Tag: Arbitration

The Proposed Reform of the Chinese Arbitration Law and its Impacts on Foreign Parties: Part I – Shu Zhang and Peng Guo

Editors Analysis, Articles

The Chinese lawmaker, being the Ministry of Justice of the PRC, recently published a draft revised New Chinese Arbitration Law for public consultation, which suggests a series of major changes. While most of the changes are in line with the international practice, there are also significant deviations from the commonly accepted practice suggested by the UNCITRAL Model Law. This series aims to highlight the changes and briefly evaluate its impact on foreign parties in dealings with Chinese parties, who may face potential arbitration proceedings in China. This is part one of a two-part series.

The Chinese Arbitration Law (1994) (CAL) was drafted and enacted more than 20 years ago and has been criticised for its out-of-date regime governing the practice of arbitration in China. After years of debates and discussions, the amendment of the CAL was finally prioritised by the Standing Committee of the National People’s Congress and the State Council. On 30 July 2021, the Chinese Ministry of Justice circulated the draft of an Amended Chinese Arbitration Law for public consultation (‘the Draft’), which marks a significant step towards its formal amendment. On the one hand, a number of important features of contemporary international arbitration practice are now accepted by the Draft, demonstrating its aim to be in line with the international practice. On the other hand, some distinctive Chinese features in the Chinese arbitration system are maintained and developed, furthering its divergence from international expectations. Both of these aspects would have significant impacts on foreign parties who might consider, or who might be subject to, China-related arbitration. The authors will highlight some important features and briefly discuss their impacts on foreign parties conducting arbitration in China in this two-part series.

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Event: Australian Arbitration Week, 18-22 October 2021

Editors Events

Australian Arbitration Week 2021 is being held virtually this year and will be running a variety of events related to arbitration throughout the week of 18 to 22 October 2021! The following events are being run by ACICA, but a full calendar of events is available on the ACICA website.

ACICA/CIArb Australia International Arbitration Conference 2021

New and Emerging Norms in International Commercial Arbitration

Date: 18 October 2021

Website: https://ciarb.net.au/ciarbevents/2021-conference/

AMTAC Webinar 

Avoiding Obstacles along the pathway to enforcement

Date: 19 October 2021, 1pm to 2pm (AEDT)

Registration: https://acica.org.au/events-list/#!event/2021/10/19/amtac-seminar-aaw

ACICA Webinar

Insolvency & Arbitration

Date: 19 October 2021, 3:30pm to 5pm

Registration: https://acica.org.au/events-list/#!event/2021/10/19/acica-vic-state-committee-seminar-insolvency-arbitration

ACICA45 workshop (virtual)

Practicalities of Procedure

Date: 20 October 2021, 10am to 12pm

Registration: https://acica.org.au/events-list/#!event/2021/10/20/acica45-workshop-aaw

ACICA Rules Roadshow (virtual)

Date: 21 October 2021, 12:30pm to 1:30pm

Registration: https://acica.org.au/events-list/#!event/2021/10/21/sydney-acica-rules-2021-roadshow-event

ACICA Webinar

What’s the bottom line? Management of Costs in International Arbitration

Date: 22 October 2021, 12:30pm to 1:30pm

Registration: https://acica.org.au/events-list/#!event/2021/10/22/what-8217-s-the-bottom-line-management-of-costs-in-international-arbitration

The Singapore Mediation Convention vs the New York Convention: Same difference? – Kevin Tan

Editors Analysis, Articles

This article compares the Singapore Mediation Convention to one of the most successful United Nations treaties to date, the New York Convention, and provides some tips to parties to assist them in determining which Convention they should use to enforce their mediated settlement agreements.

Introduction

The United Nations Convention on International Settlement Agreements Resulting from Mediation, better known as the Singapore Mediation Convention (SMC), came into force on 12 September 2020. 

The SMC provides a framework to directly enforce the terms of a mediated settlement in Contracting States without the need to commence fresh proceedings. It applies to settlements that (a) have resulted from mediation, (b) have been concluded in writing, (c) concern a commercial dispute, and (d) are international (see Article 1 of the SMC). Prior to the SMC, a party who wanted to enforce a mediated settlement agreement would have had to do so either through litigation or arbitration – both of which entail substantial costs and time.

The SMC has been lauded as a ‘game-changer’ and described by Singapore’s Prime Minister Lee Hsien Loong as the ‘missing third piece’ in the international dispute resolution enforcement framework (apart from litigation and arbitration). The SMC currently has 53 signatories including the United States, China and India, and has been ratified by six countries including Ecuador, Fiji, Qatar and of course, Singapore.

Unsurprisingly, given the similarities between the SMC and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, more commonly known as the 1958 New York Convention (NYC), which provides a framework for cross-border enforcement of arbitral awards, the SMC has been touted as the mediation-equivalent of the NYC. Pertinently, as the SMC does not apply to mediated settlement agreements that are enforceable as arbitral awards, parties who choose to mediate their cross-border disputes will still have a choice of enforcement under the NYC or the SMC (see SMC Article 1(3)(b)). This begs the following questions: (a) what are some of the significant differences between the SMC and NYC, and (b) what are the implications of such differences? This blog post seeks to explore these questions and provide some observations and practical tips to assist parties to determine which Convention to utilise to enforce their mediated settlement agreements. 

