C INVESTMENT PROTECTION

1

• C) INVESTMENT PROTECTION
• Introduction
• - The importance of foreign direct investment
  and the need for legal protection
• - The lack of (sufficient) protection
• - through the state courts of the host country
• - through the state courts of the investors
  country or
• - through diplomatic protection by the
  investors country

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• 1. Legal instruments for the protection of
  foreign investment
• a) Traditional international arbitration clauses,
  for instance ICC-arbitration, UNCITRAL
  arbitration etc.
• b) National Investment Laws or Investment Codes
• c) Convention on the Settlement of Investment
  Disputes between States and Nationals of other
  States which created the
• International Centre for Settlement of Investment
  Disputes, ICSID (ICSID-Convention).
• d) Bilateral Investment Treaties, BITs
• e) Multilateral Investment Treaties, MITs

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• 2. The ICSID-Convention and the International
  Centre for Settlement of Investment Disputes
  (ICSID), www.worldbank.org/icsid/index-html
• a) Jurisdiction of the Centre Art 25
• - Dispute arising directly out of an Investment
• a certain duration
• regularity of profit and return
• assumption of risk
• substantial commitment
• significance for the host States development
• Broad definition of Investment including
  construction, banking and other services

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• - Between a Contracting State and a national of
  another Contracting State
• - Consent in writing
• - To summarize
• 1) both states A and B must be member states of
  the Convention
• 2) a dispute arising out of an Investment
  between
• a) an investor of State A and the State B
• b) an investor of State B and the State A
• 3) an arbitration agreement
• in case a) between the investor of State A and
  the State B
• in case b) between the State B and the State A

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• - Definition of national of another Contracting
  State in case of legal persons
• place of incorporation
• place of management
• nationality of (controlling) shareholders
• - Definition of Contracting State may be
  extended to sub-entities (a province, a region or
  town)

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• b) Applicable law Art 42
• - rules or law as may be agreed by the parties
• - in the absence of such agreement
• the law of the Contracting State party to
  the dispute
• and
• such rule of international law as may be
  applicable
• c) Procedural Rules Art 44
• - Art 41 47 of the ICSID-Convention
• - Procedural Rules agreed between the Parties
• - ICSID Arbitration Rules
• - Procedural decision by the Arbitral Tribunal

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• d) Procedural particularities of the ICSID system
• - prima facie-control of the Centres
  jurisdiction by its Secretary General, Art 36
  (3)
• - internal control mechanism, Art 52
• application to an ad hoc-committee of three
  persons for setting aside the award on one or
  more of the following grounds
• - that the Tribunal was not properly
  constituted
• - that the Tribunal has manifestly exceeded
  its powers
• - that there was corruption on the part of a
  member of the Tribunal
• - that there has been a serious departure from
  a fundamental rule of procedure
• or
• - that the award has failed to state the
  reasons on which it is based.

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• - no control of the award by state courts
• - the state courts obligation to recognise
  and enforce ICSID awards enforcement according
  to domestic enforcement law
• - diplomatic protection, Art 27
• - legal proceedings between the investors
  State and the host State in the International
  Court of Justice (ICJ), Art 64

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• 3. Bilateral Investment Treaties (BITs)
• History, General Purpose and Practical Importance
  of BITs
• Summary Presentation of the BIT-System
• States A and B have concluded a Bilateral
  Investment Treaty (BIT)

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• 2. An investor of State A has invested in State B
  
• or
• an investor of State B has invested in State A
• (no contract and no arbitration agreement
  between the investor and the other state
  required for instance, an investor of State A
  has acquired from a private person a hotel
  located in State B).
• 3. The host state expropriates or discriminates
  the investor/the investment.

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• 4. The investor can commence arbitration
  against the host state
• The BIT contains
• the offer of State A to conclude an arbitration
  agreement with investors from State B this offer
  is accepted by the investor of State B by filing
  a request for arbitration against the State A (in
  accordance with the BIT).
• the offer of State B to conclude an arbitration
  agreement with investors from State A this offer
  is accepted by State A.

