ABOUT TDM
|
Kantor-Howse Exchange Regarding Restrictions on Public Access to ICSID Arbitrations
February 25, 2002
From: rhowse
To: OGEMI
Sent: Tuesday, February 25, 2003 10:04 AM
Subject: Re: WATER PRIVATISATION - investment disputes in Bolivia
Secret proceedings that exclude the public as observers should not be confused with proceedings where the tribunal limits or denies rights of intervention in the form of oral pleading. The former cannot be defended on grounds of increased costs and complexity in the arbitration. As for the latter I think there may be very legitimate reasons for limiting intervention to written briefs; it would be unusual if the third parties really could not make their points effectively through amicus briefs.
It strikes me as absurd and potentially sinister reasoning to identify public proceedings that include third party intervention with "show trials". Show trials are manipulated with respect to outcome from "above"; publicity and participation are actually ways of reducing the risk, and indeed the possibility, of manipulated proceedings.
It is secret trials that pose the real threat to justice. Why do you think these have been largely abolished in all free countries, with exceptions connected to national security, protection of victims and the public etc.?
By the way, if an arbitration were to involve fundamental public interests (and not just contractual or commercial ones) as seems to be the case here, perhaps in that context secrecy might be argued as a "public policy" objection to enforcement of an arbitral award, no? While secrecy may not offend the basic values of society in a case where essentially commercial or contractual interests of the parties are at stake, it could well offend those values where the public interest is in play in such a basic way.
best.
rob howse
From: mkantor
Sent: Tuesday, February 25, 2003 12:09 PM
Rob,
FYI, unlike the NY Convention for international commercial arbitration or the UNCITRAL Model Law for International Commercial Arbitration, the Washington Convention establishing ICSID does not permit an enforcement /set-aside jurisdiction to utilize public policy as a basis for rejecting an ICSID award. That is one of the fundamental differences between ICSID and many other forms of international arbitration.
Mark Kantor
From: mkantor
Sent: Tuesday, February 25, 2003 12:02 PM
To All: Leaving to one side my own personal opinions about strengths and weaknesses of ICSID and similar arbitration tribunals, I thought it might be useful to just set out some of the ICSID provisions relevant to this debate. It surprises me how often this discussion proceeds without reference to the actual ICSID rules. The following describes applicable rules for appointing ICSID arbitrators, the law applicable to ICSID investment disputes, the public or non-public nature of ICSID hearings, filings and Awards, limits on national court intervention in ICSID proceedings, the scope for appeals of ICSID Awards, certain of the rules addressing enforcement of ICSID Awards, and the limits on diplomatic protection by Contracting States.
1. Under Article 37(2)(b) of the ICSID Convention, unless the parties to a dispute have agreed otherwise, a Tribunal convened under the Convention is composed of three arbitrators; one selected by each party and the third (the president of the Tribunal) appointed by agreement of the parties. If a party does not select its arbitrator, or the two parties cannot agree on the identity of the President of the Tribunal, then the President of the World Bank (in his capacity as Chairman of ICSID) appoints that arbitrator from a Panel of arbitrators maintained by ICSID. Convention Art. 38. The Chairman is required under Article 38 to consult with the parties as part of that appointment process, and there is no known instance in which the Chairman has appointed an individual as to whom a party objected.
2. The Panel of arbitrators maintained by ICSID consists of (a) individuals designated under Convention Art. 13(1) by the Contracting States party to the Convention (four designees per Contracting State) and (b) ten persons designated by the Chairman under Convention Art. 13(2). In practice, the Chairman leaves a few slots out of his 10 undesignated, in order to have the flexibility to promptly designate a new individual in order to resolve problems arising out of consultations with the parties that might otherwise eliminate all qualified individuals currently on the list. Parties to a dispute are not required to appoint arbitrators from this Panel, but if the Chairman is called upon to appoint an arbitrator then that individual must be selected from the Panel.
