Harrison. Foreign Investment

INTERNATIONAL ACADEMY OF COMPARATIVE LAW XVIII International Congress of Comparative Law Washington 2010

Section IV. A: The Protection of Foreign Investment UNITED KINGDOM NATIONAL REPORT

Rapporteur: Dr. James Harrison (University of Edinburgh)* 1. Framework and hierarchy of foreign investment laws and treaties The general legal framework governing foreign investment in the United Kingdom The United Kingdom has no single, specific legal framework in domestic law for the regulation of foreign investment. Rather, the relevant rules and regulations are found in a variety of statutes and statutory instruments. Despite the recent trend towards devolution in the United Kingdom, most domestic laws directly pertaining to foreign investors continue to be found in legislation adopted by the United Kingdom Parliament. The regulation of financial services, financial markets, business associations, insolvency, competition, and intellectual property tend to be reserved matters under the devolution legislation.1 United Kingdom investment treaties The United Kingdom is a party to almost one hundred bilateral investment treaties (BITs) with countries around the world.2 The United Kingdom started its BIT programme a little later than other European countries;3 one of the first BITs concluded by the United Kingdom was with Egypt in June 1975.4 A small number of BITs with other developing countries were concluded in the latter half of 1970s.5 Thereafter, a gradual expansion in the number of BITs concluded by the United Kingdom has taken place. There was a rapid growth in the mid-‐1990s, partly inspired by the break-‐up of the former Soviet Union and the opportunities presented by the new markets in Central and Eastern Europe.6 Many of its investment agreements are based upon the 1991 Model Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of

* Email: [email protected]. Thanks to Matt Soper for research assistance on this project. Thanks also to David Cabrelli for comments and assistance on certain parts of this text. Any mistakes remain the responsibility of the author. 1 Scotland Act 1998, ss 29-‐30, Sch 5; Government of Wales Act 2006, s 94, Sch 5; Northern Ireland Act 1998, s 8, Sch 3. 2 A full list of those bilateral investment treaties which are currently in force for the United Kingdom can be found on the website of the Foreign and Commonwealth Office <http://www.fco.gov.uk/en/about-‐the-‐fco/publications/treaties/treaty-‐texts/ippas-‐investment-‐promotion> accessed 12 August 2009. 3 On the development of the UK BIT programme and comparisons with other European countries, see FA Mann ‘British Treaties for the Promotion and Protection of Investments’ [1981] BYIL 241. 4 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Egypt for the Promotion and Protection of Investments (UK – Egypt BIT) (adopted 11 June 1975) 1032 UNTS 32. 5 Namely Singapore, Indonesia, Thailand, and Jordan. 6 See generally UNCTAD ‘International Investment Rule-‐Making: Stocktaking, Challenges and the Way Forward’ (October 2008) UNCTAD/ITE/IIT/2007/3, 14-‐15.

X for the Promotion and Protection of Investments.7 The analysis of the investment protections in the following sections will be primarily based upon the provisions of the UK Model BIT, whilst highlighting any significant deviations in BITs which have been concluded by the United Kingdom with individual countries. Whilst these investment treaties provide important protections for investors, they have limited effect within the legal systems of the United Kingdom. Generally speaking, the United Kingdom adopts a dualist approach to the incorporation of its international treaty obligations into national law.8 It follows that there are limited opportunities for investors to rely directly on an investment treaty in the domestic courts of the United Kingdom unless the treaty has been implemented by statute or statutory instrument. Investment protection and membership of the European Community The regulation of foreign investment in the United Kingdom is further complicated by its membership of the European Community. This has implications for both the protection of investors and investments originating from other Member States, as well as the way in which obligations are undertaken towards investors from third states. The European Community is founded upon the idea of a common market and an economic and monetary union9, which includes certain aspects of investment protection. Perhaps most importantly, the EC Treaty guarantees a right of establishment for nationals of one Member State in the territory of another Member State10, as well as free movement of capital between Member States.11 These treaty provisions are directly applicable in national courts of Member States12 and they take priority over national laws.13 In some cases, the investment protection provisions found in EC law will overlap with investment treaties concluded with states before their accession to the

7 Model Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of X for the Promotion and Protection of Investments (UK Model BIT) <http://www.unctad.org/sections/dite/iia/docs/Compendium//en/69%20volume%203.pdf> (accessed 11 August 2009). 8 See generally R Higgins ‘United Kingdom’, in F Jacobs and S Roberts (eds) The Effects of Treaties in Domestic Law (Sweet & Maxwell, London 1987) 9 EC Treaty (Treaty of Rome, as amended) art 2. 10 EC Treaty (n 9) art 43. 11 EC Treaty (n 9) art 56. 12 The European Communities Act 1972 s 2(1) provides:

‘All such rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties, and all such remedies and procedures from time to time provided for by or under the Treaties, as in accordance with the Treaties are without further enactment to be given legal effect or used in the United Kingdom shall be recognised and available in law, and be enforced, allowed and followed accordingly; and the expression “enforceable Community right” and similar expressions shall be read as referring to one to which this subsection applies.’

13 See R v Secretary of State for Transport, ex p Factortame Ltd (No 2) [1991] 1 AC 603.

European Community. For its part, the United Kingdom concluded BITs with Malta14, Hungary15, Poland16, Lithuania17, Latvia18, Estonia19, Bulgaria20, and Slovenia21 before they joined the European Community.22 In practical terms, it may be the case that these agreements are superfluous as most of their content is superseded by EC law. This is the view taken by the European Commission which has urged Member States to formally rescind intra-‐EC investment agreements.23 Nevertheless, as held by the arbitral tribunal in Eastern Sugar BV v The Czech Republic, in the absence of any express agreement on termination of the treaty, the legal status of BITs between Member States remains unchanged by the accession of a state to the European Community.24 In particular, the arbitral tribunal appeared to reject the argument that the BIT between the Netherlands and the Czech Republic had been implicitly terminated by the accession of the Czech Republic to the EC Treaty.25 It follows that

14 Agreement between the Government of the Republic of Malta and the Government of the United Kingdom of Great Britain and Northern Ireland for the Promotion and Protection of Investments (UK – Malta BIT) (adopted 4 October 1986) 1667 UNTS 132. 15 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Hungarian People’s Republic for the Promotion and Protection of Investments (UK-‐ Hungary BIT) (adopted 9 March 1987) 1694 UNTS 446. 16 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Polish People’s Republic for the Promotion and Protection of Investments (UK – Poland BIT) (adopted 8 December 1987) 1556 UNTS 204. 17 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Lithuania for the Promotion and Protection of Investments (UK – Lithuania BIT) (adopted 17 May 1993) 1792 UNTS 122. 18 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Latvia for the Promotion and Protection of Investments (UK – Latvia BIT) (adopted 24 January 1994) 1913 UNTS 84. 19 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Estonia for the Promotion and Protection of Investments (UK – Estonia BIT) (adopted 12 May 1994) 1892 UNTS 310. 20 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Bulgaria for the Promotion and Protection of Investments (UK – Bulgaria BIT) (adopted 11 December 1995) 1995 UNTS 258. 21 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Slovenia for the Promotion and Protection of Investments (UK – Slovenia BIT) (adopted 3 July 1996) 2076 UNTS 176. 22 The United Kingdom also concluded a BIT with the Czech and Slovak Republic; Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Czech and Slovak Federal Republic for the Promotion and Protection of Investments (UK – Czech and Slovak BIT) (adopted 10 July 1990) 1765 UNTS 4. 23 See Note from the European Commission to the Economic and Financial Committee, November 2006, reproduced in Eastern Sugar BV v Czech Republic, Arbitration Institute of the Stockholm Chamber of Commerce (Partial Award of 27 March 2007) para 126. Some intra-‐EC BITs have since been terminated; see UNCTAD ‘Recent Developments in International Investment Agreements 2008-‐June 2009’ (June 2009) UNCTAD/WEB/DIAE/IA/2009/8, 5. 24 Eastern Sugar BV v Czech Republic (n23) para 160. 25 This argument was based upon Article 59(1) of the Vienna Convention on the Law of Treaties which provides that:

‘A treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject-‐matter and:

(a) It appears from the later treaty or is otherwise established that the parties intended that the matter should be governed by that treaty; or

(b) The provisions of the later treaty are so far incompatible with those of the earlier one

investors in those Member States with which the United Kingdom has concluded a BIT prior to their joining the EC will have a choice of law under which to pursue any investment claims, until such a time as the treaties are formally terminated. Nevertheless, membership of the European Community may still have implications for the interpretation and application of BITs between Member States. Article 31(3)(c) of the Vienna Convention on the Law of Treaties requires that a treaty interpreter takes into account ‘relevant rules of international law applicable in the relations between the parties.’ On the basis of this rules of treaty interpretation, it is arguable that ‘arbitral tribunals may have to take into account potentially competing standards such as those of the [EC Treaty] when interpreting an intra-‐EU BIT.’26 Membership of the European Community may also have consequences for BITs with third states. Treaties entered into by a state prior to their membership of the EC are not affected by the provisions of the EC Treaty, although Member States are under an obligation to ‘take all appropriate steps to eliminate the incompatibilities established.’27 In addition, Article 10 of the EC Treaty requires that Member States ‘shall abstain from any measure which could jeopardise the attainment of the objectives of this Treaty.’ Thus, any treaty entered into by a state after it has joined the European Community must be compatible with the EC Treaty. The European Commission has brought infringement proceedings against several Member States which the Commission believed had failed to take sufficient steps to bring their bilateral investment treaties with third states into line with EC law. In two recent judgments, the European Court of Justice (ECJ) found that Austria and Sweden had failed to take all the appropriate steps, as required under Article 307 of the EC Treaty, to eliminate any incompatibilities between BITs entered into before their entry into the European Community.28 It was noted by the ECJ in these cases that ‘the possibility of relying on other mechanisms offered by international law, such as suspension of the agreement, or even denunciation of the agreements at issue or of some of their provisions, is too uncertain in its effects to guarantee that the measures adopted by the Council could be applied properly.’29 The same reasoning arguably also applies to the duty found in Article 10 of the EC Treaty. Although the European Community does not yet have explicit competence over investment law, it is nevertheless the case that it exercises external competence in several related areas. Indeed, some authors argue that the European Community possesses an implicit competence in the field of international investment, shared with the Member States.30 Certainly, several powers which have the potential to

that the two treaties are not capable of being applied at the same time.’

