By Dimitar Arabov[1]
On 27 November 2024, Young EFILA organised another successful and thought-provoking debate, held at the London offices of Clyde & Co. The debate focused on identifying the most significant decision from the first 1,000 cases filed under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965 (the “ICSID Convention”).
The event began with short welcoming remarks by Nikos Lavranos, Secretary-General of EFILA, who reflected on the growth of Young EFILA and its importance to the arbitration community in London and across Europe.
Subsequently, the moderator of the debate, Richard Trinick of Three Crowns, introduced the debate topic and emphasised the various lenses through which the significance of a decision may be viewed – including by reference to (i) objective metrics (such as number of subsequent citations), (ii) impact on the legal landscape (such as decisions expanding or constricting jurisdictional thresholds), or (iii) whether it defines the entire system of investor-state dispute settlement (“ISDS”). He then went on to explore the advantages and disadvantages of each of those approaches and invited members of the audience to form their own opinion on which one is the most appropriate.
Mr Trinick then proceeded to set out the format for the debate and introduce all of the panellists and the decision each of them chose:
- Scott Macpherson (Hogan Lovells) for Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa v Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016 (“Urbaser v Argentina”);
- Ana Martinez Valls (Baker Botts) for Salini Costruttori S.p.A. and Italstrade S.p.A. v Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 16 July 2001 (“Salini v Morocco”);
- Mark McCloskey (Debevoise & Plimpton) for Tokios Tokelés v Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004 (incorporating Dissenting Opinion by Mr Prosper Weil) (“Tokios Tokelés v Ukraine”); and
- Line Chataud (Mayer Brown) for Lanco International Inc. v Argentine Republic, ICSID Case No. ARB/97/6, Decision on Jurisdiction of the Arbitral Tribunal, 8 December 1998 (“Lanco v Argentina”).
Submissions
Urbaser v Argentina (Mr Macpherson)
The first panellist to present his submissions in the debate was Scott Macpherson. He began his arguments by reminding everyone of the ongoing criticism against investment arbitration as a tool allegedly used against progressive ESG legislation but submitted that investment protection has an important role to play in energy transition. He further argued that, instead of withdrawing from investment treaties, states ought to modernise them in line with energy transition goals to ensure that both investor protections and sustainability initiatives are effectively protected.
On that basis, he submitted that Urbaser v Argentina was the most significant ICSID decision to date as it was the first one to find that a tribunal has jurisdiction to hear a counterclaim by a state against an investor on the basis of human rights violations. He then proceeded to remind the audience of the background behind the dispute (the emergency measures imposed by the Argentine government which allegedly adversely impacted the claimants’ water services concession) and the nature of the counterclaim (allegations that the claimants mismanaged the water and sanitation infrastructure, breaching the international human right to water). Scott Macpherson summarised the jurisdictional findings in the case (the tribunal found jurisdiction to hear the counterclaim, largely on the basis of the unusually symmetrical arbitration clause in the relevant bilateral investment treaty (“BIT”)) as well as the findings on the merits (the counterclaim failed as the tribunal did not find any specific obligations that the claimants owed to protect or fulfil that human right to water).
He then proceeded to submit that the decision showcased how creative and informed drafting of an investment treaty may allow a tribunal to apply international human rights law in an ISDS case. The tribunal in the case recognised that companies operating internationally can be subject to international law, and, thus, human rights infringements may have an adverse effect on an investor’s claim. As such, despite the fact that Argentina did not manage to identify a specific legal obligation in respect of the alleged human rights violations in that case, Mr Macpherson submitted that the decision may be used going forward as a basis for counterclaims by states on grounds of climate change and/or human rights violations by investors. Consequently, he submitted that this decision is the most significant as it showcases that investment protection is not a one-way street and that, through careful and informed drafting of BITs, states may achieve the much-sought balance between investor rights protection and sustainability goals.
Richard Trinick then asked Mr Macpherson whether the fact that the decision has been criticised for its flawed reasoning undermines the argument that it is the most significant to date. In response, Mr Macpherson argued that the ISDS system does not apply a doctrine of precedent and the fact that a decision is criticised does not necessarily diminish or undermine its significance (and, indeed, one would struggle to find an ICSID decision that has not been the subject of criticism).