Significant differences between the SMC and NYC

First, the success of any international convention depends on its uptake. In this regard, the coverage of the NYC is currently considerably more extensive than the SMC. This is to be expected given that it is still early days for the SMC. While it is promising that major economies such as the United States, China and India have already signed the SMC, some countries appear to be adopting a wait and see approach to determine if the SMC gains sufficient traction. Notably, key players such as the European Union, the United Kingdom and Australia have yet to sign the SMC. In the meantime, businesses who wish to utilise mediation as a dispute resolution mechanism may still rely on hybrid provisions such as med-arb and arb-med-arb, which allow settlement agreements reached through mediation to be enforced by way of an arbitral award.

Second, unlike the NYC, the SMC does not operate on the basis of reciprocity. One should therefore not assume that the SMC will not apply to a mediated settlement agreement conducted in a state which is not a signatory to the SMC because a mediated settlement agreement can be recognised and enforced in any contracting state to the SMC. 

Third, while there are similar grounds of refusal to grant relief under the SMC (Article 5) to those under the NYC (Article V), there are different grounds as well. In particular, there are two grounds for refusal of enforcement under Article 5 of the SMC which have no NYC-equivalent that are worth highlighting: 

  1. Article 5(1)(e) which provides that relief may not be granted if there was a ‘serious breach by the mediator of standards applicable to the mediator or the mediation without which breach that party would not have entered into the settlement agreement’. 
  1. Article 5(1)(f) which refers to a ‘failure by the mediator to parties to disclose to parties circumstances that raise justifiable doubts as to the mediator’s impartiality of independence’.

There are uncertainties in the new grounds of refusal. For instance, what are the ‘standards applicable to the mediator or the mediation’? Whilst in international arbitration there are well-established guidelines for arbitrators, such as the International Bar Association Guidelines on Conflicts of Interest in International Arbitration, there are no clear guidelines for mediators which are used equally extensively. As regards Article 5(1)(e) and (f), there is also no definition of what constitutes a ‘serious breach’ or ‘justifiable doubts’ respectively. That the abovementioned grounds have no NYC-equivalent is significant because one cannot look to the jurisprudence of the NYC for guidance or as a reference point in relation to the abovementioned uncertainties. Rather, one would have to monitor developments in domestic law, guidelines set down by international bodies and/or interpretations found in case-law, which would hopefully provide added clarity on these areas in time.

Fourth, in contrast to the NYC which regulates both arbitration agreements and arbitral awards, the SMC does not regulate the enforcement of agreements to mediate. The implication is that a party who wishes to enforce an agreement to mediate will have no recourse under the SMC, and will have to look to domestic legislation of the enforcing state instead (for example section 8 of the Singapore Mediation Act 2017, which allows for the enforcement of agreements to mediate).

Fifth, a significant feature of the SMC is a reservation provision under Article 8(b) which allows Contracting States to declare that they will apply the SMC only to the extent that the parties to the settlement agreement have agreed to the application of the SMC. Commentators have stated that this reservation clause has the potential to limit the overall extent to which the SMC will apply globally. Given that the place of enforcement may not always be clear at the time a settlement agreement is entered into, it would be prudent for users to expressly stipulate the application of the SMC in their agreement in order to take advantage of the SMC for enforcement purposes. 

Conclusion

With the increase in transnational disputes arising from the growth in international trade, users can only benefit from more options to resolve their disputes. After all, there is a wide spectrum of transnational disputes and some may be better suited for mediation whereas others arbitration (or even litigation). 

The SMC is to be welcomed for elevating mediated settlement agreements to a sui generis status comparable to arbitral awards. In so doing, the SMC has provided a crucial boost to the legitimacy of mediation as a dispute resolution mechanism. Businesses and practitioners should monitor developments relating to the SMC as highlighted above closely. It is hoped that the SMC will be widely adopted and be able to rival the NYC in relation to the extent of application in time to come. 

Kevin Tan is a partner in Rajah & Tann Singapore LLP. He practices international arbitration and commercial litigation. He acts as counsel in mediations and is an accredited mediator with the Singapore Mediation Centre. 

Indian court intervenes in Vodafone investment arbitration against India – Ishbel McLachlan

Editors Analysis, Articles, Opinion

(Photo by Arti Sandhu/Flickr)

The Delhi High Court has temporarily restrained British companies Vodafone Group Plc and Vodafone Consolidated Holdings Ltd (together, “Vodafone“) from taking any further action in respect of a claim against India under the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of India for the Promotion and Protection of Investments (“UK-India BIT“): Union of India v Vodafone Group PLC United Kingdom & Anr. CS(OS) 383/2017.