26 H Wehland ‘Intra-‐EU Investment Agreements and Arbitration: Is European Community Law an Obstacle?’ (2009) 58 ICLQ 297, 307. 27 EC Treaty (n 9) art 307. 28 Case C-‐249/06 Commission v Sweden (ECJ 3 March 2009); Case C-‐205/06 Commission v Austria (ECJ 3 March 2009). 29 Commission v Austria (n 28) para 40. 30 See T Eilmansberger ‘Bilateral Investment Treaties and EU Law’ (2009) CML Rev 383, 391-‐392. He argues that the competence is shared not only in the sense that there is an overlapping competence but that the EC depends on complementary competence of Member States if it wishes to conclude an agreement in this area.

impact upon foreign investments are exercised at the European level.31 Indeed, the European Community has been the driving force behind the negotiation of several new international agreements which include important provisions on investment protection. One example is the Energy Charter Treaty to which both the European Community and the United Kingdom are parties and which is one of the few multilateral instruments to contain substantive standards on investment protection.32 Part III of the treaty covers the promotion and protection of investments in the energy sector which is defined to include the ‘exploration, extraction, refining, production, storage, land, transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products.’33 Another prominent example is the Cotonou Agreement which was concluded on 23 June 2000 between the European Community and its Member States on the one hand, and those countries which constitute the Group of African, Caribbean and Pacific (ACP) States on the other hand.34 Article 78(1) of the Cotonou Agreement explicitly provides that:

‘The ACP States and the Community and its Member States, within the scope of their respective competencies, affirm the need to promote and protect either Party’s investments on their respective territories, and in this context affirm the importance of concluding, in their mutual interest, investment promotion and protection agreements which could also provide the basis for insurance and guarantee schemes.’

The treaty further calls for the inclusion of general principles on the protection and promotion of investments in the Economic Partnership Agreements that are planned to be negotiated between the European Community, its Member States and the various ACP regional groupings.35 As there are 79 states which are members of the ACP Group, the negotiation of Economic Partnership Agreements could have important implications for the protection of foreign investment.

31 Eg EC Treaty (n 9) arts 57, 59, 60. 32 Energy Charter Treaty (adopted 17 December 1994) 2080 UNTS 100. The Energy Charter Treaty entered into force for the United Kingdom on 16 April 1998, the same day as it entered into force for the European Communities. The treaty was implemented in the United Kingdom through the European Communities (Definition of Treaties) (Energy Charter Treaty) Order 1996, SI 1996/1639. 33 Energy Charter Treaty, art 1(5). 34 Partnership Agreement between the Members of the African, Caribbean and Pacific Group of States of the one Part, and the European Community and its Member States of the other Part (Cotonou Agreement) (adopted 23 June 2000) UKTS No 24 (2003). This treaty was implemented in the UK through the European Communities (Definition of Treaties) (Partnership Agreement between the Members of the African, Caribbean and Pacific Group of States and the European Community and its Member States (The Cotonou Agreement)) Order 2001, SI 2001/3935. 35 Cotonou Agreement (n 34) art 78(3). One of the first such Economic Partnership Agreements is the EU-‐CARICOM Economic Partnership Agreement. It contains basic investment provisions in Part II, Title II. The text of the Agreement is available on the European Commission website <http://trade.ec.europa.eu/doclib/docs/2008/february/tradoc_137971.pdf> accessed 1 July 2009.

All of these treaties containing investment provisions have been concluded under the current division of competence between the European Community and its Member States. If the Lisbon Treaty36 finally enters into force, it will further consolidate the role of the European Community in the protection of foreign investment with third states. Article 207(1) of the treaty provides that:

‘The common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalisation, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies.’ (emphasis added)

However, the precise scope of this mandate is unclear and it is arguable that it does not cover all foreign investment matters. On this basis, Eilmansberger argues that ‘while it is possible that this new competence will be used by the EU to negotiate and conclude pure investment treaties for the first time, it is highly improbable that it will conclude such agreements on its own.’37 On this basis, it follows that there will probably still be a role for Member States in the conclusion of treaties for the protection and promotion of investment.

2. General standards of treatment of foreign investment/investors Introduction BITs concluded by the United Kingdom follow most other nations’ BITs in providing for general standards of treatment for investors and investments. Such standards of treatment can generally be divided into two categories: non-‐discrimination standards and minimum standards of treatment. Non-‐discrimination standards The majority of BITs concluded by the United Kingdom follow the UK Model BIT in providing for both most-‐favoured nation (MFN) treatment and national treatment within the territory of the contracting parties.38 In this regard, Article 3 of the UK Model BIT provides:39

‘(1) Neither Contracting Party shall in its territory subject investments or returns

36 The Treaty of Lisbon amending the Treaty Establishing the European Union and the Treaty Establishing the European Community (Lisbon Treaty) (adopted 13 December 2007) Command Paper Cm 7294. 37 See T Eilmansberger ‘Bilateral Investment Treaties and EU Law’ (n 30) 395. 38 One exception is the UK-‐USSR BIT which provides for MFN treatment for investments and investors but which only requires the contracting parties to accord national treatment ‘to the extent possible’ and ‘in accordance with its laws and regulations’; Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Union of Soviet Socialist Republics for the Promotion and Protection of Investments (UK – USSR BIT) (adopted 8 April 1989) 1670 UNTS 28, art 2. 39 UK Model BIT (n 7) art 3.

of nationals or companies of the other Contracting Party to treatment less favourable than that which it accords to investments or returns of its own nationals or companies or any third State. (2) Neither Contracting Party shall in its territory subject nationals or companies of the other Contracting Party, as regards their management, maintenance, use, enjoyment or disposal of their investments, to treatment less favourable than that which it accords to its own nationals or companies of any third State.’

In theory, these standards are intended to create a level playing field for investors of all nations, under the protection of a BIT. What both paragraphs of this provision have in common is that they are restricted to the post-‐establishment phase of an investment and they cannot be relied on to claim a right to entry or establishment.40 In this regards, the United Kingdom follows other European nations in not extending protection to the pre-‐establishment phase of an investment; they can be contrasted to United States, Canadian, or Japanese BITs, which specifically cover market access or pre-‐establishment rights.41 The MFN provision nevertheless is broad enough to cover both substantive and procedural protections in the post-‐establishment phase. This was confirmed in RosInvest Co Ltd v Russian Federation where the arbitral tribunal held that the MFN clause in Article 3 of the UK-‐USSR BIT covered arbitration provisions, as well as substantive standards of treatment.42 The dispute centred around certain actions taken by the Russian authorities which RosInvest Co Ltd claimed had completely devalued its shares held in the Yukos Oil Corporation, resulting in its expropriation. A problem for the investor was that Article 8 of the UK-‐USSR BIT unambiguously excludes expropriatory issues from the jurisdiction of an arbitral tribunal established under the treaty. Yet, Article 3 of the UK – USSR BIT provides:

‘(1) Neither Contracting Party shall in its territory subject investments or returns of nationals or companies of the other Contracting Party to treatment less favourable than that which it accords to investments or returns of any third State. (2) Neither Contracting Party shall in its territory subject investors of the other Contracting Party, as regards their management, maintenance, use, enjoyment or disposal of their investments, to treatment less favourable than that which it accords to investors of any third State.’

Rosinvest Co Ltd thus invoked this provision to import the wording of the arbitration 40 See generally J Kurtz ‘The Delicate Extension of the Most-‐Favoured-‐Nation Treatment to Foreign Investors: Maffezini v Kingdom of Spain’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (Cameron May, London 2004). 41 Generally see R Dolzer and C Schreuer Principles of International Investment Law (Oxford University Press, Oxford 2008) 80-‐82. 42 RosInvest Co UK Ltd v Russian Federation (Award on Jurisdiction October 2007) Arbitration Institute of the Stockholm Chamber of Commerce Case No Arbitration V 079/2005, para 132.

clause in a Denmark-‐Russia BIT in order to allow it to submit the issues arising from the expropriation to arbitration. The arbitral tribunal first rejected the argument that treatment within the meaning of Article 3(1) of the UK-‐USSR BIT included protection by an arbitration clause. It reasoned that ‘while protection of an arbitration clause covering expropriation is indeed a highly relevant aspect of [expropriatory treatment] … it does not directly affect the “investment”, but rather the procedural rights of the “investor”.’43 However, the tribunal went on to find that protection by an arbitration clause could fall within the meaning of Article 3(2) of the UK-‐USSR BIT:

‘… it is difficult to doubt that an expropriation interferes with the investor’s use and enjoyment of the investment, and that the submission to arbitration forms a highly relevant part of the corresponding protection for the investor by granting him, in case of interference with his “use” or “enjoyment”, procedural options of obvious and great significance compared to the sole option of challenging such interference before the domestic courts of the host state.’44

This interpretation of the BIT leads to the extraordinary result that the express exclusion of certain issues from arbitration in Article 8 of the UK-‐USSR BIT can be circumvented by relying on the MFN clause. The tribunal makes clear that its decision is principally based on the particular wording of the UK-‐USSR BIT.45 Nevertheless, given the similarities between this treaty and other BITs concluded by the United Kingdom, this case could potentially set the benchmark for how the MFN standard is interpreted in the future. There are some general exceptions to the MFN standard and national treatment contained in most United Kingdom BITs. Article 7 of the UK Model BIT provides:

‘The provisions of this Agreement relative to the grant of treatment not less favourable than that accorded to the nationals or companies of either Contracting Party or of any third State shall not be construed so as to oblige one Contracting Party to extend to the nationals or companies of the other the benefit of any treatment, preference or privilege resulting from

(a) any existing or future customs union or similar international agreement to

which either or the Contracting Parties is or may become a party, or

(b) any international agreement or arrangement relating wholly or mainly to taxation or any domestic legislation relating wholly or mainly to taxation.’

