Suitability of ISDS for Societal Challenges

Introduction

Scientists are observing changes in the Earth’s climate in every region, with some of these changes irreversible.[2] Indigenous communities have resisted the development of mines and pipelines to protect the environment.[3] The covid-19 pandemic has brought both health and economic crises, with collapsing health systems and lockdowns of economies across the globe.

Societal challenges, domestic and international, demand action and institutional responses. Yet, what if that response affects the value of existing investments? Should investors be entitled to bring claims? Should arbitration tribunals be assessing the actions of states to arrest or slow down climate change? What tests and defences should apply? Who has the right to address tribunals on these important public policy issues?

As societal challenges necessarily impact the development of investor–state dispute settlement (ISDS), it is incumbent upon both practitioners and tribunals to consider how best to deal with the consequences of these challenges. This chapter examines the interaction of international investment law with some of these fundamental social issues of our time, including the suitability of investment treaties to confront issues of environmental damage, climate change, public health, human rights and corruption.

Corruption issues are of overriding importance to the rule of law

What is a tribunal’s duty when it is faced with evidence of corruption?

Unlike the judiciary, which is an organ of the state and thus owes duties to the public, the primary duty of international arbitrators is generally seen as owed to the parties who appointed them. It is an oft-cited principle that party autonomy is of foundational importance in arbitration. Parties appoint the arbitrators pursuant to an agreement and so, parties have a right to define the jurisdiction of an arbitral tribunal. Apart from mandatory rules contained in the applicable procedural law, parties are generally free to agree on the procedures that will govern the arbitration. This orthodox thinking is strained, though, where evidence of corruption surfaces.

Is there a limit to the consensual nature of arbitration? What happens if parties enter into an agreement precluding an arbitral tribunal from considering evidence of corruption?

Investor–state tribunals and courts have consistently found that arbitral tribunals, like judges, have a public duty to consider evidence of possible corruption, regardless of any agreements between the parties to the contrary. This should not be surprising. Any arbitrator who sees such evidence will instinctively feel that such matters should not be swept under the carpet.

Tribunals have to carefully consider the evidence and decide what effect, if any, the evidence has on the case at hand. After all, corruption issues, in general, are of overriding importance to the rule of law and the integrity of the arbitration process. This rings especially true in the context of investor–state disputes. It would be repugnant and antithetical to the rule of law if parties could force arbitral tribunals to turn a blind eye to evidence of corruption and bribery, with the effect that arbitral tribunals might make awards supporting or enforcing corruption.

– Cavinder Bull SC, Drew & Napier LLC

Environmental damage

Increasingly, states are aware of their duties under international law to cause no harm to other states,[4] including on matters relating to the environment. Indeed, there has been discussion of the crystallisation of environmental protection as a peremptory, or jus cogens, norm of international law.[5] While this chapter is not concerned with such questions, which have been debated elsewhere,[6] they are part of the context within which concerns for the environment are having an impact on ISDS. It is estimated that between 2012 and 2017, over 60 investment disputes had an environmental component to them, with both investors and states raising the issue in disputes.[7]

The use of ISDS by investors to confront issues of environmental damage

Investors are increasingly bringing claims in relation to environmental matters. In Allard v. Barbados,[8] the investor, which operated an ‘eco-tourism’ site, argued that Barbados had failed to take ‘reasonable and necessary environmental protection measures and, through its organs and agents, has directly contributed to the contamination of [Barbados’] eco-tourism site, thereby destroying the value of [the] investment’.[9] The investor argued that a failure at a sewage treatment plant operated by the state affected his investment by destroying the swamp around the site, in effect expropriating his investment, or in the alternative failing to afford him fair and equitable treatment (FET) of his investment with the requisite level of protection and security, in violation of the Canada–Barbados Bilateral Investment Treaty (BIT).[10] While the investor was unsuccessful, the International Centre for Settlement of Investment Disputes (ICSID) tribunal found that states could, under the right circumstances, be under an obligation to protect investments against environmental damage.[11]

The use of ISDS by states to confront issues of environmental damage

As a ‘shield’ by states

Some states have sought to rebalance their obligations to foreign investors by inserting provisions in investment treaties allowing them to take steps to protect their environment from damage.[12] In theory, these provisions enable the state to regulate investors to ensure that the environment of the host state is protected without this intervention giving rise to a breach of the state’s obligations under the relevant investment treaty. Such carve-outs have been successful in establishing that a contracting state was entitled to place a premium on environmental sustainability and defeat claims by investors alleging indirect expropriation.[13] Questions have recently been raised as to whether these carve-outs are enough to ‘shield’ states, given that in Eco Oro Minerals v. Colombia, the majority of the ICSID tribunal held that the existence of an environmental carve-out in an investment treaty may allow the host state to ‘adopt or enforce an [environmental protection] measure . . . without finding itself in breach of the FTA, [but] this does not prevent an investor claiming . . . that such a measure entitles it to payment of compensation’.[14] In any event, most current ISDS environmental claims are being brought under ‘old-generation’ investment treaties, which do not reflect this new language.[15] A 2011 survey found that a little over 8 per cent of investment treaties contained references to the environment.[16]

It is an open question whether more general provisions within an investment treaty, such as those allowing a state to take measures to protect the public interest or its essential security interests, could extend to protection of the environment. Others have contended that these commitments could be imported into a treaty through a most-favoured nation clause or customary international law (see the examples below of environmental carve-outs in the context of climate change).

As a ‘sword’ by states

States may also seek to force investors to comply with their environmental protection obligations by using the ISDS process to their advantage. While states have an established right to impose environmental regulation on investors,[17] states are now filing counterclaims against investors to seek compensation for any environmental damage they have caused. Traditionally, investment treaty tribunals did not admit counterclaims absent clear language in the relevant investment treaty.[18] However, a recent spate of ISDS cases involving questions of environmental damage have resulted in state counterclaims not only being heard but succeeding. For instance, in Burlington Resources v. Ecuador, Ecuador counterclaimed US$2.8 billion in compensation for breach of its environmental laws by an investor. The ICSID tribunal awarded US$31.19 million to Ecuador for environmental harm caused by the investor in breach of the Ecuadorian statutory environmental regulation regime.[19] Other cases have considered similar questions,[20] indicating a growing willingness of investment treaty tribunals to allow states to use the ISDS process as a sword for seeking compensation for and mitigation of the environmental harm caused, or contributed to, by investors.

Practical difficulties remain for states to effectively use the ISDS process as a sword in this way. First, there are still questions as to what constitutes ‘environmental damage’, as well as threshold questions of liability.[21] Second, as opposed to the growing corpus of cases in other international forums relating to questions involving the environment,[22] such as those heard at the International Court of Justice,[23] the International Tribunal for the Law of the Sea[24] and the World Trade Organization Dispute Settlement Body,[25] all of which have grappled with difficult questions of the assessment and quantification of compensation for environmental damage,[26] precedent on environmental counterclaims before investment treaty tribunals is limited. Accordingly, at least for now, the sword wielded by states in ISDS proceedings may be a blunt one.

ISDS as a regulatory chill on environmental protection

On the other hand, the threat of having an investment treaty dispute lodged against a state for environmental regulation may lead to the state failing to take action to regulate. Commentators have discussed the existence of a ‘regulatory chill’ effect, defined by Tienhaara as the hypothesis that ‘governments will fail to regulate in the public interest in a timely and effective manner because of concerns about ISDS’.[27] In particular, due to the threat of ISDS, some states may fail to advance their environmental laws,[28] leading to continued poor quality environmental protection regulations to the disadvantage of their populaces and environment.[29] Low income states may lack the resources to hire the highest quality counsel or be concerned at the prospect of paying not only an award for damages but also legal costs,[30] which in ISDS proceedings can be high.[31]

This effect may be difficult to prove,[32] but there are cases pointing towards its existence. In Vattenfall v. Germany,[33] Vattenfall, which had an agreement with the regional government of Hamburg, Germany, to develop a coal-fired power plant, commenced an investment treaty dispute due to Hamburg’s environmental protection restrictions on its water-use permit. To settle the litigation, Hamburg eased the environmental restrictions attached to the water-use permit.[34] Some were of the view that this settlement effectively watered down German and European environmental law, demonstrating the regulatory chill effect in action,[35] and led to popular calls for Germany to abandon its use of ISDS.[36] Similar comments have been made following Ethyl Corp v. Canada,[37] an ISDS claim under the former North American Free Trade Agreement (NAFTA) wherein Canada settled a dispute arising from its banning of a petrol additive by reversing the ban, as well as later disputes involving Canada.[38]

Climate change

The climate crisis requires concerted action globally to reduce reliance on fossil fuels.[39] There has been an exponential growth in new renewable energy projects and foreign investment in them,[40] and that growth is set to accelerate in the decades to come.[41] As public sentiment continues to build in favour of a decarbonised future, states are coming under increasing domestic and international pressure to move away from fossil-fuel intensive industries and towards renewable energy sources. These societal pressures and obligations on states create new challenges for investors and states, evidenced by the significant number of ICSID cases constituted pursuant to the Energy Charter Treaty,[42] as well as the diverse range of states against whom renewable energy ISDS disputes have been filed.[43]

ISDS and regulatory compliance – a challenge for the future

In recent years, ISDS had to grapple with a variety of societal challenges, including, increasingly, issues of regulatory compliance.

