt).
44 Rotoaira Forest Trust v. Attorney-General, [1999] 2 NZLR 452, 463 (Comm) (Auckland High Ct.).
45 See, e.g., Paklito Investment Limited v. Klockner East Asia, Ltd, XIX Y.B. COM. ARB. 664 (HK Sup. Ct. 1993).
46 Encyclopaedia Universalis SA v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 91 (2d Cir. 2005) (stating that “Article V(1)(d) of the New York Convention itself suggests the importance of arbitral composition” and refusing to enforce an award because the tribunal did not “comport with [the] agreement’s requirements for how arbitrators are selected”).
47 UNCITRAL MODEL LAW, Art. 34.
48 Constantine Partasides, The Fourth Arbitrator? The Role of Secretaries to Tribunals in International Arbitration, 18 ARB. INT’L 147,147 (2002).
49 GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2000 (2d ed. 2014).
50 Among such rules and guidance notes are the following: (a) UNCITRAL, Notes on Organizing Arbitral Proceedings 1996, ¶ 27: “To the extent the tasks of the secretary are purely organizational (e.g. obtaining meeting rooms and providing or coordinating secretarial services), this is usually not controversial. Differences in views, however, may arise if the tasks include legal research and other professional assistance to the arbitral tribunal (e.g. collecting case law or published commentaries on legal issues defined by the arbitral tribunal, preparing summaries from case law and publications, and sometimes also preparing drafts of procedural decisions or drafts of certain parts of the award, in particular those concerning the facts of the case). Views or expectations may differ especially where a task of the secretary is similar to professional functions of the arbitrators. Such a role of the secretary is in the view of some commentators inappropriate or is appropriate only under certain conditions, such as that the parties agree thereto. However, it is typically recognized that it is important to ensure that the secretary does not perform any decision- making function of the arbitral tribunal.” (b) ICC, Note on the Appointment, Duties and Remuneration of Administrative Secretaries, ¶ 2: “An Administrative Secretary may perform organizational and administrative tasks such as: transmitting documents and communications on behalf of the Arbitral Tribunal; organizing and maintaining the Arbitral Tribunal’s file and locating documents; organizing hearings and meetings; attending hearings, meetings and deliberations; taking notes or minutes or keeping time; conducting legal or similar research; and proofreading and checking citations, dates and cross-references in procedural orders and awards as well as correcting typographical, grammatical or calculation errors. Under no circumstances may the Arbitral Tribunal delegate decision-making functions to an Administrative Secretary. Nor should the Arbitral Tribunal rely on the Administrative Secretary to perform any essential duties of an arbitrator. A request by an Arbitral Tribunal to an Administrative Secretary to prepare written notes or memoranda shall in no circumstances release the Arbitral Tribunal from its duty personally to review the file and/or to draft any decision of the Arbitral Tribunal.” (c) LCIA, Frequently Asked Questions, What is the LCIA’s position on the appointment of Secretaries to Tribunals: “The duties of the administrative secretary should neither conflict with those for which the parties are paying the LCIA Secretariat, nor constitute any delegation of the Tribunal’s authority .... Administrative secretaries should, therefore, confine their activities to such matters as organizing papers for the Tribunal, highlighting relevant authorities, maintaining factual chronologies, keeping the Tribunal’s time sheets and so on.” (d) HKIAC, Guidelines on the Use of a Secretary to the Arbitral Tribunal (June 1, 2014), Arts. 3.4, 3.6: “Unless the parties agree or the arbitral tribunal directs otherwise, a tribunal secretary may provide the following assistance to the arbitral tribunal, provided that the arbitral tribunal ensures that the secretary does not perform any decision-making function or otherwise influence the arbitral tribunal’s decisions in any manner: (a) conducting legal or similar research; collecting case law or published commentaries on legal issues defined by the arbitral tribunal; checking on legal authorities cited by the parties to ensure that they are the latest authorities on the subject matter of the parties’ submissions; (b) researching discrete questions relating to factual evidence and witness testimony; (c) preparing summaries from case law and publications as well as producing memoranda summarizing the parties’ respective submissions and evidence; (d) locating and assembling relevant factual materials from the records as instructed by the arbitral tribunal; (e) attending the arbitral tribunal’s deliberations and taking notes; and (f) preparing drafts of non-substantive letters for the arbitral tribunal and non-substantive parts of the tribunal’s orders, decisions and awards (such as procedural histories and chronologies of events). A request by the arbitral tribunal to a tribunal secretary to prepare notes, memoranda or drafts shall in no circumstances release the arbitral tribunal from its duty personally to review the relevant files and materials, and to draft any substantive parts of its orders, decisions and awards.”
51 Michael Hwang, Introduction: Musings on International Arbitration, in SELECTED ESSAYS ON INTERNATIONAL ARBITRATION 16 (SIAC 2013) (emphasis added).
52 See Thomas Clay, Le secretaire arbitral, REV. ARB. 953-55 (2005): [I]t does not seem to me acceptable that the arbitral secretary participates in the deliberations or is entrusted with the task of drafting a procedural order or award, even a partial award (my translation from the French original).
53 KLAUS PETER BERGER, Part III, 27th Scenario: Deliberation of the Tribunal and Rendering of the Award, in PRIVATE DISPUTE RESOLUTION IN INTERNATIONAL BUSINESS NEGOTIATION, MEDIATION AND ARBITRATION 613-42, at 625, para. 27-19 (3d rev. ed. 2015) (emphasis in original).
54 Partasides, supra note 48, at 158.
55 2015 Queen Mary/White & Case International Arbitration Survey, pp. 42-44.
56 See Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association which found in a survey of a small number of highly prominent international arbitrators that: (a) 14 respondents considered it proper to use secretaries only for “organization of the documents in the file, the drafting of letters regarding scheduling and procedural matters, and the preparation and minutes of hearings,” (b) 11 respondents considered it proper to use secretaries for drafting purposes only in connection with “non-substantive” portions of the award, such as “the procedural history of the arbitration, the description of the parties, and sometimes also the summary of the parties’ contentions,” and (c) two respondents would “refuse to assign any drafting responsibilities to the secretary,” while (d) only three Respondents would permit secretaries to prepare a first draft of the award. Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association, Secretaries to International Arbitration Tribunals, 17 AM. REV. INT’L ARB. 575, 585 (2006).
57 According to the PCA’s Statement of Account, over the life of the proceedings, Mr. Valasek performed 3006.2 hours of work, a figure greatly in excess of the number of hours any members of the Tribunal had spent. The difference was particularly pronounced for the specific period between close of the hearings and rendition of the award.
58 The Final Award shows that Mr. Valasek billed in excess of US 1 million (EUR 970,562.50) in connection with his role as assistant to the Tribunal. Final Award, para. 1863.
59 Evidently the Russian Federation produced a report by a forensic expert affirming, based on the expert’s research, that it was “extremely likely” that Mr. Valasek wrote the majority of at least three major sections of the Final Awards, namely, 78.57% of the Preliminary Objections section, 65.38% of the Liability section and 71.43% of the Quantification of Claimant’s Damages. See Carole Chaski, Expert Report Regarding Authorship of the Final Award dated September 11, 2015, para. 7. Footnotes a1 Jean Monnet Professor of European Law and Walter Gellhorn Professor of Law; Director, Center for International Commercial and Investment Arbitration, Columbia Law School. The author has filed an expert opinion on behalf of the Russian Federation in the award enforcement proceeding pending in the federal district court for the District of Columbia.
1 Veteran Petroleum, Ltd., Yukos Universal Ltd. and Hulley Enterprises, Ltd.
2 Cases C/09/477160 / HA ZA 15-1, 15-2 and 15-112 [hereinafter the Judgment].
3 Entry into force April 16, 1998.
4 According to Article 94 of the Russian Constitution “ratification and denunciation of international treaties and agreements of the Russian Federation” may only be performed by the Federal Parliament.
5 Article 25 of the Vienna Convention on the Law of Treaties specifically contemplates provisional application of a treaty or certain of its provisions: “A treaty or a part of a treaty is applied provisionally pending its entry into force if (a) the treaty itself so provides.”
6 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, http:// www.italaw.com/cases/documents/1176#sthash.c0JvBi98.dpuf (Nov. 30, 2009), (“Interim award”), para. 382.
7 Interim award, paras. 262-64.
8 Id. para. 284.
9 According to Article 26 ECT: Settlement of disputes between an Investor and a Contracting Party 1. Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. 2. If such disputes cannot be settled according to the provisions of paragraph 1 within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: a) to the courts or administrative tribunals of the Contracting Party party to the dispute; b) in accordance with any applicable, previously agreed dispute settlement procedure; or c) in accordance with the following paragraphs of this Article. 3. a) Subject only to subparagraphs b) and c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph 2a) or b). (ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41. c) A Contracting Party listed in Annex IA does not give such unconditional consent with respect to a dispute arising under the last sentence of Article 10(1). 4. In the event that an Investor chooses to submit the dispute for resolution under subparagraph 2 c), the Investor shall further provide its consent in writing for the dispute to be submitted to: a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the “Additional Facility Rules”), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention; b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as “UNCITRAL”); or c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce. 5. a) The consent given in paragraph 3 together with the written consent of the Investor given pursuant to paragraph 4 shall be considered to satisfy the requirement for: (i) written consent of the parties to a dispute for purposes of Chapter II of the ICSID Convention and for purposes of the Additional Facility Rules; (ii) an “agreement in writing” for purposes of article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, 10 June 1958 (hereinafter referred to as the “New York Convention”); and (iii) “the parties to a contract [to] have agreed in writing” for the purposes of article 1 of the UNCITRAL Arbitration Rules. b) Any arbitration under this Article shall at the request of any party to the dispute be held in a state that is a party to the New York Convention. Claims submitted to arbitration hereunder shall be considered to arise out of a commercial relationship or transaction for the purposes of article I of that Convention. 6. A tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law. 7. An Investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing referred to in paragraph 4 and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)b) of the ICSID Convention be treated as a “national of another Contracting State” and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a “national of another State.” 8. The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.
10 Interim award, para. 292.
11 Id. para. 292.
12 Id. paras. 308, 329.
13 Id. para. 311.
14 Id. paras. 313-14. Article 27 VCLT states: “A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.”
15 Interim award, paras. 330, 338.
16 Id. para. 370.
17 Id. para. 387.
18 Id. para. 456. Though it was unnecessary to do so, the Tribunal went on to inquire into whether the requirement for application of Article 17(1) - namely, that the Claimant be owned or controlled by nationals or citizens of third States - was satisfied. The Tribunal found that it was not. Id. paras. 537, 546.
19 Id. para. 585.
20 ECT, Art. 26(3)(b)(i).
21 Interim award, para. 598.
22 Final Award, Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case no. AA 227 (July 18, 2014) (“Final award”).
23 Judgment, para. 5.4.
24 Id. para. 1.27. See also id. para. 5.31.
25 Id. paras. 5.11,5.18.
26 Id. para. 5.33.
27 Expert reports by Professor A.A. Kostin, who was head of the Private International and Civil Law Department of the Moscow State Institute of International Relations (January 2006) and by Professor A.V. Asoskov, who was Professor of the International Private Law Department of the Russian School of Private Law and Assistant Professor of the Civil Law Department at M.V. Lomonosov Moscow State University (October 2014). Both experts had demonstrated that Russian legislation made arbitration conditional on the nature of the dispute and, more particularly that only disputes involving the Russian State of a civil law character may be arbitrated. They cited, among other pieces of legislation, Article 21 of the 1992 Arbitrazh Procedure Code (arbitration of “economic” disputes); Article 1 of the 1992 Provisional Regulation on Arbitral Tribunal for Resolving Economic Disputes (arbitration of disputes “arising out of civil law relations”); Article 23 of the 1995 Arbitrazh Procedure Code (arbitration of disputes “that arise out of civil law relations”). Judgment, para. 5.37.
28 Judgment, para. 5.44.
29 Id. para. 5.56.
30 Id. para. 5.60.
31 Id. para. 5.77. Article 10 reads: “State power in the Russian Federation shall be exercised on the basis of its division into legislative, executive and judicial. The legislative, executive and judicial authorities shall be independent.”
32 Judgment, para. 5.62. Article 15, paragraph 4, of the Constitution states: The universally-recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation establishes other rules than those envisaged by law, the rules of the international agreement shall be applied.
33 Judgment, para. 5.95.
34 Id.
35 Id. paras. 5.98-99.
36 Id. para. 6.8.
37 M para. 5.100.
38 ECT, Art. 1(7).
39 Interim Award, para. 434.
40 Id. paras. 411, 417. Similarly, the shares in Yukos qualified as a covered “investment.” Id. para. 434.
41 According to Article V(1)(b) of the New York Convention, a court may decline to recognize or enforce a foreign award when “[t]he party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” See, e.g., Judgment of 8 December 2003, XXIX Y.B. COM. ARB. 834, 839-40 (Swiss Federal Tribunal 2004): “A foreign decision can be incompatible with the Swiss legal system not only because of its substantive content, but also because of the procedures that lead to it. In this respect, Swiss public policy requires compliance with the fundamental principles of procedure, as deduced from the Constitution, such as the right to a fair process and the right to be heard.” See also UNCITRAL MODEL LAW 1985, as revised in 2006, Art. 18 (Equal treatment of parties): “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case”; UNCITRAL ARBITRATION RULES 2010, Art. 17: “Subject to these Rules, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case”; ICC ARBITRATION RULES 2012, Art. 22(4): “In all cases, the arbitral tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.”
42 Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Annulment Proceedings, Decision, ¶ 57 (Feb. 5, 2002). See also a series of other ICSID cases: Maritime International Nominees Establishment (MINE) v. Guinea, ICSID Case No. ARB/84/4, Decision, ¶ 5.06 (Jan. 6, 1988); CDC Group Plc v. Republic of the Seychelles, ICSID Case No. ARB/ 02/14, Annulment Proceedings, Decision, ¶ 49 (June 29, 2005) (quoting Wena Hotels); MTD Equity Sdn. Bhd. And MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/02/14, Annulment Proceedings, Decision, ¶ 49 (Mar. 21, 2007) (quoting Wena Hotels).
43 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25, Annulment Proceedings, Decision, ¶ 202 (Dec. 23, 2010). See also GEORGIOS PETROCHILOS, PROCEDURAL LAW IN INTERNATIONAL ARBITRATION 145 (2004) (requirement that parties have an opportunity to comment on all the crucial points of the reasoning that the tribunal intends to adopt).
44 Rotoaira Forest Trust v. Attorney-General, [1999] 2 NZLR 452, 463 (Comm) (Auckland High Ct.).
45 See, e.g., Paklito Investment Limited v. Klockner East Asia, Ltd, XIX Y.B. COM. ARB. 664 (HK Sup. Ct. 1993).
46 Encyclopaedia Universalis SA v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 91 (2d Cir. 2005) (stating that “Article V(1)(d) of the New York Convention itself suggests the importance of arbitral composition” and refusing to enforce an award because the tribunal did not “comport with [the] agreement’s requirements for how arbitrators are selected”).
47 UNCITRAL MODEL LAW, Art. 34.
48 Constantine Partasides, The Fourth Arbitrator? The Role of Secretaries to Tribunals in International Arbitration, 18 ARB. INT’L 147,147 (2002).
49 GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2000 (2d ed. 2014).
50 Among such rules and guidance notes are the following: (a) UNCITRAL, Notes on Organizing Arbitral Proceedings 1996, ¶ 27: “To the extent the tasks of the secretary are purely organizational (e.g. obtaining meeting rooms and providing or coordinating secretarial services), this is usually not controversial. Differences in views, however, may arise if the tasks include legal research and other professional assistance to the arbitral tribunal (e.g. collecting case law or published commentaries on legal issues defined by the arbitral tribunal, preparing summaries from case law and publications, and sometimes also preparing drafts of procedural decisions or drafts of certain parts of the award, in particular those concerning the facts of the case). Views or expectations may differ especially where a task of the secretary is similar to professional functions of the arbitrators. Such a role of the secretary is in the view of some commentators inappropriate or is appropriate only under certain conditions, such as that the parties agree thereto. However, it is typically recognized that it is important to ensure that the secretary does not perform any decision- making function of the arbitral tribunal.” (b) ICC, Note on the Appointment, Duties and Remuneration of Administrative Secretaries, ¶ 2: “An Administrative Secretary may perform organizational and administrative tasks such as: transmitting documents and communications on behalf of the Arbitral Tribunal; organizing and maintaining the Arbitral Tribunal’s file and locating documents; organizing hearings and meetings; attending hearings, meetings and deliberations; taking notes or minutes or keeping time; conducting legal or similar research; and proofreading and checking citations, dates and cross-references in procedural orders and awards as well as correcting typographical, grammatical or calculation errors. Under no circumstances may the Arbitral Tribunal delegate decision-making functions to an Administrative Secretary. Nor should the Arbitral Tribunal rely on the Administrative Secretary to perform any essential duties of an arbitrator. A request by an Arbitral Tribunal to an Administrative Secretary to prepare written notes or memoranda shall in no circumstances release the Arbitral Tribunal from its duty personally to review the file and/or to draft any decision of the Arbitral Tribunal.” (c) LCIA, Frequently Asked Questions, What is the LCIA’s position on the appointment of Secretaries to Tribunals: “The duties of the administrative secretary should neither conflict with those for which the parties are paying the LCIA Secretariat, nor constitute any delegation of the Tribunal’s authority .... Administrative secretaries should, therefore, confine their activities to such matters as organizing papers for the Tribunal, highlighting relevant authorities, maintaining factual chronologies, keeping the Tribunal’s time sheets and so on.” (d) HKIAC, Guidelines on the Use of a Secretary to the Arbitral Tribunal (June 1, 2014), Arts. 3.4, 3.6: “Unless the parties agree or the arbitral tribunal directs otherwise, a tribunal secretary may provide the following assistance to the arbitral tribunal, provided that the arbitral tribunal ensures that the secretary does not perform any decision-making function or otherwise influence the arbitral tribunal’s decisions in any manner: (a) conducting legal or similar research; collecting case law or published commentaries on legal issues defined by the arbitral tribunal; checking on legal authorities cited by the parties to ensure that they are the latest authorities on the subject matter of the parties’ submissions; (b) researching discrete questions relating to factual evidence and witness testimony; (c) preparing summaries from case law and publications as well as producing memoranda summarizing the parties’ respective submissions and evidence; (d) locating and assembling relevant factual materials from the records as instructed by the arbitral tribunal; (e) attending the arbitral tribunal’s deliberations and taking notes; and (f) preparing drafts of non-substantive letters for the arbitral tribunal and non-substantive parts of the tribunal’s orders, decisions and awards (such as procedural histories and chronologies of events). A request by the arbitral tribunal to a tribunal secretary to prepare notes, memoranda or drafts shall in no circumstances release the arbitral tribunal from its duty personally to review the relevant files and materials, and to draft any substantive parts of its orders, decisions and awards.”
51 Michael Hwang, Introduction: Musings on International Arbitration, in SELECTED ESSAYS ON INTERNATIONAL ARBITRATION 16 (SIAC 2013) (emphasis added).
52 See Thomas Clay, Le secretaire arbitral, REV. ARB. 953-55 (2005): [I]t does not seem to me acceptable that the arbitral secretary participates in the deliberations or is entrusted with the task of drafting a procedural order or award, even a partial award (my translation from the French original).
53 KLAUS PETER BERGER, Part III, 27th Scenario: Deliberation of the Tribunal and Rendering of the Award, in PRIVATE DISPUTE RESOLUTION IN INTERNATIONAL BUSINESS NEGOTIATION, MEDIATION AND ARBITRATION 613-42, at 625, para. 27-19 (3d rev. ed. 2015) (emphasis in original).
54 Partasides, supra note 48, at 158.
55 2015 Queen Mary/White & Case International Arbitration Survey, pp. 42-44.
56 See Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association which found in a survey of a small number of highly prominent international arbitrators that: (a) 14 respondents considered it proper to use secretaries only for “organization of the documents in the file, the drafting of letters regarding scheduling and procedural matters, and the preparation and minutes of hearings,” (b) 11 respondents considered it proper to use secretaries for drafting purposes only in connection with “non-substantive” portions of the award, such as “the procedural history of the arbitration, the description of the parties, and sometimes also the summary of the parties’ contentions,” and (c) two respondents would “refuse to assign any drafting responsibilities to the secretary,” while (d) only three Respondents would permit secretaries to prepare a first draft of the award. Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association, Secretaries to International Arbitration Tribunals, 17 AM. REV. INT’L ARB. 575, 585 (2006).
57 According to the PCA’s Statement of Account, over the life of the proceedings, Mr. Valasek performed 3006.2 hours of work, a figure greatly in excess of the number of hours any members of the Tribunal had spent. The difference was particularly pronounced for the specific period between close of the hearings and rendition of the award.
58 The Final Award shows that Mr. Valasek billed in excess of US 1 million (EUR 970,562.50) in connection with his role as assistant to the Tribunal. Final Award, para. 1863.
59 Evidently the Russian Federation produced a report by a forensic expert affirming, based on the expert’s research, that it was “extremely likely” that Mr. Valasek wrote the majority of at least three major sections of the Final Awards, namely, 78.57% of the Preliminary Objections section, 65.38% of the Liability section and 71.43% of the Quantification of Claimant’s Damages. See Carole Chaski, Expert Report Regarding Authorship of the Final Award dated September 11, 2015, para. 7. Footnotes a1 Jean Monnet Professor of European Law and Walter Gellhorn Professor of Law; Director, Center for International Commercial and Investment Arbitration, Columbia Law School. The author has filed an expert opinion on behalf of the Russian Federation in the award enforcement proceeding pending in the federal district court for the District of Columbia.
1 Veteran Petroleum, Ltd., Yukos Universal Ltd. and Hulley Enterprises, Ltd.
2 Cases C/09/477160 / HA ZA 15-1, 15-2 and 15-112 [hereinafter the Judgment].
3 Entry into force April 16, 1998.
4 According to Article 94 of the Russian Constitution “ratification and denunciation of international treaties and agreements of the Russian Federation” may only be performed by the Federal Parliament.
5 Article 25 of the Vienna Convention on the Law of Treaties specifically contemplates provisional application of a treaty or certain of its provisions: “A treaty or a part of a treaty is applied provisionally pending its entry into force if (a) the treaty itself so provides.”
6 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, http:// www.italaw.com/cases/documents/1176#sthash.c0JvBi98.dpuf (Nov. 30, 2009), (“Interim award”), para. 382.
7 Interim award, paras. 262-64.
8 Id. para. 284.
9 According to Article 26 ECT: Settlement of disputes between an Investor and a Contracting Party 1. Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. 2. If such disputes cannot be settled according to the provisions of paragraph 1 within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: a) to the courts or administrative tribunals of the Contracting Party party to the dispute; b) in accordance with any applicable, previously agreed dispute settlement procedure; or c) in accordance with the following paragraphs of this Article. 3. a) Subject only to subparagraphs b) and c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph 2a) or b). (ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41. c) A Contracting Party listed in Annex IA does not give such unconditional consent with respect to a dispute arising under the last sentence of Article 10(1). 4. In the event that an Investor chooses to submit the dispute for resolution under subparagraph 2 c), the Investor shall further provide its consent in writing for the dispute to be submitted to: a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the “Additional Facility Rules”), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention; b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as “UNCITRAL”); or c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce. 5. a) The consent given in paragraph 3 together with the written consent of the Investor given pursuant to paragraph 4 shall be considered to satisfy the requirement for: (i) written consent of the parties to a dispute for purposes of Chapter II of the ICSID Convention and for purposes of the Additional Facility Rules; (ii) an “agreement in writing” for purposes of article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, 10 June 1958 (hereinafter referred to as the “New York Convention”); and (iii) “the parties to a contract [to] have agreed in writing” for the purposes of article 1 of the UNCITRAL Arbitration Rules. b) Any arbitration under this Article shall at the request of any party to the dispute be held in a state that is a party to the New York Convention. Claims submitted to arbitration hereunder shall be considered to arise out of a commercial relationship or transaction for the purposes of article I of that Convention. 6. A tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law. 7. An Investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing referred to in paragraph 4 and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)b) of the ICSID Convention be treated as a “national of another Contracting State” and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a “national of another State.” 8. The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.
10 Interim award, para. 292.
11 Id. para. 292.
12 Id. paras. 308, 329.
13 Id. para. 311.
14 Id. paras. 313-14. Article 27 VCLT states: “A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.”
15 Interim award, paras. 330, 338.
16 Id. para. 370.
17 Id. para. 387.
18 Id. para. 456. Though it was unnecessary to do so, the Tribunal went on to inquire into whether the requirement for application of Article 17(1) - namely, that the Claimant be owned or controlled by nationals or citizens of third States - was satisfied. The Tribunal found that it was not. Id. paras. 537, 546.
19 Id. para. 585.
20 ECT, Art. 26(3)(b)(i).
21 Interim award, para. 598.
22 Final Award, Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case no. AA 227 (July 18, 2014) (“Final award”).
23 Judgment, para. 5.4.
24 Id. para. 1.27. See also id. para. 5.31.
25 Id. paras. 5.11,5.18.
26 Id. para. 5.33.
27 Expert reports by Professor A.A. Kostin, who was head of the Private International and Civil Law Department of the Moscow State Institute of International Relations (January 2006) and by Professor A.V. Asoskov, who was Professor of the International Private Law Department of the Russian School of Private Law and Assistant Professor of the Civil Law Department at M.V. Lomonosov Moscow State University (October 2014). Both experts had demonstrated that Russian legislation made arbitration conditional on the nature of the dispute and, more particularly that only disputes involving the Russian State of a civil law character may be arbitrated. They cited, among other pieces of legislation, Article 21 of the 1992 Arbitrazh Procedure Code (arbitration of “economic” disputes); Article 1 of the 1992 Provisional Regulation on Arbitral Tribunal for Resolving Economic Disputes (arbitration of disputes “arising out of civil law relations”); Article 23 of the 1995 Arbitrazh Procedure Code (arbitration of disputes “that arise out of civil law relations”). Judgment, para. 5.37.
28 Judgment, para. 5.44.
29 Id. para. 5.56.
30 Id. para. 5.60.
31 Id. para. 5.77. Article 10 reads: “State power in the Russian Federation shall be exercised on the basis of its division into legislative, executive and judicial. The legislative, executive and judicial authorities shall be independent.”
32 Judgment, para. 5.62. Article 15, paragraph 4, of the Constitution states: The universally-recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation establishes other rules than those envisaged by law, the rules of the international agreement shall be applied.
33 Judgment, para. 5.95.
34 Id.
35 Id. paras. 5.98-99.
36 Id. para. 6.8.
37 M para. 5.100.
38 ECT, Art. 1(7).
39 Interim Award, para. 434.
40 Id. paras. 411, 417. Similarly, the shares in Yukos qualified as a covered “investment.” Id. para. 434.
41 According to Article V(1)(b) of the New York Convention, a court may decline to recognize or enforce a foreign award when “[t]he party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” See, e.g., Judgment of 8 December 2003, XXIX Y.B. COM. ARB. 834, 839-40 (Swiss Federal Tribunal 2004): “A foreign decision can be incompatible with the Swiss legal system not only because of its substantive content, but also because of the procedures that lead to it. In this respect, Swiss public policy requires compliance with the fundamental principles of procedure, as deduced from the Constitution, such as the right to a fair process and the right to be heard.” See also UNCITRAL MODEL LAW 1985, as revised in 2006, Art. 18 (Equal treatment of parties): “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case”; UNCITRAL ARBITRATION RULES 2010, Art. 17: “Subject to these Rules, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case”; ICC ARBITRATION RULES 2012, Art. 22(4): “In all cases, the arbitral tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.”
42 Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Annulment Proceedings, Decision, ¶ 57 (Feb. 5, 2002). See also a series of other ICSID cases: Maritime International Nominees Establishment (MINE) v. Guinea, ICSID Case No. ARB/84/4, Decision, ¶ 5.06 (Jan. 6, 1988); CDC Group Plc v. Republic of the Seychelles, ICSID Case No. ARB/ 02/14, Annulment Proceedings, Decision, ¶ 49 (June 29, 2005) (quoting Wena Hotels); MTD Equity Sdn. Bhd. And MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/02/14, Annulment Proceedings, Decision, ¶ 49 (Mar. 21, 2007) (quoting Wena Hotels).
43 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25, Annulment Proceedings, Decision, ¶ 202 (Dec. 23, 2010). See also GEORGIOS PETROCHILOS, PROCEDURAL LAW IN INTERNATIONAL ARBITRATION 145 (2004) (requirement that parties have an opportunity to comment on all the crucial points of the reasoning that the tribunal intends to adopt).
44 Rotoaira Forest Trust v. Attorney-General, [1999] 2 NZLR 452, 463 (Comm) (Auckland High Ct.).
45 See, e.g., Paklito Investment Limited v. Klockner East Asia, Ltd, XIX Y.B. COM. ARB. 664 (HK Sup. Ct. 1993).
46 Encyclopaedia Universalis SA v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 91 (2d Cir. 2005) (stating that “Article V(1)(d) of the New York Convention itself suggests the importance of arbitral composition” and refusing to enforce an award because the tribunal did not “comport with [the] agreement’s requirements for how arbitrators are selected”).
47 UNCITRAL MODEL LAW, Art. 34.
48 Constantine Partasides, The Fourth Arbitrator? The Role of Secretaries to Tribunals in International Arbitration, 18 ARB. INT’L 147,147 (2002).
49 GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2000 (2d ed. 2014).
50 Among such rules and guidance notes are the following: (a) UNCITRAL, Notes on Organizing Arbitral Proceedings 1996, ¶ 27: “To the extent the tasks of the secretary are purely organizational (e.g. obtaining meeting rooms and providing or coordinating secretarial services), this is usually not controversial. Differences in views, however, may arise if the tasks include legal research and other professional assistance to the arbitral tribunal (e.g. collecting case law or published commentaries on legal issues defined by the arbitral tribunal, preparing summaries from case law and publications, and sometimes also preparing drafts of procedural decisions or drafts of certain parts of the award, in particular those concerning the facts of the case). Views or expectations may differ especially where a task of the secretary is similar to professional functions of the arbitrators. Such a role of the secretary is in the view of some commentators inappropriate or is appropriate only under certain conditions, such as that the parties agree thereto. However, it is typically recognized that it is important to ensure that the secretary does not perform any decision- making function of the arbitral tribunal.” (b) ICC, Note on the Appointment, Duties and Remuneration of Administrative Secretaries, ¶ 2: “An Administrative Secretary may perform organizational and administrative tasks such as: transmitting documents and communications on behalf of the Arbitral Tribunal; organizing and maintaining the Arbitral Tribunal’s file and locating documents; organizing hearings and meetings; attending hearings, meetings and deliberations; taking notes or minutes or keeping time; conducting legal or similar research; and proofreading and checking citations, dates and cross-references in procedural orders and awards as well as correcting typographical, grammatical or calculation errors. Under no circumstances may the Arbitral Tribunal delegate decision-making functions to an Administrative Secretary. Nor should the Arbitral Tribunal rely on the Administrative Secretary to perform any essential duties of an arbitrator. A request by an Arbitral Tribunal to an Administrative Secretary to prepare written notes or memoranda shall in no circumstances release the Arbitral Tribunal from its duty personally to review the file and/or to draft any decision of the Arbitral Tribunal.” (c) LCIA, Frequently Asked Questions, What is the LCIA’s position on the appointment of Secretaries to Tribunals: “The duties of the administrative secretary should neither conflict with those for which the parties are paying the LCIA Secretariat, nor constitute any delegation of the Tribunal’s authority .... Administrative secretaries should, therefore, confine their activities to such matters as organizing papers for the Tribunal, highlighting relevant authorities, maintaining factual chronologies, keeping the Tribunal’s time sheets and so on.” (d) HKIAC, Guidelines on the Use of a Secretary to the Arbitral Tribunal (June 1, 2014), Arts. 3.4, 3.6: “Unless the parties agree or the arbitral tribunal directs otherwise, a tribunal secretary may provide the following assistance to the arbitral tribunal, provided that the arbitral tribunal ensures that the secretary does not perform any decision-making function or otherwise influence the arbitral tribunal’s decisions in any manner: (a) conducting legal or similar research; collecting case law or published commentaries on legal issues defined by the arbitral tribunal; checking on legal authorities cited by the parties to ensure that they are the latest authorities on the subject matter of the parties’ submissions; (b) researching discrete questions relating to factual evidence and witness testimony; (c) preparing summaries from case law and publications as well as producing memoranda summarizing the parties’ respective submissions and evidence; (d) locating and assembling relevant factual materials from the records as instructed by the arbitral tribunal; (e) attending the arbitral tribunal’s deliberations and taking notes; and (f) preparing drafts of non-substantive letters for the arbitral tribunal and non-substantive parts of the tribunal’s orders, decisions and awards (such as procedural histories and chronologies of events). A request by the arbitral tribunal to a tribunal secretary to prepare notes, memoranda or drafts shall in no circumstances release the arbitral tribunal from its duty personally to review the relevant files and materials, and to draft any substantive parts of its orders, decisions and awards.”
51 Michael Hwang, Introduction: Musings on International Arbitration, in SELECTED ESSAYS ON INTERNATIONAL ARBITRATION 16 (SIAC 2013) (emphasis added).
52 See Thomas Clay, Le secretaire arbitral, REV. ARB. 953-55 (2005): [I]t does not seem to me acceptable that the arbitral secretary participates in the deliberations or is entrusted with the task of drafting a procedural order or award, even a partial award (my translation from the French original).
53 KLAUS PETER BERGER, Part III, 27th Scenario: Deliberation of the Tribunal and Rendering of the Award, in PRIVATE DISPUTE RESOLUTION IN INTERNATIONAL BUSINESS NEGOTIATION, MEDIATION AND ARBITRATION 613-42, at 625, para. 27-19 (3d rev. ed. 2015) (emphasis in original).
54 Partasides, supra note 48, at 158.
55 2015 Queen Mary/White & Case International Arbitration Survey, pp. 42-44.
56 See Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association which found in a survey of a small number of highly prominent international arbitrators that: (a) 14 respondents considered it proper to use secretaries only for “organization of the documents in the file, the drafting of letters regarding scheduling and procedural matters, and the preparation and minutes of hearings,” (b) 11 respondents considered it proper to use secretaries for drafting purposes only in connection with “non-substantive” portions of the award, such as “the procedural history of the arbitration, the description of the parties, and sometimes also the summary of the parties’ contentions,” and (c) two respondents would “refuse to assign any drafting responsibilities to the secretary,” while (d) only three Respondents would permit secretaries to prepare a first draft of the award. Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association, Secretaries to International Arbitration Tribunals, 17 AM. REV. INT’L ARB. 575, 585 (2006).
57 According to the PCA’s Statement of Account, over the life of the proceedings, Mr. Valasek performed 3006.2 hours of work, a figure greatly in excess of the number of hours any members of the Tribunal had spent. The difference was particularly pronounced for the specific period between close of the hearings and rendition of the award.
58 The Final Award shows that Mr. Valasek billed in excess of US 1 million (EUR 970,562.50) in connection with his role as assistant to the Tribunal. Final Award, para. 1863.
59 Evidently the Russian Federation produced a report by a forensic expert affirming, based on the expert’s research, that it was “extremely likely” that Mr. Valasek wrote the majority of at least three major sections of the Final Awards, namely, 78.57% of the Preliminary Objections section, 65.38% of the Liability section and 71.43% of the Quantification of Claimant’s Damages. See Carole Chaski, Expert Report Regarding Authorship of the Final Award dated September 11, 2015, para. 7. Footnotes a1 Jean Monnet Professor of European Law and Walter Gellhorn Professor of Law; Director, Center for International Commercial and Investment Arbitration, Columbia Law School. The author has filed an expert opinion on behalf of the Russian Federation in the award enforcement proceeding pending in the federal district court for the District of Columbia.
1 Veteran Petroleum, Ltd., Yukos Universal Ltd. and Hulley Enterprises, Ltd.
2 Cases C/09/477160 / HA ZA 15-1, 15-2 and 15-112 [hereinafter the Judgment].
3 Entry into force April 16, 1998.
4 According to Article 94 of the Russian Constitution “ratification and denunciation of international treaties and agreements of the Russian Federation” may only be performed by the Federal Parliament.
5 Article 25 of the Vienna Convention on the Law of Treaties specifically contemplates provisional application of a treaty or certain of its provisions: “A treaty or a part of a treaty is applied provisionally pending its entry into force if (a) the treaty itself so provides.”
6 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, http:// www.italaw.com/cases/documents/1176#sthash.c0JvBi98.dpuf (Nov. 30, 2009), (“Interim award”), para. 382.
7 Interim award, paras. 262-64.
8 Id. para. 284.
9 According to Article 26 ECT: Settlement of disputes between an Investor and a Contracting Party 1. Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. 2. If such disputes cannot be settled according to the provisions of paragraph 1 within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: a) to the courts or administrative tribunals of the Contracting Party party to the dispute; b) in accordance with any applicable, previously agreed dispute settlement procedure; or c) in accordance with the following paragraphs of this Article. 3. a) Subject only to subparagraphs b) and c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph 2a) or b). (ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41. c) A Contracting Party listed in Annex IA does not give such unconditional consent with respect to a dispute arising under the last sentence of Article 10(1). 4. In the event that an Investor chooses to submit the dispute for resolution under subparagraph 2 c), the Investor shall further provide its consent in writing for the dispute to be submitted to: a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the “Additional Facility Rules”), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention; b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as “UNCITRAL”); or c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce. 5. a) The consent given in paragraph 3 together with the written consent of the Investor given pursuant to paragraph 4 shall be considered to satisfy the requirement for: (i) written consent of the parties to a dispute for purposes of Chapter II of the ICSID Convention and for purposes of the Additional Facility Rules; (ii) an “agreement in writing” for purposes of article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, 10 June 1958 (hereinafter referred to as the “New York Convention”); and (iii) “the parties to a contract [to] have agreed in writing” for the purposes of article 1 of the UNCITRAL Arbitration Rules. b) Any arbitration under this Article shall at the request of any party to the dispute be held in a state that is a party to the New York Convention. Claims submitted to arbitration hereunder shall be considered to arise out of a commercial relationship or transaction for the purposes of article I of that Convention. 6. A tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law. 7. An Investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing referred to in paragraph 4 and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)b) of the ICSID Convention be treated as a “national of another Contracting State” and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a “national of another State.” 8. The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.
10 Interim award, para. 292.
11 Id. para. 292.
12 Id. paras. 308, 329.
13 Id. para. 311.
14 Id. paras. 313-14. Article 27 VCLT states: “A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.”
15 Interim award, paras. 330, 338.
16 Id. para. 370.
17 Id. para. 387.
18 Id. para. 456. Though it was unnecessary to do so, the Tribunal went on to inquire into whether the requirement for application of Article 17(1) - namely, that the Claimant be owned or controlled by nationals or citizens of third States - was satisfied. The Tribunal found that it was not. Id. paras. 537, 546.
19 Id. para. 585.
20 ECT, Art. 26(3)(b)(i).
21 Interim award, para. 598.
22 Final Award, Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case no. AA 227 (July 18, 2014) (“Final award”).
23 Judgment, para. 5.4.
24 Id. para. 1.27. See also id. para. 5.31.
25 Id. paras. 5.11,5.18.
26 Id. para. 5.33.
27 Expert reports by Professor A.A. Kostin, who was head of the Private International and Civil Law Department of the Moscow State Institute of International Relations (January 2006) and by Professor A.V. Asoskov, who was Professor of the International Private Law Department of the Russian School of Private Law and Assistant Professor of the Civil Law Department at M.V. Lomonosov Moscow State University (October 2014). Both experts had demonstrated that Russian legislation made arbitration conditional on the nature of the dispute and, more particularly that only disputes involving the Russian State of a civil law character may be arbitrated. They cited, among other pieces of legislation, Article 21 of the 1992 Arbitrazh Procedure Code (arbitration of “economic” disputes); Article 1 of the 1992 Provisional Regulation on Arbitral Tribunal for Resolving Economic Disputes (arbitration of disputes “arising out of civil law relations”); Article 23 of the 1995 Arbitrazh Procedure Code (arbitration of disputes “that arise out of civil law relations”). Judgment, para. 5.37.
28 Judgment, para. 5.44.
29 Id. para. 5.56.
30 Id. para. 5.60.
31 Id. para. 5.77. Article 10 reads: “State power in the Russian Federation shall be exercised on the basis of its division into legislative, executive and judicial. The legislative, executive and judicial authorities shall be independent.”
32 Judgment, para. 5.62. Article 15, paragraph 4, of the Constitution states: The universally-recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation establishes other rules than those envisaged by law, the rules of the international agreement shall be applied.
33 Judgment, para. 5.95.
34 Id.
35 Id. paras. 5.98-99.
36 Id. para. 6.8.
37 M para. 5.100.
38 ECT, Art. 1(7).
39 Interim Award, para. 434.
40 Id. paras. 411, 417. Similarly, the shares in Yukos qualified as a covered “investment.” Id. para. 434.
41 According to Article V(1)(b) of the New York Convention, a court may decline to recognize or enforce a foreign award when “[t]he party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” See, e.g., Judgment of 8 December 2003, XXIX Y.B. COM. ARB. 834, 839-40 (Swiss Federal Tribunal 2004): “A foreign decision can be incompatible with the Swiss legal system not only because of its substantive content, but also because of the procedures that lead to it. In this respect, Swiss public policy requires compliance with the fundamental principles of procedure, as deduced from the Constitution, such as the right to a fair process and the right to be heard.” See also UNCITRAL MODEL LAW 1985, as revised in 2006, Art. 18 (Equal treatment of parties): “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case”; UNCITRAL ARBITRATION RULES 2010, Art. 17: “Subject to these Rules, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case”; ICC ARBITRATION RULES 2012, Art. 22(4): “In all cases, the arbitral tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.”
42 Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Annulment Proceedings, Decision, ¶ 57 (Feb. 5, 2002). See also a series of other ICSID cases: Maritime International Nominees Establishment (MINE) v. Guinea, ICSID Case No. ARB/84/4, Decision, ¶ 5.06 (Jan. 6, 1988); CDC Group Plc v. Republic of the Seychelles, ICSID Case No. ARB/ 02/14, Annulment Proceedings, Decision, ¶ 49 (June 29, 2005) (quoting Wena Hotels); MTD Equity Sdn. Bhd. And MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/02/14, Annulment Proceedings, Decision, ¶ 49 (Mar. 21, 2007) (quoting Wena Hotels).
43 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25, Annulment Proceedings, Decision, ¶ 202 (Dec. 23, 2010). See also GEORGIOS PETROCHILOS, PROCEDURAL LAW IN INTERNATIONAL ARBITRATION 145 (2004) (requirement that parties have an opportunity to comment on all the crucial points of the reasoning that the tribunal intends to adopt).
