Presentation on theme: "Investment Treaty Practice of China, Japan and Korea"— Presentation transcript:
1 Investment Treaty Practice of China, Japan and Korea Arbitration Academy 2012: Class 4Professor Hi-Taek ShinSeoul National UniversitySchool of Law[work under progress: Not to be quoted without permission]
2 NotesThe powerpoint files are provided to students of Arbitration Academy 2012.As these files are work under progress, no quotation is permitted without the author’s written permission.In preparing the lecture, the author draws upon the expertise and previous studies by G. Wang, W. Shan and N. Gallagher (on Chinese practice), and S. Hamamoto and L. Nottage (on Japanese practice). However, all mistakes, if any, are the author’s own.
3 Dispute Settlement between Investors and Host States (1) The existence of effective and efficient methods for resolving investment disputes: “the ultimate guarantee of protection for foreign investors” (UNCTAD)Two methods of dispute settlement in BITs:Investor-State consultation and negotiationPre-requisite to proceed to an arbitrationInvestor-State Arbitration
4 Dispute Settlement between Investors and Host States (2) Jurisdictional basis of the investor-State arbitration: “agreement to arbitrate”ICSID Convention Art 25(1):The jurisdiction of the Centre shall extend to any legal disputes arising directly out of an investment, between a Contracting State…… and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. ……The investor-State arbitration clause in a BIT functions as a State’s consent to submit certain kinds of investment disputes to an arbitration. It defines the scope and conditions of such consent.
5 ICSID Convention Membership China:Signed: Feb. 9, 1990entered into force: Feb. 6, 1993Japan:Signed: Sep. 23, 1965entered into force: Sep. 16, 1967Korea:Signed: Apr. 18, 1966entered into force: Mar. 23, 1967
6 Statistics on investor-State arbitrations Total number of known treaty-based arbitration cases (as of the end of 2011): 450279 were filed with ICSID (or the ICSID Additional Facility)126 under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules21 with Stockholm Chamber of Commerce7 with International Chamber of Commerce[Source: UNCTAD]
7 Investment Treaty Arbitration Cases: China A Chinese Investor against Peru: Tza Yap Shum v. Peru, ICSID Case No. ARB/07/6Feb 12, 2007: registered with ICSIDJune 19, 2009: Decision on Jurisdiction and CompetenceJuly 7, 2011: AwardNovember 9, 2011: Annulment proceeding registeredAnnulment proceeding pendingChinese Investors against Mongolia: China Heilongjiang International Economic & Technical Cooperative Corp and 2 others v. MongoliaPCA arbitration under the UNCITRAL Arbitration Rules : pendingA Malaysian Investor against China: Ekran Berhad v. China, ICSID Case No. ARB/11/15May 24, 2011: Registered with ICSID on May 24, 2011July 22, 2011: Proceeding suspended pursuant to the parties’ agreement
8 Investment Treaty Arbitration Cases: Japan and Korea Japan: Saluka Investments BV (The Netherlands) v. Czech Republic (ad hoc arbitration under UNCITRAL Arbitration Rules 1976)Dutch subsidiary of Nomura Group, Japanese merchant banking and financial services group of companies, invoking the Netherlands-Czech and Slovak BIT of 1991July 18, 2001: Arbitration initiatedMarch 17, 2006: Partial awardKorea:A dispute notice by Belgian investors owned by a US private equity fund invoking Korea-Belgium-Luxembourg BIT in May 2012
9 China: Model BIT Provisions Article 9：Settlement of Disputes between an Investor and a Host StateAny legal dispute between an investor of one Contracting Party and the other Contracting Party in connection with an investment in the territory of the other Contracting Party shall, as far as possible, be settled amicably through negotiations between the parties to the dispute.If the dispute cannot be settled through negotiations within six months from the date it has been raised by either party to the dispute, it shall be submitted by the choice of the investor:(a) to the competent court of the Contracting Party that is a party to the disputes;(b) to International Centre for Settlement of Investment Disputes (ICSID) under the Convention on the Settlement of Disputes between States and Nationals of Other States, done at Washington on March 18, 1965, provided that the Contracting Party involved in the dispute may require the investor concerned to go through the domestic administrative review procedures specified by the laws and regulations of that Contracting Party before the submission to the ICSID.Once the investor has submitted the dispute to the competent court of the Contracting Party concerned or to the ICSID, the choice of one of the two procedures shall be final.