The Court’s decision was made on the basis that an arbitration under the UK-India BIT would duplicate a claim already filed by Vodafone’s subsidiary Vodafone International Holdings BV (“Vodafone BV“) under the Agreement between the Republic of India and the Kingdom of the Netherlands for the Promotion and Protection of Investments (“Netherlands-India BIT“) and that the “natural forum” for the dispute was the Indian courts. The Court has asked Vodafone to respond to India’s request for a permanent anti-arbitration injunction by 26 October 2017 before any further orders are made.

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Please don’t take my arbitrators away: a clash of terms between arbitration agreements and institutional rules – Andrew Foo

Editors Analysis, Articles, Opinion

It is reported that the courts of the People’s Republic of China (“PRC”) have refused to enforce a Singapore International Arbitration Centre (“SIAC”) award under Article V(1)(d) of the New York Convention, on the basis that “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties…”.

In this case, two parties entered into a contract for the sale and purchase of iron ore.  However, the arbitration agreement therein contained a potential (and potent) clash of terms:

  • The arbitration agreement provided for a three person panel, and
  • The arbitration agreement also provided for arbitration under the SIAC Rules, and the SIAC Rules contain an expedited procedure and state that if this expedited procedure applies, the case would be referred to a sole arbitrator (unless the SIAC determines otherwise).

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International jurisprudence, great powers and the UN – Andrew Blackie

Editors Analysis, Articles, Opinion

On 7 July 2016, during a visit to Beijing, United Nations (“UN”) the then Secretary-General Ban Ki-moon met with Chinese President Xi Jinping and Foreign Minister Wang Yi. The timing was unfortunate, owing to the imminent ruling of the United Nations Convention on the Law of the Sea (“UNCLOS”) Arbitral Tribunal on the South China Sea, handed down less than a week later. 

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The Trumping of the Trans-Pacific Partnership – Matthew Rimmer

Editors Analysis, Articles, Opinion

With the victory of Donald Trump, the Trans-Pacific Partnership (“TPP”) has literally been trumped.

As a Presidential candidate, Barack Obama came to power promising to renegotiate the North American Free Trade Agreement (“NAFTA”). As a President, a centrepiece of his administration was the proposal for the TPP, a trade agreement spanning the Pacific Rim. He argued that the trade agreement was essential for the economic and political power of the USA.

The TPP was also ambitious in terms of its membership. The agreement included NAFTA countries such as the USA, Canada, and Mexico. The deal involved Australasian nations, like Australia and New Zealand. The TPP also included South-East Asian countries, such as Singapore, Malaysia, Brunei, Vietnam, and Japan, as well as a couple of Latin American countries such as Chile and Peru. Notably, the TPP excluded members of the BASIC/ BRICS group — such as China, India, Brazil, South Africa, and Russia. Despite its name, the TPP also ignored Pacific Island states. The political geography of the TPP was largely determined by alliances with the USA.

The TPP was sweeping in terms of its subject matter. As well as traditional matters of trade, the agreement also contained extensive prescriptive obligations in respect of intellectual property and investment. The agreement included an extensive Intellectual Property chapter, with provisions on copyright law, trademark law, patent law, and biologics. The TPP also enshrined a controversial Investor-State Dispute Settlement regime (“ISDS”). Such a regime would enable corporations to challenge government decision-making in investment arbitration tribunals. The agreement also contained weak protections in respect of public health, the environment, and labour rights.

As a result of its breadth of membership, and the scope of its subject matter, the TPP was highly unstable. The agreement collapsed in the wake of the 2016 United States elections. With the collapse of the TPP, the debate over trade amongst Pacific Rim nations will shift to other arenas and fora.

The United States of America

The TPP was a key focal point in the Presidential Race.

After initially supporting the TPP, Hillary Clinton shifted her position, first to one expressing reservations about the TPP, and then to opposition to the TPP. Such a repositioning by Clinton was the result of a vigorous challenge from Bernie Sanders, and the deep opposition of the Labour Movement to the TPP.

For his part, Donald Trump promised to renegotiate the NAFTA on more favourable terms to the United States. He vowed to “withdraw from the TPP, which has not yet been ratified.” Donald Trump promised his supporters to negotiate “fair trade deals that create American jobs, increase American wages, and reduce America’s trade deficit”.

Clinton attacked Trump’s credentials, arguing that his trademarked, personalised products were manufactured outside the United States.

For his part, Donald Trump argued that Clinton would pass the TPP, if she won the election.

In the wake of the Trump victory, the White House has conceded that the TPP is doomed. Barack Obama was previously tempted to push ahead with a TPP vote in the US Congress in the lame-duck session. Now, it seems that he has conceded neither the Republicans nor the Democrats will support the TPP in the US Congress.

In retrospect, it seems a grand folly that the Obama Administration should have pushed for the TPP, in the middle of a Presidential race between Donald Trump and Hillary Clinton. Lori Wallach of Public Citizen observed:

“The TPP did not elect Trump per se. But with no small thanks to President Obama’s relentless, high-profile campaign throughout the primaries and general election to pass the pact, the TPP pact readily served as a potent symbol of business-as-usual in Washington and its facilitation of growing corporate power over every facet of our lives”.

