Ius Gentium

University of Baltimore School of Law's Center for International and Comparative Law Fellows discuss international and comparative legal issues


Leave a comment

The Double-Edged Sword in the Stone: London’s Fate as a Seat of International Arbitration Post-Brexit

Esther-Jane Grenness

Her chest tightened and her palms began to sweat when an email popped up in her inbox with the subject line, “Attention HSBC London Employees.” Her worst fears were confirmed. Her job was moving to Paris as “preemptive action” in response to Brexit uncertainties.[1] She picked up her phone and dialed her father’s number. A Welsh collier who eagerly voted “Yes!” to leave the EU, he picked up the phone, happy to see his daughter calling. Without even saying hello, she blurted, “Thanks a lot, Da! My job’s to move to France because you an’ all voted to give them the boot.” Tears welled up in her eyes. After a moment’s pause, her father exclaimed, “Bloody foreign loving bastards! Shame on them. They’re a British bank.” Dejected, she mumbled, “It’s all because of Brexit.”

Brexit is the term used to describe the United Kingdom’s June 2016 referendum in which 51.9% of the eligible electorate voted to leave the European Union.[2] Not expecting it to actually happen, the United Kingdom must now decide how, and when, to trigger Article 50 of the Treaty on the Functioning of the European Union (TFEU – or Lisbon Treaty). Article 50 gives the U.K. two years in which to negotiate its exit, but the legislation that links the U.K. and EU is exceedingly complex. Not surprisingly, experts argue it could take ten years to unravel legal ties going back 45 years to the enactment of the European Communities Act of 1972.[3]

The Razor Edge

There is no doubt that Brexit has the British financial markets in turmoil. In addition to HSBC’s dash for the door, VTB Bank, a Russian bank, announced recently that it will also relocate due to Brexit.[4] Moves like this highlight the depth of the Brexit sword’s cut. London is a major player in the financial clearing sector, which is where banks act as intermediaries in business transactions.[5] As a member of the EU, the U.K. enjoys what is known as passporting, which allows the free flow of funds between countries in the European Economic Area (EEA).[6] Without such a free flow, additional regulatory authorizations would be necessary.[7] Brexit strips the U.K. of these EU benefits and leaves the U.K.’s financial market clout teetering on the edge of a sea of quicksand. And it’s not just the free flow of money that’s implicated in Brexit. The heretofore mobile workforce with expertise in “complex and multi-jurisdictional matters”[8] will be curtailed. British lawyers who are currently allowed to “provide interstate services on a temporary basis” in EU member states could lose that right if Brexit goes through.[9] Indeed, experts argue London could lose as many as 18,000 jobs in the legal and accounting services sector, and 83,000 total jobs over the next seven years as a direct result of Brexit.[10]

 grenness_blog1_photo2

The Blunt Edge

Where does this financial sector flight leave the international arbitration business in London? According to a 2015 survey, London is one of the most popular seats of international arbitration.[11] British law is also among the most widely chosen law to govern international commercial contracts—whether or not the contract was formed, performed, or even remotely related to Britain.[12] With such a top spot, the U.K. understandably doesn’t want to lose its primacy to competing international arbitration seats such as Paris, Dubai, Singapore, Hong Kong, Geneva, New York, Zurich, and Stockholm.”[13]

grenness_blog1_photo4

Most writers on the subject believe London’s primacy as a seat for international arbitration will chug along “business as usual.”[14] There are two major reasons. First, EU law doesn’t govern arbitral awards. Rather, any awards granted in London are governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention. This Convention allows parties to enforce arbitral awards in the domestic courts of any of its 156 member states. Second, the U.K.’s Arbitration Act of 1996 is very friendly to arbitration. Britain’s courts take a largely hands off approach but will step in to assist arbitral tribunals with such things as compelling witnesses to testify, preserving evidence, and ordering injunctive relief.[15]

