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THE RISE IN ISDS CASES

By

Zaherah Saghir

Investment laws ‘often’ include Investor State Dispute Settlement (ISDS) provisions and “international arbitration is the ISDS mechanism to which investment laws most often refer”, followed by domestic courts, mediation and conciliation.[1]

Foreign investors are afforded the right to sue a Host State for an alleged International Investment Agreement (IIA) breach. This is reflected in the year on year increase in ISDS cases. As the statistics in this blog will demonstrate, the rising number of ISDS cases is a cause for concern however, what is surprising is that for the first time in recent years, the number of ISDS cases initiated in 2019 are significantly lower. While it is far too early to label this as a declining trajectory, it is nevertheless, food for thought.

ISDS Cases

In 2019, 55 treaty-based ISDS cases were filed, bringing the total number of publicly known ISDS cases to 1023 as of 01st January 2020.[2] Despite this being less than the 84 filed ISDS cases in 2018, the year on year increase of ISDS cases has led to120 countries and one economic grouping being a respondent in at least one or more ISDS claim thus far.[3]

ISDS cases were commenced against 36 countries and one economic grouping, namely the EU in 2019.[4] This was less than previous years, where 48 countries faced one or more ISDS case in 2018;[5] and 55 in 2017, where four economies had their first known ISDS case(s); Iraq, Kuwait, Bahrain and Benin. [6]

ISDS cases are continuously initiated against developing countries and economies. Despite Columbia facing its first four known ISDS cases as recently as 2016, [7] it has remained one of the most frequent respondents to ISDS cases for two consecutive years. Three cases were initiated against Columbia in 2019,[8] a drop from six cases in 2018. [9] Joining Columbia as the most frequent respondent was Spain, with three ISDS cases in 2019;[10] a decrease from the five it faced in 2018.[11]

Mexico and Peru completed the quad of ‘most frequent respondent states in 2019’ with three known ISDS cases each.[12] For the first time, three economies, the EU, Nepal and Sierra Leone, faced their first known ISDS case, meaning that around 80 per cent of new cases were initiated against developing countries and transition economies.[13]

Developed-country investors were once again at the forefront of initiating around 70 per cent of the 55 known ISDS cases in 2019; a trend reminiscent of previous years.[14] Investors from the United States brought the highest number of cases in 2019 (seven cases).[15] Surprisingly, this was significantly less than the seventeen cases they initiated in 2018, [16] but similar to the nine cases initiated in 2017. [17] The United Kingdom also initiated seven cases in 2019.[18]

Intra-EU disputes accounted for around 15 per cent (seven cases) of the 55 known ISDS cases in 2019, just short of the historical average of 20 per cent.[19] Five of the seven cases invoked the Energy Charter Treaty (ECT,1994);[20] the other two were brought under intra-EU BITs.[21] By the end of 2019, 188 known investment treaty arbitrations had been initiated by an investor from one EU member State against another.[22]

The rise in ISDS cases demonstrates investors exercising their rights under IIAs to sue Host States for treaty breaches. The vast majority of investment arbitrations, around 70% in 2019, were brought under Bilateral Investment Treaties (BITs) and Treaties with Investment Provisions (TIPs) signed in the 1990s or earlier.[23] The remaining ISDS cases were brought on the basis of treaties signed between 2000 and 2011.

The most frequently invoked IIA in 2019 was the ECT, in a total of seven cases.[24] It was also invoked in seven cases in both 2017 and 2018,[25] almost half of the number of cases it was invoked in in 2016 (thirteen cases). [26] To date, the ECT has been invoked in 128 known ISDS cases during an 18 year period from its first known case (2001-2019).

The second most frequently invoked IIA in 2019 was the North American Free Trade Agreement (NAFTA (1992)),[27] with three ISDS cases.[28] Of the 1,023 known ISDS cases, 67 cases have been initiated on the basis of NAFTA and, with the 128 that invoked the ECT, this means that both IIAs account for around 20 per cent of the overall ISDS cases.[29]

The number of concluded ISDS cases amount to 674, with 343 pending and the status of six unknown. [30] Of the concluded arbitration proceedings, 246 (36.5%) were decided in favour of the state, 198 (29.4%) in favour of the investor, 139 (20.6%) were settled, 77 (11.4%) were discontinued and 14 (2.1%) were decided in favour of neither party (liability was found but no damages awarded).[31]