Presciently, the documentary film-maker Michael Moore warned of a Rust-Belt Brexit against Hillary Clinton in the mid-west states of the United States. He observed that “Clintons’ support of NAFTA helped to destroy the industrial states of the Upper Midwest” and “Trump is going to hammer Clinton on this and her support of TPP and other trade policies.”

Former Clinton Labor Secretary Robert Reich has lamented that trade deals, declining unionization and market concentration created an opening for Donald Trump’s presidency. He observed that “Americans have rebelled by supporting someone who wants to fortify America against foreigners as well as foreign-made goods.” Reich acknowledged that such protectionist sentiments had created unease amongst the political and economic establishment: “The power structure understandably fears that Trump’s isolationism will stymie economic growth.”

For their part, Progressive Leaders have denied that Trump should claim credit for the demise of the TPP. Evan Geer of Fight for the Future commented:

“Let’s make one thing clear: Donald Trump didn’t kill the TPP. We did. An unprecedented grassroots movement of people and organizations from across the political spectrum came together to spark an uprising that stopped what would have been nothing less than an outright corporate takeover of our democratic process. Together we sounded the alarm, and made the TPP so politically toxic that no presidential candidate who wanted to be elected could support it.”

Arthur Stamoulis, executive director of Citizens Trade Campaign, agreed, saying:

“With peoples’ movements united across borders and across sectors, we were able to stop a power grab by some of the most powerful economic and political interests in human history.”

Digital rights defenders, the Labour Movement, and environmental and climate activists have said that the TPP collapsed in the face of concerted community action and civil society pressure.

Australia

In Australia, the Joint Standing Committee on Treaties has held hearings in respect of the TPP. This report was published by the Federal Parliament on November 30, 2016.

The Senate Foreign Affairs, Defence and Trade Committee is also investigating the TPP. There have been concerns expressed about copyright law, trade mark law, patent law, and biologics in the hearings.

Moreover, the Productivity Commission has had an inquiry into Australia’s Intellectual Property Arrangements — including those related to trade.

In the wake of the Trump triumph, the Australian Prime Minister Malcolm Turnbull has warned that protectionism will result in poverty. He has extolled the virtues of free trade agreements. Turnbull has emphasized that the Australian economy needs to be ‘flexible’ and ‘competitive’, but ‘fair.’

Foreign Minister Julie Bishop and Trade Minister Steven Ciobo have sought to defend the Australia-United States Free Trade Agreement (“AUSFTA”), saying that it is running a surplus in favour of the United States. The Ministers have conceded that the TPP’s future is under threat. Bishop and Ciobo have noted, though, Australia could otherwise pursue bilateral agreements with countries such as India, Indonesia, and the European Union, and regional agreements — such as the Regional Comprehensive Economic Partnership.

The Australian Labor Party will no doubt be relieved that the Turnbull Government cannot wedge the party with the TPP. With the Trump victory, Leader of the Opposition Bill Shorten MP has shifted policy tack. He has argued that “Labor’s approach to the Australian economy is buy Australian, build Australian, employ Australians.” Shadow Minister for Finance Jim Chalmers has emphasized the need for the party to address the concerns of voters who feel trampled by the forces of globalisation and technological change. The Shadow Trade Minister Jason Clare has stressed the need for “policies that increase real wages, improve living standards, reduce under employment and reverse the rise in inequality.”

Senator Sarah Hanson-Young of the Australian Greens has said:

“It would be extremely foolish to continue down the path towards any form of enabling legislation or ratification of the TPP in Australia, considering the circumstances.”

Senator Nick Xenophon feels vindicated over his criticism of the TPP.

There have been few mourners for the end of the TPP in Australia. By and large, the agreement seemed unloved by the larger public.

It has been striking that legislators in the Parliament of Australia, civil society, and business have been deeply concerned about how the Department of Foreign Affairs and Trade has been conducting trade negotiations. The defeat of the secretive TPP has highlighted the need for transparency, accountability, and public participation in future trade negotiations.

New Zealand

Even though the TPP has collapsed, there remains debate about whether a number of Pacific Rim states will implement TPP legislation, anyway. Jeremy Malcolm of the Electronic Frontier Foundation observed: “The death of the TPP in the United States does not necessarily mean that these implementation plans will be scrapped.” The TPP legislative process has been well-advanced in New Zealand, Japan, and Malaysia.

In the New Zealand Parliament, there has been debate over the implementing legislation for the TPP. New Zealand’s then Prime Minister John Key wondered whether the TPP could be passed at a later date, with cosmetic changes. Key has joked that such an agreement could be dubbed the ‘Trump Pacific Partnership’.

The Trade Minister Todd McClay maintained that the TPP would benefit New Zealand: “Trade is essential to the New Zealand way of life, our standard of living, and our potential to become a more prosperous country.”

Key has since resigned as Prime Minister, and been replaced by Bill English.