Other arguments posed are that because the U.K. would no longer be bound by rulings from the Court of Justice of the European Union (CJEU), any precedent considered harmful to arbitration could be cast aside.[16] They argue further that in the field of investor-state arbitration, Brexit has its perks. After Brexit, the U.K. would not be bound by the EU’s recent move away from investor-state dispute settlement (ISDS) to an untested investment court system (ICS). Under the current ISDS model, investors are allowed a voice in choosing the arbitrators that will hear their case. Under the EU’s new ICS model, investors would no longer have a voice in arbitrator selection. Only member states would manage the names on a revolving roster of randomly appointed arbitrators. In a post-Brexit world, investors could continue to cherry pick from the various investment treaties to which the U.K. is a party in its own right. Investors could also happily anticipate the new investment treaties the U.K. would now be free to negotiate on its own behalf.

grenness_blog1_photo5

Given these sunny predictions, one quickly nods one’s head in agreement with such common sense arguments. The sword is still in the stone, however. More recent studies have pointed out that the proponents of these arguments are largely U.K. centered practitioners, who are naturally biased in favor of keeping London at the top of the list.[17] In addition, optimists downplayed the significance of the financial sector’s flight. Even the most myopic commentators had to acknowledge London’s primacy as a seat of arbitration is “undeniably influenced by its role as an international business hub,” but they were quick to soften the potential “knock-on effect” as “expected to be minimal.”[18] A more realistic prediction for this blunt side of the sword is that an “exodus of businesses” would eviscerate London’s status as the financial hub in Europe.[19] Therefore, if London lost its status “and something else becomes the financial center of Europe, over time you may see arbitration gravitate that way.”[20]

grenness_blog1_photo6

As a British national living abroad, I wasn’t eligible to participate in the U.K. referendum. I wish I could say I agree with the optimists, but the writing is on the wall. Most of the financial sector jobs are moving to Paris.[21] Because Paris is one of London’s competitors for international arbitration market share, it’s only a matter of time before the arbitration business bleeds out of London. The people of Britain have their hands on both edges of the Brexit sword, but as they pull it out of the stone, London’s international arbitration market is likely to wind up cut just as deeply as that of its financial sector.

­

Esther-Jane Grenness is an evening student in her fourth year of studies at the University of Baltimore School of Law. She graduated from the University of Baltimore in 2013 with a Bachelor of Arts in Jurisprudence and obtained her Associate of Arts from Howard Community College in 2001. Esther is a member of the International Arbitration Committee’s Investment Treaty Working Group of the American Bar Association’s Section of International Law. She also participated in the Mentorship program with the Women in International Law Interest Group of the American Society of International Law. In addition to her studies, Esther coordinates government procurement contracts in the mobility sales operations group for AT&T’s Global Business – Public Sector Solutions segment.

 

[1] Chris Johnson, HSBC Prepares to move 1,000 U.K. Jobs to Paris Due to Brexit Confusion, Law.com (Jan. 11, 2017), http://www.law.com/sites/almstaff/2017/01/11/hsbc-prepares-to-move-1000-u-k-jobs-to-paris-due-to-brexit-confusion/?et=editorial&bu=Law.com&cn=20170111&src=EMC-Email&pt=ALM%20Morning%20Minute&slreturn=20170021202538.

[2] King & Wood Mallesons, Brexit and Arbitration: Shaken but not Stirred, KWM News & Insights (Sept. 15, 2016), http://www.kwm.com/en/knowledge/insights/the-impact-of-brexit-on-international-arbitration-20160915.

[3] Caroline Simson, What Brexit Could Mean for International Arbitration, Law360 (Jun. 22, 2016, 5:22 PM EDT), https://www.law360.com/articles/808801/what-brexit-could-mean-for-international-arbitration.

[4] Chris Johnson, EY Report: Brexit Could Cost London 18,000 Legal, Accounting Jobs, The Am Law Daily (Nov. 14, 2016), http://www.americanlawyer.com/id=1202772254983/EY-Report-Brexit-Could-Cost-London-18000-Legal-Accounting-Jobs?mcode=1202617075486&curindex=0&curpage=ALL&slreturn=20170021203506.

[5] Clearing, Investopedia, http://www.investopedia.com/terms/c/clearing.asp (last visited Jan. 20, 2017).

[6] What is Passporting? Definition and Meaning, Market Business News, http:/marketbusinessnews.com/financial-glossary/passporting-definition-meaning/ (last visited Jan. 20, 2017).

[7] Id.

[8] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 16 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf.