44 Rotoaira Forest Trust v. Attorney-General, [1999] 2 NZLR 452, 463 (Comm) (Auckland High Ct.).
45 See, e.g., Paklito Investment Limited v. Klockner East Asia, Ltd, XIX Y.B. COM. ARB. 664 (HK Sup. Ct. 1993).
46 Encyclopaedia Universalis SA v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 91 (2d Cir. 2005) (stating that “Article V(1)(d) of the New York Convention itself suggests the importance of arbitral composition” and refusing to enforce an award because the tribunal did not “comport with [the] agreement’s requirements for how arbitrators are selected”).
47 UNCITRAL MODEL LAW, Art. 34.
48 Constantine Partasides, The Fourth Arbitrator? The Role of Secretaries to Tribunals in International Arbitration, 18 ARB. INT’L 147,147 (2002).
49 GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2000 (2d ed. 2014).
50 Among such rules and guidance notes are the following: (a) UNCITRAL, Notes on Organizing Arbitral Proceedings 1996, ¶ 27: “To the extent the tasks of the secretary are purely organizational (e.g. obtaining meeting rooms and providing or coordinating secretarial services), this is usually not controversial. Differences in views, however, may arise if the tasks include legal research and other professional assistance to the arbitral tribunal (e.g. collecting case law or published commentaries on legal issues defined by the arbitral tribunal, preparing summaries from case law and publications, and sometimes also preparing drafts of procedural decisions or drafts of certain parts of the award, in particular those concerning the facts of the case). Views or expectations may differ especially where a task of the secretary is similar to professional functions of the arbitrators. Such a role of the secretary is in the view of some commentators inappropriate or is appropriate only under certain conditions, such as that the parties agree thereto. However, it is typically recognized that it is important to ensure that the secretary does not perform any decision- making function of the arbitral tribunal.” (b) ICC, Note on the Appointment, Duties and Remuneration of Administrative Secretaries, ¶ 2: “An Administrative Secretary may perform organizational and administrative tasks such as: transmitting documents and communications on behalf of the Arbitral Tribunal; organizing and maintaining the Arbitral Tribunal’s file and locating documents; organizing hearings and meetings; attending hearings, meetings and deliberations; taking notes or minutes or keeping time; conducting legal or similar research; and proofreading and checking citations, dates and cross-references in procedural orders and awards as well as correcting typographical, grammatical or calculation errors. Under no circumstances may the Arbitral Tribunal delegate decision-making functions to an Administrative Secretary. Nor should the Arbitral Tribunal rely on the Administrative Secretary to perform any essential duties of an arbitrator. A request by an Arbitral Tribunal to an Administrative Secretary to prepare written notes or memoranda shall in no circumstances release the Arbitral Tribunal from its duty personally to review the file and/or to draft any decision of the Arbitral Tribunal.” (c) LCIA, Frequently Asked Questions, What is the LCIA’s position on the appointment of Secretaries to Tribunals: “The duties of the administrative secretary should neither conflict with those for which the parties are paying the LCIA Secretariat, nor constitute any delegation of the Tribunal’s authority .... Administrative secretaries should, therefore, confine their activities to such matters as organizing papers for the Tribunal, highlighting relevant authorities, maintaining factual chronologies, keeping the Tribunal’s time sheets and so on.” (d) HKIAC, Guidelines on the Use of a Secretary to the Arbitral Tribunal (June 1, 2014), Arts. 3.4, 3.6: “Unless the parties agree or the arbitral tribunal directs otherwise, a tribunal secretary may provide the following assistance to the arbitral tribunal, provided that the arbitral tribunal ensures that the secretary does not perform any decision-making function or otherwise influence the arbitral tribunal’s decisions in any manner: (a) conducting legal or similar research; collecting case law or published commentaries on legal issues defined by the arbitral tribunal; checking on legal authorities cited by the parties to ensure that they are the latest authorities on the subject matter of the parties’ submissions; (b) researching discrete questions relating to factual evidence and witness testimony; (c) preparing summaries from case law and publications as well as producing memoranda summarizing the parties’ respective submissions and evidence; (d) locating and assembling relevant factual materials from the records as instructed by the arbitral tribunal; (e) attending the arbitral tribunal’s deliberations and taking notes; and (f) preparing drafts of non-substantive letters for the arbitral tribunal and non-substantive parts of the tribunal’s orders, decisions and awards (such as procedural histories and chronologies of events). A request by the arbitral tribunal to a tribunal secretary to prepare notes, memoranda or drafts shall in no circumstances release the arbitral tribunal from its duty personally to review the relevant files and materials, and to draft any substantive parts of its orders, decisions and awards.”
51 Michael Hwang, Introduction: Musings on International Arbitration, in SELECTED ESSAYS ON INTERNATIONAL ARBITRATION 16 (SIAC 2013) (emphasis added).
52 See Thomas Clay, Le secretaire arbitral, REV. ARB. 953-55 (2005): [I]t does not seem to me acceptable that the arbitral secretary participates in the deliberations or is entrusted with the task of drafting a procedural order or award, even a partial award (my translation from the French original).
53 KLAUS PETER BERGER, Part III, 27th Scenario: Deliberation of the Tribunal and Rendering of the Award, in PRIVATE DISPUTE RESOLUTION IN INTERNATIONAL BUSINESS NEGOTIATION, MEDIATION AND ARBITRATION 613-42, at 625, para. 27-19 (3d rev. ed. 2015) (emphasis in original).
54 Partasides, supra note 48, at 158.
55 2015 Queen Mary/White & Case International Arbitration Survey, pp. 42-44.
56 See Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association which found in a survey of a small number of highly prominent international arbitrators that: (a) 14 respondents considered it proper to use secretaries only for “organization of the documents in the file, the drafting of letters regarding scheduling and procedural matters, and the preparation and minutes of hearings,” (b) 11 respondents considered it proper to use secretaries for drafting purposes only in connection with “non-substantive” portions of the award, such as “the procedural history of the arbitration, the description of the parties, and sometimes also the summary of the parties’ contentions,” and (c) two respondents would “refuse to assign any drafting responsibilities to the secretary,” while (d) only three Respondents would permit secretaries to prepare a first draft of the award. Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association, Secretaries to International Arbitration Tribunals, 17 AM. REV. INT’L ARB. 575, 585 (2006).
57 According to the PCA’s Statement of Account, over the life of the proceedings, Mr. Valasek performed 3006.2 hours of work, a figure greatly in excess of the number of hours any members of the Tribunal had spent. The difference was particularly pronounced for the specific period between close of the hearings and rendition of the award.
58 The Final Award shows that Mr. Valasek billed in excess of US 1 million (EUR 970,562.50) in connection with his role as assistant to the Tribunal. Final Award, para. 1863.
59 Evidently the Russian Federation produced a report by a forensic expert affirming, based on the expert’s research, that it was “extremely likely” that Mr. Valasek wrote the majority of at least three major sections of the Final Awards, namely, 78.57% of the Preliminary Objections section, 65.38% of the Liability section and 71.43% of the Quantification of Claimant’s Damages. See Carole Chaski, Expert Report Regarding Authorship of the Final Award dated September 11, 2015, para. 7. Footnotes a1 Jean Monnet Professor of European Law and Walter Gellhorn Professor of Law; Director, Center for International Commercial and Investment Arbitration, Columbia Law School. The author has filed an expert opinion on behalf of the Russian Federation in the award enforcement proceeding pending in the federal district court for the District of Columbia.
1 Veteran Petroleum, Ltd., Yukos Universal Ltd. and Hulley Enterprises, Ltd.
2 Cases C/09/477160 / HA ZA 15-1, 15-2 and 15-112 [hereinafter the Judgment].
3 Entry into force April 16, 1998.
4 According to Article 94 of the Russian Constitution “ratification and denunciation of international treaties and agreements of the Russian Federation” may only be performed by the Federal Parliament.
5 Article 25 of the Vienna Convention on the Law of Treaties specifically contemplates provisional application of a treaty or certain of its provisions: “A treaty or a part of a treaty is applied provisionally pending its entry into force if (a) the treaty itself so provides.”
6 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, http:// www.italaw.com/cases/documents/1176#sthash.c0JvBi98.dpuf (Nov. 30, 2009), (“Interim award”), para. 382.
7 Interim award, paras. 262-64.
8 Id. para. 284.
9 According to Article 26 ECT: Settlement of disputes between an Investor and a Contracting Party 1. Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. 2. If such disputes cannot be settled according to the provisions of paragraph 1 within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: a) to the courts or administrative tribunals of the Contracting Party party to the dispute; b) in accordance with any applicable, previously agreed dispute settlement procedure; or c) in accordance with the following paragraphs of this Article. 3. a) Subject only to subparagraphs b) and c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph 2a) or b). (ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41. c) A Contracting Party listed in Annex IA does not give such unconditional consent with respect to a dispute arising under the last sentence of Article 10(1). 4. In the event that an Investor chooses to submit the dispute for resolution under subparagraph 2 c), the Investor shall further provide its consent in writing for the dispute to be submitted to: a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the “Additional Facility Rules”), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention; b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as “UNCITRAL”); or c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce. 5. a) The consent given in paragraph 3 together with the written consent of the Investor given pursuant to paragraph 4 shall be considered to satisfy the requirement for: (i) written consent of the parties to a dispute for purposes of Chapter II of the ICSID Convention and for purposes of the Additional Facility Rules; (ii) an “agreement in writing” for purposes of article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, 10 June 1958 (hereinafter referred to as the “New York Convention”); and (iii) “the parties to a contract [to] have agreed in writing” for the purposes of article 1 of the UNCITRAL Arbitration Rules. b) Any arbitration under this Article shall at the request of any party to the dispute be held in a state that is a party to the New York Convention. Claims submitted to arbitration hereunder shall be considered to arise out of a commercial relationship or transaction for the purposes of article I of that Convention. 6. A tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law. 7. An Investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing referred to in paragraph 4 and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)b) of the ICSID Convention be treated as a “national of another Contracting State” and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a “national of another State.” 8. The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.
10 Interim award, para. 292.
11 Id. para. 292.
12 Id. paras. 308, 329.
13 Id. para. 311.
14 Id. paras. 313-14. Article 27 VCLT states: “A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.”
15 Interim award, paras. 330, 338.
16 Id. para. 370.
17 Id. para. 387.
18 Id. para. 456. Though it was unnecessary to do so, the Tribunal went on to inquire into whether the requirement for application of Article 17(1) - namely, that the Claimant be owned or controlled by nationals or citizens of third States - was satisfied. The Tribunal found that it was not. Id. paras. 537, 546.
19 Id. para. 585.
20 ECT, Art. 26(3)(b)(i).
21 Interim award, para. 598.
22 Final Award, Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case no. AA 227 (July 18, 2014) (“Final award”).
23 Judgment, para. 5.4.
24 Id. para. 1.27. See also id. para. 5.31.
25 Id. paras. 5.11,5.18.
26 Id. para. 5.33.
27 Expert reports by Professor A.A. Kostin, who was head of the Private International and Civil Law Department of the Moscow State Institute of International Relations (January 2006) and by Professor A.V. Asoskov, who was Professor of the International Private Law Department of the Russian School of Private Law and Assistant Professor of the Civil Law Department at M.V. Lomonosov Moscow State University (October 2014). Both experts had demonstrated that Russian legislation made arbitration conditional on the nature of the dispute and, more particularly that only disputes involving the Russian State of a civil law character may be arbitrated. They cited, among other pieces of legislation, Article 21 of the 1992 Arbitrazh Procedure Code (arbitration of “economic” disputes); Article 1 of the 1992 Provisional Regulation on Arbitral Tribunal for Resolving Economic Disputes (arbitration of disputes “arising out of civil law relations”); Article 23 of the 1995 Arbitrazh Procedure Code (arbitration of disputes “that arise out of civil law relations”). Judgment, para. 5.37.
28 Judgment, para. 5.44.
29 Id. para. 5.56.
30 Id. para. 5.60.
31 Id. para. 5.77. Article 10 reads: “State power in the Russian Federation shall be exercised on the basis of its division into legislative, executive and judicial. The legislative, executive and judicial authorities shall be independent.”
32 Judgment, para. 5.62. Article 15, paragraph 4, of the Constitution states: The universally-recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation establishes other rules than those envisaged by law, the rules of the international agreement shall be applied.
33 Judgment, para. 5.95.
34 Id.
35 Id. paras. 5.98-99.
36 Id. para. 6.8.
37 M para. 5.100.
38 ECT, Art. 1(7).
39 Interim Award, para. 434.
40 Id. paras. 411, 417. Similarly, the shares in Yukos qualified as a covered “investment.” Id. para. 434.
41 According to Article V(1)(b) of the New York Convention, a court may decline to recognize or enforce a foreign award when “[t]he party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” See, e.g., Judgment of 8 December 2003, XXIX Y.B. COM. ARB. 834, 839-40 (Swiss Federal Tribunal 2004): “A foreign decision can be incompatible with the Swiss legal system not only because of its substantive content, but also because of the procedures that lead to it. In this respect, Swiss public policy requires compliance with the fundamental principles of procedure, as deduced from the Constitution, such as the right to a fair process and the right to be heard.” See also UNCITRAL MODEL LAW 1985, as revised in 2006, Art. 18 (Equal treatment of parties): “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case”; UNCITRAL ARBITRATION RULES 2010, Art. 17: “Subject to these Rules, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case”; ICC ARBITRATION RULES 2012, Art. 22(4): “In all cases, the arbitral tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.”
42 Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Annulment Proceedings, Decision, ¶ 57 (Feb. 5, 2002). See also a series of other ICSID cases: Maritime International Nominees Establishment (MINE) v. Guinea, ICSID Case No. ARB/84/4, Decision, ¶ 5.06 (Jan. 6, 1988); CDC Group Plc v. Republic of the Seychelles, ICSID Case No. ARB/ 02/14, Annulment Proceedings, Decision, ¶ 49 (June 29, 2005) (quoting Wena Hotels); MTD Equity Sdn. Bhd. And MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/02/14, Annulment Proceedings, Decision, ¶ 49 (Mar. 21, 2007) (quoting Wena Hotels).
43 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25, Annulment Proceedings, Decision, ¶ 202 (Dec. 23, 2010). See also GEORGIOS PETROCHILOS, PROCEDURAL LAW IN INTERNATIONAL ARBITRATION 145 (2004) (requirement that parties have an opportunity to comment on all the crucial points of the reasoning that the tribunal intends to adopt).
44 Rotoaira Forest Trust v. Attorney-General, [1999] 2 NZLR 452, 463 (Comm) (Auckland High Ct.).
45 See, e.g., Paklito Investment Limited v. Klockner East Asia, Ltd, XIX Y.B. COM. ARB. 664 (HK Sup. Ct. 1993).
46 Encyclopaedia Universalis SA v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 91 (2d Cir. 2005) (stating that “Article V(1)(d) of the New York Convention itself suggests the importance of arbitral composition” and refusing to enforce an award because the tribunal did not “comport with [the] agreement’s requirements for how arbitrators are selected”).
47 UNCITRAL MODEL LAW, Art. 34.
48 Constantine Partasides, The Fourth Arbitrator? The Role of Secretaries to Tribunals in International Arbitration, 18 ARB. INT’L 147,147 (2002).
49 GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2000 (2d ed. 2014).
50 Among such rules and guidance notes are the following: (a) UNCITRAL, Notes on Organizing Arbitral Proceedings 1996, ¶ 27: “To the extent the tasks of the secretary are purely organizational (e.g. obtaining meeting rooms and providing or coordinating secretarial services), this is usually not controversial. Differences in views, however, may arise if the tasks include legal research and other professional assistance to the arbitral tribunal (e.g. collecting case law or published commentaries on legal issues defined by the arbitral tribunal, preparing summaries from case law and publications, and sometimes also preparing drafts of procedural decisions or drafts of certain parts of the award, in particular those concerning the facts of the case). Views or expectations may differ especially where a task of the secretary is similar to professional functions of the arbitrators. Such a role of the secretary is in the view of some commentators inappropriate or is appropriate only under certain conditions, such as that the parties agree thereto. However, it is typically recognized that it is important to ensure that the secretary does not perform any decision- making function of the arbitral tribunal.” (b) ICC, Note on the Appointment, Duties and Remuneration of Administrative Secretaries, ¶ 2: “An Administrative Secretary may perform organizational and administrative tasks such as: transmitting documents and communications on behalf of the Arbitral Tribunal; organizing and maintaining the Arbitral Tribunal’s file and locating documents; organizing hearings and meetings; attending hearings, meetings and deliberations; taking notes or minutes or keeping time; conducting legal or similar research; and proofreading and checking citations, dates and cross-references in procedural orders and awards as well as correcting typographical, grammatical or calculation errors. Under no circumstances may the Arbitral Tribunal delegate decision-making functions to an Administrative Secretary. Nor should the Arbitral Tribunal rely on the Administrative Secretary to perform any essential duties of an arbitrator. A request by an Arbitral Tribunal to an Administrative Secretary to prepare written notes or memoranda shall in no circumstances release the Arbitral Tribunal from its duty personally to review the file and/or to draft any decision of the Arbitral Tribunal.” (c) LCIA, Frequently Asked Questions, What is the LCIA’s position on the appointment of Secretaries to Tribunals: “The duties of the administrative secretary should neither conflict with those for which the parties are paying the LCIA Secretariat, nor constitute any delegation of the Tribunal’s authority .... Administrative secretaries should, therefore, confine their activities to such matters as organizing papers for the Tribunal, highlighting relevant authorities, maintaining factual chronologies, keeping the Tribunal’s time sheets and so on.” (d) HKIAC, Guidelines on the Use of a Secretary to the Arbitral Tribunal (June 1, 2014), Arts. 3.4, 3.6: “Unless the parties agree or the arbitral tribunal directs otherwise, a tribunal secretary may provide the following assistance to the arbitral tribunal, provided that the arbitral tribunal ensures that the secretary does not perform any decision-making function or otherwise influence the arbitral tribunal’s decisions in any manner: (a) conducting legal or similar research; collecting case law or published commentaries on legal issues defined by the arbitral tribunal; checking on legal authorities cited by the parties to ensure that they are the latest authorities on the subject matter of the parties’ submissions; (b) researching discrete questions relating to factual evidence and witness testimony; (c) preparing summaries from case law and publications as well as producing memoranda summarizing the parties’ respective submissions and evidence; (d) locating and assembling relevant factual materials from the records as instructed by the arbitral tribunal; (e) attending the arbitral tribunal’s deliberations and taking notes; and (f) preparing drafts of non-substantive letters for the arbitral tribunal and non-substantive parts of the tribunal’s orders, decisions and awards (such as procedural histories and chronologies of events). A request by the arbitral tribunal to a tribunal secretary to prepare notes, memoranda or drafts shall in no circumstances release the arbitral tribunal from its duty personally to review the relevant files and materials, and to draft any substantive parts of its orders, decisions and awards.”
51 Michael Hwang, Introduction: Musings on International Arbitration, in SELECTED ESSAYS ON INTERNATIONAL ARBITRATION 16 (SIAC 2013) (emphasis added).
52 See Thomas Clay, Le secretaire arbitral, REV. ARB. 953-55 (2005): [I]t does not seem to me acceptable that the arbitral secretary participates in the deliberations or is entrusted with the task of drafting a procedural order or award, even a partial award (my translation from the French original).
53 KLAUS PETER BERGER, Part III, 27th Scenario: Deliberation of the Tribunal and Rendering of the Award, in PRIVATE DISPUTE RESOLUTION IN INTERNATIONAL BUSINESS NEGOTIATION, MEDIATION AND ARBITRATION 613-42, at 625, para. 27-19 (3d rev. ed. 2015) (emphasis in original).
54 Partasides, supra note 48, at 158.
55 2015 Queen Mary/White & Case International Arbitration Survey, pp. 42-44.
56 See Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association which found in a survey of a small number of highly prominent international arbitrators that: (a) 14 respondents considered it proper to use secretaries only for “organization of the documents in the file, the drafting of letters regarding scheduling and procedural matters, and the preparation and minutes of hearings,” (b) 11 respondents considered it proper to use secretaries for drafting purposes only in connection with “non-substantive” portions of the award, such as “the procedural history of the arbitration, the description of the parties, and sometimes also the summary of the parties’ contentions,” and (c) two respondents would “refuse to assign any drafting responsibilities to the secretary,” while (d) only three Respondents would permit secretaries to prepare a first draft of the award. Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association, Secretaries to International Arbitration Tribunals, 17 AM. REV. INT’L ARB. 575, 585 (2006).
57 According to the PCA’s Statement of Account, over the life of the proceedings, Mr. Valasek performed 3006.2 hours of work, a figure greatly in excess of the number of hours any members of the Tribunal had spent. The difference was particularly pronounced for the specific period between close of the hearings and rendition of the award.
58 The Final Award shows that Mr. Valasek billed in excess of US 1 million (EUR 970,562.50) in connection with his role as assistant to the Tribunal. Final Award, para. 1863.
59 Evidently the Russian Federation produced a report by a forensic expert affirming, based on the expert’s research, that it was “extremely likely” that Mr. Valasek wrote the majority of at least three major sections of the Final Awards, namely, 78.57% of the Preliminary Objections section, 65.38% of the Liability section and 71.43% of the Quantification of Claimant’s Damages. See Carole Chaski, Expert Report Regarding Authorship of the Final Award dated September 11, 2015, para. 7. Footnotes a1 Jean Monnet Professor of European Law and Walter Gellhorn Professor of Law; Director, Center for International Commercial and Investment Arbitration, Columbia Law School. The author has filed an expert opinion on behalf of the Russian Federation in the award enforcement proceeding pending in the federal district court for the District of Columbia.
1 Veteran Petroleum, Ltd., Yukos Universal Ltd. and Hulley Enterprises, Ltd.
2 Cases C/09/477160 / HA ZA 15-1, 15-2 and 15-112 [hereinafter the Judgment].
3 Entry into force April 16, 1998.
4 According to Article 94 of the Russian Constitution “ratification and denunciation of international treaties and agreements of the Russian Federation” may only be performed by the Federal Parliament.
5 Article 25 of the Vienna Convention on the Law of Treaties specifically contemplates provisional application of a treaty or certain of its provisions: “A treaty or a part of a treaty is applied provisionally pending its entry into force if (a) the treaty itself so provides.”
6 Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, http:// www.italaw.com/cases/documents/1176#sthash.c0JvBi98.dpuf (Nov. 30, 2009), (“Interim award”), para. 382.
7 Interim award, paras. 262-64.
8 Id. para. 284.
9 According to Article 26 ECT: Settlement of disputes between an Investor and a Contracting Party 1. Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. 2. If such disputes cannot be settled according to the provisions of paragraph 1 within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: a) to the courts or administrative tribunals of the Contracting Party party to the dispute; b) in accordance with any applicable, previously agreed dispute settlement procedure; or c) in accordance with the following paragraphs of this Article. 3. a) Subject only to subparagraphs b) and c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph 2a) or b). (ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41. c) A Contracting Party listed in Annex IA does not give such unconditional consent with respect to a dispute arising under the last sentence of Article 10(1). 4. In the event that an Investor chooses to submit the dispute for resolution under subparagraph 2 c), the Investor shall further provide its consent in writing for the dispute to be submitted to: a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the “ICSID Convention”), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the “Additional Facility Rules”), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention; b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as “UNCITRAL”); or c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce. 5. a) The consent given in paragraph 3 together with the written consent of the Investor given pursuant to paragraph 4 shall be considered to satisfy the requirement for: (i) written consent of the parties to a dispute for purposes of Chapter II of the ICSID Convention and for purposes of the Additional Facility Rules; (ii) an “agreement in writing” for purposes of article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, 10 June 1958 (hereinafter referred to as the “New York Convention”); and (iii) “the parties to a contract [to] have agreed in writing” for the purposes of article 1 of the UNCITRAL Arbitration Rules. b) Any arbitration under this Article shall at the request of any party to the dispute be held in a state that is a party to the New York Convention. Claims submitted to arbitration hereunder shall be considered to arise out of a commercial relationship or transaction for the purposes of article I of that Convention. 6. A tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law. 7. An Investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing referred to in paragraph 4 and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)b) of the ICSID Convention be treated as a “national of another Contracting State” and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a “national of another State.” 8. The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.
10 Interim award, para. 292.
11 Id. para. 292.
12 Id. paras. 308, 329.
13 Id. para. 311.
14 Id. paras. 313-14. Article 27 VCLT states: “A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.”
15 Interim award, paras. 330, 338.
16 Id. para. 370.
17 Id. para. 387.
18 Id. para. 456. Though it was unnecessary to do so, the Tribunal went on to inquire into whether the requirement for application of Article 17(1) - namely, that the Claimant be owned or controlled by nationals or citizens of third States - was satisfied. The Tribunal found that it was not. Id. paras. 537, 546.
19 Id. para. 585.
20 ECT, Art. 26(3)(b)(i).
21 Interim award, para. 598.
22 Final Award, Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case no. AA 227 (July 18, 2014) (“Final award”).
23 Judgment, para. 5.4.
24 Id. para. 1.27. See also id. para. 5.31.
25 Id. paras. 5.11,5.18.
26 Id. para. 5.33.
27 Expert reports by Professor A.A. Kostin, who was head of the Private International and Civil Law Department of the Moscow State Institute of International Relations (January 2006) and by Professor A.V. Asoskov, who was Professor of the International Private Law Department of the Russian School of Private Law and Assistant Professor of the Civil Law Department at M.V. Lomonosov Moscow State University (October 2014). Both experts had demonstrated that Russian legislation made arbitration conditional on the nature of the dispute and, more particularly that only disputes involving the Russian State of a civil law character may be arbitrated. They cited, among other pieces of legislation, Article 21 of the 1992 Arbitrazh Procedure Code (arbitration of “economic” disputes); Article 1 of the 1992 Provisional Regulation on Arbitral Tribunal for Resolving Economic Disputes (arbitration of disputes “arising out of civil law relations”); Article 23 of the 1995 Arbitrazh Procedure Code (arbitration of disputes “that arise out of civil law relations”). Judgment, para. 5.37.
28 Judgment, para. 5.44.
29 Id. para. 5.56.
30 Id. para. 5.60.
31 Id. para. 5.77. Article 10 reads: “State power in the Russian Federation shall be exercised on the basis of its division into legislative, executive and judicial. The legislative, executive and judicial authorities shall be independent.”
32 Judgment, para. 5.62. Article 15, paragraph 4, of the Constitution states: The universally-recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation establishes other rules than those envisaged by law, the rules of the international agreement shall be applied.
33 Judgment, para. 5.95.
34 Id.
35 Id. paras. 5.98-99.
36 Id. para. 6.8.
37 M para. 5.100.
38 ECT, Art. 1(7).
39 Interim Award, para. 434.
40 Id. paras. 411, 417. Similarly, the shares in Yukos qualified as a covered “investment.” Id. para. 434.
41 According to Article V(1)(b) of the New York Convention, a court may decline to recognize or enforce a foreign award when “[t]he party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” See, e.g., Judgment of 8 December 2003, XXIX Y.B. COM. ARB. 834, 839-40 (Swiss Federal Tribunal 2004): “A foreign decision can be incompatible with the Swiss legal system not only because of its substantive content, but also because of the procedures that lead to it. In this respect, Swiss public policy requires compliance with the fundamental principles of procedure, as deduced from the Constitution, such as the right to a fair process and the right to be heard.” See also UNCITRAL MODEL LAW 1985, as revised in 2006, Art. 18 (Equal treatment of parties): “The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case”; UNCITRAL ARBITRATION RULES 2010, Art. 17: “Subject to these Rules, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case”; ICC ARBITRATION RULES 2012, Art. 22(4): “In all cases, the arbitral tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.”
42 Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Annulment Proceedings, Decision, ¶ 57 (Feb. 5, 2002). See also a series of other ICSID cases: Maritime International Nominees Establishment (MINE) v. Guinea, ICSID Case No. ARB/84/4, Decision, ¶ 5.06 (Jan. 6, 1988); CDC Group Plc v. Republic of the Seychelles, ICSID Case No. ARB/ 02/14, Annulment Proceedings, Decision, ¶ 49 (June 29, 2005) (quoting Wena Hotels); MTD Equity Sdn. Bhd. And MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/02/14, Annulment Proceedings, Decision, ¶ 49 (Mar. 21, 2007) (quoting Wena Hotels).
43 Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25, Annulment Proceedings, Decision, ¶ 202 (Dec. 23, 2010). See also GEORGIOS PETROCHILOS, PROCEDURAL LAW IN INTERNATIONAL ARBITRATION 145 (2004) (requirement that parties have an opportunity to comment on all the crucial points of the reasoning that the tribunal intends to adopt).
44 Rotoaira Forest Trust v. Attorney-General, [1999] 2 NZLR 452, 463 (Comm) (Auckland High Ct.).
45 See, e.g., Paklito Investment Limited v. Klockner East Asia, Ltd, XIX Y.B. COM. ARB. 664 (HK Sup. Ct. 1993).
46 Encyclopaedia Universalis SA v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 91 (2d Cir. 2005) (stating that “Article V(1)(d) of the New York Convention itself suggests the importance of arbitral composition” and refusing to enforce an award because the tribunal did not “comport with [the] agreement’s requirements for how arbitrators are selected”).
47 UNCITRAL MODEL LAW, Art. 34.
48 Constantine Partasides, The Fourth Arbitrator? The Role of Secretaries to Tribunals in International Arbitration, 18 ARB. INT’L 147,147 (2002).
49 GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2000 (2d ed. 2014).
50 Among such rules and guidance notes are the following: (a) UNCITRAL, Notes on Organizing Arbitral Proceedings 1996, ¶ 27: “To the extent the tasks of the secretary are purely organizational (e.g. obtaining meeting rooms and providing or coordinating secretarial services), this is usually not controversial. Differences in views, however, may arise if the tasks include legal research and other professional assistance to the arbitral tribunal (e.g. collecting case law or published commentaries on legal issues defined by the arbitral tribunal, preparing summaries from case law and publications, and sometimes also preparing drafts of procedural decisions or drafts of certain parts of the award, in particular those concerning the facts of the case). Views or expectations may differ especially where a task of the secretary is similar to professional functions of the arbitrators. Such a role of the secretary is in the view of some commentators inappropriate or is appropriate only under certain conditions, such as that the parties agree thereto. However, it is typically recognized that it is important to ensure that the secretary does not perform any decision- making function of the arbitral tribunal.” (b) ICC, Note on the Appointment, Duties and Remuneration of Administrative Secretaries, ¶ 2: “An Administrative Secretary may perform organizational and administrative tasks such as: transmitting documents and communications on behalf of the Arbitral Tribunal; organizing and maintaining the Arbitral Tribunal’s file and locating documents; organizing hearings and meetings; attending hearings, meetings and deliberations; taking notes or minutes or keeping time; conducting legal or similar research; and proofreading and checking citations, dates and cross-references in procedural orders and awards as well as correcting typographical, grammatical or calculation errors. Under no circumstances may the Arbitral Tribunal delegate decision-making functions to an Administrative Secretary. Nor should the Arbitral Tribunal rely on the Administrative Secretary to perform any essential duties of an arbitrator. A request by an Arbitral Tribunal to an Administrative Secretary to prepare written notes or memoranda shall in no circumstances release the Arbitral Tribunal from its duty personally to review the file and/or to draft any decision of the Arbitral Tribunal.” (c) LCIA, Frequently Asked Questions, What is the LCIA’s position on the appointment of Secretaries to Tribunals: “The duties of the administrative secretary should neither conflict with those for which the parties are paying the LCIA Secretariat, nor constitute any delegation of the Tribunal’s authority .... Administrative secretaries should, therefore, confine their activities to such matters as organizing papers for the Tribunal, highlighting relevant authorities, maintaining factual chronologies, keeping the Tribunal’s time sheets and so on.” (d) HKIAC, Guidelines on the Use of a Secretary to the Arbitral Tribunal (June 1, 2014), Arts. 3.4, 3.6: “Unless the parties agree or the arbitral tribunal directs otherwise, a tribunal secretary may provide the following assistance to the arbitral tribunal, provided that the arbitral tribunal ensures that the secretary does not perform any decision-making function or otherwise influence the arbitral tribunal’s decisions in any manner: (a) conducting legal or similar research; collecting case law or published commentaries on legal issues defined by the arbitral tribunal; checking on legal authorities cited by the parties to ensure that they are the latest authorities on the subject matter of the parties’ submissions; (b) researching discrete questions relating to factual evidence and witness testimony; (c) preparing summaries from case law and publications as well as producing memoranda summarizing the parties’ respective submissions and evidence; (d) locating and assembling relevant factual materials from the records as instructed by the arbitral tribunal; (e) attending the arbitral tribunal’s deliberations and taking notes; and (f) preparing drafts of non-substantive letters for the arbitral tribunal and non-substantive parts of the tribunal’s orders, decisions and awards (such as procedural histories and chronologies of events). A request by the arbitral tribunal to a tribunal secretary to prepare notes, memoranda or drafts shall in no circumstances release the arbitral tribunal from its duty personally to review the relevant files and materials, and to draft any substantive parts of its orders, decisions and awards.”
51 Michael Hwang, Introduction: Musings on International Arbitration, in SELECTED ESSAYS ON INTERNATIONAL ARBITRATION 16 (SIAC 2013) (emphasis added).
52 See Thomas Clay, Le secretaire arbitral, REV. ARB. 953-55 (2005): [I]t does not seem to me acceptable that the arbitral secretary participates in the deliberations or is entrusted with the task of drafting a procedural order or award, even a partial award (my translation from the French original).
53 KLAUS PETER BERGER, Part III, 27th Scenario: Deliberation of the Tribunal and Rendering of the Award, in PRIVATE DISPUTE RESOLUTION IN INTERNATIONAL BUSINESS NEGOTIATION, MEDIATION AND ARBITRATION 613-42, at 625, para. 27-19 (3d rev. ed. 2015) (emphasis in original).
54 Partasides, supra note 48, at 158.
55 2015 Queen Mary/White & Case International Arbitration Survey, pp. 42-44.
56 See Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association which found in a survey of a small number of highly prominent international arbitrators that: (a) 14 respondents considered it proper to use secretaries only for “organization of the documents in the file, the drafting of letters regarding scheduling and procedural matters, and the preparation and minutes of hearings,” (b) 11 respondents considered it proper to use secretaries for drafting purposes only in connection with “non-substantive” portions of the award, such as “the procedural history of the arbitration, the description of the parties, and sometimes also the summary of the parties’ contentions,” and (c) two respondents would “refuse to assign any drafting responsibilities to the secretary,” while (d) only three Respondents would permit secretaries to prepare a first draft of the award. Joint Report of the International Commercial Disputes Committee and the Committee on Arbitration of the New York City Bar Association, Secretaries to International Arbitration Tribunals, 17 AM. REV. INT’L ARB. 575, 585 (2006).
57 According to the PCA’s Statement of Account, over the life of the proceedings, Mr. Valasek performed 3006.2 hours of work, a figure greatly in excess of the number of hours any members of the Tribunal had spent. The difference was particularly pronounced for the specific period between close of the hearings and rendition of the award.
58 The Final Award shows that Mr. Valasek billed in excess of US 1 million (EUR 970,562.50) in connection with his role as assistant to the Tribunal. Final Award, para. 1863.
59 Evidently the Russian Federation produced a report by a forensic expert affirming, based on the expert’s research, that it was “extremely likely” that Mr. Valasek wrote the majority of at least three major sections of the Final Awards, namely, 78.57% of the Preliminary Objections section, 65.38% of the Liability section and 71.43% of the Quantification of Claimant’s Damages. See Carole Chaski, Expert Report Regarding Authorship of the Final Award dated September 11, 2015, para. 7.
End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. ICSID Review, Vol. 30, No. 1 (2015), pp. 98–117 doi:10.1093/icsidreview/siu019 Published Advance Access November 7, 2014
ARTICLE Horizontal and Vertical Relationships of International Courts and Tribunals - How Do We Address Their Competing Jurisdiction?
Chiara Giorgetti1
Abstract—Competing and overlapping jurisdictions are increasingly relevant in international proceedings. This competition needs careful consideration because it can result in contradictory decisions and in the fragmentation of international law, both in terms of creating conflicts between applicable substantive bodies of law and in terms of decision-making among different courts. This article seeks first to clarify the different kinds of competitions between courts and tribunals—specifically, the fundamental distinction between decisional and jurisdictional competitions. It then clarifies and assesses exiting and the unique and distinct mechanisms used to address them to conclude that so far they have been successful in avoiding fragmentation. In the third part, this article focuses on the issues connected to partial overlap and argues that it may be usefully appraised by a framework constructed on the application of the principles of enhanced judicial dialogue, comity and judicial restraint.
I. INTRODUCTION The proliferation of international courts and tribunals is one of international law’s most significant recent developments.2 This proliferation allowed access to international dispute resolution forums to more and more diverse parties— including individuals and companies—who can litigate a variety of different issues,
1 Assistant Professor of Law, Richmond University School of Law, Richmond, Virginia, USA. Email: [email protected]. This article builds on presentations given at the Brown Bag Lunch Series at the ICSID Secretariat, at the Annual Meeting of the British Branch of the International Law Association and at Maryland University School of Law, Junior Scholars Workshop. I am grateful for comments I received at these events. I would also like to thank Jeremy Sharpe and the two anonymous reviewers for their very helpful comments. 2 See eg Chiara Giorgetti, ‘International Adjudicative Bodies’ in Jacob Katz Cogan, Ian Hurd and Ian Johnstone (eds), Oxford Handbook of International Organizations (forthcoming 2015, on file with author); Cesare PR Romano, ‘The Proliferation of International Judicial Bodies: The Pieces of the Puzzle’ (1999) 31 NYU J Intl L & Policy 709 (stating that the enormous expansion of the international judiciary will probably be seen by future international lawyers as the single most significant post-cold war development in international law); Jonathan I Charney, ‘The Impact on the International Legal System of the Growth of International Courts and Tribunals’ (1999) 31 NYU J Intl L & Poly 697; and Benedict Kingsbury, ‘Foreword: Is the Proliferation of International Courts and Tribunals a Systemic Problem?’ (1999) 31 NYU J Intl L & Poly 679 (discussing the issue of proliferation of international courts and tribunals).
ß The Author 2014. Published by Oxford University Press on behalf of ICSID. All rights reserved. For permissions, please email: [email protected] WINTER 2015 Competition Between International Courts and Tribunals 99 on the basis of numerous different jurisdictional grounds, and in many diverse forums.3 However, the growth of international adjudicative bodies, has been a-systematic. There is no hierarchy in the international judicial arena. Indeed, there is no comprehensive international judicial system that could be equated to a domestic judicial system. Looking at the future of international law, the relationship between different international courts and tribunals is a fundamental feature that needs to be examined and thoroughly assessed.4 The a-systematic growth of international judicial bodies has resulted in possible competition between different international courts and tribunals. This happens when two or more competent courts are seized of similar issues, either legally or factually. This can result in both decisional and jurisdictional overlaps between courts. Competition between international forums has become increasingly common and can be expected to become even more prevalent.5 This competition can become problematic when it can results in contradictory decisions that may lead to the fragmentation of international law, both in terms of creating conflicts between applicable substantive bodies of law and in terms of decision-making among different courts. Indeed, competing international jurisdiction is a difficult and acknowledged problem, which has been the subject of several thorough studies.6 Within this larger context, this article seeks to clarify the different kinds of competition between courts and tribunals—specifically, the fundamental distinction between decisional and jurisdictional competition—and to briefly review existing ways to address them both. It then focuses on the important situation of partial overlap of competence between existing courts and tribunals and offers a framework to address it using comity, enhanced judicial dialogue and judicial restraint.
II. COMPETING JURISDICTION AMONG INTERNATIONAL COURTS AND TRIBUNALS: THE DIFFERENCE BETWEEN DECISIONAL AND JURISDICTIONAL COMPETITION The competition between international courts and tribunals is a direct conse- quence of the proliferation of international judicial forums. This competition is expressed in two distinct ways: decisional and jurisdictional competition. Competition on the interpretation of the substantive principles of the applicable law—or decisional competition—exists when the applicable provisions of
3 See Chiara Giorgetti, ‘Who Decides Who Decides In International Investment Arbitration?’ (2014) 35 U Penn J Intl L 431. See also Chiara Giorgetti (ed), The Rules, Practice, and Jurisprudence of International Courts and Tribunals (Martinus Nijhoff Publishers 2012). 4 See David D Caron, ‘International Courts and Tribunals: Their Roles Amidst a World of Courts’ (2011) 26(2) ICSID Rev-FILJ 1 and Yuval Shany, Assessing the Effectiveness of International Courts (OUP 2014). 5 Yuval Shany, The Competing Jurisdiction of International Courts and Tribunals (OUP 2003). 6 See eg Shany (n 5), Laurence Helfner and Anne-Marie Slaughter, ‘Why States Create International Tribunals: A Response to Professors Posner and Yoo’ (2005) 93 California L Rev 899; Rosalyn Higgins, ‘A Babel of Judicial Voices? Ruminations from the Bench’ (2006) 55 Intl and Comp LQ 791. See also Joost Pauwelyn, ‘Bridging Fragmentation and Unity: International Law as Universe of Interconnected Islands’ (2004) 25 Michigan JIL 903; Stephan W Schill, ‘Cross-Regime Harmonization through Proportionality Analysis: The Case of International Investment Law, the Law of State Immunity and Human Rights’ (2012) 27 ICSID Rev-FILJ 87; and Philippa Webb, International Judicial Integration and Fragmentation (OUP 2013). 100 ICSID Review VOL. 30 international law are interpreted differently by two competent forums. Jurisdictional competition exist when two or more forums are competent to hear a dispute between parties. Decisional competition and jurisdictional competition are complex and related problems, they are also very different problems which require different approaches and solutions. Jurisdictional competition between international courts and tribunals may, but does not necessarily, result in a decisional competition which in turn can result in decisional fragmentation.7 A much-discussed case in point is the different application and interpretation of the rules pertaining to State responsibility for actions of irregular forces by the International Court of Justice (ICJ) and the International Criminal Tribunal for the former Yugoslavia (ICTY). The ICJ was first confronted with the application of this principle in Military and Paramilitary Activities in and against Nicaragua, where it decided that State responsibility could only be found when a State exercises effective control over irregular forces.8 This strict control test was not used by the ICTY when confronted with a similar question. The ICTY was called to decide whether the Federal Republic of Yugoslavia had control of the Bosnian Serb Army of the Republica Srspka (VRS), and thus whether the conflict was of an international nature.9 The application of Article 2 of the ICTY Statute which deals with grave breaches of the 1949 Geneva Conventions could not be triggered in the case of an internal conflict.10 The ICTY Appeal Chamber found that in those circumstances, an overall control of the irregular forces was sufficient and hence the nature of the conflict was international. It thus charged, and eventually condemned, Dusˇko Tadic´ with the commission of gross violations of the Geneva Conventions.11 Interestingly, the ICJ was later asked to assess the application of the principle and reaffirmed its initial understanding that an effective control of irregular forces was required in order to attract State responsibility. In that case, the ICJ concluded that Uganda did not control the irregular forces of the Mouvement de Libe´ration du Congo, though Uganda had admitted giving it training and military support.12 Divergent interpretations of substantive bodies of law applicable in a dispute are not necessarily negative, indeed they are normal.13 They are intrinsic in the work of the judiciary, as each dispute is unique and will result in unique interpretations and decisions. Further, divergent interpretations can help to refine the general
7 Webb (n 6) 6 8 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v United States of America) (Merits) [1986] ICJ Rep 14. 9 Prosecutor v Tadic´ (‘Prijedor’) IT-94-1, Appeal Decision (15 July 1999)
14 See Higgins (n 6) 797. See also Rosalyn Higgins, ‘The ICJ, the ECJ and the Integrity of International Law’ (2003) 52 Intl & Comp LQ 1. 15 See Julie A Maupin, ‘Differentiating Among International Investment Disputes’ in Zachary Douglas, Joost Pauwelyn and Jorge E Vin˜uales (eds), The Foundations of International Investment Law: Bridging Theory into Practice (forthcoming 2014, on file with author), stating that: It is a basic truism of all legal decision-making that each case must be decided on its own terms. Failing this, there is a real risk that the parties to a particular dispute will receive no justice. Nevertheless, there is an equally basic countervailing truism inherent in the very concept of law——namely, the principle that like cases should be decided alike. Otherwise, either the legal system itself or the adjudicators who steward it will be regarded as arbitrary and unfair. 16 Legality of the Threat or Use of Nuclear Weapons (Advisory Opinion) [1996] ICJ Rep paras 24–25: 24. Some of the proponents of the illegality of the use of nuclear weapons have argued that such use would violate the right to life as guaranteed in Art 6 of the International Covenant on Civil and Political Rights, GA res 2200A (XXI) 21 UN GAOR Supp (No 16) at 52, UN Doc A/6316 (1966); 999 UNTS 171, as well as in certain regional instruments for the protection of human rights. Art 6, para 1, of the International Covenant provides as follows: ‘Every human being has the inherent right to life. This right shall be protected by law. No one shall be arbitrarily deprived of his life.’ In reply, others contended that the International Covenant on Civil and Political Rights made no mention of war or weapons, and it had never been envisaged that the legality of nuclear weapons was regulated by that instrument. It was suggested that the Covenant was directed to the protection of human rights in peacetime, but that questions relating to unlawful loss of life in hostilities were governed by the law applicable in armed conflict.
