Session Brief: Online Lecture on Reassertion of Control by Host States in Investor-State Dispute Settlement

- Animekh Pandey & Gaurav Kumar

A webinar on “Reassertion of Control by Host States in Investor-State Dispute Settlement (ISDS)” was held on July 22, 2020. The webinar witnessed a discussion between Mr. Ben Giaretta, partner at Mishcon de Reya LLP, Mr. Harshad Pathak, senior associate at P&A Law Offices and Mr Rohan Andrew Naik, advocate at the Supreme Court of India and Delhi High Court. The session was moderated by Ms. Rashika Bajpai, a graduate from RMLNLU (Batch of 2020) and an incoming associate at Trilegal.

The webinar was hosted by the Society for Excellence in Arbitration Law, RMLNLU, Lucknow, which envisages to disseminate and discuss the contemporary developments in the field of arbitration.

The speakers present in the panel shared their views and thoughts in order for the general audience to understand the basic framework of the issue at hand. The webinar was itself divided into subsections so as to shed more light on the theme under discussion.

“The perceived bad experience of certain developed countries within the realm of investment arbitration has lead them to reassert control over the mechanism through which disputes are resolved”, said Mr. Rohan, starting the discussion. This has made them to cut out the investor’s right to claim from such disputes, he added.

The UNCITRAL working paper, Mr. Rohan noted, has a tendency of moving away from the ISDS as many states are now shifting from it. He explained how alternatives to the present dispute mechanisms are being resorted to, like the European Unions’ separate investment court in its investment agreement with Canada. The working paper is still silent on how judges would be appointed for these new mechanisms or how such mechanism would be finalised, he added.

While talking about State-State arbitration, Mr. Rohan explained the history of investment treaties and how the investor might be held in tight spot where the BIT only agrees for states to proceed with claims. He was of the opinion that this could be the reason why parties have opted for inclusion of regional courts or any other quasi-judicial body in the BITs. He also discussed the Peru vs. Chile case and various BITs like the Canada Venezuela BIT, in his part.

“Earlier BITs were supposed to be political documents rather than legal documents”, noted Mr. Ben while describing why developed countries are pushing themselves away from the ISDS regime. In his opinion there exists a disparity between a government filing claims and a private party filing claims. He remarked how the process is referred as ‘secret justice’ done by private judges, while pointing out the issue of excessive confidentiality. This makes the public perception turned against such settlements and creates a new political issue.

“It is all about politics and the present political stride of the governments”, he opined. He gave an example how the Trump administration’s policies is protectionist at present but a future administration would change the contemporary stance.

On the question of legal remedies due to the COVID crisis, Mr. Ben remarked, “It is a novel disease and moreover a novel situation that the world finds itself in”. He pointed out that the government’s response in this situation can attract claims into three categories: (i) public health, which might lead to claims due to discrimination, or lack of measures taken by government to protect other investors; (ii) the mechanism adopted by the government to tackle the economic crisis, which might lead to ignorance of the plight of foreign investors and; (iii) the actions that arise to compliment the public health effort or the economic crisis like the suspension of toll tax in Peru. This might invite claims from investors who are affected harshly. He expects that these claims might not be seen this year but could be seen in the post-COVID situation.

Mr. Harshad’s opinion on how the developing countries have looked upon to the measures proposed as alternative to ISDS was also very informative. “We have to realise that different countries will have different expectations and these expectations will not be static but continue to evolve depending upon their experience” he said.

He gave the example of Argentina, referring to the many cases Argentina fought under ISDS in which the country’s financial situation after the Peso crisis were not given importance by the courts. He remarked that many Latin American countries have developed a general distrust after this incident and have been alienating themselves from this mechanism. He then focused on how the new regional agreements or bilateral agreements are giving power to the national courts and how this creates a sense of security within the developing countries.

Mr. Harshad was of the opinion that the trend from investor protection to that of allocation of responsibilities to investors is influenced by how the ISDS evolved. The shift, in his opinion, can be observed from how old BITs created an unequal system which promoted foreign investors, sometimes even above domestic investors. The objective is to make the investments in a manner that respects the rights of the host state by including these provisions into the treaty itself.

“The government itself is issuing circulars, classifying the pandemic as force majeure. While this in itself is not determinative, it gives force to the argument”, he noted on the impact of COVID crisis. “It is not purely a legal issue but there is also politics of it, commercial prudence and diplomacy is involved in ISDS”, he added.

On the issue of India and its relations to the ISDS mechanism, Mr. Harshad explained the socio-political history of India and how it produces an image of a protectionist state. Post-independence there were no BITs and many socialist ideas of nationalisation were in fervour but still foreign investors were given assurances about their investments. India even participated in the creation of ICSID convention and only pulled back on its reservation on the rights given to investors were undermining the state’s sovereignty, he noted.

He also explained how the late arrival of India to privatisation led to India being on back-foot in these negotiations and created an unequal setting for Indian nationals. This changed after the White judgement in 2011 which triggered to review treaty obligation in the government circle. On review by the government it was found that the old BITs, which India signed, had excessive protection for the investors. Moreover, it was found that the absence of precedent and ignorance of legitimacy concerns in investment awards led to the model Indian BIT of 2016 and the steps taken in 2018. This has made India “taking investments with mutually assured benefits like in the Nehruvian era”.

The session can be accessed here.

(Animekh Pandey and Gaurav Kumar are students of Dr. Ram Manohar Lohiya National Law University, Lucknow)