Rino Tirikatene of the New Zealand Labour Party mocked the Key Government’s enthusiasm for the TPP:

“In the great scheme of things it was a bad deal, an incredibly bad deal, and that is evidenced today by us passing a piece of legislation that will mean absolutely nothing — absolutely nothing.”

Reflecting on the impact of Trump’s victory on the TPP, he observed that:

“It is a dead deal, dead rubber, a dead duck, thanks to, I guess, the Don, the great Don, who has come in, over in the US… the TPP is dead, it is over; finito. Kia ora tātou.”

Clare Curran of the New Zealand Labour Party supported genuine intellectual property law reforms — such as the introduction of a defence of fair use in copyright law.

Gareth Hughes of the New Zealand Greens commented that the TPP was a terrible failure:

“All you can do is facepalm. Surely this is the definition of futility. The day after Trump is elected, National is passing the Trans-Pacific Partnership Agreement Amendment Bill. You could not write this stuff. It encapsulates what a failure and a farce this entire 7-year process has been”.

He argued that New Zealand needed to reform and modernise its intellectual property regime — particularly through the introduction of a defence of fair use in copyright law.

Professor Jane Kelsey of the University of Auckland paid tribute to the community campaign against the TPP in New Zealand:

“An unprecedented campaign against the TPP brought together Kiwis from every walk of life — doctors, musicians, local governments, Maori, the Internet community, unionists and politicians, and many tens of thousands of ordinary Kiwis who took to the streets all over the country. As we celebrate this victory, for now, we call on all our governments to abandon the failed model they continue to push in other equally toxic negotiations. We will continue to work with international allies to develop a progressive and just alternative based on the people’s needs for the 21st century, not those of the corporations”.

Professor Jane Kelsey has observed that the TPP is dead, and New Zealand needs to rethink its approach to negotiating trade agreements in the future.

Canada

In Canada, the Trudeau Government seemed quite ambivalent about the TPP — which it had inherited from the former Harper Government. Trudeau expressed a willingness to renegotiate NAFTA with the new Trump administration.

Maude Barlow, National Chairperson of the Council of Canadians, commented:

“The TPP is in full-blown cardiac arrest, thanks to years of international campaigning against this toxic deal, including turning Senate and House elections into contests over rejecting the TPP. But the one thing I know from watching trade agreements is that free trade proponents always try to resuscitate these deals under different names — CETA, TiSA and others. We need to put a ‘do not resuscitate’ order on these corporate deals once and for all”.

She warned that there would be potential for policy laundering — with the text from the TPP copied and pasted to future trade agreements.

Professor Michael Geist of the University of Ottawa has recommended that there is a need for the Canadian Government to reconsider its approach to trade negotiations:

“The public backlash against trade deals points to a process that leaves many feeling excluded and to terms that are presented publicly for the first time as final. The real opportunity for Ottawa is not just to explore new trade partners but to challenge some of the long-standing assumptions about such deals in order to foster greater public confidence in the outcome”.

Geist noted: “Mr. Trudeau’s government inherited a trade policy marked by secrecy, encroachment onto domestic regulation and little ambition to see Canadian policies reflected in the final texts”. He suggested: “The TPP’s demise offers the chance for real change by pursuing trade agreements that offer economic gains and remain true to the commitment for an open and transparent government.”

China

There has been much disquiet about the potential of a trade war between the United States and China over topics such as currency manipulation, domestic subsidies, and intellectual property. Former Australian Foreign Minister Bob Carr, for instance, has been particularly fearful of a conflict.

In his trade policy, Donald Trump promised to use:

“[E]very lawful presidential power to remedy trade disputes if China does not stop its illegal activities, including its theft of American trade secrets — including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.”

President-Elect Donald Trump could learn from the past fights between the United States and China over intellectual property. President George W. Bush brought a trade action against China over intellectual property in the World Trade Organization. By and large, China was successful in this trade dispute. President Barack Obama has sought to deploy the Department of Justice to tackle cases of trade secret violations.

For its part, China has proven to be an adroit counterpuncher in disputes over intellectual property and trade. First, China has become an intellectual property superpower. The country’s leading companies have acquired and invested in patents, trademarks, designs, and copyright across an array of high tech sectors. Second, China will scrutinise Donald Trump’s protectionist policies, and challenge anything that falls foul of the WTO rules. Finally, China will pursue its own network of trade deals in the Pacific Rim. China has already forged a bilateral trade agreement with Australia, and is pursuing the Regional Comprehensive Economic Partnership (“RCEP”). Australia has shown enthusiasm for participating in RCEP.

It remains to be seen whether Donald Trump will be able to realise his grand vision in respect of intellectual property and trade.