The first of these exceptions allows the United Kingdom to continue giving preferential treatment to investors of other Member States as a matter of EC law. The second of these exceptions is largely designed to cover double taxation treaties. Similar provisions are found in most United Kingdom BITs. In addition, some specific 43 RosInvest Co UK Ltd v Russian Federation (n 42) para 128. 44 RosInvest Co UK Ltd v Russian Federation (n 42) para 130. 45 RosInvest Co UK Ltd v Russian Federation (n 42) para 137.

BITs concluded by the United Kingdom contain more unusual exceptions. Under the UK-‐Swaziland BIT, the national treatment and MFN provision are not applicable to the ownership of land under.46 The UK-‐Papua New Guinea BIT is one of several United Kingdom BITs which has a clause under the MFN provision saying that ‘special incentives granted by one contracting Party only to its nationals in order to stimulate the creation of local industries are considered compatible with this Article provided they do not substantially impair the investments and activities of nationals and companies of the other Contracting Party in connection with an investment.’47 This provision obviously raises questions about what is meant by ‘substantially impair.’ How this term is interpreted in practice will determine the scope of the exception. The UK-‐Antigua and Barbuda BIT also deviates significantly from the UK Model BIT and the trend of general standards of treatment by providing that ‘...in exceptional circumstances either Contracting Party is entitled in specific cases and on special grounds to give different treatment to the nationals or companies of a third State where there is good reason to justify this.’48 Again, this provision raises serious questions of interpretation, in particular what is meant by the terms ‘special grounds’ and ‘good reason.’ It is arguable that this exception should be interpreted narrowly otherwise it could undermine the object and purpose of the MFN clause. As well as MFN treatment and national treatment standards, Article 2(2) of the UK Model BIT also includes a prohibition on other ‘discriminatory’ measures. This provision is not limited to discrimination on the grounds of nationality and it may cover discrimination on other grounds.49 Following previous arbitral awards in SD Myers v Canada50 and Occidental Exploration and Production Company v Ecuador51, the arbitral tribunal in National Grid PLC v Argentina accepted that the prohibition on non-‐discrimination permitted comparisons to be made between sectors of the economy, whilst warning that ‘the elements that may justify reasonable and objective differentiation are bound to be more numerous in cross-‐sector comparisons and, hence, the discrimination more difficult to establish.’52 46 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kingdom of Swaziland for the Promotion and Protection of Investments (UK-‐Swaziland BIT) (adopted 5 May 1995) 1914 UNTS 18, art 3(3). 47 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Papua New Guinea for the Promotion and Protection of Investments (UK – Papua New Guinea BIT) (adopted 14 May 1981) 1285 UNTS 158 art 3(3). BITs concluded with Jamaica, Guyana, Nigeria, and Tanzania contain analogous language. 48 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Antigua and Barbuda for the Promotion and Protection of Investments (UK – Antigua and Barbuda BIT) (adopted 12 June 1987) 1656 UNTS 96, art 3(3). 49 National Grid PLC v Argentina (Award of 3 November 2008) UNCITRAL Arbitration, para 198. 50 SD Myers Inc v Canada (Partial Award of 13 November 2000) UNCITRAL Arbitration. 51 Occidental Exploration and Production Company v Republic of Ecuador (Award of 1 July 2004) London Court of International Arbitration Case No UN3467. 52 National Grid PLC v Argentina (n 49) para 200.

Minimum standards of protection All BITs concluded by United Kingdom include minimum standards of protection for investments which generally follow Article 2(2) of the UK Model BIT:53

‘investments of nationals or companies of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security.... Neither Contracting Party shall in any way impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments...’

It should be noted from the outset that this provision only applies to investments once they have been made and it does not create pre-‐establishment rights. As a result, the host state could potentially treat an investor in a way which violated these standards during the admission and establishment phase of an investment, providing the right to do so was legal exercised under the host state’s domestic laws. However, once an investment has been made, it is the duty of the contracting parties to treat investors and companies of the other contracting party in accordance with the standards set out in this article. Article 2(2) of the UK Model contains a number of distinct, albeit related, standards which will be analysed separately below. Fair and equitable treatment The first standard to be mentioned in this provision is that of fair and equitable treatment. In recent years, a number of tribunals have considered the interpretation of the fair and equitable treatment standard found in United Kingdom BITs. One of the leading cases in this regard is Biwater Gauff (Tanzania) Ltd v Tanzania. In this case, the arbitral tribunal addressed the question of whether or not Article 2(2) of the UK-‐Tanzania BIT created a standard which was distinct from the international minimum standard found in customary international law. The tribunal took the view that the contracting parties to the BIT had intended to create an autonomous treaty standard.54 In doing so, the tribunal relied upon the argument advanced by Professor Schreuer that ‘[i]f the parties to a treaty want to refer to customary international law, it must be presumed that they will refer to it as such rather than using a different expression.’55 The tribunal went on to distil the fair and equitable treatment standard into three separate components: protection of legitimate expectations, good faith, and transparency, consistency, and non-‐discrimination.56 To support this view, the

53 UK Model BIT (n 7) art 2(2). 54 Biwater Gauff (Tanzania) Ltd v Tanzania (Award of 24 July 2008) ICSID Case No ARB/05/22, para 591. 55 C Schreuer ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) 6 Journal of World Investment and Trade 360. See also FA Mann ‘British Treaties for the Promotion and Protection of Investments’ [1981] BYIL 241, 244. 56 Biwater Gauff (Tanzania) Ltd v Tanzania (n 54) para 602.

tribunal cited a number of arbitral awards in other investment disputes, including Waste Management v Mexico (No. 2)57, Middle East Cement v Egypt58, Saluka v Czech Republic59, Maffezini v Spain60, and CME v Czech Republic61. One effect of relying on the decisions of tribunals in these other cases is to harmonize the interpretation of the fair and equitable treatment standard under the United Kingdom BIT with the interpretation of BITS concluded by other countries. A similar approach to the fair and equitable treatment standard was taken by the arbitral tribunal in the UNCITRAL arbitration in the case of National Grid PLC v Argentina. The tribunal in this case observed that the UK-‐Argentina BIT made no reference to the minimum standard of treatment under international law and decided to interpret the terms ‘fair’ and ‘equitable’ in accordance with their ordinary meaning, as prescribed by Article 31(1) of the Vienna Convention on the Law of Treaties.62 It is likely that future tribunals examining UK BITs will follow these awards and interpret the fair and equitable standard based on the ‘ordinary meaning’ of the terms. However, the inherent ambiguity of the wording means that the substance of the fair and equitable treatment standard may evolve over time.63 Indeed, this approach confers a broad degree of discretion on tribunals to develop the fair and equitable treatment standard. In this regard, it is important to note that one of the latest BITs to be concluded by the United Kingdom deviates significantly from the UK Model BIT on the issue of fair and equitable treatment. In this regard, Article 3(1) of the UK-‐Mexico BIT provides that:64

‘Investments of investors of each Contracting Party shall at all times be accorded treatment in accordance with customary international law, including fair and equitable treatment … in the territory of the other contracting party.’

It is clear from the text of this provision that it is not intended to create an autonomous treaty standard. To avoid any doubt on this point, Article 3(2) confirms that ‘the Contracting Parties do not intend the obligations in paragraph 1 above in respect of fair and equitable treatment … to require treatment in addition to or 57 Waste Management v Mexico (No 2) (Award of 30 April 2004) ICSID Arbitration Case No ARB(AF)/00/3. 58 Middle East Cement v Egypt (Award of 12 April 2002) ICSID Arbitration Case No ARB/99/6. 59 Saluka v Czech Republic (Partial Award of 17 March 2006) UNCITRAL Arbitration. 60 Maffezini v Spain (Award of 13 November 2000) ICSID Arbitration Case No ARB/97/7. 61 CME Czech Republic BV v Czech Republic (Final Award of 14 March 2003) UNCITRAL Arbitration. 62National Grid PLC v Argentina (n 49) para 167. 63 This point was made by the arbitral tribunal in National Grid PLC v Argentina (n 56) para 172: ‘the standards of treatment have gradually evolved over the centuries and that this evolution is “for the most part the outcome of a case by case determination by courts and tribunals.”’ [Quoting the tribunal in Enron v Argentina (Award of 22 May 2007) ICSID Case No. ARB/01/3] 64 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Mexican States for the Promotion and Protection of Investments (UK – Mexico BIT) (adopted 12 May 2006) UKTS No 22 (2007) art 3(1).

