Panel Discussion on The Relationship between International Arbitration and the National Judge

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Panel Discussion on The Relationship between International Arbitration and the National Judge

KAUFMANN-KOHLER, Gabrielle, KALNINA, Eva

KAUFMANN-KOHLER, Gabrielle, KALNINA, Eva. Panel Discussion on The Relationship between International Arbitration and the National Judge. In: Albert Jan va den Berg.

International Arbitration - The Coming of a New Age? . Alphen aan den Rijn : Kluwer Law International, 2013. p. 751 p.

Available at:

http://archive-ouverte.unige.ch/unige:86098

Disclaimer: layout of this document may differ from the published version.

Arbitration and the National Judge

Gabrielle Kaefmann-Kohler, moderato/

Eva Kalnina, second moderato/*

Gabrielle Kaefmann-Kohler: We would now like to open the floor for discussion. There are many questions. There is first a jurisdictional question: should an investment tribunal act at all and go into these issues? For instance, the Kaliningrad tribunal stated that it had no jurisdiction under the BIT to review a court decision about the New York Convention. Was it right or wrong? This is a first question. And there are other questions of jurisdiction, for instance: where is the investment? An award is certainly not an investment; so what is the investment? Probably the intial one that underlies the en tire dispute. There are issues pertaining to the merits as well. What is the applicable standard to decide whether there is a treaty breach? What should the test be, what is the threshold? Is it necessarily denial of justice and only denial of justice, or can it be an obligation to make available effective means to an investor to implement his rights?

Should the standard be abuse of right, which is a very high threshold? And there are some more general questions. But let me open the floor.

Vijayendra Pratap Sinah:

My question is to Prof. Alvarez and it is on the White Industries award. When you talk about "effective means", does it mean something which is effective in the international sense or does it mean something that is effectively available to all nationals of a given country. Because in White Industries, the tribunal holds that "they got what they saw", they knew what they were getting into, however, did not get into the fact that there was no similar protection available to a domestic party who would have gone through the same system, corne to the same conclusion, but is not given the same kind of protection. The moment you have lost sight of this, "effective means" becomes an additional means available to an investor, which is not available to a domestic national, which opens fair and equitable treatment to questioning on the grounds of it not being fair and in fact discrimina tory.

Karen Mills: Adriana made a comment that 1 found very interesting. You wondered whether Brazil really ought to have any BITs. 1 would like to ask a question: 1 was in an

* Chair of Private International Law, University of Geneva; partner, Lévy Kaufmann-Kohler, Geneva; ICCA Governing Board member.

**Senior associate, Lévy Kaufmann-Kohler; co-coordinator of Young ICCA (Europe). The participants in this panel discussion are:

José Alvarez, Herbert and Rose Rubin Professor of Law, New York University School of Law;

Adriana Braghetta, Partner, LO Baptista-SVMFA; Professor, GVLaw Sâo Paulo; CBAr President;

ICCA Governing Board Member.

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arbitration recently and one of the arbitrators asked the parties: if a client came to you d wanted to ... know how do 1 protect my investment under a BIT ... what would you

anll them? And 1 said: this and this and this. But then it occurred tome that in my almost

~:rty years of practice and thirty years in Asia, 1 have never ever had a client corne to me, vanting to invest m Indonesia, and asked: am 1 protected by a BIT? Has anybody ever had ' client where one of the questions they were çonsidering when they wanted to invest

~

your counn:y was

wheth~r

it

wa~

protected by a BIT

a~d

whether they could go to ICSID arbitrat10n? Ever? So 1s 1t an mcentlve? ln fact, dose 1t really matter whether you have BIT protection and the ability to go to ICSID? Do we need these things in order to encourage investment in our countries? 1 am not sure we do.

Dharmendra Rautray: Just a comment on the tribunal's finding in the White Industries case that the Indian courts had not been applying the New York Convention properly. 1 do not know what material was there before the tribunal to corne to that conclusion. ln the pastseventeen years since the introduction of the New Act.of 1996, there have been only two foreign awards which have been set as1de by the Indian courts and that shows the record as to how Indian courts have dealt with the New York Convention. Out of these two awards, one related to a Korean company where the award itself was based on a forged agreement, and that' s the reason why the Indian courts set it aside. The second instance was in relation to a Japanese award, where the practice in Japan was to first make a draft award before the tribunal to pass a final award. The reason why the court set it aside was that this practice in Japan was not proven to the tribunal. ...

As regards the application of the New York Convention, we have already got an initiative by the Supreme court where the court is actually contemplating overruling the Bhatia International case (part 1), where court had an overreaching jurisdiction to pass interim measures with respect to arbitJ·ations taking place outside India.

