CHAPTER 3 INVESTOR-STATE DISPUTE SETTLEMENT PROVISIONS
3.1 Typical Investor-State Dispute Settlement Provisions Contained in
3.1.3 Status Quo for Resolving Disputes in Modern BITs
In order to have a comprehensive understanding on means of resolving Investor-State disputes in modern BIT practice, the author carries out discussion on these channels from two perspectives: binding force and neutral third party.
(b) the Additional Facility Rules of ICSID, provided that either the disputing Party or the Party of the investor, but not both, is a party to the ICSID Convention; or
(c) the UNCITRAL Arbitration Rules.
2. The applicable arbitration rules shall govern the arbitration except to the extent modified by this Section.
139 NAFTA Chapter 11,supra note 137, at 534.
140 See ICSID, List of Contracting States and Other Signatories of the Convention, ICSID/3,
https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=ShowDocument
&language=English (last visited Dec. 24, 2012).
(as of July 25, 2012)
141 Daniel M. Price, An Overview of the NAFTA Investment Chapter: Substantive Rules and Investor-State Dispute Settlement, 27INT’L L.272,731 (1993.)
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3.1.3.1 The Acceptance of Final and Binding Force
Under Investor-State dispute context, BITs generally call for the “amicable resolution” for disputes; such provision is intended to refer to the use of non-binding dispute mechanisms.142 This non-binding dispute mechanism also includes negotiation, mediation and conciliation. Reasons to evoke such dispute mechanism may be the intention to preserve flexibility and the informality of dispute resolution process, whereas there are difficulties due to the ambiguity and lack of guidance.143 How these dispute mechanisms shall be conducted and what obligations the two Parties shoulder (substantive obligations) remain unclear, because different dispute resolution tradition derives from legal cultures. In BITs, there is no mutual consent as to how the Parties express their attempt to resolve the disputes, nor is there mutual, nor is there any specific provision that measures the degree of accomplishment of these non-binding dispute mechanisms. These defaults leave “amicable resolution” methodology with little force.144
There is usually a time-frame as to how long should the above mentioned method reach conclusion. Only when failing to reach agreement by these “amicable resolution”
142 Susan D. Frank, Challenges Facing Investment Disputes: Reconsidering Dispute Resolution in International Investment Agreements, in APPEALS MECHANISM IN INTERNATIONAL INVESTMENT DISPUTES
143,153(Karl P. Sauvant ed., 2007).
143 See id.
144 Frank, supra note 142, at 153.
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methods within a certain period of time can the investment disputes be submitted to arbitration.145 Arbitration is being provided as the final method for resolving treaty-based claims by most BITs, and it appears to be considered as the “best”
mechanism for resolving investment disputes 146 As apparent as arbitration being more favored in BITs, there has been little explanation or documentation of this phenomenon.147 However, there are practical reasons for choosing arbitration:
arbitration was seen more effective—“international commercial arbitration has certain systematic efficiencies in its model that could be grafted onto the investment treaty model.”148 Although submitting cases to arbitration is outsourcing authority to resolve investment disputes, parties still hold control over the process given that “party autonomy” is respected under arbitration proceedings.149 In arbitration, parties can choose the decision-makers, tailor-make the arbitration process meeting the needs and serving the unique features of each investment disputes, and keep the proceedings and information confidential. Investor-State arbitration is now a common feature of a BIT.150
145 This period of time is called “cooling period.” Length of such period varies in BITs generally ranging from three months to six months.
146 Frank, supra note 142, at 154.
147 It has been suggested that the phenomenon occurred because an interesting number of capital importing countries came to realize that their self-interest was served by agreeing to arbitrate investment disputes (quoting from Frank, supra note 142, at 154).