3. The nationality rules for ICSID Tribunals effectively prevent nationals of either of the parties from serving on the Tribunal, unless the parties jointly agree otherwise. See ICSID Arbitration Rules 3 & 4, and Convention Arts. 38 & 39.
4. Therefore, the identity of arbitrators in an ICSID proceeding is primarily driven by party choice, from a Panel largely designated by the Contracting States and then selected by the head of the World Bank, and from a nationality other than the nationality of the foreign investor or the host State in the dispute.
5. Unless the parties agree otherwise, the law applicable to the dispute is the law of the Contracting State that is involved in the proceeding and applicable rules of international law. Convention Art. 42(1). The Convention does not specify how to deal with conflicts between national law and international law rules, but several ICSID proceedings have concluded that, in the event of a conflict between national law and applicable international norms, the international norms will prevail.
6. The hearings of a Tribunal are closed to the public unless agreed otherwise by the Tribunal and the parties. See ICSID Arbitration Rule 32(2). This, of course, differs from proceedings in most courts but is consistent with proceedings in most international or domestic arbitrations.
7. The deliberations of the Tribunal are "private and secret." See ICSID Arbitration Rule 15(1). This is, of course, consistent with the secrecy of judicial deliberations (no one gets to sit in the judges' chambers as the judges consider what to do about the dispute), as well as arbitrations.
8. Neither a Tribunal nor ICSID itself can publish an Award without the consent of the parties. Convention Art. 48(5). However, ICSID may include in its publications excerpts of the legal rules applied by a Tribunal. ICSID Arbitration Rule 48(4). See also ICSID Financial and Administrative Regulations, Regulation No. 22(2). Nothing in the Convention or other ICSID rules prevents a party from publishing an Award, and it is not uncommon for a party to make an Award public [the best source for ICSID Awards is ICSID's own website].
9. There is no provision of the Convention or the Arbitration Rules addressing the confidentiality of memorials or other filings by parties with a Tribunal. In light of the prohibition on publication of Awards by the Tribunal or ICSID, it is a fortiori clear that such filings cannot be released to the public by the Tribunal or ICSID without the consent of the parties. Again, there is nothing in the Convention or other ICSID rules preventing a party from making public its own filings.
10. Consent to ICSID arbitration is, unless otherwise stated, deemed to be consent to the exclusion of any other remedy. Convention Art. 26. A Contracting State is entitled to condition its consent upon prior exhaustion of local remedies. In practice, such conditional consents are unusual because foreign investors regard an ICSID arbitration as an alternative to local proceedings and therefore object strongly to an "exhaustion of local remedies" requirement.
11. An Award by a Tribunal is binding and not subject to any appeal or other remedy (including intervention by a national court), see Convention Art. 53(1), other than a request for interpretation or revision made to the Tribunal (see Convention Arts 50 & 51) or a request for annulment made to an Ad Hoc Committee appointed by the Chairman from the ICSID Panel of arbitrators. See Convention Art. 52. There are only limited grounds for annulment: (a) the tribunal was not properly constituted; (b) the Tribunal manifestly exceeded its powers; (c) corruption by a Tribunal member; (d) a serious departure from a fundamental rule of procedure; or (e) failure of the Award to state the reasons upon which it was based. Convention Art. 52(1). This is obviously different from judicial appeals, in which an appellate court is entitled to reconsider all conclusions of law de novo but is required to give deference to a trial court's decisions as to facts. It is also different from the standards for judicial review of arbitration awards (whether for purposes of setting the Award aside or enforcing the Award). While the standards for such review differ from country to country (subject to application of international treaties), a common listing of grounds for refusing to give effect to an international commercial arbitration award would include: (1) incapacity of a party to the arbitration agreement; (2) the arbitration agreement was not valid under the applicable law; (c) the opposing party was not given proper notice of the appointment of an arbitrator or of the arbitration proceedings; (d) the opposing party was "otherwise unable to present his case"; (e) the Award dealt with a dispute not contemplated by the submission to arbitration or contains decisions on matters beyond the scope of that submission; (f) the composition of the arbitral tribunal or the arbitration procedure was not in accordance with the agreement of the parties; (g) the subject matter of the dispute was not capable of settlement by arbitration under the law of the jurisdiction in which the set-aside/enforcement proceeding is brought; or (h) the Award was in conflict with the public policy of the jurisdiction in which the set-aside/enforcement proceeding is brought. See, e.g., UNCITRAL Model Law on International Commercial Arbitration Art. 34(2).