[9] Caroline Simson, Post-Brexit Barriers Could Hurt London Arbitration: Study, Law360 (December 15, 2016, 5:18 PM EST), https://www.law360.com/articles/872676/post-brexit-barriers-could-hurt-london-arbitration-study.

[10] Chris Johnson, EY Report: Brexit Could Cost London 18,000 Legal, Accounting Jobs, The Am Law Daily (Nov. 14, 2016), http://www.americanlawyer.com/id=1202772254983/EY-Report-Brexit-Could-Cost-London-18000-Legal-Accounting-Jobs?mcode=1202617075486&curindex=0&curpage=ALL&slreturn=20170021203506.

[11] Caroline Simson, Post-Brexit Barriers Could Hurt London Arbitration: Study, Law360 (December 15, 2016, 5:18 PM EST), https://www.law360.com/articles/872676/post-brexit-barriers-could-hurt-london-arbitration-study.

[12] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 16 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf

[13] Caroline Simson, Post-Brexit Barriers Could Hurt London Arbitration: Study, Law360 (December 15, 2016, 5:18 PM EST), https://www.law360.com/articles/872676/post-brexit-barriers-could-hurt-london-arbitration-study.

[14] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 15 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf

[15] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 16 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf

[16] King & Wood Mallesons, Brexit and Arbitration: Shaken but not Stirred, KWM News & Insights (Sept. 15, 2016), http://www.kwm.com/en/knowledge/insights/the-impact-of-brexit-on-international-arbitration-20160915.

[17] Maxi Scherer and Johannes Koepp, Consequences of “Brexit” on International Dispute Resolution: Special Issue of Journal of International Arbitration, Kluwer Arbitration Blog, (Oct. 21, 2016), http://kluwerarbitrationblog.com/2016/10/21/consequences-brexit-international-dispute-resolution-special-issue-journal-international-arbitration/.

[18] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 18 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf

[19] Caroline Simson, What Brexit Could Mean for International Arbitration, Law360 (Jun. 22, 2016, 5:22 PM EDT), https://www.law360.com/articles/808801/what-brexit-could-mean-for-international-arbitration.

[20] Id.

[21] Chris Johnson, HSBC Prepares to move 1,000 U.K. Jobs to Paris Due to Brexit Confusion, Law.com (Jan. 11, 2017), http://www.law.com/sites/almstaff/2017/01/11/hsbc-prepares-to-move-1000-u-k-jobs-to-paris-due-to-brexit-confusion/?et=editorial&bu=Law.com&cn=20170111&src=EMC-Email&pt=ALM%20Morning%20Minute&slreturn=20170021202538.

Advertisements


4 Comments

In Defense of Villainy

Esther-Jane Grenness

Mr. International-Lawyer sits down at his desk and boots up his laptop. As is his usual practice, he opens his email and sips his coffee while the morning sun streams pleasantly through his office window. He first peruses a Listserv email from the international arbitration committee of which he is a member. In that email, there are links to a four-part BuzzFeed investigation[1] examining investment treaty arbitration (ITA), sometimes referred to as investor-state dispute settlement (ISDS). Mr. International-Lawyer’s interest is highly piqued, after all, he has served as arbitrator on several investment treaty tribunals.

The opening image of the BuzzFeed investigation’s first installment is enough to get Mr. International-Lawyer’s intellectual-battle-adrenaline pumping. He opens the articles one-by-one and reads on, glued to the pages, his indignation rising with each salacious detail. His fingertips rest on his warm coffee cup. Heat travels from his fingertips along the length of his arm, rushes up his neck, and boils over into his face. He’s almost, though not quite, livid. Having finished reading the exposé, Mr. International-Lawyer fires off a reply-all to the recipient list of the original email. The four-part BuzzFeed article, he argues, is full of wild claims and factual errors. Most graciously, Mr. International-Lawyer directs his colleagues to a factsheet[2] published by the International Bar Association (IBA), which contains point-by-point refutations of assertions made by critics of ITA/ISDS.

grenness_blog1_photo1

In the four-part BuzzFeed series, there are several examples of the very worst abuses of ISDS mechanisms available to foreign investors in the 3,000+ investment treaties dotting the globe. When discussing the role of the lawyers in these examples, one of Mr. International-Lawyer’s colleagues referred to the behavior as the “gamesmanship” in which less scrupulous counsel sometimes engage. While the stories are despicable, and an in-depth analysis of investment treaty arbitration is beyond the scope of this post, a couple things did stand out to me as I read two of the narratives in particular.

