Japanese Lawyers encounter ISDS (Investor State Dispute Settlement) Clause

in ‘Transpacific Strategic Economic Partnership

Agreement’

Akira Saito Professor of International Business Law

Kobe University School of Law

October 27, 2014Kobe Seminar on International Investment Law (1)

Impacts of ISDS in the Forthcoming Mega FTA Generation

1

What is ISDS Clause in TPP?

Section B: Investor-State Dispute Settlement

Article 12.16bis: Scope

Section B applies where there is a dispute between a Party and an investor of another Party related to a covered investment made in the territory of a Party in accordance with its laws, regulations and investment policies.

2

What is ISDS Clause?

Article 12.17: Consultation and Negotiation

Article 12.18: Submission of a Claim to Arbitration

[.......]

3. The claimant may submit a claim referred to in paragraph 1:

(a)  under the ICSID Convention and the ICSID Rules of Procedure for Arbitration Proceedings, provided that both the respondent and the Party of the claimant are parties to the ICSID Convention;

(b)  under the ICSID Additional Facility Rules, provided that either the respondent or the Party o f the claimant is a party to the ICSID Convention;

(c)  under the UNCITRAL Arbitration Rules; or

(d)  if the claimant and respondent agree, to any other arbitration institution [ such as the Kuala Lumpur Regional Centre for Arbitration] or under any other arbitration rules.

3

What is ISDS Clause?

4. A claim shall be deemed submitted to arbitration under this Section when the claimant's notice of or request for arbitration ("notice of arbitration"):

(a)  referred to in the ICSID Convention is received by the Secretary-General;

(b)  referred to in the ICSID Additional Facility Rules is received by the Secretary-General;

(c)  referred to in the UNCITRAL Arbitration Rules, together with the statement of claim referred to therein are received by the respondent; or

(d)  referred to under any arbitral institution or arbitral rules selected under paragraph 3(d) is received by the respondent.

4

ICSID is an autonomous international institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID or the Washington Convention) with over one hundred and forty member States.

5

ICSID: International Centre for Settlement of Investment Disputes

•The Convention sets forth ICSID's mandate, organization and core functions. The primary purpose of ICSID is to provide facilities for conciliation and arbitration of international investment disputes.

•The ICSID Convention is a multilateral treaty formulated by the Executive Directors of the International Bank for Reconstruction and Development (the World Bank). It was opened for signature on March 18, 1965 and entered into force on October 14, 1966.

•The Convention sought to remove major impediments to the free international flows of private investment posed by non-commercial risks and the absence of specialized international methods for investment dispute settlement. ICSID was created by the Convention as an impartial international forum providing facilities for the resolution of legal disputes between eligible parties, through conciliation or arbitration procedures. Recourse to the ICSID facilities is always subject to the parties' consent. (https://icsid.worldbank.org/ICSID/Index.jsp)

6

ICSID: International Centre for Settlement of Investment Disputes

• There are currently 158 signatory States to the ICSID Convention. Of these, 148 States have also deposited their instruments of ratification, acceptance or approval of the Convention.

• Including Korea, China, Japan, Australia, US, UK and most of the countries concerning TPP

7

Why Investment Arbitration now?

• Proliferation of Bilateral Investment Treaties (BITs)

• Adoption in Multilateral Investment Treaties

• Treaty Interpretation or Substantive Law in International Public Law

• Fair and Equitable Treatment

• Umbrella Clauses

• Treatment of Most Favored Nation

• National Treatment, etc.

8

❖ Todd Weiler is an international lawyer and academic whose practice focuses exclusively on investment treaty arbitration. Since 1999, Dr Weiler has served as arbitrator, consulting expert and co-counsel in dozens of disputes and arbitrations involvinginvestors, host states and interested third parties.(http://toddweiler.com/Weiler-CV-0912.pdf)

❖ Education

❖ S.J.D. from the University of Michigan, 2011

❖ LL.M. from the University of Michigan, 2002

❖ LL.M. from the University of Ottawa, 1998

❖ LL.B. from the University of Western Ontario, 1996

❖ M.A. from the University of Western Ontario, 1993

❖ Hons. B.A. from the University of Waterloo, 1992

Close Encounter to the Third Kind Lawyers (Public International Litigators)

9

Close Encounter to the Third Kind Lawyers (Public International Litigators)

❖ London School of Economics and Political Science: LL.M., International Business Law, with distinction, 2007 London, England; LL.M. Class President.

❖ Tulane University Law School New Orleans, LA, USA Juris Doctor, 2006; Tulane Journal of Technology and Intellectual Property (Member), Moot Court Board (Member),; Tulane Litigation Clinic (Student Attorney), TYLA National Trial Competition.