12. An Award of an ICSID Tribunal is required to be recognized and enforced in the courts of each Contracting State as if it were a final judgment of a court in that State. Convention Art. 54(1). If an Award is to be enforced in national courts, of course, the party seeking enforcement of the Award must comply with whatever disclosure rules apply in the jurisdiction of enforcement.
13. Once a foreign investor has consented to submit a dispute to an ICSID proceeding, that investor's State cannot give formal diplomatic protection, or bring an international claim, in respect of that dispute on behalf of the investor (i.e., the investor's State cannot espouse the investor's claim and assert it as a sovereign claim directly against the other sovereign). Informal diplomatic exchanges to facilitate settlement are permitted. See Convention Art. 27. This rule embodies a basic bargain among the Contracting States -- if a host State accepts international arbitration under ICSID then the capital exporting State will forego using its own international legal leverage.
I hope the foregoing assists in this discussion. Since I am teaching a course this semester at Georgetown's law school that focuses on ICSID arbitration, I would be pleased to answer any questions anyone on these lists may wish to raise.
Regards,
MARK KANTOR
513 A STREET, S.E.
WASHINGTON, D.C. 20003
TEL. 202-544-4953
FAX. 603-697-8959
HTTP://CLIK.TO/KANTOR
From: Rob Howse
Sent: Tuesday, February 25, 2003 1:49 PM
Thanks to Mark for these precisions.
My question about public policy was derived less from any impression that ICSID itself provides for this as a grounds for non-recognition and enforcement of the award (I wasn't aware of the answer to that question, and so am grateful for Mark enlightening me), but rather from the notion that since an arbitration award is to be enforced as if it were a domestic judgment, that at least in some jurisdictions, the award would be subject to the same grounds for non-enforcement as might apply in the case of a judgment of a sister province or state within that jurisdiction. But of course it depends on the jurisdiction where the judgment is being enforced--which is why I raise the issue as a question, albeit a leading one. Personally, and this is just my "street sense" of the way judges work, if a judge finds a judgement to be deeply offensive to basic public values, especially those embodied in basic procedural legal norms of due process, they may well find a way of deciding that it cannot be enforced. In some jurisdictions this may even be a constitutional question, depending on how publicity of proceedings is seen in terms of procedural due process norms. I think in Canada there might have been a successful constitutional challenge at least at the provincial court of appeal level against the closing of a trial to the public or the media in one or two cases--perhaps Todd or some other Canadian on the listserve might be able to correct or verify my memory? But others know more about this than I. As a newcomer to teaching about international arbitration processes, I'm still learning a lot. Which is why I pose questions and hypotheses rather than give answers!
At Georgetown, Mark, please say hello to my wonderful colleague Dan Tarullo.
best,
rob
From: mkantor
Sent: Tuesday, February 25, 2003 3:13 PM
Rob,
A couple of technical comments (sorry if this is boring to other list members).
