Assessing the Past, Envisioning The Future

International Investment Arbitration Law & Policy

The opening roundtable was chaired by Chiara Giorgetti and Michele Potestà (Lévy Kaufmann-Kohler), with the participation of Lise Bosman (Permanent Court of Arbitration), Mohamed Abdel-Wahab (Zulficar & Partners; University of Cairo), Jaroslav Kudrna (The Czech Republic), Ferdinando Emanuele (Cleary Gottlieb Steen & Hamilton) and Francesca Salerno (ENEL). 

Investment arbitration was born after the Second World War, when cross-border investment became vital, and the World Bank was created. Given that part of its mission is to encourage reconstruction and development and promote investment, the World Bank recognized the importance of having an institution to resolved disputes between private investors and States. Thus, it established the International Centre for Settlement of Investment Disputes (ICSID), now counting 158 member States.

The early days of ICSID were quiet but, as the number of investment treaties between states proliferated and investment increased, attention towards ICSID grew. The system started to be criticized for lack of lacking transparency, diversity, and impartiality, and some even advocated for a complete change. As a matter of fact, ICSID proved to be to be capable of evolving, and it was progressively improved through various reforms. These addressed issues such as the time and costs of proceedings, the importance of expanding the ways to solve disputes through mediation and conciliation, the diversity of arbitrators, and the degree of procedural  transparency and consistency. 

Still, new challenges remain for the future, and a proactive approach is needed. For this reason, it is paramount to analyze past reforms and new proposals from the point of view of different stakeholders, namely States, private companies, counsels, arbitrators and institutions. In this regard, one critical issue it to consider is  the importance of taking into account the consequences that investment treaties can have on the climate. Both States and investors agree that treaties should only protect investments that are sustainable and compliant with climate change rules.

Another particularly interesting debate concerns the possibility of introducing obligations for investors in investment treaties. Historically, only States’ obligations were included. States are convinced that this relationship must be rebalanced, so the reform process should also look at introducing duties for the investors. On the opposite side, investors argue that only States should be asked to comply with regulations, because it is usually their responsibility when disputes arise.  

Finally, many stakeholders are advocating for the creation of a permanent court to decide investor-State claims, instead of having arbitrators appointed by the parties. This proposal allegedly has the advantage of enhancing coherence and consistency in the decisions, by providing a more structured and transparent framework for the resolution of investment disputes. However, many have expressed concerns on  this proposal’s feasibility. First of all, different states have different ideas on the features that this court should have. Moreover, there is no guarantee that a permanent body would be more independent and transparent than arbitrators appointed by the parties. 

In conclusion, the evolution of investment arbitration through ICSID reforms has addressed many of the concerns about the transparency, diversity, and impartiality of the system. However, new challenges continue to arise, and a proactive approach is required to address them effectively.  Moving forward, it is crucial to carefully analyze past reforms and new proposals from the perspectives of different stakeholders to ensure a fair and effective system.

The role of States in arbitration

Another session focused on the different roles that states can play in arbitration as respondents, claimants, counterclaimants, regulators, treaty parties and reformers. To address this topic, Dyalá Jiménez Figures (Costa Rica Ministry of Foreign Trade), Prof. Makane Moïse Mbengue (University of Geneva), Prof. Attila Tanzi (Bologna University) and Jadranka Osrečak (State Attorney Office of the Republic of Croatia) were invited. 

Dyalá Jiménez Figures firstly discussed about the role of states as policy makers, underlying the importance of long-term policies. Usually these imply governments’ stability, which is obviously difficult to reach yet fundamental, and so it is of primary importance for representatives of the people to try to achieve this goal, which also consists of providing aftercare for the investors and early dispute resolution mechanisms. In fact, there is a study that shows that about 25% of investors allocate their savings in a specific country only if its stability is ensured. This phenomenon happens mostly in developing countries and it is very important for the growth of their economies.  

One important example is the case of Costa Rica which undertook multiple innovative initiatives later turning out to be successful. Firstly, they chose not to exploit their natural resources and to protect the environment which was a very controversial position back in the 1950s since it was believed that it was not feasible for a country to increase its Gross Domestic Product (GDP) without exploiting nature. Moreover, they also decided to open their waters to trade, which was also very unusual since this policy decision was submitted to a referendum. On the other hand, one of Cost Rica’s weaknesses is that the country has never been clear on whether it supports private-public partnerships to build better infrastructures.

