Denial of Benefits Clause

‘Denial of benefits’ clause has been in the spotlight in the past ten years or so as a method of countering treaty shopping and preventing the misuse of the benefits of international investment agreement (IIA). No doubt, the matter is now one of the elements of the broader debate for an investor-state dispute settlement (ISDS) reform. This paper presents the evolution and framework of the ‘denial of benefits’ clause in IIAs and discusses the application of the clause by investment arbitral tribunals. As shown, there are clear divergent opinions on certain aspects concerning these ‘denial of benefits’ clauses, some of which are the result of the diverse language employed by this provision, in particular with respect to Energy Charter Treaty (ECT) and non-ECT scenarios. On the issues raised by the application of the ‘denial of benefits’ clause, the analysis reveals that arbitral tribunals often come to divergent conclusions. Arbitral tribunal do agree that if the language of the ‘denial of benefits’ clause requires, this right must be actively exercised by the denying state. As such, it is understood that there is no automatic application of this provision. The manner in which the host state should exercise the ‘denial of benefits’ right and any prior notification or consultation requirements are still not uniformly decided. Nevertheless, it is understood that most arbitral tribunals would be comfortable to consider these requirements if they are spelled out in the ‘denial of benefits’ clause. The reason for this, as explained by the tribunal in Ampal v. Egypt, is that such negotiations or consultations, if they are mandatory, would trigger the inapplicability of the ‘denial of benefits’ clause. Furthermore, it is still under debate whether the ‘denial of benefits’ clause is an issue pertaining to the jurisdiction or to the merits of the case. While opinions are not uniform, it is agreed that arbitral tribunals remain competent to assess whether the denying state has exercised the denial of benefits right within the framework ascribed by the applicable IIA. Related to this, it seems that there is consensus that the burden to prove the fulfilment of the requirements for the application of the ‘denial of benefits’ clause rests on the denying state. The substantive requirements for the application of the ‘denial of benefits’ clause usually refer to (1) ownership or control of the legal entity by nationals of a third state, and that (2) the legal entity has no substantial business activities at the place of incorporation. The paper discusses these elements, and in particular the notion of ‘control’ and ‘substantial business activities’, showing that there is little to no recommendation as to the meaning of these notions in the context of a relevant IIA. In conclusion, the paper highlights the increasing role the ‘denial of benefits’ has commenced to play in the economy of the existing IIAs and, in particular, with a view of the current discussion on the legitimacy and the efficiency of ISDS. It is, thus, expected that states will consider inserting this clause in their IIAs, as a standard clause, and relying on its application in related ISDS proceedings

Multilateral Principles in a Bilateral World Mandatory or Consensual Multilateralism in International Investment Law?

Multilateralism in international investment law is a multifaceted concept with a complex and eventful history. Multilateralism is a paradigm for international investment relations and is also present in the caselaw of investment arbitral tribunals, regardless of whether they consider bilateral or multilateral investment treaties. Indeed, in most cases, they interpret treaty provisions as part of a multilateral system. Further, multilateralism is present every time States act in concert with other States or consider other States’ investors’ legitimate interests. It also emerges that, in some instances, multilateralism has become mandatory. For example, this is the case concerning sustainable development or climate change. In these areas, international law requires multilateralism. States are under an obligation to co-operate for purposes of achieving or promoting multilateral solutions. However, concerning the international investment law context, such a concept is not present. The general assumption is that States’ participation in multilateral practises is left to their discretion: it is voluntary or consensual. In this article, we question that assumption. In this article, we offer a brief review of multilateral experiences in international investment law in the 20th century and provide an analysis of multilateralism in a historical context. Then we turn our attention to the current state of affairs to appreciate it in light of the past. Further, we discuss the future, and in particular, mandatory multilateralism in international law with respect to sustainable development. Here we identify the principles, which might justify mandatory multilateral approaches. Finally, we consider whether the principles justifying mandatory multilateralism in international law are applicable in the context of international investment law as well. We attempt to answer this question in the affirmative and point out further areas of research

Third-party participation in investment-environment disputes: Recent developments

This article outlines recent developments in investor-State dispute settlement related to the participation of third parties in arbitration. A particular focus is given to third party participation in disputes with a clear public interest based on the relevance of the cases to the protection of the environment, or sustainable development more generally. The benefits and drawbacks of third party participation and the relationship of participation to broader issues of transparency are also briefly discussed. © 2007 The Author. Journal compilation © 2007 Blackwell Publishing Ltd

Efficiency. What Else? Efficiency as the Emerging Defining Value of International Arbitration: Between Systems Theories and Party Autonomy