The ICSID Convention requires a Contracting State to enforce the pecuniary obligations imposed by a Tribunal award as if the award was a final judgment of a court in that enforcing State. Since the award must be treated like a final money judgment in the relevant State, there does not appear to be a basis for claiming that the award violates public policy in that State (the situation would, of course, be different if the Convention had instead provided that the award was deemed to be the equivalent of a final judgment in an initiating State but still subject to ordinary enforcement procedures, including a public policy test, in the enforcing State). See Art. 54(1). The drafting history of the Convention makes clear that the decision to not include public policy limitations on enforcement was intentional. See Schreur, The ICSID Convention: A Commentary (2001) at 1101, 1127-1130. A couple of French lower courts have nevertheless suggested in passing an ordre public review while enforcing ICSID awards [those decisions have been criticized in the academic literature for ignoring the terms of the Convention but, since the awards were enforced in all of the cases, the issue has not attracted much attention outside academia]. Of course, enforcement of an award against specific assets may still be subject to a sovereign immunity or diplomatic immunity defense to the same extent that execution on such assets would be denied to a final money judgment in the relevant State (e.g., Central Bank assets under the US FSIA).
Art. 54(1) addresses to some extent the impact of a Federal system. After requiring in the first sentence of that provision that a Contracting State shall recognize and enforce the pecuniary obligations under a Tribunal award as if were a final judgment of a court in that State, the second sentence states that a Contracting State with a federal system "may enforce such an award in or through its federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state." This was a US proposal that received no explanation in the drafting record. It was apparently intended to enable the US to utilize "full faith and credit" and federal supremacy analysis to obtain recognition and enforcement of ICSID awards in the various States by using federal preemptive authority. The authority afforded by that sentence was given effect in the US in an amendment to the US Federal Arbitration Act that provides for the monetary obligations of an ICSID award to be given the same full faith and credit as a final judgment of one of the state courts and grants exclusive Federal court jurisdiction for such an enforcement action. Schreuer reports that "[i}t is doubtful whether the Convention's authorization to federal States to treat awards like judgments of constituent states and to have them enforced through their federal courts implies that the review mechanisms for judgments of constituent states that may exist in these States can be applied to ICSID awards." Id., at 1133.
There is, of course, no caselaw on this topic so creative litigators may find persuasive arguments that Schreur cannot see, but I am much inclined to believe Schreur in light of the extensive efforts in the Convention to avoid national court intervention generally.
As regards a constitutional challenge to the closing of a hearing, private and public arbitrations (both domestic and international) have been closed to non-parties throughout North America, the UK and Europe for centuries without successful objection. Particularly in those States where international law is regarding as having equal status with or primacy over national law, a challenge to this practice in the face of the terms of the ICSID Convention would not appear likely to succeed. Also, note that the ICSID Convention confers full international organization privileges and immunities on ICSID itself, the Tribunals and (to a limited extent) the arbitrators. Therefore, a national court would probably have no more success in ordering the Tribunal or ICSID itself to open the proceedings than it would in ordering the UN to open its closed-door proceedings. I could certainly see a national court challenge to the conduct of a Contracting State in refusing to agree to open the hearings, but it is not clear how such a challenge could force the foreign investor, the Tribunal or ICSID into agreeing to open the hearings. Since virtually all ICSID arbitrations involve claims by an investor against the host State, a failure by the host State to participate as a result of a successful national court challenge against a closed hearing might simply result in a default award against the host State. That may, however, be a bit of a moot point. It is the host State that is usually the source of the refusal to open the hearings, not the foreign investor. If the host State does agree to an open hearing, it may very well be the case that the foreign investor would also agree [which is of course different from agreeing to amicus briefs or formal third party intervention into the proceedings] In my experience as a practitioner, most often Western foreign investors would much prefer to litigate in Western courts (e.g., London, NY) but cannot get the host State to agree. Such courts are, of course, open fora.
One possible non-litigation route would be to introduce an "open-hearing requirement" into national foreign investment licensing schemes (i.e., conditioning the issuance of a foreign investment license upon acceptance by a foreign investor of open hearings) and also requiring in the foreign investment law that the host State accept that the hearings would be open as well. Of course, under the Convention the agreement of the Tribunal is also required, but it is very unlikely that a Tribunal would refuse to open the hearings if jointly requested by the disputing parties. Again, amicus or formal intervention rights would likely be a whole 'nuther ball game.