Finally, Costa Rica established a government body made of three institutions: the Ministry of Foreign Trade, the Investor Protection Agency, and the Promotion Agency. These three agencies are very important because they can make long term decisions without political pressure, in this way they can be independent from the government’s influence. This governance has been stable (obviously changing according to international standards) and so it ensured predictability, one of the key elements contributing to Costa Rica’s success. 

Another aspect to consider with respect to Costa Rica’s policy making is its compliance with the values of the current international arbitration system. In fact, Costa Rica not only firmly believes in such system, but also participates actively in promoting and proposing reforms. In order to start this type of procedure, there is a specific governance which follows up disputes and makes sure that the state is defending its cases properly. In particular Costa Rica has had to deal with 14 International Ship and Port Facility (ISPS) cases, in which they were pretty successful as they were ordered to repay damages only in two of them. Other four cases were decided in Costa Rica’s favour and in the other cases Costa Rica was found to have breached international obligations - the state, however, did not have to pay for any damage. 

One last aspect to take into consideration concerns the role of the states as negotiators of agreements which contain dispute settlement clauses. In this regard, Costa Rica, despite its small size, occupies a central position given that it has 14 free trades agreements and 16 bilateral investment treaties with countries all over the world. This was also possible because the country and its representatives continuously learn from their own cases.

The investment challenges faced by African states

Prof. Makane Moïse Mbengue focused on the main challenges that African states have to face in the investment field by illustrating the so called three “C” theory. 

The first one stands for continuity. This is a massive problem for Africa because of the constant change not only of governments, but also of investments’ negotiators. The natural consequence is that for states it is very difficult to act as good reformers since they don’t have continuity. For example, on one side we can consider Morocco and Nigeria, which have had the same team of negotiators for the last fifteen years and so they were able to successfully enact reforms, unlike Zambia which does not have this kind of stability. 

The second “C” refers to lack of coordination: in many African countries those who enact investments laws do not communicate with those who negotiate free trade agreements, who, in turn, do not talk with those who negotiate continental investments instruments. This is what is commonly called fragmentation of the reformers, which means that states engage in multiple reforms all at once. The coordination problem also exists in terms of timing, resulting in lack of synchronicity. In fact, in Africa reforms are much faster at the continental level than at the bilateral investment treaty level. 

The last “C” stands for competition, which is particularly high among states in Africa. In fact, most African countries seek Long Term Investments to achieve development, so there is a strong competition when it comes to attract these investments. For instance, right now there are many states which are suspicious towards Kenya because there is a fear that this state could deviate from the consensus that has been reached at the continental level regarding the African continent free trade area.

The increasing importance of counterclaims

Prof. Attila Tanzi talked about the current legal framework, also underlining that counterclaims remain relatively rare because many tribunals are suspicious of them. Nonetheless, there are unquestionable pros in allowing counterclaims which represent a fundamental element of the respondent state's right to present its case on an equal footing with the investor, thus guaranteeing a better administration of justice. That’s why counterclaims can provide the best instrument to guarantee balance and can be treated as a general principle of law that rests on reasons of fairness.

Finally, Jadranka Osrečak spoke about the Raiffeisen bank case, which arose from an arbitration issue and ended up addressing a wider number of policies issues. The proceeding was initiated in February 2021 by the Republic of Croatia against the Austrian bank Raiffeisen Bank and its Croatian subsidiary. The German Higher Regional Court of Frankfurt accepted Croatia’s claim and ruled that the arbitration proceedings commenced by these two banks against Croatia under the Austria-Croatia BIT were inadmissible. This decision was ground-breaking, since for the first time a court in the European Union concluded that the principles of EU law enunciated by the CJEU in the Slovak Republic v Achmea case^[1] were to be applied beyond the scope of that specific case. In fact, the ECJ, considering investment tribunals as possible rivals and threats to the Union’s judicial system, established the possibility for national courts to declare arbitration proceedings  inadmissible. Moreover, the Court ordered the banks to reimburse Croatia for the costs of the proceedings.

^[1] European Court of Justice, Slovak Republic v Achmea BV [C‑284/16].