The curious case of ISDS arbitration involving Australia and New Zealand

• Author: Luke Nottage and Amoukura Kawharu
• Position: Associate Professor of Law, University of Auckland/Professor of Transnational and Comparative Business Law, University of Sydney Law School
• Pages: 32-70

“THE CURIOUS CASE OF ISDS ARBITRATION

INVOLVING AUSTRALIA AND NEW ZEALAND” ##

AMOK URA KAW HAR U# & LUKE NOTTA GE*

Criticism of investor-state dispute settlement (ISDS) has intensified as

the number of cases and the range of affected states have grown. This

has prompted a range of reform initiatives aimed at both ISDS and the

investment treaty system more generally. Given their close ties and

common interests, Australia and New Zealand have the potential to

work together to promote bottom-up reform to ISDS. This paper

examines their experiences with ISDS cases, including reporting about

ISDS in local media, and asks to what extent these experiences may

impact on their ISDS policies. We find that the first treaty-based ISDS

case against Australia did generate “availability bias” against ISDS,

underpinning a shift in policy and public perceptions, although media

coverage has waned. By contrast, New Zealand’s early experience as

respondent in a contract-based claim has been largely overlooked in

debates about ISDS. There is also little evidence yet to indicate that

either potential additional inbound treaty-based ISDS claims against

Australia or outbound ISDS claims by Australian investors have

influenced overall policy or even drafting on specific issues, although

New Zealand’s recent experience shows how easily ISDS can

resurface as a topical issue with a change in government. We suggest

that a “status quo bias” in favour of path dependency has been a

stronger influence than actual experiences with ISDS cases, although

such dependency may be weakening for New Zealand at least.

Keywords: foreign investment, international economic law, investment law, dispute

resolution, arbitration, investor-state dispute settlem ent (ISDS), Austra lia, Ne w

Zealand, Asia-Pacific

1. Introduction

2. “Unavailability Bias”: An Early Contract-based ISDS Claim Against

New Zealand

3. Recent Treaty-based ISDS Claims (Threatened) Against Australia

4. Recent Outbound ISDS Claims by Investors from Australia

5. Conclusions

## For helpful information and/or feedback on earlier drafts, but without attributing any

responsibility for the views expressed in this paper, we thank Jonathan Bonnitcha, David

Brown, Antony Crockett, Amanda Murphy, John Stumbles, Tania Voon and an anonymous

reviewer.

# Associate Professor of Law, University of Auckland.

* Professor of Transnational and Comparative Business Law, University of Sydney Law School.

33 University of Western Australia Law Review Vol 44(2): 1

I INTR ODUC TION

Investor-state dispute settlement (ISDS) has been a hot topic in

Australia, more recently in New Zealand and parts of the Asian region,

and world-wide.1 Known treaty-based ISDS claims, almost all involving

foreign investors choosing the option of arbitration (so decisions are

binding) rather than conciliation or mediation, have reached 855 by the

end of 2017 (including 65 in that year).2 Of the cumulative total, 658 claims

for arbitration based on host state consent provided in investment treaties

(or more rarely national laws) have been filed in the International Centre

for Settlement of Investment Disputes (ICSID), headquartered in

Washington DC. In addition, ICSID has received 104 filings for arbitration

based on consent included in individual investment contracts between a

foreign investor and a host state or its instrumentality.3 If the home state of

the investor, as well as the host state, are also party to the Convention on

the Settlement of Investment Disputes between States and Nationals of

other States (‘ICSID Convention’),4 any resulting arbitral award usually can

be more easily enforced against the losing host state compared to

enforcement under the 1958 New York Convention on Recognition and

Enforcement of Foreign Arbitral Awards.5

Less concern about treaty-based ISDS was apparent until the turn of

the 21st century, when the annual number of arbitration filings began to

increase significantly, and even when the claims were mostly brought

against developing countries. After all, the rationales for the active

promotion of ISDS-backed bilateral investment treaty (BIT) commitments

by international organisations like the United Nations Conference on

Trade and Investment (UNCTAD) over the 1980s and 1990s6 were

particularly apposite for developing countries. The substantive protections

1 Luke Nottage, Julien Chaisse and Sakda Thanitcul, ‘International Investment Treaties and

Arbitration Across Asia: A Bird’s Eye View’ in Julien Chaisse and Luke Nottage (eds),

International Investment Treaties and Arbitration Across Asia (Brill, 2017); Luke Nottage and

Ana Ubilava, ‘Asia’s Changing Investment Regime’ (Book Review), in this Issue.