25. The Court observes that the protection of the International Covenant of Civil and Political Rights does not cease in times of war, except by operation of Article 4 of the Covenant whereby certain provisions may be derogated from in a time of national emergency. Respect for the right to life is not, however, such a provision. In principle, the right not arbitrarily to be deprived of one’s life applies also in hostilities. The test of what is an arbitrary deprivation of life, however, then falls to be determined by the applicable lex specialis, namely, the law applicable in armed conflict which is designed to regulate the conduct of hostilities. Thus whether a particular loss of life, through the use of a certain weapon in warfare, is to be considered an arbitrary deprivation of life contrary to Article 6 of the Covenant, can only be decided by reference to the law applicable in armed conflict and not deduced from the terms of the Covenant itself. 30–34. The Court, for example, also looked at the applicability of environmental treaties and the Genocide Convention. See ibid, paras 26–33 (eg, para 33: ‘The Court thus finds that while the existing international law relating to the protection and safeguarding of the environment does not specifically prohibit the use of nuclear weapons, it indicates important environmental factors that are properly to be taken into account in the context of the implementation of the principles and rules of the law applicable in armed conflict.’). See International Covenant on Civil and Political Rights (adopted 16 December 1966, entered into force 23 March 1976) 999 UNTS 171 (ICCPR). 102 ICSID Review VOL. 30 treaties on nuclear weapons.17 In doing so, the Court did not find that the UN Charter and jus ad bello principles were to be applied as lex specialis and held that they were just more relevant to the dispute. Another similarly complex but reversed problem exists when the parties themselves raise a duty to comply with binding international law provisions as a defence for the failure to apply other, and similarly binding, international law provisions. This has been the case for competing binding provisions relating to human rights and international investment law. For example, in SAUR International SA v Argentine Republic, Argentina argued that the applicable international investment treaty regime did not modify its international human rights treaty obligations.18 It, therefore, urged the Tribunal to interpret its international investment treaty obligations in harmony with norms of international human rights protection and in particular, those related to the right to water.19 The Tribunal agreed that human rights provisions in general, and the right to water specifically, were a source of law that it needed to take into consideration in reaching its decision. It specified, however, that those rights were compatible with the right of the investor to be protected under the applicable Argentina–France Bilateral Investment Treaty (BIT) stating that the two bodies of law operated on different planes. In particular, it found that the water concession investor depended on the public administration, which had unique regulatory powers. Should the public administration decide to exercise its powers in violation of the BIT, the investor should be indemnified as provided by the BIT.20 The Tribunal concluded that it was indeed the duty of the Tribunal to balance these two principles, and ultimately found that Argentina had violated its BIT obligations.21 In these kind of situations, judges and arbitrators can avail themselves of different methods to decide which norm prevails and should apply to the specific case. Because each case is different, each solution will necessarily be specific.22 One of the proposals routinely discussed as a solution to the problem of competing jurisdiction of international courts and tribunals is to create a hierarchy amongst tribunals, whereby the ICJ is recognized as the point of reference for all
17 Nuclear Weapons (n 16) para 34, holding that: ‘In the light of the foregoing the Court concludes that the most directly relevant applicable law governing the question of which it was seised, is that relating to the use of force enshrined in the United Nations Charter and the law applicable in armed conflict which regulates the conduct of hostilities, together with any specific treaties on nuclear weapons that the Court might determine to be relevant.’ 18 SAUR International SA v Argentine Republic, ICSID Case No ARB/04/4, Decision on Jurisdiction and Liability (6 June 2012) para 328: ‘La Re´publique argentine a alle´gue´ que le re´gime de protection des investissements conc¸udans l’APRI ne modifie pas les obligations assume´es par le pays dans des traite´s relatifs aux droits l’homme, qui sont des obligations qui, dans le syste`me juridique argentin, ont un rang constitutionnel.’ 19 ibid para 328: ‘La Demanderesse propose donc que les obligations qui e´manent de l’APRI soient interpre´te´es en harmonie avec les re`gles relatives a` la protection des droits de l’homme, et en particulier avec le droit de l’homme a` l’eau.’ 20 ibid para 331: Mais ces pre´rogatives sont compatibles avec les droits des investisseurs a` recevoir la protection offerte par l’APRI. Le droit fondamental a` l’eau et le droit de l’investisseur a` be´ne´ficier de la protection offerte par l’APRI ope`rent sur des plans diffe´rents: l’entreprise concessionnaire d’un service public de premie`re ne´cessite´ se trouve dans une situation de de´pendance face a` l’administration publique, qui dispose de pouvoirs spe´ciaux pour en garantir la jouissance en raison de la souverainete´ du droit fondamental a` l’eau; mais l’exercice de ces pouvoirs ne se fait pas de fac¸on absolue et doit, au contraire, eˆtre conjugue´ avec le respect des droits et des garanties octroye´sa` l’investisseur e´tranger en vertu de l’APRI. Si les pouvoirs publics de´cident d’exproprier l’investissement, de traiter l’investisseur injustement ou de fac¸on non e´quitable ou de lui refuser la protection ou la pleine se´curite´ promises, tout ceci en violant l’APRI, l’investisseur aura le droit d’eˆtre indemnise´ dans les termes que le Traite´ lui accorde. 21 ibid para 332 and Part VI (Decision). 22 Schill (n 6) (suggesting the use of a proportionality test to resolve normative conflicts between international investment law provisions and human rights obligations). WINTER 2015 Competition Between International Courts and Tribunals 103 international courts and tribunals and where ICJ judgments would provide the final articulation of international law which other international courts would follow.23 This proposal, supported by two former ICJ Presidents, would ensure greater coherence of international law and would avoid its decisional and normative fragmentation.24 However, as President Higgins concludes, such a proposal would be just ‘unworkable’.25 First, the diversification of the different dispute resolution mechanisms is the result of intense negotiations amongst different States. Not all States are parties to all international dispute settlement mechanisms, and not all States accept the compulsory jurisdiction of the ICJ. Second, many international courts and tribunals were created to decide disputes that concern individuals and do not concern States. Thus, judgments of the ICJ would only have limited relevance. Third, it would also be unrealistic to imagine that States would agree to revise all the required existing treaties and jurisdictional clauses to redefine the role of the ICJ.26 Other ways to address normative competition exist. First, there are explicit conflict rules in the applicable treaties that regulate jurisdiction.27 Conflict rules of general international law are also important. In matters related to treaties, Article 30 of the Vienna Convention on the Law of Treaties (VCLT) specifically regulates the application of successive treaties. Article 31 VCLT that provides general rules of treaty interpretation.28 Specifically, Article 31(3) provides that any relevant rules of international law applicable in the relations between the parties should be taken into account when interpreting a treaty.29 Importantly, different norms may prevail depending on the specific circumstances.30
III. JURISDICTIONAL COMPETITION: STRICT AND PARTIAL OVERLAPS The a-systematic nature of the international judicial system may also result in jurisdictional overlaps between different kinds of international adjudicative bodies.
23 Gilbert Guillaume, ‘Advantages and Risks of Proliferation: A Blueprint for Action’ (2004) 2 J Intl Crim Justice 300. See also speech by President Schwebel to the General Assembly, 26 October 1999, (1999–2000) ICJ YB 282. 24 See Higgins (n 6) 798–800. See also Giorgio Gaja, ‘Relationship of the ICJ with Other International Courts and Tribunals’ in Andreas Zimmerman and others (eds), The Statue of the International Court of Justice: A Commentary (2012) 582. 25 Higgins (n 6) 800. 26 Gaja (n 24) 582 para 23. 27 See eg Charter of the United Nations (24 October 1945) 1 UNTS XVI (UN Charter) art 103 (stating that, ‘[i]n the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail’). See also Pauwelyn (n 6) 908 (citing NAFTA, art 104 which states that ‘certain environmental agreement prevail over NAFTA’.) 28 Vienna Convention on the Law of Treaties (opened for signature 23 May 1969, entered into force on 27 January 1980) 1155 UNTS 331, paras 1–3 of art 30 state that: Subject to Article 103 of the Charter of the United Nations, the rights and obligations of States parties to successive treaties relating to the same subject-matter shall be determined in accordance with the following paragraphs. 2. When a treaty specifies that it is subject to, or that it is not to be considered as incompatible with, an earlier or later treaty, the provisions of that other treaty prevail. 3. When all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation under article 59, the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty. 29 art 31(3) states that ‘3. There shall be taken into account, together with the context: (a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) Any relevant rules of international law applicable in the relations between the parties.’ (ibid 27). 30 See Pauwelyn (n 6) 907–8. 104 ICSID Review VOL. 30
Jurisdictional overlaps can result from a variety of conflicts. First, competing jurisdiction may exist between international courts and tribunals that enjoy general subject matter competence and also share the same personal jurisdiction. For example, the principal judicial organ of the United Nations, the ICJ, has general subject matter jurisdiction over States that recognize that jurisdiction.31 At the same time, some of the same disputes could be heard by an arbitral tribunal constituted, for example, under the aegis of the Permanent Court of Arbitration (PCA).32 Jurisdictional overlaps can also be found between courts of global and general jurisdiction and those that have a specialized subject matter or a specific geographical jurisdiction. For example, the jurisdiction of the ICJ and the International Tribunal for the Law of the Sea (ITLOS) may overlap on some specific issues.33 Jurisdictional overlaps can also exist among regional courts and tribunals with general rationae materiae competence and regional specialized courts and tribunals.34 This form of competing jurisdiction can have significant consequences and may present itself in a variety of forms. The problem of competing jurisdiction is not new, though it has certainly become more common.35 For example, the Permanent Court of International Justice (PCIJ) assessed competing jurisdictional claims in its famous Chorzo´w Factory case.36 In that complex case, Germany brought a claim for indemnity arising from the confiscation of certain German company property in Poland. Poland argue that the PCIJ should not exercise jurisdiction over the matter in favour of the German- Polish Mixed Arbitral Tribunal or the Upper Silesian Arbitration Tribunal, which were established to review claims by private German individuals on the legality of takings of property.37 In concluding it had jurisdiction, the PCIJ held that the Court, when it has to define its jurisdiction in relation to that of another tribunal, cannot allow its own competency to give way unless confronted with a clause which it
31 The ICJ explains its contentious jurisdiction as follows: In the exercise of its jurisdiction in contentious cases, the International Court of Justice has to decide, in accordance with international law, disputes of a legal nature that are submitted to it by States. An international legal dispute can be defined as a disagreement on a question of law or fact, a conflict, a clash of legal views or of interests. Only States may apply to and appear before the International Court of Justice. International organizations, other collectivities and private persons are not entitled to institute proceedings before the Court. Article 35 of the Statute defines the conditions of access for States to the Court. While paragraph 1 of that Article opens it to the State parties to the Statute, paragraph 2 is intended to regulate access to the Court by States which are not parties to the Statute. The conditions of access of such States are, subject to the special provisions contained in treaties in force at the date of the entry into force of the Statute, to be determined by the Security Council, with the proviso that in no case shall such conditions place the parties in a position of inequality before the Court. The Court can only deal with a dispute when the States concerned have recognized its jurisdiction. No State can therefore be a party to proceedings before the Court unless it has in some manner or other consented thereto.
ICJ, ‘Contentious Jurisdiction’
considers sufficiently clear to prevent the possibility of a negative conflict of jurisdiction involving the danger of a denial of justice.38 Indeed, each instance of jurisdictional competition between tribunals requires a detailed analysis. Different techniques can be used to regulate competing jurisdiction. Solutions include the general guidance offered by traditional rules that regulate jurisdiction, namely the principles of lis alibi pendens and res judicata. More specific solutions are found in the treaty provisions that regulate jurisdiction and are applicable to the dispute. Perforce, this is not an exhaustive list, nor a comprehensive treatment of a complicated issue; rather, it seeks to illustrate possible and existing techniques which tribunals adopt in their analysis. The two specific examples were chosen because one represents a very general method while the other is much more specific one. Moreover, while lis alibi pendens and res judicata are useful to regulate jurisdiction in situations where a case is already pending before a tribunal or has already been decided, dispute regulating norms are generally more important at the inception of a case if parties attempt to refer the same dispute to multiple tribunals.
A. Guidance from General Principles Regulating Jurisdiction Initially, competing jurisdiction between different international courts and tribunals may be generally regulated using common principles of international law.39 In particular, as discussed in detail by Shany, it may be useful to apply concepts of national law as lis pendens and res judicata to avoid conflicting dispute settlement outcomes at the international level.40 The two principles of lis pendens and the related concept of res judicata are particularly relevant. Lis pendens controls relations between parallel proceedings. Specifically, it mandates that when proceedings are pending in one forum, the same dispute cannot be brought before another tribunal. The related principle of res judicata mandates that a final judgment of a competent judicial forum is binding upon the parties. The same dispute cannot be re-litigated in another forum.41 Importantly, both principles apply only to cases between the same parties on the same issue and same cause of action.42 These principles are generally recognized as applicable in international proceedings.43
38 ibid 30. The Court also concluded that ‘when considering whether it has jurisdiction of not the Court’s aim is always to ascertain whether an intention on the part of the Parties exists to confer jurisdiction upon it. The question as to the existence of a doubt nullifying its jurisdiction need not be considered when, as in the present case, this intention can be demonstrated in a manned convincing to the Court’ (ibid 32). 39 Shany (n 5) 229 (‘there have also been instances in which judicial bodies have applied jurisdiction-regulating norms derived from sources of international law, other than treaty law’). See also Factory at Chorzo´w (n 36) 229–71. 40 August Reinisch, ‘The Use and Limits of Res Judicata and Lis Pendens as Procedural tools to Avoid Conflicting Dispute Settlement Outcomes’ (2004) 3 LPICT 37. 41 See Shany (n 5) 245. See also Vaughan Lowe, ‘Res Judicata and the Rule of law in International Arbitration’ (1996) 8 African J Intl & Comp L 38. 42 Shany (n 5) 230–55. See specifically examples cited therein from the PCIJ, ICSID, UNCLOS. 43 See eg in the seminal Trial Smelter Case (USA v Canada) (1950) 3 RIAA: It is further to be noted that the words ‘the law and practice followed in the United States’ are qualified by ‘in dealing with cognate questions’. Unless these latter words are disregarded, they mean a limitation of the reference to national law. What this limitation is, becomes apparent when one refers to the questions set forth in the previous article. These questions are questions of damage caused by smelter fumes, of indemnity therefor, of measures or re´gime to be adopted or maintained by the Smelter with or without indemnity or compensation. They may be questions of law or questions of practice. The practice followed, for instance, in injunctions dealing with problems of smelter fumes may be followed in so far as the nature of an arbitral 106 ICSID Review VOL. 30
The PCIJ assessed the applicability of lis pendens in an important case related to Certain German Interests in Polish Upper Silesia.44 In that case, brought by Germany against Poland for allegedly illegal taking of German citizens’ property, Poland argued that the dispute was already pending before the German-Polish Mixed Arbitral Tribunal and thus the PCIJ was not competent to hear the case on grounds of lis pendens.45 The PCIJ expressed some reservations on the applicability of lis pendens in transnational proceedings and importantly held that in the specific case the Court would not discuss lis pendens because it was: ...clear that the essential elements which constitute [lis pendens] are not present. There is no question of two identical actions: the action still pending before the German-Polish Arbitral Tribunal at Paris seeks the restitution to a private company of the factory of which the latter claims to have been wrongfully deprived; on the other hand, the Permanent Court of International Justice is asked to give an interpretation of certain clause of the Geneva Convention. The Parties are not the same and, finally, the Mixed Arbitral Tribunals and the Permanent Court of International Justice are not courts of the same character.46 A similar cautious approach to relinquishing jurisdiction in favour of another court was adopted more recently by the ICTY.47 In 2000, the Trial Chamber of the ICTY dismissed the Motion Regarding Concurrent Procedures Before International Criminal Tribunal for the Former Yugoslavia and International Court of Justice on the Same Questions filed originally by Mr Zigic and then joined by other defendants.48 The Defendants argued that the ICJ had found it had jurisdiction on the application filed by Bosnia and Herzegovina alleging violations of the 1948 Convention on the Prevention and Punishment of the Crime of Genocide and other international obligations by the Federal Republic of Yugoslavia and noted that questions including the nature of the armed conflict in Bosnia and Herzegovina, the identity of the parties to the conflict and whether crimes were committed in the course of that conflict, were subject to determination by both the ICTYand ICJ. The Defendants further argued that these forums should not hold opposing views on the same factual or legal questions and indeed the ICTY should follow the ICJ, the principal judicial organ of the United Nations. The Chamber, however, dismissed the motion and noted that the ICJ dealt with State responsibility, while the ICTY, which was limited in scope and purpose, dealt with individual criminal responsibility. The Chamber further noted that the case at the ICJ was still pending and no factual or legal findings had been made and decided that staying the proceedings in this case until the ICJ makes a final determination in the application of Bosnia and Herzegovina would both run contrary to the purpose of the
tribunal permits. But general questions of law and practice, such as the authority of the res judicata and the exceptions thereto, are not ‘cognate questions’. 44 Certain German Interests in Polish Upper Silesia (Preliminary Objections) PCIJ Rep Series A No 6, Judgment (25 August 1925). 45 ibid 19–20. 46 ibid 20. 47 See Webb (n 6) 64, noting that: ‘While a notion of lis pendens exists in the field of international human rights, the doctrine of lis pendens has not been applied to the ICJ and international criminal courts.’ 48 See Prosecutor v Kvocˇka and others, IT-98-30/1, Decision on the Defense ‘Motion Regarding Concurrent Procedures Before the International Criminal Tribunal for the Former Yugoslavia and the International Court of Justice on the Same Questions’ (5 December 2000). WINTER 2015 Competition Between International Courts and Tribunals 107
establishment of this Tribunal and deprive the Accused of his right to a fair and expeditious trial.49 The principles of lis pendens and res judicata are important to regulate specific cases in which strict overlaps between cases exist. They are also helpful as they provide a general framework of reference. However, two difficulties remain. First, these principles are only directed at avoiding duplicative or parallel proceedings involving the same (or essentially the same) parties on the same (or essentially the same) issues. This is very rarely the case in international proceedings. Second, the jurisdiction of international courts and tribunals vary and is based on diverse instruments. The causes of action and jurisdictional limits therefore are often different, even if they arise from a similar set of facts. Multiple proceedings arising from the same facts, but involving distinct legal claims under international law do not meet the claim identity requirement.50 When the competing cases do not deal with the same issues, do not originate from the same causes of action or do not involve the same parties, the principles of lis pendens and res judicata are not applicable.51
B. Guidance from Norms Regulating Jurisdiction Found in Jurisdictional Instruments of International Courts and Tribunals In certain cases, guidance on how to resolve jurisdictional competition can be found in the very instruments that govern the jurisdiction of international courts and tribunals. Indeed, some of the international treaties and courts’ statutes contain different kinds of forum selection provisions which are binding on the parties. Some examples are instructive. For example, the ICSID Convention52 provides at Article 26 that consent of the parties to arbitration under the ICSID Convention ‘shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy’. This flexible and exclusive norm provides that parties may choose to agree on alternative forum, but unless specifically agreed International Centre for Settlement of Investment Disputes proceedings are to be considered exclusive.53 A similar, flexible, and exclusive provision can be found in Article 55 of the European Convention on Human Rights (ECHR), which states that [t]he High Contracting Parties agree that, except by special agreement, they will not avail themselves of treaties, conventions or declarations in force between them for the purpose of submitting, by way of petition, a dispute arising out of the interpretation or application
49 ibid. See also Webb (n 6) 218. 50 Shany (n 5) 26, referring also to MOX Plant (Ireland v UK), Orders (3 December 2001) [2002] 41 ILM 405. 51 Shany (n 5) 23–4: [A] well established principle of justice, found in virtually all municipal legal systems and in international human rights law, asserts that a party to a dispute is entitled to have his or her day in court (or to have his rights and obligations determined by a competent and independent judicial authority). This principle necessarily limits the sphere of application of jurisdiction- regulating rules. If the two relevant sets of proceedings do not deal with the same disputes, then excessive restriction of the right of access to adjudication before the second-in-time forum, by virtue of a previous but different set of proceedings, might conflict with the parties’ ability to access the court system with relations to each of the distinct claims. 52 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (opened for signature 18 March 1965, entered into force 14 October 1966) (ICSID Convention). 53 In practice, this norm has been interpreted as regulating jurisdiction between international and domestic proceedings. 108 ICSID Review VOL. 30
of this Convention to a means of settlement other than those provided for this Convention.54 In situations where the parties are bound by the ECHR, therefore, they must refer any dispute on the interpretation or application of the Convention to the European Court of Human Rights (ECtHR), unless they have specifically agreed on an alternative forum. Article 35 of the ECHR further stipulates that the Court shall not deal with any application ...that is substantially the same as a matter that has already been examined by the Court or has already been submitted to another procedures of international investigation or settlement and contains no relevant new information. This provision is particularly important because it relates to all applications—not only those concerning States—and also because it allows the Court to decide whether the application is the same as one over which it has already decided or has been decided by another forum. The Dispute Resolution Understanding of the World Trade Organization (WTO) also contains a similar exclusive rule. Its Article 23 mandates WTO members: ...not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding, and shall make any such determination consistent with the findings contained in the panel or Appellate Body report adopted by the [Dispute Settlement Body] DSB or an arbitration award rendered under this Understanding.55
Some dispute resolution rules provide for non-exclusive forum selection. For example, Article 95 of the UN Charter states that ‘Nothing in the present Charter shall prevent Members of the United Nations from entrusting the solution of their differences to other tribunals by virtue of agreements already in existence or which may be concluded in the future’.56 This provision is understandable as the jurisdiction of the ICJ remains voluntary to all UN members. Other international agreements mandate a different, residual, approach to forum regulation. For example, under the United Nations Convention on the Laws of the Sea (UNCLOS):
...if the states parties which are parties to a dispute concerning the interpretation or application of this Convention have agreed, though a general, regional or bilateral agreement or otherwise, that such dispute shall, at the request of any party to the dispute, be submitted to a procedure that entails a binding decision, that procedure shall apply in lieu of the procedure provided in this part, unless the parties to the dispute otherwise agree.57
54 European Convention for the Protection of Human Rights and Fundamental Freedoms (opened for signature 4 November 1950, entered into force 3 November 1953) 213 UNTS 222 (ECHR). 55 Understanding on rules and procedures governing the settlement of disputes, annex 2 to WTO Agreement (1994) 33 ILM 1226 (DSU), art 23. 56 UN Charter (n 27) art 95. 57 United Nations Convention on the Law of the Sea (opened for signature 10 December 1982, entered into force 16 November 1994) 1833 UNTS 3 (UNCLOS) art 282. WINTER 2015 Competition Between International Courts and Tribunals 109
This brief overview shows that a well-crafted forum selection clause can be key in resolving jurisdictional overlaps. When these clauses provide for an exclusive forum selection, they articulate a prohibition to resolve the same dispute in another forum. Non-exclusive and residual forum selection clauses will also guide judges and arbitrators and this more complex analysis may result in relinquishing jurisdiction to another forum. In sum, several ways to regulate competition between different courts and tribunals exist in cases of strict jurisdictional overlap. The principles of lis pendens and res judicata are instructive in situations in which the case is already pending or has already been resolved by a tribunal. Norms that regulate jurisdiction in dispute resolution provisions are more useful at the inception of a case, in situations where parties try to seize different courts to resolve the same dispute.
IV. PARTIAL JURISDICTIONAL OVERLAP A separate—and less studied—problem relating to jurisdictional competition is the issue of partial jurisdictional overlap. Indeed, as complex international litigation continues to increase, problems related to partial judicial overlap can only be expected to become more important and relevant in the future. This kind of jurisdictional overlap is found in complex cases, parts of which legitimately fall within the jurisdiction of several international courts and tribunals. Indeed, as more and more disputes can now be resolved by international courts and tribunals, sophisticated players effectively use multiple forums to address different aspects of their disputes. Three recent cases are significant.
A. Australia’s ‘Plain Packaging Act’ Cases The Tobacco Plain Packaging Act 2011 (Cth) (Tobacco Plain Packaging Act), requiring companies to adopt plain cigarette packaging in an effort to curb smoking, resulted in the initiation of a series of international litigations both from multinational companies and sovereign States challenging aspects of the act. The Tobacco Plain Packaging Act became law in Australia in 2011.58 The Act forms part of a comprehensive Australian Government strategy to reduce the rate of smoking in Australia. Shortly after it became law, Philip Morris Asia challenged the plain packaging legislation under the 1993 Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments. The ensuing international investment arbitration is being conducted under the UNCITRAL Arbitration Rules 2010 and the proceedings concern the Australian Government’s right to take regulatory measures to protect public health.59 On 21 December 2011, the Australian Government provided its response to Philip Morris Asia’s Notice of Arbitration. A few months after the initiation of the investment treaty proceedings, several cases were brought at the WTO challenging the Tobacco Plain Packaging Act. Ukraine, Honduras and the Dominican Republic requested WTO dispute
58 For background information from the Australian government, see Attorney-General’s Department, Australian Government, ‘Tobacco plain packaging—investor-state arbitration’
B. Cases Related to the Bankruptcy of Yukos Another interesting, complex set of case relates to the demise of the Yukos Oil Company (Yukos), which was controlled until 2003 by Mikhail Khodorkovsky and other prominent Russian businessmen. Yukos was one of Russia’s biggest oil companies. It was dismantled and declared bankrupt as a result of a tax evasion investigation and tax levies that many considered to be political motivated.62 The main shareholder and CEO of Yukos, Mr Khodorkovsky, faced criminal charges and was sent to prison for several years. He was released in December 2013.63 The international litigations concerning Yukos’ bankruptcy involved both international investment tribunals and human rights courts. Mr Khodorkovsky brought several applications to the ECtHR seeking redress for alleged violations by Russia of his human rights. In response to his first application, which concerned events from 2003 to 2005, the ECtHR found that several violations were committed by the Russian authorities in their treatment of Khodorkovsky. In particular, the Court ruled that Khodorkovsky’s arrest was unlawful as it had been made with a purpose different from the one expressed.64 The Court did not find entirely for Mr Khodorkovsky and ultimately ruled that
60 Certain Measures Concerning Trademarks and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (Ukraine v Australia), WTO DS 434 (13 March 2012); Australia—Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (Honduras v Australia), WTO DS435 (4 April 2012); Australia—Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (Dominican Republic v Australia) WTO DS441 (18 July 2012); Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (Cuba v Australia) WTO DS458 (3 May 2013); Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (Indonesia v Australia) DS467 (20 September 2013). 61 Ukraine v Australia (n 60) panel composed by the Director-—General on 5 May 2014. Note that Argentina, Brazil, Canada, the Dominican Republic, Ecuador, the European Union, Guatemala, Honduras, India, Indonesia, Japan, Korea, New Zealand, Nicaragua, Norway, Oman, the Philippines, Singapore, Chinese Taipei, Turkey, the United States, Uruguay, Zambia and Zimbabwe reserved their third-party rights. Subsequently, Chile, China, Cuba, Egypt, Nigeria, Malaysia, Malawi, Mexico, Moldova, Peru and Thailand reserved their third-party rights. 62 ‘Timeline: The Rise and Fall of Yukos’ BBC News (31 May 2005)
143. In sum, the Court concludes that the applicant’s apprehension in Novosibirsk on 25 October 2003 was contrary to Article 5 § 1 (b) of the Convention. WINTER 2015 Competition Between International Courts and Tribunals 111 there was no evidence that the trial was politically motivated, but rather that the charges against him were grounded in ‘reasonable suspicion’.65 Interestingly, in parallel to the ECtHR litigation initiated by Mr Khodorkovsky, Yukos also initiated proceedings in the same court arguing that the company’s rights, protected by the ECHR, were violated in Russian courts, which led to its bankruptcy and liquidation. Yukos also argued that it had been singled out for discriminatory treatment.66 In its complaint, Yukos contended that its rights were breached under several articles of the ECHR, and specifically: Article 6 granting a right to a fair trial, Article 7 ensuring no punishment without law, Article 13 ensuring the right to an effective remedy, Article 14 prohibiting of discrimination, Article 18 limiting the use of restrictions on rights and Article 1 of Protocol No 1, ensuring the protection of property. The claim before the ECtHR amounted to USD 81 billion, by far the largest claim to be brought in front of that Court.67 The claim was an estimate of what the value of Yukos would have been if its assets had not been taken away and the company had not been liquidated in 2007. In a 2011 Decision, the ECtHR found in part that Russia had violated Yukos’ human rights and agreed that Yukos’ right to fairness in legal proceedings in relation to a tax re-assessment for 2000 had been violated. The Court also found that Russia had violated the right to protection of property through enforcement proceedings carried out over tax assessments from 2000–2003.68 However, the ECtHR did not find enough evidence to suggest that Yukos had been treated differently from other companies and rejected the allegation that Russia had misused legal procedures to dismantle Yukos. In the compensation proceedings, concluded in July 2014, the ECtHR awarded Yukos USD 1.86 billion in just compensation, by far the largest amount it has ever awarded.69
65 ibid para 258, concluding: On the other hand, any person in the applicant’s position would be able to make similar allegations. In reality, it would have been impossible to prosecute a suspect with the applicant’s profile without far-reaching political consequences. The fact that the suspect’s political opponents or business competitors might directly or indirectly benefit from him being put in jail should not prevent the authorities from prosecuting such a person if there are serious charges against him. In other words, high political status does not grant immunity. The Court is persuaded that the charges against the applicant amounted to a ‘reasonable suspicion’ within the meaning of Article 5 § 1 (c) of the Convention. 66 OAO Neftyanaya Kompaniya Yukos v Russia, App No 14902/04, ECtHR, Judgment (Merits) (20 September 2011). 67 ibid para 669. 68 The Court found that the interpretation of the tax liabilities which were applied to Yukos was foreseeable, but noted the rapid and inflexible enforcement of those liabilities. The Court held that two factors in particular contributed to Yukos’ demise and violated art 1 of Protocol No 1: 1. The bailiff’s choice of Yukos’ principal subsidiary as the first target for auction, without considering the implications for the company’s future: this dealt Yukos a ‘fatal blow’; 2. The Russian authorities were unyielding and inflexible in response to requests for time to pay and the bailiffs imposed additional fines amounting to E1.15 Bn, which had to be paid before the taxes, but the payment of which was prohibited under the freezing orders. Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms (amended by Protocol No 11, Paris, 20 March 1952). The text of the Protocol is available at
In parallel to the litigation at the ECtHR relating to human rights violations, investors in Yukos initiated several proceedings alleging violations of various international investment treaties. Three major cases were brought under the Energy Charter Treaty (ECT) by Yukos shareholders incorporated in the Isle of Man and Cyprus in 2005.70 The shareholders claim a total of USD 100 billion, the largest amount ever claimed in an investment arbitration. The arbitration cases are jointly administered by the PCA under ad hoc UNCITRAL Arbitration Rules. The cases relate to claims of alleged discrimina- tory measures and expropriation of investments. The Tribunal rendered an important Interim Award on Jurisdiction and Admissibility in 2009, accepting jurisdiction.71 After many years of litigation, the decision on the merits of the case was published in August 2014. It awarded USD 50 billion to the Claimants.72 A related case was brought by a group of Spanish shareholders at the Stockholm Chamber of Commerce’s (SCC) Arbitration Institute. The Tribunal awarded the Spanish minority shareholder Claimants more than USD 3.5 million in damages from Russia. The Tribunal concluded that ‘Yukos’ tax delinquency was indeed a pretext for seizing Yukos assets and transferring them.’73 In Quasar v Russia, an SCC Tribunal examined the Yukos bankruptcy proceedings after two related decisions had been taken examining different aspects of the dispute, one by the ECtHR in Yukos v Russia, and another by an SCC Tribunal in RosInvestCo UK Ltd v Russia.74 When reaching its conclusions, the SCC Tribunal reviewed both Yukos and Rosinvest. It explained why it disagreed with the Yukos decision.75 It also briefly referred to the similarities with RosInvest.76 The Yukos litigation is particularly interesting because the different tribunals took cognizance of earlier decisions of other international courts and tribunals seized of similar and related matters. They often, but not always agreed with each other’s conclusions.77 For example, the PCA Tribunal concluded on the basis of the record that the Respondent had made a credible argument regarding Yukos’ obstruction of the field tax audit leading to the 2000 assessment. The PCA
70 Hulley Enterprises Limited (Cyprus) v The Russian Federation, UNCITRAL, PCA Case No AA 226, Veteran Petroleum Limited (Cyprus) v The Russian Federation, UNCITRAL, PCA Case No AA 228 and Yukos Universal Limited (Isle of Man) v The Russian Federation, UNCITRAL, PCA Case No AA 227. 71 Yukos v Russia (n 70); Hulley Enterprises v Russia (n 70) and Veteran Petroleum v Russia (n 70), Interim Award on Jurisdiction and Admissibility (30 November 2009). 72 In The Matter Of An Arbitration Before A Tribunal Constituted In Accordance With Article 26 Of The Energy Charter Treaty And The 1976 UNCITRAL Arbitration Rules - Between - Hulley Enterprises Limited (Cyprus) - And - The Russian Federation, PCA Case No AA 226, Final Award 18 July 2014
Tribunal then agreed with the Claimants and with the ECtHR that the retroactive application of specific resolutions violated a fundamental principle of legality. The PCA Tribunal concluded that the fines levied in relation to the 2000 tax year were barred by the statute of limitations.78 Similarly, in the recent ECtHR USD 1.86 billion just satisfaction award, the Court concluded that there was no need to take into consideration the decisions of other arbitral tribunals in terms of possible double recovery. Specifically, it stated that the case file contains no information regarding the enforcement of these awards. In such circumstances, the Court does not find it necessary to take this information into account in the context of the present judgment and at this stage of the proceedings. The Government’s reference to the pending case is thus irrelevant.79
C. The Lago Agrio Litigation A third important set of cases relates to the controversy resulting from environmental damages in the Amazon in Ecuador, with cases are presently being heard by domestic courts in the USA and Ecuador, as well as an investment tribunal in The Hague and aspects of which were brought to the attention of the Inter-American Commission of Human Rights (Inter-American Commission). The case, generally referred to as the Lago Agrio litigation, was initially brought by Ecuadorian plaintiffs as a class action suit on issues of environmental damage against the oil company Chevron in US courts, which dismissed it on forum non conveniens grounds.80 The same plaintiffs then sought redress in Ecuadorian courts, which issued a USD 18 billion judgment against the oil company.81 Chevron then initiated an international investment treaty case against Ecuador at the PCA for, among other claims, denial of justice ensuing from the allegedly fraudulent decision by the Ecuadorian courts. The investment arbitration is still pending, though the Tribunal has already issued several interim awards requesting the temporary suspension of the execution of the Ecuadorian judgment.82 The Ecuadorian judge refused to implement the order suspending execution of a national judgment.83 At the same time, several of the original plaintiffs attempted to request interim measures to avoid implementation of an order of an investment arbitral tribunal
78 ibid para 718. 79 Yukos v Russia, Judgment (Just satisfaction) (n 66) stating ‘43. In so far as the respondent Government referred to various parallel proceedings allegedly brought by some of the applicant company’s shareholders in other international fora, the Court notes that there have been two final arbitral awards in cases brought against the Russian Federation by a group of the applicant company’s minority shareholders under bilateral investment treaties. These awards were made on 12 September 2010 and 20 July 2012 respectively by the Arbitration Institute of the Stockholm Chamber of Commerce. There is also a pending set of arbitration proceedings brought by the applicant company’s majority shareholders (see paras 519–526 of the principal judgment), in which no final award has been adopted so far 44. As regards the former two cases, the Court would note that the case file contains no information regarding the enforcement of these awards. In such circumstances, the Court does not find it necessary to take this information into account in the context of the present judgment and at this stage of the proceedings. The Government’s reference to the pending case is thus irrelevant’. 80 Aguinda v Texaco Inc, 303 F 3d 470 (2d Cir 2002). 81 Lago Agrio, Segunda Instancia por la Sala Unica de La Corte Provincial de Justicia de Sucumbios, Judgment (3 January 2012). 82 Chevron Corporation and Texaco Petroleum Company v Republic of Ecuador, PCA Case No 2009-23, Third Interim Award of Interim on Jurisdiction and Admissibility (27 February 2012). 83 See generally Chiara Giorgetti, ‘Mass Tort Claims In International Investment Proceedings: What Are The Lessons From The Ecuador-Chevron Dispute?’ (2013) 34 U Penn J Intl L. 114 ICSID Review VOL. 30 on the basis of a violation of their human rights. The group filed a request for interim measures with the Inter-American Commission on 9 February 2012. The request, necessarily filed against the Republic of Ecuador in an attempt to block the implementation of the Tribunal’s order, however, was never finalized.84 This complex and sophisticated use of international courts and tribunals raises many important questions about the relationship between different bodies of international law, for example human rights and international investment law: what is the precedent value of the decisions of other international tribunals? Does that depend on the court, the issue or the party that raised it? How can (and should) an investment tribunal look at issues related to WTO? Or to the European Court of Human Rights? Each case is unique and there is no systematic way to address the problem. If we continue to live in a horizontal world, where international courts are not structured hierarchically, how do we make sure that we have a system that is able to cope with the complexity of contemporary litigation? The existing mechanisms explored above to regulate competing jurisdiction of international courts and tribunals are of limited relevance in cases of partial overlaps. The principles of lis pendens and res judicata are only helpful in cases of strict overlap. Similarly, forum-regulating clauses only work if the cases are essentially the same. They do not work in situations of partial overlaps where parties have separate claims, parts of which can legitimately be brought in front of different courts and tribunals. A possible framework, explored below, may be provided by on one side enhancing judicial dialogue and comity.85 While the other side, courts expecting judges to limit their analysis to what is necessary to respond to the specific question they have been asked.
