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Law school practical: Clinic on non-disputing party participation in investor state disputes

Wednesday, September 02, 2020 @ 8:29 AM | By Bo Kruk

Bo Kruk %>
Bo Kruk
Course selection at law school is a time-consuming process. While lectures impart the foundation of an area of law, the highlight of the law school adventure is the ability to take a practical class. These experiential learning experiences allow students to explore the nuances behind specific points of law and apply concepts learnt in class. Each law school has a complement of practical classes. At the University of Ottawa, in partnership with Queen’s University in Kingston, Ont., a joint international economic law clinic is part of the international economic law Trade Lab network.

As a participant in the 2020 clinic at the University of Ottawa, work with Trade Lab involved taking stock of non-disputing party (NDP) participation in the Investor State Dispute Settlement system (ISDS). Roughly 20 years have passed since the initial ISDS cases opened the door to third parties’ participation in a generally binary system. My group was asked to look at the data and evaluate directions for NDP participation. In this two-part series, I hope to bring awareness to the underutilization of the NDP system in ISDS, a means for parties impacted by foreign investment to be heard by decision makers, highlight why law reform should be an on going process, and illustrate why practical classes should be at the top of every law student’s list.

A brief history of ISDS and NDP participation

After the Second World War, as borders blurred and society evolved, arbitration began to play a major role through what would later become ISDS. As companies began investing in foreign states — frequently developing countries — discussions about ways to resolve disputes ultimately led to the Convention on the Settlement of Investment Disputes Between States and Nations of Other States (the ICSID Convention) in 1966. Negotiations at the UN about ISDS at the time were difficult which led to the framework being housed at the World Bank.

Acceptance of the ICSID Convention and ISDS was slow. The year 1972 saw the first case under this framework. By the end of 2016, 90 per cent of the 650 cases registered under the ICSID Convention dated from 1998 onwards. It is important to note that ICSID isn’t the only arbitral framework used within ISDS. After the ICSID rules, UNCITRAL’s arbitration rules are most frequently used. Until the turn of the millennium, disputes were generally based on contract and ISDS relied heavily on the historical binary nature of arbitration. The year 2000 witnessed a fundamental shift in ISDS. Three cases acted as catalysts for the binary ISDS process to open itself to interested third parties.

Prior to these three catalytic cases — Methanex Corporation v. United States of America UNCITRAL (Methanex), United Parcel Service of America Inc. v. Government of Canada, ICSID Case No. UNCT/02/1 (UPS) and Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v. Argentine Republic, ICSID Case No. ARB/03/19 (formerly Aguas Argentinas, S.A., Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. Argentine Re (Vivendi) respectively — ISDS arbitral tribunals relied on rules that empowered the tribunal to make a decision based on its discretion and circumstances — typically UNCITRAL’s Rule 15 or ICSID’s Rule 44.

Methanex and UPS were both under the UNCITRAL framework and NAFTA. At its core, Methanex involved environmental regulations in California. Environmental groups brought submissions to aid the tribunal in considering environmental and sustainable development goals in NAFTA’s ISDS. UPS involved questions surrounding labour law, Canada Post and, largely, allegations that Canada’s treatment of Canada Post was unfair to the foreign investor. The Canadian Union of Postal Workers along with the Council of Canadians sought participation in light of the NDPs in Methanex. Despite rejection due to the claimant objecting to their participation, UPS effectively cemented the evolution of NDP participation: parties other than those to the dispute could have a point of view to share that would aid the arbitral tribunal in arriving at a decision.

In fact, these two cases laid the foundation for the NAFTA Free Trade Commission’s statement on non-disputing parties. Although non-binding, this statement outlined submission procedures for prospective NDPs and factors for the arbitral tribunal to consider in accepting these submissions.

Vivendi, a case based on the Argentinian economic crises involving investment in water distribution and wastewater treatment systems, followed a few years later. While detailed arguments of the prospective NDPs aren’t available, secondary commentary explained participation was sought because the case involved civil liberties and environmental law. Since formal avenues for NDP participation had yet to be recognized under ICSID rules, the tribunal used its residual power through ICSID’s rule 44.

Looking at the evolution of ISDS through these arbitral decisions, the NAFTA Free Trade Commission’s statement served as the bedrock leading to the gradual evolution of the other ISDS rules addressing NDP participation. In 2006, new arbitration rules were issued under ICSID mirroring the NAFTA statement by outlining the factors that the arbitral tribunal must consider. Similar changes only occurred at UNCITRAL in 2013 through the UNCITRAL Rules on Transparency, incorporated into the general UNCITRAL Arbitration Rules. Despite different procedural elements, both ICSID and UNCITRAL rules seek for the tribunal to consider whether the prospective NDP would assist them, and whether the NDP has a significant interest in the proceeding.

Provisions to address prospective NDP participation in both investment treaties and free trade agreements have now become commonplace. From a few lines in bilateral investment treaties to the Comprehensive Economic and Trade Agreement (CETA), interested third parties are being recognized — on paper — as an important consideration in ISDS in today’s globalized world.

This is part one of a two-part series. Read part two: Law school practical: Non-disputing party system underutilized.

Bo Kruk has just graduated from the University of Ottawa’s Programme de common law en français. While he fell in love with several areas of law at law school, he is most passionate about how the law can be used to promote access to justice for equity seeking groups.

Illustration by Chris Yates/Law360

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