These can be specific to a particular area (such as environmental protection) or industry (e.g., regulation of financial service providers) or more all-encompassing, such as money laundering, sanctions, and bribery and corruption.

These issues are here to stay, and will only increase in the years to come. They are often highly factual in nature. Some reflect global public policy choices, others more local regulatory preferences. They may come into play at all stages of a proceeding – at the jurisdictional stage, particularly if they concern the making of the investment, and the treaty in question contains an ‘in accordance with law’ requirement (or one is implied); when the admissibility of particular claims is discussed; or at the merits stage. They can also occur at the damages stage when issues of contributory fault must be quantified.

The nature, clarity and application of these rules are issues to be explained by the parties and parsed and distilled by the arbitral tribunals. Experts who can assist in clarifying the picture without introducing unnecessary density or complexity will be at a premium. Arbitral tribunals may need to assess the relevance of local regulatory enforcement actions or court judgments. Although they are not as equipped as national enforcement authorities to investigate regulatory non-compliance, they will nonetheless need to develop comfort with these questions and an ability to navigate them effectively, deploying the standards and tools of the arbitral process as appropriate for the context.

As part of this mix, the issue of corporate compliance efforts (i.e., programmes to prevent, detect and remediate non-compliance in key regulatory areas) is likely to receive increasing attention from arbitral tribunals as standards and expectations for such programmes grow internationally.

It will be important for tribunals and counsel to distinguish between ex ante risk management exercises, which may rely on a different quality of information, and ex post liability assessments that look for proof of non-compliance in a specific case. ISDS is in many ways still in the early stages of grappling with these issues and determining how they should play out in the context of a specific dispute.

– Lucinda A Low, Steptoe & Johnson LLP

ISDS as complementing action on climate change

The existing international legal framework governing climate change, while containing commitments by states to combat climate change, is yet to include formal dispute resolution mechanisms.[44] ISDS may therefore be called upon as a mechanism to fill a ‘governance gap’ in the international legal framework for climate change dispute settlement.[45] The large number of renewable energy investment treaty disputes arbitrated against Spain illustrate this argument.[46] Spain had a renewable energy subsidy framework that attracted a great deal of foreign investment, including allowing owners of renewable energy resources to sell power back to the grid at a feed-in-tariff. The popularity of the subsidies caused a fiscal imbalance and, in 2013, Spain altered the subsidy regime, with this change applying to both new and existing projects.[47] Investors have filed at least 50 treaty cases against Spain, alleging that the government’s actions were in breach of its obligations under the Energy Charter Treaty and effectively amounted to expropriation,[48] or that Spain had otherwise violated its duty to afford the investors FET by undermining their legitimate expectations. These arbitrations have resulted in awards of significant sums in favour of the claimants.[49] In response, Spain has now reintroduced incentives for the renewable energy sector in exchange for investors withdrawing pending arbitral or judicial proceedings.[50]

Similar cases have been brought against Italy[51] and the Czech Republic,[52] as well as against Canada under the NAFTA.[53] While the investors in these cases have not necessarily set out to use investment treaty dispute resolution mechanisms as a means of forcing states to take action on climate change, the disputes send a powerful message to governments that investors can and will take action if renewable energy incentives are wound back.[54] Using the framework established by the Spanish arbitrations, investors could bring claims against states where states backtrack on public commitments to combat climate change, where those commitments have been relied upon by investors at the time at which they made their investment, and where the revision of the state’s policy causes that investor harm.[55]

ISDS could be used as a mechanism for advancing action on climate change where the investor is deprived of their investment by virtue of the impacts of climate change. The impacts of climate change have the potential to cause enormous harm to investments in fishing, agriculture and horticulture, food and beverage, coastal land, eco-tourism sites and wineries. An investor, in much the same way as the investor’s complaint in Allard v. Barbados,[56] could potentially claim against a state alleging breach of its obligations under relevant BITs for failing to take steps to reduce the impact of anthropogenic climate change on their investment. ISDS claims may incentivise states to comply with international environmental obligations given the enforceability of these awards under the New York Convention[57] and the Washington Convention,[58] as opposed to action in other international forums, such as state–state proceedings, which do not necessarily carry the same compliance incentives.

These claims face significant challenges. Questions of causation are particularly complex when it comes to climate change. The damage complained of is cumulative such that it takes time for the impact of actions (or lack thereof) to manifest and there are a number of potential contributors to the damage.[59] Further, there are complex questions of mitigation, contributory negligence, quantum and valuation arising from climate change arbitrations.[60] Nonetheless, climate litigation is having increasing success before international and domestic courts.[61] The extent to which these successes can be reproduced under investment treaties to force states or corporate actors to take action on climate change is yet to be determined.

ISDS as an impediment to action on climate change

There are concerns that ISDS disputes could generate a regulatory chill effect on domestic (and international) climate change and renewable energy policies.[62] For example, Alberta, Canada, pledged to phase out coal-fired power by 2030.[63] The Albertan policy decision led to the institution of an ICSID case under NAFTA by Westmoreland Coal,[64] a US company with coal interests in Alberta. While a decision has not yet been made in that case, the quantum of compensation claimed by Westmoreland – US$470 million – could deter other jurisdictions from advancing decarbonisation efforts. As ISDS claimants are typically from high-income states,[65] an uncomfortable reality may come into existence wherein investors from the wealthiest states challenge policies of low-income states designed to alleviate the impacts of climate change on that state.

States are now, in response to such litigation and out of a growing awareness of their obligations, including carve-outs for the preservation of the environment in their investment treaties. Notably, the Netherlands Model Investment Agreement includes reference to the Paris Agreement and reaffirms the commitment of the parties to Dutch investment treaties to their obligations under international environmental law,[66] and the Morocco–Nigeria BIT contains binding provisions that requires parties to ‘apply the precautionary principle’.[67] The extent to which these provisions are effective to shield states against ISDS such as that commenced by Westmoreland Coal is unclear. Accordingly, there is a clear ‘grey zone’ at the intersection of international environmental law and international investment law. The need for clarity may lead to renewed efforts to form an international agreement at the intersection of these two bodies of law.[68] In the meantime, climate change-related disputes are likely to grow in number, complexity and size as the impacts of the climate crisis become more pronounced, raising thorny questions for investment treaty tribunals.

Public health

The power of states to regulate for public health came to the fore with the claims made by subsidiaries of Philip Morris International Inc (PMI) against Uruguay[69] and Australia.[70] Both Uruguay (in 2008 and 2009) and Australia (in 2011) introduced tobacco control regulations that controlled how cigarettes could be packaged and increased the health warnings on packets. PMI claimed that these had expropriated its intellectual property and breached the FET standard, among other claims. While unsuccessful,[71] PMI’s claims were controversial and heightened questions around the legitimacy of ISDS. They were also expensive to defend and led to the formation of the Anti-Tobacco Trade Litigation Fund in 2015 to support low- and middle-income countries sued by tobacco companies under international trade agreements.[72] The claims may also have led to regulatory chill as other states adopted a wait-and-see approach pending the results in the arbitrations.

Questions have been raised again in the wake of the covid-19 pandemic as to how ISDS responds to public health challenges. The covid-19 pandemic caused states to introduce onerous regulations that restricted movement and the ability of many private enterprises to function. These restrictions could potentially give rise to claims of indirect expropriation or violation of the FET standard. Conversely, a failure of a state to act could lead to a claim of a breach of the full protection and security clause, which requires a state to provide physical security to investments. Economic stimulus measures by states, if they discriminate between foreign and local investors, could also lead to claims.

In August 2021, ICSID registered claims raised by Vinci Airports SAS and ADP International SA against Chile under the Chile–France BIT[73] following Chile’s reported refusal to renegotiate concession terms for Santiago’s Arturo Merino Benitez International Airport following the disruption caused by Chile’s response to the pandemic.[74] These are the first reported ISDS claims in response to the covid-19 pandemic. In this section, we look at how states may respond to such claims.

Exceptions for public health measures

Concerns about whether ISDS has restricted states from legitimately regulating in the public interest have led to a new generation of treaties in which the language of the substantive treaty protections have been clarified (given the arguably expansive interpretation of the FET standard adopted by some tribunals)[75] and exceptions to the protections enlarged.

Notably, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)[76] explicitly recognises the right of state parties to regulate with respect to public health in the preamble, providing that non-discriminatory regulatory actions to protect public welfare objectives do not constitute indirect expropriation except in rare circumstances[77] and that investment protections should not be construed to prevent a state from ensuring that investment activity is undertaken in a manner sensitive to environmental, health or other regulatory objectives.[78] Given the controversy over PMI’s claims, Australia insisted on Article 29.5, which allows a state party to the CPTPP to elect to deny the use of ISDS for claims challenging a tobacco control measure.[79] This clause is unprecedented.[80]

Other examples of agreements containing public health carve-outs include the China–Australia Free Trade Agreement,[81] the Comprehensive Economic and Trade Agreement[82] and the EU–Singapore Investment Protection Agreement.[83] Nevertheless, only a minority of BITs have exceptions in relation to measures for the protection of public health[84] or include a mention of the right to regulate, or both.[85] Accordingly, states may have to turn to other exceptions and defences to defend covid-19 claims.