D. Enhanced Judicial Dialogue and Comity In a speech to the annual meeting of the International Law Association, President Higgins importantly observed we judges are going to have to learn how to live in this new, complex world, and to regard it as an opportunity rather than a problem: we must read each other’s judgment; we must
84 Ted Folkman, ‘Breaking: Lago Agrio Plaintiffs Sue Ecuador in the Inter-American Commission on Human Rights’ Letters Blogatory (9 February 2012)
have respect for each other’s judicial work; we must try to preserve unity among us unless context really prevents this.86 One key element to address partial jurisdictional overlap is indeed found in courts and tribunals’ respect for each others’ role and decisions. In complex cases, judges and arbitrators need to know about any other related case. If another tribunal has decided on a similar or related case, judges and arbitrators need to take into consideration those decisions. This does not mean that their decision has to go the same way. There may be very good reasons why the final outcome may differ. When it does differ, the court or tribunal should briefly explain why. This would maintain the consistency of the international legal system and would avoid symptoms of fragmentation. The approach taken by the Yukos tribunals examined above seems to be the correct one. Tribunals should not ignore related cases. They should review them and then take decisions on their own terms and based on their own applicable law. Explaining why they concur or not is an important tool to maintain consistency and avoid fragmentation of the international legal system. It is important that international courts and tribunals recognize that they confront related cases and need to assess possible competing jurisdiction. As Judge Greenwood remarked international law is not a series of fragmented specialist and self-contained bodies of law, each of which functions in isolation from the others; it is a single unified system of law and each international court can, and should, draw on the jurisprudence of other international courts and tribunals, even though it is not bound necessarily to come to the same conclusions.87 The first step to enhance judicial dialogue is to ensure that judges and arbitrators of different courts and tribunals know and read each other’s decisions. This cannot only be left to the parties. Summaries of all decisions could periodically be circulated among the different international courts. For example, an exchange mechanism preferably at the registrar or secretariat levels, could be established to ensure that decisions are circulated to all the members of the court or tribunal. Further, periodic meetings among judges and arbitrators can also enhance judicial dialogue. Meetings could be organized on general or specific issues and different courts could take it in turns to host and organize them. An interesting example of a mechanism that could enhance judicial dialogue is found in the Dispute Resolution Understanding of the WTO. Article 13 provides panels with the right to request information and technical advice from any individual or body that it deems appropriate.88 In the past, these have included the World Health Organization and World Intellectual Property Organization. Should
86 Higgins (n 6) 804 87 Ahmadou Sadio Diallo (Guinea v DRC) (Compensation phase) [2010] ICJ Rep 391, Separate Opinion of Judge Greenwood, para 8. 88 DSU (n 55) art 13: 1. Each panel shall have the right to seek information and technical advice from any individual or body which it deems appropriate. However, before a panel seeks such information or advice from any individual or body within the jurisdiction of a Member it shall inform the authorities of that Member. A Member should respond promptly and fully to any request by a panel for such information as the panel considers necessary and appropriate. Confidential information which is provided shall not be revealed without formal authorization from the individual, body, or authorities of the Member providing the information. See generally Pauwelyn (n 6) 916. 116 ICSID Review VOL. 30 the need arise, a similar mechanism could be used to request additional information also from other forums. Another guiding principle can be found in comity. Comity essentially involves the extension of certain courtesies and reciprocities to other courts.89 For example, a court could use its own discretion to suspend proceedings for a certain period of time, if the results of an on-going litigation touch upon essential elements to be decided by that court.90 For example, in the MOX Plant litigation, a tribunal constituted under Annex II of the UNCLOS decided, after application from Ireland, to suspend its proceedings in a case between Ireland and the UK in order to await the decision of the Court of Justice of the European Union (CJEU), in a case that the European Commission had brought against Ireland. The discretionary order to stay the proceedings was taken both to ease the difficulties encountered by the parties to simultaneously litigate different cases and for the Tribunal to benefit from recourse to the CJEU’s decision.91 Of course, many interests need to be balanced when courts decide to take such an important step, including the interest of the party to have its case heard in a timely manner.92
E. Judicial Restraint In parallel with enhanced dialogue and comity, judicial restraint could also provide a useful tool to address partial overlaps. Indeed, for international courts and tribunals to operate effectively, despite their horizontal nature, they should decide cases on narrow grounds and avoid opining on non-essential issues.93 In fact, the existence of a great number of international courts and their overlapping jurisdiction creates many binding decisions, which often include decision-making on general conduct that it is not directly opposable to a particular State not party to the dispute, but still creates challenges of indirect opposability and issues of acquiescence and protection.94 The former Legal Adviser of the UK Foreign Office, Daniel Bethlehem highlights important examples and the challenges they produce. After discussing the ICJ Wall Advisory Opinion,95 he notes the example of Guyana v Suriname,96 a maritime boundary case where, ‘plugged into the middle of that arbitration award’ there
89 Joel R Paul, ‘Comity in International Law’ (1991) 32 Harv J Intl L 1. See also Joel R Paul, ‘The Transformation of International Comity’ (2008) 71 Law & Contemp Prob 19. 90 Shany (n 5) p 271, noting that ‘even where the strict conditions for application of the res judicata rule (same Parties and same issues) are not met, the principle of comity might, and arguably should, justify giving due consideration to the reasoning employed by the first-in-time jurisdiction, with a new to promoting the harmonization of international law. This might in effect create a presumption in favour of issue-estoppel and a de facto rule of stare decisis which may be rebutted only by showing strong reasons of justice.’ 91 The MOX Plant Case (Ireland v United Kingdom), Order No 3, Suspension of Proceedings on Jurisdiction and Merits, and request for Further Provisional Measures (24 June 2003), and The MOX Plant Case (Ireland v United Kingdom), Order No 4, Further Suspension of Proceedings on Jurisdiction and the Merits (14 November 2003). 92 William Thomas Worster, ‘Competition and Comity in the Fragmentation of International Law’ (2008) 34 Brooklyn J Intl L 119. 93 See also Jacob Katz Cogan, ‘Competition and Control in International Adjudication’ (2008) 48 Virginia J Intl L 411. 94 Daniel Bethlehem, ‘The Secret Life of International Law’ (2012) 1 C J Intl & Comp L 23, 31–2. 95 Legal Consequences of the Construction of Wall in the Occupied Palestinian Territory, Advisory Opinion (9 July 2004) ICJ Rep 2004, 136. 96 Arbitral Tribunal constituted pursuant to art 287, and in accordance with annex VII, of the UN Convention on the Law of the Sea - In the Matter of an Arbitration Between: Guyana v Suriname, Award (17 September 2007). WINTER 2015 Competition Between International Courts and Tribunals 117
are a couple of paragraphs, almost gratuitously, which make some observations on the application of Article 2(4) of the UN Charter prohibiting the threat or use of force in circumstances in which a coastal protection vessel from one state crossed the maritime boundary of the other. He notes that many similar examples exist and observes that these kinds of statements ‘are fundamentally flawed as a matter of law.’97 He further point out that there is a tremendous amount of dispositive law that is directly binding only on the parties, but creates challenges of indirect opposability and issues of acquiescence and protection with which is difficult to deal. Indeed, these general and overly broad observations are problematic for non-parties.98 Judicial restraint would limit the impact of partial overlap. Judges and arbitrators should strictly limit their analysis to the specific issues with which they are confronted. Adopted together with enhanced dialogue and comity, judicial restraint would frame the actions of judges and arbitrators faced with complex litigation. Further, in this way, courts of specialized jurisdiction could draw on the ICJ for major decisions on public international law, and courts of general jurisdiction like the ICJ could learn from international specialized forums, like investment arbitration tribunals.
V. CONCLUSION Competing and overlapping jurisdictions are increasingly important in interna- tional proceedings. Complex cases can have ramifications in several bodies of law and could rightly be heard by multiple courts. By and large, decisional and jurisdictional competition between international courts and tribunals can ad- dressed with existing mechanisms. Issues connected to partial overlap may be usefully approached by a framework constructed on the application of the principles of enhanced judicial dialogue, comity and judicial restraint.
97 Bethlehem (n 94) 31–2. Bethlehem notes two examples, out of multitudes. The second example is drawn from the Wa l l case, where he notes, at para 106, that ‘the Court, in a couple of sentences, addressed the inter-relationship between international humanitarian law and human rights law, and did so with the broadest of brushes—there are two bodies of law; this suggests that there are three possible ways of interaction: either one applies or the other applies or they both apply. But when you sit in the kind of seat that I was sitting in until recently, you have to make sense of this, and statements of this kind hardly given any guidance at all for the practical purpose of advising a state.’ 98 Bethlehem (n 94) 31–2, suggesting: ‘[W]hat does one do if you are the UK or some other indirectly interested state in such circumstances, both to protect your own interests and to ensure that the development of the law stays on a sensible track? These statements or determinations are not directly opposable to you, but they nonetheless form part of a growing body of dispositive legal principles that in many cases is of very variable quality.’
Arbitration – a Law unto itself?
30th Annual Lecture organised by The School of International Arbitration and Freshfields Bruckhaus Deringer*
Lord Mance
4 November 2015
ABSTRACT
This article1 argues that theses advocating an independent or transnational system of arbitration lack coherence. Arbitration
is not, and should not become, a law unto itself. Arbitration already faces problems in maintaining coherence in its
jurisprudence and confidence in its efficacy as a dispute-resolution mechanism, particularly given that no general means exist
to ensure that awards are consistent. These problems could only be exacerbated by a declaration of unilateral independence.
Decisions of the court of the seat should in the ordinary case be treated as final and binding. This reflects the choice of the
parties. Empirical evidence suggests that the choice of seat is usually the result of a careful consideration of the legal
consequences and not merely a matter of convenience. To view arbitral awards as autonomous of national courts is a step
back in terms of the comity of nations and also contradicts the wording of the New York Convention. Siren calls for
complete or yet further autonomy for arbitration should be viewed with scepticism. An increasingly inter-connected world
needs mutually supportive and inter-related systems for the administration of law, not more legal systems.
1. INTRODUCTION
Is international arbitration part of an autonomous legal order, not anchored in or attached to any state
legal order? What does it mean to speak of an autonomous arbitral order? What would be the
consequences if one existed and should we welcome them?
1 This is the full text of the 2015 School of International Arbitration – 30th Freshfields Lecture given in London on 4 November 2015. A number of the ideas in it were also raised in a speech given to the Academy of Law in Singapore on 28 August 2015. The article is to be published in Arbitration International in early 2016.
© The Author 2015. Published by Oxford University Press. All rights reserved. 1
If you think these are jurisprudential questions, unlikely to feature in lunchtime discussion, if you ever
have time for this, I agree. Jan Paulsson has said that the definition of a legal order falls within
“a domain to which erudite and disputatious scholars, as generations come and go, have
devoted pages as countless as the stars, destined to be read, it seems, chiefly by others
intending to add to the production”2.
I discovered this only after writing the bulk of my text. It was too late to turn back. My excuse is that
the questions are also of practical significance. They link directly with more familiar questions, such as:
What is the role of the law and courts of the seat of an arbitration? Do these have any special claim to
determine the validity of an arbitration or an award? Or does each enforcing state have an equal claim?
Domestic legal systems have learned to inter-relate and to coordinate their activities. They develop
conflicts of law principles, international or regional treaties and measures such as the European Union’s
Brussels Regulation. But the leitmotif of arbitration is autonomy and consent – as regards the
composition and jurisdiction of the tribunal, procedure, evidence, confidentiality, etc. Today’s judges, I
believe, understand why arbitration is often preferred to litigation, respect the virtues of party autonomy
and see why court intervention should be minimised, save where necessary to support the parties’
agreement - and they do so independently (I am sure) of any interest which many former judges clearly
display in the subject. But how far does arbitration’s basis in consent mean that it floats free of national
legal systems, particularly that of the seat?
2. ENGLISH LAW
That has not been English law’s traditional view. As the House of Lords held in the Fiona Trust case3,
there are, of course, two separate agreements: the commercial agreement and the agreement to arbitrate
2 Written text of lecture delivered 4th November 2015. Jan Paulsson’s The Idea of Arbitration (OUP, 2013), p.33. I came across the book through reading a review in (2015) 78 (5) MLR 883, which commends it with justice as stimulating and thought-provoking. 3 Premium Nafta Products Ltd v Fili Shipping Co Ltd [2007] UKHL 40. 2
disputes arising under it: “[t]he doctrine of separability requires direct impeachment of the arbitration
agreement”, before it can be set aside4. But each has its roots in a governing law, which may or may not
be same as the other’s. In particular, English law does not recognise what Kerr LJ once called “arbitral
procedures floating in the transnational firmament, unconnected with any municipal system of law”5.
An arbitration must therefore be assigned a juridical seat. Nowadays, the seat can be designated by simple
agreement of the parties, or, that failing, by the tribunal (s.3 of the Arbitration Act 1996), and it does
not have to coincide with the place where the arbitration is actually held. Further, the chosen seat is
where English law treats any award as made for the purposes of the New York Convention. In English
law eyes, the effectiveness and probably attraction of arbitration depends upon the possibility of more
or less circumscribed court intervention at potentially critical points: e.g. to determine whether or not
an arbitration agreement exists, to assist its implementation if it does, e.g. by appointing, removing or
replacing an arbitrator, or (save between EU or Lugano states) to injunct proceedings brought in breach
of an agreement to arbitrate, to issue interim measures and to enforce or in some cases to set aside any
award. In English arbitration, in contrast to many other legal systems, courts also have a limited but
significant appellate or review role.
Because English law views any arbitration as rooted in its seat, an English Court of Appeal, on which I
sat, has held that it was for the English courts to determine the scope of arbitrators’ jurisdiction under
a bilateral investment treaty providing for an arbitration with a seat which was in the event fixed (by the
tribunal itself) as English: Occidental Exploration Production Co v Republic of Ecuador6. The Dutch courts in
proceedings between Ghana and a Malaysian telecoms company and the US Supreme Court in BG Group
plc v Argentina7 have also regarded it as their role to adjudicate on similar BIT issues under their domestic
arbitration law. Further, in the much-publicised Dutch arbitration under the Energy Charter Treaty in
4 An example of direct impeachment would be a plea that the agreement to arbitrate was never made or was forged or procured by bribery. But the much more common sort of plea that the commercial agreement should be set aside because of duress or misrepresentation is for the arbitrators to determine. 5 Bank Mellat v Helliniki Techniki SA [1984] QB 291, recently cited by Simon J in Yukos Capital SarL v OJSC Oil Co. Rosneft [2014] EWHC 2188 (Comm), [2014] 2 Lloyd’s Rep 435. See also Dallah Real Estate and Tourism Holding Co v The Ministry of Religious Affairs of Pakistan [2010] UKSC 46, [2011] 1 AC 763, paras 14-16 for the French position as agreed in that case. 6 [2005] EWCA Civ 1116, [2006] QB 432. 7 No 12-138 572 US (2014). 3
which GML Ltd., former 60% owner of Yukos Oil Co, has been awarded some US$50 billion against
The Russian Federation in respect of events leading to that company’s demise, the Russian Federation
is positively relying on the jurisdiction of the Dutch courts in applying to set aside the award. This is, I
understand, on the interesting ground, among others, that an assistant to the tribunal appears from his
fee notes to have played an allegedly unexpected role in drafting the tribunal’s reasons and/or decisions.
I must at once acknowledge my gratitude to my own judicial assistant for helpful suggestions.
Some expert commentators give strong support to the law of the seat. Decisions supposedly failing to
do so have been castigated by Albert van den Berg and Gary Born as “infamous”. In a critique coming
close to home, Gary Born has called the United Kingdom Supreme Court’s decision in Dallah Real Estate
and Tourism Holding Co v The Ministry of Religious Affairs of Pakistan8 an “example of a pathological
international arbitration”9, undermining the “most fundamental objectives of the [New York]
Convention includ[ing] ensuring uniform treatment of arbitral awards”, and involving “a foreign court
[i.e. the UK Supreme Court] disagreeing with the [French] courts of the arbitral seat over the application
of its own law”.
I do not myself see the Dallah case as raising any doubt under English law about the seat’s relevance.
Dallah had obtained a French award against the State of Pakistan over the State of Pakistan’s objection
that it was not party to any contract or arbitration agreement. Dallah brought English enforcement
proceedings in which the State successfully maintained this objection at two instances. Only then and
after three years of litigation, did Dallah have the bright idea of bringing parallel French enforcement
proceedings and seek to stay its own appeal to the UK’s highest court. The Supreme Court refused a
stay and decided the appeal on the expert evidence given below. Gary Born’s concern rests, I understand,
on the failure to grant a stay. The refusal of a stay was the product of a particular procedural course of
events, not disinterest in the law of the seat, which (rightly or wrongly) we thought we were applying10.
It is always unfortunate if different courts take different views. We would have been very interested in
8 [2010] UKSC 46, [2011] 1 AC 763. 9 Dallah and the New York Convention, Kluwer Arbitration Blog 7 April 2011. 10 The position is very crisply summarised by Jan Paulson in the Idea of Arbitration (FN 1 above) at p.45, FN 50. 4
the Paris Cour d’appel’s analysis of French law, had it been available. Whether it would necessarily have
bound us is a different question.
3. DIFFERENT THESES ABOUT THE ESSENCE OF ARBITRATION
Does the English approach to the seat give too little weight to the consensual basis of arbitration? Why
should the seat have any special claim to control, or adjudicate upon the outcome of, consensual activity?
Why should an award not be given effect in any way and by any process available in any other country
of the world? Is this not the more international view of an international phenomenon? Views to this
effect have been propounded in French case-law and doctrine. However, it one sees Dallah as a case
where the views of the French courts of the seat should have prevailed, it is ironic that French courts
and doctrine would not themselves allow the courts of the seat any such significance. The French law
view is that an international arbitral award is “not anchored in any national legal order”, but “is a decision
of international justice, whose validity must be ascertained with regard to the rules applicable in the
country where its recognition and enforcement are sought”. The quotation comes from the Cour de
cassation in its well-known Putrabali decision of 29 June 2007, developing thinking in its earlier decisions
in Hilmartin Ltd v Sté Omnium de traitement et de valorisation (1994)11 and Société Pabalk v SA Norsolor (1984)12.
By an international arbitration is evidently meant an arbitration with international commercial elements13.
Two previous lecturers in this series, with high credentials, have forcefully advocated a thesis of
autonomous or transnational arbitration. Professor Julian Lew QC lectured in 2006 under the title
Achieving the Dream: Autonomous Arbitration. In his view, the English courts should in the Occidental case
have left well alone what he described as “an international award, between non-English parties, made
by international arbitrators of different national origins” with a seat of arbitration which “was a mere
11 1ière chamber civile, 23 mars 1994. According to a seminal article by Dr Francis Mann , the thinking can be traced back internationally to a Greek scholar who in 1960 suggested that parties might be able to “détacher l’arbitrage de tout ordre juridique et lui donner un caractère supranational” : Ref. Crit. 1960, 1, 14. 12 1ière Chambre civile, 9 octobre 1984. 13 Article 1504 of the Code de procedure civile provides “Est international l’arbitrage que met en cause des intérêts du commerce international ». 5
coincidence”. To my mind, my distinguished predecessor’s criticisms should have been more
appropriately addressed to the Arbitration Act 1996 than to his one-time pupil-master who sat on the
Court, but I shall also suggest that they under-value the significance of a choice of seat.
The other lecturer is Emmanuel Gaillard, partner in Shearman and Sterling, arbitrator and professor at
Paris XII. He looked last year at the players in the arbitral world. But he has argued extensively14, that
international arbitration is rooted in and constitutes its own separate legal order, based on a general
consensus on governing principles, which give it its own legitimacy, govern both procedural and
substantive matters and are under-pinned by a “comparative law methodology”15.
On 8 July 2015, this thesis received renewed support from the Cour de cassation. This was in the
unexpected context of the distinction in France between civil and administrative jurisdictions (l’ordre
judiciare and la juridiction administrative). Ryanair had obtained a London arbitration award against a French
public body (“SMAC”) under French law contracts relating to airports in the Charente. SMAC
maintained that the award violated French public procurement law. The Conseil d’Ētat in April 2013
declined competence to set the award aside because of its foreign seat16, but expressed its view that any
application for enforcement raising issues of French public policy would be for it to decide. The Paris
Cour d’appel agreed. Reversing this decision, without even referring the matter to a Tribunal des
conflits17, the Cour de cassation (in a judgment reputedly written by Judge Dominique Hascher)
described the award as “an international award”, which was “not attached to any state legal order”, but
was “a decision of international justice the regularity of which falls to be examined with regard to the
rules applicable in the country where its recognition and execution are sought”. The Cour d’appel had
14 Very accessibly in Legal Theory of International Arbitration, 2010, based on a course given at the Hague Academy of International Law in the summer of 2007. 15 E.g. Legal Theory of International Arbitration (FN 1, above), p.77. 16 A Tribunal des conflits (see FN 16 below) had previously ruled that a challenge by INSERM (the French institute for health and medical research) to a French award made against it in favour of the Norwegian Fondation Letten F Saugstad on grounds of incompatibility with imperative rules of French public procurement law fell within the competence of the Conseil d’Ētat, rather than the Cour de cassation (No 3754 of 17 May 2010). 17 A Tribunal des conflits is a tribunal composed, half and half, of representatives of both jurisdictions to resolve disputes as to their respective competence. Article 35 of a decree of 26 October 1849 provides that such a tribunal may be constituted when either the Conseil d'État or the la Cour de cassation is seised of a dispute « qui présente …. une question de compétence soulevant une difficulté sérieuse et mettant en jeu la séparation des autorités administratives et judiciaires. ». That no step was taken to constitute such a tribunal is perhaps even more notable in view of the previous decision of a Tribunal des conflits constituted at the instance of the Conseil d’Ētat in the case INSERM c Fondation Letten F Saugstad (No 3754 of 17 May 2010) (FN 15 above). 6
violated the texts “constituting the international arbitral order”. The Cour de cassation identified these as the New York Convention and articles of the French Code of civil procedure governing international arbitration. It noted that these precluded any review of a foreign award on the merits (au fond). That goes without saying. But even the French code in article 1514 and of course the New York Convention in article V.2(b) refer to public policy as a potential ground for non-recognition of a foreign award.
Presumably, the Cour de cassation viewed SMAC’s defence and any concerns which the Conseil d’Ētat had on that score as unfounded. But its reasons do not address this explicitly.
Emmanuel Gaillard is reported, unsurprisingly, as heralding the Cour de cassation’s soaring reasoning as marking a “ground-breaking decision” in which “the court does not hesitate to acknowledge the existence of a true, autonomous, arbitral legal order”, adding that “in international arbitration, just as in any other field, concepts become reality when they shape the way in which the players, be they counsel, arbitrators or national judges, comprehend a situation”.
In his Legal Theory of International Arbitration (2010) (page 39) Emmanuel Gaillard explains his conception of an arbitral legal order:
“The term ‘arbitral legal order’ is only justified where it can describe a system that
autonomously accounts for the source of the juridicity of international arbitration. Without
the consistency offered by a system enjoying its own sources, there can be no legal order.
Without autonomy vis-à-vis each national legal order, there can be no arbitral legal order.”
The reference to a system enjoying its own sources appears to postulate a coherent and consistent body of principles, independent of any particular national system, which exists or would find mutual acceptance among all those involved with arbitration across the world.
At a procedural level, Emmanuel Gaillard gives some impressive examples of arbitration tribunals whose members have, in reliance on international public policy, declined “to comply with an order issued by a court of the seat, in the fulfilment of the Tribunal’s larger duty to the parties”. This quotation is from a decision on jurisdiction issued on 7 December 2001 by a tribunal chaired by M. Gaillard himself in Salini
7
Costruttori SpA v Federal Democratic Republic of Ethiopia. There, the tribunal, in an arbitration of which the seat was Addis Ababa, maintained a previous decision to hold the arbitration physically in Paris, and declined to obey injunctions of the Ethiopian courts purporting to stay the arbitration pending further decisions of those courts. A refusal of this nature certainly witnesses, in one very practical sense, the international nature of arbitration. It is unlikely to be wise if the arbitrators are closely connected with, or have any need or wish to visit, the country of the seat.
That aside, there is something noble, as well as bold, about a decision taken in the higher interests of justice and of the parties’ agreement to ignore a court order made by the court of the seat. Such a decision may be presented as giving effect to the parties’ intentions. Court involvement was what they hoped to avoid. Why should the arbitration they initiated depend for its legitimacy or pursuit on the attitude of any court? And at which court or courts would it anyway be appropriate to look? The transnationalists go on to argue that the court of the seat may have, and have been chosen because it has, nothing to do with the parties or their assets. A court of enforcement may also depend on the haphazard presence of assets long after any award.
4. HOW FAR CAN AND SHOULD ANY OF THESE THESES BE ACCEPTED?
Although Emmanuel Gaillard would I think disagree, his reference to “the consistency offered by a system enjoying its own sources” has at core a flavour of natural law or lex mercatoria thinking. I am sceptical about the ability even of the world’s arbitration community to agree on common transnational principles to govern all the multi-faceted disputes which come before them. We may each of us as individuals be confident of our ability to act, if asked, as amiable compositeur or to decide according to justice and equity. But that does not mean that we would agree on the principles to adopt or the outcome.
Europe has in recent years seen interesting and inspiring attempts to agree common principles of
8
contract, tort, property, insurance, etc. But each proposal has met with as much disagreement as
agreement18.
In arbitration, the ad hoc nature of arbitration and its finality and privacy militate against overall
consistency. No general means as yet exist to ensure that arbitral decisions are consistent19. In bilateral
investment arbitration, there is nowadays more openness, but it too appears to be a field where decision-
making by different tribunals may differ (on central points such as what is an investment and what
amounts to fair and equitable treatment)20.
Recognising the potential for argument about what common transnational principles might be, some
authors suggest that lack of consensus about what is, for example, corruption and how to tackle it “does
not mean that the fight against corruption should not have a natural force and be recognised as a
principle of transnational public policy”21. This more or less admits that transnational justice cannot
claim the general consensus about principles and rules which is the hallmark of a legal system. That we
– and hopefully most legal systems - share certain fundamental conceptions of justice is beside the point.
Thus, there are disputes which one would expect or hope that it would be against any law to litigate or
arbitrate – the division of spoils between two highwaymen or (to update the example) between money
launderers would be an example. No arbitrator can be taken to have agreed to arbitrate such subjects,
with the result that, when he learns that this is what the arbitration is about, he can and should resign.
And no arbitrator can be taken to have agreed to undertake a task which would involve committing or
18 Having followed over the eleven years the European Commission’s efforts to promote common principles of contract law which could be suitable for at least optional use within the EU, and seen how every set of proposals has been swiftly and effectively challenged as inappropriate in principle or unworkable in practice, I may be forgiven some scepticism. 19 In a recent table ronde organised by the Conseil d’Etat and Cour de cassation, Professor Catherine Kessedjian of the University of Panthéon- Assas (Paris II) was I believe expressing a similar scepticism, when she observed that “arbitral practice in the field of commercial arbitration is in large measure little known because it is not published and it is conserved, by certain arbitral institutions, for a small number of initiates who alone have the right to know this practice” – it was “en grande partie méconnue car non publiée et conservée, par certaines institutions d’arbitrage, pour un petit nombre d’initiés qui seuls ont le droit de connaître cette pratique”. 20 The Chief Justice of Singapore, The Hon Sundaresh Menon SC, said in his keynote address to the ICCA conference in Singapore in 2012 that the body of substantive law with a public or administrative law character which has emerged over the last 15 or so years in the area of bilateral investment treaty arbitration suffers “from a lack of coherence and consistency because its development has been piecemeal” and that “With no central organising structure or underlying appellate control and no doctrine of binding precedent, the results are often conflicting”. That might of course change if, for example investor-state arbitrations began to be resolved by publicly appointed investment courts, with a process of appeal to permanent appeal courts as proposed by the European Commission in its latest negotiating text concerning TTIP . But we are a long way from any such general development. 21 Yasmine Lahiou and Marina Matousekova in The role of the arbitrator in combating corruption [2012] I.B.L.J. 621, 630. The authors also argue (p.628) that certain principles have such force that, where corruption is concerned, arbitrators may be constrained to seek the proper solution “beyond the parties’ choice of law”. 9
giving effect to an offence in the law of the seat or any state where the arbitrator may have to perform
his or her duties. One does not need a thesis of a separate arbitral order underpinned by transnational
legal principles to reach such conclusions.
What then of autonomy from any national legal order in other respects? In his 2010 book, Emmanuel
Gaillard recognises that arbitration may not satisfy the criteria of law or of a legal system suggested by
Professor Herbert Hart22. We cannot easily speak of officers of an autonomous arbitral world who accept
and apply rules of recognition which specify the criteria for valid arbitral laws accepted by citizens of the
arbitral world. Who would be the officers and who the citizens? Emmanuel Gaillard argues for a more
realist or Holmesian view, affirming the existence of an international arbitral order because of the effect
given to arbitration by the actors involved and by states. I offer six points.
First of all, there is here, I think, a linguistic problem. We know that words mean different things in
different contexts23. But there are some limits. In the context of Liversidge v Anderson, history has favoured
Lord Atkin when he dissented from Humpty Dumpty’s proposition that “When I use a word, it means
just what I choose it to mean — neither more nor less”24. Party autonomy and consent certainly have
both a recognised value and recognised effects – but these do not amount to, and can exist quite
independently of, the law. Parties who agree something will, if honourable, respect their agreement,
without more. Even if they are not intrinsically honourable, peer, industry or regulatory pressure may
make them do so, without the law entering into it. Much old-fashioned arbitration in esoteric areas like
reinsurance took place under this convention, without the parties dreaming that it would ever be
necessary to go to court for any purpose. It would in theory also be perfectly possible to agree to
arbitrate, on the basis that nothing done or concluded will be legally binding. Consumer references to
the United Kingdom’s Financial Ombudsman Service operate on that basis, as regards the consumer.
22 In The Concept of Law, 2nd ed. (Clarendon Law Series). 23 Rainy Sky SA v Kookmin Bank [2011] UKSC 50. 24 In Lewis Carroll’s Alice through the Looking Glass, Chapter 9. 10
One might describe self-accepted and self-executing values and effects of this sort as a sort of party-
agreed law, but it would over-stretch the concept of law. In practice, parties who agree to arbitrate look
for the more solid underpinning provided by available court assistance and enforcement. Despite
Emmanuel Gaillard’s subtle exposition, I do not see how a system of arbitration that relies essentially
on that underpinning can itself be regarded as “a separate arbitral legal order”. Even if an award is seen
as valid in one country, but invalid in another, that does not to my mind establish autonomy. It merely
confirms the award’s dependence upon recognition by at least one national legal system.
A second problem about treating international arbitration as not anchored in or even attached to any
state legal order, is that this depends upon adopting the language and analysis of a particular legal system,
the French. Whatever the law of the seat or elsewhere might provide, French law judges the validity and
effect of international arbitration agreements by transnational standards of its own creation25. Now
French private international law is a matter for the French legislature and courts. When the Brussels
Regulation was recently recast26, France and the United Kingdom joined to resist any further incursion
of EU law into the world of arbitration. But the French approach is a mix of parochialism and
universalism – parochialism since French law looks at international arbitration only through its own
eyes, universalism since it insists that its own standards applying to all international arbitration. In terms
of the comity of nations, this approach is a large step backwards. And it cannot claim a consensus.
A third problem about treating arbitration as independent of any national legal system, particularly the
law of the seat, is this appears irreconcilable with the New York Convention. The Cour de cassation in
Putrabali thought it could avoid this problem, by relying on article VII of that Convention. Article VII
provides that the earlier articles do not “deprive any interested party of any right he may have to avail
himself of an arbitral award in the manner and to the extent allowed by the law” of the enforcing court.
The Court de cassation viewed this as enabling it to apply articles of the French Code of Civil Procedure
25 The French law position in this respect is discussed in Dallah, para 19, citing from Professor Pierre Mayer’s note in [1990] Rev. Arb. 675 and Poudret & Besson’s Comparative Law of International Arbitration (2d ed) (2007), para 180, itself cited in the Dallah case, [2010] UKSC 46, [2011] AC 763, paras 16 and 115. French law treats international arbitration as outside the scope of article 2061 of the French Civil Code, which it thereby confines to domestic arbitrations. 26 Council Regulation (EU) No 1215/2012. 11
which provide for enforcement of foreign awards without specifying the setting aside of an award at its
seat as a cause for non-recognition27. The drafters cannot have envisaged this by article VII. The Cour
de cassation’s view undermines the scheme of articles III to VI of the Convention. If there is any
flexibility enabling an award set aside at the seat to be granted recognition and enforcement in a foreign
court, it should be found not in article VII but in the positive provisions of article V, which provide that
recognition and enforcement of an award set aside at the seat “may” be refused in specified situations
which it then sets out and which include reference to the public policy of the enforcing state.
Fourthly, Emmanuel Gaillard is correct that arbitrators differ from judges in that they do not administer
justice as an organ, on behalf or in the name of any state. But it does not follow that they administer
justice as part of a separate legal system. Although consent is the hallmark of arbitration, we should not
forget that consent is also a common basis of court jurisdiction28. Even judges depend, though in a
differing degree to arbitrators, on other bodies to recognise and enforce their decisions. Domestically,
in countries subject to the rule of law, it is axiomatic that the state will recognise and enforce decisions
of its own courts. Arbitrators, not being an arm of the state, depend on laws to that effect. But for court
decisions to have any relevance abroad, arrangements must be made with other states, whether by treaty,
statute or common law. Claimants who bring claims before common law courts, with broad powers to
authorise service out of the jurisdiction, sometimes find that they have overstretched internationally.
The fruits of success may be difficult to reach abroad, if the defendant does not submit to the domestic
jurisdiction. So even judicial authority is, like arbitral decision-making – and the universe generally,
relative. We do not suggest that this means that court authority needs further explanation in the form of
some underlying international consensus or legal order. Arbitration is merely a more extreme case.
27 In its recent judgment in the litigation between Ryanair and SMAC the Cour de cassation also identified the relevant “international legal order” as consisting in the texts of article VII as well as articles III and V of the New York Convention and article 1516 of the French Code of civil procedure. 28 It is not of course the only basis and the world to date has given a choice of court agreement less weight than an agreement to arbitrate. There is a notable absence for judgments of any worldwide equivalent to the New York Convention. In parenthesis, that may of course change, if the Hague Choice of Court Convention 2005 receives the recognition it deserves. With the European Union’s recent ratification, the Convention will enter into force on 1 October 2015. Mexico so far the only other party ratifying, but the only other signatories to date, Singapore and the United States, will hopefully not be far behind. 12
Fifth, any thesis which severs or denies that the existence of a special link between an arbitration and its
seat conflicts with, rather than promotes party autonomy. Where parties choose, or allow an institution
or the arbitrators to choose on their behalf, a particular seat, how can they disclaim the attitude of the
law of that seat? As noted, the English Arbitration Act 1996 operates on the basis that an arbitration
must have a seat. If England is the seat, the 1996 Act provides for the possibility of an appeal on a point
of law, unless the parties have otherwise agreed. A theory of international arbitration which looks only
to the award, and ignore the attitude of the law of the chosen seat to the award upon such an appeal,
undermines the parties’ agreement. Jan Paulsson criticises the United States’ federal courts for referring
to the “primary” jurisdiction of courts of the seat29. But I think there were justified in doing so.
Take the Cour de cassation’s Putrabali decision. It concerned a trade (GAFTA) arbitration in London.
Putrabali, a seller of white pepper, failed under a first award dated 10 April 2001 to recover any part of
the price from the buyer, Rena. It succeeded in having the award set aside in part after appealing on a
point of law to the English Commercial Court under the Arbitration Act 1996. On the remission for
rehearing, the tribunal on 21 August 2003 substituted a fresh award bearing the same number, but now
awarding Putrabali 163,000 Euros.
Rena’s cunning riposte to this unfavourable turn of events was to seek and on 30 September 2003 to
obtain exequatur or enforcement of the first 2001 award in France. Only on 10 February 2004 did
Putrabali obtain enforcement of the second award. Too late. The Cour d’appel, upheld by the Cour de
cassation, sustained Rena’s enforcement of the first award and set aside Putrabali’s enforcement of the
second award30. I have already indicated my view that the French courts’ reliance on article VII to use
national law to justify enforcement was a clear distortion of the general scheme of the Convention.
So Rena’s cunning riposte triumphed. The fact that it had agreed London arbitration, fought and lost
Putrabali’s High Court challenge to the first award, presumably fought and lost a rehearing before the
29 See The Idea of Arbitration (op cit FN 1 above) p.36. 30 The enforcement of the second award was set aside on the basis that the enforcement of the first award gave rise to res judicata (l’autorité de la chose jugée). Similar reasoning led the Cour de cassation to refuse recognition of a second award issued to replace the first award set aside at the seat in the Hilmartin case (Footnote 10 above): see 1ière chamber civile, 10 juin 1997. 13
arbitration tribunal and waited until then before seeking exequatur in France of the first award
exonerating it from liability all passed for nothing. If this is what an autonomous arbitral order involves,
its effects are idiosyncratic and fragmenting, if not infamous. It is interesting to note in passing that
Dominique Hascher himself, in his earlier capacity as General Counsel and Deputy Secretary General
of the ICC Court of Arbitration, wrote in 1996 of “the chaos that results for [i.e. from] …. the disregard
of a decision to nullify the award”31.
Of course there are cases where courts of the seat – a seat for better or worse chosen by the parties –
interfere or try to interfere unacceptably with arbitral proceedings. But they are hopefully exceptional.
As I hope to show, exceptional cases can, I believe, be catered for under the language of the New York
Convention without subverting its general scheme32.
Finally, I see a basic inconsistency at the heart of the thesis that internationalism requires one to ignore
the law of the seat. It invokes a unified order, but at the same time leads to disunity. What the world
needs today is, I suggest, greater coordination and coherence between different legal systems – more,
rather than less, mutual recognition and enforcement of each other’s decisions. The European Union
has added significantly to this within the sphere of the Brussels Regulation and Lugano Convention. The
Choice of Court Convention is a promising new arrival on the scene. Developments like the Singapore
International Court are in the same sense very welcome. The thesis of a detached arbitral system taking
no account of the law of the seat is divisive, when we should be holistic.
31 Recognition and Enforcement of Arbitration Awards and the Brussels Convention, Arb Int, Vol 12, No. 3, 233, 265. 32 Even apparently striking cases like Salini Costruttori SpA v Federal Democratic Republic of Ethiopia, where the Ethiopian courts sought to injunct the pursuit of the arbitration by Emmanuel Gaillard and his co-arbitrators, are worth looking at in closer detail, to see if what happened in Ethiopia was really so insupportable, or necessarily justified the arbitrators’ response. A close study in a paper by Eric A Schwartz, entitled Do Arbitrators have a duty to obey the orders of courts at the place of the arbitration? Reflections on the role of the Lex loci arbitri in the light of a recent ICC award suggests that this is not clear. The parties had chosen Ethiopia as the seat of the arbitration and the FIDIC General Conditions which provide for ICC arbitration of disputes “unless otherwise specified in the Contract”, but they had also expressly stipulated that “The rules of arbitration shall be the Civil Code of Ethiopia under Article 3325 et seq (Arbitral Submission)”. It was in issue whether the choice of the Ethiopian Code excluded ICC arbitration. The Republic resisted the jurisdiction of the tribunal constituted by the ICC on this ground. The tribunal decided, purportedly under the ICC Rules, that it would hold a hearing in Paris. The Republic challenged this as unfair. Article 3342 of the Ethiopian Civil Code expressly permits appeals from arbitrators to the courts. The Ethiopian courts granted the Republic injunctions suspending pursuit of the arbitration, pending determination of the issues of jurisdiction and fairness. In these circumstances, it is not clear that the arbitrators were, by going ahead under the ICC rules, giving effect to the parties’ real agreement, as opposed to deciding for themselves what the agreement was, in circumstances when the parties had on any view agreed a seat and a law, the Civil Code, which might be thought to have assigned that decision to the Ethiopian courts. 14
5. THE SOUND APPROACH
In short, the English view is in my opinion a principled one. Decisions of the court of the seat are
decisions which the parties must, on the face of it, be taken to have accepted when that seat was chosen,
and should in the ordinary case be treated as final and binding. This is what the Arbitration Act 1996
contemplates in England. More importantly, it is what the New York Convention contemplates, at least
as the norm:
in Article V.1(a), providing for non-recognition of an award made under an arbitration agreement which
“is not valid under the law to which the parties have subjected it”, since that law will almost invariably
be the law of the seat;
in Article V.1(e), providing for non-enforcement of an award which “has not yet become binding on
the parties, or has been set aside or suspended by a competent authority” in the country or under the
law of the seat; and
in article VI, providing for the possibility of a stay of enforcement pending an application to set aside or
suspend an award to such an authority.
What the parties must be taken to have contemplated is particularly important, because it meets the
transnationalists and those who give no particular weight to the seat on their own ground. They are the
advocates of party autonomy and of giving effect to the parties’ agreement to arbitrate. On the face of
it, parties who agree a particular seat deliberately submit themselves to the law of the seat and whatever
controls it exerts. They do this in the interests of certainty. This may be a more parochial vision of
arbitration than romantic transnationalism. But I believe it to be more realistic.
It could be interesting here to look at some customer research. Jan Paulsson, with much more direct
experience than I, writes that “the putative ‘primary’ jurisdiction …. is often chosen either fortuitously,
or precisely because of its lack of connection with the dispute”33. One hears of the tireless travel and
33 In The Idea of Arbitration (op cit, FN 1 above), p.36. 15
geographical dislocation in the life of the modern arbitrator, of arbitrations in featureless hotel rooms
or institutions giving no clue to outside climate or culture. It sounds depressing. Having attended an
ICCA conference, with excellent after-parties in surroundings sensibly located in a seat where attendees
could also conduct a few arbitration hearings in the margin of the conference, it is probably also untrue.
I question how often the seat of arbitration is fortuitous. Particularly under systems like the English,
where the place and seat of arbitration can be differentiated, one would expect the seat to be chosen for
good legal reasons, not just for hotel convenience or as a good place to dine or party. That this is
increasingly understood appears to be confirmed by a comparison of the Queen Mary International
Arbitration Surveys conducted in 2006 and 2015. The former suggested that in 2006 seats may have
been chosen as much for convenience as legal relevance, whereas the latter indicated that in 2015:
“preferences for seats are predominantly based on users’ appraisal of the seat’s established
formal legal infrastructure: the neutrality and impartiality of the legal system; the national
arbitration law; and its track record for enforcing agreements to arbitrate and arbitral awards
On this basis, the 2015 Survey concludes, and I agree, that:
“The importance of selecting a suitable seat for an international arbitration cannot be
overstated. The choice of seat impacts arbitral proceedings in various ways, such as the level
and nature of the supervisory jurisdiction of the domestic courts of the seat”34.
6. WHAT THEN IS THE POSITION IF AN AWARD IS SET ASIDE AT ITS SEAT?
The possible answers lie on a spectrum. A rigidly territorial approach would treat the international
validity of an award as linked inseparably to its domestic validity in the law of the seat. The opposite
French approach would mean that no account whatever was taken of an award’s validity at its domestic
34 Chief Justice Allsop of the Full Court of the Federal Court of Australia was surely right to stress in his Keynote Speech to the 2nd Annual Global Arbitration Review in Sydney in November 2014 that “The quality and legal culture of the court of the seat of any arbitration is critical. The court of the seat has a crucial role in the supervision of the procedural conduct of the reference and thus of its fairness.” 16
seat. In a recent Clash of the Singapore Titans between Chief Justice Menon and Gary Born, as President of
the Singapore International Arbitration Centre, the former is saying that “there is something to be said
for the territorial approach”, to which the latter is reported as responding that “There is indeed
something to be said for the territorial approach. From my perspective, that something is that we ….
should reject it, and reject it emphatically”35. For my part, there is more to be said for the territorial
approach than its French opposite. However, the true position may lie in between36.
English authority suggests that there can be exceptional circumstances in which the setting aside of an
award in its seat need not prevent its enforcement in another state. This is not because English courts
have suddenly begun to see attractions in the French approach or in article VII of the New York
Convention. Rather, it is for a reason grounded more solidly in the Convention – the perceived flexibility
of the word “may” in the English version of article V.1, carried through into section 103(2) of the 1996
Act.
Under article V.1, recognition and enforcement “may be refused only if” one of the specified situations
applies. These include in (e):
“The award has not yet become binding on the parties, or has been set aside or suspended
by a competent authority of the country in which, or under the law of which, that award was
made”.
There is nothing in this wording to distinguish between setting aside by a court of the seat on purely
domestic grounds, e.g. after an appeal on English law under section 69 of the 1996 Act, and setting aside
on grounds that might find more international resonance. So there is no support for a qualified version
of the French view according to which an enforcing court could disregard setting aside by the courts of
the seat under article V.1(e), if this occurs on purely domestic grounds, not reflected at the international
35 Text as reported in a Global Arbitration Review article of 12 October 2015. 36 In Enforcement of annulled awards: logical fallacies and fictional systems (2013) Arbitration 244, M D Holmes is basically sympathetic to a territorial approach, but ultimately suggests that “Such decisions often turn on facts which suggest that the annulment is at best a ‘purported annulment’ that lacks validity or legitimacy”. But this itself opens up a middle ground, leading to the critical question: when is a (purported) annulment not valid, legitimate or real? 17
level in article V.1(a) to (d)37. The real question is whether a provision that enforcement may only be
refused in certain situations means that it must be refused if one of such situations exists? Of the other
equally authentic languages, neither the Spanish nor the French texts - nor according to Gary Born the
Russian or Chinese texts - helps. But two points suggest that it allows a degree of flexibility.