Dr Matthew Rimmer is a Professor in Intellectual Property and Innovation Law at the Faculty of Law in the Queensland University of Technology (QUT). He is a leader of the QUT Intellectual Property and Innovation Law research program, and a member of the QUT Digital Media Research Centre (QUT DMRC), the QUT Australian Centre for Health Law Research (QUT ACHLR), and the QUT International Law and Global Governance Research Program (QUT IL GG). Rimmer has published widely on copyright law and information technology, patent law and biotechnology, access to medicines, plain packaging of tobacco products, intellectual property and climate change, and Indigenous Intellectual Property. He is currently working on research on intellectual property, the creative industries, and 3D printing; intellectual property and public health; and intellectual property and trade, looking at the Trans-Pacific Partnership, the Trans-Atlantic Trade and Investment Partnership, and the Trade in Services Agreement. His work is archived at SSRN Abstracts and Bepress Selected Works. 

This article was first published on Medium and is republished here with permission.

Does ISDS Promote FDI? Asia-Pacific Insights from and for Australia and India – Luke Nottage & Jaivir Singh

Editors Analysis, Articles, Opinion

Treaty-based Investor-State Dispute Settlement (ISDS) keeps attracting media attention. An example is a social media campaign by the ‘GetUp!’ group, which aims generally ‘to build a progressive Australia and bring participation back into our democracy’, objecting to ratification of the Trans-Pacific Partnership (TPP). This free trade agreement (FTA), signed in February 2016, encompasses Australia and 11 other Asia-Pacific economies generating around 40% of world GDP. Whether and how the TPP will be ratified and come into force has become very uncertain anyway, after the unexpected victory of Donald Trump in US presidential elections. Although Trump seems already to be backtracking on some of his pre-election positions, he had been opposed to the US ratifying the TPP and indeed favoured renegotiation of the longstanding North American FTA with Canada and Mexico. Both FTAs include the option of ISDS, allowing foreign investors to bring direct claims against host states for violating substantive commitments such as non-discrimination or adequate compensation for expropriation.

Nonetheless, taking advantage of the extra uncertainty now surrounding the TPP, China is already trying to get Australia’s support to progress negotiations for a broader FTA, establishing a “Free Trade Area of the Asia-Pacific” (FTAAP). China had been pressing for a FTAAP as it had not been included in TPP negotiations. After the TPP was signed, China had also tried to accelerate negotiations for the Regional Comprehensive Economic Partnership (RCEP or ASEAN+6) FTA, underway since late 2012 and involving ten Southeast Asian states along with China, Japan, Korea, India, Australia and New Zealand. Ministerial statements and a leaked draft Investment Chapter indicate that ISDS provisions remain on the negotiating agenda for RCEP (Kawharu, Amokura and Nottage, Luke R., Models for Investment Treaties in the Asian Region: An Underview, 2016).

Public opposition to ISDS therefore remains an important issue, particularly in the Asia-Pacific region. Legal professionals need to engage with this debate and understand the pros and cons of this dispute resolution procedure, especially the investor-state arbitration mechanism. On the one hand, the GetUp! Campaign against the TPP had focused on the risk of Australia being subject to ISDS claims especially from US investors, in light of their claims against Canada under the North American FTA. Yet damages awarded by arbitrators or through settlements amount to only 0.05% of US FDI in Canada, and the latter’s investors bring more ISDS claims per capita than US investors.

On the other hand, the GetUp! campaign did not adequately explain or consider why and how ISDS commitments are made. Host states have increasingly offered such protection to foreign investors in investment treaties since the 1970s. Bilateral investment treaties (BITs) proliferated especially as communist states began to open up their economies from the 1990s. Bilateral and regional FTAs, usually with investment chapters also containing ISDS protections, were concluded after the collapse of efforts to develop a multilateral investment agreement through the World Trade Organization (WTO) and Organisation for Economic Co-operation and Development (OECD).

The extra option of treaty-based ISDS was seen as a more direct and less politicized procedure compared to inter-state dispute settlement. The latter is still typically provided in investment treaties (but hardly ever used), as well as for trade disputes under the WTO (where, for example, Australia has only been complainant in seven cases – last in 2003). Credible commitments through ISDS-backed treaties were seen as particularly important for developing countries where domestic courts and legal protections did not meet international standards.

Yet ISDS has recently become a lightning rod for public opposition to FTAs (and economic globalization more generally), often after host states are subjected to their investment treaty claims (Nottage, Luke R., Rebalancing Investment Treaties and Investor-State Arbitration: Two Approaches,, 2016). For example, major debate emerged in India after Australia’s White Industries won a claim in 2011 under UNCITRAL Arbitration Rules as provided by the BIT with India (signed with Australia in 1999). The tribunal found that India had not satisfied the promised “effective means” for the investor to enforce a commercial arbitration award (against an Indian SOE). This and subsequent claims prompted the Indian government to finalise a revised (less pro-investor) Model BIT in December 2015 It is now being used in negotiating new BITs (eg that signed with Cambodia in 2016) and indeed when proposing to terminate older-generation treaties (including with Australia).