You are of course absolutely correct that a determined judge will find a way to refuse enforcement if offended by the award regardless of the state of the law; judges are even more creative than litigators.
Although I am a mere adjunct and not a full-time faculty member, I will endeavour to pass on your greetings to Tarullo.
Regards,
MK
From: rhowse
Sent: Tuesday, February 25, 2003 5:43 PM
Dear Mark,
also, I want to stress that I think that the concern with public policy or public morality would only arise in those contexts where the secret arbitration is not a matter between two commercial parties concerned only with private rights; thus, you are right to point out traditional and essentially unquestioned tolerance for secret proceedings in the purely commercial context. I don't see such a concern arising except in the more recent kinds of exceptional cases where broader public and regulatory interests are apparently directly . However, where the matter is politically charged, a judge might look at public policy from a different angle, depending on the jurisdiction and the judge.
I wasn't suggesting by the way that a domestic judge could order the opening up of an arbitral
proceedings, only that there might be some possibility for declining to enforce, in certain
limited circumstances, an arbitral award arising out of secret proceedings.
best,
rob
From: mkantor
Sent: Tuesday, February 25, 2003 6:50 PM
Rob,
I understand the distinction you propose, but investor-State arbitrations under ICC, Stockholm, Swiss, LCIA or ad hoc UNCITRAL rules have been dealing with issues of broader public and regulatory interests in the context of specific disputes for a very long time before either ICSID or NAFTA was invented. I am not sure I see a distinction between consensual submission by a State entity to a "secret" investor-State arbitration pursuant to a multilateral treaty ratified by the competent national authorities (e.g., NAFTA, ICSID, Energy Charter) and consensual submission by a State entity to a "secret" investor-State arbitration (without ratification by a competent national authority) pursuant to an arbitration clause embodied in a contract with a commercial counterparty (e.g., ICC, LCIA or UNCITRAL ad hoc arbitration). If anything, the public policy case for respecting the privacy of arbitral proceedings is arguably stronger in the NAFTA/ICSID/Energy Charter situation, where for many countries the treaty ratification process requires some measure of public accountability before a State submits to a dispute resolution forum that does not provide for public access.
Also, given the number of amicus briefs we see at the Supreme Court in connection with the many cases between two private parties, I am not confident we can easily identify a "matter between two commercial parties concerned only with private rights." Issues of "public policy/public morality" can exist whether or not the disputants are private or public. Therefore, I am not sure it is possible to draw a theoretical line between investor-State arbitrations (whether arising as an ICSID arbitration or an ICC arbitration) and commercial-commercial arbitrations for purposes of determining if issues of public interest are implicated. Note in this context the continuing "public policy" opposition in the US to arbitration of consumer, housing, employment, securities, credit card and similar disputes, all of which involve private parties.
Regards,
MK
From: rhowse
Sent: Tuesday, February 25, 2003 11:53 PM
You are surely right that no "theoretical" bright line can be drawn. It is rather a matter of degree and perception, or as I put it the apparent directness of the public interest. I think it will have to be a case by case determination that in the particular circumstances secret proceedings would be offensive to basic or fundamental public morality. It is easier to see a matter that is a contractual dispute between two private parties as not having the public component that would result in secrecy really being offensive to basic societal values, but as you rightly suggest there could be cases where there is a strong public component in that context too, though I think that it will be rarer. So we are not in a world of bright line rules here. And it is not just that the parties are private anyhow, as I said, it is the understanding of the nature of the legal interests being disputed--the US examples you mention are apposite, for of course these are all areas where government regulation in the public interest establishes various kinds of mandatory default rules, not leaving matters o the freedom of contract of the parties. Anyhow I though the general point about the public interest was nicely put in the Methanex amicus award
best.
rob