The first is that, in article 2 of the predecessor Convention on the Execution of Foreign Arbitration
Awards of 1927, the equivalent word used was “shall”38, and during negotiations for the 1958
Convention the word “shall” became “may”. The second pointer lies in the other situations covered by
Article V. Minor failures to comply with the law or procedure of the seat might, for example, well appear
immaterial at an international level.
What then are the situations in which the word “may” might be significant? The Court of Appeal noted
in Dardana Ltd v Yukos Oil Co Ltd 39 that it cannot have a purely discretionary (or arbitrary) force. We
suggested that it must have been intended to cater for situations where the right to rely on such situations
had been lost by, for example, subsequent agreement or waiver.
In Dallah40, Lord Collins went further. He suggested that “may” could be relevant if an enforcing state
concluded that the only reason why an arbitration agreement was invalid under the law of the seat was
some foreign law outraging the enforcing court’s sense of justice or decency, for example a
discriminatory or arbitrary law. This takes one back to the House of Lords’ refusal in Oppenheimer v
Cattermole41 to recognise the Nuremburg race laws of 1935, or its refusal in Kuwait Airways Corp v Iraqi
Airways Co (Nos 4 and 5)42 to recognise the Iraqi law which, in clear breach of Security Council Resolutions
37 The UNCITRAL Model Law on International Commercial Arbitration (1985, as amended 2005) has a similar provision in article 36(1)(a)(v), dealing with the international recognition of awards, but does not provide for setting aside on purely domestic grounds in article 34(2), dealing basically with setting aside at the law of the seat. This might lend support to an argument that article 36(1)(a)(v) should be limited in application to setting aside on one of the limited grounds identified in article 34(2). 38 Article 2 read: “Even if the conditions laid down in Article 1 hereof are fulfilled, recognition and enforcement of the award shall be refused if the Court is satisfied:— (a) That the award has been annulled in the country in which it was made; (b) That the party against whom it is sought to use the award was not given notice of the arbitration proceedings in sufficient time to enable him to present his case; or that, being under a legal incapacity, he was not properly represented; (c) That the award does not deal with the differences contemplated by or fading within the terms of the submission to arbitration or that it contains decisions on matters beyond the scope of the submission to arbitration.” 39 [2002] EWCA Civ 543, [2002] 2 Lloyd’s Rep 326, para 8 (see also Dallah, para 67) 40 Para 128. 41 [1976] AC 249. 42 [2002] UKHL 19, [2002] 2 AC 883. 18
under Chapter VII of the UN Charter, had handed over to Iraqi Airways the Kuwait Airways aviation
fleet after its removal to Iraq by Iraqi forces. On Lord Collins’ analysis, the word “may” introduces a
certain balance. Just as article V.2(b) recognises that the recognition or enforcement of a foreign award
may be contrary to public policy, so the common law recognises that the recognition or enforcement of
a foreign judgment may be contrary to public policy, at least if the foreign judgment was based on the
sort of opprobrious foreign law which, exceptionally, a United Kingdom court will disregard.
Could a corrupt court decision setting aside an award also be disregarded and the award recognised and
enforced? Foreign judicial acts have been seen as a category outside the foreign act of state doctrine. On
that basis, although great caution is always necessary, there is no taboo against determining disputed
factual issues and giving effect to cogent evidence proving that a foreign court decision is the outcome
of fraud, corruption or political influence. “Otherwise”, as the Privy Council said in AK Investment CJSC
v Kyrgyz Mobil Tel Ltd43:
“the paradoxical result would follow that, the worse the system of justice in the foreign
country, the less it would be permissible to make adverse findings on it.”44
Thus, David Steel J held in Merchant International Co Ltd v Natsionalna Aktsionerna Kompaniya Naftogaz
Ukrayiny45 that it was possible to recognise a first-instance judgment which had been set aside on appeal,
by denying the appellate judgment recognition. He said:
“The issue is not so much the enforcement of the original judgment but the recognition of
the judgment setting it aside. If the judgment setting aside the judgment of the lower court
lacked due process then the default judgment [enforcing the foreign lower court judgment]
will stand ..... It is well established that a foreign judgment is impeachable on the ground that
43 [2011] UKPC 7. 44 In para 9, the Privy Council stressed that “Comity requires that the court be extremely cautious before deciding that there is a risk that justice will not be done in the foreign country by the foreign court, and that is why cogent evidence is required.” 45 [2011] EWHC 1820 (Comm). The decision was upheld on a narrower ground, but with provisional expressions of view in favour of David Steel’s reasoning, at [2012] EWCA Civ 196. 19
its recognition would be contrary to public policy: Dicey & Morris: The Conflict of Laws,
14th Ed, Rule 44.”
Two further decisions in the saga of Yukos Oil Co’s demise examine the issue in relation to foreign
awards. First, in Yukos Capital Sarl v OJSC Rosneft Oil Co. (No 2)46, the Court of Appeal held, following
AK Investment, that the act of state doctrine did not itself preclude enquiry into whether decisions of the
Russian courts setting aside four awards made in favour of Yukos by a tribunal with a Russian seat had
resulted from political instructions or influence47. Secondly and more recently in the same case48 Simon
J squarely addressed the question whether, if the court decisions had resulted from political instructions
or influence, the awards must still be regarded as a nullity. Relying on Professor Albert van Berg’s
aphorism, OJSC argued ex nihilo nil fit49. But, following David Steel J’s reasoning, Simon J concluded that
an enforcement court could treat an award as having legal effect notwithstanding a later order of the
court of the seat setting it aside, if recognition of the foreign court decision would offend “against basic
principles of honesty, natural justice and domestic concepts of public policy”.50
The current English view is therefore that a foreign enforcing court may, consistently with the New
York Convention, take a different view of an award to that taken by the law and courts of the seat, by
relying on the word “may” in article V.151. But this is only in exceptional circumstances when justified
on some recognised common law principle, and not as a matter of open discretion. In other
circumstances, a decision of the law and courts of the seat setting aside an award will prevail.
46 (No 2) [2012] EWCA Civ 855, [2014] QB 458. 47 Yukos’s pleaded case was that the Moscow court decisions were tainted by bias, contrary to natural justice, perverse and part of an illegitimate campaign by the Russian Federation against Yukos for political reasons. 48 [2014] EWHC 2188 (Comm), [2014] 2 Lloyd’s Rep 435. 49 Enforcement of Annulled Awards? (1998) 9 ICC Int’l Ct Arb Bull 16, Enforcement of Arbitral Awards Annulled in Russia (2010) Journal of Int’l Arb 27(2) 179, 189. 50 The position adopted by Simon J appears to have first been advanced by Professor William Park in a 1999 article, Duty and Discretion in International Arbitration, 93 Am. J. Int'l L. 805 1999, which the author kindly drew to my attention while this text was being prepared for publication. 51 Gary Born in his recent remarks in Singapore and Jan Paulsson in his book cite the United States Court of Appeals for the District of Colombia Circuit decision in Termorio SA ESP v Electranta SP (25 May 2007) as an illustration of a case where the enforcing court should have ignored the attitude of the law and courts of the seat. An ICC award under a clause providing for binding arbitration under ICC rules in Colombia had been set aside by the Colombian courts on the unsatisfactory ground that Colombian law did not expressly permit the use of ICC procedural rules in arbitration. Colombia was committed internationally under article II(1) of the New York Convention to recognise agreements in writing to submit differences to arbitration, The Court of Appeals refused nonetheless to recognise the award. Whether the parties should have known of Colombian law’s attitude to ICC rules is not clear. Assuming they had no reason to know, one can understand the view that the Court of Appeals might have treated so fundamental a breach of international policy and of Colombia’s international commitments as a ground for refusing, exceptionally, to recognise the Colombian court decision. 20
7. WHAT ABOUT DECISIONS OF THE COURT OF THE SEAT UPHOLDING (OR OF
ANY OTHER COURT RECOGNISING OR ENFORCING) AN AWARD?
If other courts should normally recognise decisions of the court of the seat to set aside, what about
decisions of the court of the seat upholding an award? The question assumes that the party losing under
the award has sought unsuccessfully to challenge the award in the court of the seat, rather than await the
attempt to enforce abroad and resist enforcement there under article V.
The New York Convention does not give a direct answer to the question. Some of the grounds in article
V for resisting enforcement are or may be grounds that can only be raised in the enforcement court.
Take, for example, article V.2, which refers to situations where the subject matter is not arbitrable, or
where enforcement would conflict with public policy under the law of the enforcement court.
The grounds to in Article V.1 differ. They are all grounds which the losing respondent either raised or
could have been expected to raise in any proceedings, if there were any, in courts of the seat. If the
courts of the seat ruled against the respondent, why should the respondent have a bite at a second
cherry? The question can be extended: if the court of any other state, even though not it is the court of
the seat, has ruled against the respondent on such grounds, why should the respondent be able to trawl
round the world, hoping to do better in some other jurisdiction?
As a starting point, one would expect any enforcement court, in today’s world, to pay attention to the
reasoning and decision of any other court, particularly the court of the seat, on an issue coming before
it. Colman J said precisely this in Minmetals Germany GmbH v Ferco Steel Ltd52. His approach has been
strongly endorsed in other jurisdictions, including Singapore53, Hong Kong54 and Australia55. A further
possible tool in the armoury of common law enforcement court is abuse of process. It is by definition a
discretionary power exercisable only in a clear case of attempted re-litigation of an issue already fully and
52 [1999] 1 AER (Comm) 315. 53 Newspeed Int’l Ltd v Citus Tracking Pte Ltd OS No 600044, where the judge at first instance went so far as to say that two bites at the cherry were inadmissible. 54 Hebei Import and Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111. 55 Gujarat NRE Coke Ltd v Coeclerici Asia (Pte) Ltd[2013] FCAFC 109. 21
regularly litigated before another court and also only exercisable after taking all the circumstances into
account: Owens Bank v Bracco56.
Differing views are expressed in these cases whether the respect due to a prior court decision on a
particular issue may be clothed in the even stronger language of estoppel. This is controversial, because
of the perceived greater inflexibility of estoppel and because not all courts have it in their armoury.
Nonetheless, in Diag Human Se v The Czech Republic [2014] EWHC 1639, Eder J (as he then was) held
that an Austrian court decision to refuse enforcement of a Czech award on the ground that the award
was not binding gave rise to an issue estoppel on a later attempt to enforce the same award in England57.
He rejected counsel’s submissions that what was binding might vary from enforcing state to enforcing
state, and that the New York Convention excludes any possibility of estoppel, because it contemplates
the possibility of an award creditor seeking to forum shop or enforce in multiple jurisdictions.
Ultimately, it may not matter how the matter is approached. Even issue estoppel is itself a flexible tool
in the context of foreign proceedings. It is sensitive to over-riding considerations of justice: Good
Challenger Navegante SA v Metalexportimport SA58. Whatever the position regarding estoppel, I believe that
most, even if not all, courts see themselves today as part of an international legal order – and rightly so.
We should respect each other’s decisions in the fullest sense, and so far as possible avoid duplication,
repetition and inconsistency in decision-making. In Dallah, as I have said, if the decision of the Paris
Cour d’appel had preceded ours, it would have received the closest attention.
The relevance of a prior decision of course depends on the identity of the issues. For that reason, in
Yukos Capital SarL v OJSC Oil Co. Rosneft [2013] 1 WLR 1329, the Court of Appeal held that no issue
estoppel could result from a previous decision of the Dutch courts refusing on public policy grounds
under Article V.2(b) of the New York Convention to recognise the Moscow court decisions setting aside
the four arbitration awards. Rightly or wrongly, it regarded public policy as inherently a matter on which
56 [1992] 2 AC 443. 57 In so deciding, Eder J was applying an approach endorsed, despite my best efforts to the contrary as counsel, by the House of Lords in The Sennar (No 2) [1985] 1 WLR 499. 58 [2003] EWCA Civ 1668. 22
each state and its courts may take different views. The issue had thus to be re-litigated in England. In
Hebei Import & Export Corp v Polytek Engineering Co Ltd59, Bokary JA considered whether public policy in
this context meant some public policy common to all civilised nations, or those elements of a state’s
own public policy which are so fundamental that its courts feel obliged to apply them not only to purely
internal matters but also to matters with a foreign element by which other States are affected. He
answered his own question in favour of the latter analysis, taking the view that a search for the former
would be impossible of achievement. He at any rate was not convinced that it was possible to identify
transnational or universal standards of public policy60.
8. ORDERS TO PREVENT OR SUPPORT ARBITRATION
The theme of this talk is that a degree of order and coordination is necessary, if both arbitration and
litigation are to be conducted efficiently and economically in a globalised world. Injunctions are a
particularly brutal intervention - and not surprisingly resisted in arbitration circles - when issued to
restrain arbitration. Even where a court of the seat issues the injunction, it is likely to infringe the
beneficial principle that arbitrators should be given the first opportunity to rule on their own jurisdiction.
Where a court of a third state does so, it is even more problematic. Emmanuel Gaillard gives some
dramatic examples of inappropriate injunctions.
But court intervention is not always inappropriate. Take an injunction issued by the courts of the seat
or potential seat restraining proceedings inconsistent with an arbitration clause61. English courts retain
power to injunct proceedings brought outside the EU/Lugano area in breach of a London arbitration
59 (1999) HKCFAR 111. 60 In a judgment dated 29 July 2015 in the case of X1 and X2 v Y1 and Y2 in the Dubai International Financial Centre Court of First Instance, Justice Sir Anthony Colman cited the UNCITRAL Digest of Case Law for what he described as the general international approach to the public policy exception under article V.2(b), viz that it should be applied “only if the arbitral award fundamentally offended against the most basic and explicit principles of justice and fairness in the enforcement State, or evidences intolerable ignorance or corruption on the part of the arbitral tribunal”. See also ARB 003/2013 Banyan Tree Corporate Pte Ltd v Meydan Group LLC (2 April 2015) in the same Court before Justice Omar Al Muhairi, to like effect. 61 This is less publicised because largely confined to common law jurisdictions. Within the European Union, such injunctions are now prohibited as inconsistent with mutual trust between member states’ legal systems: Case C-185/07 Allianz SpA v West Tankers SA. 23
clause: Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC
3562. The efficacy and value of such support seems to me clear.
Courts of the seat assist arbitration in all sorts of other ways, including by appointing arbitrators and
making available the state’s coercive powers to enforce arbitral orders. Perhaps there are advantages in
recognising them as collaborators, rather than as unwelcome interferers in a separate arbitral order.
Courts, as Michael Hwang said in his 2014 Clayton Utz University of Sydney International Arbitration
Lecture, “should supervise with a light touch but assist with a strong hand”. It is unrealistic, and I think
unwise, to expect the latter without the former.
9. IN CONCLUSION
Let me draw together some themes:
An unfortunate difference in attitude has developed between common law and French civil law and
between different strands of doctrinal thought as regards the fundamental basis of arbitration.
I question both the coherence and the wisdom of theses advocating an independent or transnational
system of arbitration, while detaching this from the web of existing legal systems whose inter-
relationship is well established by rules of private or public international law and treaties.
Arbitration already faces problems in maintaining coherence in its own jurisprudence and confidence in
its efficacy and appropriateness as a dispute-resolution mechanism. I suggest that these could be
exacerbated, if either arbitration or courts dealing with arbitration issues seek to declare unilateral
independence.
62 The Supreme Court held (para 1): “An agreement to arbitrate disputes has positive and negative aspects. A party seeking relief within the scope of the arbitration agreement undertakes to do so in arbitration in whatever forum is prescribed. The (often silent) concomitant is that neither party will seek such relief in any other forum.”
24
Parties can be taken generally to have submitted themselves to decisions of the court of the seat which has been chosen by them or by an institution chosen by them. Even decisions of other courts on identical issues merit closest consideration.
In short, an increasingly inter-connected world needs mutually supportive and inter-related systems for the administration of law, not more legal systems. Arbitration already offers those engaging in it very substantial autonomy. Siren calls for complete or yet further autonomy should be viewed with scepticism. We – judges, arbitrators and lawyers – are engaged in a common exercise, the administration of justice for the benefit of litigants and society. A degree of order, coordination and inter-dependence is necessary and desirable, if this exercise is to be conducted efficiently and economically in a globalised world.
25
ARTICLE: THE EUROPEAN UNION AND INVESTOR-STATE ARBITRATION: A WORK IN PROGRESS
2013
Reporter 24 Am. Rev. Int'l Arb. 611 *
Length: 10527 words
Author: Gabriele Mazzini *
* Visiting Scholar at the Center for International Commercial and Investment Arbitration (Columbia Law School). The author wishes to thank Professor George Bermann, Daniela Gauci and Kimberly Harbin for their valuable comments. He can be contacted at [email protected]
Text
[*611] I. INTRODUCTION
Investor-state arbitration is currently the most widely used method for the settlement of international investment disputes between investors and host States. In the near future, foreign investors in those countries belonging to the European Union ("EU") may have to file those claims against the EU instead of against the European Member State where the investment has been physically made. This development is due to the classification by the Treaty of Lisbon of foreign direct investment ("FDI") as within the exclusive competence of the EU. The Treaty of Lisbon, which entered into force on December 1, 2009, constitutes a substantial reform of the two core EU treaties, the Treaty on the European Union ("TEU") and the Treaty establishing the European Community ("TEC"), the latter renamed the Treaty on the Functioning of the European Union ("TFEU"). 1
While the European institutions are still in the process of articulating the characteristics of the EU's new exclusive competence on FDI, there are unequivocal indications that the EU intends to play a primary and direct role in respect of the settlement of future international investment disputes. As an international organization with a legal personality distinct from its Member States, the EU and its predecessors (in particular the European Community) have long been considered capable of assuming international commitments, including submitting to international dispute settlement mechanisms, for which there is an established practice. 2 In the field of FDI, however, things are quite different: the largely prevailing dispute settlement mechanism is investor-state arbitration, a concept that, although not completely new to the EU legal system, has not been tested in practice with the EU as an autonomous participant. In other words, while the EU has risen to the level of an acknowledged litigant in classic public international law tribunals and fora, in primis and most prominently before the World Trade Organization, the EU has no experience with international dispute settlement mechanisms involving private parties. As of today, the Energy Charter [*612] Treaty ("ECT") is the only legal instrument binding on the EU, which, subject to certain conditions, allows a private party to submit before an international arbitral tribunal a dispute concerning an alleged breach by the EU of its obligations in respect of a covered investment. However, while many cases have been filed
1 For an overall presentation of the Treaty of Lisbon, see http://europa.eu/lisbon_treaty/index_en.htm. For a dedicated study,see EU LAW AFTER LISBON (Andrea Biondi, Piet Eeckhout & Stefanie Ripley eds., 2012).
2 Frank Hoffmeister, The European Union and the Peaceful Settlement of International Disputes, 11(1) CHINESE J. OF INT'L L. 77 (2012); Frank Hoffmeister & Petr Ondrusek, The European Community in International Litigation, 31 REV. HELLENIQUE DE DROIT INT'L 205 (2008).
Logan Wright Page 2 of 27 24 Am. Rev. Int'l Arb. 611, *612 against states belonging to the EU under the ECT, the EU itself has never been a respondent. 3 One of the reasons why foreign investors have chosen to bring their claims only against the EU Member States instead of against the EU (or the EU and its Member States) could well be the unexplored and, to some extent, uncertain relationship between the EU and investor-state arbitration, with particular regard to the enforceability of awards. The EU is not a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") or the Convention Establishing the International Centre for Settlement of Investment Disputes ("ICSID Convention").
Based on the innovations introduced by the Treaty of Lisbon on matters of EU exclusive competence, this article gives an account of how the relationship between the EU and investor-state arbitration is gradually emerging and taking shape in conjunction with an overall FDI policy of the EU. Although investor-state arbitration had already entered (at least in theory) into the EU legal order with the ratification of the ECT, it is only with the 2009 treaty reforms that this issue has moved to the forefront. In this regard, we will illustrate the measures that have been debated at the EU level to make sure that the EU participates in investment arbitration proceedings in a manner that, if not identical, is comparable to that of the states. Additionally, we will discuss the questions around the enforceability of the awards, in particular those against the EU, to be rendered under future investment agreements concluded by the EU.
Section II of this paper examines the relationship between the EU and investment arbitration before the entry into force of the Treaty of Lisbon, and will focus on the ECT. Section III focuses on the innovations introduced by the Treaty of Lisbon. While it covers well-traveled ground for practitioners of EU law, the section shows that the relationship between the EU and investment arbitration cannot be seen in isolation from certain "domestic" constitutional requirements of EU law, in primis the allocation of competence between the EU and the Member States. Sections IV and V then discuss the implications of the innovations of EU law on investor-state arbitration from a double perspective. Section IV analyzes the transitional regime applicable to the so-called extra-EU Bilateral Investment Treaties ("BITs") and the arbitrations arising thereunder. Section V examines the implications of the Treaty of Lisbon on the future participation by the EU, as such, to investment arbitrations. On one hand, the section reports and comments on the "work in progress" at the EU level, notably the draft EU legislation on the allocation of financial liability arising out of future investment arbitrations between the EU and the Member States and the ongoing negotiations for EU [*613] international investment agreements. On the other hand, the section addresses the questions surrounding the enforceability of future awards against the EU. While this matter is crucial to the effectiveness of the settlement of investment disputes through arbitration, it does not seem to have received dedicated attention within the EU institutional circles or in the literature. If in the past the question of the enforceability of awards against the EU was essentially avoided, as we illustrate in Section II, this is no longer possible in light of the new regulatory framework introduced by the Treaty of Lisbon. We will therefore discuss the challenges in respect of the EU as a litigant in investor-state arbitration and examine the relationship to the New York Convention and the ICSID Convention.
II. THE RELATIONSHIP BETWEEN THE EU AND INVESTOR-STATE ARBITRATION PRIOR TO THE TREATY OF LISBON
Before the entry into force of the Treaty of Lisbon, the EU had no explicit competence in respect of FDI. Although the Common Commercial Policy ("CCP") since its inception was classified as within the exclusive competence of the European Community, 4 the European institutions and the Member States have long held differing views as to the scope of that competence. In Opinion 1/94 the Court of Justice ruled that the European Community did not have exclusive powers in the fields of trade in services and the commercial aspects of intellectual property rights, 5 and in practice, given that trade negotiations would involve matters going beyond the trade in goods, trade
3 Frank Hoffmeister, Litigating against the European Union and Its Member States -- Who Responds under the ILC's Draft Articles on International Responsibility of International Organizations?, 21(3) EUROPEAN J. OF INT'L L. 723, 735 (2010). 4 Case 1/75, 1975 ECR 1355. 5 Case 1/94, 1994 ECR I-5267.
Logan Wright Page 3 of 27 24 Am. Rev. Int'l Arb. 611, *613 agreements were generally concluded as mixed agreements (i.e., by the Member States and the Community). The situation further evolved with the Treaty of Nice, which included trade in services in the CCP, but still made no specific mention of FDI. 6 In contrast, the EU Member States have traditionally been very active in negotiating and concluding BITs regulating inward and outward FDI flows and including, among others, provisions for the settlement of investment disputes through arbitration. 7 As a consequence, the Community had no standing as a disputing party to the investment arbitrations instituted under the BITs of the Member States.
The first and only significant innovation, at least on paper, with respect to the relationship between the EU and investor-state arbitration resulted from the adoption of the ECT.
[*614] A. The Energy Charter Treaty
Entered into force on April 16, 1998, the ECT 8 was concluded by the European Communities 9 as a mixed agreement because it covers matters within the competence of the European Communities and matters within the competence of their Member States. 10 It was therefore signed and ratified also by the Member States in their individual capacity. Among other things, the ECT includes a dispute settlement chapter providing for investor-state arbitration for disputes involving an investment falling within the scope of the treaty. Pursuant to Article 26(4), the investor may choose to arbitrate the dispute under the ICSID Convention, the ICSID Additional Facility Rules, the UNCITRAL Rules or the Rules of the Stockholm Chamber of Commerce.
Although a number of investment arbitrations have been commenced by investors pursuant to the ECT in order to seek protection for investments made in the territories of countries belonging to the EU, the European Communities have never been respondents. 11 This is not surprising, as the Communities enjoyed only partial competence in respect of the matters covered by the ECT, and, more generally, the relationship between the European Communities and the arbitration mechanisms provided for in the ECT was somewhat convoluted. This has been the case since inception, when the European Communities submitted a statement, pursuant to Article
6 Pieter Kuijper, From the Board - Foreign Direct Investment: The First Test of the Lisbon Improvements in the Domain of Trade Policy, 37(4) LEGAL ISSUES OF ECONOMIC INTEGRATION 261 (2010).
7 The BITs concluded by EU countries represent a very significant share of the existing BITs worldwide. See Julien Chaisse, Promises and Pitfalls of the European Union Policy on Foreign Investment -- How Will the New EU Competence on FDI Affect the Emerging Global Regime?, 15(1) J. OF INT'L ECON. L. 51, 54 (2012) and UNCTAD, World Investment Report 2012, Towards a New Generation of Investment Policies 85 (2012), available at http://www.unctrad.docs.org/files/UNCTAD-WIR2012- Full-en.pdf.
8 For an overall presentation of the ECT, see Esa Paasivirta, The European Union and the Energy Sector: The Case of the Energy Charter Treaty, in INTERNATIONAL LAW ASPECTS OF THE EUROPEAN UNION 197 (Marti Koskenniemi ed., 1998).
9 Council and Commission Decision Sept. 23, 1997 on the conclusion, by the European Communities, of the Energy Charter Treaty and the Energy Charter Protocol on energy efficiency and related environmental aspects (OJ L 69, 9.3.1998, p. 1). The competence of the European Communities to conclude the ECT was based on multiple provisions of the Treaty Establishing the European Community, as well as on the Treaty Establishing the European Atomic Energy Community and the Treaty Establishing the European Coal and Steel Community (see recitals 1 to 3).
10 The ECT covers trade, transit, investment protection and energy efficiency and related environmental aspects, in relation to energy materials and products. Whereas the EU certainly has exclusive competence over the trade aspects of energy, the Member States of the EU have generally maintained competence for other regulatory aspects of the ECT, such as those related to investment. Graham Coop, Energy Charter Treaty and the European Union: Is Conflict Inevitable?, 27(3) J. OF ENERGY AND NATURAL RESOURCES L. 404 (2009); Christian Tietje, The Applicability of the Energy Charter Treaty in ICSID Arbitration of EU Nationals vs EU Member States, 78 BEITRĀGEN ZUM TRANSNATIONALEN WIRTSCHAFTSRECHT at 1, 7, 14 (Sept. 2008).
11 Hoffmeister, supra note 3, at 735. The European Communities have, however, acted as amici curiae on a couple of cases administered under the ICSID Convention.
Logan Wright Page 4 of 27 24 Am. Rev. Int'l Arb. 611, *614
26(3)(b)(ii) of the ECT, 12 indicating that they and the Member [*615] States are responsible for the fulfillment of the obligations of the ECT "in accordance with their respective competences." It would therefore be up to the Member States and the European Communities to determine who would be the respondent to arbitration proceedings initiated by an investor. The European Communities further stated that they cannot be parties to the ICSID Convention nor can they make use of the ICSID Additional Facility Rules and that they would implement any award rendered against them in accordance with their obligations under Article 26(8) of the ECT.
Article 26(8) of the ECT 13 is the only provision dealing with the enforcement of awards rendered with respect to investor-state disputes falling within the scope of the ECT, and it is neither comprehensive, nor clear. The first sentence establishes the principle that awards rendered pursuant to the ECT are final and binding upon the parties to the dispute, thus creating a legal obligation for the parties to comply with them. The second sentence specifies that awards concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. 14 The third and final sentence of Article 26(8) of the ECT states that "each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its area of such awards." While the reference to "such award" is unclear insofar as it seems to limit the scope of the third sentence only to the awards mentioned in the second sentence (i.e., awards concerning a measure of a sub-national government or authority), the obligation upon the Contracting Party to "make provision for the effective enforcement in its area of such awards" is fairly generic because it does not define what effective enforcement shall be.
That being said, it is true that, irrespective of the somewhat vague formulation of Article 26(8) of the ECT, the recognition and enforcement of awards rendered under the ECT is carried out either through the ICSID Convention or the New York Convention, depending on whether the arbitration took place in accordance with the ICSID Convention arbitration rules or otherwise. Although both systems may present their own limitations, especially with respect to enforcing awards against non-cooperative governments that can protect themselves under sovereign [*616] immunity doctrines, 15 over time they have developed into reliable and widely acknowledged tools and have certainly contributed to improving the consistency and predictability of international arbitration practice across jurisdictions. When it comes to the EU, however, the enforcement of awards rendered against it pursuant to the above instruments raises a number of questions that need to be addressed. These questions have so far remained theoretical under the framework of the ECT, but are due to become relevant as the EU starts to exercise its new exclusive competence on FDI. One such issue is that, if the EU does not comply voluntarily with an adverse award,
12 1998 OJ (L 69) 115 ("The European Communities and their Member States have both concluded the Energy Charter Treaty and are thus internationally responsible for the fulfilment of the obligations contained therein, in accordance with their respective competences. The Communities and the Member States will, if necessary, determine among them who is the respondent party to arbitration proceedings initiated by an Investor of another Contracting Party. In such case, upon the request of the Investor, the Communities and the Member State concerned will make such determination within a period of 30 days.").
13 Article 26(8) ECT reads: "The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its area of such awards."
14 On the rationale of this provision, implying that an arbitration tribunal could otherwise grant injunctive relief, see THOMAS ROE & MATTHEW HAPPOLD, SETTLEMENT OF INVESTMENT DISPUTES UNDER THE ENERGY CHARTER TREATY 166 (2012).
15 MARTIN MOLINUEVO, PROTECTING INVESTMENT IN SERVICES: INVESTOR-STATE ARBITRATION VERSUS WTO DISPUTE SETTLEMENT, GLOBAL TRADE LAW SERIES, Vol. 38 at 242; NIGEL BLACKABY, CONSTANTINE PARTASIDES, ALAN REDFERN, MARTIN HUNTER, REDFERN AND HUNTER ON INTERNATIONAL ARBITRATION 665 (5th ed. 2009); Dispute Settlement: International Centre for Settlement of Investment Disputes, Module 2.9: Binding Force and Enforcement of the United Nations Conference on Trade and Development, U.N. Doc. UNCTAD/EDM/Misc.232/Add.8 (2003) [hereinafter UNCTAD, Module 2.9] available at http://unctad.org/en/Docs/edmmisc232add8_en.pdf.
Logan Wright Page 5 of 27 24 Am. Rev. Int'l Arb. 611, *616 the prevailing investor does not seem to be able to invoke straightforward and predictable legal remedies to enforce the award as it would normally do vis-à-vis states.
Enforcement of foreign awards is typically governed by domestic laws and/or by treaties. 16 In terms of domestic law (EU law in this case), the EU legal order does not include provisions regulating the enforcement of awards, let alone the distinction between what may be considered a domestic and a foreign award. With respect to treaties, the two most important international instruments are the ICSID Convention and the New York Convention and, as it will be discussed in Section V.B, their applicability in respect of awards rendered against the EU is rather problematic. 17
III. THE INNOVATIONS INTRODUCED BY THE TREATY OF LISBON
A. The Provisions on FDI
In the area of FDI, the Treaty of Lisbon introduced two changes that are due to alter significantly the repartition of powers between the Member States and the EU and affect international economic relations on a global scale.
The first innovation is the inclusion of FDI within the CCP. 18 Although the TFEU does not provide a definition of "foreign direct investment," there is no doubt [*617] that under the current legal framework the common commercial policy covers FDI along with goods, services and the commercial aspects of intellectual property. 19
The second innovation is the explicit classification of the common commercial policy in its entirety as an "exclusive competence" of the EU pursuant to Article 3(1)(e) of the TFEU. This development departs from the previous legal regime, where the exclusive competence of the EU on matters of the common commercial policy was based on the case law of the EU Court and limited only to trade in goods. 20
Although Article 207 of the TFEU does not define the concept of FDI nor indicate specifically what matters fall within the exclusive competence of the EU, 21 there is no doubt that the EU's competence on FDI extends to the settlement of investment disputes.
1. The Extension of the Exclusive Competence to the Settlement of FDI Disputes
16 MOLINUEVO, supra note 15, at 239; BLACKABY ET AL., supra note 15, at 631.
17 With regard to the ICSID Convention, the EU is not and cannot be Party thereto. As for the New York Convention, although its applicability to awards rendered against the EU does not depend on the EU being a Contracting Party, it is unclear how the application of the provisions of the Convention by the courts of the EU Member States may be affected by potentially conflicting EU law obligations.
18 TFEU Art. 207(1): "The common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment . . . ." (emphasis added). 19 Prior to the entry into force of the Treaty of Lisbon, Article 133 of the TEC covered only trade in goods, services and the commercial aspects of intellectual property. 20 Opinions 1/75 (1975) ECR 1355, 1/94 (1994) ECR I-5267 and 1/08 (2009) ECR I-11129.
21 On this topic see, e.g., Federico Ortino & Piet Eeckhout, Towards an EU Policy on Foreign Direct Investment, in Biondi et al., supra note 1 at 312; Thomas Eilmansberger, Bilateral Investment Treaties and EU Law, 46(2) COMMON MARKET L. REV. 383, 394 (2009); August Reinisch, The Division of Powers Between the EU and Its Member States "After Lisbon," in INTERNATIONAL INVESTMENT LAW AND EU LAW 43, 50 (Marc Bungenberg et al. eds., 2011); Marc Bungenberg, The Division of Competences between the EU and Its Member States in the Area of Investment Politics, in Bungenberg et al., supra at 36.
Logan Wright Page 6 of 27 24 Am. Rev. Int'l Arb. 611, *617
In light of the experience with the decades-long debate over the extent of EU powers on the common commercial policy 22 and the broad and unrestricted formulation adopted in the text, it makes perfect sense to think that the drafters of the Treaty of Lisbon intended to avoid a priori the resurgence of discussions on the scope of a policy that as a whole was classified as exclusive. Therefore, while there may be specific instances where Member States maintain certain powers, the competence of the EU on all FDI matters should be seen as the rule, at least until any different determination is made by the Court of Justice of the EU, the legitimate authority to interpret with binding effect the provision of the treaties.
The EU institutions, which started negotiations to shape the elements and characteristics of the new EU policy on FDI, substantially converge towards supporting a broad reading of the scope of FDI and the EU exclusive competence thereon. In a 2010 Communication, the European Commission stated that the EU investment policy should include investment liberalization and investment [*618] protection. Future EU investment agreements should include investor-state dispute settlement, and the EU should defend the actions of the EU institutions and the measures taken by the Member States affecting investment falling under an EU investment agreement. 23 In a later Communication, the Commission more explicitly maintained that the EU also has exclusive competence over portfolio investment (not only FDI), all the post-establishment standards, including expropriation, and finally, over dispute settlement that runs together with the underlying competence for the subject matter. 24 The Council of the European Union supported "the definition of a broad scope for the new EU policy in this field as suggested by the Commission" and stressed that the principles that are normally an integral part of the international investment regime "should be the main pillars of future EU investment agreements." 25 The European Parliament also endorsed a broad understanding of the scope of the EU competence on FDI, including in respect of investor protection standards and dispute settlement mechanisms. 26
Additionally, it should be reiterated that, in line with existing case law and the consolidated EU practice in international litigation, in particular at the WTO, the ability of the EU to litigate future investment disputes before international fora does not require any specific legal basis in the Treaties, but is the logical corollary of its new substantive competence on FDI.
As a general rule of European law, the competence of the EU in international relations, in particular its international legal personality, entails the authority to conclude international agreements and to submit to the decisions of dispute resolution tribunals on the interpretation and application of the provisions of those same agreements. Over the years the role of the EU in international dispute settlement has consistently grown in practice, and the EU is today a widely acknowledged litigant before several international tribunals and courts. 27
The EU's participation in trade disputes at the WTO (and its predecessor, the GATT regime) has significantly contributed to establishing the legitimacy of the EU's role in international dispute settlements both within the EU and vis-à-vis its international partners. The longstanding participation of the EU in trade litigation has resulted from the
22 See Kuijper, supra note 6, at 269
23 Communication of the European Commission towards a comprehensive European international investment policy of 7.7.2010 -- COM(2010)343 final 5-6, 8-10.
24 Proposal for a Regulation of the European Parliament and of the Council Establishing a Framework for Managing Financial Responsibility Linked to Investor-State Dispute Settlement Tribunals Established by International Agreements to which the European Union is Party of 21.6.2012, COM (2012) 335, 3-4.
25 Conclusions on a Comprehensive European International Investment Policy of the 3041st Foreign Affairs Council Meeting, Oct. 25, 2010, P 18.
26 European Parliament Resolution of April 6, 2011 on the Future European International Investment Policy (2010/2203(INI) -- P7_TA-PROV(2011)0141), in particular PP 31-35.
27 See note 2 supra.
Logan Wright Page 7 of 27 24 Am. Rev. Int'l Arb. 611, *618 exclusive competence of the EU on the CCP (as well as its ability to accede to the relevant trade agreements under the pertinent rules of international law). It is worth noting, moreover, that the contribution of the EU to [*619] trade litigation has, in actual fact, been broader than the limits of its attributed substantive competence on trade matters. Before the Treaty of Lisbon extended the CCP, in addition to FDI, to trade in services ("GATS") and the commercial aspects of intellectual property rights ("TRIPS"), the exclusive competence of the EU was technically limited only to trade of goods ("GATT"). 28 Despite these provisions of internal EU law relating to the division of competence among the EU and the Member States, the EU has been, with only a few exceptions, the undisputed primary (and mostly sole) party handling cases brought by commercial partners under the Dispute Settlement Understanding against the EU and its Member States. This situation can be explained by the fact that the EU has never attempted to deny its responsibility on a disputed matter by arguing that it was not the correct respondent in the case or blaming its Member States, and it further illustrates how the Member States of the EU have come to accept the influential expanded participation of the EU on trade disputes based on the existence of practical advantages and benefits. 29 Additionally, this development in trade litigation appears well in line with (if not required by) the principle of unity in the international representation of the EU. This principle has been invoked by the Court of Justice to stress the importance of the existence of a close association between the institutions of the EU and the Member States in the fulfillment of the obligations arising out of an agreement falling in part within the competence of the EU and in part within that of the Member States (so-called "mixed" agreement). 30
B. The General Provisions on the Distribution of Competence Between the EU and the Member States
In addition to the specific rules bringing FDI under the purview of EU law, the Treaty of Lisbon introduced general provisions on the categories and areas of EU competence (Title I TFEU). Although these provisions (and the acquis communautaire behind them) are well known to EU law experts, this section is meant to introduce to those less familiar with EU law concepts and practices the necessary context for understanding the implications of EU law for the EU's role in investment arbitration. [*620]
As far as the concept of exclusive competence is concerned, Article 2(1) of the TFEU states that "only the Union may legislate and adopt legally binding acts," meaning that, in principle, any action by the Member States is precluded because all powers rest with the EU. 31 This holds true in internal and external matters. According to the so-called principle of "implied treaty-making powers" developed by the EU Court and now codified in Article 3(2) of the TFEU, whenever the EU is empowered with a certain competence within its internal system to attain a specific objective, it also has the authority to undertake international commitments necessary for the attainment of that objective, even in the absence of an express provision to that effect. 32 Additionally, the treaty-making powers of the EU in the field of FDI are expressly provided for in Article 207(4), second paragraph of the TFEU. 33
28 See Sec. II supra.
29 Hoffmeister, The European Union and the Peaceful Settlement of International Disputes, supra note 2, at 88-90; Hoffmeister & Ondrusek, The European Community in International Litigation, supra note 2, at 219-21.
30 See, e.g., Opinions 2/91 [1993] ECR I-1061, P 36 and 2/00 [2001] ECR I-9713, P 18 where the Court emphasized the requirement of unity in the international representation of the Community and demanded that Community institutions and the Member States cooperate closely in the negotiation and conclusion of an international agreement and in complying with its provisions. On the requirement of unity in the external representation of the EU in connection with the duty of loyalty, in particular as regards WTO litigation, see Eleftheria Neframi, The Duty of Loyalty: Rethinking its Scope through its Application in the Field of EU External Relations, 47(2)COMMON MARKET L. REV. 323, 357-58 (2010).
31 KOENRAAD LENAERTS, PIET VAN NUFFEL, ROBERT BRAY & NATHAN CAMBIEN, EUROPEAN UNION LAW 124 (3d ed. 2011).
32 See, most recently, Opinion 1/03 (Re Lugano Convention), [2006] ECR I-1145, P 114 and now Article 3(2) of the TFEU: "The Union shall also have exclusive competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope."
Logan Wright Page 8 of 27 24 Am. Rev. Int'l Arb. 611, *620
Article 2(1) of the TFEU further states that the Member States may legislate and adopt legally binding acts in an area of exclusive competence "only if so empowered by the Union or for the implementation of Union acts." Even though it is the first time that a text of primary law recognizes in general terms the principle whereby the Member States can be authorized to act in a field of exclusive competence, Article 2 of the TFEU essentially codifies existing law resulting from the jurisprudence of the EU Court.
1. The Authorization Mechanism in the Case Law of the EU Court and the Practice of the EU Institutions a. The case law of the EU Court
Since the 1970s, the European Court has been called upon to address the challenges arising from the emergence of exclusive competences of the Community. In a few historic decisions, the EU judges recommended resolving these challenges through a practical course of action centered around the authorization mechanism now enshrined in Article 2 of the TFEU. 34 The Court recognized the principle that, subject to certain limits and under the oversight of the EU, the Member States enjoy a conditional power to act in an area that has [*621] been subtracted from their authority if the exercise of that power does not harm, or may eventually even better serve, the common European interest. In other words, the Court was inclined to prioritize to some degree the preexisting role and interest of the Member States in an area then devolved to the EU to safeguard continuity, as long as this continuity was not an obstacle to the implementation of a later EU initiative and was properly monitored at the EU level. 35
In contrast, there have been instances where the Court promoted the authorization mechanism as a "proactive tool" at the disposal of the EU, by which the EU could use to its advantage the full-fledged legal capacity of the Member States in international law. Here the authorization to act does not aim to protect a preexisting role or interest of the Member States (as long as not incompatible with the common European interest), but rather is used to oblige the Member States to become instruments of the EU. While in the first scenario the interests of the Member States are to some degree taken into consideration and safeguarded, in the second scenario national interests are not relevant and the authorizations reflect exclusively the EU's interest. The few examples below will illustrate the point.
In Kramer, the Court debated the possible obligations of the Member States in a scenario where the Community had exclusive competence over certain matters covered by an international agreement, but was not in the position to accede to that agreement because its terms reserve membership only to States. 36 The Court ruled that in such a situation the Member States have a (negative) duty to avoid assuming international commitments that are not compatible with EU law and a (positive) duty to act together in a manner that is consistent with the requirements of EU law. 37 Although the Court did not use specifically the word "authorization," the positive duty to proceed by
33 "For the negotiation and conclusion of agreements in the fields of … foreign direct investment, the Council shall act unanimously where such agreements include provisions for which unanimity is required for the adoption of internal rules."