ICSID Cases

In 1965, the General Council of the World Bank proposed a mechanism for resolving international disputes, which led to the creation of International Centre for the Settlement of Investment Disputes (ICSID), through the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). [32] Where disputes fall outside the remit of the ICSID Convention, the ICSID Additional Facility, created in 1978, offers arbitration, conciliation and fact-finding services.[33]

Since the first registered ICSID case in 1972, ICSID’s involvement in investor-state disputes has grown exponentially to reflect the growth in the total number of reported cases globally. As of 31st December 2019, ICSID has registered 733 cases under the ICSID Convention and ICSID Additional Facility Rules. [34]

At its peak in 2015, a total of 50 cases were registered under the ICSID Convention alone, which fell to 42 cases in 2016 but rose to 49 in 2017. [35] In 2018, 49 cases were once again registered under the ICSID Convention, with a further six under the ICSID Additional Facility Rules and one under the ICSID Convention as a conciliation case.[36] 2019 saw a decline in registered cases, similar to the decline in overall ISDS cases. Only 35 cases were registered under the ICSID Convention in 2019, the lowest number of cases since 2014. [37]

The vast number of cases registered in 2019 under the ICSID Convention and Additional Facility Rules derived their consent from BITs (62%); followed by the ECT (12%) and Investment Contracts between the investor and the Host-State (10%). This is in line with the earlier submissions which provide that around 70% of the investment arbitrations brought in 2019 were under BITs or TIPs. [38] It is, therefore, not surprising that the number of terminated IIAs continues to rise (34 terminated IIAs in 2019).[39]

Annulment Proceedings under the ICSID Convention

The rise in ISDS cases dealt by ICSID demonstrates the central role ICSID plays in settling disputes, however, one may question why. Hidden in the statistics are the growing number of ICSID annulment proceedings that continue to rise. Article 52(1) of the ICSID Convention, provides parties with the ability to annul arbitral awards on certain procedural grounds. [40]

Since 1971, eighteen ICSID awards have been annulled, either in part or in full.[41] This is compared to the 61 rejected applications for annulment and twenty-seven discontinued annulment proceedings during the same period (1971- 2019).[42]

In the last decade (2011-2019), 197 ICSID Convention awards have been rendered, with forty-seven rejected applications for annulment and twenty-one discontinued annulment proceedings.[43] In 2019, four publicly known decisions were rendered in annulment proceedings at ICSID however, all four applications for annulment were rejected by the ICSID ad hoc committees.[44]

ICSID Conciliation Cases

The number of ICSID Conciliation cases and ICSID Additional Facility Conciliation cases since 1972- 2019, are twelve.[45] This is compared to the 733 cases registered under the ICSID Convention and ICSID Additional Facility Rules during the same period. Although the decline in ICSID cases (or generally, ISDS cases) cannot be placed on the growing number of conciliation cases, it is worthy to note that six of the twelve conciliation cases were registered in the last decade (2010-2019) alone. The other six conciliation cases were registered between 1982 – 2007 (a period of 25 years).[46] Therefore, it may be submitted that parties are seeking other means to resolve their disputes, but again this, does not explain the decline in ISDS cases as a whole.

Conclusion

Empirical evidence illustrates the year on year rise in ISDS cases. Developed-country investors continue to initiate claims against developing states; a constant trend in recent years. Figures for 2019 however, show a decline in the number of ISDS cases. Coupled with the growing number of IIA terminations and ICSID annulment cases, light is shed on the possible lack of faith in the investor-state arbitration system. Why this is the case, is yet unknown and while there is no clear rationale for the decline in ISDS cases in 2019, this opens dialogue for stakeholders to consider the possibility of a ‘declining trajectory.’

Given the unprecedented times we are currently facing as a result of a global pandemic, and the many events 2020 has brought us, it is imperative stakeholders consider the impact of these events on ISDS and the future.