❖ University of California, Berkeley School of Law (Boalt Hall) Berkeley, CA, USA; Visiting Student, Fall 2005; California Law Review (Visiting Editor), Berkeley Technology Law Journal (Member), Mission High School (teacher of Street Law).

❖ University of Colorado Boulder, CO, USA (Bachelor of Arts, History), 1998

10

Bilateral Investment Treaties

•Bilateral Investment Treaties, or BITs, are treaties entered into between two States with the aim of protecting and encouraging investment flows between their economies.

•The early mode can be traced back to Friendship, Commerce and Navigation Treaties (FCN). Therefore, somewhat abstract and ambiguous legal concepts in FNC are used in BITs.

•However, some innovative interpretation and new dispute resolution mechanisms are developed under BITs.

•BITs create legal obligations owed by the Host State to the foreign investors in Capital Exporting States.

•Most BITs also allow foreign investors to enforce these obligations directly against the Host State

•There are over 2,500 BITs in force (as of 2005).

11

Adoption to Multilateral Investment Treaties NAFTA (1994)

• Chapter Eleven of the North American Free Trade Agreement (the "NAFTA") contains provisions designed to protect cross-border investors and facilitate the settlement of investment disputes.

• For example, each NAFTA Party must accord investors from the other NAFTA Parties national (i.e. non-discriminatory) treatment and may not expropriate investments of those investors except in accordance with international law.

• Chapter Eleven permits an investor of one NAFTA Party to seek money damages for measures of one of the other NAFTA Parties that allegedly violate those and other provisions of Chapter Eleven. Investors may initiate an arbitration against the NAFTA Party under the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Rules") or the Arbitration (Additional Facility) Rules of the International Centre for Settlement of Investment Disputes ("ICSID Additional Facility Rules").

12

Adoption to Multilateral Investment Treaties Energy Charter Treaty (1998)

•The original Energy Charter declaration was signed in Hague on 17 December 1991. It was a political declaration of principles for international energy including trade, transit and investment, together with the intention to negotiate a legally-binding treaty, setting the beginning of the development of the Energy Charter Treaty.

• The legally-binding treaty was signed in Lisbon in December 1994, together with a Protocol on Energy Efficiency and Related Environmental Aspects. The treaty and the protocol came into effect in April 1998. An amendment to the trade-related provisions reflecting the change from the GATT and WTO was also agreed at that time.

•In December 2007, the Energy Charter Conference reaffirmed its support for the finalisation of negotiations and adoption of the Energy Charter Protocol on Transit in order to expand the existing provisions of the treaty. In October 2011, the European Union presented a new common position with regard to the negotiations on the draft Transit Protocol. It argued that in view of the developments in the international energy situation, the developments in the Energy Charter constituency and, most notably, the lack of progress in the negotiations and consultations on the Transit protocol in recent years, it appeared no longer opportune to continue the negotiations on a Transit Protocol on the current basis. Taking into account the position of the EU, the Charter Conference decided on 29 November 2011 to repeal the negotiation mandate of 2009.

13

IIA in the Leaked Text of TPP

• Article 12.4: National Treatment

• Article 12.5: Most-Favoured Nation Treatment

• Article 12.6: Minimum Standard of Treatment

• Article 12.6bis: Treatment in Case of Armed Conflict or Civil Strife

• Article 12.7: Performance Requirements

• Article 12.8: Senior Management and Boards of Directors

• Article 12.9: Non-Conforming Measures

• Article 12.11: Transfers

• Article 12.12: Expropriation and Compensation

• Article 12.13: Special Formalities and Information Requirements

• Article 12.14: Denial of Benefits

• Article 12.15: Investment and Environment] [ ,Health Safety and Labour]

• Article 12.15 his: Corporate Social Responsibility

• Article 12.16: Implementation

14

Rights Under Investment Treaties

• Almost all treaties promise investors market value compensation in the event of an expropriation or nationalization of their investment

• Abusive regulatory or taxation measures may also amount to an indirect expropriation if they erode the economic value of an investment to such an extent that it is effectively worthless

15

Fair and equitable treatment

•Host States must not take any arbitrary, grossly unfair or discriminatory measures against foreign investments

•They must provide a transparent and predictable regulatory framework for the investment

16

Most favored nation treatment

•Host States often promise not to treat investors of any third State any better than investors of the Home State.

•The practical effect of this is that investors may be able to rely upon more favorable commitments in other treaties entered into by the Host State.

•This helps widening the parties who can utilize most favorable ISDS Clause in the BIT with another state.