beyond that which is required by the customary international law minimum standard of treatment of aliens.’ Moreover, it continues to say that ‘a determination that there has been a breach of this Agreement or of a separate international agreement, does not, in and of itself, establish that there has been a breach of the provisions of this Article.’ The inclusion of an explicit reference to the international minimum standard in the fair and equitable treatment provision of the UK-‐Mexico BIT follows attempts by other states to ensure that this latter standard is not interpreted too broadly by arbitral tribunals.65 However, in light of the dicta of the arbitral tribunal in Biwater Gauff (Tanzania) Ltd v Tanzania that ‘the actual content of the treaty standard of fair and equitable treatment is not materially different from the content of the minimum standard of treatment in customary international law’66, it must be wondered whether this development in the UK – Mexico BIT will make a significant difference to the scope of the protection offered. Unreasonableness Article 2(2) of the UK Model BIT also contains a prohibition on the use of unreasonable measures which may impair the management, maintenance, use, enjoyment or disposal of investments. Although this standard is included in a separate sentence, it largely overlaps with the protection offered by the fair and equitable treatment standard and the two can in most cases be treated as synonymous.67 Full protection and security Distinct from fair and equitable treatment is the obligation to provide full protection and security. Whilst there is an overlap between the two standards, the latter is usually analysed separately by arbitral tribunals and it is possible to imagine conduct which is both fair and equitable but which nevertheless fails to promote the full protection and security of an investment. The full protection and security standard has been held to imply a duty of due diligence which requires contracting parties to take precautionary measures to protect investments in its territory.68 Whilst traditionally this standard has been invoked in situations involving physical threats to the security of investors, it is not necessarily so limited.69 As explained by the arbitral tribunal in Biwater Gauff v Tanzania:70

‘When the terms “protection” and “security” are qualified by “full”, the content of the standard may extend to matters other than physical security. It implies a

65 See UNCTAD ‘Bilateral Investment Treaties 1995-‐2006: Trends in Investment Rulemaking’ (February 2007) UNCTAD/ITE/IIT/2006/5, 32-‐33. 66 Biwater Gauff (Tanzania) Ltd v Tanzania (n 54) para 592. A similar conclusion was reached by the arbitral tribunal in Pope and Talbot v Canada (Award in respect of Damages of 31 May 2002) UNCITRAL Arbitration, paras 55-‐66. 67 See comments of the arbitral tribunal in Biwater Gauff (Tanzania) Ltd v Tanzania (n 54) para 692 [Adopting an interpretation put forward by the tribunal in Saluka v Czech Republic (n 59)] 68 Biwater Gauff (Tanzania) Ltd v Tanzania (n 54) paras 724-‐725. 69 National Grid PLC v Argentina (n 49) para 187. 70 Biwater Gauff (Tanzania) Ltd v Tanzania (n 54) para 729.

State’s guarantee of stability in a secure environment, both physical, commercial and legal. It would in the Arbitral Tribunal’s view be unduly artificial to confine the notion of “full security” only to one aspect of security, particularly in light of the use of this term in a BIT, directed at the protection of commercial and financial investments.’

A similarly broad interpretation was adopted by the arbitral tribunal in National Grid v Argentina even though Article 2(2) of the UK-‐Argentina BIT only made reference to ‘protection and constant security’ and not ‘full protection and security.’71 This linguistic difference did not affect the scope of the protection offered by the BIT. In that case, the decision of the Argentine government to change the regulatory framework applicable to the investment of National Grid was held to be contrary to the obligation to promote the protection and constant security of the investment in accordance with the BIT.72 Umbrella Clause The UK Model BIT also includes a so-‐called umbrella clause in the last sentence of Article 2(2):

‘… Each Contracting Party shall observe any obligation it may have entered into with regard to investments of national or companies of the other Contracting Party.’

This provision is broadly worded so that it could potentially cover all types of obligations, both contractual and otherwise.73 However, the umbrella clause in United Kingdom BITs has not yet been the subject of a decision by an arbitral tribunal and it remains to be seen how widely it will interpreted.74 This is another issue on which there has been a change in the practice of the United Kingdom when concluding more recent BITs. In UK – Mexico BIT, it is notable that there is no umbrella clause at all.75 3. Admission/entry requirements As noted above, it is the general practice of the United Kingdom in negotiating BITs to limit the protections offered to investors to the post-‐establishment phase of the

71 National Grid PLC v Argentina (n 49) para 189. 72 National Grid PLC v Argentina (n 49) para 189. 73 See eg Société Générale de Surveillance SA v Pakistan (Decision of the Tribunal on Objections to Jurisdiction of 6 August 2003) ICSID Arbitration Case No ARB/01/13, para 166: ‘The “commitments” the observance of which a Contracting Party must “constantly guarantee” are not limited to contractual commitments. The commitments referred to may be embedded in, e.g. the municipal legislative or administrative or other unilateral measures of a Contracting Party.’ Cf OECD ‘Interpretation of the Umbrella Clause in Investment Agreements’ (October 2006) Working Papers on International Investment Number 2006/3, 10-‐11. 74 The arbitral tribunal in National Grid PLC v Argentina found that the claim under the umbrella clause was inadmissible; National Grid PLC v Argentina (n 49) para 204. 75 UK – Mexico BIT (n 64).

investment. One of the few treaty obligations to apply to the pre-‐establishment phase of an investment is Article 2(1) of the UK Model BIT which provides that ‘each Contracting Party shall encourage and create favourable conditions for nationals or companies of nationals to invest capital in its territory, and, subject to its right to exercise powers conferred by its laws, shall admit such capital.’ However, the language of this obligation is only aspirational in nature and it falls far short of establishing an enforceable right of entry for foreign investors. A novel approach to the admission of investments is taken in the most recent BIT to be concluded by the United Kingdom. Article 2(1) of the UK-‐Mexico BIT provides that ‘each Contracting Party shall admit investments in accordance with its laws and regulations.’ Although this provision is drafted as an obligation, it still does not create any independent right of entry or establishment other than those which otherwise exist in the national law of the contracting parties. The UK-‐Mexico BIT also seeks to promote investment by requiring the two contracting parties to exchange certain information on investment opportunities, laws and regulations affecting investments, and investment statistics.76 Despite its hesitant approach to the admission of investments in its BITs, the United Kingdom has a fairly liberal approach to the admission of foreign investments which is largely based upon a system of registration rather than authorisation. There is nothing to prevent a foreign national from setting up a company in the United Kingdom provided that the relevant statutory requirements are complied with.77 Alternatively, a foreign company may carry on business in the United Kingdom as an establishment by either opening a place of business or a branch. Part 34 of the Companies Act 2006 allows the Secretary of State to make various regulations relating to the operation of overseas companies in the United Kingdom.78 Under the regulations produced by the Secretary of State, an overseas company that opens a UK establishment must deliver a return to the registry which contains particulars of the company, such as name, legal form, as well as particulars of its establishment in the United Kingdom.79 In addition, the return must include a copy of the company’s constitution and copies of accounting documents.80 Failure to comply with these requirements is a criminal offence.81 Whereas there is no general system of authorisation for the making of foreign

76 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Mexican States for the Promotion and Protection of Investments (UK – Mexico BIT) (adopted 12 May 2006) UKTS No 22 (2007) art 2(2). 77 See the Companies Act 2006. 78 See in particular, the Overseas Companies Regulations 2009 SI 2009/1801; the Overseas Companies (Execution of Documents and Registration of Charges) regulations 2009 SI 2009/1917; the Registrar of Companies (Fees) (Companies, Overseas Companies and Limited Liability Partnerships) Regulations 2009 SI 2009/2102. All in force from 1 October 2009. 79 The Overseas Companies Regulations 2009 SI 2009/1801 regs 4-‐7. See also the Registrar of Companies (Fees) (Companies, Overseas Companies and Limited Liability Partnerships) Regulations 2009 SI 2009/2101. 80 The Overseas Companies Regulations 2009 (n 79) regs 8-‐9. 81 The Overseas Companies Regulations 2009 (n 79) reg 11.

investments, the United Kingdom government does possess some statutory powers to block acquisitions of companies by foreign investors in certain circumstances. Under the Industry Act 1975, the Secretary of State has a power to prohibit the change of control of an important manufacturing undertaking or any act which may lead to such a change in control, where it appears to the Secretary of State that the change of control would be contrary to the interests of the United Kingdom or contrary to the interests of any substantial part of the United Kingdom.82 Change of control is defined to include the situation where a person not resident in the United Kingdom acquires the whole or part of the relevant undertaking, where a person not resident in the United Kingdom becomes able to exercise or control the exercise of at least 30 per cent of votes in a body corporate carrying out the undertaking, or where a body corporate resident in the United Kingdom but controlled by a person not so resident acquires the whole or part of the undertaking.83 A prohibition order takes immediate effect but it must be laid before Parliament after being made and it shall cease having effect after 28 days unless it is approved by a resolution of each House of Parliament.84 Failure to comply with a prohibition order does not amount to a criminal offence but civil proceedings may be brought in order to enforce compliance with such an order.85 Where the Secretary of State is satisfied that a change of control, whether or not it is subject to a prohibition order, is contrary to the interests of the United Kingdom, the Secretary of State may, with the approval of the Treasury, make a vesting order.86 This type of order allows a percentage of the share capital and loan capital and any assets which are employed in the undertaking to be vested in the Secretary of State or in a nominee. A vesting order is a measure of last resort and this step should only be taken where the national interest cannot be protected in any other way.87 Generally, a vesting order must be approved by a resolution of each House of Parliament before it is made, but a number of exceptions to this rule exist.88 Compensation must also be paid for the acquisition of the capital or assets or the extinguishment or transfer of any rights, liabilities or encumbrances.89 Once made, a vesting order must be notified to all other holders of share capital in that undertaking who have a right to insist that their holdings are also vested in the Secretary of State or the nominee.90 Despite the availability of this broad power to protect certain manufacturing industries which are considered vital to the United Kingdom, it has never been used.91

82 Industry Act 1975 s 13. 83 Industry Act 1975 s 12(2). 84 Industry Act 1975 s 15(1). 85 Industry Act 1975 s 17. 86 Industry Act 1975 s 13(2). 87 Industry Act 1975 s 13(3). 88 Industry Act 1975 s 15(3)-‐(6). 89 Industry Act 1975 s 19. 90 Industry Act 1975 s 14. 91 See United States Government Accountability Office ‘Laws and Policies Regulating Foreign Investment in 10 Countries’ (February 2008) Report to the Honorable Richard Shelby, Ranking

Member, Committee on Banking, Housing, and Urban Affairs, US Senate 100.