Salini v Morocco (Ms Martinez Valls)
The second speaker in the event, Ana Martinez Valls, advocated for Salini v Morocco. She began her submissions by emphasising the significance of that decision as the origin of the notorious Salini four-element criteria on whether a qualifying investment exists for the purposes of Art. 25(1) of the ICSID Convention: namely (i) contribution of capital or resources, (ii) a certain duration, (iii) a risk, and (iv) a contribution to the economic development of the host state.
She then proceeded to remind the audience of the background behind the case (the Moroccan government’s alleged failure to comply with its obligations under the contract for the claimants to construct a highway in Morocco) and that the decision has provided a critically vital framework to define the scope of a qualifying investment, which is particularly welcome in the ISDS context where there is significant tension between interests of host states and investors. She also submitted that this certainty ought to be welcomed as it helps states attract more foreign direct investment, whilst still advancing their sustainability goals and maintaining the ISDS system.
Ms Martinez Valls then argued that this decision is the most significant as, even though the test has since been modified by some tribunals (for example, by altering, or not applying, the fourth prong of the test, or adding additional additional requirements), the criteria (or a modified version thereof) had been applied by a large number of cases and even transcended the ICSID system by being applied in UNCITRAL cases. She further emphasised the impact that the decision has had on BIT drafting, in particular noting that a modified version of the Salini criteria has now been included in a number of new model BITs (such as the latest Netherlands and United States Model BITs), which supports the importance of that decision to this day, 25 years since it was issued.
Mr Trinick then queried (i) whether the fact that, under most BITs, investors have a choice whether to go through the ICSID or the UNCITRAL route provides an easy way of sidestepping the Salini criteria, and (ii) whether, from investor perspective, the criteria applied in Salini v Morocco aligns more naturally with how investors think about their investments prior to any dispute arising. Ms Martinez Valls responded that, in relation to (i), the Salini criteria has been applied in UNCITRAL cases and, in any event, it has impacted the drafting of new BITs such that it is now often expressly included in the BIT requirements of an investment. In relation to (ii), she agreed that the Salini criteria is an accurate representation of what investors consider an investment to be prior to a dispute and noted that it also provides certainty for them (as they can start thinking about their investments and how to ensure they are protected under relevant BITs prior to investing in a foreign country).
Tokios Tokelés v Ukraine (Mr McCloskey)
The third decision that was put forth was Tokios Tokelés v Ukraine by Mark McCloskey. He began his submission by noting that, to his knowledge, this is the only decision in all 1,000 ICSID cases thus far where a president of a tribunal (Mr Prosper Weil here) has issued a dissenting opinion to a majority decision by the two party-appointed co-arbitrators.
The issue in that case concerned the tribunal’s jurisdiction ratione personae, and, namely, whether that could be engaged by a claimant incorporated in another state but almost entirely owned by nationals of the host state. Mr McCloskey proceeded to summarise the tribunal’s finding on this – that, since neither the ICSID Convention, nor the BIT in question required an examination of the ultimate ownership or control of an investor, the mere fact that the claimant was established in the relevant home state sufficed to grant the tribunal jurisdiction. Separately, he also noted that the tribunal in the case rejected the state’s arguments with respect to corporate veil-piercing, noting that those were limited only to exceptional circumstances, which were not made out by the state.
Mr McCloskey then proceeded to analyse the president’s dissenting opinion, which disagreed with the majority. The dissenter’s reasoning was predicated on the ideas that (i) the majority’s interpretation undermines the spirit and purpose of the BIT, and (ii) the claimant was not a genuine foreign investor as it was funded, controlled and owned by Ukrainian nationals. As such, the president considered that the majority decision constitutes an abuse of the BIT’s protections, expanding them beyond the scope and limitations of the BIT and the ICSID Convention.