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• c) Usual content of BITs (taking the BIT signed
  between Austria and the Republic of Yemen, BGBl
  III 44/2004 (www.ris.bka.gv.at) as an example)
• Preamble
• - Creation of favourable conditions for greater
  economic cooperation
• - Promotion and protection of investments as a
  contribution to the development of economic
  relations
• - Commitment to the observance of internationally
  recognised labour standards

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• Chapter 1 - General Provisions
• Art. 1 Definition of investor and investment
• Art. 3 Treatment of investments
• - Fair and equitable treatment of investments
  and constant protection and security
• - No unreasonable or discriminatory measures
  impairing the management, operation,
  maintenance, use, enjoyment, sale and
  liquidation of an investment
• - No less favourable treatment than the
  contracting party accords to its own investors
  and their investments or to investors of any
  third country and their investments

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• Art. 5 Expropriation and compensation
• No direct or indirect expropriation or
  nationalisation except
• (a) for a purpose which is in the public
  interest,
• (b) on a non-discriminatory basis,
• (c) in accordance with due process of law and
• (d) accompanied by payment of prompt,
  adequate and effective compensation
• Art. 6 Compensation for losses due to war or
  other cases of force majeure
• Treatment no less favourable than that which
  is accorded to the countrys own investors or
  to investors of any third state

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• Art. 7 Transfers
• Free transfer (in a freely convertible
  currency at the relevant market rate) into and
  out of each contracting states territory without
  delay of, in particular
• (a) the initial capital and additional amounts
  to maintain or increase an investment
• (b) returns
• (c) payments made under a contract including a
  loan agreement
• (d) proceeds from the sale or liquidation of
  all or any part of an investment
• (e) payments of compensation under Articles 5
  and 6
• (f) payments arising out of the settlement of
  a dispute
• (g) earnings and other remuneration of
  personnel engaged from abroad in connection
  with an investment

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• Art. 8 Subrogation
• - Recognition of assignments to a contracting
  party or its designated agency (for instance
  ÖKB or ÖKV) in case of payments to investors
  under an indemnity, guarantee or contract of
  insurance given in respect of an investment.
• Art. 9 Umbrella clause
• - Each contracting party shall observe any
  obligation it may have entered into with
  regard to specific investments by investors of
  the other contracting party.

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• Chapter 2 Dispute Settlement
• Part One Settlement of Disputes between an
  Investor and a Contracting Party
• Art. 11 Scope and Standing
• - Disputes between a contracting party and an
  investor of the other contracting party
• - Concerning an alleged breach of an
  obligation of the contracting party (state)
  under this agreement which causes loss or
  damages to the investor or its investment

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• Art. 12 Means of Settlement, Time Periods
• - If possible, settlement by negotiation or
  consultation if not, the investor may choose
  between
• the competent courts or administrative
  tribunals of the host state
• the previously agreed dispute settlement
  procedure (litigation or arbitration)
• or
• ICSID, if both concerned states are parties
  to the Convention or if only one concerned
  state is party to the ICSID-Convention
• UNCITRAL Rules (one or three arbitrators)
• ICC (one or three arbitrators)
• - Notice of intent and 60-days cooling-off
  period
• - not later than 5 years from the date the
  investor acquired or should have acquired
  knowledge of the events which gave raise to the
  dispute

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• Art. 13 Contracting Party Consent
• - Unconditional consent to international
  arbitration
• - No need to exhaust local remedies
• Art. 15 Indemnification
• - States cannot assert as a defence that the
  investor has received or will receive
  indemnification or other compensation for all or
  part of the alleged damages pursuant to an
  indemnity, guarantee or insurance contract.
• Art. 16 Applicable Law
• - In accordance with this agreement and
  applicable rules and principles of
  international law
• - Issues under Article 9 in accordance with the
  law of the state, party to the dispute, the
  law governing the authorisation or agreement and
  such rules of international law as may be
  applicable.