National security exception

While there are different formulations and the precise wording will be critical, some treaties include an exception to investor protection for measures the state takes to protect its essential security interests.[86] The threat of the covid-19 pandemic could be judged to fall within an essential security interest.[87] Some treaties leave it to the state itself to judge if the measures are necessary although those measures still need to be taken in good faith.[88] Even where the exception clause is not self-judging, arbitrators may still exercise significant deference to a state’s own assessment of the threat and necessity of the measures taken.[89]

The challenge to using this exception is illustrated by the experience of Argentina following its wave of claims under the US–Argentina BIT. Different tribunals came to differing decisions as to whether Argentina’s economic crisis was sufficiently severe for Argentina to be able to invoke the same national security exception.[90]

Police powers under customary international law

Under customary international law, the state is able to exercise its police powers (regulatory powers) in the maintenance of public order, health or morality.[91] For the state’s action not to constitute indirect expropriation, the action must be taken bona fide for the purpose of protecting the public welfare and must be non-discriminatory and proportionate.[92]

In Philip Morris v. Uruguay, the tribunal held that Uruguay’s disputed tobacco control regulations were a reasonable bona fide exercise of police powers as they were taken by Uruguay with a view to protect public health in fulfilment of its national and international obligations, were adopted in good faith, were non-discriminatory and were proportionate to the objective they were meant to achieve (in this respect, the tribunal noted the limited adverse financial effects felt by the PMI group).[93] The majority of the tribunal held that the measures were reasonable and not arbitrary and therefore not in breach of the FET standard. Furthermore, the tribunal majority found that it was appropriate to recognise a ‘margin of appreciation’ to regulatory authorities when making public policy determinations – in other words, that tribunals should pay deference to governmental judgments of national needs in matters such as the protection of public health.[94] This was a controversial adoption of a doctrine used by the European Court of Human Rights.

Other public health measures upheld by tribunals on the basis of the exercise of police powers include the banning of fuel additives harmful to public health and the prohibition of the sale of a harmful agricultural insecticide.[95] Relevantly, in the 1903 Bischoff case, the German–Venezuelan Commission held that ‘during an epidemic of an infectious disease there can be no liability for the reasonable exercise of [a state’s] police powers’.[96]

Other customary international law defences

The International Law Commission’s Articles on the Responsibility of States for Internationally Wrongful Acts codifies the customary international law defences.[97] Argentina invoked the defence of necessity in Article 25 in defence of the measures it took during its economic crisis (mostly unsuccessfully). One of the challenges with Article 25 is that the measure must be ‘the only way for the State to safeguard an essential interest against a grave and imminent peril’.[98]

Other defences that could be invoked are force majeure, which requires that the unforeseen event made it materially impossible for the state to perform an obligation, and distress, which applies when there is a threat to life. To invoke the defence of distress, the state will need to show that there was no other reasonable way to deal with the threat and that the measure was proportionate.

The future of public health and ISDS

Claims arising from the covid-19 pandemic will raise novel issues to be grappled with by claimants, states and tribunals given that states have had to adopt measures quickly while the threat of covid-19 is still evolving. The approach of tribunals is likely to vary as to the application of the customary law defences and the degree of deference they accord to the judgements of governments as to what was and is necessary to protect public health. Widespread claims against states by investors could bring a new backlash against ISDS and in turn damage the reputation of the investors bringing claims.

Human rights

Each of the societal challenges discussed in this chapter necessarily involve questions of human rights; the right to live in a healthy environment,[99] the right to the ‘highest attainable standard of physical and mental health’,[100] and the various human rights violated by acts of corruption.[101] Investment treaty tribunals have also been called upon to specifically determine questions of human rights, paving the way for further litigation of human rights issues.

Human rights in international investment treaties and agreements

Many of the protections in BITs are protections of the civil and political rights of foreign investors, such as property rights and the right to justice. What has been more challenging is balancing the human rights of investors with the human rights of other stakeholders in the host state.

Some model BITs now recognise human rights standards or provide carve-outs to allow states to enforce non-discriminatory human rights standards.[102]

Conversely, investment agreements may contain stabilisation clauses, such as economic equilibrium clauses, which require states to indemnify investors against changes to their legislation – including human rights law – that affect the profitability of their investment. Stabilisation clauses have come under fire as impeding the advancement of human rights norms, including labour law and safety standards.[103] For instance, the stabilisation clause relating to the Baku–Tbilisi–Ceyhan pipeline required Azerbaijan (among others) to indemnify the consortium of investors in relation to new domestic regulation, including environmental, human rights and tax, which negatively impacted the investment for a period of 60 years.[104] This clause caused a great backlash,[105] leading the investor to engage directly with Amnesty International and the host states to create a legally binding contract in relation to the human rights and environmental aspects of its investment.[106]

Towards an obligation for investors to respect human rights?

The regulatory chill threat recounted in this chapter could equally apply to questions of human rights. In this section, we consider whether states could use the ISDS process as a mechanism for forcing investors to comply with international human rights law. The critical flaw in these discussions is that international human rights law only binds states and not private enterprises without the enactment of further domestic legislation.[107] However, investment treaty tribunals have begun to exercise jurisdiction over human rights-related investment treaty disputes. The decision by the tribunal in the ICSID case of Urbaser v. Argentina was the first of its kind. The case involved a counterclaim by Argentina on the basis that the investor, by failing to properly maintain its investment in Buenos Aires’ water and sewage system, breached the human right to water.[108] The counterclaim ultimately failed as Argentina could not demonstrate that the investor had an independent obligation under international law to protect the human right to water.[109] Urbaser therefore exemplifies the inherent difficulty in enforcing human rights law against investors and non-state entities.[110] Nonetheless, Urbaser was a first and necessary step towards investment treaty tribunals recognising counterclaims by states on the basis of human rights as justiciable.[111]

A further step towards an obligation for investors to respect human rights – perhaps the most innovative to date – emerged from the partial dissenting opinion of Professor Sands in Bear Creek Mining Corporation v. Republic of Peru.[112] In that case, a Canadian investor sought to develop a mining project in Peru, a project that caused significant community opposition and violent protest, with the government then preventing the project from proceeding.[113] Peru argued that the investor had contributed to the social unrest and did not hold a ‘social licence’ to go ahead with the project by failing to consult with the local indigenous community,[114] an argument that the majority rejected on the basis that Peru was unable to demonstrate causation.[115] However, Professor Sands found that the need to gain a social licence from the Aymara peoples was ‘blindingly obvious’,[116] citing Urbaser as authority for the proposition that investors may be required to consider international human rights law (including the rights of indigenous peoples) in the conduct of their investment.[117] Finding that the investor ‘did not do all it could have done to engage with all the affected communities’,[118] Professor Sands would have reduced the damages awarded to the investor by half in recognition of its contributory fault and liability.[119]

While neither Urbaser nor Bear Creek serve as authority for finding an explicit obligation for investors to consider and implement international human rights obligations, they lay the groundwork for a future tribunal to do so. Tribunals may be assisted in finding such an obligation by accepting petitions for amicus curiae status by human rights non-governmental organisations and other non-state actors,[120] which not only provide their unique expertise and insight into human rights issues considered by investment treaty tribunals, but also increase public confidence in the ISDS process through their participation.[121]

Corruption

Bribery and corruption have been widely condemned by the international community and investment tribunals. Corruption allegations feature in ISDS in one of two main ways. Most commonly, they are raised by states as a defence to investor claims. Less frequently, they have been used as a ‘sword’ by investors that claim that corruption by state actors breached investment protections.

Corruption as a defence

Tribunals have recognised that investors that have engaged in corrupt activities should be denied access to ISDS. They have dismissed claims based on investments acquired or established through corruption either by declining jurisdiction or declaring the claims inadmissible. The ‘corruption defence’ is increasingly being raised by respondent states based on the following arguments.

  • Express legality requirement: many investment instruments contain an express ‘legality’ requirement that qualifies covered investments as those made ‘in accordance with law’. As corruption is unlawful under most legal systems, tribunals have affirmed that they lack jurisdiction where investments are procured with corruption.[122]
  • Implicit legality requirement: even where the instrument does not contain an express legality requirement, some tribunals have found the requirement to be implicit. In Phoenix v. Czech Republic, the tribunal said that ‘conformity of the establishment of the investment with the national laws . . . is implicit even when not expressly stated in the relevant BIT’.[123]
  • International public policy: investment tribunals have recognised that corruption and bribery are contrary to international public policy and have found they have a duty to decline jurisdiction or declare claims inadmissible if they are tainted by corruption.[124]
  • ‘Unclean hands’: the existence of a doctrine of ‘unclean hands’ under international law is controversial. In Yukos v. Russia, the tribunal concluded that ‘unclean hands’ does not exist as a general principle of international law that would bar a claim by investors.[125] In Littop v. Ukraine, the tribunal reached the opposite conclusion and applied the unclean hands doctrine in dismissing the investor’s claims due to admitted corruption.[126]

Corruption allegations may also be relevant to the merits stage. This is especially where corruption is alleged to have occurred not in the initiation but in the operation of the investment, in which case the corruption allegations may form part of the state’s defence to the substantive violations of the instrument.[127]

While raised frequently as a defence, there are only four investor–state cases in which corruption was determinative in dismissing the claims: World Duty Free v. Kenya (2006); Metal-Tech v. Uzbekistan (2013); Spentex v. Uzbekistan (2016); and Littop v. Ukraine (2021). In other cases, tribunals have dismissed the corruption allegations due to insufficient evidence.[128]

Corruption allegations raised by investors

Investors may also raise corruption allegations as a ‘sword’. This has occurred less frequently as investors will usually not seek to implicate themselves in corrupt activities (World Duty Free v. Kenya being the obvious exception). Instead, investors are more likely to raise corruption allegations where state officials have attempted to solicit a bribe or where corruption favoured third parties at the investor’s expense. This kind of nefarious activity may violate the FET standard and similar protections.