In the case of Sri-Lanka’s[3] bad oil-derivatives investment with a contract that was despicably one-sided, I’m quite struck at how little responsibility the BuzzFeed article placed on the executive who signed the deal. Conventional wisdom would say that one should have to pay the natural consequences of one’s own foolish actions, but the BuzzFeed article placed blame entirely on the bank for not doing the executive’s due-diligence for him. Any person heading a corporation, whether state-owned or not, should be at least marginally business savvy. The man who bound an entire nation was one who merely “dabbled” in the stock market. He admitted he didn’t completely understand what he was signing, yet he didn’t seek counsel from those who would understand the contract—lawyers. Even worse, he didn’t even read all parts of the contract.

grenness_blog1_photo2

Ashantha de Mel, the man who didn’t read the contract

While there certainly is an expectation of good-faith negotiations and sound policy reasons for protecting against unconscionable contracts, we’re talking about the head of a corporation here, not a sole-proprietor with little to no bargaining power. Advocating against allowing the bank to collect its money is disruptive to the rule of law—certainly in this instance at least. While morally despicable, law and morality don’t always intersect. Sri-Lanka wanted to block a legitimate enforcement of a contract because it deemed the contract “substantially tainted” and heartily disliked the manner in which the bank courted a signature. Sri-Lanka’s refusal to honor its foolishly-entered obligation is the very sort of arbitrary State action against which investment treaties are designed to protect. Unfortunately, sometimes such a reprehensible outcome is the unsavory result. But the burden lies on the signer to do his due diligence—especially one who signs on behalf of a corporation where a nation foots the bill. The burden should not be placed on a foreign investor to sift through another country’s policies on signatory authority to determine whether the person signing actually had the power bind the corporation over which he presides. An ordinary executive, acting in the ordinary course of business, usually has the authority to bind the company he heads. As such, the bank had a legitimate expectation and a legally vested right to realize its profits, ill-gained as they may have been.

The Mississippi funeral home case[4] is a clear illustration of why investment treaties have provisions to protect foreign investors in the first place. It makes no difference here that the nation against whom the case was brought has a well-developed, usually fair justice system. When the law of the country in which a foreigner invests returns an unjust, clearly biased result, investors have recourse to remedy the wrong. Without such recourses for individuals against States, an investor would have to rely on his or her country of citizenship to intervene. Nations have a choice whether they will intervene on their national’s behalf or not. Investment treaty ISDS mechanisms provide individuals with standing against a Nation.

While the Canadian investor may certainly have been at fault and deserved to lose his case, he was entitled to a fair trial. Clearly, xenophobia, and outright hostility to the “other” element in the case prevailed. Had this been a situation in which the tables were turned and it was an American investor who received the same treatment in, say, Mexico, there would have been no sovereignty objection. The possibility of a foreign tribunal having the ability to question and overturn a sovereign nation’s determination would have been applauded. Only recently have developed countries been truly faced with having to answer for their own capricious actions, if any. Why is it that we now hear such loud protestations over threats to America’s sovereignty? Suddenly objecting to ISDS mechanisms we largely wrote, and founding the objection on grounds of sovereignty and the availability of sophisticated judicial systems is plain arrogance.

grenness_blog1_photo3

Mississippi case jury award

Notwithstanding the above defenses, the BuzzFeed investigation was truly appalling. As one reads the articles, questions churn within one’s mind: How on earth can this happen?!? Who would sanction such egregious abuses? Aren’t the provisions meant to incentivize infusions of much-needed capital into developing countries? Isn’t this a system that protects foreign investors from the vagaries of all-too-often capricious regimes? What went awry? Unfortunately, the answers, and the possible solutions that may reform a legitimacy-challenged system, are complex and difficult to boil down into a high-level, easily digestible summary. There are no easy approaches, but before we advocate for throwing out the kitchen with the sink, we need to consider the costs of dismantling an entire system.