Another power to control the acquisition of companies by foreign investors is found in the Enterprise Act 2002. This legislation largely concerns the regulation of mergers to prevent lessening of competition within any market or markets for goods or services in the United Kingdom. However, the 2002 Act also allows the Secretary of State to refer a merger to the Office of Fair Trading on the grounds that the merger raises issues of public interest, including national security and the stability of the financial system.92 Following investigations by the Office of Fair Trading and by the Competition Commission, the Secretary of State may decide whether or not to make an adverse public interest finding. If this is the case, the Secretary of State may take such measures as are specified under the Act.93 This includes the ability to make such provision as the Secretary of State considers appropriate in the interests of national security.94 Finally, the United Kingdom has sought to regulate the control of certain companies which have been privatized through the insertion of particular clauses in a company’s articles of association. One common clause is a limit on the ability of any individual or corporation to control a certain percentage of shares.95 Another common technique is the creation of so-‐called ‘golden shares.’ This mechanism is designed to allow the government, through a person designated as a special shareholder, to continue to control key aspects relating to the operation of the company which will require the consent in writing of the special shareholder. However, the use of these arrangements has been affected by the judgment of the European Court of Justice (ECJ) in European Commission v United Kingdom in which the Court held that the governmental controls found in the articles of association of the British Airports Authority constituted a restriction on the movement of capital in violation of Article 56 of the European Communities Treaty.96 It follows that such arrangements will only be lawful under EC law where they are justified by overriding requirements relating to the general interest. Despite the ECJ judgment, the United Kingdom government continues to use golden shares on grounds of national security, for instance in relation to BAE Systems, Rolls-‐Royce, and other defence related companies.97 4. Investment contracts 92 Enterprise Act 2002 s 42. 93 Enterprise Act 2002 ss 54-‐55. 94 Enterprise Act 2002 Sch 8, para 20. 95 For example, Article 40(1) of the British Airport Authority’s Articles of Association used to provide that ‘the purpose of this article is to prevent any person (other than a Permitted Person) being, or being deemed or appearing to the directors to be, interested in the shares of the Company, which carry (or may in accordance with their terms in certain circumstances carry) the right to more than 15% of the votes which could be cast on any resolution at any general meeting of the Company (whether or not the votes could be cast in relation to all resolutions at all general meetings).’ This was one of the provisions challenged in Case C-‐98/01 European Commission v United Kingdom [2003] ECR I-‐4641; see below. 96 European Commission v United Kingdom (n 95) para 49. 97 See United States Government Accountability Office ‘Laws and Policies Regulating Foreign Investment in 10 Countries’ (n 91) 101-‐102.

There are no requirements over the form of contracts entered into by foreign investors in the United Kingdom. 5. Performance requirements (such as local contents requirement, local

employment requirement, trade balancing requirement, technology transfer requirement)

As the United Kingdom BITs do not tend to confer pre-‐establishment rights on investors, they do not contain provisions on performance requirements. Nevertheless, as a Member of the World Trade Organization, the United Kingdom is prohibited from imposing certain trade-‐related performance requirements on investors.98 6. Tax regime and incentives Generally speaking, a company is liable to corporation tax on its profits if it is resident in the United Kingdom or it is trading in the United Kingdom through a branch or agency.99 In order to avoid double taxation, the United Kingdom utilises a system of tax credits100 whereby ‘the parent company is permitted to set off the taxes paid by its subsidiary in the host state against its tax liability to the home state on its remitted worldwide profits.’101 Such credits are mostly conferred following the conclusion of a double taxation agreement. The United Kingdom has one of the largest network of double taxation agreements, having concluded more than 150 treaties on this topic,102 although not all of these are yet in force. These treaties have been concluded with a wide range of countries, including both developed and developing countries.103 Before they are given effect in domestic law, double taxation treaties must be approved by a resolution of the United Kingdom Parliament.104 In addition to double taxation treaties, the UK also provides unilateral tax credit relief under certain circumstances.105 7. Property rights, expropriation and compensation Expropriation is a right of a sovereign state, permitted under international 98 See WTO Agreement on Trade Related Investment Measures, in WTO The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations (Cambridge University Press, Cambridge 1999) 143-‐146. 99 There are many specialized works on UK tax law; see eg J Tiley Revenue Law (6th edn Hart Publishing, Oxford 2008). 100 See in particular Income and Corporation Taxes Act 1988 s 793. 101 P Muchlinski Multinational Enterprises and the Law (2nd edn Oxford University Press, Oxford 2007) 265. 102 UNCTAD ‘International Investment Rule-‐Making: Stocktaking, Challenges and the Way Forward’ (n 6) 25. 103 For a full list of double taxation agreements entered into by the United Kingdom, see HM Revenue and Customs website <http://www.hmrc.gov.uk/international/treaties1.htm> accessed 3 August 2009. 104 Income and Corporation Taxes Act 1988 s 788(10), as inserted by the Finance Act 2006, s. 176. 105 Income and Corporation Taxes Act 1988 s 790.

investment law.106 It is therefore not surprising that BITs concluded by the United Kingdom generally allow for expropriation or nationalization, as long as the taking is for a ‘public purpose,’ is ‘non-‐discriminatory,’ and is accompanied by ‘prompt, adequate and effective compensation.’107 The UK-‐Mexico BIT, which is the most recent United Kingdom BIT to come into force, adds a requirement for due process of law to the traditional criteria mentioned above.108

The requirement of ‘prompt, adequate and effective compensation’ follows the traditional Hull formula advocated for a number of years by many capital-‐exporting countries.109 The UK Model BIT specifies that ‘such compensation shall amount to the genuine value of the investment expropriated immediately before the expropriation or before the impending expropriation became public knowledge, whichever is earlier’ and it shall include interest at a normal commercial rate.110 Compensation for expropriation may also include consequential losses, such as loss of profits.111 However, the mere fact that an expropriation has taken place does not mean that compensation will always be necessary. In other words, ‘an expropriation may take place by reason of a substantial interference with rights, even if no economic loss is caused thereby, or can be quantified.’112 Thus, in Biwater Gauff (Tanzania) Ltd v Tanzania, the tribunal concluded that the loss suffered by the company had occurred prior to the expropriation and the ‘fair market value’ of the investment at the date of the expropriation was already zero.113 As a consequence, no compensation was payable. The protection of property is also governed by international human rights law. The United Kingdom is a party to the European Convention on Human Rights which contains certain protections for the property of individuals from undue interference by the state.114 According to Article 1 of Protocol 1 to the Convention:

‘Every natural legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure payment of taxes or other contributions or penalties.’

This provision applies both to United Kingdom nationals as well as foreign nationals

106 Libyan American Oil Company (LIAMCO) v Libyan Arab Republic (1981) 20 ILM 1, 121-‐122. 107 UK Model BIT (n 7) art 5. 108 UK – Mexico BIT (n 64) art 7(1). 109 See eg M Sornarajah The International Law on Foreign Investment (2nd edn Cambridge University Press, Cambridge 2004) 437. 110 UK Model BIT, (n 7) art 5(1). 111 Biwater Gauff (Tanzania) Ltd v Tanzania (n 54) para 775. 112 Biwater Gauff (Tanzania) Ltd v Tanzania (n 54) para 781. 113 Biwater Gauff (Tanzania) Ltd v Tanzania (n 54) para 797. 114 European Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights) (adopted 4 November 1950) 213 UNTS 221.

and companies with property in the United Kingdom. It has been broadly interpreted by both national courts and by the European Court of Human Rights.115 Unlike many BITs116, this treaty can be invoked in the United Kingdom courts, although it cannot be used to overturn Acts of the United Kingdom Parliament.117 However, one key difference between the protection of property under the European Convention on Human Rights and the protection offered by BITs relates to the standards of compensation that are available. The European Court of Human Rights has held that ‘Article 1 does not … guarantee a right to full compensation in all circumstances, since legitimate objectives of “public interest” may call for less than reimbursement of the full market value.’118 Indeed, the Court has held that the national authorities will have a wide margin of appreciation in deciding what is appropriate compensation.119 8. Monetary Transfer Most investors would expect to be able to transfer any profits made from their investment back to their home state. The UK Model BIT prescribes that the contracting parties shall guarantee the unrestricted transfer of any investment which falls within the treaty regime and any returns on such investments.120 A similar provision is found in all BITs concluded by the United Kingdom.121 ‘Returns’ is defined in the UK Model BIT as ‘the amounts yielded by an investment and in particular, though not exclusively, includes profit, interest, capital gains, dividends, royalties and fees.’122 This is an open-‐ended definition which is capable of evolution. Nevertheless, in one of the most recent BITs concluded by the United Kingdom, a much more detailed list of transfers covered by the provision is set out:123

(a) Profits, dividends, interests, capital gains, royalty payments, management fees, technical assistance and other fees and amounts derived from the investment;

(b) Proceeds from the sale of all or any part of the investment, or from the partial or complete liquidation of the investment;

(c) Payments arising from the compensation from expropriation; (d) Payments pursuant to the application of provisions relating to the

settlement of disputes; (e) Payments arising from the compensation and losses under Article 6 of this

Agreement.

