Report on the VYAP Collaboration Event During Singapore Convention Week 2024

---

THE AUTHORS:
Sophia Gonzales, Senior Associate at Construction and Dispute Resolution Consulting | CDR Consulting
Surabhi Pandey, LL.M. Candidate at the Stockholm University

---

On 29 August 2024, as part of the official agenda of Singapore Convention Week 2024, the Very Young Arbitration Practitioners (“VYAP”) chapters of Singapore, Colombia, Paris, China, Madrid, Portugal, Paraguay, Australia and Dubai successfully held a screening of the documentary “The Tribunal” and a panel discussion on Investor-State Dispute Settlement (“ISDS”).

The panel discussion featured panellists Luke Sobota (Founding Partner, Three Crowns), Sarah Grimmer (Arbitrator, Twenty Essex) and Hanna Azkiya (Associate, King & Spalding), and was moderated by Sunita Advani (Arbitral Assistant to Mr Michael Lee of Twenty Essex; SG VYAP Founder & Chair).

This report summarizes the key insights and discussions from the event, which shed light on the future of ISDS as well as the role of public interest and human rights in international investment law.

The documentary follows the experiences of the Intag Valley community members in Ecuador who were impacted by a potential mining project. It addresses the dispute that erupted as a result of the mining project which was eventually submitted to arbitration (in Copper Mesa v. Ecuador), in which the Canadian mining company, Copper Mesa Mining Corporation, sued the Ecuadorian government under the Canada-Ecuador Bilateral Investment Treaty (1996) (“BIT”).

The arbitral tribunal ruled in favour of the investor but reduced the amount awarded to the investor on account of the investor’s contributory fault. The documentary presents investment arbitration from the perspective of the Intag Valley community members, who view it as a distant and alien mechanism, and who must eventually bear the costs of any award passed against their country. It also highlights the limitations of investment arbitration in addressing human rights issues arising from the acts of an international investor.

Question 1: Are tribunals adequately equipped to handle human rights issues as well as other socio-political considerations that bear on the dispute? If not, how can they do so? Why have they often not taken human rights issues into account and what would need to change in order for them to do that?

Grimmer highlighted the profound sense of injustice felt by the Intag Valley community members regarding the arbitral tribunal’s jurisdiction over the dispute, which allows them to determine whether the Ecuadorian government (and by extension, Ecuadorian citizens) must compensate a foreign company that invested in the country for its own profit and threatened severe environmental and social damage. 

Grimmer explained that there are two major contributing factors leading to a disconnect between the local community and the arbitral tribunal:

• First, the citizens lack an understanding of the meaning and implications of an investment treaty arbitration. Grimmer explained that investment treaty arbitrations focus on determining the obligations owed by the state towards investors, unlike human rights tribunals which focus on the host state’s citizens’ rights.

• Second, there is a disconnect between the arbitral tribunals and the affected people because the arbitrators have never visited the affected areas or heard directly from the people impacted. This exacerbates the feelings of injustice amongst the Intag Valley community members.

One often overlooked issue in investor-state arbitration is how states appoint arbitrators. Grimmer explained that states  typically avoid appointing their own nationals as arbitrators for various reasons, and that efforts are being made towards increasing diversity as a means of increasing legitimacy.

While Grimmer noted that tribunals are not adequately equipped to handle human rights issues, questioned whether it is within their mandate to do so. She explained that while human rights issues are sometimes relevant in investment treaty arbitrations, the tribunal’s primary mandate is to address the legal issues under the treaties, such as:

• Determining if the investor and the investment are protected under the treaty;
• Evaluating if the host state has unlawfully expropriated the investment; and
• Evaluating if the host state has afforded full protection and security to the investor.

Grimmer also explained that investment treaties must be interpreted in harmony with international law, including international human rights law. She provided three examples to illustrate this:

1. Human Rights Law as part of International Law. In cases of denial of justice, tribunals may refer to jurisprudence from the European Convention on Human Rights (1950) (“ECHR”) to inform their assessment of the standard required for such a claim. However, the tribunal cannot find the state in violation of the ECHR itself, as that is outside their mandate.

• Incorporating Human Rights Instruments in Treaties. Some investment treaties refer to human rights or human rights instruments in their preamble, which informs the interpretation of these treaties.  However, their practical effect may be limited when placed in the preambular text.

• Corporate Conduct and Human Rights Violations. As private corporations do not owe human rights obligations, a question arises when  an investor breaches human rights . and whether the investor’s conduct can form the basis of a counterclaim or a reduction in damages on account of contributory fault. For instance, in the Copper Mesa case, the company’s contributory fault resulted in a 30% reduction in the damages it received.