­

<img height=”1″ width=”1″ style=”display:none” src=”https://www.facebook.com/tr?id=1772280696341572&ev=PageView&noscript=1″ />

Esther-Jane Grenness is an evening student in her fourth year of studies at the University of Baltimore School of Law. She graduated from the University of Baltimore in 2013 with a Bachelor of Arts in Jurisprudence and obtained her Associate of Arts from Howard Community College in 2001. Esther is a member of the International Arbitration Committee’s Investment Treaty Working Group of the American Bar Association’s Section of International Law. She also participated in the Mentorship program with the Women in International Law Interest Group of the American Society of International Law. In addition to her studies, Esther coordinates government procurement contracts in the mobility sales operations group for AT&T’s Global Business – Public Sector Solutions segment.

[1] https://www.buzzfeed.com/globalsupercourt

[2] http://www.ibanet.org/Article/Detail.aspx?ArticleUid=1dff6284-e074-40ea-bf0c-f19949340b2f

[3] https://www.buzzfeed.com/chrishamby/not-just-a-court-system-its-a-gold-mine?utm_term=.bjWJaxGwM#.lyzX4wNOq

[4] https://www.buzzfeed.com/chrishamby/homegrown-disaster?utm_term=.jtNOQjN3w#.bcN9yEN0K


Leave a comment

Apple Bobbing, Double-Dipping Corporate Fat-Cats Go Shopping

Esther-Jane Grenness

A corporate fat-cat struts from a court-like room. He totes around not just one, but two cash-laden suitcases. Behind him, one of two arbitrators steps down from the bench. This arbitrator surreptitiously tucks a wad of cash into his pants belt under his official-looking robe. In his other hand, he nonchalantly waves a case file in the air. The other arbitrator leans back in her chair and tents her fingers together; a satisfied smile plays across her lips as she admires her own wad of cash. Her wad is nicely tucked under the file for the case on which she has just ruled. The sound of two gavels striking their respective blocks still rings in the air. Behind the defendant’s bench, a little man stands with a bemused expression. In one hand he holds pennies in his palm.  With the other hand, he has turned inside-out a very empty pocket.

 

EG Blog 3_Photo1

Courtesy of Helene Grenness-Atkins (www.heleneatkinsart.com)

How did that corporate fat-cat get two suitcases full of cash? Why are there are two gavels and two case files? And who is that poor little man behind the defendant’s table with empty pockets? This is how investor-State arbitration is viewed by the outside world – with a proverbial corporate fat-cat strutting from a room with suitcases full of cash. The corporate fat-cat represents the foreign investor, and the poor, empty pocketed little man represents the State. The two arbitrators with wads of cash represent corporate bias, and the two case files represent separate investment treaties. Finally, the single court-like room symbolizes that the two cases are based on the same claim, and the sound of the gavels underscores the general finality of arbitral awards.

Such a turn of events can – and did – arise as a result of a fragmented system where there are a multitude of options to pick from when foreign investors wish to sue States. This has led to so many problems that the system is almost at a crisis point. Legitimacy issues and Swiss-cheese-worthy procedural rules abound. These are problems inherent to a fragmented system. With each new treaty, it seems more provisions are added to fix problems in prior treaties. But merely patching the holes in the system with new treaties is not sufficient. There are too many treaties with too many countries involved for a treaty-by-treaty fix.

One of the problems in the current system is known as treaty shopping. This is where a corporation (or individual) picks and chooses among investment treaties to find the one most beneficial to its purposes. A corporation will create subsidiaries or shell corporations in a particular country to gain national status, which is known as mailbox citizenship. Because there are over three thousand investment treaties worldwide, a corporation can easily have access to the benefits from multiple investment treaties for its business in a single country. There are two problems that arise from access to multiple treaties in one country: double-dipping and apple bobbing.