In EDF v. Romania, the investor alleged that the state’s officials requested bribes and because the investor refused to pay them, the contract was not extended. The claimant alleged that the state’s action breached the FET standard.[129] The tribunal applied a heightened standard of proof, and the claim was unsuccessful due to insufficient evidence.

The high standard of proof applied by some tribunals, as discussed below, coupled with the asymmetric investigative tools available to investors, may explain the relative dearth of claims by investors in this area. In this respect, ISDS appears to have had little impact in reducing corruption.

Proving corruption

Investor–state tribunals have diverged in their approach to the standard of proof applicable to corruption allegations, with decisions split between the balance of probabilities and a higher standard.

Some investment tribunals have found a heightened standard of proof applies to corruption allegations because corruption is a serious allegation with severe consequences. The EDF v. Romania tribunal said there was ‘a need for a high standard of proof of corruption’ of ‘clear and convincing evidence’.[130]

In other decisions, investment tribunals have rejected the use of a heightened standard of proof.[131] The balance of probabilities approach is promoted, in part, because of strong public policy arguments for deterring corruption and because the hidden nature of nefarious dealings often denies a party clear evidence. In cases where direct evidence of corruption is unavailable or limited, tribunals have been willing to rely on circumstantial evidence, adverse inferences, indicia of corruption (or ‘red flags’) and ‘connecting the dots’.[132]

Greater consistency and predictability are needed.[133] The high standard of proof applied by some tribunals, or uncertainty over the applicable standard, may encourage tribunals to sidestep corruption allegations while allowing them to colour their ruling on other issues. This presents a challenge to the contribution of ISDS to anti-corruption efforts.

Consequences of a finding of corruption

The traditional approach to investments initiated through bribery or corruption is a complete dismissal of the claim. This ‘all or nothing’ approach has been justified by the seriousness and grave effects of corruption. In Metal-Tech, the tribunal said it was ‘to ensure the promotion of the rule of law, which entails that a court of tribunal cannot grant assistance to a party that has engaged in a corrupt act’.[134] In other words, let the loss lie where it falls.

Some commentators have criticised this as unfair because all the consequences fall on the investor. Host states are immunised from liability even where they have taken no or inadequate action to investigate or punish the state officials involved in the allegedly corrupt act. However, host states should bear in mind that their inaction is not entirely irrelevant. Tribunals may take into consideration a host state’s inaction when assessing whether the corruption allegations are proven.[135]

Should tribunals investigate corruption in investment treaty cases sua sponte?

What is a tribunal’s duty when it is faced with evidence of corruption?

It is surprising that the above question, which to many allows only a positive answer, continues to remain an open issue. Briefly, the controversy is whether, if neither party raises the issue of corruption, the tribunal should nevertheless make an independent investigation within the arbitral process to ascertain:

  • whether corruption has occurred in the transaction in dispute; and
  • what the effect of such corruption (if found to exist) would have on the outcome.

Many observers thought that the question had been answered, clearly in the affirmative, by the groundbreaking decision of the ICSID tribunal in Metal Tech Ltd v. Republic of Uzbekistan (Case No. ARB/10/3, Award, 3 October 2013) where the tribunal, chaired by Gabrielle Kaufmann-Kohler, took its own initiative to explore corruption, which was not an issue raised by either party. There, the claimant had paid US$4 million for consulting services when the total value of the project was US$20 million. The tribunal ordered the parties to produce additional information and documents under Article 43 of the ICSID Convention. The ultimate finding was that these payments constituted corruption under Uzbek law, and the claimant’s BIT claim was dismissed because it only protected investments implemented in accordance with laws and regulations of the host state. But the tribunal further acknowledged that the Uzbek authorities’ conduct in accepting or soliciting bribes was also to blame. Therefore, each party was ordered to pay its own costs.

This approach had been followed in Niko Resources (Bangladesh) Ltd v. Bangladesh Petroleum Exploration & Production Company Limited and Bangladesh Oil Gas and Mineral Corporation (Petrobangla) (ICSID Cases Nos. ARB/10/11 and ARB/10/18, Procedural Order 13, 26 May 2016). Nevertheless, there remains a more conservative view that enquiring into corruption and ruling on its consequences may be ultra petita if such issues are not raised by the parties, and the award could be at risk of being set aside or refused enforcement.

But turning a blind eye to corruption may also result in annulment if it amounts to endorsing corruption, especially if the transaction breaches anti-money laundering legislation, and also if the offending acts provide a legitimate basis for challenging the award pursuant to the public policy provisions in Articles 34(2)(b)(ii) and 36(1)(b)(ii) of the UNCITRAL Model Law.

But the more positive view of the tribunal’s duty has very recently been confirmed by a decision of the Singapore International Commercial Court, Lao Holdings NV v. Government of the Lao People’s Democratic Republic ([2021] SGHC(I) 10), consisting of a panel of three judges (from Singapore, England and Australia) where the Court, cited a number of cases (both Singapore and international) as well as international articles to reaffirm that: arbitral tribunals and particularly arbitral tribunals dealing with investor-State disputes, have a duty to consider corruption, which includes illegal conduct, bribery and fraud. That duty arises not only where the tribunal has to deal with allegations of corruption in the dispute between the parties, but also where the evidence in the case indicates possible corruption. This shows that, as with national courts, arbitral tribunals have a pro-active role and cannot simply ignore evidence of corruption. Where, therefore, a party seeks to put before an arbitral tribunal evidence of corruption, we are of the clear view that no agreement between the parties can prevent the arbitral tribunal from reviewing and, where appropriate, admitting that evidence. This is consistent with . . . the public duty which, we find, applies as much to arbitrators as it does to judges. Otherwise parties could enter into procedural agreements deliberately or unintentionally precluding evidence of corruption and arbitral tribunals might make awards supporting or enforcing that corruption.

I make only one caveat on this decision. While the principle is clear, its execution might be a matter of debate, if the tribunal:

  • acts as an investigator to direct that certain documents evidencing possible corruption, which neither party has asked for, be produced;
  • then proceeds to call witnesses whom neither party has called and interrogates such witnesses; and
  • with that evidence, then makes a finding of corruption.

There is a danger that due process might not be observed and that the ultimate finding of the tribunal might be set aside for this reason.

My own view is that tribunals are watchdogs not bloodhounds – we don’t go sniffing around for corruption, but when a stench emerges that is too pungent to ignore, we need to make appropriate inquiries. And when we do feel compelled to inquire further into plausible evidence of corruption, we cannot play Sherlock Holmes and launch into an independent investigation of our own, but have to allow (and even direct) parties to define the parameters of such an inquiry and then present the case for and against a specific finding of corruption.

Twice in my experience, where I have seen evidence strongly suggesting possible corruption, but neither party has raised corruption as an issue, I have raised strong suggestions to at least one of the parties to consider amending its pleadings or memorials to specifically include allegations of corruption. In both cases my suggestions were accepted and amendments to the pleadings were duly made to raise the issue. However, in each case the party raising the issue pursued the corruption plea with a singular lack of enthusiasm, and my tribunal in both cases was unable to make any positive findings of corruption without the active prosecution of the existence of corruption by the party making the allegation. But at least I had fulfilled my duty to the best of my ability.

– Michael Hwang SC, Michael Hwang Chambers LLC

Conclusion

In this chapter, we have expounded on some of the key societal challenges confronting the international investment law framework and investor–state dispute settlement today. ISDS has been criticised for causing a regulatory chill due to the risk of treaty claims in response to new regulations in the areas of environment and public health. On the other hand, some investors and states have used ISDS to confront these societal challenges.

The task for investment tribunals is to find the right balance between protecting investments, allowing sovereign states to take the necessary regulatory action on key social challenges, and holding states responsible where they have failed to do so or have done so in an arbitrary and discriminatory fashion.

Notes

[1] Amanda Lees and Wilson Antoon are partners, Erin Eckhoff is a senior associate and Jack McNally is a law clerk at King & Wood Mallesons. The authors gratefully acknowledge helpful comments by Sati Nagra on an earlier draft, as well as editorial assistance provided by Louise Spratt.

[2]2 Intergovernmental Panel on Climate Change, ‘Climate Change Widespread, Rapid and Intensifying’ (Press Release, 9 August 2021), https://www.ipcc.ch/2021/08/09/ar6-wg1-20210809-pr/ (last accessed 13 September 2019).

[3]3 For instance, in Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21. See also the cancellation of plans for the Keystone XL pipeline: Reuters, ‘Owner Cancels Keystone XL Pipeline Months after Biden Revoked Permit’, The Guardian, 10 June 2021, http://www.theguardian.com/environment/2021/jun/09/keystone-xl-pipeline-canceled (last accessed 10 June 2021).