Grimmer concluded that tribunals can exert greater influence on human rights issues when a treaty incorporates human rights provisions.  For instance, the Netherlands Model BIT (2019) explicitly includes human rights provisions (particularly in relation to the assessment of damages), obliging tribunals to apply those provisions.

Question 2: Several countries have enacted legislation imposing human rights obligations on incorporated businesses. For example, France has enacted laws imposing a duty of vigilance on parent companies and their contractors, and the EU has also enacted similar legislation by way of the Corporate Sustainability Due Diligence Directive.

How effective are these types of legislation in addressing human rights abuses within the context of investor-state disputes? Should more countries be looking to adopt similar legislation in their domestic laws?

In relation to the effectiveness of legislation, Azkiya emphasized the distinction between domestic law obligations and international investment law obligations.

Most human rights due diligence occurs at the domestic level (i.e. legislation provides forenforcement or remedies at the domestic level). While laws like France’s Duty of Vigilance Act and the EU’s Corporate Sustainability Due Diligence Directive represent important steps forward, their effectiveness in investor-state disputes remains largely untested. For example, cases in France arising under the Duty of Vigilance Act thus far were ultimately dismissed for procedural reasons.

Azkiya highlighted two scenarios in which human rights national legislation might be relevant in investment treaty arbitrations:

1. Jurisdictional Objections. If a treaty specifies that investments must comply with domestic law, states could potentially rely on domestic human rights obligations to challenge the jurisdiction of an arbitral tribunal.

• Counterclaims. Depending on the specific treaty provisions, , states can potentially bring counterclaims for the investor’s non-compliance with national law. However, tribunals are generally reluctant to assert jurisdiction over such counterclaims or to rule in favour of states on the merits of such counterclaims.

Azkiya supported the idea of more countries adopting similar human rights legislation in their domestic law to address human rights violations in investor-state disputes. She posited that  such laws send a signal to businesses to take human rights obligations seriously.

Azkiya also opined that human rights due diligence is as important as financial due diligence – businesses should evaluate the risk of human rights violations just as how they assess financial risks before making large investments. While often seen as voluntary, there is a growing consensus that human rights due diligence should shift towards mandatory compliance to hold companies accountable for their actions.

Question 3: Historically, tribunals have been reluctant to admit amicus curiae submissions out of concern for relevance, as well as whether these might be costly and disruptive to the proceedings. How has the approach towards amicus curiae submissions with respect to local community members evolved, and how do you see it evolving further in the future?

Sobota noted that the investment arbitration system evolved from the commercial arbitration space, where proceedings were typically private and opportunities to submit amicus curiae submissions are very limited. Nonetheless, cases like Cooper Mesa v. Educador attract high public interest as they address issues of regulatory and police powers, and have a potential impact on the public.

Initially, public interest submissions were perceived as potentially disruptive, costly, and irrelevant. In the late 1990s and early 2000s, most institutional rules did not provide for amicus curiae submissions. The Methanex v. USA case marked the beginning of a shift in the approach towards admitting amicus curiae, when the tribunal impliedly recognised the power to admit amicus curiae.

In 2006, the International Centre for Settlement of Investment Disputes (“ICSID”) amended its rules to allow for amicus curiae, a move that was later followed by the United Nations Commission on International Trade Law (“UNCITRAL”) Rules on Transparency in 2013. The Mauritius Convention and recent trade agreements like the Trans-Pacific Partnership (2016) (“TPP”) also now include detailed provisions allowing for the admission of amicus curiae.

Sobota noted the significant rise in amicus curiae submissions in investor-state arbitrations, particularly in the last decade. Since 2001, there have been around 136 amicus curiae applications, with nearly three times as many filed after 2016.

In considering whether to hear amicus curiae, Sobota explained that tribunals will generally consider whether the amicus brief adds a unique factual perspective not available from the parties (e.g., amicus briefs from NGOs or indigenous groups), while ensuring that such briefs do not overburden the process.

Question 4: How can ISDS become more transparent to community members impacted by investor-state disputes?

Sobota explained that the documentary aptly illustrates how community members often lack an understanding of and face a lack of transparency in the investment arbitration process.

For instance, although Ecuador brought in an Ecuadorian citizen, Carlos Seria, as a witness during the arbitration proceedings and submitted two witness statements on his behalf, which were noted in the tribunal’s award as being especially helpful, the documentary criticized the lack of upfront community involvement and transparency, suggesting that this testimony was “too little, too late”.