Similarly, Philip Morris Asia’s much larger claim initiated in 2011 under a BIT signed in 1993 with Hong Kong, for alleged expropriation of trademarks from Australia’s tobacco plain packaging legislation, led to escalating local media coverage – until the arbitral tribunal rejected jurisdiction in 2015 (Hepburn, Jarrod and Nottage, Luke R., Case Note: Philip Morris Asia v Australia, 2016). This cause celebre also became a factor behind the Gillard Government Trade Policy Statement announcing in 2011 a major shift for Australia: eschewing ISDS in new treaties, even with developing countries (Nottage, Luke R., The Rise and Possible Fall of Investor-State Arbitration in Asia: A Skeptic’s View of Australia’s ‘Gillard Government Trade Policy Statement’, 2011). This resulted in no significant FTAs being concluded, until a new Coalition Government gained power in late 2014 and reverted to including ISDS on a case-by-case assessment (Nottage, Luke R., Investor-State Arbitration Policy and Practice in Australia, 2016). The current Labor Opposition maintains its objections to ISDS, creating difficulties for Australia to ratify the TPP.

Australia’s temporary shift was partly due to politics: in 2011 the (centre-left) Gillard Labor Government was in coalition with the Greens, who are even more opposed to free trade and investment. But the stance also relied on arguments from some economists, even though they instead favour more free trade and foreign investment, albeit through unilateral or perhaps multilateral initiatives rather than bilateral or even regional FTAs. Developing the latter perspective , a majority report of the Productivity Commission in 2010 into Australia’s FTAs had argued against the common world-wide practice of offering foreign investors extra procedural rights such as ISDS. It did concede that such extra rights might be justified, for example if they led to greater cross-border flows in foreign direct investment (FDI). Yet the Commission pointed to a few studies suggesting that, on an aggregate (world-wide) basis, ISDS-backed treaty provisions had not significantly increased flows.

A recent econometric study by Luke Nottage (a co-author of this posting) with Shiro Armstrong casts doubt on that observation (Armstrong, Shiro Patrick and Nottage, Luke R., The Impact of Investment Treaties and ISDS Provisions on Foreign Direct Investment: A Baseline Econometric Analysis, 2016. After an extensive review of existing empirical research and associated methodological issues, their study instead found positive and significant impacts from ISDS provisions on FDI outflows from OECD countries over 1985-2014, using a Knowledge-Capital Model with a dynamic panel indicator (effectively addressing the problem of endogeneity in variables). This impact on FDI could be found from ISDS provisions on their own, especially when ISDS was included in treaties signed or promptly ratified with non-OECD or less developed countries. The econometric study by Armstrong and Nottage also found a positive and significant impact from ISDS provisions when combined with the Most-Favoured-Nation provision, which is a key and indicative substantive treaty commitment for foreign investors. (This aspect was tested because the “strength” of treaties can vary in terms of substantive commitments by host states: we might not expect much impact on FDI even from ISDS provisions if the substantive protections and liberalisation commitments are few.)

Counter-intuitively, however, the study found that in general FDI impact was even larger for weaker-form ISDS provisions. This could be due to investors historically having been impressed by a broader “signaling” effect from states concluding investment treaties. Yet the impact from ISDS provisions also seems to be diminishing since 2001, when ISDS claims started to pick up world-wide and therefore investors (or at least legal advisors) could have begun to pay more attention to the details of ISDS and other treaty provisions. Reduced impact since 2001 may be related to more efforts from host states to unilaterally liberalise and encourage FDI. However, it could also be due to a saturation effect (as treaties began to be concluded with less economically important partner states), or indeed due to less pro-investor provisions being incorporated into investment treaties (influenced by more recent US practice, partly in response to ISDS claims (Alschner, Wolfgang and Skougarevskiy, Dmitriy, Mapping the Universe of International Investment Agreements, 2016.

Further variables impacting on FDI (such as double-tax treaties) could be investigated, as can regional differences. Data limitations also remain, as there is now considerable FDI outflow from non-OECD countries. Nonetheless, this baseline study suggests that it has been and still may be risky to eschew ISDS provisions altogether. In particular, results indicate a strong positive effect on FDI flows from ratified investment treaties overall even from 2001. So states would have missed out on that if they had insisted on omitting ISDS, and this then became a deal-breaker for counterparty states.

Further econometric research underway at a Delhi-based thinktank suggests that India was correct not to abandon ISDS provisions altogether in its revised Model BIT (and to retreat from an even less pro-investor earlier draft of the Model BIT. While this study by Jaivir Singh (one of the co-authors of this posting) and his colleagues is still ongoing, preliminary results (using instead a gravity-type model) find that although the signing of individual BITs had an insignificant impact on FDI inflows into India, the cumulative effect of signing BITs is significant and so is the coefficient associated with the signing of FTAs. Since almost all of India’s investment treaties provide for full ISDS protections, these preliminary results suggest that ISDS can have a positive influence on foreign investment, albeit in a non-obvious compound manner.

Overall, these studies suggest that ISDS-backed treaty provisions liberalising and protecting FDI have had a significant impact, but in complex and evolving ways. Agreeing to dialed-back ISDS provisions and even substantive commitments (perhaps following recent EU preferences may be an acceptable way forward. This is true especially for Australia and India, as they continue negotiations bilaterally as well as through RCEP, and perhaps eventually for the FTAAP FTA.