[4] The existence of a ‘no-harm’ rule was first found in Trail Smelter (United States v. Canada), Award, 16 April 1948 and 11 March 1941 (1941) 3 RIAA 1905. See also Gabčíkovo-Nagymaros Project (Hungary v. Slovakia), Judgment, 25 September 1997, 1997 ICJ Rep 7; Pulp Mills on the River Uruguay (Argentina v. Uruguay), Judgment, 20 April 2010, 2010 ICJ Rep 14.

[5] Maria José Alarcon, ‘Consequences of Recognizing Environmental Protection as an Emerging Erga Omnes Obligation in the ISDS Context’, Kluwer Arbitration Blog, 31 August 2021, http://arbitrationblog.kluwerarbitration.com/2021/08/31/consequences-of-recognizing-environmental-protection-as-an-emerging-erga-omnes-obligation-in-the-isds-context/ (last accessed 13 September 2021).

[6] See, e.g., Tom Sparks, ‘Judging Climate Change Obligations: Can the World Court Rise to the Occasion?’, Völkerrechtsblog, 30 April 2020, https://voelkerrechtsblog.org/judging-climate-change-obligations-can-the-world-court-raise-the-occasion/ (last accessed 13 September 2021); Joyeeta Gupta and Susanne Schmeier, ‘Future Proofing the Principle of No Significant Harm’ (2020) 20 International Environmental Agreements: Politics, Law and Economics [731].

[7] Kate Partlett and Sara Ewad, ‘Protection of the Environment in Investment Arbitration – A Double-Edged Sword’, Kluwer Arbitration Blog, 22 August 2017, http://arbitrationblog.kluwerarbitration.com/2017/08/22/protection-environment-investment-arbitration-double-edged-sword/ (last accessed 13 September 2021).

[8] Peter A Allard v. The Government of Barbados, PCA Case No. 2012-06, Award, 27 June 2016.

[9] id. [3].

[10] The Agreement between the Government of Canada and the Government of Barbados for the Reciprocal Promotion and Protection of Investments, signed 29 May 1996, requires states at Article II(2) to ‘accord investments or returns of investors of the other Contracting Party . . . fair and equitable treatment in accordance with the principles of International Law’ as well as ‘full protection and security’.

[11] Peter A Allard v. The Government of Barbados, PCA Case No. 2012-06, Award, 27 June 2016 [244]. See also Joshua Paine, ‘Failure to Take Reasonable Environmental Measures as a Breach of Investment Treaty?’ (2017) 17 Journal of World Investment and Trade, 745, 746 (noting that ‘[t]he Award raises the possibility that, as a matter of principle, a state could violate its investment treaty obligations through a failure to take sufficient environmental measures, although such cases are likely to remain rare’).

[12] Key examples include the Agreement between the Government of the Republic of Singapore and the Government of the Republic of Indonesia on the Promotion and Protection of Investments, signed 11 October 2018; Netherlands Model Investment Agreement; Indian Model Investment Agreement; Southern African Development Community Protocol on Finance and Investment, signed 18 August 2006; Reciprocal Investment Promotion and Protection Agreement between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria, signed 3 December 2016; Canada–China Promotion and Reciprocal Protection of Investments Agreement, signed 9 September 2012.

[13] Such as in Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/33, Award, 3 November 2015; see also David R Aven and Others v. Republic of Costa Rica, ICSID Case No. UNCT/15/3, Award, 18 September 2018 (where a provision in the Dominican Republic–Central America–United States Free Trade Agreement, signed 5 August 2004, provided that ‘[n]othing in this Chapter shall be construed to prevent a Party from adopting, maintaining, or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns’. That clause was held to have, at least to some extent, subordinated the rights of investors to environmental concerns).

[14] Eco Oro Minerals Corp v. The Republic of Colombia, ICSID Case No. ARB/16/41, Award, 9 September 2021 [830]. This decision was released at the time of writing. It has provoked debate among international investment law scholars as to its implications. For one example of commentary, see Simon Lester, ‘The Eco Oro Minerals v. Colombia Award: More Evidence that MST/FET Can’t Be Salvaged’, International Economic Law and Policy Blog, 19 September 2021, https://ielp.worldtradelaw.net/2021/09/the-eco-oro-minerals-v-colombia-award-more-evidence-mst-fet-cant-be-salvaged.html (last accessed 21 September 2021).

[15] Magali Garin Respaut, ‘Environmental Issues in ISDS’, Jus Mundi (22 July 2021), https://jusmundi.com/en/document/wiki/en-environmental-issues-in-isds (last accessed 13 September 2021).

[16] Kathryn Gordon and Joachim Pohl, ‘Environmental Concerns in International Investment Agreements’ (OECD Working Papers on international Investment No. 2011/01, 2011) [3].

[17] ‘[G]overnments must be free to act in the broader public interest through protection of the environment, new or modified tax regimes, the granting or withdrawal of government subsidies, reductions or increases in tariff levels, imposition of zoning restrictions and the like. Reasonable governmental regulation of this type cannot be achieved if any business that is adversely affected may seek compensation, and it is safe to say that customary international law recognizes this’: Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002 [103].

[18] See Jeff Sullivan and Valeriya Kirsey, ‘Environmental Policies: A Shield or Sword in Investment Arbitration?’ (2017) 18 Journal of World Investment & Trade, 100.

[19] Burlington Resources Inc v. The Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Ecuador’s Counterclaims, 7 February 2017.

[20] e.g., Perenco Ecuador Ltd v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Award, 27 September 2019 (where Ecuador’s takeover of oil extraction activities in the Amazon out of concern for their environmental impact were found to violate the Agreement between the Republic of France and the Republic of Ecuador Concerning the Encouragement and Reciprocal Protection of Investment, but that Ecuador could successfully counterclaim for Perenco’s environmental damage, for which it received US$54 million).

[21] Alan Boyle and James Harrison, ‘Judicial Settlement of International Environmental Disputes: Current Problems’ (2013) 4 Journal of International Dispute Settlement, 245, 249; Albert C Lin, ‘The Unifying Role of Harm in International Environmental Law’ (2006) 3 Wisconsin Law Review, 897, 900–1; Philippe Sands, Principles of International Environmental Law, Second edition (Cambridge University Press, 2012) [876–881].

[22] See generally Natalie Klein and Danielle Kroon, ‘Settlement of International Environmental Law Disputes’ in Malgosia Fitzmaurice, Marcel Brus and Panos Merkouris (eds), Research Handbook on International Environmental Law, Second edition (Edward Elgar, 2021) [231]; Natalie Klein, ‘International Environmental Law Disputes before International Courts and Tribunals’ in Lavanya Rajamani and Jacqueline Peel (eds), The Oxford Handbook of International Environmental Law, Second edition (Oxford University Press, 2021) [1038].

[23] See, e.g., Certain Activities Carried Out By Nicaragua in the Border Area (Costa Rica v. Nicaragua), Judgment on Compensation Owed by the Republic of Nicaragua to the Republic of Costa Rica, 7 February 2018, 2018 ICJ Rep 15; Whaling in the Antarctic (Australia v. Japan), Judgment, 31 March 2014, 2014 ICJ Rep 226; Legality of the Treat or Use of Nuclear Weapons, Advisory Opinion, 8 July 1996, 8 July 1996, 1996 ICJ Rep 226.

[24] See, e.g., Mox Plant (Ireland v. United Kingdom), Order, 3 December 2001, 2001 ITLOS Rep 95; Southern Bluefin Tuna (New Zealand v. Japan; Australia v. Japan), Provisional Measures Order, 27 August 1999, 1999 ICJ Rep 280.

[25] See, e.g., Appellate Body Report, ‘United States — Import Prohibition of Certain Shrimp and Shrimp Products’, WTO Doc WT/DS58/23 (26 November 2001). For further discussion of the intersection of international environmental law and international trade/competition disputes, see Philippe Sands, Principles of International Environmental Law, Second edition (Cambridge University Press, 2012), 940 ff.

[26] See James Crawford, Brownlie’s Principles of Public International Law, Ninth edition (Oxford University Press, 2019) 344–45. In a recent landmark decision, the International Court of Justice found environmental damage to be compensable under general principles of international law: Certain Activities Carried Out By Nicaragua in the Border Area (Costa Rica v. Nicaragua), Judgment on Compensation Owed by the Republic of Nicaragua to the Republic of Costa Rica, 7 February 2018, 2018 ICJ Rep 15.

[27] Kyla Tienhaara, ‘Regulatory Chill in a Warming World: The Threat to Climate Policy Posed by Investor-State Dispute Settlement’ (2017) 7(2) Transnational Environmental Law, 229. See also Luke Eric Peterson, ‘All Roads Lead Out of Rome: Divergent Paths of Dispute Settlement in Bilateral Investment Treaties’ (Report, International Sustainable and Ethical Investment Rules Project, November 2002), 20 (arguing that ‘practicing lawyers do admit that they hear rumours of investors applying informal pressure upon host states while brandishing an investment treaty as a potential legal stick’, citing Canadian attempts to introduce plain packaging).

[28] ‘When faced with a decision on whether to risk millions of dollars for an unknown outcome, many countries may opt instead to retract, amend or fail to enforce an environmental regulation’, Kyla Tienhaara, ‘What You Don’t Know Can’t Hurt You: Investor-State Disputes and the Protection of the Environment in Developing Countries’ (2006) 6(4) Global Environmental Politics, 75, 96.