10 China: Scope of Investment Dispute (1) Initially China limited an investor to State arbitration to a certain category of disputes:First and second Chinese Model BIT:“disputes involving the amount of compensation for expropriation” to be referred to arbitrationSignificant Chinese BITs include additional wording that “other disputes shall be submitted to ICSID on agreement between the parties”.Chinese position: the competence of the arbitration tribunal is limited to the review of the quantum of the compensation and would not include review of whether an actual expropriation had occurred.
11 Tza Yap Shum v. Peru (1): Relevant Provisions in China-Peru BIT Art If the dispute cannot be settled through negotiations within six months, either party to the dispute shall be entitled to submit the dispute to the competent court of the Contracting Party accepting the investment.Art 8.3. If a dispute involving the amount of compensation for expropriation cannot be settled within six months after resort to negotiations as specified in Paragraph 1…, it may be submitted at the request of either party to the International Center for Settlement of Investment Disputes (ICSID)…… Any disputes concerning other matters …… may be submitted to the Center if the parties to the disputes so agree. The provisions of this Paragraph shall not apply if the investor concerned has resorted to the procedure specified in Paragraph 2 of this agreement
12 Tza Yap Shum v. Peru (2): Tribunal’s decision on interpretation of Art Question: Whether tribunal is allowed to determine whether SUNAT’s action constituted expropriation of Tza’s investment in TSGPeru’s argument:The language in the BIT specifically limited the scope to the disputes involving the amount of compensation, and did not specifically refer to arbitration of claims over liability for expropriationTherefore, the tribunal was limited to determining the amount of compensation due to the investor, once the occurrence of expropriation had been determined through other meansThus, the tribunal was not allowed to determine whether SUNAT’s actions constituted expropriation of Tza’s investment in TSG
13 Tza Yap Shum v. Peru (3): Tribunal’s decision on interpretation of Art Tribunal’s decision: disagreed with PeruBIT’s restrictive wording was apparently designed to “seek certain limitations” on investment protectionThe word “involving” could be read more broadly to permit arbitration of claims concerning all aspects of expropriation, including the question of whether expropriation had occurredTo force an investor to first submit a claim regarding the occurrence of expropriation to a domestic court would trigger the “fork-in-the-road” clause in Art. 8.3, thus effectively precluding any recourse to arbitration in any case
14 Tza Yap Shum v. Peru (4): Implications of Tza Yap Shum case It is the Chinese investor that persuaded the Tribunal to adopt a rather expansive interpretation of the restrictive wording in the China-Peru BIT.Vast majority of Chinese BITs (and BITs of some transition economies) contain dispute settlement provisions similar to those in China- Peru BIT:Would foreign investors with investments in China be able to rely on similar BITs to protect such investments against expropriatory government measures, should such measures take place?
15 China: Scope of Investment Dispute (2) The “third generation” BITs:cover “all disputes” or all “disputes relating to an investment” and are consistent with global BIT practice.China retains a proviso to the arbitration clause:The investor “shall go through the domestic administrative review procedures as specified by the laws and regulations of the disputing Contracting Party before the submission to international arbitration”.Often a time limit within which to pursue this domestic administrative review (no more than three months in China-Finland BIT and four months in the China-Mexico BIT).It is uncertain whether investor could forego this requirement by invocation of the MFN provision, unless there is an explicit provision which limits the application of MFN in such case.
16 China: Arbitration Institutions and Rules Prior to China’s ICSID membership in 1993, Chinese BITs refer to “ad hoc” arbitrationChina-Japan BIT: “such dispute shall, …… be submitted to a conciliation board or an arbitration board, to be established with reference to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States done at Washington on March 18, 1965 (hereinafter referred to as "the Washington Convention").Recent Chinese BITs provides forICSID (Korea),ICSID Additional Facility (India),ad hoc arbitration established under UNCITRAL Arbitration Rules (Korea)or any other arbitration rules agreed by both parties (Korea)
17 Japan: Scope of Investment Dispute (1) Japan – Korea BIT, Art 15 For the purposes of this Article, an investment dispute is a dispute between a Contracting Party and an investor of the other Contracting Party that has incurred loss or damage by reason of, or arising out of, an alleged breach of any right conferred by this Agreement with respect to investments of investors of that other Contracting Party..