2 United Nations Conference on Trade and Development, ‘Investment Dispute Settlement

Navigator’ <http://investmentpolicyhub.unctad.org/ISDS>.

3 ICSID, ‘Cases’ <https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx>.

4 Convention on the Settlement of Investment Disputes between States and Nationals of other

States (signed 18 March 1965, entered into force 14 October 1966) 4 ILM 524 (1965).

5 Convention on the Recognition and Enforcement of Fo reign Arbitral Awards (signed 10 June

1958, entered into force 7 June 1959) (1958) 330 UNTS 38. For an example of difficulties in

enforcing a treaty-based ISDS award under the New York Convention, see the Walter Bau

saga described in Luke Nottage and Sakda Thanitcul, ‘International Investment Arbitration in

Thailand: Limiting Contract-based Claims While Maintaining Treaty-based ISDS’, in Chaisse

and Nottage, above n 1, with more details in the manuscript version at

.

6 Nicolás M Perrone, ‘UNCTAD’s World Investment Reports 1991–2015: 25 Years of Narratives

Justifying and Balancing Foreign Investor Rights’ (2018) 19(1) Journal of World Investment and

Trade 7.

34 University of Western Australia Law Review Vol 44(2): 1

offered to foreign investors (and indeed sometimes local investors), and/or

the administrative, court and political processes available to enforce such

protections, were more likely not to meet international standards

compared to developed countries. By offering ISDS-backed commitments

under investment treaties, foreign investors were thought to be more likely

to invest in such countries, often lacking capital and competing for foreign

direct investment (FDI).7 It was also sometimes suggested that ISDS-

backed commitments were more likely to improve the rule of law or

governance more generally, particularly in developing countries.8 Another

perceived advantage of the ISDS option was to de-politicise disputes, by

allowing foreign investors to make direct claims against host states, rather

than having to mobilise their home state (perhaps through politicians) to

initiate an inter-state arbitration process (potentially involving geo-political

or diplomatic complications). The latter has long been a feature of

investment treaties and remains an alternative even when the ISDS option

is added, albeit one that is hardly ever relied on by foreign investors.

Recent studies have begun to question the empirical bases supporting

these purported benefits,9 although the evidence is mixed and it is often

easy to criticise something with the benefit of hindsight.

Quite understandably, academic and media criticism of treaty-based

ISDS began to intensify as numbers of arbitration filings and the range of

affected host states grew, including more and more developed countries –

where the case for adding the ISDS option was always less obvious.

Public concern emerged first mainly in the United States (US) and

Canada, as claims started to file against them (not just Mexico) under an

early free trade agreement (FTA) containing an investment chapter with

ISDS (the North American Free Trade Agreement, or NAFTA, signed in

7 More recently, see eg Shiro Armstrong and Luke Nottage, ‘The Impact of Investment Treaties

and ISDS Provisions on Foreign Direct Investment: A Baseline Econometric Analysis’ (2016)

16/74 Sydney Law School Research Paper, and Asian Development Bank, ‘ Project Overview:

Promotion of International Arbitration Reform for Better Investment Climate in the South Pacific’

.

8 More recently, see e g Donald Robertson, ‘Governance and International In vestment Treaties

for Asia: A Principled Approach to Assessing Regulatory Action’ in Chaisse and Nottage, above

n 1. The latest annual World Investment Report (UNCTAD, 2018)

at 92 notes: ‘As in previous years,

the majority of new cases were brought against developing countries and transition

economies’.

9 Joachim Pohl, ‘Societal Benefits and Costs of International Investment Agreements: A Critical

Review of Aspects and Available Empirical Evidence’ (OECD W orking Papers on International

Investment 2018/01, Organisation for Economic Co-operation and Development, 2018)

and-costs-of-

international-investment-agreements_e5f85c3d-en> 16-31; Jonathan Bonnitcha, Lauge

Poulsen and Michael Waibel, The Political Economy of the Investment Treaty Regime (Oxford

University Press, 2017). On the question of whether ISDS significantly promotes

depoliticisation of investment dispute resolution, see n 101 below.