So 1 am failing to get an answer as to why and on what basis the White tribunal came to such conclusion and what was the evidence presented to the tribunal, or was it just an impression that the tribunal had of the Indian court system.

Thomas Johnson: 1 want to suggest an answer to Karen' s very good question. There are probably very few countries in the world where the existence or absence of a BIT make a material difference in attracting foreign investment, and Brazil certainly is not one of them at this point in time. But perhaps the fundamental reason why countries have wanted to enter into BITs, why governments andforeign ministries have wanted to enter into BITs is to take investment disputes off the bilateral diplomatie agenda. If Brazil finds its capital exporters getting into problems abroad and coming to the foreign ministry asking for help to resolve their investment problem in whatever country, Brazil may fmd itself motivated to enter into treaties so that the foreign ministry can say to the complaining Brazilian investors: go file an arbitration and leave me alone.

José Alvarez: The question on White Industries and what an "effective remedy" is. l was very brief in describing it but the White tribunal said that "effective remedies" is lex specialis and therefore different from denial of justice. What 1 think they meant by that is that this was kind of an absolu te and not a relative standard so if you take that seriously it means that it becomes irrelevant what you do vis-à-vis domestic investors, it is nota comparator,

it is an absolute standard of whether they thought - and they did - that a nine and a half year delay set aside proceedings violates this absolute standard. It is irrelevant whether everybody gets treated that poorly - or, if you think, that well - in India' s courts. It is an absolute standard. I have some problems with that because I think it is possible that the effective remedies clause was merely another way of saying denial of justice in which case it is nota different standard. I also ask myself whether the sensitivity that the White tribunal undertook with respect to FET in which it considered the context oflndia, was not evident when it came to effective remedies. So that even if you thought that effective remedies was an absolute standard, as we have seen with international minimum standard and FET, (there has been] the approach of courts to take into account the local conditions.

With respect to the tribunal's comments on the New York Convention, remember that it did not affirm that India' s courts were violating the New York Convention. It said even if you thought that this was the case you took whatever the position of India was with respect to that, and I think what they were probably referring to was delays, not so much whether they were in compliance with it.

With respect to the brief comment that Tom made in response, I would agree that there are many reasons why states enter into BITs, there is a whole book by Sachs and Sauvant that compiles the empirical work on the narrow question of whether B!Ts encourage investment flows and the responses are quite mixed. In some cases they do, depending on which countries sign on to which BIT at which time, in other cases they do not. Keep in mind that many countries, including the United States, signed these not with any suggestion that this would increase investment flows but, as Tom suggests, with the idea that it would protect existing investments so that those folks would not turn to the US state department for diplomatie espousals but that this would be resolved under investment arbitration.

Adriana Braghetta: I think that probably Brazil is a very unique situation: large econorny with well established democracy and we have here two former justices that are sitting here together with us and they were part of the Supreme Court of Brazil, a totally independent court. Soto get investment Brazil does not need BITs. We came to tbat conclusion very easily. In a way, internally, what we say to people that want to invest in Brazil is that they can have a very good protection, first of all, they can go to Brazilian courts, but you can also have a fair international commercial arbitration; if you do not want the seat in Brazil, you can go to Paris, you can have other sorts of guarantees. Our constitution protects foreign investment and tries to give a reasonable atmosphere for people to invest in Brazil but it is true what Tom said that the issue is not of attracting foreign investment in Brazil anymore. With the development of economy in Brazil the issue is that the Brazilian companies are now pushing the government to have protection outside Brazil. But it is still because of the crisis in Argentina and because of so many Argentinean cases in ICSID and obviously because of the criticism that the ICSID system suffers I am not sure that presently Brazil will participate in BITs or join ICSID.

Gabrielle Kaefmann-Kohler: Thank you. We may have to corne back to one thing that José said about taking into account the context of the national court decision, which was addressed in White Industries. There the context was taken into account for some

PANEL DISCUSSION

standards, but not in respect of the provision of effective means. Should the context in which a decision is rendered be taken into consideration? The answer is a difficult one.

On the one hand, this would appear fair. On the other, could a tribunal say that because the decision was rendered in a emerging or developing country, the standards should be different than elsewhere? I do not think that would very deferential to the country at issue. There is another issue that was raised in connection with White Industries which is the difference that is introduced between domestic and foreign investors. I am afraid this is a general issue of investment law, as investment treaties may be more favorable to foreign investors than local legislation to domestic investors, which has created problems in a certain number of countries.