148 Frank, supra note 142, at 156.
149 See Frank, supra note 142, at 56-57.
150 NORAH GALLAGHER &WENHUA SHAN,CHINESE INVESTMENT TREATIES:POLICIES AND PRACTICE ¶ 8.03, at 301 (2009).
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3.1.3.2 The Involvement of Neutral Third Party
“A third-party neutral is an impartial individual or group of individuals serving [ . . . ] [as a role that] assists parties in resolving issues in controversy between an investor and a State. A Third-party neutral is accepted by the parties and assists in the resolution of a dispute according to the authority granted by the parties to manage the process and/or outcome.”151 When thinking of neutral third party in alternative dispute resolution methods (ADR), the first dispute resolution mechanism that pops out would be arbitration.152 The neutrality of international arbitration permits the independence and impartial resolution of disputes. With the characteristics of independence and impartiality in appointing arbitrators, it escapes the perception of unfair local advantage or outright of the court system in favor of the host government.153
As aforementioned, party autonomy is one of the crucial principles in arbitral proceedings. Each party is allowed to appoint one arbitrator, and the two party-appointed arbitrators then jointly nominate the third arbitrator, the chief arbitrator.
Though parties have the right to appoint arbitrator, all arbitrators are obliged to declare his/her independence and impartiality. Therefore, party autonomy does not conflict the
151 UNCTAD, Investor-State Disputes: Prevention and Alternatives to Arbitration (UNCTAD Series on International Investment Policies for Development) (2010), at xx,
http://unctad.org/en/docs/diaeia200911_en.pdf (last visited Jan. 3, 2013).
152 Apart from arbitration, mediation also involves a neutral third party in ordinary sense.
153 Frank, supra note 142, at 156.
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impartiality and independence of arbitrators.
Negotiation Mediation Arbitration Litigation Disputants increasingly lose control.
Third Party increasingly intrudes.
Figure 2: Forms of Dispute Resolution and Parties’ Control Source: UNCTAD
In modern BIT, apart from amicable settlement, mediation and arbitration are both procedures that invite third parties’ engagement. The most common method, Investor-State arbitration under ICSID or other institutions, ensures the fairness and the objectiveness in rendering an award as the arbitral procedure makes impartiality and independence a crucial issue.
3.1.3.3 Exhaustion of Local Remedies
In current BIT practice, it is well established that there is generally no need to exhaust local remedies, where consent has been given to Investor-State arbitration.154 Some BITs require investors to choose a single avenue of relief at the outset of a dispute.
These “fork in the road” clauses can preclude an investor from switching forums after having filed a request for arbitration or having commenced a proceeding in local
154 DOLZER &SCHREUER,supra note1, at 215. See also SUBEDI,supra note 4, at97.
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courts.155 Before the author goes into Cross-Strait BIA, fork-in-the-road provision in several modern BITs is introduced as examples:
1. Argentina-U.S. BIT.
156 – Art. VII of this BIT regulates dispute settlement between investors and host Party,ARTICLE VII
2. In the event of an investment dispute, the parties to the dispute should initially seek a
resolution through consultation and negotiation. If the dispute cannot be settled
amicably, the national or company concerned may choose to submit the dispute for
resolution:
(a) to the courts or administrative tribunals of the Party that is a party to the dispute; or
(b) in accordance with any applicable, previously agreed dispute-settlement procedures;
or
(c) in accordance with the terms of paragraph 3 [arbitration].
The three options to resolve a dispute between a Party and a national or company of the other Party are listed in Art. VII.2. The usage of “or” in this subparagraph suggests the three are in alternative relationship. Therefore, this is a fork-in-the-road provision.157
2. France-Argentina BIT.
158 – Art. 8(2) requires an irrevocable election by the155 GARY B.BORN,INTERNATIONAL ARBITRATION:LAW AND PRACTICE 427 (2012).
156 Full text of Argentia-U.S. BIT, available at
http://unctad.org/sections/dite/iia/docs/bits/argentina_us.pdf (last visited Jan. 12, 2013).
157 See DOLZER &SCHREUER,supra note1, at 217.
158 Full text of France-Argentina BIT (in France), available at
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investors. Under this article, an investor’s claim
[s]hall be submitted, at the request of the investor, either to the national courts of the
contracting Party involved in the dispute, or to international arbitration. . . . Once an
investor has submitted the dispute either to the jurisdiction of the Contracting Party
involved or to international arbitration, the choice of one or the other of these
procedures shall be final.
159One other example would be BITs that United States concluded in the early 1990s, These BITs incorporate a more complex formulation of the mandatory choice of disputes resolution method. Complex or not, the effect of these provisions serves similarly. With such provisions in BITs, an investor opted for national court adjudication for a dispute, he/she has opted out the chance of the arbitration procedure.160