  1. UNCTAD, World Investment Report 2017: Investment and the Digital Economy’ (2017) ch III, 110. ↑
  2. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 110. ↑
  3. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 110. ↑
  4. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  5. United Nations UNCTAD, Investment Policy Hub, < https://investmentpolicy.unctad.org/> accessed 04th July 2020. ↑
  6. United Nations UNCTAD, Investment Policy Hub, < https://investmentpolicy.unctad.org/> accessed 04th July 2020. ↑
  7. UNCTAD, World Investment Report 2017, ‘Investment and the Digital Economy’ Imprint: Geneva, United Nations, 115. Both India and Spain were the most frequent respondents to ISDS cases along with Columbia in 2016, with 4 cases each. Columbia had its first four recorded ISDS cases in 2016. ↑
  8. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  9. UNCTAD, World Investment Report 2019: Special Economic Zones (2019) ch III, 103. ↑
  10. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  11. UNCTAD, World Investment Report 2019: Special Economic Zones (2019) ch III, 103. Belarus, Qatar and Rwanda faced their first known ISDS claim in 2018 ↑
  12. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  13. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  14. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  15. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  16. United Nations UNCTAD, Investment Policy Hub, < https://investmentpolicy.unctad.org/> accessed 04th July 2020. ↑
  17. United Nations UNCTAD, Investment Policy Hub, < https://investmentpolicy.unctad.org/> accessed 04th July 2020. ↑
  18. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  19. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  20. Energy Charter Treaty (1994). ↑
  21. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  22. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  23. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  24. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  25. United Nations UNCTAD, Investment Policy Hub, < https://investmentpolicy.unctad.org/> accessed 04th July 2020. ↑
  26. United Nations UNCTAD, Investment Policy Hub, < https://investmentpolicy.unctad.org/> accessed 04th July 2020. ↑
  27. North American Free Trade Agreement between Canada, The United States and Mexico (NAFTA) (1992) ↑
  28. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  29. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  30. United Nations UNCTAD, Investment Policy Hub, < https://investmentpolicy.unctad.org/> accessed 04th July 2020. ↑
  31. United Nations UNCTAD, Investment Policy Hub, < https://investmentpolicy.unctad.org/> accessed 04th July 2020. ↑
  32. The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, 18 March 1965 (1965) 4 ILM 524. As of July 2020, there are 163 Signatory and Contracting States to the ICSID Convention. See also, C. Schreuer, The ICSID Convention: A Commentary (Cambridge: Cambridge University Press, 2001); L. Reed, J. Paulsson & N. Blackaby, Guide to ICSID Arbitration (The Hague: Kluwer Law; 2004). ↑
  33. ICSID ‘ICSID Additional Facility Rules’ available at < https://icsid.worldbank.org/en/Pages/icsiddocs/ICSID-Additional-Facility-Rules.aspx> accessed 07th July 2020. ↑
  34. ICSID International Centre for Settlement of Investment Disputes, ‘The ICSID Caseload- Statistics’ (Issue 2020-1), page 8, accessed > https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx> accessed 05th July 2020. ↑
  35. ICSID International Centre for Settlement of Investment Disputes, ‘The ICSID Caseload- Statistics’ (Issue 2020-1), page 8, accessed > https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx> accessed 05th July 2020. ↑
  36. ICSID International Centre for Settlement of Investment Disputes, ‘The ICSID Caseload- Statistics’ (Issue 2020-1), page 8, accessed > https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx> accessed 05th July 2020. ↑
  37. ICSID International Centre for Settlement of Investment Disputes, ‘The ICSID Caseload- Statistics’ (Issue 2020-1), page 8, accessed > https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx> accessed 05th July 2020. ↑
  38. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, xii. ↑
  39. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 111. ↑
  40. ICSID Convention 1965, Article 52(1): ‘Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds: (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based.’ ↑
  41. ICSID International Centre for Settlement of Investment Disputes, ‘The ICSID Caseload- Statistics’ (Issue 2020-1), page 16, accessed > https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx> accessed 05th July 2020. ↑
  42. ICSID International Centre for Settlement of Investment Disputes, ‘The ICSID Caseload- Statistics’ (Issue 2020-1), page 16, accessed > https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx> accessed 05th July 2020. ↑
  43. ICSID International Centre for Settlement of Investment Disputes, ‘The ICSID Caseload- Statistics’ (Issue 2020-1), page 16, accessed > https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx> accessed 05th July 2020. ↑
  44. UNCTAD, World Investment Report 2020: ‘International Production Beyond the Pandemic’ (2020) ch III, 112. ↑
  45. ICSID International Centre for Settlement of Investment Disputes, ‘The ICSID Caseload- Statistics’ (Issue 2020-1), page 8 accessed > https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx> accessed 05th July 2020. ↑
  46. ICSID International Centre for Settlement of Investment Disputes, ‘The ICSID Caseload- Statistics’ (Issue 2020-1), page 8 accessed > https://icsid.worldbank.org/en/Pages/resources/ICSID-Caseload-Statistics.aspx> accessed 05th July 2020. ↑