EG Blog 3_Photo2

Ronald Lauder, Corporate Fat-Cat

Double-dipping happens when treaty shopping leads to parallel claims where a claimant can have two cases for the same claim under two different treaties. This allows foreign investors to potentially obtain two judgments for the same claim from separate tribunals (i.e. double-dipping in a State’s coffers). This was the result in the infamous Czechoslovakian cases, Lauder v. The Czech Republic and CME Czech Republic B.V. v. The Czech Republic.[1] In this situation, our “real” corporate fat-cat, Ronald Lauder, an American businessman, brought suit in his own right under the U.S.-Czech Republic bilateral investment treaty (BIT). But, like a Cheshire cat stealing cream, Lauder filed an additional suit with virtually the same facts using a Dutch subsidiary of one of his companies.[2] This second suit was brought under the Netherlands-Czech Republic BIT. Lauder won both cases.[3]

Arbitral tribunals utilizing United Nations Commission on International Trade Law (UNCITRAL) procedural rules decided both of these cases. Two separate tribunals using the same dispute settlement rules led to a double payout. Two other sources of rules for such suits against States are the International Centre for the Settlement of Investment Disputes (ICSID) and the Permanent Court of Arbitration (PCA) procedures. The procedural rules under which an arbitral tribunal operates often dictate the outcome.[4] To prevent outcomes such as that in the Czechoslovakian cases, there are safeguards in the EU Commission’s investment court proposal, which is part of the EU-Vietnam BIT,[5] Comprehensive Economic and Trade Agreement (CETA),[6] and the yet-to-be-concluded Transatlantic Trade and Investment Partnership (TTIP).[7] In the TTIP, no case may proceed unless the claimant can show that any pending cases have been dismissed.[8] But these treaties only bind the EU, Vietnam, Canada, and the United States.

Apple bobbing happens when treaty shopping allows a losing foreign investor to sue a State for a second time via a different method (i.e. going for a second bite at the apple). Phillip Morris attempted this strategy in Australia. Australia passed the Tobacco Plain Packaging Act of 2011 in which all tobacco products had to be in brown packaging with public health messages. The packaging could not display company logos. Phillip Morris challenged the prohibition on using its logo in Australia’s domestic courts and lost. Not willing to back down, Phillip Morris created a shell company in Hong Kong and brought another case against Australia on the same claim under the Hong Kong, China-Australia BIT.[9]

EG Blog 3_Photo3

Plain Packaging for Cigarettes in Australia

Ultimately, Phillip Morris lost,[10] but this dispute, and others like it, led to a provision nicknamed the tobacco carve-out in the recently concluded Trans-Pacific Partnership (TPP). This provision protects a signatory State’s sovereign right to pass regulations protecting such things as public health.[11] The TTIP and CETA have similar provisions.[12] But this fix only binds the EU, Vietnam, Canada, Australia, Japan, Malaysia, Mexico, Peru, Chile, Brunei, Singapore, New Zealand, and the United States.

Clearly, it’s time to close the store. In both examples of abusive treaty shopping, the fixes were treaty-by-treaty, and they are only binding on a few States. This method is insufficient to address the magnitude of the problem. Much of those old treaties are still on the shelf, ripe for the foreign investor’s picking. With over three thousand investment treaties in existence, it doesn’t take much to fathom the futility of the treaty-by-treaty remedy to a fragmented system. Treaty shopping is just ONE of the problems with the existing system. The case for a single, worldwide investment court is nigh. Sadly, there are no easy ways to implement such a court. With the International Investment Court proposed in the recent EU BITs, we’re a step closer, but some in the industry have been dismissive, calling the investment court proposal “creative” when asked for an opinion.[13] Notwithstanding the critics, I believe we’re turning in the right direction. Unfortunately, whether our destination is on the horizon, over the hill, or on the other side of the mountain is impossible to predict.

Esther-Jane Grenness is an evening student in her third year of studies at the University of Baltimore School of Law. She graduated from the University of Baltimore in 2013 with a Bachelor of Arts in Jurisprudence and obtained her Associate of Arts in General Studies from Howard Community College in 2001. In addition to her studies, Esther has managed projects for almost 10 years in AT&T’s Global Business – Public Sector Solutions group. Esther lives in Columbia, MD, with her teenage daughter. Esther is primarily interested in private international law, specifically related to investment-state dispute settlement.

[1]Andrea K. Bjorklund, “Private Rights and Public International Law: Why Competition Among International Economic Law Tribunals Is Not Working,” 59 Hastings L.J. 241, 258-259.

[2] Id.