17

Umbrella Clauses SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29 (Feb 10, 2012)

• [I]n ICSID jurisprudence, an arbitral Tribunal comprising Stanimir A. Alexandrov (as President), Donald Francis Donovan and Pablo Garcia Mexia held Paraguay liable to SGS Société Générale de Surveillance S.A. (SGS) for failing to pay for services rendered. This case is noteworthy for practitioners because it demonstrates how an investor can, in effect, have its claims arising out of an investment contract readily resolved before a treaty forum through the use of an umbrella clause in a bilateral investment treaty (BIT).

• ‘Even to the extent that certain claims under the umbrella clause may be co-extensive with claims under the Contract, any argument that the breach of an umbrella clause will not be assessed under an independent, international law standard under the treaty, but under the Contract, is an argument that goes towards jurisdiction at best. Having rejected Paraguay's jurisdictional argument, the Tribunal would have to have very strong cause to decline the exercise of its jurisdiction.’

• The fact that claims under the umbrella clause may be, in effect, identical to contractual claims misses the fundamental point that the umbrella clause itself is an independent treaty standard. A breach of an umbrella clause is a breach of treaty, giving rise to international responsibility. Between contractual liability under a national law and international responsibility for breach of treaty, various legal and practical differences exist, spanning interpretation, breach, defences and remedies. This is why it has been said that an approach other the one taken by the Tribunal would effectively render the umbrella clause otiose. (Darius Chan, The high-water mark of an umbrella clauseInt. A.L.R. 2012, 15(3), N21-25)

18

Enforcement

• Recognition and enforcement of an ICSID award in the Host State or in any other ICSID Contracting State should be easier than enforcement under the New York Convention

• ICSID Contracting States are not able to challenge awards in their courts and must enforce awards as if they were a final judgment of their own highest court

19

Review of ICSID Awards

• ICSID awards may be subjected to rectification, interpretation, revision or annulment procedures

20

Annulment Proceedings

• ICSID will appoint an ad hoc committee to scrutinize whether the tribunal transgressed the ICSID Convention

• These include the most serious allegations of corruption, serious departure from a fundamental rule of procedure or manifest excess of powers

21

The Promotion of Foreign Direct Investment

22

Figure 1. Known ISDS cases

Source: UNCTAD

0

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19871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

Ann

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r of

cas

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ICSID Non-ICSID

In 2012, the number of known treaty-based investor-State dispute settlement (ISDS) cases filed under international investment agreements (IIAs) grew by at least 62. This constitutes the highest number of known treaty-based disputes ever filed in one year.

23

ICSID Total claims by end 2012

Figure 2. Known ISDS cases (cumulative, as of end 2012)

Source: UNCTAD

0

100

200

300

400

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600

1993

1994

1995

1996

1997

1998

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24

Figure 3. Distribution of known cases among arbitral institutions/rules

(total as of end 2012)

ICSID61%

UNCITRAL26%

SCC5%

Other8%

Distribution of Cases

25

Figure 4. Most frequent respondents in ISDS cases(total as of end 2012)

claimants from

investment instruments most frequently used

0 10 20 30 40 50 60

United States

Egypt

India

Canada

Czech Republic

Mexico

Ecuador

Venezuela

Argentina

Most Frequent Respondent

26

TPP Negotiation

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Public Opinion in Japan

❖ 　Ｑ　外国企業が日本を訴える恐れがあるのかな。

❖ 　Ａ　実は日本が経済連携協定（ＥＰＡ）や投資協定などを結んだシンガポールやメキシコなど計二十四カ国との間にはＩＳＤＳ条項がある。まだ日本政府が訴えられた例はない。　逆に、日系企業の事例では、野村証券のオランダ子会社が二〇〇六年にＩＳＤＳを使ってチェコ政府を訴え、百八十七億円の損害賠償を受け取ったことがある。チェコ政府が、この子会社の出資する銀行にだけ財政支援をしない「外国企業への差別的対応」をしたことが理由だった。

❖ 　Ｑ　政府はどう考えているのだろう。

❖ 　Ａ　安倍首相は「主権を損なうＩＳＤＳ条項には合意しない」との見解だ。ＴＰＰ交渉では、政府が外国企業に対してどう対応した場合にＩＳＤＳ条項を使えるのか、協定文の細目を検討しているもようだ。訴訟乱用を防ぐ取り決めが本当に入るのかは、まだ不確かなままだ。（岸本拓也）東京新聞2013年3月17日

28

日系企業の利用事例(Saluka Investments BV 対チェコ、２００６年３ 月１７ 日仲裁判断）

• チェコの金融市場で重要な地位を占めていた旧国営の４銀行は、いずれも多額の不良債権を抱え、野村證券のオランダ子会社（サルカ）は、このうち１銀行（IPB)の株式４６％を保有。

