Our previous column explained the different forms of rights foreign investors can make use of in public-private contracts (“PPCs”) and investment treaties (“ITs”). (See story here.)
This week’s installment focuses on what legal options are available in enforcing those rights.
Claims by an investor under a PPC would be subject to whatever dispute resolution mechanism is provided for therein. In the case of the IT this is usually by way of submission of the dispute to the courts of the host State or to international arbitration. Where international arbitration is provided for it will commonly take one of the following three main forms:
- “institutional arbitration”; or
- “ad hoc arbitration under the UNCITRAL Rules”.
Submission to the courts of the host State is generally not the preferred choice for the investor. The forum is considered not to be in a “neutral” location and the decision-maker is regarded as not to be “independent” of the allegedly breaching host State.
“ICSID” stands for the International Centre for the Settlement of Investment Disputes. The 1965 Washington Convention established ICSID “primarily to create an arbitral forum for the resolution of disputes between investors and States…” As of November 1, 2013, 150 States had ratified the Washington Convention. Because it was designed to resolve investor-State disputes, ICSID arbitration is distinctive in that it:
- virtually eliminates any involvement by another State’s courts in the arbitration proceedings; and
- requires all contracting States to immediately enforce the final award without any grounds on which it may analyse and conclude to refuse such enforcement--thereby avoiding the “indignity” of any contracting State being subjected to the scrutiny of another State’s courts.
“Institutional arbitration” refers to arbitration under the administration and rules of an arbitration service provider, for example: the International Chamber of Commerce; the International Centre for Dispute Resolution; the Singapore International Arbitration Centre; or the Thai Arbitration Institute.
“Ad hoc arbitration under the UNCITRAL Rules”, refers to arbitration which is not administered by an institution and is therefore “ad hoc” but which is controlled by the United Nations Commission on International Trade Law Arbitration Rules.
Both institutional and ad hoc UNCITRAL arbitration are designed for commercial disputes between individual parties without regard to sensitivities of disputes involving National “sovereigns”. They depend on the “1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards”.
The New York Convention will only recognize arbitration awards, which are subject to the procedural law and a certain degree of possible involvement of the courts of the State where the arbitration takes place. Such third-party State court involvement is the reason why ICSID arbitration is the preferred choice for arbitration involving a State.
ICSID arbitration gained acceptance within ITs as they proliferated. However, since States have increasingly come to recognize that their commercial activity does not necessarily implicate their sovereignty, ITs have also become increasingly subject to institutional and ad hoc arbitration.
With regard to enforcement of ITs, it is not uncommon that the investor will be required to first submit their dispute to the host State’s courts for some minimum period of time. However, the ultimate resolution of the dispute is generally vested in one of the forum options discussed above. The investor generally has a choice of which forum, but once made this choice will exclude the other forums. A typical example of such is Article 33(1) of the ACIA:
A disputing investor may submit a claim referred to in Article 32 (Claim by an Investor of a Member State) at the choice of the disputing investor:
- (a) to the courts or administrative tribunals of the disputing Member State, provided that such courts or tribunals have jurisdiction over such claims; or
- (b) under the ICSID Convention and the ICSID Rules of Procedure for Arbitration Proceedings, provided that both the disputing Member State and the non-disputing Member State are parties to the ICSID Convention; or
- (c) under the ICSID Additional Facility Rules, provided that either of the disputing Member State or the non-disputing Member State is a party to the ICSID Convention; or
- (d) under the UNCITRAL Arbitration Rules; or
- (e) to the Regional Centre for Arbitration at Kuala Lumpur or any other regional center for arbitration in Asean; or
- (f) if the disputing parties agree, to any other arbitration institution,
- provided that resort to any arbitration rules or for a under sub-paragraphs (a) to (f) shall exclude resort to the other.
It should also be noted that an investor may have a claim under either their PPC with the host State or an applicable IT or both. Any such claims would be properly addressed only under the applicable PPC or IT dispute resolution provision.
Stay tuned for our third and final installment on “INVESTOR-STATE AGREEMENTS IN THAILAND: Encouraging Investment By Protecting Foreign Investors”, where we look at the latest developments in how Thailand has supported rights enshrined under investor-State agreements.
Duensing Kippen is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit DuensingKippen.com