115 See generally C Ovey and R White Jacobs & White on the European Convention on Human Rights (4th edn Oxford University Press, Oxford 2006) ch 15. 116 See above. 117 Human Rights Act 1998 ss 3, 4, 6. 118 Holy Monasteries v Greece (Judgment of 9 December 1994) (1995) 20 EHRR 1, para 71. 119 Lithgow v United Kingdom (Judgment of 8 July 1986) (1986) 8 EHRR 329, para. 122. 120 UK Model BIT (n 7) art 6. 121 One oddity is the UK – Egypt BIT which only provides for the free transfer of returns from investments, but not the investment itself; UK – Egypt BIT (n 4) art 6. 122 UK Model BIT (n 7) art 1(b). 123 UK – Mexico BIT (n 64) art 8(2).

The UK Model BIT also stipulates that transfers must be made without delay. There is no definition of ‘delay’ in the Model BIT but several instruments concluded by the United Kingdom do specify a maximum time limit within which a transfer must be made. This varies from 60 days124 to three months.125 According to the UK Model BIT, there is also a right to have the transfer made in the currency in which the capital was originally invested.126 It also says that, unless otherwise agreed by the investor, transfers must be made at the rate of exchange on the date of the transfer subject to any exchange regulations in force.127 Whilst most of the BITs concluded by the United Kingdom apply to investments made before or after the entry into force of the treaty, there are some exceptions to the application of the prohibition on the unrestricted transfer of investments and returns. In some cases, a transitional period is permitted.128 In other cases, the agreement expressly excludes the application of the transfer provisions to investments made prior to a certain date. Thus, the BIT between the United Kingdom and Zimbabwe concluded on 1 March 1995 says that investments made in Zimbabwe prior to 1 May 1993 shall be subject to any restrictions on transfers of capital which existed at the time of admission of the investment.129 At the same time, the agreement places an obligation on Zimbabwe to ‘use its best endeavours to reduce and eliminate such restrictions’, although the wording of this provision falls short of creating a strong obligation to do so. There are no general exceptions found in the UK Model BIT which allow the United Kingdom or other contracting parties to impose any restrictions on the transfer of investments or returns. Whilst many of the BITs concluded by the United Kingdom follow this approach, some of the earlier agreements do provide exceptions to the unrestricted transfer of investments and returns. For instance the BIT concluded between the UK and Singapore in 1975 provides for the free transfer of the returns from investments but it is subject to ‘the right of each Contracting Party in exceptional financial or economic circumstances to exercise equitably and good faith powers conferred by its laws.’130 A narrower exception is found in the BIT concluded between the UK and the Philippines which states that the contracting parties shall allow the free transfer of capital and the earnings of its albeit subject to a right to

124 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Honduras for the Promotion and Protection of Investments (UK – Honduras BIT) (adopted 7 December 1993) art 6. 125 UK – Latvia BIT (n 18) art 6. 126 UK Model BIT (n 7) art 6. 127 UK Model BIT (n 7) art 6. 128 UK – Lithuania BIT (n 17) art 6. 129 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Zimbabwe for the Promotion and Protection of Investments (UK – Zimbabwe BIT) (adopted 1 March 1995) art 6(2). 130 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Singapore for the Promotion and Protection of Investments (UK – Singapore BIT) (adopted 22 July 1975) 1018 UNTS 175, art 6.

impose ‘equitably and in good faith such measures as may be necessary to safeguard the integrity and independence of its currency; its external financial position and balance of payments, consistent with its rights and obligations as a member of the International Monetary Fund.’131 Other BITs also limit the exceptions on free transfer of investments and returns to situations of exceptional balance of payments difficulties.132 Many of the BITs which do contain a balance of payments exception to the unrestricted transfer of investments and returns impose certain conditions to the exercise of the exception. For instance, the BIT between the United Kingdom and Mauritius concluded in 1986 provides that such powers must not be used to impede any transfer and it further specifies that, even in cases where there is an exceptional balance of payments difficulty, the transfer of at least 20% of any investment or return shall be guaranteed each year.133 Slight variations on the conditions are found in other early BITs. The BIT between the United Kingdom and Tunisia states that a transfer must take place as soon as possible and at least shall be spread out equitably over a period of not more than five years.134 Another example of time limits on transfer restrictions is found in the BIT between the UK and Argentina which provides that any limitation must not exceed eighteen months in respect of each application to transfer and shall allow the transfer to be made in instalments within that period so that at least fifty per cent of the capital and the returns shall be permitted by the end of the first year.135 One of the latest BITs concluded by the United Kingdom with Mexico does include an explicit balance of payments exception to the unrestricted transfer of investments and returns. Article 8(4) of the treaty provides that ‘in case of serious balance of payments difficulty or of a threat thereof, a Contracting Party may temporarily restrict transfers provided that such a Contracting Party implements measures or a programme in accordance with international standards. These restrictions should be

131 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of the Philippines for the Promotion and Protection of Investments (UK – Philippines BIT) (adopted 3 December 1980) 1218 UNTS 62, art VII. 132 See eg Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Belize for the Promotion and Protection of Investments (UK – Belize BIT) (adopted 30 April 1982) 1294 UNTS 200, art 6; Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and China for the Promotion and Protection of Investments (UK – China BIT) (adopted 15 May 1985) 1462 UNTS 256, art 6. 133 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Mauritius for the Promotion and Protection of Investments (UK – Mauritius BIT) (adopted 20 May 1986) 1505 UNTS 64, art 6; see also UK – China BIT (n 158) art 6(2); UK – Hungary BIT (n 15) art 7(1). 134 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Tunisian Republic for the Promotion and Protection of Investments (UK – Tunisia BIT) (adopted 14 March 1989) 1584 UNTS 164, art 6. The UK – Turkey BIT makes a similar provision subject to a time limit of three years; Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Turkey for the Promotion and Protection of Investments (UK – Turkey BIT) (adopted 15 March 1991) 1972 UNTS 26, art 6. 135 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Argentina for the Promotion and Protection of Investments (UK – Argentina BIT) (adopted 11 December 1990) 1765 UNTS 34, art 6(3). Article 6(4) further provides that the transfer of dividends shall not be restricted at all.

imposed on an equitable, non-‐discriminatory and in good faith basis.’ The provision falls short of imposing any time-‐limits on the use of restrictions, in contrast to some of the other treaties discussed above. In addition, the UK – Mexico BIT also contains a broader list of exceptions which allow a Contracting Party to prevent a transfer in cases of:136

(a) bankruptcy, insolvency, or the protection of rights of creditors; (b) issuing, trading or dealing in securities; (c) criminal or administrative violations; (d) reports of transfers of currency or other monetary instruments; (e) ensuring the satisfaction of judgments in adjudicatory proceedings.

In practice, the variety of treaty language relating to monetary transfer may be irrelevant given that the treatment of ‘the returns of investors’ falls within the scope of the MFN treatment standard.137 This means that investors may be able to claim better standards of treatment than those actually set out in the BIT that is directly applicable to their investment. 9. Dispute settlement Investor-‐state disputes The UK Model BIT provides for investor-‐state dispute settlement in Article 8. International arbitration is available if the dispute has not been settled within three months from the written notification of the claim. The investor and the contracting party concerned may agree to subject the dispute to one of three possible options:

(a) The International Centre for the Settlement of Disputes138; (b) The Court of Arbitration of the International Chamber of Commerce; (c) An international arbitrator or ad hoc arbitration tribunal to be appointed by a

special agreement or establishment under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

If the disputing parties cannot agree on one of these options, the dispute shall be submitted by the investor to UNCITRAL arbitration.139 Investor-‐state dispute settlement is one issue on which the practice of the United Kingdom has varied considerably. Most UK BITs concluded before February 1982 contained a dispute settlement clause which only allowed an investor to submit a dispute to ICSID conciliation or arbitration.140 Since April 1982, practice on this 136 UK – Mexico (n 64) art 8(3). 137 See above. 138 The ICSID Convention entered into force for the United Kingdom on 18 January 1967. Article 8 of the UK Model BIT makes clear that the contracting parties consent to submit any dispute concerning an investment to the Centre. 139 UK Model BIT (n 7) art 8. 140 This is true of BITs concluded with Egypt, Singapore, Indonesia, Jordan, Sri Lanka, Senegal, Bangladesh, Philippines, Malaysia, Papua New Guinea, Paraguay, and Yemen.

matter has varied. Some BITs continued to offer ICSID as an exclusive forum for the settlement of investment disputes141, whereas others substituted ICSID for another exclusive forum for the settlement of disputes. For instance, the UK – Panama BIT, concluded in October 1983, provides that any disputes between a national or company and one of the contracting parties shall be submitted to such procedures that can be agreed, or otherwise to arbitration under UNCITRAL rules.142 Other BITs allow more of a choice. For instance, the UK – Haiti BIT, concluded in March 1985, permitted investors to choose between arbitration through the Court of Arbitration of the International Chamber of Commerce or UNCITRAL arbitration.143 Even after the Model BIT was promulgated in June 1991, there continued to be variety in the way in which investor-‐state dispute settlement was dealt with under the UK BITs. The limitation of dispute settlement options can have important consequences for the investors concerned. There are, of course, procedural differences between the various arbitral mechanisms. In addition, there can also be differences in the scope of jurisdiction conferred upon the arbitral institution. This is particularly true where the only option is ICSID arbitration, as is the case in several BITs concluded by the United Kingdom. As noted by the ICSID Ad Hoc Committee in the recent case of Malaysian Historical Salvors v Malaysia:144

‘Under Article 7 of the [UK – Malaysia BIT], the sole recourse in the event that a legal dispute between the investor and the host State should arise which is not settled by agreement between them through the pursuit of local remedies or otherwise is reference to the International Centre for the Settlement of Investment Disputes. Unlike some other BITs, no third party dispute settlement options are provided in the alternative to ICSID. It follows that, if jurisdiction is found to be absent under the ICSID Convention, the investor is left without international recourse altogether.’