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• Part Two Settlement of Disputes between the
  Contracting Parties
• Art 18 Consultations, Mediation and
  Conciliation
• Art. 19ff ad hoc-Arbitration the President of
  the International Court of Justice (ICJ) as
  appointing authority

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• 4. Multilateral Investment Treaties
• - NAFTA (North American Free Trade Agreement),
  1992, between Mexico, Canada and the US
• - Energy Charter Treaty, 1994, between the EU,
  its member states, eastern European countries
  and successor states of the former Soviet Union

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• D) THE ENFORCEMENT OF ARBITRAL AWARDS
• 1. The legal basis for the enforcement of
  Arbitral Awards
• a) Enforcement of Domestic Arbitral Awards
• - Domestic Law
• (with possible reference to the New York
  Convention)
• b) Foreign Arbitral Awards
• - New York Convention (www.uncitral.org/uncitral/
  en/uncitral_texts/arbitration/NYConvention.html)
• - Bilateral Treaties
• - Other Multilateral Treaties
• - Domestic Law
• c) ICSID- Arbitral Awards
• - ICSID Convention
• (www.worldbank.org/icsid/index.html)

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• 2. Enforcement of Domestic Awards
• The place of Arbitration as criterion for the
  distinction between domestic and foreign Arbitral
  Awards, for instance
• - Arbitration in Buenos Aires between a party
  from Argentina and a party from Singapore  The
  Arbitral Award is a Domestic Award in Argentina
  and a foreign Award in Singapore.
• - The impact of setting aside proceedings on the
  enforceability of an Award
• Basic rule No automatic suspension but the
  courts can suspend the enforcement.

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• 3. Enforcement of Foreign Arbitral Awards
• a) Under the New York Convention
• (www.uncitral.org/uncitral/en/uncitral_texts/arbi
  tration/NYConvention_status.html)
• Art I Has the state, in which enforcement is
  requested, ratified the New York Convention?
• Has this state made the reciprocity-reservation?
  
• Has this state made the commercial reservation?

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• Art. II Form Requirement
• Art. III Prohibition of Discrimination of
  Foreign Awards
• Art IV The Original Arbitration Agreement or a
  duly certified copy
• A certified translation into the language of the
  country of enforcement
• Art. V Reasons for Refusal of Recognition and
  Enforcement to be raised by the opposing party /
  ex officio

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• b) Art. VII More favourable rights
  reservation
• - The European Convention on International
  Commercial Arbitration
• The form requirements
• The right of legal persons of public law to
  resort to arbitration
• Limited effect of the setting aside of
  Arbitral Awards in the country of origin
• c) Domestic Law, in particular French Law
• The enforcement of Arbitral Awards set aside
  in the country of origin

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• 4. Enforcement of ICSID Awards
• - An autonomous system with internal
  control-mechanism
• - No control by State Courts
• - Obligation of all State Courts of treaty
  member countries to enforce ICSID Awards

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• 5. Practical difficulties at the enforcement
  stage
• - Original of the Arbitration Agreement (New
  York Convention)
• - Original Award or duly certified copy,
  including legalisation of arbitrators
  signatures (New York Convention)
• - Identity of the parties
• Incorrect or incomplete name of the debtor
• Identification by the registration number?
• Name of the debtor in Latin, Cyrillic or
  Chinese characters?
• - Drafting of the dispositive part of the Award
  Declaration of liability/condemnation to pay
• - Interests
• Legal Interests which rate?

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• E. Sports Arbitration
• Court of Arbitration for Sport (CAS)
• Tribunal Arbitral du Sport (TAS)
• (www.tas-cas.org)
• created in 1983, seat in Lausanne, Switzerland
• major reform and improvement of the system
  following a decision of the Swiss Federal
  Tribunal of 1993

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• Two bodies
• the Ordinary Arbitration Division
• for the resolution of sports-related disputes
  based on ordinary, i.e. traditional arbitration
  agreements, for instance of disputes between a
  football club and a player or trainer, of
  disputes arising out of sponsorship-contracts
• the Appeals Arbitration Division
• for the resolution of disputes concerning the
  decisions of federations, associations or other
  sports-related bodies insofar as the statutes or
  regulations of those bodies or a specific
  agreement so provide (mostly in disciplinary and
  in particular in doping cases)

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• Ad Hoc Divisions
• for the particularly quick decision of
  disputes arising during Olympic Games, European
  or World Championships
• mandatory list of arbitrators appointed by the
  International Council of Arbitration for Sport
  (ICAS)
• 1/5 upon proposal of the IOC
• 1/5 upon proposal of the International
  Federation
• 1/5 upon proposal of the NOCs
• 1/5 chosen with a view to safeguard the
  interests of the athletes
• 1/5 chosen from among persons independent of the
  bodies responsible for proposing arbitrators in
  conformity with the present article