Luke Nottage is Professor at University of Sydney Law School & Jaivir Singh is Associate Professor at Jawaharlal Nehru University, Delhi.

This post draws on Nottage’s joint project researching international investment dispute management, funded by the Australian Research Council (DP140102526, 2014-7); and Singh’s ongoing project assessing the impact of investment treaties on FDI in India, for the Indian Council for Research on International Economic Relations. Singh was a visitor at the University of Sydney in October 2016. The article was first published by the Asia-Pacific Forum for International Arbitration, and republished here with permission.

Lord Goldsmith talks to ACICA audience about Brexit and arbitration – Marina Kofman

Editors Analysis, Articles, News

On 24 October 2016, Lord Goldsmith addressed an ACICA audience in Sydney about Brexit and arbitration. He set the Brexit scene: Theresa May is still tight-lipped about the nature of Brexit, following a Brexit campaign characterised by a lack of clarity on what Brexit would actually mean. Uncertainty abounds, except for in one aspect: indications are that negotiations will not be easy. The EU has made it clear to the UK that there will be ‘no negotiation without notification.’

First things first – the constitutional challenge: May plans to trigger Article 50 of the Lisbon Treaty next year but does she have the authority to do that under the royal prerogative? This issue is being hotly debated and is currently being tried in the London Courts. On 3 November 2016, the High Court delivered judgment finding that Article 50 could not be invoked without an Act of Parliament. Arrangements are in place for an expedited appeal straight to the UK Supreme Court and that case will be heard by December. Consequences for the UK and EU will be massive. Much of that is only dimly seen right now.

Impact on London arbitration

The thesis of Lord Goldsmith’s talk was that Brexit will not lead to a diminution of the merits or popularity of London as a seat of arbitration, nor damage the popularity of English law as the commercial law of choice for many international transactions. Why is this the case?

At the centenary conference of the Chartered Institute of Arbitrators (CIArb) in London last year, the CIArb published a list of ten features necessary to make for a safe, effective and successful seat of arbitration. These features are: (1) a clear arbitration law; (2) an independent judiciary; (3) legal expertise; (4) education; (5) the right of choice in representation; (6) accessibility and safety of the seat; (7) facilities; (8) professional ethics that embrace diversity of traditions; (9) enforceability; and (10) arbitrator immunity. London meets all of these requirements, none of which depend on UK membership of the EU. There is, therefore, no reason to believe that London will diminish in popularity as a seat of arbitration. Lord Goldsmith opined that despite the growth of arbitration and arbitral institutions in Asia, Brexit will not spark a ‘land grab’ for traditionally London-based work by other arbitration centres.

Potential opportunities

In addition to the challenges presented by Brexit, there are certain opportunities. First, there may be a substantive disentanglement of English law and EU law. European law has coloured English law, so if EU regulations no longer apply then English common law may see a resurgence. Secondly, the determination of jurisdictional issues in court cases may end up vastly different should the UK go down the path of abandoning the Brussels Regulation regime and return to common law forum non conveniens principles. The current regime means a UK commercial court can be seized of a matter in circumstances where it is not necessarily the most appropriate forum, but then have limited ways to decline jurisdiction. Right now though, it is uncertain what will happen in terms of UK court judgments until we know more about how the UK will proceed in relation to its private international law framework with respect to the EU. This might push some users towards arbitration, which has a reliable enforcement regime under the New York Convention. Another advantage of Brexit might be that UK courts will again be able to issue anti-suit injunctions directed at European courts. UK courts once commonly issued anti-suit injunctions to prevent proceedings brought in breach of arbitration agreements. This was, however, put to an end in 2004 when the European Court of Justice held that the practice was incompatible with the Brussels Convention.

Thirdly, Brexit might influence the debate about investor-State dispute settlement (ISDS). The EU has proposed an ‘Investment Court System’, a permanent investment court with an appeals process for the Transatlantic Trade and Investment Partnership (TTIP). The competence for negotiating EU treaties currently rests with the EU, and the EU has been firm that the UK is not free to negotiate its own treaties whilst it remains in the EU. The question is, would being freed from the EU give the UK a negotiating advantage? Only time will tell.

In the meantime, it is plausible even if the USA agrees to the an investment court system that it will still opt for conventional ISDS mechanisms in its other trade deals, in which case we might not see the inexorable rise of the Investment Court System. The UK’s decision to opt for one model or the other will influence the course of the debate particularly as the UK will become one of the more active trade negotiating countries over the coming years.

In his concluding remarks, Lord Goldsmith stated that it may now be time for Australia and the UK to grow a new and invigorated cooperation in the field of common law. This is also the time for lawyers to examine closely the opportunities for collaboration in training, development of the law and finding better ways to serve clients.

Marina Kofman is Assistant Editor of the ILA Reporter. A version of this article was originally written for and published by ACICA. It is partially reproduced here with permission.