[29] Jennifer Clapp, ‘What the Pollution Haven Debate Overlooks’ (2002) 2(2) Global Environmental Politics, 11, 17, cited in Kyla Tienhaara, ‘What You Don’t Know Can’t Hurt You: Investor-State Disputes and the Protection of the Environment in Developing Countries’ (2006) 6(4) Global Environmental Politics, 75, 97. For an excellent example of the Third World Approaches to International Law (TWAIL) discourse surrounding ISDS and the scheme of foreign investment, see generally M Sornarajah, Resistance and Change in the International Law on Foreign Investment (Cambridge University Press, 2015).

[30] Luke Eric Peterson, ‘UK Bilateral Investment Treaty Programme and Sustainable Development: Implications of Bilateral Negotiations on Investment Regulation at a Time When Multilateral Talks are Faltering’ (Royal Institute of International Affairs Sustainable Development Programme Briefing Paper No. 10, February 2004) 10 (arguing that ‘questions can be raised about the capacity of the poorest developing countries to defend against this type of specialized international arbitration, given the costs and uncertainty entailed by the process’); Kyla Tienhaara, ‘What You Don’t Know Can’t Hurt You: Investor-State Disputes and the Protection of the Environment in Developing Countries’ (2006) 6(4) Global Environmental Politics, 75, 95 (noting in relation to the example of mining in protected forests in Indonesia that ‘[t]he lack of available funds to pay compensation contributed to the [Indonesian government’s] desire to avoid arbitration’).

[31] For instance, the cost of Australia’s legal fees in its ISDS proceedings against Philip Morris have been estimated as at least AU$24 million. Uruguay, in its similar proceedings against Philip Morris, relied on the Bloomberg Foundation to fund its costs. See Pat Ranald, ‘The Cost of Defeating Philip Morris over Cigarette Plain Packaging’, Sydney Morning Herald, 2 April 2019, https://www.smh.com.au/national/the-cost-of-defeating-philip-morris-over-cigarette-plain-packaging-20190327-p5182i.html.

[32] Kyla Tienhaara, ‘Investor-State Dispute Settlement’ in Peter Drahos (ed.), Regulatory Theory: Foundations and Applications (ANU Press, 2017) [675, 683]. Some also doubt whether such an effect exists. See, e.g., Stephan W Schill, ‘Do Investment Treaties Chill Unilateral State Regulation to Mitigate Climate Change?’ (2007) 24(5) Journal of International Arbitration, 469 (arguing that the international investment law framework does not ‘lead to a chill on environmental regulation nor obstruct measures that are introduced in an attempt to mitigate climate change’); Nikos Lavranos, ‘After Phillip Morris II: The ‘Regulatory Chill’ Argument Failed – Yet Again’, Kluwer Arbitration Blog, 18 August 2016, http://arbitrationblog.kluwerarbitration.com/2016/08/18/after-philipp-morris-ii-the-regulatory-chill-argument-failed-yet-again/ (last accessed 13 September 2021).

[33] Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v. Federal Republic of Germany, ICSID Case No. ARB/09/6, Award, 11 March 2011.

[34] The agreement to withdraw the proceedings from the ICSID tribunal notes that the parties agreed to the issue of a ‘modified water use permit’ and the termination of the previous permit: id. at 33.

[35] See, e.g., Laurens Ankersmit, ‘Case C 142/16 Commission v. Germany: The Habitats Directive Meets ISDS?’, European Law Blog, 6 September 2017, https://europeanlawblog.eu/2017/09/06/case-c-14216-commission-v-germany-the-habitats-directive-meets-isds/ (last accessed 13 September 2021); ‘Investor-State Dispute Settlement Must Go to Protect our Environment’, ClientEarth (Media Release, 17 May 2019) https://www.clientearth.org/latest/latest-updates/opinions/investor-state-dispute-settlement-must-go-to-protect-our-environment.

[36] Public opposition to ISDS following the Vattenfall case has been described as ‘a turning point in the geopolitical landscape of ISDS’: Vera Weghmann and David Hall, ‘The Unsustainable Political Economy of Investor-State Dispute Settlement Mechanisms’ (2021) 87(3) International Review of Administrative Sciences, 480. Sornarajah discusses the downfall of ISDS in relation to members of the Bolivarian Alliance for the Americas: M Sornarajah, Resistance and Change in the International Law on Foreign Investment (Cambridge University Press, 2015), 402. Australia, under the Gillard Labor government, chose to terminate its use of ISDS provisions in all investment and trade agreements in 2011: Leon E Trakman, ‘Investor-State Arbitration: Evaluating Australia’s Evolving Position’ (2014) 15 The Journal of World Investment and Trade, 152. Australia’s position has, however, been more nuanced in practice, with ISDS provisions appearing in its proposed free trade agreement with the United Kingdom: Patricia Ranald, ‘A Clause in the UK-Australia Trade Deal Could Let Companies Sue Governments. We Have Been Here Before’, The Guardian, 1 June 2021, http://www.theguardian.com/commentisfree/2021/jun/01/a-clause-in-the-uk-australia-trade-deal-could-let-companies-sue-governments-we-have-been-here-before.

[37] Ethyl Corporation v. The Government of Canada, UNCITRAL, Award on Jurisdiction, 24 June 1998.

[38] Christina L Beharry and Melinda E Kuritzky, ‘Going Green: Managing the Environment Through International Investment Arbitration’ (2015) 30(3) American University International Law Review, 383, 422. See the discussion of Ethyl and other NAFTA cases in Philippe Sands, Principles of International Environmental Law, Second edition (Cambridge University Press, 2012) [1064–1071]. See also, e.g., Lone Pine Resources Inc v. The Government of Canada, ICSID Case No. UNCT/15/2 (a dispute brought against Canada in relation to the Province of Quebec’s moratorium on fracking).

[39] The Intergovernmental Panel on Climate Change (IPCC) has found that ‘[p]athways limiting global warming to 1.5°C with no or limited overshoot would require rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings), and industrial systems’: IPCC, ‘Summary for Policy Makers’ in 'Global Warming of 1.5°C' (Report, 2018), 15.

[40] UN Environment Programme, ‘Global Trends in Renewable Energy Investment’ (Report, 2019).

[41] The International Energy Agency estimates that US$44 trillion in investment will be required to decarbonise the global energy system: IEA, ‘Energy Technology Perspectives 2014: Harnessing Electricity’s Potential’ (Report, 2014), 14.

[42] ICSID, ‘The ICSID Caseload – Statistics’ (Issue 2021–2, 30 June 2021) [11, 23].

[43] Magali Garin Respaut, ‘Environmental Issues in ISDS’, Jus Mundi, 22 July 2021, https://jusmundi.com/en/document/wiki/en-environmental-issues-in-isds (last accessed 13 September 2021) [4].

[44] For instance, the arbitration annex to the United Nations Framework Convention on Climate Change, opened for signature on 4 June 1992, has not yet been determined.

[45] Valentina Vadi, ‘Beyond Known Worlds: Climate Change Governance by Arbitral Tribunals?’ (2015) 48 Vanderbilt Journal of Transnational Law, 1285, 1317.

[46] For a general background to the Kingdom of Spain litigation, see Igor V Timofeyev, Joseph R Profaizer and Adam J Weiss, ‘Investment Disputes Involving the Renewable Energy Industry under the Energy Charter Treaty’, in J William Rowley, Doak Bishop and Gordon E Kaiser (eds), The Guide to Energy Arbitrations, Fourth edition (Global Arbitration Review, 2020), 45. See also Andie Altchiler, ‘Using Investor-State Dispute Settlement to Enforce International Environmental Commitments’ (2021) 42(1) Pace Law Review, 256, 266 ff.

[47] Pablo del Rio and Pere Mir-Artigues, ‘A Cautionary Tale: Spain’s Solar PV Investment Bubble’ (Report, International Institute for Sustainable Development, February 2014).

[48] Energy Charter Treaty, opened for signature 17 December 1994, 2080 UNTS 95.

[49] For instance, in Eiser, which is currently subject to enforcement proceedings before the Federal Court of Australia (see Kingdom of Spain v. Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3), the tribunal awarded the investor €128 million for failing to accord fair and equitable treatment to the investors: Eiser Infrastructure Ltd and Energia Solar Luxembourg S.à r.l. v. Spain, ICSID Case No. ARB/13/36, Award, 4 May 2017.

[50] Pablo Pérez-Salido, ‘Royal Decree-Law 17/2019: An Opportunity for Spain to Leave Behind the Renewable Energy Arbitrations?’, Kluwer Arbitration Blog, 30 December 2019, http://arbitrationblog.kluwerarbitration.com/2019/12/30/royal-decree-law-17-2019-an-opportunity-for-spain-to-leave-behind-the-renewable-energy-arbitrations/.

[51] See, e.g., Greentech Energy Systems A/S, et al v. Italian Republic, SCC Case No. V 2015/095, Final Award, 23 December 2018.

[52] See, e.g., G.I.H.G. Limited, Natland Group Limited, Natland Investment Group NV, and Radiance Energy Holding S.A.R.L. v. Czech Republic, PCA Case No. 2013-35 (ongoing).

[53] Mesa Power Group, LLC v. Government of Canada, UNCITRAL, PCA Case No. 2012-17, Award, 24 March 2016 (in relation to the Canadian province of Ontario’s feed-in tariff programme).