34 Primarily, Case 22/70, AETR, [1971] ECR 263 and Case 41/76, Donckerwolcke v. Procureur de la République, [1976] ECR 1921, P 32. See also Case 174/84, Bulk Oil, [1986] ECR 559, P 31; Case C-70/94, Werner, [1995] ECR I-3189, P 12; Case 804/79, Commission v. United Kingdom, [1981] ECR 1045, P 30.
35 For instance, in AETR the Court declared that, because of the specific circumstances of the case, it was acceptable that the Member States negotiate and conclude an international agreement in the field of transport despite the fact that they had lost their competence in that respect in favor of the Community. In Donckerwolcke, ruling on the legality of national measures limiting the free movement within the Community of products originating from third countries, the Court ruled that by virtue of the competence of the Community on matters of commercial policy, measures of commercial policy of a national character are permissible only with a specific authorization by the Community. 36 Joined Cases 3, 4 & 6/76, Kramer, [1976] ECR 1279 involving the legality under EU law of fisheries measures adopted by the Netherlands to implement binding decisions adopted by the North-East Atlantic Fisheries Convention, to which the Community was not a member.
37 Id. PP 44-45.
Logan Wright Page 9 of 27 24 Am. Rev. Int'l Arb. 611, *621 common action in line with EU law within the international agreement implies an endorsement of that action by the EU. In the International Labor Organization (ILO) opinion and, more recently, in the case Commission v. Greece, the Court explicitly linked the concept of common action by the Member States in the international sphere to the protection of the EU's interest. 38
[*622] b. The practice of the EU institutions
The practice of the EU institutions consistently reflects the aforementioned principles distilled by the Court. In a number of cases where the direct exercise of an exclusive competence by the EU in a field of external relations was confronted with the pre-existence of factual or legal constraints external to the EU system, the EU institutions were prompted to seek pragmatic solutions and, pursuant to Article 2(1) of the TFEU, authorized the EU Member States to remain or step into a primarily active role in lieu of the EU. However, the authorizations have not implied the denial of the binding force of the provisions of the Treaty in matters of repartition of competence. To the contrary, the authorizations were given on a case-by-case basis and under the close scrutiny of the European institutions, which used particular care in emphasizing the exceptional or temporary nature of the authorization and that any permitted deviation from the allocation of competence between the EU and the Member State should not be considered a binding precedent for the future. Additionally, the narrative around such authorizations generally highlighted the role played by the principle of sincere cooperation pursuant to Article 4(3) of the TFEU, which provides an overall justification to the Member States to act in line with and for the promotion of European rules and interests. 39
Along the lines of the two scenarios identified by the case law of the Court discussed above, the authorization mechanisms employed in the practice of EU institutions reflect dual motivations: (a) the acknowledgment of agreements that have a neutral effect on the implementation of a common policy and the opportunity to avoid unnecessary disruptions to the existing international relationships of the Member States; and (b) the need to address the situation whereby, despite its competence under EU law, the EU could not become a party to an international treaty, whether multilateral or bilateral, because accession was limited to States.
[*623] i. The authorization to extend, amend or enter into an agreement between a Member State and a third country
One of the earlier and most well-known examples of this category of authorization is the 1969 Council Decision on trade agreements between Member States and third countries on matters potentially falling under the newly established common commercial policy of the Community. 40 As is currently the case with the BITs of the EU Member States, the exclusive competence of the EU in the commercial policy was introduced at a moment when the Member States were already parties to trade agreements. According to the 1969 Decision, Member States
38 In the opinion concerning the ILO Convention No. 170 on the safety in the use of chemicals at work, the Court acknowledged that, although partially competent under EU law rules, the Community was unable to conclude such Convention due to the rules of the ILO Constitution. However, that circumstance was not an obstacle to the fact that the external competence of the Community "may, if necessary, be exercised through the medium of the Member States acting jointly in the Community's interest." Opinion 2/91, [1993] ECR I-1061, P 5. The Court reached the same conclusion in respect of the implementation by the Member States of an international agreement falling under EU exclusive competence, but to which the EU could not be a party under the terms of the same agreement. Case C-45/07, Commission v. Greece, [2009] ECR I-701, PP 30-31, concerning monitoring measures adopted by the International Maritime Organization (IMO).
39 On the topic of Member States' action on behalf of the EU, see Marise Cremona, Member States as Trustees of the Community Interest: Participating in International Agreements on Behalf of the European Community, EUI Working Paper Law 2009/17. On the duty of sincere cooperation in general, see recently Neframi, supra note 30, at 323.
40 Council Decision 69/494/EEC of Dec. 16, 1969 on the Progressive Standardization of Agreements Concerning Commercial Relations between Member States and Third Countries and on the Negotiation of Community Agreements, 1969 OJ (L 326) 39. See on this topic Angelos Dimopoulos, The Development of EU Trade and Investment Policies, in Y.B. ON INT. INVESTMENT L. & POLICY 2010/2011, Ch. 7, 252 (Karl P. Sauvant ed., 2011); Kuijper, supra note 6, at 266.
Logan Wright Page 10 of 27 24 Am. Rev. Int'l Arb. 611, *623 could be authorized to extend, for a limited period of time, existing agreements that would come within the scope of the common commercial policy, provided that the provisions of the agreement to be extended would not constitute an obstacle to the implementation of the common commercial policy. 41 In contrast, such an authorization would be denied if the provisions of the agreement to be extended constituted an obstacle to the implementation of the common commercial policy, in particular by reason of divergences between the policies of Member States. 42 In this case the Community would take steps to enter into an agreement itself with the third country concerned. Furthermore, the 1969 Decision also provided for the possibility that, for an interim period and in exceptional cases, the Member States would be authorized to open bilateral negotiations with certain third countries where the Community procedure for the negotiation of international agreements was not yet fully established and the Member State concerned had special reasons to believe that it had to undertake negotiations with a third country in order to avoid an interruption in commercial relations. 43
Other more recent examples of this type of authorization are the Regulation (EC) No. 847/2004 on air services agreements 44 and the Regulations (EC) No. [*624] 662/2009 and No. 664/2009 on matters of civil justice, 45 46 which were all adopted after rulings by the Court of Justice determining the scope of the exclusive competence acquired by the European Community by virtue of the AETR doctrine. 47
41 Council Decision 69/494/EEC, Art. 3.
42 Id. Art. 4.
43 Id. Art. 9.
44 Regulation (EC) No 847/2004 of the European Parliament and of the Council of April 29, 2004 on the Negotiation and Implementation of Air Service Agreements between Member States and Third Countries, 2004 OJ (L 157) 7. In the Open Skies cases the Court declared that the Community had exclusive competence with respect to several aspects of bilateral air services agreements concluded between certain Member States and third countries (Cases C-466/98, C-467/98, C-468/98, C-469/98, C- 471/98, C-472/98, C-475/98 and C-476/98, Commission v. United Kingdom, Denmark, Sweden, Finland, Belgium, Luxemburg, Austria, Germany, [2002] ECR I-9427). Pending the negotiation of Community agreements due to replace the existing Member States agreements, Regulation (EC) No. 847/2004 provides for a procedure whereby the Member States and the Community shall cooperate to make sure that the existing Member States agreements are brought in line with Community law. In particular, the Regulation establishes that, even though the subject matter falls partly within the Community competence, a Member State is authorized to enter into negotiations with a third country on a new air services agreement, or the modification of an existing one, subject to certain specific conditions aimed to ensure that the agreement does not constitute an obstacle to the Community transport policy. However, Recital 5 and Article 1 of Regulation (EC) No. 847/2004 make clear that the cooperation procedure shall be without prejudice to the division of competence between the Community and the Member States and Community law in general as interpreted by the Court. See also Communication from the Commission on the Consequences of the Court Judgments of November 5, 2002 for European Air Transport Policy, COM(2002) 649 (Nov. 19, 2002).
45 Regulation (EC) No. 662/2009 of the European Parliament and of the Council of July 13, 2009 Establishing a Procedure for the Negotiation and Conclusion of Agreements between Member States and Third Countries on Particular Matters Concerning the Law Applicable to Contractual and Non-Contractual Obligations, 2009 OJ (L 200) 25 and Council Regulation (EC) No. 664/2009 of July 7, 2009 Establishing a Procedure for the Negotiation and Conclusion of Agreements between Member States and Third Countries Concerning Jurisdiction, Recognition and Enforcement of Judgments and Decisions in Matrimonial Matters, Matters of Parental Responsibility and Matters Relating to Maintenance Obligations, and the Law Applicable to Matters Relating to Maintenance Obligations, 2009 OJ (L 200) 46.
46 After Opinion 1/03 on the Lugano Convention, [2006] ECR I-1145, where the Court declared that the Community had acquired exclusive competence to conclude an international agreement with third countries on matters affecting the rules laid down in Council Regulation (EC) No 44/2001 of Dec. 22, 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Brussels I Regulation), Regulation (EC) No. 662/2009 and Regulation (EC) No. 664/2009 established a procedure to authorize a Member State to amend an existing agreement or to negotiate and conclude a new agreement concerning issues of civil justice falling within the exclusive competence of the Community. The Regulations contain a set of articulated provisions with a view to making sure that Member States' action vis-ā-vis third countries in matters falling under Community exclusive competence is justified by specific national interests and does not affect Community law or Community external policy in the field (Art. 4 of Regulations (EC) No. 662/2009 and No. 664/2009). They also reiterate the
Logan Wright Page 11 of 27 24 Am. Rev. Int'l Arb. 611, *624 ii. The authorization to enter into a treaty in the interest of the EU
By virtue of its exclusive competence over the conservation of marine biological resources under the common fisheries policy, 48 the EU normally [*625] negotiates and adopts international fisheries agreements in lieu of the Member States. With regard to the Inter-American Tropical Tuna Commission ("IATTC"), however, the European Community was initially confronted with the situation whereby membership to it was open only to States. Given the need to protect the interests of the European Community's vessels engaging in fishing activities in the area covered by the IATTC, and because the EU was not in a position to address that need directly, the Council adopted a Decision authorizing the Kingdom of Spain to accede to the IATTC on a temporary basis as an agent of the European Community pending the finalization of arrangements within the IATTC to permit the membership of regional economic organizations. 49
As it appears from its cautious wording, the Decision was dictated by an extrema ratio situation. Recital 5 states that "such an authorization should be granted as an exceptional measure, to meet unique circumstances, and should not set a precedent in the sphere of Community representation in international organizations in the fisheries sector or in other sectors." Pursuant to Article 1, the authorization is "[w]ithout prejudice to the European Community's exclusive competence in fisheries matters," and Spain is obliged to withdraw from the IATTC Convention as soon as the Community is able to accede. 50 Finally, despite being an ordinary contracting party of the IATTC Convention, Spain is obliged by Community law to "participate in the decisions of the IATTC in line with the Community position and in close consultation with the [European] Commission." 51 52
[*626] IV. THE IMPACT OF THE TREATY OF LISBON ON INVESTOR-STATE ARBITRATION OF THE MEMBER STATES
Before the entry into force of the Treaty of Lisbon, the Member States of the EU had long been the direct protagonists in international investment relations through the conclusion of international treaties and the settlement of disputes related to international investments. As far as BITs are concerned, the countries belonging to the EU concluded in the aggregate almost half of the existing BITs, and the EU is today the main "market leader" in terms of inward and outward flow of foreign investments. 53 The Member States of the EU are parties to the multilateral
concept that "the envisaged procedure should be without prejudice to the exclusive competence of the Community … It should be regarded as an exceptional measure and should be limited in scope and in time" (Recital 8 of Regulations (EC) No. 662/2009 and No. 664/2009). 47 Case 22/70, AETR, [1971] ECR 263. 48 TFEU, Art. 3(1)(d). 49 Council Decision 1999/405/EC of June, 10 1999 authorizing the Kingdom of Spain to accede to the Convention Establishing the Inter-American Tropical Tuna Commission on a temporary basis (IATTC), 1999 OJ (L 155) 37.
50 The Community became a party to IATTC with Council Decision 2006/539/EC of May 22, 2006 on the conclusion, on behalf of the European Community, of the Convention for the Strengthening of the Inter-American Tropical Tuna Commission, established by the 1949 Convention between the United States of America and the Republic of Costa Rica, 2006 OJ (L 224) 22. Article 3 of the Decision states that "On the entry into force of the Antigua Convention, Spain shall denounce the Convention establishing the Inter-American Tropical Tuna Commission." Spain is no longer a member of IATTC. 51 Council Decision 1999/405/EC, Art. 2.
52 There have been other cases that are similar in nature, although with a few substantive differences related to the limited scope of the Community competence in the field covered by the international agreement (such as in the Bunkers Convention, the 2003 Protocol to the 1992 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage and the 1996 Hague Convention on Parental Responsibility) or the very specific circumstances of certain monetary agreements pursuant to Article 219(3-4) of the TFEU. For an overview of these cases see Cremona, supra note 39, at 5.
53 COM(2010)343 final, supra note 23, at 3-4, Chaisse, supra note 7, at 51, 54.
Logan Wright Page 12 of 27 24 Am. Rev. Int'l Arb. 611, *626 conventions that are instrumental to the settlement of investment disputes through arbitration. In addition to the ECT, all EU countries have signed the ICSID Convention (except Poland) and the New York Convention.
The new exclusive competence of the EU on FDI raises the question of which legal regime applies to the existing international commitments of the Member States in matters related to foreign investments. In the absence of transitional measures in the Treaty of Lisbon, there has been some academic and institutional debate as to whether those commitments are contrary to EU law, and require an act of validation or endorsement at the EU level. Although there is no doubt that, as a matter of international law, their validity and binding force for the EU Member States vis-à-vis third countries is not automatically affected by the transfer of competence, 54 these international commitments of the Member States appear problematic from the perspective of the EU legal order, and call for an act of validation or endorsement to bring these commitments under the umbrella of the new EU legal framework. 55
The terms of Article 2(1) of the TFEU support this view. That article states that in an area of exclusive competence, "only the Union may legislate and adopt legally binding acts, the Member States being able to do so themselves only if so empowered by the Union or for the implementation of Union acts." If it is true that this provision does not address ex professo the question of how the acquisition of a new competence by the EU affects the preexisting international commitments of the Member States, they are, nonetheless, prevented from not only legislating but also adopting "any legally binding acts." Such expression covers any form of implementation of an international agreement concluded by the EU Member States. Even admitting that the preexisting international [*627] agreements may not by themselves encroach on the competence of the EU, and thus are valid under EU law, the Member States would be in breach of the EU rules if they did not discontinue the implementation of those agreements, which undoubtedly implies the adoption of a series of legally binding acts, whatever their nature and scope. In other words, save when authorized by the EU, in principle the EU Member States shall "freeze" any action in respect of a field that has been transferred to the competence of the EU, even when that action derives or results from international commitments assumed by the Member States before the transfer of competence took place. These questions are particularly relevant for the continued existence and implementation of the BITs concluded by the Member States before the entry into force of the Treaty of Lisbon, on which the Council and the Parliament have recently adopted a piece of legislation that is analyzed in the next section. 56
A. The Regime of the Extra-EU BITs
The BITs signed by the Member States of the EU before the entry into force of the Treaty of Lisbon are generally divided into intra-EU BITs and extra-EU BITs. The intra-EU BITs are those treaties concluded between two current Member States of the EU at a time when one or both of the Member States were not yet members of the EU. 57 The extra-EU BITs, are, by contrast, those treaties signed between one Member State of the EU and a third country. Together with the Communication Towards a Comprehensive European International Investment Policy,
54 The opinion of the Commission in this matter is clearly stated in the proposal for a Regulation of the European Parliament and the Council Establishing Transitional Arrangements for Bilateral Investment Agreements between Member States and Third Countries of 7.7.2010, COM(2010)344, 2.
55 For a discussion on the status of existing BITs of the EU Member States see, e.g., Colin Brown & Maria Alcover-Llubià, The External Investment Policy of the European Union in the Light of the Entry into Force of the Treaty of Lisbon, in Sauvant, supra note 40, Ch. 4, 148; Steffen Hindelang, Member State BITs -- There's Still (Some) Life in the Old Dog Yet, in id., Ch. 6, 234; Kuijper, supra note 6, at 262; Cremona, supra note 39, at 18.
56 Regulation (EU) No 1219/2012 of the European Parliament and of the Council of Dec. 12, 2012 Establishing Transitional Arrangements for Bilateral Investment Agreements Between Member States and Third Countries, 2012 OJ (L 351) 40.
57 For the questions raised by intra-EU BITs, which are not the subject of this paper, see Angelos Dimopoulos, The Validity and Applicability of International Investment Agreements between EU Member States under EU and International Law, 47(1)COMMON MARKET L. REV. 63 (2011); Eilmansberger, supra note 21, at 403.
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58 in July 2010 the European Commission adopted a draft Regulation containing transitional measures with regard to the extra-EU BITs already concluded by the EU Member States. The proposal was motivated by the need to address the existence of Member States BITs from the perspective of the EU's exclusive competence and aimed to provide legal certainty around the status of those agreements vis-à-vis third countries, with the main goal of facilitating the continued smooth implementation of these agreements. 59
While departing in some instances from the initial proposal, the Regulation No 1219/2012 adopted in December 2012 by the Parliament and the Council is in line with the law and the practice of the EU's authorizations to act in a field of exclusive competence granted to the Member States, as discussed above in Section III.B. Although some provisions of the initial proposal aimed to establish robust [*628] powers of control and decision by the EU over the Member States were replaced by provisions promoting a more collaborative approach, such as those maintaining in force the existing BITs, in general the adopted Regulation confirms the principle that, going forward, the Member States have limited room for maneuver in the negotiation and implementation of international commitments in the field of FDI, and they are subject to the strict oversight of the EU.
As far as the maintenance in force of the existing BITs is concerned, Regulation No. 1219/2012 does not explicitly classify it as an "authorization" by the EU in accordance with Article 2(1) of the TFEU. Article 3 (titled "Maintenance into force") limits itself to stating that the BITs notified to the Commission "may be maintained into force, or enter into force, in accordance with the TFEU and this Regulation, until a bilateral investment agreement between the Union and the same third country enters into force." 60
Following the notification of their existing BITs to the Commission, the Member States remain under the obligation to comply with EU law 61 and in particular to take any appropriate measures to ensure that the provisions of existing BITs do not constitute a serious obstacle to the negotiation and conclusion of BITs by the EU. 62 However, in opposition to the draft initially proposed by the Commission, the adopted Regulation does not permit the EU to revoke the authorization to maintain in force an existing BIT or to require the Member State to take appropriate action with respect thereto, including termination of the agreement. The Commission can at most, after consulting with the Member State, "indicate" the appropriate measures to be taken by the latter in order to remove the obstacles to the negotiation or conclusion by the EU of BITs with third countries (Article 6(3)). 63
58 COM(2010)343 final, supra note 23.
59 COM(2010)344 final, supra note 54. For a comment on the proposal see Brown & Alcover-Llubià, supra note 55, at 145.
60 Article 12 of Regulation No. 1219/2012, however, introduces an exception to the principle that existing BITs need not be authorized. The Commission shall authorize the maintenance or entry into force of agreements signed by a Member State after December 1, 2009, which is the date of entry into force of the Treaty of Lisbon. If the authorization is denied by the Commission, then the Member State shall not take any further steps towards the conclusion or shall reverse and withdraw those steps which have been taken.
61 Article 3 of Regulation No. 1219/2012. Mutatis mutandis, with regard to pre-accession BITs and the obligation by EU Member States under what is now Article 351 of the TFEU. See cases C-205/06, Commission v. Austria, [2009] ECR I-1301, P 34; C- 249/06, Commission v. Sweden, [2009] ECR I-1335, P 35 and C-118/07, Commission v. Finland, [2009] ECR I-10889, P 28. 62 Regulation No. 1219/2012, Art. 6(1).
63 According to Article 6 of the proposal, the Commission would have had the power to revoke the authorization in the presence of multiple circumstances, including when: the notified BIT "conflicts with the law of the Union other than the incompatibilities arising from the allocation of competence between the Union and its Member States," "overlaps, in part or in full, with an agreement of the Union in force with that third country and this specific overlap is not addressed in the latter agreement," "constitutes an obstacle to the development and the implementation of the Union's policies relating to investment" and "the Council has not taken a decision on the authorization to open negotiations on an agreement which overlaps, in part or in full, with an agreement notified."
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[*629] The concept of "authorization" has been maintained, however, with respect to the intention by the Member State to enter into negotiations with a third country in order to amend an existing BIT or to conclude a new BIT. In these cases the EU enjoys broad powers of control and decision over the Member States' ability to act. Not only may the EU decide, subject to certain conditions, 64 to refuse the authorization to open formal negotiations with a view to amending an existing BIT or concluding a new BIT, but it may also require the inclusion of specific clauses considered necessary to ensure consistency with EU investment policy or compatibility with EU law. Additionally, the Commission may also request to participate in the intended negotiations. Once the negotiations to amend an existing BIT or conclude a new BIT are completed, the Commission will review the outcome of the negotiations and, provided that the requirements set out in the Regulation are fulfilled, authorize for a second time the Member State to sign and conclude the BIT. 65 From a legal point of view, the BITs amended or concluded pursuant to Chapter III of Regulation No. 1219/2012 remain BITs of the Member States and not EU BITs. This is confirmed by Article 11(4), pursuant to which these agreements are subject to the same provisions applicable to the existing BITs of the Member States notified to the Commission. 66 Therefore, although the EU actually has the power to decide whether to authorize the opening of negotiations, as well as the signing and conclusion of the agreement, once the agreement is concluded by the Member State the EU can no longer revoke its authorization. It only maintains the right to assess whether the provisions of the BIT constitute a serious obstacle to the negotiation or conclusion of EU BITs with third countries and, following a procedure of consultation with the Member State, to indicate the appropriate measures to be taken by the Member State to remove such obstacle.
Despite the fact that the EU lacks standing under the terms of the existing BITs, 67 Article 13 of the Regulation establishes rigorous mechanisms whereby the [*630] Commission will be fully involved in the implementation of the BIT, including the settlement of disputes arising out of the BITs falling within the scope of the Regulation (i.e., existing BITs pursuant to Chapter II, as well as amended and new BITs that have been authorized pursuant to Chapter III). Member States shall immediately inform the Commission of any request for dispute settlement lodged under the auspices of the agreement. The Member States and the Commission shall "fully cooperate and take all necessary measures to ensure an effective defense which may include, where appropriate, the participation in the procedure by the Commission." Moreover the very same recourse by the Member States to the dispute settlement mechanisms provided for in the BITs is subject to the determinations of the Commission: a Member State "shall seek the agreement of the Commission before activating any relevant mechanisms for dispute settlement included in the agreement and shall, where requested by the Commission, activate such mechanisms" (emphasis added). Again, in these circumstances the Member State and the Commission shall fully cooperate, which may include the participation by the Commission in the dispute settlement procedure.
V. THE IMPACT OF THE TREATY OF LISBON ON INVESTOR-STATE ARBITRATION OF THE EU
Because the exclusive competence of the EU on FDI extends to the settlement of investment disputes (see Section III.A), the EU will be a party to investor-state arbitration proceedings arising out of future investment agreements
64 The authorization may be refused by the Commission if it concludes that the opening of the negotiations would: be in conflict with Union law other than the incompatibilities arising from the allocation of competences between the Union and its Member States, be superfluous because the EU is considering opening formal negotiations with the same third country, be inconsistent with the Union's principles and objectives for external action, or constitute a serious obstacle to the negotiation or conclusion of bilateral investment agreements with third countries by the Union (Art. 9(1)(a-d)). 65 Regulation No. 1219/2012, Ch. III.
66 Id., Arts. 3, 5, and 6.
67 In principle the EU should not have standing under the amended or new BITs concluded by the Member States by application of Chapter III of Regulation No. 1219/2012 either. As mentioned in the text, although the EU can actually authorize the negotiation and the conclusion of amendments to existing BITs or new BITs, the fact is that these BITs will remain agreements of the Member States. However, because the EU can request the Member State to include any clauses necessary to ensure compatibility with Union law (Art. 9(2)), it could theoretically be possible that the EU request that it be granted standing in arbitration proceedings established under the terms of the authorized BIT.
Logan Wright Page 15 of 27 24 Am. Rev. Int'l Arb. 611, *630 concluded by the EU. Its role in this respect is therefore going to be significantly more prominent than it has been pursuant to the ECT thus far. In consideration of this upcoming development, the EU institutions have started to piece together the components of EU policy regarding the settlement of investment disputes arising out of future investment agreements of the EU. In this regard, the Commission tabled a proposal establishing a framework for managing the financial responsibility linked to future investor-state dispute settlement tribunals (COM(2012)335) 68 and, within the framework of the ongoing international negotiations between the EU and third countries, is evaluating dispute settlement clauses to be inserted in future EU investment agreements. While progress on both these issues is crucial for enabling the EU to be an effective participant in future investor-state arbitrations, the debate so far (in literature and in EU institutional circles) does not seem to have focused sufficiently on the relationship between the EU and the institutional or regulatory mechanisms that are currently used in investment arbitration, primarily the New York Convention and the ICSID Convention. As was the case when the European Community joined the ECT, 69 [*631] there is a general understanding that the EU cannot participate in arbitration proceedings administered pursuant to the ICSID Convention. 70 However, there is no concrete proposal, nor any specific analysis, on how the EU may address the enforceability of awards rendered against it in connection with arbitration proceedings established in accordance with future EU investment agreements. This issue is unavoidable and its resolution cannot be postponed. Although voluntary compliance by the states with the awards in investment arbitration is high overall, investor-state arbitration distinguishes itself from other forms of alternative dispute resolution because awards are binding and enforceable, and this characteristic is essential also in respect of future arbitrations involving the EU as a party. In this section we will not only give an account of how the EU policy in respect of investment disputes is currently being shaped by the EU institutions (Section V.A), but we will also discuss the challenges surrounding the question of the future enforceability of awards rendered vis-à- vis the EU. As is the case in respect of extra-EU BITs (Section IV.A), the analysis cannot be abstracted from the requirements of EU law on matters of competence.
A. The Emerging EU Policy in Respect of the Settlement of Investment Disputes
1. The Allocation of Financial Responsibility Arising out of Future Investment Arbitrations to which the EU is a Party
In its proposal COM(2012)335 for managing the financial responsibility linked to future investor-state dispute settlement tribunals, the Commission aims to clarify, inter alia, the rules applicable to the allocation of financial responsibility between the Member State and the EU and to the conduct of arbitration in the case of claims made by investors under future EU investment agreements. 71 The proposal results from the possibility that, because of the structure and the functioning of the EU, responsibility for a violation of the protection standards afforded to foreign investments in the EU territory may be attributable to both the EU and the Member States. According to the proposal, even though the EU is in principle responsible under international law for the breach of provisions within its exclusive competence, 72 as a matter of internal EU law the financial responsibility flowing from investor-state
68 Proposal for a Regulation of the European Parliament and of the Council Establishing a Framework for Managing Financial Responsibility Linked to Investor-State Dispute Settlement Tribunals Established by International Agreements to which the European Union is Party, COM(2012)335 of 21.6.2012.
69 See Section II.A, supra.
70 COM(2010)343, supra note 23, at 10.
71 The proposal does not cover the financial responsibility arising out of arbitrations initiated pursuant to the Member States BITs that have been maintained into force, amended, or concluded in accordance with the provisions of Regulation No. 1219/2012. Indeed, these Member States' BITs are not agreements "to which the European Union is party." However, because they insist on a field of exclusive competence of the EU and have been somewhat "validated" at the EU level, one can wonder whether, mutatis mutandis, similar questions regarding the allocation of the financial responsibility emerging from investment arbitrations initiated in application of their provisions may also become relevant and should be similarly addressed.
72 COM(2012)335, supra note 68, Recitals 3-4.
Logan Wright Page 16 of 27 24 Am. Rev. Int'l Arb. 611, *631 dispute settlement [*632] cases should be attributed to the entity that has afforded the disputed treatment. The EU should therefore bear the financial responsibility when the treatment was afforded by the EU and financial responsibility should rest with the Member States when the treatment was afforded by the Member States. An exception exists, however, if the treatment afforded by the Member States was required by EU law, in which case the EU should be financially responsible. 73
Mutatis mutandis, as far as participation in the arbitration procedure is concerned, even though in principle the EU should act as respondent in cases involving the breach of provisions falling within its competence, 74 the proposal foresees that Member States may act as respondents in certain cases where the challenged treatment results from their action. 75 The Commission should make the final decision as to the EU's participation and, in any case, arbitration should take place in compliance with the principles of unity of external representation of the EU and the duty of sincere cooperation established in Article 4(3) of the TFEU. 76
In order to avoid third-country investors being disadvantaged by the internal allocation of financial responsibility between the EU and a Member State, the proposal requires that the EU shall pay the award whenever it is respondent, even if the award should be paid in full or in part by a Member State and should then recover the sum according to a specific procedure. 77
2. Recent Trends in International Investment Negotiations of the EU
The interest of the EU in stepping up its role in future investor-state arbitrations is being confirmed by the latest developments in bilateral international negotiations on matters related to trade and investment. Two developments are worth noting. First, although it does not follow a "one size fits all approach," the EU is manifesting, at least in the short term, a preference to negotiate mainly Free Trade Agreements ("FTA") or Preferential Trade Agreements ("PTA") that include investment chapters, rather than stand-alone BITs that are specifically focused on foreign investment. 78 Second, in the framework of the negotiation of [*633] such broader agreements, the EU intends to include effective investor-state dispute settlement mechanisms, notably that investors will have access to "a wide range of arbitration fora as currently available under the Member States' BIT." 79 In support of the negotiation of
73 Id. Recitals 4 and 6, Art. 3.
74 Id. Recitals 3-4.
75 Pursuant to COM(2012)335, supra note 68, Art. 8, Member States shall act as respondents subject to the provisions of the investment agreement to which the Union is party.
76 Id. Recitals 7-14 and Ch. III, Arts. 4-11.
77 Id. Recitals 17-18 and Art. 17.
78 The preference for FTAs or PTAs rather then BITs is explained by the Commission by multiple justifications, such as the fact that FDI is part of the CCP, the possibility to shelter from the most favored nation WTO obligation the preferential treatment granted to investments, and the opportunity to cover, including by request of third countries, investment negotiations in ongoing trade negotiations: COM(2010)343, supra note 23, at 7. For an overview of the developments on trade and investment negotiations by the EU, see the Commission document at http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf and the Commission Staff Working Document, External Sources of Growth, July 2012,available at http://trade.ec.europa.eu/doclib/docs/2012/july/tradoc_149807.pdf. Most recently, however, the Commission announced its intention to negotiate, subject to the agreement of the Council on a negotiating mandate, a stand-alone BIT with China (press release by the Commission on May 23, 2013,available at http://trade.ec.europa.eu/doclib/press/index.cfm?id=900).
79 See in particular the negotiating mandates for the EU-Canada/India/Singapore FTAs, available at http://www.bilaterals.org/spip.php?article20272. For further references on this matter see Chaisse,supra note 7, at 62 and L.E. Petersen, EU Member-States Approve Negotiating Guidelines for India, Singapore and Canada Investment Protection Talks; Some European Governments Fear "NAFTA-Contamination," Sept. 23, 2011, available at
Logan Wright Page 17 of 27 24 Am. Rev. Int'l Arb. 611, *633 the FTAs with Canada, India and Singapore, in the summer of 2012 the Directorate General for Trade of the European Commission circulated a draft text on investor-state dispute settlement mechanisms. Here the Commission proposed that the settlement of disputes under future EU agreements be based on existing arbitration mechanisms, primarily ICSID and UNCITRAL, but that the rules of private arbitration institutions may also be applicable. To address some of the concerns associated with the current investor-state arbitration practice, the Commission suggested complementing existing arbitration rules with additional ones to be negotiated in future EU investment agreements. Among other things, the Commission intends to reinforce the transparency requirements around investment arbitration by ensuring public access to a wide range of documents and information. 80 It also wants to augment the rules concerning the constitution of tribunals and the appointment of arbitrators through the creation of a roster of eligible arbitrators. Other rules have been proposed to safeguard the independence of the arbitrators and prevent conflicts of interest through a set of ethical guidelines borrowed from the experience of the EU with FTAs. With regard to the enforcement of awards, the Commission put forward a provision whereby the parties to an investment agreement must enforce the pecuniary [*634] obligations imposed by an arbitration award within their territories as if it were a final judgment of their own courts. Additionally, by virtue of the fact that the provisions elaborated by the Commission in respect of future dispute settlements are due to be a component of a wider FTA, the proposed text foresees that if a party fails to comply with the award, the other party may suspend its obligations under the FTA in proportion to, and for the duration of, the non-compliance. Although it is difficult to make a final assessment of this last provision in the absence of more specific details, it seems somewhat surprising that the Commission is open to the possibility that the investment dispute may be "politicized" and may affect the rights and obligations of the parties to the FTA. Such a perspective is not in line with the latest developments in investment arbitration 81 and one can wonder whether it may be considered revealing of some of the challenges posed by the enforceability of awards rendered in proceedings arising out of future EU investment agreements, to which we now turn. 82
B. The Enforceability of Awards Against the EU
http://www.iareporter.com/articles/20110923_2. Along the same lines,see also the Statement of the European Union and the United States on Shared Principles for International Investment, dated April 2012, Point 4 of which reads as follows: "Fair and Binding Dispute Settlement: Governments should provide access to effective dispute settlement procedures, including investor- to-State arbitration, and ensure that such procedures are open and transparent, with opportunities for public participation." Available at http://trade.ec.europa.eu/doclib/press/index.cfm?id=837.
80 After indicating that transparency is one of the challenges of current investor-state dispute settlement (COM(2010)343, supra note 23, at 10), the Commission expressed its favor for ICSID, as opposed to private institutions, and recently welcomed the new rules on transparency agreed by UNCITRAL Working Group II at its February 2013 meeting. See press release by the Commission on Feb. 11, 2013, available at http://trade.ec.europa.eu/doclib/press/index.cfm?id=868. Some skepticism about the possible use by the EU of private arbitral institutions has been expressed by Kuijper,supra note 6, at 264.
81 The dissatisfaction of investors with the consequences of having their claim "politicized" through the consultations and negotiations between the Contracting States and the inter-states arbitration was one of the reasons for the evolution of investor-state arbitration and the advent of the ICSID Convention under the patronage of the World Bank. For an historic perspective see J.W. SALACUSE, THE LAW OF INVESTMENT TREATIES 353-80 (2010). It must be noted, however, that while in principle forbidden, diplomatic protection in connection with investor-state disputes is tolerated under the terms of the same ICSID Convention when a Contracting State fails to abide by and comply with an ICISD award (Article 27 (1)). JULIAN D.M. LEW, LOUKAS A. MISTELIS & STEFAN M. KRÖLL, COMPARATIVE INTERNATIONAL COMMERCIAL ARBITRATION 801 (2003).
82 For a more comprehensive analysis of the Commission draft text see Nathalie Bernasconi-Osterwalder, Analysis of the European Commission's Draft Text on Investor-State Dispute Settlement or EU Agreements, in International Institute for Sustainable Development, 4 INVESTMENT TREATY NEWS 2 (July 2012), also available at http://www.iisd.org/itn/2012/07/19/analysis-of-the-european-commissions-draft-text-oninvestor-state-dispute-settlement-for-eu- agreements/. See also two reports published by L.E. Petersen, available at http://www.iareporter.com/articles/20121022_4 and http://www.iareporter.com/articles/20121022_5.
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The above proposal of the Commission in respect of the enforcement of awards rendered under the auspices of an EU investment agreement is in itself rather innovative and certainly more advanced and detailed when compared to the regime applicable under the framework of the ECT (see Section II, supra). It evokes and addresses one of the most critical components of the future ability of the EU to effectively exercise its competence in respect of the settlement of investment disputes through investor-state arbitration: the enforceability of awards rendered against the EU. If the recognition and enforcement of international awards is a widely explored topic in international arbitration, including with regard to awards rendered in investor-state proceedings, little or no discussion has [*635] surfaced in respect of the recognition and enforcement of awards rendered against the EU, once the EU replaces (as is currently contemplated) the Member States in future arbitration proceedings. 83
A central expectation of the parties to an arbitration is that the dispute will be resolved by way of a binding and enforceable decision. Therefore, not only the defeated party is obligated to carry out the adverse award, but also the prevailing party must be in a position to obtain the recognition and the enforcement of the award even when the losing party is unwilling to abide voluntarily by the arbitral decision. 84 This principle is essential not only in commercial disputes between private parties, but also in investment disputes between investors and sovereign or public entities. The effectiveness of the whole investor-state arbitration system would be significantly undermined if the investor, empowered to seek redress for its claims independently from the support of its home state, could not obtain the enforcement of the favorable award through legal means against the will of the respondent government.
While the recognition and enforcement of an international award against a reluctant party presupposes the intervention of national courts, which operate in accordance with national systems of law, international conventions have been instrumental to the creation of improved uniformity and consistency across jurisdictions and thus have significantly contributed to the effectiveness and reliability of the international arbitration system as a whole. 85 The most important international conventions in general, and the most relevant for their applicability to awards rendered under the auspices of a future EU investment agreement, are the New York Convention and the ICSID Convention.
1. The New York Convention
The New York Convention has proven a highly effective, perhaps the most effective, international instrument for the enforcement of arbitration awards. 86 It aims to facilitate the recognition and enforcement of foreign arbitral awards in the territory of any of its signatory states irrespective of the arbitration rules under which the arbitration took place. While it is necessary that the state where recognition and enforcement is sought be a contracting state of the Convention (otherwise such state would not be bound), it is not a requirement that the award be made in a state that is a contracting state of the Convention, subject to the provisions of Article I(3), or between parties belonging to any of the contracting states. 87 It is also generally accepted that the New York Convention can be [*636] invoked against public persons, such as states or state agencies, to which the Convention is frequently
83 The enforceability of awards against the EU is mentioned in the proposal COM (2012) 335, supra note 68, at 7, but with no concrete proposal on how to deal with the issue.
84 BLACKABY ET AL., supra note 15, at 621; MOLINUEVO, supra note 15 at 239.
85 BLACKABY ET AL., supra note 15 at 632.
86 Id. at 634, 640.
87 The Convention's predecessors, the Geneva Treaties of 1923 and 1927, to the contrary, required that the parties be subject to the jurisdiction of the contracting states. See Albert Jan van den Berg, The New York Convention of 1958: An Overview, XXVIII Y.B. COM. ARB. 570 (2003). See also GARY BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2388 (2009).
Logan Wright Page 19 of 27 24 Am. Rev. Int'l Arb. 611, *636 applied. 88 It follows that in principle the New York Convention would be applicable to awards rendered in connection with an EU investment agreement, even though the EU is not a member of the Convention nor is able to accede to it because it is not a state. 89
That being said, upon closer review, the enforceability of such future awards through the rules of the New York Convention may not be, in practice, as straightforward as one may initially think.
On one hand, the fact that the EU is not a signatory to the New York Convention may imply that the EU does not have positive rights under this Convention based on considerations of reciprocity that have specifically been provided for in the text. According to Article XIV, "[a] Contracting State shall not be entitled to avail itself of the present Convention against other Contracting States except to the extent that it is itself bound to apply the Convention." Although, as a general matter, reciprocity does not seem to have been at the root of particular issues in practice, 90 one can wonder whether the above provision might be relied upon by the courts of an enforcing state to deny the Convention's protections to awards made under the auspices of an EU investment agreement. The reciprocity argument may be relevant from a double point of view, with regard not only to awards rendered in favor of EU nationals, but also to awards rendered against the EU.
First, according to certain opinions concerning the interpretation of the relationship between Articles I(3) 91 and XIV of the New York Convention, pursuant to the latter it may be possible to deny the Convention's protections to awards made in favor of nationals of states that have not ratified or do not apply the Convention. 92 While it is true that EU nationals remain nationals of their own EU Member States, and may therefore possibly invoke the Convention's protections based on this primary affiliation, it is unclear whether the courts where enforcement is sought would consider the EU nationality as additional or [*637] substitutive to the Member State nationality for the purposes of applying the New York Convention protections. 93
Second, the question also arises whether the EU as party to an arbitration procedure would be able to invoke the provisions of the Convention, for instance, to resist the recognition and enforcement of an unfavorable award through application of Article V thereof. 94
88 Pursuant to its Article I, the New York Convention applies to "the recognition and enforcement of arbitral awards . . . arising out of differences between persons, whether physical or legal"; see also van den Berg, supra note 87, at 572.
89 The New York Convention is open for accession only to states (Art. IX).
90 Patricia Nacimiento, Article XIV, in RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS: A GLOBAL COMMENTARY ON THE NEW YORK CONVENTION 544 (Herbert Kronke et al. eds., 2010).
91 According to Article I(3), a contracting state may declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another contracting state and only to differences arising out of legal relationship that are considered commercial under its national law.
92 BORN, supra note 87, at 2393.
93 According to EU law, EU citizenship shall be additional to and not replace national citizenship (TEU, Art. 9 and TFEU, Art. 20(1)). However, if the investor's rights are based on an agreement adopted by the EU, and not the Member States, then a different interpretation may be privileged by the courts of an enforcing state, especially if this such state is not in the EU.
94 Article V: "1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to
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On the other hand, the applicability of the New York Convention to the recognition and enforcement of future awards unfavorable to the EU faces an additional challenge deriving from EU law. Assuming that a prevailing investor seeking to enforce an award against the EU is likely going to locate assets more easily in one of the EU countries rather than elsewhere, the pervasive reach of EU law in the national legal systems of the Member States may have the effect of substantially frustrating the pro-enforcement approach of the New York Convention. This is particularly true with respect to the "public policy" exception referred to in Article V(2)(b).
In the international arbitration world, the grounds for denying recognition and enforcement of arbitral awards, most notably the public policy ground, are commonly narrowly interpreted with a view to defend the finality of awards and [*638] improve the legitimacy of arbitration for the resolution of international disputes. In other words, despite its vagueness, the public policy concept is understood as a very restricted category, and it is generally invoked to deny enforcement only when essential principles and values of a legal order are at risk of being offended.
In a couple of recent decisions the Court of Justice of the EU has promoted, however, a very different and expansive concept that should in principle determine the approach to be taken by national courts of the EU Member States or, at least, put them in an uncomfortable position to the detriment of homogeneity and predictability of results across the EU. The Court of Justice has suggested that national courts called to enforce a foreign award under the terms of the New York Convention should consider, under the "public policy" exception, also EU public policy considerations, and in particular that the violation of certain EU law provisions amount to public policy issues that would prevent such enforcement. This pronouncement was made specifically with respect to provisions of EU competition and consumer protection law, but clearly favored an expansive reading of the provisions of EU law whose violation may trigger denial of enforcement. As has been observed, if such a reading is in line with the traditional "activism" of the European Court (which has been primarily concerned with the establishment and the reinforcement of the EU legal order vis-à-vis and, to some extent, over national legal orders), it is problematic in the international arbitration context, which relies upon different fundamental premises, notably that domestic systems and standards shall generally cede ground to the arbitration procedures, save when fundamental values and principles are at stake. 95
2. The ICSID Convention
The ICSID Convention 96 features very distinctive provisions on matters of recognition and enforcement of awards. Unlike what happens under the terms of the New York Convention, awards rendered pursuant to the ICSID
arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding, on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country."