Sobota explained that there are inherent limitations on a tribunal’s powers in arbitration, as the tribunal can only exercise jurisdiction if there is an investment falling within the scope of the investment treaty (i.e. after a concession has already been given to the investor). Such arbitrations therefore lack the mechanisms to address community grievances or broader public consultation concerns.

In response to the criticism raised in the documentary, a 2023 Supreme Court ruling now requires Ecuador to conduct a public consultation and a public vote by affected communities before it can grant any investment concessions. This marks a significant shift towards “ultra-transparency”, which ensures that communities are involved much earlier in the investment process.

While public consultations might help prevent disputes from escalating into arbitration, there are practical challenges for governments in balancing the need for large infrastructure or resource projects with the concerns of local communities. In this regard, Sobota stressed the need for comprehensive education and communication with affected communities before and after an investment takes place. In addition, countries like Ecuador are implementing frameworks for public consultations, potentially mitigating future disputes and increasing transparency.

Question 5: Numerous countries have been terminating their BITs. Why is this occurring? And are there trends in terms of the profiles of countries that are doing so? What does the future of ISDS hold? Is the system capable of reform, or is it fundamentally flawed?

Aziya stated that several states have terminated some or all of their BITs, including Bolivia, Ecuador, Indonesia, India and South Africa, with the intention of renegotiating them from scratch or adopting alternative approaches to investment protection. 

This trend reflects growing dissatisfaction with the ISDS system, which many developing countries perceive as skewed in favour of investors. In the past, BITs were often signed when these developing countries were in dire need of foreign investment. Today, these countries perceive the system as disproportionately favouring investors, while placing heavy financial burdens on the state. As a result, some countries are choosing to renegotiate or abandon these treaties in favour of alternative approaches.

Despite this trend, Azkiya expressed optimism that the ISDS system could still be reformed as long as there is mutual interest and a shared commitment to making the system more equitable (such as the work of the UNCITRAL Working Group III).

Question 6: What means are available to states in international investment law to defend state rights and the rights of their citizens?

Grimmer observed that in an investment treaty arbitration, states can raise defences on multiple issues, including jurisdiction, merits and damages. States can also use counterclaims as an offensive defence mechanism in ISDS disputes. While some states (like Ecuador) have successfully brought such counterclaims, significant legal hurdles remain:

(i)      First, the relevant treaty must allow a state to bring a counterclaim. Some treaties, such as the Slovakia-Iran BIT (2016), explicitly permit counterclaims. However, most treaties are silent on this – in such cases, one must interpret the relevant text of the treaty.

In a case under the Argentina-Spain BIT (1991), which referred to “disputes arising between a Party and an investor of the other Party in connection with investments”, the tribunal found that it had jurisdiction over the state’s counterclaim.

• Conversely, in a case under the Greece-Romania BIT (1997), which referred to “disputes concerning an obligation of the host state”, the tribunal found that it had no jurisdiction over the state’s counterclaim with respect to the obligations of the investor.

• Second, the counterclaim must be connected to the subject matter of the dispute. However, there is an ongoing debate (and various differing decisions) as to whether the connection must be both legal and factual, or whether either would be sufficient.

• Third, the state must identify the source of the investors’ obligations, which typically stem from domestic law (as incorporated into the treaty) or from the text of the relevant treaty. For instance, the Slovakia-Iran BIT referred to host state law, thereby elevating breaches of domestic law into the treaty.

In the absence of explicit treaty provisions, parties often rely on domestic law obligations. The critical question then arises as to whether these obligations must be elevated to the level of international law in order to fall within the tribunal’s jurisdiction. Out of the known counterclaims brought by states, Ecuador has achieved success in two cases: the Perenco v. Ecuador and the Burlington v. Ecuador cases.

---

ABOUT THE AUTHORS

Sophia Gonzales is a senior associate at CDR Consulting, specialized in international arbitration under the rules of the ICC, AmCham Peru and the CCL-Peru, dealing with commercial law, civil law and construction law cases. In addition, she specializes in construction law under the international construction contract models FIDIC and NEC.

Surabhi Pandey is an LL.M. candidate in International Commercial Arbitration Law at Stockholm University and a qualified lawyer in India. She specializes in energy law and arbitration, representing both private and State entities before various Indian forums, including the Supreme Court and High Courts. With extensive experience in power sector disputes, she has advised and represented renewable and non-renewable generating companies in complex legal proceedings. She is looking to build a career in international arbitration, with a particular interest in both commercial and investment arbitration and the development of robust and effective procedural frameworks.

---

*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.