This raises the question of how wide the jurisdiction of an ICSID arbitral tribunal is. This is a controversial issue and the jurisprudence has been described by one commentator as ‘sheer chaos.’145 This is demonstrated if one considers how the question was addressed in the case of Malaysian Historical Salvors v Malaysia decided under the UK – Malaysia BIT. At dispute was the question whether or not the ICSID Convention imposed an additional hurdle for investors to meet before they 141 See eg BITs concluded with Mauritius, Jamaica, Hungary, Benin, and Tunisia. 142 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Panama for the Promotion and Protection of Investments (UK – Panama BIT) (adopted 7 October 1983) 1461 UNTS 142, art 7. The UNCITRAL arbitration rules had been adopted in April 1976 by UNCITRAL and they were noted and recommended later that year by the UN General Assembly; see Arbitration Rules of the United Nations Commission on International Trade Law (15 December 1976) UNGA Resolution 31/98. 143 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Haiti for the Promotion and Protection of Investments (UK – Haiti BIT) 1913 UNTS 3, art 8; see also UK – USSR BIT (n 38) art 8. 144 Malaysian Historical Salvors v Malaysia (Decision on the Application for Annulment of 16 April 2009) ICSID Case ARB/05/10, para 62. 145 S Manciaux ‘The Notion of Investment: New Controversies’ (2009) 10 Journal of World Trade and Investment 443, 444.

could commence arbitral proceedings. The sole arbitrator who originally decided the dispute had taken the view that, as well as showing that there was an ‘investment’ within the definition of the BIT, it was also necessary to show that the objective criterion of an ‘investment’ within the meaning of Article 25(1) of the ICSID Convention had been met.146 The arbitrator found that one of these criteria – the need to demonstrate a substantial contribution to the economic development of the host state – had not been met on the facts of the case and he therefore held that he did not have jurisdiction.147 In doing so, he cited a number of other cases which had taken this approach, including Joy Mining Machinery Ltd v Egypt which was decided under the 1975 UK – Egypt BIT.148 The consequence of this approach is that a dispute over something which would qualify as an investment under the broad definition of that term generally adopted in United Kingdom BITs may nevertheless be excluded from the jurisdiction of an ICSID tribunal, thus preventing the submission of the dispute to arbitration. It is partly for this reason that the award in Malaysian Historical Salvors v Malaysia was annulled by the ICSID Ad Hoc Committee.149 According to the majority of the Ad Hoc Committee, the drafting history of Article 25(1) of the ICSID Convention did not support the creation of an independent definition of investment.150 In support of this conclusion, they cited, inter alia, the award of the arbitral tribunal in Biwater Gauff v Tanzania, a decision rendered under the 1994 UK – Tanzania BIT.151 Rather than relying on an independent concept of investment crafted by arbitrators, the majority took the view that ‘it is [the] bilateral and multilateral treaties [on investment] which today are the engine of ICSID’s effective jurisdiction. To ignore or depreciate the importance of the jurisdiction they bestow upon ICSID, and rather to embroider upon questionable interpretations of the term “investment” as found in Article 25(1) of the Convention, risks crippling the institution.’152 In the context of the particular BIT which was applicable to the case before it, the majority of the Ad Hoc Committee said that:

‘It cannot be accepted that the Governments of Malaysia and the United Kingdom concluded a treaty providing for arbitration of disputes arising under it in respect of investments so comprehensively described, with the intention that the only arbitral recourse provided between a Contracting State and a national of another Contracting State, that of ICSID, could be rendered nugatory by a restrictive definition of a deliberately undefined term of the ICSID Convention, namely, “investment”, as it is found in the provision of Article 25(1).’153

146 Malaysian Historical Salvors v Malaysia (Award on Jurisdiction of 17 May 2007) ICSID Case No ARB/05/10, para 55. See also, prominently, Salini Construtti v Morocco (Decision on Jurisdiction of 23 July 2001) ICSID Case No ARB/00/4, para 44: ‘… jurisdiction depends upon the existence of an investment under the meaning of the Bilateral Investment Treaty as well as that of the [ICSID] Convention…’ [Emphasis added] 147 Malaysian Historical Salvors v Malaysia (n 146) para 143. 148 Joy Mining Machinery Ltd v Egypt (Award on Jurisdiction of 6 August 2004) ICSID Case No ARB/03/11. 149 Malaysian Historical Salvors v Malaysia (n 144). 150 Malaysian Historical Salvors v Malaysia (n 144) paras 69-‐72. 151 Biwater Gauff Ltd v Tanzania (n 54). 152 Malaysian Historical Salvors v Malaysia (n 144) para 73. 153 Malaysian Historical Salvors v Malaysia (n 144) para 62.

If the approach adopted by the majority of the Ad Hoc Committee in this case prevails, the difference between ICSID arbitration and other arbitral institutions is lessened. However, the existence of a strong dissenting opinion by Judge Mohamed Shahabuddeen, means that this issue may be re-‐visited again by future tribunals.154 The latest BIT to be concluded by the United Kingdom with Mexico deviates significantly from previous practice in the sense that investor-‐state dispute settlement is not dealt with in a single article. Rather, a whole chapter of the treaty is dedicated to the subject. It provides a much more detailed account of the process which applies to proceedings against a host state. There are a number of features of the dispute settlement provisions in this BIT which are worthy of note. First, the UK – Mexico BIT includes provisions on what steps have to be taken prior to the initiation of proceedings, i.e. notice of intent and consultation.155 Failure to take these steps will prevent a dispute being submitted to arbitration.156 In addition, the treaty sets a limitation period of three years from the date that the investor first acquired, or should have first acquired, knowledge of the alleged breach and knowledge that the investor had incurred loss or damage.157 Second, under the UK – Mexico BIT, the investor may choose between ICSID arbitration, ICSID Additional Facility arbitration, or arbitration through the Permanent Court of Arbitration Optional Rules for Arbitrating between two Parties of which only one is a State.158 The contracting parties are taken to have consented to all of these options.159 Thus, this is one of the few BITs concluded by the United Kingdom which confer a choice of forum on the foreign investor. Third, the UK – Mexico BIT contains provisions on the arbitral procedure that should be applied. This follows a recent trend in certain BITs towards leaving less scope for arbitral tribunals to decide their own procedure.160 Thus, it specifies that, unless the parties agree otherwise, the arbitral tribunal shall be composed of three arbitrators.161 It also specifies the applicable law.162 A tribunal seized of a dispute under the treaty has the power to order provisional measures pending the final settlement of the dispute.163 State-‐to-‐state disputes

154 Malaysian Historical Salvors v Malaysia (n 144) Dissenting Opinion of Judge Mohamed Shahabuddeen. 155 UK – Mexico BIT (n 64) art 10. 156 UK – Mexico BIT (n 64) art 11(9). 157 UK – Mexico BIT (n 64) art 11(9). 158 UK – Mexico BIT (n 64) art 11(4). 159 UK – Mexico BIT (n 64) art 12. 160 See UNCTAD ‘International Investment Rule-‐Making: Stocktaking, Challenges and the Way Forward’ (n 6) 64. 161 UK – Mexico BIT (n 64) art 13. 162 UK – Mexico BIT (n 64) art 17. 163 UK – Mexico BIT (n 64) art 19.

All BITs concluded by the United Kingdom also contain a provision on state-‐to-‐state dispute settlement. To this end, the UK Model BIT says that disputes between the contracting parties concerning the interpretation or application of the treaty should, if possible, be settled through diplomacy.164 If this is not possible, a dispute may be submitted to arbitration upon the request of either contracting party.165 There is almost no deviation on this issue in BITS concluded by the United Kingdom. Overview of national control mechanisms The legal framework which governs the control of arbitration proceedings and awards varies depending on where in the United Kingdom the arbitration took place. In England and Wales, there is a long history of legislation purporting to place limits on the exercise of arbitration within the jurisdiction. Today, it is principally the Arbitration Act 1996 which applies to arbitrations having their seat in England, Wales or Northern Ireland, including any such arbitration which may take place under a BIT or under an investment contract. As explained by one judge, ‘the object of modern arbitration legislation, starting from at least the 1979 [Arbitration] Act, has been to offer the international community an attractive framework within which to arbitrate in England.’166 Thus, according to the general principles of the Arbitration Act 1996, ‘the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest.’167 In Scotland, in contrast, there is currently no general legislative framework governing the arbitration process.168 However, Scots law does provide that the decisions of arbiters may be subject to challenge under the general principles of judicial review.169 Control of validity of United Kingdom arbitral awards In England, Wales and Northern Ireland, it is the Arbitration Act 1996 which sets out the circumstances in which an arbitral award made in the United Kingdom may be subject to the control of the courts. In general, an arbitral award will be enforceable, by leave of a court, in the same manner as a judgment or order of a court.170 However, there are several grounds on which an arbitral award may be challenged. First, an arbitral award may be challenged on the ground that the tribunal did not

164 UK Model BIT (n 7) art 9(1). 165 UK Model BIT (n 7) art 9(2). 166 Department of Economics, Policy and Development of the City of Moscow and another v Bankers Trust Company and another [2005] QB 207, para 30. 167 Arbitration Act 1996 s 1(b). 168 See the limited provisions of the Arbitration (Scotland) Act 1894. See also the Arbitration (Scotland) Bill introduced to the Scottish Parliament on 29 January 2009; available on the Scottish Parliament website <http://www.scottish.parliament.uk/s3/bills/19-‐Arbitration/index.htm> accessed 30 June 2009. 169 See eg Forbes v Underwood (1886) 13 R 465. 170 Arbitration Act 1996 s 66(1).

have substantive jurisdiction.171 In this case, a party to arbitral proceedings may apply to a court for an order declaring the award on the merits made by the tribunal to be of no effect.172 The court has the power to confirm, vary or set aside the award, in whole or in part.173 In deciding whether or not an arbitral tribunal has exceeded its jurisdiction for the purposes of section 67 of the 1996 Act, the courts will proceed by way of re-‐hearing the matters before the arbitrators.174 Secondly, an arbitral award may be challenged on the basis of serious irregularity affecting the tribunal, the proceedings, or the award.175 Situations which are deemed to have caused serious irregularity are listed in section 68(2) of the Act and they include:

• failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;

• failure by the tribunal to deal with all the issues that were put to it; • uncertainty or ambiguity as to the effect of the award; • the award being obtained by fraud or the award or the way in which it

was procured being contrary to public policy; • failure to comply with the requirements as to the form of the award.