• チェコ政府は、ＩＰＢを除く３行には公的資金の投入など財政支援を行ったが、ＩＰＢには行わず、ＩＰＢの経営はさらに悪化し、最終的には公的管理下に置かれ、別の国営銀行に譲渡された。

• サルカは、一連のチェコ政府の措置がオランダ-チェコ投資協定に違反するとして仲裁廷に申し立てた。本件は、公表されている中で、これまでに日系企業が投資仲裁を使った唯一の事例。

事件の発端

¾オランダ企業（野村證券の子会社）vs. チェコ政府（仲裁規則：ＵＮＣＩＴＲＡＬの規則）¾政府の金融機関支援措置における差別待遇

公正衡平待遇の規定は、投資受入国には投資家の合理的期待を阻害しないことを要求する。チェコ政府の措置・態度は、この公正衡平待遇に違反すると指摘し、約１８７億円 ＋ 金利分の賠償支払いを命じた。

立てた。本件は、公表されている中で、これまでに日系企業が投資仲裁を使った唯一の事例。

・水源の工事・水道料金の徴収

＜オランダ＞

IPB（旧国営銀行）

＜チェコ＞

野村證券 サルカ

＜日本＞

他銀行

他銀行

他銀行政府公的資金

46％出資

公的資金なし

仲裁廷の判断

投資の構造

11【参考】仲裁判断（http://italaw.com/）

外務省･経産省 「国家と投資家の間の紛争解決 (ISDS)手続の概要」平成24年3月より

http://www.mofa.go.jp/mofaj/gaiko/tpp/pdfs/tpp20120327_06.pdf

29

Philip Morris Asia Limited v. Australia❖ 【2011年6月27日 AFP】米タバコ大手フィリップ・モリス（Philip

Morris）のアジア法人、フィリップ・モリス・アジア（Philip Morris Asia、PMA）は27日、全てのたばこパッケージからブランドのロゴマーク表示を撤廃する規制法案を提出したオーストラリア政府に対し、同法案は2国間投資協定違反だとして法的措置を取ると発表した。

❖ 豪政府の提出した規制法案では、喫煙率を下げるため、2012年から全たばこ商品のパッケージからブランド名や企業名のロゴを撤廃し、オリーブグリーン色のパッケージに視力を失った目や、病気になった黒い歯ぐき、入院する子どもの写真などを掲載し、健康上の被害を警告することを定めている。

❖ これに対しPMAは、たばこ販売による収益の落ち込みに加え、統一パッケージは模倣がしやすいため偽造タバコが市場に氾濫することになると指摘。法案は、同社が拠点を置く香港（Hong Kong）当局と豪政府とが結んだ2国間投資協定に違反していると主張している。

❖ PMA広報のアン・エドワーズ（Anne Edwards）氏は、「商標や価値のある知的財産を強制的に削除する行為は、明確な2国間投資協定違反だ。企業活動への損害に対する多額の賠償金を要求する方針だ」との声明を発表した。PMA側は27日に通知書を提出し、定められた3か月の期限内で交渉を始める。決着しない場合は、民事調停手続きに入るという。

❖ PMAはマルボロ（Marlboro）やピータージャクソン（Peter Jackson）などの銘柄を豪国内で展開している。(c)AFP

http://www.italaw.com/cases/851

30

ロシア政府に５兆円賠償命令：石油会社財産没収で 国際裁判所

日経新聞　2014/7/28 20:02 (2014/7/28 20:49更新)

❖ 国際裁判所の１つである常設仲裁裁判所（オランダ・ハーグ）は28日、ロシア政府に対し、同国の元石油大手ユーコスの財産を不当に没収したとして約500億ドル（約５兆円）の損害賠償を命じると発表した。ロシア財務省は同日、判決の撤回を求めてオランダ国内の裁判所に訴える方針を示した。ウクライナ問題を含めて、国際社会によるロシアへの圧力が一段と強まっている状況が浮き彫りになった。

31

Yukos事件の概要❖ ユコスは1993年4月15日に新興企業家でユダヤ系ロシア人のミハイル・ホドルコフスキーによって設立された。ユコスは石油の世界生産量の2％、ロシア国内生産量の20％を生産する、世界最大級の非国営石油会社の1つであった。ユコスの資産は1990年代初めの、企業民営化プロセスの間にロシア政府内部で論争の的となっている状況下で得られた物である。ロシア語の略称は会社設立の際に、統合した主要な企業の名前に由来している。