[3] http://www.italaw.com/documents/LauderAward.pdf and http://www.italaw.com/sites/default/files/case-documents/ita0180.pdf

[4] Bjorklund, above note 1, 249 – 259 (general discussion of the developments in ICSID tribunals’ interpretation of whether to grant jurisdiction in cases of corporate restructuring to gain access to arbitration for a particular dispute even where the treaty doesn’t explicitly address such an abuse)

[5] EU-Vietnam BIT, Article 24(2), http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154224.pdf

[6] CETA, Article 8.24(b), http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154224.pdf

[7] TTIP, Section 3, Sub-Section 5, Article 14(1), http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf

[8] Id., Section 3, Sub-Section 5, Article 14(2)

[9] Julien Chase, “The Treaty Shopping Practice: Corporate Structuring and Restructuring to Gain Access to Investment Treaties and Arbitration,” 11 Hastings Bus. L.J. 225, 245-246

[10] http://www.theguardian.com/australia-news/2015/dec/18/australia-wins-international-legal-battle-with-philip-morris-over-plain-packaging

[11] TPP, Article 9.9(d)(ii), https://medium.com/the-trans-pacific-partnership/investment-c76dbd892f3a#.v3c7otd7r

[12] TTIP, Section 2, Article 2(1), and CETA, Section D, Article 8.9(1)

[13] Quip from panel speaker Ko-Yung Tung during the breakout session, Forum Non Concurrence in the Resolution of Investment Treaty Disputes, at the American Society of International Law’s110th Annual Meeting in Washington, DC, March 31, 2016.

.


1 Comment

The Trans-Pacific Partnership’s Investor-State Dispute Settlement Provision : A Baby Step toward Legitimacy

Esther Grenness

In Senator Elizabeth Warren’s (D-MA) op-ed published in the Washington Post in February 2015, she excoriated the Investor-State Dispute Settlement (ISDS) provision of the Trans-Pacific Partnership (TPP) free-trade agreement.[1] In her op-ed, she painted the ISDS provision as a nefarious tool by which multinational corporations could “tilt the playing field” in their favor.[2] This would undermine U.S. sovereignty by enabling foreign corporations to take the United States to a corporate-lawyer-infested arbitration panel and slough off regulations designed to protect the public.[3] And the cherry on top? All this would occur without a day in U.S. courts and the legal bill would be dumped on the backs of U.S. taxpayers.[4]

Grenness Blog1_Photo1

Even though Warren’s op-ed was in response to the as yet unfinished agreement, opposition has remained steadfast against the TPP.  With such a visceral reaction to a single provision of a free-trade agreement, one would think that ISDS provisions were something new to U.S. involvement in the investment treaty world. This is far from the case. There are currently over “3,000 agreements worldwide [that] utilize some form of ISDS, and the United States is party to 50 such agreements.”[5]

Grenness Blog1_Photo2

While ISDS provisions are nothing new, they are still highly controversial. The line between private and public law is blurred. According to Stephen Schill, “investor-State arbitration is better analogized with judicial review of governmental conduct under administrative (or constitutional) law at the domestic level or international judicial review.”[6] Because investor-State arbitral decisions affect entire nations, the reality is that ISDS functions as “an instrument of global governance” where “public law values of equality, predictability, transparency, and democratic control of decision-making” come into play.[7] This is the foundation of the major objections to the practice of ISDS. The processes is notorious for the lack of transparency, the inability for third parties to participate or have a voice in the process, the risk of improperly biased arbitrators, and the lack of appealable decisions. Furthermore, without a consistent body of law from which to draw, a decision under one treaty can violate a provision in another treaty.[8]

Grenness Blog1_Photo3

 

Even with these very real and valid concerns about the whole ISDS system, the ISDS provision in the TPP is not the demon it has been made out to be. It follows on the heels of revisions to the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules and the Mauritius Convention, which expanded third-party participation in disputes and increased transparency in the process.[9] The Mauritius Convention, in particular, has the potential to expand this transparency “to the entire treaty-based international investment regime as it stood on 1 April 2014.”[10] Indeed, the TPP’s ISDS requirements are among the most liberalized and transparent of any trade agreement reached to date. The provision requires publication of the documents, and it allows concerned third parties to participate as amicus curiae.[11] Most significantly, the provision requires not just application of the rules of the treaty itself, but also the application of relevant rules of international law.[12] This takes ISDS jurisprudence beyond the scope of a “treaty-by-treaty approach to investment law reform.”[13] The “normative pull”[14] of the decisions reached under the TPP will have more gravity, which brings the international investment body of law closer to the goal of consistency.