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• Number of cases in 2006 204 requests
• 17 ordinary procedures
• 175 appeal procedures
• 12 ad hoc procedures
• Legal Issues
• the mandatory list of arbitrators approved by
  the Swiss Federal Tribunal as a means of quality
  control and in view of the composition of the
  list
• the athletes consent to arbitration?
• arbitration agreement for appeal procedures
  mostly contained in the statutes
• or regulations of the federation or association
• the athletes dependence on the nomination by the
  relevant association or federation ( no choice)

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• waiver of challenge of the arbitral award under
  Art. 192 of the Swiss Arbitration Law? Swiss
  Federal Tribunal 22.3.2007, B GE 133 III 235
  Guillermo Cañas vs. Tennis Federation ATP
• arbitrability of labour law matters?
• cf. 618, 617 Austrian Code of Civil Procedure
  (ZPO)
• Enforcement of CAS awards by state courts /
  through the internal sanctions of the respective
  federation
• (for instance non-admission to competitions
  or other sanctions against athletes, clubs or
  even national federations see case GAK/ÖFB/FIFA
  in 2007, LG Graz 28.3.2007, 28 CG 23/07m)

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• The World Anti-Doping Agency (WADA) and The World
  Anti-Doping Code (WADC)
• (www.wada-ama.org)
• Incorporation of the WADC into the regulations of
  more than 570 sports organizations (including,
  for instance, FIS (skiing), UCI (cycling), FIFA
  (football), all Olympic Committees.
• Applicable to international events and
  international-level-athletes.

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• Substantive provisions of the WADC
• Anti-doping violation, in particular
• The mere presence of prohibited substances in the
  athletes bodily specimen is sufficient. It is
  not necessary to prove intent, fault, negligence
  or knowing use on the athletes part (Article 2.1
  WADC).
• Use or attempted use of a prohibited substance or
  a prohibited method (Article 2.2 WADC)

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• Burden of proof
• The relevant sports-related body or the relevant
  anti-doping agency must only prove that an
  anti-doping violation has ocurred. It is upon the
  athlete to prove that there was no fault or
  negligence on his side (shift of the burden of
  proof).

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• Sanction ineligibility
• (Article 10.2 WADC).
• - first violation 2 years
• - second violation lifetime

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• No significant fault or negligence
• Only if the athlete can establish that no
  significant fault or negligence was involved, the
  period of ineligibility can be reduced to
  one-half ( 1 year minimum). If the otherwise
  applicable period were a lifetime ineligibility,
  the sanction is reduced to 8 years.

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• New WADC coming into force on January 1, 2009 (no
  minimum period of ineligibility for the first
  violation)
• Bundesgesetz zur Bekämpfung von Doping im Sport
  Anti-Doping-Gesetz 2007 (BGBl I 2007/30)
• for doping offences at the Austrian national
  level
• first instance decision by the Unabhängige
  Dopingkontrolleinrichtung
• appeal arbitration procedure to the Unabhängige
  Schiedskommission according to 577 ff CCP.

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• F. Other Alternative Dispute Resolution
  Mechanisms
• Dispute Boards
• see ICC Dispute Board Rules (ICC Publication
  829)
• Dispute Review Boards (DRB) issues
  Recommendations only (contractually) binding,
  if neither party expresses dissatisfaction
• Dispute Adjudication Board (DAB) issues
  Decisions contractually binding, even if a
  party expresses dissatisfaction, until an
  Arbitral Tribunal or a Court has decided
  differently
• Combined Dispute Boards (CDB) the CDB will
  decide whether to issue a Recommendation or a
  Decision (see Art.6)

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• Rules for Expertise (ICC Publication 649)
• Rules for a Pre-Arbitral Referee Procedure
• Mediation/Conciliation
• see, for instance, the ICC ADR Rules (ICC
  Publication 809)
• Zivilrechts-Mediations-Gesetz 2003 (BGBl I
  2003/29) - 22 suspension of statute of
  limitation (Hemmung von Fristen)

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• G) HOW TO DRAFT ARBITRATION CLAUSES
• 1. Examples of pathological arbitration clauses
• Das Schiedsgericht hat seinen Sitz in Schweden,
  wenn es gegen den (schwedischen) Verkäufer
  angerufen wird und in der Bundesrepublik
  Österreich, wenn es gegen den (österreichischen)
  Käufer angerufen wird. Das Schiedsgericht
  entscheidet in erster Linie aufgrund des
  Vertrages und der allgemein anerkannten
  internationalen Handelsbräuche in zweiter Linie
  ist das Recht des Landes anzuwenden, in dem das
  Schiedsgericht seinen Sitz hat.