International arbitration case numbers slowly but steadily increase and arbitration gains acceptance in jurisdictions where arbitration was previously underutilized or not encouraged; at the same time the subject matters of disputes referred to arbitration also expand. As a corollary, it is an inevitable consequence that the level and frequency of scrutiny and criticism towards arbitration also increases. One key concern is the extent to which arbitration is and can be characterized as an efficient process. For many years, there was a presumption or perhaps a false impression that arbitration was quick and inexpensive. There is also an interesting tension between party autonomy and the desire of various authors supported nowadays by arbitral institutions to attribute to arbitration systemic qualities and features of private ordering. The simple reality is that arbitration continues to be the result of party autonomy and as such, it is a process designed whether by disputing parties, arbitral institutions or arbitral tribunals to meet the parties’ objectives and expectations. The tension between bespoke (or ad hoc) arbitral procedural regulation and more predictable (“systemic”) regulation is ongoing. Arguably, the latter seems to win as more often parties opt for institutional arbitration which provides for a pre-designed regulatory framework for arbitration to be conducted and organised. It is unclear, and indeed debatable, whether international arbitration is innately efficient or whether efficiency is what disputing parties seek from arbitration. It also equally unclear what efficiency in international arbitration means. In addition, it is not always clear as to what disputing parties consider as efficiency. For many, if not all, arbitration users, efficiency seems to be a relative value. Consequently, there may be no universal concept of efficiency: parties may have different efficiency expectations depending on their legal background, culture, expectations, and experiences. However, there may also be a ‘transnational’ or ‘international arbitration autonomous’ concept of efficiency. In any event, it is arguable whether efficiency can only be linked to “quantitative” criteria such as time and cost of arbitration proceedings. Ultimately arbitration is typically established to ensure a fair resolution of a dispute in a procedure guided and informed by party autonomy and due proces

The Judicial Solution to the Arbitrator’s Dilemma: Does the ‘Extension’ of the Arbitration Agreement to Non-Signatories Threaten the Enforcement of the Award?

This article contributes to the debate on non-signatories by relying on the Kluwer Research project. In particular, through the raw data underlying the Kluwer Research, we have identified cases at the enforcement stage, in which courts had to decide whether, despite the apparent lack of consent, nonsignatories were correctly brought into arbitration proceedings. In our view, the analysis of those courts’ decisions is perhaps a reminder that when considering non signatory issues, the relevant facts of the case are always what matters the most. Non-signatories’ involvement in the relationship underlying the dispute is essential, absent a clear expression of it in the contract. We believe that the= results show the judicial solution to the arbitrator’s dilemma, that is, the due consideration of the circumstances of any case, disregarding the rigid application of any theories

EFFICIENCY. WHAT ELSE? EFFICIENCY AS THE EMERGING DEFINING VALUE OF INTERNATIONAL ARBITRATION: BETWEEN SYSTEMS THEORIES AND PARTY AUTONOMY

EFFICIENCY. WHAT ELSE? EFFICIENCY AS THE EMERGING DEFINING VALUE OF INTERNATIONAL ARBITRATION: BETWEEN SYSTEMS THEORIES AND PARTY AUTONOMY This paper explores efficiency as a perceived value of international arbitration. It argues that arbitration is not intrinsically efficient but may be efficient by design. It also argues that the quest for efficiency creates a tension between party autonomy and the desire of arbitral institutions, several authors and users to attribute to arbitration systemic qualities. The paper first explores the origins of the efficiency quest and its establishment as a value of international arbitration before exploring and assessing the role of the law, arbitrators, and arbitral institutions in ensuring efficiency. In conclusion, the efficiency paradigm is presented along with an assessment as to whether we have moved to a law and economics or systems theory approach in international arbitration. Efficiency is a relative concept the content of which varies depending on the different parties, actors and factors involved in the arbitral process. Efficiency is also an emerging value. Regulation of efficiency may be bespoke and “from within”: disputing parties set their objectives and expectations and design the conduct of “their” arbitration. Alternatively, regulation of efficiency may be “from outside”: arbitral institutions or other formulating agencies design an arbitral process to which the parties opt in and the procedure of which they may partially modify to the extent opt out of the rules is permitted. In the “from outside” model we attribute to arbitration systemic qualities. Despite complaints as to the increasing judicialization of arbitral proceedings, this paper has shown that the introduction of new procedural rules in most cases is aimed at improving efficiency. It is essential for international arbitration to address and meet parties’ procedural expectations and needs. Arbitration is a process owned by the parties. However, arbitrators and institutions steer the process and have a role in ensuring that the process is not frustrated. In that sense efficiency (speed and cost saving) is almost never a standalone value: it is combined and co-existing with rule compliance and fairness values. Parties may design their own efficiency paradigm by exercising their party autonomy and agreeing to a process of their liking. However, when the parties cannot reach an agreement, the safeguard of efficiency is in the hands of arbitral institutions and tribunals. Keywords: international arbitration, efficiency, regulation, party autonomy, systems theory, law and economics, arbitral procedure, arbitral institutions, arbitral tribunal, process design