On that basis, Mr McCloskey finished his submission by arguing that this decision is the most important ICSID decision thus far as it showcases the fundamental balancing exercise in the ISDS system. On one hand, he noted, ISDS seeks to encourage cross-border participation and investment by foreign investors by offering them substantive investment protection but, on the other, it seeks to respect states’ sovereignty by allowing them to limit the scope of those protections in the respective BITs they sign. Ultimately, Mark McCloskey submitted that the answer in this case was correct as it respected the fundamental principle of consent – the State had complete rights to include any requirements it wished with respect to qualifying investors in the BIT it signed (including ones with respect to control and source of capital, which it did not include here).
Mr Trinick then asked Mr McCloskey whether the president was at least correct in his dissent when saying that such pro-investor decisions have led to the ISDS system being undermined in the eyes of the states. Mr McCloskey responded by saying that, in his view, ICSID’s popularity was owed to decisions such as this which both provide certainty for investors (leading to further foreign investment) and respect the language of treaties and, consequently, states’ right to contract in BITs for the protections and limitations they wish to include therein.
Lanco v Argentina (Ms Chataud)
The last speaker for the event, Line Chataud, argued in support of the jurisdictional decision in Lanco v Argentina. She began by summarising the facts leading to the dispute (the Argentinian government’s measures allegedly adversely impacting Lanco’s concession in the port of Buenos Aires) and the jurisdictional objections by Argentina (being (i) that Lanco did not have an investment protected by the BIT because it only owned 18% of the consortium, and (ii) that the concession agreement included an exclusive jurisdiction clause in favour of the Argentinian courts, which prevented Lanco from commencing arbitration under the BIT).
Ms Chataud then proceeded to outline the tribunal’s findings in rejecting both of Lanco’s objections. In relation to the first one, the tribunal rejected the argument that Lanco was not entitled to benefit from investor protection under the BIT in relation to its minority stake; it affirmed that there was no requirement for Lanco to control the investment under the BIT and that, consequently, any investment, regardless of its size, falls within the scope of protection of the BIT. In relation to the second objection, the tribunal established that the BIT constitutes an open offer to investors to arbitrate, which an investor can accept, irrespective of any jurisdiction clauses entered into by them in other agreements. As such, as long as the investor had not already submitted the dispute to any other forum, it retained the choice to accept the state’s standing offer to arbitrate under the BIT.
Ms Chataud submitted that this decision is the most important one as it is the decision that affirms the fundamental principle behind the ISDS system, which underpins all other decisions – that of consent. She asserted that parties’ consent to the system was one of the most fundamental requirements of public international law and the cornerstone of ISDS as it exemplifies state sovereignty. As such, even though not many people had heard of the Lanco v Argentina decision, a lot of people knew of its impact. Consequently, despite the fact that the decision is not often cited, it established a trite principle of investment treaty arbitration under the ICSID Convention, universally acknowledged to this day, and it preserved ISDS’s viability as a genuine recourse for foreign investors.
At the end, Mr Trinick asked Ms Chataud whether she considered Lanco v Argentina as the most significant decision in the history of the ICSID Convention, considering that the principle set out in it existed well before the decision was rendered. Ms Chataud responded by saying that it was indeed Lanco v Argentina that cemented the existence of that principle and gave confidence to foreign investors that investment protection would be retained, irrespective of the terms in any contracts they may enter into in connection with their investment.
Final remarks and audience’s vote
After the panellists concluded their submissions, the audience asked them a number of questions and, subsequently, the debaters had a minute each for final concluding remarks. Following that, the audience was asked to vote for which decision out of the four they considered to be the most significant one in ICSID’s history.
Despite the unquestionably skilled advocacy by all panellists, the audience voted overwhelmingly in favour of the decision in Salini v Morocco put forth by Ms Martinez Valls.
To round off the morning, a reception following the debate offered an excellent opportunity for panellists and members of the audience to network and delve deeper into the significance of other ICSID decisions.
Dimitar Arabov is an English-qualified lawyer, who practices in the Disputes department of Gibson, Dunn & Crutcher’s London office. He has broad experience in international arbitration, public international law, and complex commercial litigation. He trained at Gibson Dunn before qualifying as an associate at the firm and holds a First-Class Law degree from University College London. The views expressed above do not necessarily reflect the author or the speakers’ opinions on the relevant cases and should not be attributed to the firms they work at. ↑