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• Sämtliche Streitigkeiten, die aus dem Vertrag
  eventuell entstehen können, werden im Wege
  gegenseitiger Einigung beigelegt werden. Sollte
  es nicht gelingen, den Streitfall gütlich bzw. im
  Sinne des Abs. 1 dieses Artikels zu bereinigen,
  wird es durch das Schiedsgericht der
  Bundeswirtschaftskammer Jugoslawiens entschieden
  werden. Die nächste Instanz für die Lösung von
  Streitigkeiten ist das nach Völkerrecht
  zuständige Gericht.
• Zur Feststellung, ob die Vorbedingungen lt.
  Punkt XVI. nicht erfüllt wurden, und zur
  Vermeidung von unnötigen Gerichtskosten wird von
  beiden Vertragspartnern eine 5-(fünf)köpfige
  Schiedsgerichts-Kommission gebildet (ernannt).
  Diese bestehen aus je einem Juristen und einem
  leitenden Konzernangestellten (4 Personen) und
  einem von beiden Vertragspartnern benannten
  unabhängigen Bausachverständigen. Können sich die
  Vertragspartner mit dem Spruch des
  Schiedsgerichtes nicht einigen, steht der
  Rechtsweg offen.

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• Sämtliche sich aus diesem Vertrag ergebenden
  Schwierigkeiten werden in erster Instanz im
  Schiedsweg erledigt. Schiedsrichter soll eine
  anerkannte Handelskammer sein.
• ICC Standardklausel plus
• Der dritte Schiedsrichter soll vom
  Generalsekretär der Weltgesundheitsbehörde in
  Genf bestellt werden.
• Sämtliche Streitigkeiten sollen im Schiedsweg
  unter Ausschluss französischer oder
  tschechoslowakischer Gerichte geregelt werden.
• Falls die tschechoslowakische Partei geklagt
  wird, so soll das Schiedsverfahren vor dem
  Schiedsgerichtshof der Tschechoslowakischen
  Außenhandelskammer in Prag stattfinden. Falls die
  französische Partei geklagt wird, so soll die
  Schiedsverhandlung vor dem Schiedsgericht der
  Handelskammer in Paris stattfinden.

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• 2. Drafting of Arbitration clauses
• a) The choice of the appropriate type of
  arbitration
• - Ad-hoc Arbitration
• - UNCITRAL-Arbitration
• - Institutional Arbitration, if yes Which
  institution?
• - ICSID Arbitration

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• b) The indispensable elements
• - All disputes arising from or in connection
  with .
• - shall be finally settled by Arbitration
• - in place of arbitration
• - under the Rules of (in case of UNCITRAL
  or institutional arbitration)
• - waiver of immunity by States
• If you opt for UNCITRAL Arbitration or
  Institutional Arbitration follow the standard
  clause (do not innovate without competent legal
  advice !).

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• c) Possible amendments
• - The number of arbitrators
• - Special provisions concerning the
  Arbitrators nationality
• - Special provisions for multiparty and/or
  multicontract situations
• - The place of arbitration (in institutional
  arbitration)
• - The language(s) of arbitration
• - The applicable substantive law and the law
  applicable to the arbitration clause
• - Special provisions concerning interim
  measures
• - Special provisions concerning
  confidentiality
• - Special provisions concerning the making of
  the award if there is no majority
• - Special provisions concerning costs

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• d) Amendments to be avoided
• - Reference to national procedural law
• - Appointment of specific arbitrators in the
  arbitration clause
• - Special qualifications for arbitrators
• - ex aequo et bono
• - Mandatory time limits
• - Waiver of reasons

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• e) Additional points to be checked
• - Arbitrability of the dispute
• - Capacity of the parties to agree to
  arbitration (in particular when States or
  State-entities are involved)
• - Form requirements
• - Power of the signatories