Laurence Craig: This is a question directed particularly at Madame Braghetta. As to a country like Brazil, we have to remember that this is a two way street and Brazil, like China and other major developing countries should be looking to protect its export of investrnent abroad and they should be looking at it in this context and to the extent that certain kinds of protection are contested you are starting from zero, you are negotiating Blîs and just like in private context I get annoyed when our corporate clients put ail the blame on the faults of arbitration well I say yes but you could have protected that in the arbitration clause - but they never do. A BIT is just another arbitration clause and there are changes - the US model has been changed, others are being changed, that' s the place to deal, at least in the future, for these kind of problems.

Emmanuel Gaillard: I would like to say a word in my capacity as a practitioner as to the question of whether investors look at BITs. I represent a number of investors in the oil sector and I can tell you one thing: they look at two things, namely, tax planning and investrnent treaty planning. That' s the second thing they look at, taxis still first, but they do look at investment protection. It is absolutely not correct to suggest that they do not care and that is does not make a difference. Yes it does make a difference.

This brings me to my second remark which is big players often have other means.

They can negotiàte their own clauses, they may have the bargaining power to negotiate what they need to although they may or may not be able to do that and the oil industry gives mixed results in terms of negotiations but one should also think of the smaller investors and the smaller investors need the BIT protection even more so than the big investors. And also, we have to think about the states that ensure these investments because if the states are going to tell the investors: yes, you can invest in that country and 1 am going to provide insurance at the end of the day I am going to pick up the bill so I want to negotiate a BIT so it is a complex combination and we cannot just take the case of Brazil and conclude that we do not need BIT s because we have a stable political system and they do extremely well in many respects including their judiciary. Not everybody is Brazil, so we cannot take that example and say that BITs are not useful. This would be the reverse of reality I think.

David Bateson: I just wanted to pick up on what Prof. Alvarez said assurning that an mvestment tribunal has found in favor of an investor to do with a non-enforcement of an ICC award. I think you mentioned that the ICC award may not be the true damages but 1 am puzzled by that because what is an investment tribunal to do: cherry pick, spin

a bottle? Assuming the ICC tribunal has got it all wrong, I do not quite understand th point: how does an investment tribunal look at the award, do they look at the meri·t at

s or just make an assumption?

Gabrielle Kaefmann-Kohler: In fact, they had. not looked at it, they had simply taken the amount of the ICC award. That may be an issue.

José Alvarez: I was not suggesting that they do not, in fact what they did in the various cases is award the ICC award where thatwas what the claimantpresented. Anditis quite possible that m the Saipem award for example nobody actually presented to the learned arbitrators this question, but if you had a heavily litigated issue as to the proper form or damages, I think they will look to Chorzow Factory: what would it take to put this persan in a position that they would have had and it is possible that you will get experts to say that actually given a discount value of an ICC award that ICC award in full is not the proper Chorzow Factory. So I would wait for the experts to say, but this is a short answer to suggest that in investment awards the damages are usually trying to re-establish the status quo, that is: what would this claimant look like if he had not suffered from this deprivation ofhis treaty rights. So therefore I think that risk assessment would be in the normal course one of the things that could be the subject of damage awards, with expert testimony on both sicles.

Gabrielle Kaefmann-Kohler: That would lead to an interesting comparison between a discount on an ICC and a discount on the ICSID award.

Adriana Braghetta: Just a comment to the two speakers from the audience. I totally agree Prof Gaillard. Obviously, if we had BITs in Brazil it would be for the protection. I do not represent the Brazilian government, unfortunately. I think that Brazil is in an important and unique situation right now, and with the strong economy Brazil would be able to negotiate the BITs in a very good manner and taking the advantage ofvarious decisions from the ICSID tribunals. Brazil would be able to properly negotiate BITs. From my persona} point of view, it is the right moment

Andrew Stevenson: I have listened to this from an Australian perspective and from our point of view we look at two cases. One has gone away, one related to a carbon tax which was being introduced on a Hong Kong investor in a brown coal generator in Victoria identifying the possibility of bringing an expropriation daim on the basis that the t would render the generator unprofitable. And the second case is of course the cigarett plain packaging. The notion that either of these cases have a potential to succeed in an Australian context is quite disturbing because they relate to questions ultimately of a legitimate exercise of public policy by the state. The fact that there are a number o decisions which allow conceptually the possibility of some inferred expropriatio without any taking is of major concern and has led, I suspect- I do not know the polie reasons - the Australian government to make the announcement that it has, namely, tha any bilateral investment treaty that it now signs will not have an arbitration clause at ail. And prior to that decision we entered into an arrangement with the United States and that free trade agreement does not contain any arbitration agreement. And I think tha!