❖ 民営化の波のなかで設立された。主要株主はオフショア金融センターに設立された持株会社Menatepであった。ホドルコフスキーはアメリカのテキサス州に石油採掘会社ユガンスクネフチガスを設立している

❖ 2003年4月にユコスはシブネフチと合併する契約を行った。この合併により世界第4位の石油メジャーが誕生するという計画だった。しかし、合併は2003年10月にユコスCEOであるホドルコフスキーの逮捕の後すぐに取消された。

❖ 2005年12月15日にユコスの資産は123億米ドルと見積もられ、ロシア政府に負わされた、政府が主張する税額は308億米ドルと見積もられた。ユコス経営陣は会社の破産解体を防ぐため、ユガンスクネフチガスの自己破産と資産保全命令をロシア国内ではなくアメリカ・テキサス州ヒューストンの連邦破産裁判所に請求した。裁判所はこの請求を棄却した。2006年7月25日にユコスの債権者は、会社は清算されるべきであるとの破産管財人の指摘に従い、破産を申し立てることにした。

❖ ユコスの石油生産の6割を占めていた子会社ユガンスクネフチェガスは、法務省により差し押さえられ、プーチン前大統領の側近である、セーチン元大統領府副長官が会長を務める、国営企業ロスネフチによって吸収された。

❖ 元株主の集団はロシア政府に1140億ドルを賠償請求していたが、2014年7月28日、オランダ・ハーグの常設仲裁裁判所は500億ドルの支払いを命じた

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常設仲裁裁判所（オランダ・ハーグ）

❖ UNCITRALモデル仲裁規則→ハーグ常設仲裁裁判所 (PCA)

❖ “There is no reason to think Russia will not fulfill its international obligations. But if this were to happen, the New York Convention, which obligates 150 signature states to work together to ensure the arbitration ruling is upheld – would come in effect,” said Osborne.

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EU Energy Charter

❖ Annexes ID & IA and Unconditional Consent to Arbitration

Unconditional Consent to International Arbitration

Investor-State disputes under Part III of the ECT are governed by Article 26 which provides that an investor may, following a cooling-off period of 3 months, submit the dispute to resolution:1 to the courts or administrative tribunals of the host state party to the dispute;2 in accordance with a previously agreed dispute settlement procedure; or3 to international arbitration.If the investor opts to submit the dispute to arbitration, the investor then has the further choice between an arbitration under the rules of ICSID, UNCITRAL or the Arbitration Institute of the Stockholm Chamber of Commerce.In that respect, States give their unconditional consent under Article 26(3) to the submission of a dispute to international arbitration.

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UNCITRAL Model Arbitration Rules

❖ Designating and appointing authorities Article 6 1. Unless the parties have already agreed on the choice of an appointing authority, a party may at any time propose the name or names of one or more institutions or persons, including the Secretary-General of the Permanent Court of Arbitration at The Hague (hereinafter called the “PCA”), one of whom would serve as appointing authority.2. If all parties have not agreed on the choice of an appointing authority within 30 days after a proposal made with paragraph 1 has been received by all other parties, any party may request the Secretary-General of the PCA to designate the appointing authority.

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Yukos Arbitration Fight Yields Big Law Firm Paydays

❖ This week’s whopping $50 billion Yukos arbitration award was big news—in fact, the ruling, in favor of the defunct oil giant’s majority shareholders, is the biggest award that the Permanent Court of Arbitration in the Hague has yet handed out. Efforts to collect the award are expected to drag on for years.

❖ But that’s not the only big number arising from the years-long dispute between Russia and Yukos’s former owner, Mikhail Khodorkovsky, over billions of dollars in back-tax claims that ultimately led to the oil company’s assets being sold off to state-controlled companies.

❖ Over the past decade, U.S. law firms representing both sides in the dispute racked up tens of millions of dollars in billings, according to the international court’s decision.

❖ As British legal publication The Lawyer pointed out: “Litigation is expensive—but turning to arbitration instead is seldom any cheaper.”

❖ All told, Shearman & Sterling LLP ended up billing about $70 million in fees and expenses for its representation of GML Ltd., the Gibraltar-registered vehicle through which Yukos’s former owner, Mikhail Khodorkovsky, and his colleagues held their controlling stake.

❖ Shearman’s attorneys charged hourly rates ranging from $235 to $1,065, and billed more than 120,000 hours on the matter, according to the ruling. That tally doesn’t include another $9.6 million in expert fees and expenses, including $7.3 million for Navigant, the damages expert for Yukos’s shareholders.

http://blogs.wsj.com/law/2014/07/29/yukos-arbitration-fight-yields-big-law-firm-paydays/

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