18 Japan: Scope of Investment Dispute (2) Japan's first BIT with Egypt(1977) and earlier BITs:'any legal dispute that may arise out of investment'Post-2002 new generation BITs:'investment dispute' is defined as one between the investor and the host state 'that has incurred loss or damage by reason of, or arising out of, an alleged breach of any right conferred in this Agreement with respect to an investment of an investor'.This wording limits host state's consent to arbitration to breach of BIT's substantive standards, to the exclusion of claims arising from a contract in connection with the investment.If the particular treaties include a separate 'umbrella clause', breaches of a contract relating to the investment could become breach of treaty obligations.
19 Japan: Alternatives given to Investor Japan – Korea BIT, Art 15 2. …… If it is not so settled, the investor may submit the investment dispute for resolution under one of the following alternatives: (a) in accordance with any applicable, previously agreed dispute-settlement procedures; or (b) in accordance with the terms of paragraph 3 …...3. If the investment dispute cannot be settled within three months from the date on which the investor requested the consultation or negotiation in wring and if the investor concerned has not submitted the investment dispute for resolution under paragraph 2(a) of this Article or judicial or administrative settlement, the investor concerned may submit the investment dispute for settlement by binding arbitration:(a) to the Center, if both Contracting Parties are parties to the ICSID Convention;(b) in accordance with the UNCITRAL Arbitration Rules; or(c) if agreed by both parties to the dispute, to any other arbitration institution or in accordance with any other arbitration rules..
20 Japan: 'Fork-in-the-road' Provisions (1) Art. 15 (3) further stated that:“Unless otherwise agreed by both parties to the investment dispute, once the investor concerned submits the investment dispute for resolution under paragraph 2 and 3 of this Article, the investor concerned may not submit the investment dispute for settlement by any of the other alternatives….Japan-Korea BIT: limits the investor to its original choice once it has commencedany previously agreed upon procedure for dispute settlement, orjudicial or administrative settlement, orarbitration under ICSID, UNCITRAL Rules, or another agreed procedure for arbitration, unless both parties agree otherwise.
21 Japan: 'Fork-in-the-road' Provisions (2) Japan-Chile FTA: a bit clearer 'fork in the road' provision:If the claimant has 'initiated any proceedings before any administrative tribunal or court … For greater certainty, if the investor elects to initiate such proceedings, that election shall be definitive and the investor may not thereafter submit the claim to arbitration'.Exception: interim injunctive measures
22 Japan: Consent to arbitration (1) Japan-Cambodia BIT Art. 177. (a) Each Contracting Party hereby consents to the submission of investment disputes by a disputing investor to conciliation or arbitration set forth in paragraph 4 chosen by the disputing investor.(b) The consent given by subparagraph (a) and the submission by a disputing investor of a claim to arbitration shall satisfy the requirements of:(i) Chapter II of the ICSID Convention or the Additional Facility Rules of the International Centre for Settlement of Investment Disputes, as may be amended, for written consent of the parties to a dispute; and(ii) Article II of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as may be amended (hereinafter referred to as “New York Convention”), for an agreement in writing.
23 Japan: Consent to arbitration (2) Japan's first BIT with Egypt (some of the later BITs): each State 'shall consent to submit any legal dispute that may arise out of investment made by a national or company' of the other State to arbitration or conciliation, 'at the request of' the foreign investor.'What if the host State refuses to give consent despite such wording?- a mere promise to give consent does not amount to consent itself.- subject to inter-State dispute resolution processesIn recent BITs:Japan-Korea BIT states explicitly that the host state 'hereby gives its consent to the submission of an investment dispute to international arbitration'.Japan-Cambodia BIT: further clarification as to the legal implication of consent specified in the BIT.