95 Case C-126/97, Eco Swiss, [1999] ECR I-3055; Case C-168/05, Mostaza Claro, [2006] ECR I-10421; Case C-40/08, Asturcom Telecomunicaciones, [2009] ECR I-9579. For a comprehensive analysis of this topic see George A. Bermann, Navigating EU Law and the Law of International Arbitration, 28 ARB. INT'L 407 (2012). See also Olivier van der Haegen, European Public Policy in Commercial Arbitration: Bridge Over Troubled Water, MAASTRICHT J. OF EUROPEAN & COMP. L. 449 (2009).
96 The ICSID Convention entered into force on October 14, 1966 and, to date, has never been amended. As of July 25, 2012, the Convention has been signed by 158 States of which 147 have also completed the ratification procedures. With the exception of Poland, all the States forming the EU are contracting parties to the Convention. See https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=ContractingStates&ReqFrom=Main.
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Convention are not subject to exequatur by national courts and therefore enforcement can in principle be refused only on grounds of sovereign immunity, if applicable. 97
[*639] Pursuant to Article 54(1), "[e]ach Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State." This provision is particularly robust insofar as the prevailing investor can seek to enforce the award not only in the State of which it is a national or in the host State, but also in any other State that has ratified the ICSID Convention, and all of them have an obligation to consider the award as a final judgment of their own courts. The prevailing party in an ICSID arbitration only needs to provide to the competent national court or other authority in whose territory enforcement is sought a copy of the award certified by the Secretary-General of ICSID, and the execution will then be carried out in accordance with the laws concerning the execution of judgments in force in the state where the execution is sought. a. The inability of the EU to arbitrate investment disputes pursuant to the ICSID Convention
Under the terms of Article 25(1) 98 of the ICSID Convention, the jurisdiction of the International Centre for Settlement of Investment Disputes (the "Centre") is based on three requisites: ratione materiae, ratione personae and ratione voluntatis. The dispute has to be a "legal dispute arising directly out of an investment" (ratione materiae). The dispute must occur between a contracting state (or any constituent subdivision or agency of a contracting state designated to the Centre by that state) and a national of another contracting state (ratione personae), and the parties must have given their written consent to submit the dispute to ICSID (ratione voluntatis). If any of these three requisites is not fulfilled, the Centre lacks jurisdiction to resolve the dispute under the ICSID Convention.
When the Centre lacks jurisdiction under the Convention, the Secretariat of the Centre can still provide its services to certain categories of interested parties, albeit outside the scope of the Convention. By adopting the Additional Facility Rules, the Administrative Council of the Centre authorized the Secretariat to administer certain proceedings between an investor and a state, even when the requisite ratione materiae and ratione personae set out in the Convention are not fulfilled. 99 However, the proceedings administered by the Secretariat of the Centre according to the Additional Facility Rules are not subject to any provision of the [*640] Convention. 100 Instead, as far as arbitration proceedings are concerned, the recognition and enforcement of the award is subject to the rules of the New York Convention. 101
With regard to the eligibility to become a contracting party to the ICSID Convention, Article 67 states that it is open for signature "on behalf of States members of the Bank" and "any other State which is a party to the Statute of the International Court of Justice" (emphasis added). 102 As the EU is not a state, nor a member of the World Bank, it
97 The sovereign immunity defense would apply only as long as it could be invoked in connection with a domestic judgment. LEW ET AL., supra note 81, at 801.
98 "The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally."
99 In particular, the State of the investor or the host State is not party to the Convention and the dispute does not arise directly out of an investment. ADDITIONAL FACILITY RULES, Art. 2(a).
100 Id. Art. 3.
101 LUCY REED, JAN PAULSSON, & NIGEL BLACKABY, GUIDE TO ICSID ARBITRATION (2010).
102 Article 67 of the ICSID Convention: "This Convention shall be open for signature on behalf of States members of the Bank. It shall also be open for signature on behalf of any other State which is a party to the Statute of the International Court of Justice and which the Administrative Council, by a vote of two-thirds of its members, shall have invited to sign the Convention."
Logan Wright Page 22 of 27 24 Am. Rev. Int'l Arb. 611, *640 cannot sign the Convention. Mutatis mutandis, the EU is also not in a position to rely on the Additional Facility Rules, as they apply only to states that are not contracting parties to the Convention. 103 b. The amendment of the ICSID Convention on questions of membership
The ICSID Convention has not yet been amended. Even though a decision of the Administrative Council by a majority of two-thirds of its members is enough to submit a proposal for amendment to ratification, the Convention is modified only if all contracting states agree. 104 Given the large number of contracting states, the ICSID Secretariat has not been generally optimistic about amending the Convention. In a 2004 discussion paper the Secretariat observed that obtaining unanimous ratification would "at best be a very long process." For that reason, it suggests introducing, insofar as possible, any possible improvements to the ICSID procedures through a modification of the Additional Facility Arbitration Rules. 105 As these Rules are adopted by the Administrative Council of ICSID, changes do not require any ratification by the contracting states and are easier to carry out. 106 It follows that the Administrative Council of ICSID could decide relatively easily to extend the scope of the Additional Facility Arbitration Rules to investment [*641] disputes that involve a non-state entity, like the EU. However, while such an amendment would certainly provide an additional option for the EU in respect of the settlement of its future investment disputes (alongside private institutions and ad hoc mechanisms), the fact remains that the enforceability of the awards would be subject to the provisions of the New York Convention. c. The Member States acting "on behalf" of the EU in the framework of the ICSID Convention
One may wonder whether the existing limitations affecting the EU in respect of its possible membership to the ICSID Convention (as discussed in section V.B.2.a) can be overcome thanks to EU law. As discussed in Section III.B, if it is true that only the EU can act in a field of exclusive competence, under certain circumstances it is also possible for the Member States to act subject to an explicit authorization of the EU. In particular, the authorization mechanism provided for in Article 2(1) of the TFEU has been used "proactively" to take advantage of the full- fledged legal capacity of the Member States in those cases where, in spite of being competent under its own law, the EU did not have the legal capacity to act under the relevant rules of international law. The EU Court held that when the rules establishing an international organization prevent the EU from being a member thereof, the external exclusive competence of the EU can still be exercised "through the medium of the Member States acting jointly in the [EU]'s interest." 107 It may therefore be argued that, as long as the ICSID Convention is not amended, the EU may authorize its Member States to act on its behalf.
Although certainly not new to the EU legal system, the above suggestion is problematic from at least two points of view. First, the multilateral conventions in connection to which the EU authorized the Member States to act on its behalf are substantially different from the ICSID Convention. The former established an international body with regulatory powers where the members exercise voting rights on the measures to be taken and are responsible for the implementation of the adopted measures in their own jurisdiction. The ICSID Convention, to the contrary,
103 ADDITIONAL FACILITY RULES: Art. 2: "The Secretariat of the Centre is hereby authorized to administer, subject to and in accordance with these Rules, proceedings between a State (or a constituent subdivision or agency of a State) and a national of another State, falling within the following categories . . ." 104 ICSID Convention, Art. 66.
105 ICSID Secretariat, Discussion paper, Possible Improvements of the Framework for ICSID Arbitration, Oct. 22, 2004, at 2, available at https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDPublicationsRH&actionVal=ViewAnnouncePDF&Announcem entType=archive&AnnounceNo=14_1.pdf.
106 Pursuant to Article 6(1)(c) of the ICSID Convention, the adoption and the amendment of the ICSID and the Additional Facility Arbitration Rules can be done by decision of the Administrative Council adopted by a majority of two-thirds of its members. 107 Opinion of the Court of Justice, 2/91, [1993] ECR I-1061, P 5 and, more recently, Case C-45/07, Commission v. Greece, [2009] ECR I-701, P 31.
Logan Wright Page 23 of 27 24 Am. Rev. Int'l Arb. 611, *641 creates an adjudicative system available to states and individuals, the operation and binding force of which depends on the state party to the dispute also being a contracting party thereto. In the absence of this condition, it is unclear how the provisions of the Convention can operate against a "representative" state, which in principle is not party to the investment treaty providing for the use of ICSID or to the substantive dispute with the investors. 108
[*642] Second, notwithstanding the authorization mechanism available under Article 2(1) of the TFEU, the conferral of an exclusive competence requires that this competence be exercised effectively and directly by the EU. If the authorization implies that a certain situation that is normally incompatible with EU law is permitted under exceptional and temporary circumstances for pragmatic reasons in the interest of the EU, that does not mean that a status quo not in line with the allocation of competences between the EU and its Member States prescribed by EU law can or should be maintained on a permanent basis. If it were otherwise, the authorization would frustrate the prescriptive value of the EU Treaties' provisions and substantially deprive the EU of the possibility to exercise its prerogatives. Moreover, the attribution of an exclusive competence to the EU is definitive and irrevocable. 109 Therefore, notwithstanding an authorization to the Member States pursuant to Article 2(1) of the TFEU, the EU and the Member States must cooperate to re-arrange and articulate the existing international commitments in compliance with the distribution of competence between them. 110
Such a duty to cooperate is but an expression of the general duty of sincere cooperation, a cornerstone principle of EU law. Pursuant to Article 4(3) of the TEU, the EU and the Member States shall generally "assist each other in carrying out tasks which flow from the Treaties." More specifically the Member States "shall take any appropriate measure to ensure the fulfillment of the obligations arising out of the Treaties or resulting from acts of the institutions of the Union" and "shall facilitate the achievement of the Union's tasks." 111 The EU Court has consistently held that the duty of sincere cooperation is of general application and, upon certain circumstances, implies that the Member States are subject to special duties of action and abstention. 112 In the field of external relations, the principle applies also in respect of the participation of the EU in international bodies or multilateral treaties concerning a matter for which it is competent. In Kramer the Court ruled that the obligation to respect the EU's exclusive competence in fisheries matters implies the duty of the Member States to use "all the political and [*643] legal means at their disposal" to ensure the participation of the EU in the international treaty from which it is
108 While some authors suggest that future EU BITs or investment treaties should be concluded as mixed agreements (i.e. by the EU and by its Member States), it is unclear whether such a possibility would alter significantly the feasibility of the suggested "representation mechanism" within ICSID. See J.A. Bischoff, Just a Little BIT of "Mixity"? The EU's Role in the Field of International Investment Law, 48(5) COMMON MARKET L. REV. 1534 (2011); Eilmansberger, supra note 21, at 394.
109 LENAERTS ET AL., supra note 31, at 125 ("the Community cannot transfer a field in which it has exclusive competence back to the Member States").
110 As already indicated, one must also consider that ICSID is not the only available mechanism and that the EU can certainly have recourse to other arbitral institutions or ad hoc arbitrations without relying on the action or representation of the Member States. For this reason, recourse to the authorization mechanism, if at all possible, is not justifiable beyond exceptional and temporary circumstances.
111 Article 4(3) of the TEU reads as follows: "Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties. The Member States shall take any appropriate measure, general or particular, to ensure fulfillment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union. The Member States shall facilitate the achievement of the Union's tasks and refrain from any measure which could jeopardize the attainment of the Union's objectives."
112 See, e.g., Case C-266/23, Commission v. Luxembourg, [2005] ECR I-4805, PP 58-59; Case C-433/03, Commission v. Germany, [2005] ECR I-6985, PP 64-65.
Logan Wright Page 24 of 27 24 Am. Rev. Int'l Arb. 611, *643 excluded by reason of its status. 113 For the Court, the EU Member States shall proceed "by common action" within the international organization of which they are members, and their objective must be to create the conditions for the accession of the EU to such organization. It follows that the EU Member States are under an obligation to coordinate among themselves and with the EU institutions to facilitate the process of amending the ICSID Convention, including through engaging their collective bargaining power vis-à-vis ICSID and the other contracting parties. d. A transitional solution under the law of ICSID?
As mentioned, the EU has already been in situations where, because of its nature as an international organization, it could not become a member to international bodies and treaties that were open for signature only to states. It appears that, at least in one instance, the EU and the relevant international organization have agreed on a creative approach that, while not reaching a final settlement of the legal obstacle presented by the need to formally amend the international treaty, has nonetheless facilitated a workable solution. The steps undertaken by the World Customs Organization ("WCO") when the European Community applied for membership serve as an interesting precedent worth noting. The WCO, established in 1952 as the Customs Co-operation Council, is an independent intergovernmental body whose mission is to enhance the effectiveness and efficiency of customs administrations. WCO membership consists of customs administrations across the globe that collectively process approximately 98% of world trade. 114 As is the case with the ICSID Convention, the Convention establishing the WCO ("WCO Convention") provides that the membership of the organization is open only to states. Because the EU is a customs union with exclusive competence in a number of customs policy areas, the EU submitted a first request to the WCO to become a full member in April 2001. The request did not find political support at the WCO until 2006, when the Council of the WCO decided to open discussions with the EU with a view to examining all aspects pertaining to the membership of the latter. Following the application by the EU and the discussions at the WCO level, at its 109th/110th session in June 2007 the Council of the WCO adopted two measures. Pursuant to [*644] a recommendation, 115 the WCO Council amended Article XVIII of the WCO Convention so as to enable customs or economic unions to accede to the WCO, 116 subject to completion of the ratification process by all WCO members. At that time, the EU will be in a position to deposit its legal instrument of accession. Pursuant to a decision, the WCO Council resolved that "pending the entry into force of an amendment permitting Customs or Economic Unions to accede to the Convention, the European Communities shall, as an interim measure, be granted rights akin to those enjoyed by WCO Members," subject to some special arrangements and conditions concerning its rights and obligations, such as membership to committees, voting rights and financial contributions.
113 Joined Cases 3, 4 & 6/76, Kramer, [1976] ECR 1279, PP 44-45: "[M]ember States participating in the Convention and in other similar agreements are now not only under a duty not to enter into any commitment within the framework of those conventions which could hinder the Community in carrying out the tasks entrusted to it by [the Treaties], but also under a duty to proceed by common action within the Fisheries Commission. It further follows therefrom that … those institutions and the Member States will be under a duty to use all the political and legal means at their disposal in order to ensure the participation of the Community in the Convention and in other similar agreements" (emphasis added).
114 Brief, available at http://www.wcoomd/en/about_us/what-is-the-wco.aspx.
115 Recommendation of the Customs Co-operation Council concerning the amendment of the Convention Establishing a Customs Co-operation Council, June 30, 2007, Annex V to Doc. SC0082E1a.
116 New Article XVIII(d) of the WCO Convention: "Any Customs or Economic Union may become, in accordance with paragraphs (a), (b) and (c) above, a Contracting Party to this Convention. Any request from a Customs or Economic Union to become a Contracting Party shall first be submitted to the Council for approval. For the purposes of this Convention, 'Customs or Economic Union' means a Union constituted by, and composed of, States which has competence to adopt its own regulations that are binding on those States in respect of matters governed by this Convention, and has competence to decide, in accordance with its internal procedures, to accede to this Convention."
Logan Wright Page 25 of 27 24 Am. Rev. Int'l Arb. 611, *644
117 Based on the recitals of the decision, this measure was motivated not only by the length of the process needed to obtain ratification by all WCO members of the amendment to the WCO Convention, but also by the membership to WCO of all EU Member States and the exclusive competence enjoyed by the EU in customs policy areas covered by the activities of the WCO.
The particularity of the decision lies in its innovative character vis-à-vis the terms of the founding treaty of the WCO. The WCO Convention does not provide the WCO Council with the power to confer rights akin to membership. Article II of the WCO Convention only states that "the Council may admit representatives of non--Member Governments or of international organizations in the capacity of observers," which obviously is not equivalent to rights akin to membership. It is thus not at all surprising that the recitals of the decision do not refer to any article of the WCO Convention as a legal basis of the decision. While the practical effects of the aforementioned decision of the WCO Council are unknown to us, this decision certainly serves as an innovative precedent whereby the governing body of an international organization decided to make an expansive use of its regulatory powers to cater, on a provisional basis, to a situation that would otherwise remain at an impasse for a potentially long period. If, on one hand, there are reasons to question the appropriateness of such a generous self-empowerment by the WCO Council, on the other hand, one may come to different conclusions based on the specific circumstances of the case.
[*645] Similarly, the ICSID Convention does not contain a provision whereby the Administrative Council may grant membership-like status to non-state entities. However, should a broad political consensus emerge among the Contracting Parties, 118 Article 6(3) of the ICSID Convention possibly could support (probably to a greater degree than Article II of the WCO Convention) an interim measure similar to that taken by the WCO Council. Pursuant to Article 6(3), "the Administrative Council shall also exercise such other powers and perform such other functions as it shall determine to be necessary for the implementation of the provisions of this Convention." It could be argued that the new exclusive competence of the EU on FDI alters the legal context in which the EU Member States joined ICSID and raises some questions and uncertainty with regard to the implementation of the Convention in respect of the EU Member States. As the ICSID Convention does grant the Administrative Council the ability to adopt unnamed measures and exercise such functions as necessary to implement the Convention, the Administrative Council may be in the position to act to safeguard the implementation of the ICSID Convention vis-à-vis the EU Member States by granting member-like rights and obligations to the EU as such.
3. The Intervention of the Court of Justice Before the Enforcement of an Award Against EU Assets
Irrespective of the conventional legal regime that will apply in the future in respect of the enforcement of awards rendered against the EU (New York Convention or ICSID Convention), it should be expected that EU national courts may not enforce an award against the EU by seizing the assets possibly available under their jurisdiction without obtaining the authorization of the European Court of Justice. Pursuant to existing EU primary law, "the property and assets of the Union shall not be the subject of any administrative or legal measure of constraint without the authorization of the Court of Justice." 119 As the Commission indicates, 120 in principle the standards of review that the Court is due to apply before authorizing execution measures on EU assets should be no different from those included in the doctrine of sovereign immunity that, consistent with its nature of law of the country where enforcement is sought, continues to be relevant in international arbitration at the stage of the enforcement and
117 Decision of the Council No. 318 of July 5, 2007 on the Status of the European Communities vis-à-vis the World Customs Organization (109th/110th Sessions -- June 2007), SC0081E1a. 118 Such political consensus could emerge in a decision by the Administrative Council to amend the ICSID Convention, pursuant to its Article 66, so as to enable the membership of international organizations.
119 Article 1 of the Protocol 7 on the privileges and immunities of the Union, annexed to the TFEU and the TEU. See also COM(2012)335, supra note 68, at 8.
120 COM(2012)335, supra note 68, at 8.
Logan Wright Page 26 of 27 24 Am. Rev. Int'l Arb. 611, *645 execution of an award against a state or state entity. 121 Indeed, the doctrine of sovereign immunity is specifically mentioned as applicable also in Article 55 of the ICSID Convention. 122
[*646] In connection to this matter, the existing European case law is consistent in declaring that the purpose of Article 1 of Protocol 7 on the privileges and immunities of the European Union is to ensure that there is no interference with the functioning and independence of the EU. Therefore, the jurisdiction of the Court is confined to determining whether the intended administrative or legal measure of constraint is likely to interfere with such functioning and independence of the EU, such as, for example, when the measure would affect the financing of common policies or the implementation of the action programs established by the EU. 123 As a consequence, the review to be done by the Court pursuant to Protocol 7 must be in line with the approach followed by national courts in respect of sovereign immunity 124 and should, in principle, not result in an uncertain process where the Court could raise objections based on its protectionist approach concerning compliance with provisions of EU law (as discussed in section V.B.1 supra).
V. CONCLUSION
Following the entry into force of the Treaty of Lisbon and the acquisition of exclusive competence in the field of FDI, the EU has taken the first steps in defining its new role as a member of the international investment community, which thus far has been dominated by states. The fact that the EU is not itself a state, but is made up of states that have attributed to it portions of their competence in respect of specific matters, including FDI, raises the question of the extent to which the EU can presently make an effective use of investor-state arbitration. Although the ratification by the European Community of the ECT had already opened up the possibility that foreign investors may sue directly the EU before an arbitral tribunal, the EU has never been a respondent, and the relationship between the EU and investor-state arbitration has never been the subject of dedicated debate in EU institutional circles or in the literature. Indeed, while a certain degree of awareness about the challenges posed by the EU being party to an investor-state arbitration procedure is present in the declaration accompanying the ratification of the ECT by the European Community, no specific or actionable legal analysis has arisen. In the absence of any changes regarding the status of the EU vis-à-vis international arbitration mechanisms and conventions, the above challenges have continued to exist during the more than 15-year period since ratification of the ECT. The entry into force of the Treaty of Lisbon has rendered the resolution of these challenges unavoidable. This is clearly [*647] shown by the legislative and political measures discussed by the EU and its Member States aimed at implementing a new EU FDI policy, of which the settlement of investment disputes is a crucial component. Although none is specifically focused on clarifying how current investor-state arbitration mechanisms are to be used by the EU, such measures indicate the direction that the EU is taking, such as on the transitional regime for the existing extra-EU BITs, the negotiating directives for future EU investment treaties, and the repartition of financial responsibility between the EU and the Member States arising out of future investor-EU disputes. These legislative and political measures occur within a regulatory framework, the structure of which is, to some extent, still debated due to the laconic drafting of the new FDI provisions in the TFEU and the lack of interpretative guidance by the Court of Justice. However, the existing practice and case law on fundamental categories of EU law, such as the concept of exclusive competence and its implications on the action of the EU Member States, which the Treaty of Lisbon has confirmed and well clarified, provide the needed background to pursue the required analysis.
121 BLACKABY ET AL., supra note 15, at 667.
122 Article 55 of the ICSID Convention is drafted as follows: "Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution." See on this topic UNCTAD, Module 2.9, supra note 15, at 21. 123 Case C-1/04 SA Tertir-Terminais de Portugal SA v. Commission, [2004] ECR I-11931, P 10 and cases cited therein.
124 The Court indicated that the immunity of the EU is not absolute and complies with the rules of general international law applicable in the area of the immunity of States and international organizations. Case C-1/04 SA Tertir-Terminais de Portugal SA v Commission, supra note 123, PP 11-12.
Logan Wright Page 27 of 27 24 Am. Rev. Int'l Arb. 611, *647
Finding itself between its "constitutional" requirements to exercise a new exclusive competence and the constraints deriving from a regime on recognition and enforcement of international awards primarily conceived as applicable only to states, the EU continues to be in an atypical position in respect of investor-state arbitration. The most critical aspect is the enforceability of future awards rendered against the EU. Although, in general, voluntary compliance with awards is fairly high, the effectiveness of investor-state arbitration in resolving foreign investment disputes is premised on the ability of the prevailing party to obtain satisfaction, even against the will of the losing party. On one hand, if the provisions of the New York Convention, in principle, can be invoked by investors irrespective of the legal status of the losing party (i.e., awards rendered against the EU would not be different from awards rendered against a state), it is unclear whether considerations of reciprocity may affect the way in which the Convention is applied to awards rendered in proceedings against the EU. Furthermore, when called to enforce awards against the EU, the courts of the EU Member States are likely to be in the middle of opposing demands, from EU law and from the law on the enforcement of international awards, with results that are at present difficult to predict. On the other hand, the most promising tool for the enforcement of awards specifically rendered in investor- state disputes, the ICSID Convention, is not available to the EU and is not likely to be so in the near future because the accession by the EU to the ICSID Convention requires unanimous agreement and ratification by all the contracting parties thereto. While it is true that, in situations where the EU does not have the legal capacity under conventional international law to exercise its exclusive competence EU law provides for a specific mechanism whereby the Member States can act "on behalf of" the EU, such a mechanism is not suitable to the context of investor arbitration and the ICSID Convention. Additionally, EU law requires that, as a general matter, the EU be in a position to exercise its competence directly and Member States are bound by a duty to cooperate among themselves and use all the political and legal means at [*648] their disposal to facilitate that requirement. In a scenario of this nature one can wonder whether the contracting parties to the ICSID Convention may be willing to consider, pending an actual amendment of the ICSID Convention, an alternative accommodation to grant to the EU an "atypical" membership-like status. While it is impossible to predict whether an option of that sort may materialize, it is clear that the latter needs to be premised upon the existence of wide political consensus at the ICSID Administrative Council and an extensive interpretation of the powers of the same. However, it is encouraging to know that, at least in one instance (the WCO), the peculiarity of the legal status of the EU in international relations has been partially addressed in a special arrangement similar to one that could be realized at the ICSID system.
Even though the EU has enjoyed exclusive competence on FDI since the entry into force of the Treaty of Lisbon in December 2009, the EU is not yet an active member of the international investment community on par with states. This statement is particularly true in respect of investor-state dispute settlement procedures. Certainly, the EU has already taken and continues to consider significant steps to promote the establishment of its new role, but the relationship between the EU and investor-state arbitration is not yet mature enough to operate smoothly. Further clarification is needed in the near future, likely with adjustments to the current status quo, both at the level of EU law and the international law concerning the recognition and enforcement of awards.
American Review of International Arbitration
Copyright (c) 2013 Hans Smit and Juris Publishing, Inc. The American Review of International Arbitration
End of Document
Logan Wright The Future of Intra-European Union BITs: A Recent Development in International Investment Treaty Arbitration against Romania and Its Potential Collateral Damage
Stephan Wilske; Chloë Edworthy Author Chloë Edworthy Stephan Wilske (*)
(**) Jurisdiction Abstract European Union Romania The article explores the debate surrounding intra-European Union (EU) investment treaty arbitration and the intervention of the Source European Commission in an investment treaty arbitration against Romania. The European Commission has demonstrated great Stephan Wilske and appetite to pursue its own agenda in multiple proceedings generating Chloë Edworthy, The an outcome which, it is argued, is likely to lead to an uncertain Future of Intra- future for foreign direct investment in Romania and several other European Union BITs: A Member States. The article warns that if the Commission is not Recent Development in prepared to countenance that international law obligations can International prevail over EU law (at least in so far as it is interpreted by the Investment Treaty Commission) a dangerous precedent may be set and there could be Arbitration against adverse consequences for the rule of law. Romania and Its Potential Collateral 1. INTRODUCTION Damage, Journal of International Arbitration, The last few years have witnessed a tumultuous time for investment (© Kluwer Law treaty arbitration against Romania after a handful of cases attracted International; Kluwer a lot of attention in the international legal community.(1) Alongside Law International 2016, helpful dicta which have been generated in the awards page Volume 33 Issue 4) pp. "331" issued by arbitral tribunals and have developed international 331 - 352 investment law generally, there have been some more unusual developments which involve an international debate on the interaction between investment law and EU law and some particularly acrimonious proceedings.(2) The focus of this article is on the former of these developments, which is, more specifically, the debate surrounding intra-European Union (EU) investment treaty arbitration and the intervention of the European Commission (hereinafter ‘the Commission’) in an investment treaty arbitration against Romania.(3) As explained in this article, these recent developments have led to a degree of uncertainty for investors in Romania. This is far from an exclusively Romanian issue: several other EU Member States are facing direct action from the Commission and repercussions are being felt globally. This article proceeds on the basis that the investment treaty arbitration developments in Romania serve as convenient case studies for understanding the issues arising internationally from the Commission’s recent actions. This article begins by providing a brief history of foreign investment in Romania and a general update on the status of investment treaty arbitration against Romania today, to put the main discussion in context. 2. DEVELOPMENT IN ROMANIAN INVESTMENT TREATY ARBITRATION AND ITS REPERCUSSIONS
2.1. A brief history of foreign investment in romania (4)
The dissolution of the Soviet Union following the revolution of 1989 signified the dawning of a new era of market-oriented reforms in page "332" Romania.(5) The government endeavoured to facilitate the privatization and restructuring of state-owned enterprises by foreign direct investment (FDI) (at least in part) and introduced significant legal and regulatory changes in a bid to attract investors.(6) Initially, Romania failed to achieve high levels of FDI, arguably due to the restrictions imposed on foreign investors which were more onerous than the obstacles foreign investors faced in other emerging market economies, such as Hungary, the Czech Republic and Poland.(7) The comparatively slow growth in FDI in Romania was widely acknowledged.(8) However, following steps taken in the late 1990s and early 2000s, Romania experienced a significant increase in FDI. The amount of inward FDI stock surged from 2.3% (as a percentage of gross domestic product [GDP]) in 1995 to 44.4% in 2012.(9) The dramatic increase can be ascribed to a wide range of factors, including the introduction of amendments to national legislation to alleviate restrictions on foreign investors,(10) tax reforms,(11) the entry into force of numerous bilateral investment treaties (BITs) (as discussed in more detail below) and, perhaps most significantly, Romania’s accession to the EU.(12) In fact, the EU accession process shaped Romania’s economic reformation agenda from the late 1990s onwards (and arguably earlier).(13) Romania’s accession (endorsed by the European Commission in December 2004 and formalized in the page "333" Accession Treaty dated 25 April 2005) was the objective of a diplomatic relationship between Romania and the EU which had been cultivated over many years.(14) As with other former communist Eastern Bloc states, Romania’s transformation into a market economy EU state, and accompanying economic and legislative stability, heralded a dramatic increase in the amount of FDI in its economy.(15) Before the global financial crisis of 2008, Romania was continuing to enjoy an upsurge in FDI which saw the country emerge as the most sought after investment destination in the Central and Eastern Europe region.(16) In 2013, levels of FDI appeared to have stabilized following the global recession and supported by Romania’s relatively healthy GDP growth. However, in 2014 there was a slight drop in FDI.(17) At present, it is too soon to confirm whether this will be a temporary deviation from the growth trend or is indicative of a wider decline in FDI in Romania. If such a decline exists, it may be attributable, at least partly, to the uncertainty faced by investors as generated by recent actions of the Commission (see below). 2.2. Status of investment treaty arbitration in Romania
Romania became a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (hereinafter ‘ICSID Convention’) in 1975.(18) Although Romania entered into very few BITs during the communist era, there are now approximately eighty in force.(19) Romania is also a signatory to the Energy Charter Treaty (ECT).(20) page "334" Given the number of Romanian BITs and the surge in FDI in Romania since 2004, it is not surprising that there has been a corresponding increase in investment treaty arbitration. At the time of writing, the International Centre for Settlement of Investment Disputes (ICSID) recorded that twelve arbitrations have been initiated against Romania, seven of which have been concluded and five of which are pending.(21) It is likely that more cases will be brought following the surge in investment as cross-border dealings are fertile ground for investment disputes.(22) 2.3. Intra-eu bits: the interplay between investment law and eu law
In the past two years, the Commission has escalated the debate surrounding the interplay between investment law and EU law by taking direct action against certain states, including Romania. The Commission’s actions have led to uncertainty which will continue for some time before any resolution is found in the judgments rendered in the various ongoing proceedings. In order to explore how this uncertainty has been cultivated, this article will describe the drastic action taken by the Commission; the background to the particular investment treaty arbitration in question which catalysed the debate in Romania; the retaliation against the Commission by the claimants in that page "335" arbitration; the Commission’s proposals to deal with any uncertainty; discuss the implications of the Commission’s proposals; and the give authors’ views on the best way forward. 2.3[a]. The Commission’s Infringement Proceedings Against Romania
Romania, alongside Austria, the Netherlands, Slovakia and Sweden, finds itself the respondent in infringement proceedings brought by the Commission in respect of its BITs with other EU countries (intra- EU BITs).(23) The Commission’s position is that the intra-EU BITs contravene EU law and cause legal uncertainty for cross-border investors.(24) The Commission announced the proceedings on 18 June 2015 stating that ‘ “extra” reassurances [contained within intra- EU BITs] should not be necessary, as all Member States are subject to the same EU rules in the single market, including those on cross-border investments (in particular the freedom of establishment and the free movement of capital)’.(25) It has transpired that prior to the instigation of the infringement proceedings, Romania and the other four states had not responded convincingly to an ‘EU pilot’, ‘an informal communication and problem-solving procedure between the Commission and member states that precedes formal action to address infringements’.(26) On instigating proceedings, the Commission gave each state two months to reply, after which it indicated it would call a meeting in early October 2015 ‘to provide assistance to Member States so that the termination of intra-EU BITs is carried out in a coordinated way’.(27) At the time of writing, it is not known if the October 2015 meeting went ahead. If Romania does not comply with the demand made by the Commission in the infringement proceedings, the Commission may bring the matter to the attention of the Court of Justice of the European Union (CJEU) which has the jurisdiction to compel Romania to take the requisite measures (if the CJEU page "336" confirms such measures to be obligations under an EU treaty). Romania may also be liable to pay a penalty in respect of any failure to comply.(28) 2.3[b]. A Short History of the Micula v. Romania (First) Case and the Commission’s Interventions
The infringement action brought against Romania followed earlier steps taken (and still being taken) by the Commission to prevent the state from complying with the USD 250 million award (hereinafter ‘the Award’) which it was ordered to pay in Micula v. Romania (First). Micula v. Romania (First) concerned an alleged breach by Romania of the Sweden-Romania BIT. The claimants were the Micula brothers, and three food production companies in which the brothers had interests, who had taken advantage of economic incentives for investment in disadvantaged areas in Romania. The incentives compelled the Micula brothers to provide undertakings, among other things, to maintain their operations for twice the duration of the incentives or risk having to repay the incentives.(29) The Micula brothers claimed they had set-up their businesses manufacturing syrup, vinegar, fruit juice and mineral water in the Ştei-Nucet- Drăgăneşti region of north-western Romania in the belief that the tax incentives would be in place for a decade.(30) The EU deemed that the incentives violated state aid rules and compelled Romania to repeal them in advance of its EU accession; Romania complied with this request on 31 August 2004.(31) It is important to note that the claimants instigated the arbitration in 2005 when Romania was not a member of the EU. As the dispute related to a period before EU law was directly applicable in Romania, there was no direct conflict of law issue for the arbitral tribunal to consider.(32) However, as the parties agreed that EU law was part of the ‘factual matrix’ of the dispute and was relevant in the context of assessing Romania’s potential breach of the fair and equitable standard provided for in the BIT, the tribunal considered the interplay between the BIT page "337" and EU law in the Award.(33) The arbitral tribunal confirmed that, if applicable, ‘the general context of EU accession must be taken into account’ when assessing whether a state has breached a BIT.(34) In the course of the proceedings, Romania had argued that it had to revoke the incentives in order to comply with the requirements of the EU, whereas the claimants had argued that there was no conflict between the incentives and EU law.(35) The Commission intervened in the proceedings as amicus curiae (friend of the court).(36) In its intervention, the Commission explained that the incentives were ‘incompatible with the Community rules on regional aid’ and ‘did not respect the requirements of Community law as regards eligible costs and aid intensities’.(37) The ICSID tribunal majority held that by removing the incentives during the course of its accession to the EU, Romania had breached the fair and equitable treatment standard provided for in the BIT and ordered Romania to pay USD 116 million including interest,(38) which resulted in a liability totalling USD 250 million.(39) Whilst the arbitral tribunal held that Romania’s revocation of the relevant incentives was ‘a reasonable action in pursuit of a rational policy’, it went on to state that ‘Romania’s actions … were unfair or inequitable vis-à-vis the Claimants’.(40) The tribunal concluded that Romania had not acted in bad faith or unreasonably but had violated the claimants’ legitimate expectations that the incentives would remain in place until 2009 (despite the claimants performing their side of the bargain) and had failed to act transparently by informing the claimants in a timely manner that the incentive regime would be terminated prior to its stated date of expiration.(41) Since the rendering of the Award, the Commission has escalated the debate. As pre-empted by the Commission at the time of its amicus curiae intervention in the main proceedings,(42) the Commission’s view is that the Award granted to the claimants constitutes the granting of new state aid, which is incompatible with the Treaty on the Functioning of the European Union.(43) On 26 May 2014, the Commission issued a suspension injunction prohibiting Romania from complying with the Award ‘as such execution [of the Award] would constitute unlawful State page "338" aid, until the Commission [had] taken a final decision on the compatibility of that State aid with the internal market’.(44) For its part, Romania instigated annulment proceedings on 18 April 2014 and a hearing was held before an ad hoc committee in September 2015.(45) In the course of the annulment proceedings, Romania sought a stay of enforcement of the Award until the ad hoc committee had ruled on the application for annulment.(46) The tribunal granted the stay on 7 August 2014 subject to the condition that ‘Romania [committed] itself subject to no conditions whatsoever (including those related to [EU] Law or decisions) to effect the full payment of its pecuniary obligation imposed by the [Award] – and owed to Claimants – to the extent that the Award is not annulled – following the notification of the Decision on annulment’.(47) Romania referred the arbitral tribunal’s demand to the Commission and the Commission explained to Romania that it could not provide the unconditional commitment.(48) On that basis, Romania refused to agree to the condition and the ad hoc committee lifted the stay of enforcement on 7 September 2014.(49) After seeking leave from the ad hoc committee, on 9 January 2015 the Commission submitted an amicus curiae brief in the annulment proceedings to restate its position in respect of the Award.(50) In its decision issued on 26 February 2016, the ad hoc committee rejected Romania’s annulment application. The committee acknowledged that the case threw up a ‘difficult and novel question of public importance’, namely, the compatibility of investment treaty protections and the ICSID Convention with EU law, but did not agree that Romania had met the requisite threshold to secure an annulment.(51) One might think that Romania’s failure to have the Award annulled, in spite of the Commission’s amicus curiae brief, would persuade the Commission to page "339" revisit its stance. However, as discussed in more detail below, it seems the Commission may be too entrenched in its position to make any concessions. Indeed, quite separately from the arbitral proceedings, the Commission has embarked upon the significant undertaking of infringement proceedings, the fate of which is to be decided by the CJEU, an institution which, unlike the ICSID tribunal and ad hoc committee, is likely to have a predisposition to the Commission’s cause (see below). The infringement proceedings began on 1 October 2014 when the Commission announced that it was invoking its right to initiate a formal investigation procedure.(52) The Commission stated that its conclusion at that stage was that any execution of the Award ‘would amount to the granting of incompatible “new aid,” subject to the State aid rules’ and that the partial implementation of the Award (which Romania had performed in cancelling some outstanding tax debts) had been unlawfully put into effect by Romania.(53) The Commission formally invited comments from all interested parties, including Romania, on its preliminary conclusions by way of a notice in the Official Journal of the EU on 7 November 2014.(54) On 30 March 2015, the Commission published its formal Decision confirming its preliminary conclusions and requiring the beneficiary of the cancelled tax debts to repay all amounts received in contravention on the prohibition on state aid.(55) Shortly thereafter, the Commission launched its EU pilot procedure with Romania before instigating its infringement proceedings against Romania on 18 June 2015 (as described above).(56) It is understood that the Commission has also begun ‘pilots’ with 21 other Member States that still have intra-EU BITs in place.(57) page "340" 2.3[c]. The Miculas’ Actions in Response to the Commission and Their Enforcement Efforts