[54] Valentina Vadi, ‘Beyond Known Worlds: Climate Change Governance by Arbitral Tribunals?’ (2015) 48 Vanderbilt Journal of Transnational Law, 1285, 1317 (arguing that ‘the effects of a given dispute reverberate beyond the parties to the same and can shape future decision making of governments, pressure corporations to invest in (or divest themselves of) a given sector activities, and reconfigure the public discourse’).

[55] This idea has also been explored in, for example, Andie Altchiler, ‘Using Investor-State Dispute Settlement to Enforce International Environmental Commitments’ (2021) 42(1) Pace Law Review [256, 276].

[56] PCA Case No. 2012-06, Award, 27 June 2016.

[57] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, 330 UNTS 3 (the New York Convention).

[58] Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature 18 March 1965, 575 UNTS 159 (the Washington Convention).

[59] On this point generally see Alexandre Kiss and Dinah Shelton, International Environmental Law, Third edition (Transnational Publishers, 2004) [352].

[60] Alain de Bossart, ‘Initial Views on Approaches to Quantum in Climate Change-Related Arbitrations’, in The Arbitration Review of the Americas 2021 (Global Arbitration Review, 2020) [24].

[61] On the domestic point, see, e.g., R (on the application of Friends of the Earth Ltd) v. Heathrow Airport Ltd [2020] UKSC 52 (United Kingdom, Supreme Court); Sharma v. Minister for the Environment [2021] FCA 560 (Australia, Federal Court); Commune de Grande-Synthe v. France (France, Council of State); Milieudefensie et al v. Royal Dutch Shell (Netherlands, District Court of The Hague).

[62] See, e.g., Kyla Tienhaara, ‘Regulatory Chill in a Warming World: The Threat to Climate Policy Posed by Investor-State Dispute Settlement’ (2017) 7(2) Transnational Environmental Law, 229.

[63] Kyla Tienhaara, ‘The Fossil Fuel Era is Coming to an End, but the Lawsuits are Just Beginning’, The Conversation, 19 December 2018, https://theconversation.com/the-fossil-fuel-era-is-coming-to-an-end-but-the-lawsuits-are-just-beginning-107512 (last accessed 13 September 2021).

[64] Westmoreland Coal Company v. Government of Canada, ICSID Case No. UNCT/20/3. Other cases have been instituted against Canada seeking to challenge its environmental policies; see, e.g., William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware Inc. v. Government of Canada, UNCITRAL, PCA Case No. 2009-04; Mobil Investments Canada Inc and Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/4. Similar cases have been instituted against the Dutch government for its plan to phase out coal-fired power generation by 2030: RWE AG and RWE Eemshaven Holding II BV v. Kingdom of the Netherlands, ICSID Case No. ARB/21/4; Uniper SE, Uniper Benelux Holding BV and Uniper Benelux NV v. Kingdom of the Netherlands, ICSID Case No. ARB/21/22. In the former case, RWE claims damages of €1.4 billion. See also Rockhopper Italia S.p.A., Rockhopper Mediterranean Ltd, and Rockhopper Exploration Plc v. Italian Republic, ICSID Case No. ARB/17/14 (arising from Italy’s moratorium on oil and gas projects in coastal areas, in which claimed damages for loss of future profits could reach up to US$300 million).

[65] UNCTAD, ‘Investor-State Dispute Settlement Cases Pass the 1,000 Mark: Cases and Outmarks in 2019’ (IIA Issues Note Issue 2, July 2020).

[66] Netherlands Model Investment Agreement, Article 6(6).

[67] Reciprocal Investment Promotion and Protection Agreement between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria, signed 3 December 2016; Canada–China Promotion and Reciprocal Protection of Investments Agreement, signed 9 September 2012, Articles 13, 14. Note that the ‘precautionary principle’ is a key principle of international environmental law, which, though difficult to define, effectively requires (and empowers) states to prevent serious or irreversible environmental degradation to their environments. For further discussion, see James Crawford, Brownlie’s Principles of Public International Law, Ninth edition (Oxford University Press, 2019) [341–342].

[68] For instance, the proposed Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation. See also the discussion of a ‘green treaty model’ in Daniel B Magraw and Sergio Puig, ‘Greening Investor-State Dispute Settlement’ (2018) 59(8) Boston College Law Review, 2717.

[69] Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7.

[70] Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12.

[71] In the case of Uruguay, on the merits, and in the case of Australia, on jurisdictional grounds.

[72] See ‘The Anti-Tobacco Trade Litigation Fund’, Campaign for Tobacco-Free Kids, https://www.tobaccofreekids.org/what-we-do/global/legal/trade-litigation-fund (last accessed 13 September 2021).

[73] Agreement between the Government of the Republic of Chile and the Government of the Republic of France on the Reciprocal Promotion and Protection of Investments, signed 14 July 1992.

[74] ADP International SA and Vinci Airports SAS v. Republic of Chile, ICSID Case No. ARB/21/40.

[75] For a history of the FET standard, see Bondy, ‘Fair and Equitable Treatment – Ten Years On’, Evolution and Adaption: The Future of International Arbitration, ICCA Congress Series No. 20, Sydney 2018 [198].

[76] Comprehensive and Progressive Agreement for Trans-Pacific Partnership, opened for signature 8 March 2018.

[77] id., Annex 9B[3(b)] states: ‘Non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriations, except in rare circumstances.’

[78] id., Article 9.15 states: ‘Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives’.

[79] id., Article 29.5.

[80] Andrew Stephenson and Lee Carroll, ‘The Trans-Pacific Partnership: Lessons Learned for ISDS’, in Barton Legum (ed.), The Investment Treaty Arbitration Review, Second edition (Global Arbitration Review, 2016) [301, 312].

[81] ‘Measures of a Party that are non-discriminatory and for the legitimate public welfare objectives of public health, safety, the environment, public morals or public order shall not be the subject of a claim under this Section’: China–Australia Free Trade Agreement, signed 17 June 2015, Article 9.10(4).

[82] ‘For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity. For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section’: Comprehensive Economic and Trade Agreement (Canada–EU) (CETA), signed 30 October 2016, Article 8.9(1)–(2).

[83] Article 2.2(1) and (2) of the EU–Singapore Investment Protection Agreement, signed 15 October 2018, is phrased in similar terms to Article 8.9 of the CETA. Article 2.3 on National Treatment has an exception for measures necessary to protect human, animal or plant life or health.

[84] A search on the International Investment Agreements Navigator found on the UNCTAD Investment Policy Hub indicated that 317 out of 2,574 mapped treaties include a mention of health and environment and 241 have exceptions for public health and environment measures.

[85] A search on the International Investment Agreements Navigator found on the UNCTAD Investment Policy Hub indicated that 135 out of 2,574 mapped treaties include a mention of the right to regulate.

[86] A search on the International Investment Agreements Navigator found on the UNCTAD Investment Policy Hub indicated that 394 out of 2,574 mapped treaties include a national security exception.

[87] UNCTAD cited the threat in connection with spreading of diseases as being encompassed within a threat to national security. ‘The Protection of National Security in IIAs’, UNCTAD Series on International Investment Policies for Development, 2009, United Nations Doc UNCTAD/DIAE/IA/2008/5 [7].

[88] id. [40].

[89] id. [41].

[90] id. [8–10], [42–43].

[91] Philip Morris Brands SARL and others v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016 [291]–[301].

[92] id. [305].

[93] id. [306].

[94] id. [399].

[95] Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005 [7]; Chemtura Corporation v. Government of Canada, UNCITRAL, Award, 2 August 2010 [266].

[96] Bischoff, German–Venezuelan Commission, Decision (1903) 10 RIAA 420.

[97] International Law Commission, ‘Responsibility of States for Internationally Wrongful Acts’ (2001) II(2) Yearbook of the International Law Commission [31].

[98] id., 80 (commentary [1] on Article 25).

[99] Though not explicitly incorporated into a binding international convention; see, e.g., the 1992 Rio Declaration, which provides that ‘human beings are at the centre of concerns for sustainable development. They are entitled to a healthy and productive life in harmony with nature’.

[100] International Covenant on Economic, Social and Cultural Rights, opened for signature 19 December 1966, 993 UNTS 3, Article 12(1).

[101] See generally Anne Peters, ‘Corruption as a Violation of International Human Rights’ (2018) 29(4) European Journal of International Law, 1251.

[102] The Investment Agreement between the Government of the Hong Kong Special Administrative Region of the People’s Republic of China and the Government of the Republic of Chile, signed 18 November 2016, is instructive, providing that ‘[t]he Parties reaffirm the importance of each Party encouraging enterprises operation within its area to voluntarily incorporate into their internal policies those internationally recognised standards, guidelines and principles of corporate social responsibility that have been endorsed or are supported by that Party’: at Article 16. See also Agreement Between the Government of Canada and the Government of the Republic of Benin for the Promotion and Reciprocal Protection of Investments, signed 9 January 2013, which lists ‘corporate social responsibility’ as one of its guiding principles: at Article 4; Indian Model Bilateral Investment Treaty, Article 12; Cooperation and Investment Facilitation Agreement between the Government of the Federative Republic of Brazil and the Government of the Republic of Mozambique, signed 30 March 2015, Annex II(ii) (‘[r]especting human rights of those involved in the activities of the companies, consistent with the international obligations and commitments of the host Party’).