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there is a risk that these rather imaginative decisions which expand the operation of the bilateral investmen~ ~reaties are likely to kill the goose. I would be interested in the panel's views on this issue.

Gabrielle Kaefmann-Kohler: Thank you. I was thinking of Australia before when I was entioning the differences that BITs create between local and foreign investors. This is :rtainly an important issue. I am pleased you raised this.

Mauricio Gamm Santos: [ .... ] [O]n the comment that was made if and when a client cornes tous and says: am I protected by a BIT, am I protected by the Washington Convention, it is hard to hear this question, but the question is: am I protected? And the simple answer is, well, if you are going to deal in a one shot deal with the other party you can be protected if the other party cornes from a "stable" country, but maybe you should ask for the money first. You get the money and only then you ship the goods, and then you are protected. Maybe you can also think about some insurance. But once you decide to invest in that particular country, then the journey is longer and more sophisticated and then the fact that Brazil has not signed any BIT nor the Washington Convention raises a red light, or a yellow light. And then starts the issue of investment treaty planning that was mentioned by Emmanuel Gaillard so you have to protect yourself in a different way instead of just going to that particular country. Final comment: Brazil has started negotiations on having BITs with Chile and Mexico, if! am not mistaken, although it has not yet signed or ratified them.

Gabrielle Kaefmann-Kohler: Thank you. If there are no urgent questions or comments left, [ would turn to the panelists to give their conclusions.

Adriana Braghetta: My final conclusion is that I tried to give some food for thought and to provoke a debate. The idea I wanted to make is that as we do not participate in the international investment arbitration system, the commercial arbitration works fine. We can deal with some limits and inconsistencies. I have some doubts if we really need to change the system. So that was my main goal to express my view that the system is workable.

José Alvarez: In response to the gentleman from Australia, with respect to what the Australian government has clone, I think it has killed the goose. I think it is an overkill to have to deal with the problems on, say, cigarette packaging by refusing to have investor-state dispute settlement. We now have quite sophisticated BITs that deal with these issues, so that if you look at US-Chile treaty or the US model of 2004 and now its current 2012, and many other states have clone the same, they say that in exceptional circumstances general non-discriminatory measures taken to protect established values, whether it is the environment or health, are generally not takings ... so that things like cigarette packaging under those treaties generally speaking would not be considered regulatory takings.

l would also like to address some of the points Adriana made, because I think that these corne up in investor-state generally and in B!Ts so the point that we take arbitration venues as a given and as part of political risk and that sophisticated lawyers know where

they are arbitrating is absolutely true. But that is also true of all the political risks that BITs are about, that is, the same arguments were made by people who said we do not need an expropriation provision because people are aware of the risks where they are investing, we do not need this because we have political risk insurance, we do not need this because different states have different views on this. The truth is, they concluded BITs precisely because they wanted to complement these political risks and suggest that once you invest you have a certain ... bargain through a treaty that gives a credibility to the state and to the investor. This is a policy response as to why it is not enough that you have sophisticated people accepting political risk.

The second is a legal response. You have a treaty. These are called BITs. And it is called the European Convention on Human Rights. Under them, the states have obligated themselves to do certain things. It is an old and very established rule under international law that a state commits itself under Articles of State Responsibility to anything that the state does, and that included the highest court in a state. So unless a state says something else in a treaty that says "judicial matters need not be covered", it is standard international law that you are responsible for what a state does and that includes under the international minimum standard and under denial of justice, under judicial takings of property, that was true under customary international law and it is true under treaties. With respect to the New York Convention, the New York Convention is just another treaty. If you sign another treaty that says a court or an arbitration body has jurisdiction compétence over compétence to settle that treaty, that body has competence to decide whether it is a BIT violation or a violation of the European Convention of Human Rights and the New York Convention, I regret to say, is irrelevant. That is, if it has jurisdiction under those treaties, I do not think that the New York Convention stops that arbitral body, the European Court of Human Rights, the Inter-American Court ofHuman Rights or the European Court of Justice for that matter from having jurisdiction.

And with respect to the last point that yes indeed courts in the United States might be subject to the NAFTA and BITs that's very old news indeed. The United States is now, I think, the third most sued state in investor-state arbitration, including for what its courts do, and it is because of that that the US has even been evolving its treaties but, unlike Australia, has not decided yet to back out. Thanks.

Gabrielle Kaefmann-Kohler: Thank you very much. That leads us to the conclusion of this session. The session has in fact provided answers to a number of issues identified at the outset and left some unanswered. So we can go back with a lot of food for thought, with some answers and some avenues that may well lead to answers. I would not like to close this session without thanking the speakers for their valuable insights into these fascinating issues as well as the audience for its active participation.

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