24 Japan: Notice Requirement Japan-Korea BIT Art. 154. An investor submitting an investment dispute pursuant to paragraph 3 of this Article shall give to the Contracting Party in dispute a written notice of intent to do so at least ninety days before the claim is submitted. The notice of intent shall specify:(a) the name and address of the investors concerned;(b) the specific measures at issue of such Contracting Party in dispute and a brief summary of the factual and legal basis of the investment dispute sufficient to present the problem clearly, including the provisions of this Agreement alleged to have been breached;(c) the relief sought including, as necessary, the approximate amount of damages claimed; and(d) the dispute-settlement procedures set forth in paragraph 3(a) to (c) of this Article which the investor concerned will seek..
25 Japan: Time bar Japan-Korea BIT Art. 15 5. ……an investor may not make a claim pursuant to paragraph 3 of this Article if more than three years have elapsed from the date on which the investor first acquired, or should have first acquired, knowledge that the investor had incurred loss or damage..
26 Japan: Composition of Tribunal Japan-Cambodia BIT Art. 17Unless the disputing parties agree otherwise, an arbitral tribunal established under paragraph 4 shall comprise three arbitrators, one arbitrator appointed by each of the disputing parties and the third, who shall be the presiding arbitrator, appointed by agreement of the disputing parties. If the disputing investor or the disputing Party fails to appoint an arbitrator or arbitrators within 60 days from the date on which the investment dispute was submitted to arbitration, the Secretary-General of the International Centre for Settlement of Investment Disputes (hereinafter referred to in this Article as “ICSID”), may be requested by either of the disputing parties, to appoint the arbitrator or arbitrators not yet appointed from the ICSID Panel of Arbitrators subject to the requirements of paragraphs 11 and 12..
27 Japan: Negative qualification of arbitrators and place of arbitration .Japan-Cambodia BIT Art. 17Unless the disputing parties agree otherwise, the third arbitrator shall not be a national of either Contracting Party, nor have his or her usual place of residence in the territory of either Contracting Party, nor be employed by either of the disputing parties, nor have dealt with the investment dispute in any capacity.In the case of arbitration referred to in paragraph 4, each of the disputing parties may indicate up to three nationalities, the appointment of arbitrators of which is unacceptable to it. In this event, the Secretary-General of the ICSID may be requested not to appoint as arbitrator any person whose nationality is indicated by either of the disputing parties.Unless the disputing parties agree otherwise, the arbitration shall be held in a country that is a party to the New York Convention.
28 Japan: Arbitral tribunal and procedures Japan-China BIT,'arbitration board' must comprise one arbitrator appointed by each party within 60 days of the request for arbitration, who then appoints a third within another 90 days(not being a national of either State). Otherwise that President is appointed by a 'third party agreed in advance' by the States, being a 'national of a third country which has diplomatic relations' with both States. The arbitral procedures shall be determined by this board or tribunal 'with reference to' the ICSID Convention.Japan-Cambodia BIT (same with Japan-Laos BIT): Strong indication to control composition of tribunals
29 Japan: Applicable rules Japan-Cambodia BIT Art. 17An arbitral tribunal established under paragraph 4 shall decide the issues in dispute in accordance with this Agreement and applicable rules of international law..
30 Japan: Non-Disputing State’s Right .Japan-Cambodia BIT Art. 17The Contracting Party which is not the disputing Party may make submissions to the arbitral tribunal on a question of interpretation of this Agreement, upon written notice to the disputing parties.
31 Japan: Limited Authority of Tribunal on Interim Measure .Japan-Cambodia BIT Art. 17The arbitral tribunal may order an interim measure of protection to preserve the rights of the disputing investor, or to facilitate the conduct of arbitral proceedings, including an order to preserve evidence in the possession or control of either of the disputing parties. The arbitral tribunal shall not order attachment or enjoin the application of the measure alleged to constitute a breach referred to in paragraph 1.
32 Japan: Award . Japan-Cambodia BIT Art. 17 18. The award rendered by the arbitral tribunal shall include:(a) a judgment whether or not there has been a breach by the disputing Party of any obligation under this Agreement with respect to the disputing investor and its investments; and(b) a remedy if there has been such breach. The remedy shall be limited to one or both of the following:(i) payment of monetary damages and applicable interest; and(ii) restitution of property, in which case the award shall provide that the disputing Party may pay monetary damages and any applicable interest in lieu of restitution.Costs may also be awarded in accordance with the applicable arbitration rules..