[103] Sornarajah, a TWAIL scholar, has argued that such clauses are an impermissible incursion into state sovereignty and, accordingly, are invalid: M Sornarajah, ‘The Myth of International Contract Law’ (1981) 15 Journal of World Trade Law, 187. It is argued that developing states accept these clauses, notwithstanding the effective erosion of their sovereignty, due to their ‘weak bargaining position at the initial phase of natural resources development, which compels them to accept such protective undertakings in order to develop scarce resources and accelerate economic development and public welfare’: Abdullah Faruque, ‘Validity and Efficacy of Stabilisation Clauses: Legal Protection vs Functional Value’ (2006) 23(4) Journal of International Arbitration, 317, 335.

[104] The stabilisation clause relevantly provided that: ‘The State Authorities shall take all actions available to them to restore the Economic Equilibrium established under the Project Agreements if and to the extent the Economic Equilibrium is disrupted or negatively affected, directly or indirectly, as a result of any change (whether the change is specific to the Project or of general application) in Azerbaijan Law (including any Azerbaijan Laws regarding Taxes, health, safety and the environment)’: Host Government Agreement between and among the Government of the Azerbaijan Republic and the State Oil Company of the Azerbaijan Republic BP Exploration (Caspian Sea) Ltd, State BTC Caspian AS, Ramco Hazar Energy Limited, Turkiye Petrolleri A.O., Unocal BTC Pipeline Ltd, Itochu Oil Exploration (Azerbaijan) Inc, Delta Hess (BTC) Limited, signed 17 October 2000.

[105] See, e.g., Amnesty International, ‘Human Rights on the Line: The Baku-Tbilisi-Ceyhan Pipeline Project’ (May 2003) (in relation to the impacts of the pipeline on human rights in Turkey).

[106] Business Leaders Initiative on Human Rights (OCHCR), ‘A Guide for Integrating Human Rights into Business Management’, 27.

[107] See generally Adam McBeth, Justine Nolan and Simon Rice, The International Law of Human Rights, Second edition (Oxford University Press, 2017), 420; Justine Nolan and David Kinley, ‘Trading and Aiding Human Rights: Corporations in the Global Economy’ (2007) 25(4) Nordic Journal of Human Rights, 353, 359.

[108] Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016 (Urbaser).

[109] id. [1206]–[1210].

[110] See also Megan Wells Sheffer, ‘Bilateral Investment Treaties: A Friend or Foe to Human Rights’ (2011) 39(3) Denver Journal of International Law and Policy, 483, 493–494 (noting that ‘[h]uman rights and broader public interest considerations typically have little if any role’ in investment treaty arbitration).

[111] The tribunal, while holding it not to be an issue of concern in Urbaser, noted its decision may have been different ‘in case an obligation to abstain, like a prohibition to commit acts violating human rights would be at stake. Such an obligation can be of immediate application, not only upon States, but equally to individuals and other private parties’, at [1210].

[112] Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Award, 30 November 2017 (Bear Creek, Award).

[113] For background, see Joshua Paine, ‘Bear Creek Mining Corporation v. Republic of Peru’ (2018) 33(2) ICSID Review, 340.

[114] Bear Creek, Award [218]–[230].

[115] id. [412].

[116] Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Partial Dissenting Opinion of Professor Philippe Sands, 30 November 2017, [6]–[9].

[117] id. [10].

[118] id. [35].

[119] id. [39].

[120] See generally Chester Brown, ‘The Contribution of Non-State Actors to the Development of Transparency Regimes in Investment Treaty Arbitration’ in Jean Engelmayer Kalicki and Mohamed Abdel Raouf (eds), Evolution and Adaptation: The Future of International Arbitration (Wolters Kluwer, 2018), 653.

[121] As recognised in Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v. Argentine Republic, ICSID Case No. ARB/03/19, Order in Response to a Petition for Transparency and Participation as Amicus Curiae of 19 May 2005 [22].

[122] Metal-Tech Ltd v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013 [372]. See also Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Colombia, ICSID Case No. ARB/16/6, Award, 27 August 2019 [665].

[123] Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009 [101]; see also Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines [II] (Fraport II), ICSID Case No. ARB/11/12, Award, 10 December 2014 [332]; Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24 (Energy Charter Treaty), Award, 27 August 2008 [138]–[139].

[124] World Duty Free Company Limited v. The Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006 [157], [179]; Spentex Netherlands, B.V. v. Republic of Uzbekistan, ICSID Case No. ARB/13/26, Award, 27 December 2016 [818], cited in K Betz, Proving Bribery, Fraud and Money Laundering in International Arbitration (Cambridge University Press, 2017), 130; Littop Enterprises Limited, Bridgemont Ventures Limited and Bordo Management Limited v. Ukraine, SCC Case No. V 2015/092, Award, 4 February 2021 [529]. See also Vladislav Kim v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, 8 March 2017 [593]; Krederi Ltd. v. Ukraine, ICSID Case No. ARB/14/17, Excerpts of Award, 2 July 2018 [385]–[386]; The Kyrgyz Republic v. Mr Valeriy Belokon, Ruling of the Paris Court of Appeal, RG No. 15/01650, 21 February 2017 [8], [15] (annulling the award on international public policy grounds based on evidence of money laundering and corruption rejected by the tribunal).

[125] Veteran Petroleum Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 228, Final Award, 18 July 2014 [1362–1363]; Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227, Final Award, 18 July 2014 [1362–1363]; Hulley Enterprises Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 226, Final Award, 18 July 2014 [1362]–[1363].

[126] Littop Enterprises Limited, Bridgemont Ventures Limited and Bordo Management Limited v. Ukraine, SCC Case No. V 2015/092, Award, 4 February 2021 [438]–[441]. See also Spentex Netherlands, B.V. v. Republic of Uzbekistan, ICSID Case No. ARB/13/26, Award, 27 December 2016 [819] et seq., cited in K Betz, Proving Bribery, Fraud and Money Laundering in International Arbitration (Cambridge University Press, 2017) [130]; Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016 [492] (‘it is undisputed that claimants with “dirty hands” have no standing in investment arbitration’); Fraport II [328].

[127] Lao Holdings N.V. v. The Lao People’s Democratic Republic, ICSID Case No. ARB(AF)/12/6, Award, 6 August 2019 [162], [278] (corruption found to be relevant to the legitimacy of the investor’s alleged legitimate expectations and investor’s bad faith). See also Lao Holdings NV v. The Government of the Lao People’s Democratic Republic; Sanum Investments Limited v. The Government of the Lao People’s Democratic Republic [2021] SGHC(I) 10 (the Singapore International Commercial Court dismissed the investors’ set-aside application and affirmed the tribunal’s duty to consider corruption).

[128] See, e.g., Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award, 8 December 2000 [77], [116], [117]; TSA Spectrum de Argentina S.A. v. Argentine Republic, ICSID Case No. ARB/05/5, Decision on Jurisdiction, 19 December 2008 [173]; Vladislav Kim and others v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, 8 March 2017 [545]; Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Colombia, ICSID Case No. ARB/16/6, Award, 27 August 2019 [736].

[129] EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009 [69 and 105]. See also Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008 [425] (investor alleged bribery of a judge); Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005 (investor alleged corruption due to campaign contribution leading to executive order prejudicing investor).

[130] EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009 [221]. See also H&H Enterprises Investments Inc. v. Arab Republic of Egypt, ICSID Case No. ARB/09/15, Award, 6 May 2014 [390] (the evidentiary threshold is high); Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1, Award, 22 August 2017 [492] (clear and convincing evidence).

[131] Unión Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award, 31 August 2018 [7.52] (applying the balance of probabilities standard); Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Columbia, ICSID ARB/16/6, Award, 27 August 2019 [669] (the tribunal saw ‘no reason to depart from the traditional standard of preponderance of the evidence’).

[132] Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013 [245, 293] (red flags and adverse inferences); Rumeli Telekom A.S. and Telsim Mobil, Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008 [709]; Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, UNCITRAL, Final Award, 23 April 2012 [303]; Spentex Netherlands, B.V. v. Republic of Uzbekistan, ICSID Case No. ARB/13/26, Award, 27 December 2016 [934], cited in K Betz, Proving Bribery, Fraud and Money Laundering in International Arbitration (Cambridge University Press, 2017) [134] (corruption established by connecting the dots); Union Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award, 31 August 2018 [7.113]–[7.114] (finding there were ‘insufficient dots’); Glencore International A.G. and C.I. Prodeco S.A. v. Republic of Colombia, ICSID Case No. ARB/16/6, Award, 27 August 2019 [736] (‘The dots simply do not connect’); Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005, Part III, Chapter B, Page 2 [3] (connecting the dots).

[133] In 2019, the Competence Centre Arbitration and Crime and Basel Institute on Governance released a toolkit to assist arbitrators to navigate issues of corruption, including matters of evidence. This is a helpful step-by-step guide and a good first step. See ‘Corruption and Money Laundering in International Arbitration: A Toolkit for Arbitrators’ (29 April 2019).

[134] Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, 4 October 2013 [389].

[135] Wena Hotels Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award, 8 December 2000 [116] (the tribunal was ‘reluctant to immunize Egypt from liability’ given Egypt’s failure to prosecute the allegedly corrupt official); Lao Holdings N.V. v. The Lao People’s Democratic Republic, ICSID Case No. ARB(AF)/12/6, Award, 6 August 2019 [111]–[112] (the tribunal found the state’s failure to investigate or prosecute state officials was relevant to the credibility of the state’s allegations).

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