Serious irregularity alone, however, is not enough. It is also necessary to show that the serious irregularity has caused or will cause a substantial injustice to the applicant.176 If this is the case, the courts have the power to remit the award to the arbitral tribunal for reconsideration.177 Where that is inappropriate, the court may set aside the award in whole or in part or declare the award to be of no effect in whole or in part.178 These two grounds of challenge are mandatory provisions which cannot be circumvented by the agreement of the parties.179 One exception is that they do not apply to ICSID arbitrations which have their seat in the United Kingdom.180 There are several procedural aspects relating to an application under the 1996 Act which are worth mentioning. Any applications under the previously described provisions must be made within 28 days of the award.181 In both cases, the decision of the court may only be appealed with the leave of the court.182 More importantly 171 Arbitration Act 1996 s 67. 172 Arbitration Act 1996 s 67(1)(b). 173 Arbitration Act 1996 s 67(3). 174 Czech Republic v European Media Ventures [2007] EWHC 2851, para 13. 175 Arbitration Act 1996 s 68. 176 Arbitration Act 1996 s 68(2). 177 Arbitration Act 1996 s 68(3)(a). 178 Arbitration Act 1996 ss 68(3)(b), (c). 179 Arbitration Act 1996 s 4(1), Sch 1. 180 Arbitration (International Investment Disputes) Act 1966 s 3(2). The only provision of the 1966 Act which does apply to ICSID arbitrations is section 9 which allows a party to apply to a court for an order to suspend proceedings when an arbitration is underway. See The Mayor and Commonalty & Citizens of the City of London v Ashok Sancheti [2008] EWCA Civ 1283. 181 Arbitration Act 1996 s 70(3). 182 Arbitration Act 1996 ss 67(4), 68(4).

for the parties to the arbitral award, proceedings under these provisions of the 1996 Act may take place in private.183 Yet, as noted by Mance LJ in Department of Economics, Policy and Development of the City of Moscow and another v Bankers Trust Company and another, ‘even though the hearing may have been in private, the court should, when preparing and giving judgment bear in mind that any judgment should be given in public, where this can be done without disclosing significant confidential information.’184 This is a matter that must be decided by the judge taking into account all the relevant circumstances. Recognition and enforcement of foreign arbitral awards The 1996 Act also makes provision for the mutual recognition and enforcement of arbitral awards made in the territory of a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.185 Such awards may be enforced by leave of a court.186 Recognition of ‘New York awards’, however, may be refused for the following reasons:187

(a) that a party to the arbitration agreement was (under the law applicable to him) under some incapacity; (b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made; (c) that he was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; (d) that the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration …; (e) that the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country in which the arbitration took place.

In addition, recognition or enforcement of a ‘New York award’ may be refused if ‘the award is in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to recognise or enforce the award.’188 Separate provisions apply to the recognition and enforcement of ICSID awards.189 ICSID awards must be registered under rules and procedures prescribed by the courts.190 The effect of registration is to give the same force to an ICSID award as a

183 CPR 62.10. 184 Department of Economics, Policy and Development of the City of Moscow and another v Bankers Trust Company and another [2005] QB 207, para 39. 185 Arbitration Act 1996 s 101. See also Arbitration Act 1950, Pt 2. 186 Arbitration Act 1996 s 101(2). 187 Arbitration Act 1996 s 103(2). 188 Arbitration Act 1996 s 103(3). See E Brown ‘Illegality and public policy – enforcement of arbitral awards in England: Hillmarton Limited v Omnium de Traitement de de Valorisation SA’ (2000) International Arbitration Law Review 31. 189 Arbitration (International Investment Disputes) Act 1966 s 1. 190 CPR 62.21.

judgment of the High Court.191 However, the execution of an award may be stayed if an application to stay the enforcement of the award has been made under the ICSID Convention.192 No separate challenge to the award can be made in the courts of the United Kingdom. State immunity and arbitration proceedings Section 9(1) of the State Immunity Act 1978 makes clear that where a state has agreed to arbitration, it is not able to invoke the doctrine of state immunity in connection with any proceedings in the courts of the United Kingdom which relate to the arbitration. This section covers both proceedings to challenge the validity of an arbitral award, as well as proceedings relating to the execution of an arbitral award.193 It also applies to both awards rendered in the United Kingdom as well as foreign arbitral awards.194 Nor can the doctrine of non-‐justiciability be invoked to prevent an arbitral award which had been made under a bilateral investment treaty from being challenged in the courts.195 Although arbitration awards against foreign states are in theory enforceable in the United Kingdom196, in practice, many assets held by a state will be subject to sovereign immunity. Section 13(2)(b) of the State Immunity Act 1978 provides that ‘the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale.’ There is an exception for property which is for the time being in use or intended for use for commercial purposes.197 The precise scope of this exception is open to interpretation. In AIG Capital Partners Inc and another v Kazakhstan, it was held that, in accordance with section 14(4) of the 1978 Act, all property of the central bank, whether or not it was a separate entity from the central government, was immune from enforcement proceedings.198 The rationale for this exemption was, according to Aikens J, that ‘it would be difficult, if not impossible, to determine whether a particular asset of a central bank or monetary authority was, at a relevant time, being used or intended for use for sovereign purposes or for commercial purposes.’199 He dismissed arguments that the exception in section 14(4) of the 1978 Act should be construed narrowly in order to protect the rights of the claimant under the European Convention of Human Rights. Although Aikens J accepted that Convention rights were affected by the 1978 Act, he concluded that the interference was legitimate and proportionate.200 10. FDI statistics, policies and authorities

191 Arbitration (International Investment Disputes) Act 1966 s 2. 192 Arbitration (International Investment Disputes) Act 1966 s 2(1). 193 Svenska Petroleum Exploration v Lithuania [2007] QB 886; [2006] EWCA Civ 1529, paras 117-‐119. 194 Svenska Petroleum Exploration v Lithuania (n 193) paras 120-‐121. 195 Republic of Ecuador v Occidental Exploration and Production Company [2006] QB 432; [2006] EWCA Civ 1116. 196 Arbitration Act 1996 ss 66, 101; Arbitration (International Investment Disputes) Act 1966 s 2. 197 State Immunity Act 1978 s 13(4). 198 AIG Capital Partners Inc and another v Kazakhstan [2006] 1 WLR 1420; [2005] EWHC 2239 (Comm). 199 AIG Capital Partners Inc and another v Kazakhstan (n 198) para 58. 200 AIG Capital Partners Inc and another v Kazakhstan (n 198) para 79.

According to figures released in June 2009, foreign direct investment in the United Kingdom rose in the year 2008-‐2009 with 1,744 investment projects locating and expanding in the country.201 This makes the United Kingdom the major beneficiary of foreign direct investment in Europe.202 In addition, the United Kingdom ranked as the third largest recipient of foreign direct investment in the World Investment Report 2008.203 According to this report, foreign direct investment stocks in the United Kingdom amounted to 48.6 per cent of its Gross Domestic Product.204 In total, inward investment to the United Kingdom amounted to $1,347,688 million in 2007, up from $438,631 million in 2000.205 The majority of inward investment into the United Kingdom came from the United States, followed by India, France, Germany, Canada, Japan, Australia, China, Ireland, Switzerland, Italy, and Sweden.206 Software was the largest investment sector in the United Kingdom, followed by advanced engineering, business services, ICT, life sciences, financial services, creative and media services, and environmental technology.207 As well as investment from foreign transnational corporations, the United Kingdom has also attracted significant investment from sovereign wealth funds.208 The promotion of foreign direct investment in the United Kingdom is undertaken principally by UK Trade and Investment.209 UK Trade and Investment operates under the auspices of the Foreign and Commonwealth Office and the Department for Business, Innovation and Skills and it offers advice and information to companies and individuals wishing to invest in the United Kingdom.

201 UK attracts increased foreign investment in 2008-‐09 (Press Release) (Wednesday 17 June 2009) <http://www.newsroom.uktradeinvest.gov.uk/content/news/uk-‐attracts-‐increased-‐foreign-‐investment-‐in-‐2008-‐0.ashx> accessed 10 August 2009. 202See Ernst & Young European Investment Monitor <http://www.eyeim.com/pdf/EIM%202008%20Report%20final.pdf> accessed 22 June 2009. 203 UNCTAD ‘World Investment Report 2008’ (September 2008) UNCTAD/WIR/2008, 215. 204 UNCTAD ‘World Investment Report 2008’ (n 203) 262. 205 UNCTAD ‘World Investment Report 2008’ (n 203) 257. 206 UK Trade and Investment ‘UK Inward Investment Report 2008/2009’ (July 2009) 3. 207 UK Trade and Investment ‘UK Inward Investment Report 2008/2009’ (n 206) 6. 208 UNCTAD ‘World Investment Report 2008’ (n 203) 23. 209 UK Trade and Investment website < https://www.uktradeinvest.gov.uk/index.html> accessed 10 August 2009.

Harrison. Foreign Investment

Documents

malaysian

eastern sugar

ad hoc committee

uk model bit

uk model bit

national grid

national grid

bankers trust