33 Japan: Enforcement of Award Japan-Cambodia BIT Art. 17The award rendered in accordance with paragraph 18 shall be final and binding upon the disputing parties. The disputing Party shall carry out without delay the provisions of the award and provide in its Area for the enforcement of the award in accordance with its relevant laws and regulations..
34 Japan: Diplomatic Protection Japan-Cambodia BIT Art. 17Neither Contracting Party shall give diplomatic protection, or bring an international claim, in respect of an investment dispute which the other Contracting Party and an investor of the former Contracting Party have consented to submit or submitted to arbitration set forth in paragraph 4, unless the other Contracting Party shall have failed to abide by and comply with the award rendered in such investment dispute.Diplomatic protection, for the purposes of this paragraph, shall not include informal diplomatic exchanges for the sole purpose of facilitating a settlement of the investment dispute..
35 Korea: Investor-State Arbitration Mechanism The first Korean BIT with Investor-State arbitration mechanism: Korea-The Netherlands of 1975According to Korean Ministry of Foreign Affairs, 81 out of 86 BITS currently in force have ISA mechanism.Korean Model BIT has relatively straight-forward provisions common in many European model BITs.
36 Korea: Scope of Investment Dispute (1) Model BIT 2001 Article 8: Settlement of Investment Disputes between a Contracting Part and an Investor of the Other Contracting PartyAny dispute between a Contracting Party and an investor of the other Contracting Party including expropriation or nationalization of investments shall, as far as possible, be settled by the parties to the dispute in an amicable way.Korea text – pp
37 Korea: Scope of Investment Dispute (2) Korean BITs: split with respect to the scope of dispute settlement to be referred to investor State arbitration.A broad version: “any legal disputes concerning the investment” without limiting the basis of claim (e.g., 2001 Korean Model BIT):Does not specify whether the dispute must be related to the breach of treaty.A narrowly stated version (recent BITs such as Korea-China, Korea-Kuwait): a dispute relating to an investment 'that has incurred loss or damage by reason of, arising out of, an alleged breach' of the BIT.
38 Korea: 'Fork-in-the-road' Provisions (1) Model BIT 2001 Article 8: Settlement of Investment Disputes between a Contracting Part and an Investor of the Other Contracting PartyThe local remedies under the laws and regulations of one Contracting Party in the territory of which the investment has been made shall be available for investors of the other Contracting Party on the basis of treatment no less favourable than that which would be accorded to investments of its own investors or investors of any third State, whichever is more favourable to investors.If the dispute cannot be settled within six (6) months from the date on which the dispute has been raised by either party, and if the investor waives the rights to initiate any proceedings under paragraph (2) of this Article with respect to the same dispute, the dispute shall be submitted upon request of the investor of the Contracting Party, to the International Centre for Settlement of Investment Disputes (ICSID) established by the Washington Convention of 18 March 1965 on the Settlement of Investment Disputes between States and Nationals of other States.The investor, notwithstanding that it may have submitted the dispute to the ICSID under paragraph (3) may seek interim injunctive relief, not involving the payment of damages, before the judicial or administrative tribunals of the Contracting Party that is a party to the dispute for the preservation of its rights and interests.Korea text – pp
39 Korea: 'Fork-in-the-road' Provisions (2) 2001 Korean Model BIT: 'fork-in-the-road' approach.Resorting to arbitration under ICSID is permitted only if the investor waives the rights to initiate any local proceedings regarding the same dispute.Korea-China BIT: Among Korean BITs, Korea-China BIT is distinctive in that 'the Contracting Party involved in the dispute may require the investor concerned to go through the domestic administrative review procedures specified by the laws and regulations of that Contracting Party before the submission to international arbitration.'The investment chapter of the Korea-US FTA provides that the 'fork-in-the-road' approach will apply when Korea is the respondent, while the waiver approach will be used when the US becomes the respondent.