On 2 September 2014, the Micula brothers issued proceedings against the Commission at the then European Court of Justice (ECJ) in Luxembourg to overturn the injunction issued by the Commission against Romania.(58) In doing so, they relied upon the following two grounds: (i) EU law is not applicable to the case and the Commission lacks the competence to issue a decision under EU law. Further, the Commission’s decision fails to acknowledge that Romania is obligated by international law to execute the Award without delay and that Romania’s international law obligations take primacy over EU law. The Commission’s decision infringes Article 351(1) of the Treaty on the Functioning of the European Union and Article 4(3) of the Treaty on European Union, which recognize and protect Romania’s obligations under the ICSID Convention and under the Sweden-Romania BIT; and (ii) the Commission erred in law by wrongly categorizing the execution of the Award as a new state aid measure and violated the Miculas’ legitimate expectations. They elaborate that, in their opinion, the Award neither gives them an economic advantage, nor does it constitute a selective measure or voluntary that is imputable to Romania or a threat to competition within the EU.(59) Some have suggested that the Commission’s infringement proceedings and suspension injunction against Romania were intended to provoke the Micula brothers to issue the ECJ proceedings so that the Commission could obtain a definitive ruling on the applicability of intra-EU BITs from the EU courts.(60) Based on recent ECJ decisions, it is likely that the EU courts will accept the Commission’s position.(61) The authors note that it is somewhat incongruous that the ECJ, an arbiter of EU law, will assume determinative powers in respect of the Award in an investment treaty dispute. The Micula brothers have also taken steps in respect of the Commission’s 30 March 2015 decision. On 28 November 2015, Viorel Micula, together with certain of the Miculas’ companies involved in the case, initiated an action against page "341" the Commission in which he asked the CJEU, among other things, to annul the Commission’s 30 March 2015 decision on the basis that the decision was wrong in law in numerous respects.(62) Ioan Micula initiated his own equivalent proceedings on 30 November 2015.(63) The Commission has not been idle in anticipation of the ECJ ruling and has taken steps to hinder the Miculas’ international enforcement efforts. The Commission has seen fit to file amicus curiae briefs in the course of the Miculas’ US enforcement proceedings, once before the New York District Court in August 2015 and once before the US Court of Appeals for the Second Circuit in February 2016. The Commission argued that enforcement of the Award would intrude ‘on the European Union’s sovereign competences’ and the pending ECJ case.(64) The lower court had rejected Romania’s and the Commission’s arguments holding that the US and ECJ proceedings were insufficiently parallel for comity purposes. In filing its more recent brief, the Commission has rejected this position and reiterated its assertion that the Sweden-Romania BIT is invalid. The Commission also argues that the district court was not competent to find against Romania, as the Commission’s findings about Romania’s EU law obligations should be conclusive; in doing so, the Commission relies upon a recent US case in which the Commission was held to be a sovereign under US law.(65) The decision of the appeals court is pending. Elsewhere, it is understood that a Brussels first instance court has refused to enforce the Award and Viorel Micula is facing difficulties with enforcement in Washington, DC.(66) In the meantime, the Micula brothers, ostensibly undeterred by these complications and difficulties they are facing with the international enforcement of the Award,(67) have instigated a new investment treaty arbitration against Romania, Micula v. Romania (Second).(68) The timing of the issuance of arbitral proceedings (24 November 2014) suggests that the Micula brothers are not willing to back down in the face of the Commission’s declaration of war against the Award. It is understood page "342" that Micula v. Romania (Second) relates to illicit alcohol sales which have soared across Eastern Europe in recent years as a result of high liquor duties imposed by governments in the region.(69) 2.3[d]. The Commission’s Proposals for the Future of Investment Treaty Dispute Resolution in the Event that Intra-EU BITs are Terminated
It is clear that the Commission wants to send a strong signal to EU Member States that intra-EU BITs should be terminated.(70) However, what is not clear is how intra-EU investment treaty disputes will be resolved efficiently in the absence of intra-EU BITs and whether or not a void will be left in the internal market which will need to be filled by a new EU instrument.(71) The Commission has suggested certain alternatives to fill any such void. First, the European Commissioner for financial services, Lord Jonathan Hill, has suggested that the Commission is prepared to consider the possibility of a mechanism to resolve intra-EU investment disputes through mediation.(72) However, the Commission has not elaborated on how such a mechanism would work in practice.(73) Secondly and presumably alternatively, a ‘concept paper’ published on 5 May 2015 on the blog of the European Commissioner for Trade, Cecilia Malmström, suggested that the EU could explore the idea of the creation of a single permanent investment court to hear disputes under future EU investment treaties.(74) The article is primarily intended to address the Transatlantic Trade International Partnership Treaty (TTIP) but is expressed to apply to all future EU investment treaties.(75) The article refers specifically to the Commission’s position in respect of Micula v. Romania (First) and suggests that the state aid issue which has arisen in the case is the kind of ‘problem’ which the article aims to tackle.(76) Reiterating the page "343" Commission’s frequently expressed concern that intra-EU investment treaty arbitration permits investors to circumvent national courts, the article states that: It is frequently claimed that ISDS [investor-state dispute settlement] gives investors a special and parallel track for settling investment disputes by which they can by-pass the ordinary jurisdiction of domestic courts. It is argued that domestic courts alone should resolve disputes with foreign investors, who should not be in a position to ‘appeal’ the domestic courts’ decisions before special ISDS tribunals.(77) The multilateral court would be staffed by tenured judges and could operate on an opt in basis so would need to be named as the designated forum for disputes.(78) Further ‘improvements’ suggested in the concept article include the establishment of a roster of arbitrators agreed by the treaty signatories to ensure ‘competent, independent, impartial … and predictable’ decision-making,(79) an appellate mechanism to allow for appeals based on errors of law and fact(80) and measures to preserve ‘the principle of autonomy of the EU legal order’.(81) The concept article has proved to be highly controversial.(82) Even fierce critics of investor-state dispute settlement have described the proposals as ‘a slap in the face of public opinion’ which ‘make no meaningful difference to the investor protection regime’.(83) It seems that the proposal may have been intended merely as a means of securing support from the European Parliament ahead of finalization of TTIP rather than a solid recommendation for a workable dispute resolution mechanism and forum.(84) In any event, it has not been formally adopted or explored in any more detail by the Commission. 2.3[e]. Issues Raised by the Suggestion of the Termination of Intra-EU BITs
In this context, it is not clear what form of dispute resolution the Commission envisages should be available to investors in the event that intra-EU BITs are page "344" terminated. The Commission appears to be turning a blind eye to the inconvenient truth that the various Member State national courts adopt a range of different approaches to the minimum levels of protection that should be afforded to intra-EU investors, approaches which are at times to the detriment of the investor.(85) Until there is a time when all Member States employ the same standards of governance, law enforcement and transparency in public affairs, intra-EU investors will need to rely upon the levels of protection afforded in the intra-EU BITs.(86) Such parity between Member States has, to date, not been achieved.(87) The conduct of the Commission in issuing infringement proceedings and injunctions without providing concrete alternatives for investors has been widely criticized. For example, the Commission’s suggestion that investor-state disputes can be resolved in national courts and before the CJEU does not deal with the practical realities of the difference between the two different dispute resolution mechanisms. The Commission has denied that investor-state treaty arbitration is a necessary dispute resolution procedure for investors on the basis that investors should seek redress in national courts or by complaint to the Commission which will ensure that disputes concerning EU law are submitted to the CJEU, thus preserving the equal treatment of investors among Member States.(88) The unavailability of investment treaty arbitration as a means of dispute resolution for intra-EU investors will undoubtedly cause such investors to at least hesitate before investing, if not refrain from investing altogether. The Commission has notably avoided addressing the time and costs that will be involved for investor claimants who are first obliged to issue and conclude lengthy proceedings in the national courts before, if the right is granted at all, having the opportunity to seek redress at the CJEU. The Commission also avoids dealing with the delicate issue of whether all Member State national courts have the requisite capacity, expertise and language skills to offer international investors a fair trial and fully-reasoned and balanced page "345" decision in the case of cross-border disputes involving the court’s home state, in particular where an investor was expecting any disputes to be resolved via investment treaty arbitration under the relevant BIT.(89) Equally, it is not clear that termination of the intra-EU BITs will prevent investors from bringing their arbitral claims under the investment agreements. The achievement of the Commission’s aim to prevent forum-shopping(90) will be problematic as determined investors may be able to restructure their investments via non-EU states to take advantage of the most beneficial BITs thus (potentially) escaping the Commission’s reach(91) ; it has been suggested that this outcome would be a ‘good example of the application of the law of unintended consequences’ from the Commission’s viewpoint.(92) In addition, most of the intra-EU BITs which have been targeted by the Commission contain ‘survival clauses’, also known as ‘sunset clauses’, that maintain the investor protection for a considerable length of time after termination of the relevant BIT. For example, in Gavazzi v. Romania,(93) a sunset clause of a BIT conferred jurisdiction to an ICSID tribunal even though the relevant BIT had been terminated following the Commission’s proposal.(94) There are also strong arguments made by numerous commentators and arbitral tribunals that the position taken by the Commission is legally wrong. For example, tribunals have commented that the Commission cannot argue that it has an ‘interpretative monopoly’ in relation to EU law by virtue of Article 344 of the Treaty on the Functioning of the EU because the latter article relates to page "346" state-to-state disputes, rather than investor-state disputes. Arbitral tribunals have also remarked that the Commission cannot intend for every dispute between an individual and a state to go before the CJEU, not least because the court would not have capacity.(95) A further significant contention is that the Commission’s approach is reductive in that it denies the internationality of disputes relating to investment agreements such as BITs and the ECT and restricts them to the parameters of an EU legal order.(96) The Commission’s approach in this regard denies the reality in which the investments were made, as investors would likely have considered the interplay between the relevant BIT and EU law at the time of making the investment. There has also been widespread criticism of the position taken by the Commission in respect of Micula v. Romania (First) on the question of whether Romania’s compliance with the Award would constitute new state aid. As discussed above, the arbitral tribunal in Micula v. Romania (First) chose to interpret the Romania-Sweden BIT in the context of EU law notwithstanding that EU law was not directly applicable.(97) In doing so, the arbitral tribunal applied the overarching principles set out in Articles 31 and 32 of the Vienna Convention on the Law of Treaties of 1969, which treats EU law as a relevant rule of international law which should be consulted when interpreting intra-EU BITs.(98) Neither party disagreed with this approach in principle.(99) The tribunal held that the effects of the state’s actions were unfair vis-à-vis the claimants and breached the fair and equitable treatment standard in the BIT, thus entitling the Miculas to damages.(100) According to many commentators, it is wrong for the Commission to characterize the compensation ordered in the Award as a payment of state aid which would effectively restore the EU law violating incentive page "347" scheme. As it has been succinctly articulated by Christer Söderlund, ‘the object of damages is not to reinstate a prior contractual regime, but to compensate for the fact that this prior regime is no longer available’ despite Romania’s promises to the investors.(101) By forcing the hearing of the dispute before the CJEU, the Commission has orchestrated the resolution of an investment treaty dispute by the custodian of the EU legal order. The Commission has thus blurred the boundaries between the BIT and EU law with results that are likely to be to the detriment of the investor. Beyond the more specific implications, there are broader consequences to the actions taken by the Commission which implicate the rule of law. It is well established and internationally accepted that domestic law does not prevail over international law and the Commission must accept this.(102) The fact that the particular circumstances of this case result in an outcome that is displeasing to the Commission should not excuse the European executive playing fast and loose with the rule of law – in doing so, the Commission is establishing a dangerous precedent. Many other states are grappling with their international obligations in spite of the fact that they may be difficult to reconcile with their domestic legal regimes and there is no reason why the Commission should be any different. The Commission’s approach vis-à-vis arbitral decisions is particularly deplorable in light of the fact that states such as Venezuela and Argentina, which had resisted compliance with arbitral awards previously, are now acting in accordance with their international law obligations in spite of the temptation to hide behind domestic laws.(103) 2.3[f]. The Way Forward
The decisions reached by the CJEU in the coming months will have a significant impact on the future of investment treaty arbitration in Romania, both in respect of the proceedings brought by the Micula brothers and in relation to any page "348" involvement the European courts may have in the infringement proceedings. The fact that the CJEU will assume determinative powers in respect of these investment treaty arbitration issues is symptomatic of the problems with the approach taken by the Commission to date which has blurred the boundaries between investment law and EU law. Such confusion between the two distinct but coexisting legal orders does a disservice to investors. In order to preserve a predictable and stable investment environment for investors in the EU, the Commission must acknowledge the coexistence of international public law such as investment law and EU law. It seems the Commission is increasingly keen to deny the significance of other legal orders which it perceives threaten its (arguably self-anointed) dominance.(104) Following the Miculas’ success in the annulment proceedings, some have suggested that the Commission will ‘come to terms with Romania’s international law commitments’ and will abandon its efforts to ‘promote a breach of a member state’s international law obligations, rather than being a proponent of the rule of law’.(105) However, the Commission does not show any signs of concession. In fact, the Commission may interpret any refusal by certain Member State courts to enforce the Award in spite of the annulment as corroboration for the position it has taken. What is clear is that the present lack of certainty is lamentable. The current state of affairs where the Commission is demanding the termination of investment agreements without offering a viable alternative is unsatisfactory from the perspective of existing and future investors. Existing investors made their investments in reliance on a certain level and form of protection in the guise of investment treaty arbitration. Future investors may be discouraged as investors have no way of knowing what form of protection will be available to them. The deterrence of investors should be sufficient in and of itself to persuade the Commission that its current approach is not beneficial to the EU. The schools of thought which argue that there is no interplay between intra-EU BITs and EU law seem to assume that an interplay between the two legal orders is unworkable. Those who argue that EU law is a distinct and closed system page "349" of law which cannot take precedence over the obligations contained within intra-EU BITs,(106) and those who claim that Member States impliedly terminated intra-EU BITs on accession to the EU, deny the reality of the environment in which the investments were made, that is, one where both EU law and investment law were of relevance.(107) In circumstances where there are considerable problems with the Commission’s legal arguments and where it is clear that there is need for some form of further protection for intra-EU investors, the Commission would be better advised to lobby for an effective framework within which arbitral tribunals are informed by EU law when considering investment law. In this context, the authors submit that the Commission’s former tendency to intervene as amicus curiae was preferable and that the approach taken by the arbitral tribunal in Micula v. Romania (First), to interpret the relevant BIT in the context of EU law, was appropriate. Indeed, the earlier approach taken by the Commission to encourage states to renegotiate their intra-EU BITs, as opposed to terminating them, would be preferable as it acknowledges the coexistence of investment law and EU law, and offers a viable alternative to protect future investment.(108) 3. CONCLUSION
Despite the Commission’s relentless efforts, arbitral disputes concerning intra-EU BITs, including one against Romania, continued to be heard and decided upon in 2015, demonstrating the limited success achieved by the Commission.(109) However, this state of affairs may be temporary: once the CJEU decisions are made, it is unquestionable that the investment climate in Romania will change page "350" once again. Whilst this may be welcome news to dispute lawyers, the prospect for future FDI in Romania is less hopeful. In the short term, the fear is that these uncertain times will discourage intra-EU investment in Romania,(110) and perhaps even investment from beyond the EU, as investors cannot know what the future will hold. This development in investment treaty arbitration against Romania is thus of great portent and should be monitored closely.(111) Although the focus of this article has been on Romanian intra-EU BITs, the same discussion could take place in respect of several other EU Member States and their investors. The same predicament is faced by investors in at least the four other Member States facing the Commission’s infringement proceedings and potentially all Member States with intra-EU BITs still in place; such Member States may not be the Commission’s current priority but it is only a matter of time before a relevant dispute arises which attracts the Commission’s attention and appetite for intervention. The coming months will shape the future of cross-border investment in Europe; let us hope that all involved understand the consequences of their actions. page "351" page "352"
* Partner, Gleiss Lutz, Stuttgart (Germany); FCIArb, admitted to the New York and German bar as well as to the US Supreme Court, the US Court of Appeals for the Federal Circuit and the US Court of Appeals for the Second Circuit, Maîtrise en droit, Université d’Aix- Marseille III, France; LL.M. (University of Chicago; Casper Platt Award); Dr. iur (Tübingen); Diploma in International Arbitration (Chartered Institute of Arbitrators); lecturer at the Universities of Heidelberg and Hanover; Visiting Professor at the National Taiwan University, College of Law (Spring 2010); Advisory Committee Member of the Swiss Arbitration Academy; Senior Committee Member of the Contemporary Asia Arbitration Journal; International Correspondent (Germany) of Revista Română de Arbitraj (Romanian Arbitration Review). Since 2011, he has been a member of the American Law Institute (ALI). ** Associate, Macfarlanes LLP, London (UK), co-authored while on secondment with Gleiss Lutz in Stuttgart (Germany). Admitted as a solicitor of the Senior Courts of England and Wales in 2013. This article was finalized for publication on 27 April 2016 and is up to date as of that date. 1 The focus of this article is on investment treaty arbitration. However, the authors note that there have been some recent developments in international commercial arbitration involving Romania as claimant and, primarily, international power supply companies as respondents. E.g., the Romanian Department of Energy initiated ICC arbitral proceedings against Italy’s Enel in order to compel the Italian company to purchase Romania’s shares in a Romanian power supply company, Lacey Yong, Romania Sues Italian Energy Group, Global Arb. Rev., http://globalarbitrationreview.com/news/article/33014/romania-sues- italian-energy-group/ (29 Sept. 2014); a Romanian state entity has been successful in an arbitral claim against a Czech electricity distributor, Lacey Yong, CEZ Escapes Bulk of Romanian Power Claim, Global Arb. Rev., http://globalarbitrationreview.com/news/article/33731/ cez-escapes- bulk-romanian-power-claim/ (20 Apr. 2015); and Romania lost an ICC arbitration against the German company E.ON, see News, Romania Loses Arbitration Case Against E.ON – Report, https://powermarket.seenews.com/news/romania-loses-arbitration- case-against-e-on-report-489306 (accessed 20 Aug. 2015). 2 See Kyriaki Karadelis, US investor wins limited damages against Romania, Global Arb. Rev., http://globalarbitrationreview.com/news/article/33616/us-investor- wins-limited-damages-against-roman... (accessed 10 Mar. 2015). 3 For discussion on other recent developments in investment treaty arbitration against Romania, including developments made in relation to privatization contracts and umbrella clauses, the nationality of investment treaty claimants, the implications of allegations of corruption and the ability of states to bring counterclaims, see Stephan Wilske, Lars Markert & Laura Bräuninger, Pertinent Issues in Investment Arbitration Against Romania: A Case Study in Challenges and Pitfalls of Investment Disputes in Central and Eastern Europe, in Austrian Yearbook on International Arbitration, 477–509 (Christian Klausegger, Peter Klein, Florian Kremslehner, Alexander Petsche, Nikolaus Pitkowitz, Jenny Power, Irene Welser & Gerold Zeiler eds., Manz’sche Verlags-und Universitätsbuchhandlung 2015). 4 This is a necessarily brief summary. For comprehensive English language discussions of foreign investment in post-Soviet Romania and the region, see David Turnock, Aspects of Independent Romania’s Economic History with Particular Reference to Transition for EU Accession (Ashgate 2007); Aristidis Bitzenis, The Balkans: Foreign Direct Investment and EU Accession (Ashgate 2009); Entrepreneurship and Economic Transition in Central Europe (Jean- Paul Larçon ed., Springer Science + Business Media 1998). 5 UNCTAD, FDI Profile: Romania 1, http://unctad.org/Sections/dite_fdistat/docs/wid_cp_ro _en.pdf (accessed 3 Sept. 2004). 6 Cf. Foreign Investment Law No. 35/1991, UNCTAD, FDI Profile: Romania 1, http://unctad.org/Sections/dite_fdistat/docs/wid_cp_ro _en.pdf (accessed 3 Sept. 2004). 7 Sergio Alessandrini, Transition and Democracy in Romania: The Pain of a Gradualist Restructuring, in Entrepreneurship and Economic Transition in Central Europe 125, 144–146 (Jean-Paul Larçon ed., Springer Science + Business Media 1998). 8 Raphael Shen, The Restructuring of Romania’s Economy: A Paradigm of Flexibility and Adaptability 139–158 (Praeger Publishers 1997); supran. 6, at 1; Paula Nistor, FDI and Economic Growth, The Case of Romania, 15 Procedia Econ. Fin. 577, 579 (2014). 9 FDI in 2014 was equivalent to 37.4% of Romania’s GDP. See UNCTAD, World Investment Report 2015: Country Fact Sheet: Romania, http://unctad.org/sections/dite_dir/docs/wir2015/ wir15_fs_ro_en.pdf (accessed 2015). 10 Alessandrini, supran. 7, at 146. 11 Laura Giurca Vasilescu, Cerasela Pirvu & Anca Mehedintu, Foreign Direct Investment in Romania – Factors and Implications on Economic Development, in MIBES e-book 2008 141, 143 (MIBES 2008), available at http://mibes.teilar.gr/ebook/ebooks/vasilescu_pirvu _mehedintu 141- 155.pdf. 12 There are also other significant relevant factors, including the change in government and the change in international perception towards the Balkan states after the end of the Kosovo conflict in mid-1999. For a wider discussion on the causes of the upsurge in FDI, see, e.g., Saul Estrin & Milica Uvalic, Foreign direct investment into transition economies: Are the Balkans different?, 64 LEQS Paper, (July 2013); Maria Birsan & Anuta Buiga, FDI in Romania: evolution and main types of large firms in the manufacturing sector, OECD Global Forum on International Investment (2008) (available at http://www.oecd.org/investment/ globalforum/0401008.pdf); and Steven D. Roper, Romania: the Unfinished Revolution 87–108 (Harwood 2000). 13 Oana Irina Luca, Foreign Direct Investments in Romania and the Impact of EU Integration on their Trend 32 (unpublished master’s thesis, Institut Européen des Hautes Internationales, 2009) (available at http://www.ie-ei.eu/ie- ei/ressources/file/memoires/2009/luca.pdf). 14 For a summary of the history of relations between the EU and Romania, see European Commission, Romania – EU-Romania Relations, http://ec.europa.eu/enlargement/archives/romania/eu_romania_relations_en.htm (accessed 27 Apr. 2016). 15 See UNCTAD, General Profile: Romania, http://unctadstat.unctad.org/CountryProfile/ GeneralProfile/en- GB/642/GeneralProfile642.pdf (accessed 8 Apr. 2016). For other examples see UNCTAD, General Profile: Slovakia, http://unctadstat.unctad .org/CountryProfile/GeneralProfile/en- GB/703/GeneralProfile703.pdf (accessed 8 Apr. 2016); and UNCTAD, General Profile: Poland, http://unctadstat.unctad.org/ CountryProfile/GeneralProfile/en-GB/616/GeneralProfile616.pdf (accessed 8 Apr. 2016). 16 See Wilske, Markert & Bräuninger, supran. 3, at 478. 17 UNCTAD, General Profile: Romania, http://unctadstat.unctad.org/CountryProfile/ GeneralProfile/en- GB/642/GeneralProfile642.pdf (accessed 8 Apr. 2016). 18 ICSID, Database of ICSID Member States, Signatory and Contracting States, https://icsid .worldbank.org/apps/ICSIDWEB/about/Pages/Database-of-Member- States.aspx?tab=PtoT &rdo=... (accessed 12 Jan. 2016). 19 An approximate figure of 80 is provided based on different sources that record different numbers of BITs entered into by Romania. See Kluwer Arbitration, Country List of BITs: Romania, http://www.kluwerarbitration.com/CommonUI/BITs.aspx? country=Romania (accessed 27 Apr. 2013); and ICSID, Database of Investment Treaties, Romania, https://icsid.worldbank.org/apps/ICSIDWEB/resources/Pages/BITDetails.aspx? state=ST112 (accessed 27 Apr. 2016). 20 Romania signed the ECT on 17 Dec. 1994 and it came into force on 16 Apr. 1998. See International Energy Charter, Romania, http://www.energycharter.org/who-we-are/members- observers/countries/romania/ (accessed 27 Apr. 2016). A breach of the ECT is alleged in the pending ICSID case Alpiq A.G. v. Romania, ICSID Case No. ARB/14/28, see ICSID, Case Details, Alpiq AG v. Romania (ICSID Case No. ARB/14/28), https://icsid.worldbank.org/apps/icsidweb/cases/Pages/casedetail.aspx? caseno=ARB/14/28 (accessed 27 Apr. 2016). 21 See ICSID, Cases, Respondent: Romania, https://icsid.worldbank.org/apps/ICSIDWEB/cases/ Pages/AdvancedSearch.aspx?gE=d&rspndnt=romania (accessed 12 Jan. 2015). Those cases are: (1) Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award (12 Oct. 2005), (2) EDF (Services) Ltd. v. Romania, ICSID Case No. ARB/05/13, Award (8 Oct. 2009), (3) S&T Oil Equipment & Machinery Ltd. v. Romania, ICSID Case No. ARB/07/13, Discontinuance of the proceeding for lack of payment of advances (16 July 2010), (4) Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (7 Dec. 2011), (5) Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award (6 May 2013), (6) Ömer Dede and Serdar Elhüseyni v. Romania, ICSID Case No. ARB/10/22, Award (5 Sept. 2013), (7) Hassan Awdi, Enterprise Business Consultants, Inc. and Alfa El Corporation v. Romania, ICSID Case No. ARB/10/13, Award (2 Mar. 2015) [hereinafter Awdi v. Romania], (8) Ioan Micula, Viorel Micula and others v. Romania, ICSID Case No. ARB/05/20, Award (11 Dec. 2013) (annulment proceedings pending; the ad hoc committee declared the proceeding closed 13 Jan. 2016) [hereinafter Micula v. Romania (First)], (9) Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Decision on jurisdiction, admissibility and liability (21 Apr. 2015), Pending [hereinafter Gavazzi v. Romania]. See Sebastian Perry, Romania held liable under intra-EU treaty, Global Arb. Rev., http://globalarbitrationreview.com/news/article/ 33758/romania-held- liable-under-intra-eu-treaty/ (29 Apr. 2015), (10) Alpiq A.G. v. Romania, ICSID Case No. ARB/14/28, Pending (registered 17 Nov. 2014), (11) Ioan Micula, Viorel Micula and others v. Romania, ICSID Case No. ARB/14/29, Pending (registered 24 Nov. 2014) [hereinafter Micula v. Romania (Second)] and (12) Gabriel Resources Ltd. and Gabriel Resources (Jersey) v. Romania, ICSID Case No. ARB/15/31, Pending (registered 30 July 2015). 22 Wilske, Markert & Bräuninger, supran. 3, at 479. 23 Intra-EU BITs entered into by these five Member States have been the subject of recent investment treaty arbitrations: the Romania-Sweden BIT in Micula v. Romania (First), supran. 21; the Austria- Slovak Republic BIT in European American Investment Bank AG (EURAM) v. Slovak Republic, UNCITRAL PCA Case No. 2010–17; and the Netherlands-Czech Republic BIT in Eastern Sugar B.V. v. Czech Republic, UNCITRAL SCC Case No. 088/2004 [hereinafter Eastern Sugar v. Czech Republic]. 24 Douglas Thomson, European Commission takes on Member States over intra-EU BITs, Global Arb. Rev., http://globalarbitrationreview.com/news/article/33901/european- commission-takes-member-states-intra-... (18 June 2015). 25 European Commission, Press Release, Commission asks Member States to terminate their intra-EU bilateral investment treaties, http://europa.eu/rapid/press-release_IP-15-5198_en.htm (18 June 2015). 26 Thomson, supran. 4. 27 European Commission, supran. 5. 28 Treaty on the Functioning of the European Union, Arts 258 & 260 [hereinafter TFEU]. 29 Micula v. Romania (First), supran. 21, para. 150. The authors take this opportunity to note that they do not have any connection to the Micula v. Romania (First) case and have based this article on their opinions formed from exclusively publically available documents. 30 Kyriaki Karadelis, Romania ordered to pay damages after eight- year ICSID case, Global Arb. Rev., http://globalarbitrationreview.com/news/article/32124/romania- ordered-pay-damages-eight-year-icsid-c... (16 Dec. 2013). 31 Commission Decision 2015/1470, State aid SA.38517 (2014/C) (ex 2014/NN) Implemented by Romania – Arbitral Award Micula v Romania of 11 December 2013, paras 14–20 (30 Mar. 2015) (available at http://eur-lex.europa.eu/legal-content/EN/TXT/? uri=CELEX%3A32015D1470). 32 Micula v. Romania (First), supran. 21, para. 319. 33 Ibid. para. 320 et seq. 34 Ibid. para. 327. 35 Ibid. para. 255. 36 Ibid. para. 316 et seq., 334 et seq. 37 Commission Decision 2015/1470, supran. 31, para. 24. 38 Micula v. Romania (First), supran. 21, para. 1329. 39 Karadelis, supran. 31. 40 Micula v. Romania (First), supran. 21, para. 827. 41 Ibid. para. 872. 42 Commission Decision 2015/1470, supran. 31, para. 25. 43 Cf. TFEU, Art. 107(1); Commission Decision 2015/1470, supran. 31, Art. 1, para. 25. 44 Letter from European Commission to Romania, State aid SA.38517(2014/C) (ex 2014/NN) – Romania: Implementation of Arbitral award Micula v Romania of 11 December 2013 para. 6 (1 Oct. 2014) (available at http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc _code=3_SA _38517) [hereinafter Letter from Commission to Romania]. See also Sebastian Perry, EU blocks ICSID payout, Global Arb. Rev., http://globalarbitrationreview.com/news/article/32881/eu-blocks- icsid-payout/ (8 Aug. 2014). 45 See ICSID, Case Details, Ioan Micula, Viorel Micula and others v. Romania (ICSID Case No. ARB/05/20), https://icsid.worldbank.org/apps/icsidweb/cases/pages/casedetail.aspx? CaseNo=ARB/05/20 (accessed 27 Apr. 2016). 46 Commission Decision 2015/1470, supran. 31, para. 28. 47 Ibid. para. 28. 48 Ibid. para. 29. 49 Ibid. para. 29. See also Perry, supran. 44; and Luke Eric Peterson, Stay is Lifted on $ 250 Million ICSID Award after Romania Fails to Give Assurance That Award Would Be Paid in the Event of Non-annulment, Invs. Arb. Rep., https://www.iareporter.com/articles/ stay-is-lifted-on-250-million- icsid-award-after-romania-fails-t... (8 Oct. 2014). 50 Commission Decision 2015/1470, supran. 31, para. 30. 51 Alison Ross, Twin Brothers’ Award Against Romania Upheld, Global Arb. Rev., http://globalarbitrationreview.com/news/article/34779/twin-brothers- award-against-romania-upheld/ (29 Feb. 2016). 52 Letter from Commission to Romania, supran. 44, para. 72. 53 Ibid. paras. 63, 72. 54 Announcement, State aid SA.38517 (2014/C) (ex 2014/NN) – Implementation of Arbitral Award Micula v Romania of 11 December 2013: Invitation to Submit Comments Pursuant to Article 108(2) of the Treaty on the Functioning of the European Union, C393 27 Official Journal of the EU (7 Nov. 2014) (available at http://eur- lex.europa.eu/legal-content/EN/TXT/ PDF/? uri=CELEX:52014XC1107(03)&rid=1). See also Douglas Thomson, EU investigates ICSID award for illegal state aid, Global Arb. Rev., http://globalarbitrationreview.com/ news/article/33153/eu- investigates-icsid-award-illegal-state-aid... (10 Nov. 2014). 55 Cf. TFEU, Art. 108(3); and Council Regulation No. 659/1999 (22 Mar. 1999), Art. 14. Commission Decision 2015/1470, supran. 31, Arts 1–4; European Commission, Press Release, State Aid: Commission Orders Romania to Recover Incompatible State Aid Granted in Compensation for Abolished Investment Aid Scheme, http://europa.eu/ rapid/press-release_IP-15-4725_en.htm (30 Mar. 2015). 56 See Nikos Lavranos, Micula vs. (Brussels) Dracula, Global Investment Protection, http://www .globalinvestmentprotection.com/index.php/micula-vs-brussels- dracula/ (10 Sept. 2015), for a discussion on the procedure whereby Romania could seek to compel the Miculas to pay the cancelled tax debts. Such procedure could lead to proceedings before the European courts to decide on the Miculas’ legitimate expectations regarding the legality of the enforcement of the Award as constituting state aid. This is a different legal question than the question of legitimate expectation in the context of the fair and equitable treatment standard provided for in the Romania-Sweden BIT. 57 Thomson, supran. 24. 58 Douglas Thomson, EU Comes Down Against Micula Award, Global Arb. Rev., http:// globalarbitrationreview.com/news/article/33691/eu-comes-down- against-micula-award/ (1 Apr. 2015). 59 Case T-646/14 Micula and others v. Commission, ECJ, 2 Sept. 2014 (case details available at http://curia.europa.eu/juris/document/document.jsf? text=&docid=160467&pageIndex=0&doclang=EN&mode=re... (accessed 27 Apr. 2016)). 60 Thomson, supran. 24. 61 Thomson, supran. 58. 62 See Case T-704/15 Micula and others v. Commission, ECJ, 28 Nov. 2015 (case details available at http://eur-lex.europa.eu/legal- content/EN/TXT/?qid=1456843877531&uri=CELEX:62015TN0704 (accessed 27 Apr. 2016)) 63 See Case T-694/15 Micula and others v. Commission, ECJ, 30 Nov. 2015 (case details available at http://eur-lex.europa.eu/legal- content/EN/TXT/?qid=1456843877531&uri=CELEX:62015TN0694 (accessed 27 Apr. 2016)). 64 Douglas Thomson, EU Intervenes in US Court over Micula Award, Global Arb. Rev., http://globalarbitrationreview.com/news/article/34554/eu-intervenes- us-court-micula-award/ (8 Feb. 2016). 65 Thomson, supran. 64; European Cmty. v. RJR Nabisco, Inc., 764 F.3d 129, 143 n.15, 147 (2d Cir. 2014), cert. granted, 136 S. Ct. 28 (2015). 66 Ross, supran. 51. 67 Sebastian Perry, Miculas Face Delay in US Enforcement Effort, Global Arb. Rev., http://globalarbitrationreview.com/news/article/33818/miculas-face- delay-us-enforcement-effort/ (22 May 2015). 68 Micula v. Romania (Second), supran. 21. 69 Alison Ross & Richard Woolley, The Miculas Are Back, Global Arb. Rev., http://globalarbitrationreview.com/news/article/33192/miculas-back/ (21 Nov. 2014). 70 See the June 2015 comments from the French government’s legal adviser on trade and investment policy, Mathieu Raux, who remarked that Member States continuing to use the intra-EU BITs would have their lives made ‘more complicated’ by the Commission, Thomson, supran. 24. 71 See the comments from Jan Kleinheisterkamp, Associate Professor of Law at the London School of Economics, 18 June 2015, who queried whether the protection offered by EU law, specifically the Charter of Fundamental Rights, would provide sufficient protection for investors, Thomson, supran. 24. 72 Ibid. 73 Ibid. 74 Cecilia Malmström, Blog, Investments in TTIP and Beyond – Towards an International Investment Court, https://ec.europa.eu/commission/2014- 2019/malmstrom/blog/investments-ttip-and-beyond-towards-interna... (5 May 2015); European Commission, Investment in TTIP and Beyond – The Path for Reform: Enhancing the Right to Regulate and Moving from Current Ad Hoc Arbitration Towards an Investment Court (Concept Paper, 5 May 2015) (available at http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc _153408.PDF). 75 Ibid. at 4. 76 Ibid. at 5. 77 Ibid. at 9. 78 Ibid. at 11. 79 Ibid. at 8. 80 Ibid. at 8–9. 81 Ibid. at 11. 82 Douglas Thomson, EU Proposes Global Investment Court, Global Arb. Rev., http:// globalarbitrationreview.com/news/article/33776/eu-proposes-global- investment-court/ (6 May 2015). See also comments made by V.V. Veeder QC in his 26 Nov. 2015 Alexander Lecture as reported in Alison Ross, Arbitration Will Survive – but Avoid Hubris, Warns Veeder, Global Arb. Rev, http://globalarbitrationreview.com/news/article/34495/ (20 Jan. 2015). 83 Thomson, supran. 82. 84 Ibid. On the other hand, see Intra-EU Investment Treaties: Non- Paper from Austria, Finland, France, Germany and The Netherlands, https://www.tni.org/files/article-downloads/intra-eu-bits2-18- 05_0.pdf, (accessed 7 Apr. 2016); see also Douglas Thomson, States Propose Intra-EU Multilateral Investment Agreement, http://globalarbitrationreview.com/news/article/35345/states-propose- intra-eu-multilateral-investmen... (accessed 20 May 2016). 85 This issue was addressed recently by an ICSID tribunal in Dan Cake S.A. v. Hungary, ICSID Case No. ARB/12/9, Decision on Jurisdiction and Liability para. 146 (24 Aug. 2015): ‘The violation of the obligation to treat the investor in a fair and equitable manner took the form of a denial of justice. Arbitral Tribunals have used, in order to characterize judicial decisions as denials of justice, various expressions which all perfectly fit the Metropolitan Court of Budapest’s 22 April 2008 decision: “administer[ing] justice in a seriously inadequate way,” “clearly improper and discreditable,” “[m]anifest injustice in the sense of a lack of due process leading to an outcome which offends a sense of judicial propriety.” The International Court of Justice defined denial of justice as “a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of juridical propriety.” “The decision of the Metropolitan Court of Budapest does shock a sense of juridical propriety.” [footnotes omitted]. See also, Lacey Yong, Hungary Held Liable for Denial of Justice, Global Arb. Rev., http://globalarbitrationreview.com/news/article/34316/ (9 Nov. 2015). 86 Wilske, Markert & Bräuninger, supran. 3, at 504. 87 See Daniella Strik, Investment Protection of Sovereign Debt and Its Implications on the Future of Investment Law in the EU, 29 J. Intl. Arb. 183, 194 (2012); Christer Söderlund, Intra-EU BIT Investment Protection and the EC Treaty, 24 J. Intl. Arb. 455, 468 (2007). 88 As quoted in Eastern Sugar v. Czech Republic, Partial Award, para. 126 (27 Mar. 2007). 89 For a discussion on the interaction between national courts and international arbitration, see Julian D. M. Lew, Does National Court Involvement Undermine the International Arbitration Processes?, 24 Am. U. Intl. L. R., 489–537 (2009). 90 supran. 88. 91 The authors note that ‘re-routing’ the investment in this way may not prove successful for investors as the arbitral tribunal may decline jurisdiction on the basis that the re-routing was an abuse of process. For a recent example of an ICSID tribunal reaching such a decision, see Renée Rose Levy & Gremcitel S.A. v. Republic of Peru, ICSID Case No. ARB/11/17, Award (9 Jan. 2015). However, every case will turn on its facts and the BIT in question as treaty-shopping is not per se prohibited under international investment law, see CME Czech Republic B.V. (Netherlands) v. Czech Republic, UNCITRAL IIC 61 (2001), Partial Award para. 419 (13 Sept. 2001); cf. Mobil Corp., Venezuela Holdings, B.V. and others v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction para. 204 (10 June 2010); and Aguas del Tunari, S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objections to Jurisdiction (21 Oct. 2005). 92 Further Attempts by the European Commission to eradicate intra-EU BITs, Volterra Fietta, http://www.volterrafietta.com/further-attempts-by-the-european- commission-to-eradicate-intra-eu-bits... (accessed 14 Jan. 2016). The law of unintended consequences provides that actions of people, and in particular of governments, will inevitably have effects that are unanticipated or unintended, see Rob Norton, Unintended Consequences, in The Concise Encyclopedia of Economics (Liberty Fund, Inc. 2007) (available at http://www.econlib.org/ library/Enc/UnintendedConsequences.html). 93 Gavazzi v. Romania, supran. 21. 94 Luke Peterson, Romania Loses Another Intra-EU BIT Case, This Time under a Treaty That Was Mutually Terminated but Whose Sunset Clause Provided Arbitral Footing, Invs. Arb. Rep., http://www.iareporter.com/articles/romania-loses-another-intra-eu-bit- case-this-time-(24 Apr. 2015). 95 Achmea B.V. v. Slovak Republic, UNCITRAL, PCA Case No. 2008–13, Award on Jurisdiction, Arbitrability and Suspension, para. 276 (26 Oct. 2010). See also Further Attempts by the European Commission to Eradicate Intra-EU BITs, supran. 92. See also Jarrod Hepburn, In Hitherto Unpublished Ruling, Greenwood/Stern Tribunal Reject Plea That Intra-EU BIT Was Implicitly Terminated under the VCLT Due to EU Accession, Invs. Arb. Rep., http://www.iareporter.com/articles/in-hitherto-unpublished-ruling- greenwoodstern-tribunal-reject-ple... (2 Apr. 2015). See also Stephan Wilske & Claudia Krapfl, German Federal Court of Justice Requests Guidance from ECJ on Compatibility of Intra-EU BITs with EU Law, Practical Law Arbitration Weekly Email to 18 May 2016; Douglas Thomson, Intra-EU BITs to Get Their Day in Court, http://globalarbitrationreview.com/news/article/35311/intra-eu-bits- day-court (accessed 10 May 2016) (both articles are relating to Achmea B.V. v. Slovak Republic). 96 Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Award, para. 4.112 (25 Nov. 2015). 97 See supra. 98 See Hanno Wehland, Intra EU Investment Agreements and Arbitration: Is European Community Law an Obstacle?, 58 Intl. Comp. L. Q. 297, 307 (2009). 99 Micula v. Romania (First), supran. 21, at para. 503. 100 See Micula v. Romania (First), supran. 21. 101 Christer Söderlund, Does Compensation for a Treaty Breach Qualify as State Aid?, Global Arb. Rev., http://globalarbitrationreview.com/journal/article/33796/does- compensation-treaty-breach-qualify-sta... (13 May 2015). 102 See Vienna Convention on the Law of Treaties (22 May 1969), Art. 27, sentence 1 (‘A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.’). See also William W. Park & Alexander A. Yunos, Treaty Obligations and National Law: Emerging Conflicts in International Arbitration, 58 Hastings L. Rev. 251, 252 (2006) (with further references). 103 See, e.g., the comments made by Venezuelan oil minister, Eulogio Del Pino, in relation to the state’s recent settlement of an investment treaty case, which, he said, demonstrated the ‘country’s responsibility toward international investors’ as quoted in Douglas Thomson, Venezuela settles with Gold Reserve, Global Arb. Rev., http://globalarbitrationreview.com/news/article/34773/venezuela- settles-gold-reserve/ (25 Feb. 2016). See also Tom Jones, Argentina to Settle More Treaty Awards, Global Arb. Rev., http://globalarbitrationreview.com/news/article/35324/argentina- settle-treaty-awards (accessed 16 May 2016). 104 E.g., on 18 Dec. 2014 the CJEU (clearly aligned with the Commission) issued a negative opinion (Opinion 2/13) on the European Union’s accession to the European Convention on Human Rights (ECHR) as such accession would have given the European Court of Human Rights, an external body, the power to review the application of EU law. The opinion ensured that the EU did not accede to the ECHR. Opinion 2/13 is available at http://curia.europa.eu/juris/document/document.jsf? docid=160882&doclang=EN (18 Dec. 2014). In contrast to the view taken by the Full Court, see View of Advocate General Kokott, Opinion Procedure 2/13, http://curia.europa.eu/juris/document/document.jsf? text=&docid=160929&pageIndex=0&doclang=en&mode=ls... (13 June 2014). See also Editorial comments: The EU’s Accession to the ECHR – a ‘NO’ from the ECJ!, 52 Com. Mkt L. Rev. 1–15 (2015). 105 See Yas Banifatemi’s comments as cited by Ross, supran. 51. 106 Christian Tietje, Bilaterale Investitionsschutzverträge zwischen EU-Mitgliedsstaaten (Intra-EU BITs) als Herausforderung im Mehrebenensystem des Rechts, 104 Beiträge zum transnationalen Wirtschaftsrecht, 11 (2011). 107 See Achmea B.V. v. Slovak Republic, supran. 95, para. 136 (‘Respondent concludes that “due to the fact that the subject matter regulated by the BIT is comprehensively covered by EU law, the provisions of the BIT are no longer applicable … and thus the Tribunal’s jurisdiction to decide on the breach of the EC Treaty is not given.” ’ [footnote omitted]). The arbitral tribunal in this case rejected Slovakia’s argument. However, the question of whether the award contravenes EU law is currently before an appeal court in Germany, where Slovakia has been challenging enforcement, Thomson, supran. 24. 108 Cf. TFEU, Art. 351 which provides that in case of incompatibility between investment agreements and EU law, Member States ‘shall take all appropriate steps to eliminate the incompatibilities established’. In 2009, the ECJ held three states liable for failing to comply with the Commission’s instruction that they renegotiate their intra-EU BITs: Case C-205/06 Commission v. Austria [2009] E.C.R. I-1301; Case C-249/06 Commission v. Sweden [2009] E.C.R. I-1335; Case C-118/07 Commission v. Finland [2009] E.C.R. I-1301. 109 Postova Banka A.S and Istrokapital SE (Slovakia and Cyprus) v. Hellenic Republic, ICSID Case No. ARB/13/8, Award (9 Apr. 2015); ECE Projektmanagement v. Czech Republic, UNCITRAL PCA Case No. 2010-5, Award (19 Sept. 2013); Gavazzi v. Romania, supran. 21. 110 However, subject to the caution advocated supran. 91, it is probable that potential investors will be advised to structure their investments via other states, e.g., super powers with the capacity to offer considerable diplomatic espousal such as the United States and China, to escape the remit of the Commission. 111 With respect to the latest developments of investment treaty arbitration against Romania, see Douglas Thomson, New Romania Dispute Has Echoes of ‘Rompetrol’, Global Arb. Rev., http://globalarbitrationrevie$,.cor/news/article/35543/newromania- dispute-echoes-rompetrol/ (accessed 1 Aug. 2016) (‘On 22 July 12016l, KazMunayGas and its Dutch subsidiary KMG International notified the government that it plans to bring a claim under the Energy Charter Treaty and Romania’s bilateral investment treaties with the Netherlands and Kazakhstan.’). See also Sebastian Perry & Alison Ross, Bribery Prosecution in Romania Triggers ICSID Claím, Global Arb. Rev., http://globalarbitrationreview.com/news/article/35542/briber),- prosecution-romania-triggers-icsid-cl... (‘ln a case registered at ICSID on 5 July [2016], Netherlands-registered Nova Group Investments says its chairman Dan Adamescu’s life is at risk after he received a four-year prison sentence in February for bribing judges to influence insolvency proceedings relating to his companies.’)
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