Grenness Blog1_Photo4

However, the TPP does not currently have a method by which decisions may be appealed (although this may be changed at a later date).[15] Enter the Trans-Atlantic Trade and Investment Partnership (TTIP). Although not finalized, the European Commission has proposed an almost complete overhaul of the ISDS system, whereby the arbitrators would be permanent appointees with demonstrated neutrality (perhaps already appointed to a judicial function in their home state.)[16] This is all highly controversial and in a complete state of flux, but the general trend in the formation of investment treaties is moving toward a more liberalized, public oriented approach to Investor-State Dispute Settlement.[17] While the procedural process may slow significantly,[18] the legitimacy of the whole system will grow.

Grenness Blog1_Photo5

There are a myriad of issues posed by ISDS; however, the TPP is a step in the direction of legitimizing the ISDS process. The TPP’s ISDS provision is not a multinational corporation’s nefarious tool for tilting the judicial balance in its favor. In a world of an increasingly interconnected, globalized economy with exponential growth, there are bound to be growing pains and stumbling blocks along the way. The TPP’s ISDS provision is a step in the right direction, small as that step may be.

 

 

[1] The Trans-Pacific Partnership (TPP) is an enormous free-trade agreement between the United States, Canada, Australia, Mexico, Japan, Malaysia, Peru, Vietnam, Chile, Brunei, Singapore, and New Zealand. The United States signed the agreement on February 4, 2016, but the agreement hasn’t yet been submitted to Congress for a vote. The TPP contains an Investor-State Dispute Settlement (ISDS) provision, where disputes between foreign investors and States are to be settled via arbitration rather than going through the domestic court system. Investors have standing to challenge sovereign actions, such as state-imposed regulatory measures. The TPP member countries represent around 40% of global gross domestic product (GDP) (https://ustr.gov/tpp/overview-of-the-TPP); Warren, Elizabeth. 2015. “The Trans-Pacific Partnership Clause Everyone Should Oppose.” Washington Post, February 25: 3. Accessed February 2, 2016.

[2] (Warren 2015)

[3] (Warren 2015)

[4] (Warren 2015)

[5] Malawer, Stuart. 2015. “Looking at Dispute Resolution In the Trans-Pacific Partnership.” New York Law Journal, December 8: 4. Accessed January 30, 2016.

[6] Schill, Stephan. 2013. “The Public Law Paradigm in International Investment Law.” EJIL: Talk! December 3. Accessed February 1, 2016. http://www.ejiltalk.org/the-public-law-paradigm-in-international-investment-law/.

[7] (Schill, The Public Law Paradigm in International Investment Law, 2013)

[8] Levine, Eugenia. 2011. “Amicus Curiae in International Investment Arbitration: The Implications of an Increase in Third-Party Participation.” Berkeley Journal of International Law 29 (1): 200-224 at 218

[9] Schill, Stephan. 2015. “The Mauritius Convention on Transparency: A Model for Investment Law Reform?” EJIL: Talk! April 8. Accessed January 29, 2016. http://www.ejiltalk.org/the-mauritius-convention-on-transparency-a-model-for-investment-law-reform/.

[10] (Schill, The Mauritius Convention on Transparency: A Model for Investment Law Reform? 2015)

[11] (Malawer 2015)

[12] (Malawer 2015)

[13] (Schill, The Mauritius Convention on Transparency: A Model for Investment Law Reform? 2015)

[14] (Schill, The Mauritius Convention on Transparency: A Model for Investment Law Reform? 2015)

[15] (Malawer 2015)

[16] Lawson, Alex. 2015. EU Floats Overhaul of Investment Arbitration Process. Law360, May 5. Accessed January 30, 2016.

[17] (Schill, The Mauritius Convention on Transparency: A Model for Investment Law Reform? 2015)

[18] (Levine 2011) at 219