40 Korea: Arbitration Institutions and Rules 2001 Korean Model BIT (BITs with the UK, Sri Lanka, and Hungary): only to ICSID.Recent Korean BITs: various options granted to investorsICSID,the UNCITRAL Arbitration Rules,any other arbitration institution or in accordance with any other arbitration rules upon agreement by both of the disputing parties.The investment chapter of the Korea-US FTA:wide range of arbitration choices based on the ICSID, ICSID Additional Facility Rules, UNICTRAL Arbitration Rules, and to any other arbitration institution or under any other arbitration rules upon the disputing parties' consent.
41 Korea: Consent to Arbitration (1) Model BIT 2001 Article 8: Settlement of Investment Disputes between a Contracting Part and an Investor of the Other Contracting PartyEach Contracting Party hereby consents to the submission of a dispute to arbitration in accordance with the procedures set out in this Agreement.Korea text – pp
42 Korea: Consent to Arbitration (2) Most Korean BITs: explicit that the State party gives consent to arbitration by entering into the particular BIT.Therefore, an arbitration agreement in accordance with the provisions of the particular BIT exists if and when an investor consents to arbitration when a dispute arises.Exception: Korea-Hungary BIT: Disputes other than on nationalization or expropriation requires the contracting parties to separately agree to the submission to ICSID.The 2001 Korean Model BIT confirms that the award made by ICSID is final and binding on the parties to the dispute and obligates each contracting State to ensure the recognition and enforcement of the award in accordance with its relevant laws and regulations.
43 Korea: AwardModel BIT 2001 Article 8: Settlement of Investment Disputes between a Contracting Part and an Investor of the Other Contracting PartyThe award made by ICSID shall be final and binding on the parties to the dispute. Each Contracting Party shall ensure the recognition and enforcement of the award in accordance with its relevant laws and regulations.The 2001 Korean Model BIT confirms that the award made by ICSID is final and binding on the parties to the dispute and obligates each contracting State to ensure the recognition and enforcement of the award in accordance with its relevant laws and regulations.Korea text – pp
44 Investor to State Dispute Settlement (1) China-Japan (1988)“[A] dispute concerning the amount of compensation” in the expropriation clause to be submitted to ICSID conciliation or arbitration“Any dispute concerning other matters” with respect to investment – requires mutual agreement to be submitted to ICSID conciliation or arbitration (Art. 11)Japan-Korea (2002)“[A]lleged breach of any right conferred by this Agreement with respect to an investment”3 month consultation or negotiation periodICSID, UNCITRAL Arbitration rules, or any other arbitration institution or ruleKorea-China (2007)“[A]n alleged breach of this Agreement with respect to an investment” (Art. 9.1)4 month consultation periodICSID, UNCITRAL Arbitration rules, or any other arbitration rules (Art. 9.3) - May require the investor to go through the domestic administrative review procedures“[L]aw of the Contracting Party to the dispute… the provisions of this Agreement as well as the principles of international law accepted by both Contracting Parties” (Art. 9.6)BIT
45 Investor to State Dispute Settlement (2) China-Peru (2009)“[A]ny dispute…in connection with an investment” (Art )6 months negotiation periodICSID, UNCITRAL Arbitration Rules, or other arbitration institution or rules“in accordance with this Agreement and applicable rules of international law” (Art )Japan-Peru (2011)“[A]lleged breach of any obligation under this Agreement” (Art. 18)6 months consultations or negotiations period“in accordance with this Agreement and applicable rules of international law” (Art )Korea-Peru (2011)“[A]lleged breach of an obligation under investment chapter of FTA” (Art )Consultation period, Arbitration Institution and Rules, Applicable Rules: same as Japan-Peru BIT (Art )FTA Investment Chapter
46 Findings Converging Trends: “looking similar” China is moving forward to enhanced protection of investorsThe differences are being narrowedBIT provisions tend to get “detailed and longer”Negotiators are alert for potential “legal liability” arising from BITEfforts to clarify or supplement loose endsTo reduce potential abuse by investorsNarrowing the discretion of arbitrators – an attempt to reduce uncertaintyReflection of State’s desire to preserve public policy spaceTendency to inject additional items: market access, performance requirements, transparency, environmental concerns and labor and human rights concerns
47 Final Important Words Thank you for your attention, Merci. Enjoy your stay in Paris !!!Let’s keep in touch – stay connected!